Topic: Divide, Conquer, Enslave (Read 2321 times)

1) Nonsense. That banks should have been left alone to go into administration and then plucked out by the government and fixed without bailouts. Bad debts would have been dissolved in administration.

ftfy

I don't think you'll get too much argument on this forum about the perils of FRB Coincube - although recession can be, and has been in the past, caused by other factors.


There were two things I took from the Pickety review by Paul Mason :- 1) gross inequality is the inevitable outcome of capitalism - whenever gross inequality isn't the case it is an aberration rather than the natural order of things    and 2) inherited wealth always trumps wealth accumulated by hard work.
    The 2nd point is one I've banged on about myself before several times on this forum. There have been many studies done to illustrate the US's appalling record on social mobility - please google it. The US (and the UK) is not the land of the free at all. Generally speaking, you don't achieve in the US according to your merit - rather your position at birth. A working class hero is something to be  .

   Whats the upshot of all this ? Well for one thing, to my eyes at least, it makes the argument for redistributive taxation (at the very least) much more compelling .


He doesn't owe anything to Rifkins (and others (Benkler et al)) work then ? It has to be said also that he does Rifkin a disservice.

 Try telling that to the Chinese   - the economic success story of the last quarter century surely ?


Well if you are suggesting we outlaw FRB then I don't think you'll find many detractors here Coincube. I must say, it seems to me that tighter regulation won't do the job and has been proven to have failed us already.


  My solution personally would be :-

     1) in an ideal world, instead of the UK taxpayer bailing out TBTF banks, the Government should have nationalised the banks and had them work in the interests of the UK population. This would have achieved the outlawing of FRB anyhow, which I feel you are in favour of. Instead, we nationalised the losses and left the profits and control in private hands.

     2) Bitcoin  

Excellent article. I look forward to reading part IV.

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@ CoinCube and Anonymint

Most excellent link re knowledge and capital, I do not want to comment yet until I read it in full (tomorrow), but it looks to have at least a lot of truth.  I just emailed it to myself for safekeeping.

Our bearing import business in Peru uses a lot of knowledge that in part is NOT shared, it's proprietary, and we make more money if our competitors do not know some things...  I understand that this may not be in synch with the link provided.

But, I also see that shared knowledge can be beneficial to the one who shares.  If, for example, I decide to write an introductory article for my local newspaper about Bitcoin, then I would become on of my town's top experts on it, and could consult, smile,,,

From the review of Piketty's book it does seem that he has identified a major part of the problem. He has captured the fact that the middle class cannot get ahead in the current economic environment. Note the critical reason he cited as to why this is the case. Piketty's states that the cause is the fact that we live in an economy where the rate of return on capital outstrips the rate of growth this is the premise from which all his conclusions follow. How does the rate of return on capital outstrip the rate of growth? It can only do so through finance, fractional reserve, and debasement of the currency via government debt.

Piketty's solution of taxes is flawed just as Marx's solution of communism was flawed. Raising taxes just changes the victim from the less productive to the more productive while increasing the power and influence of the thief. Increased taxes buys you a little social stability for a very short period of time while worsening the underlying structural problem in the economy. Our economic problem is fundamentally structural. We are living on borrowed time in a system that is neither sustainable or salvageable without dramatic change. The only question is whether it is going to horrifically collapse or if we can somehow manage to transition to something better. Cryptocurrency is the best hope I have seen of the latter.  

In regards to Anonymint, his theory on the gradual decline of capital and the Rise of Knowledge is an important insight and one I feel is correct. This insight is to the best of my knowledge unique and not an idea of Mr. Armstrong. He also get credit for inspiring me to write this series. Had I not come across his work I doubt I would have written this series on Finance.


We will definitely see the upper classes get hit hard in the future. This is happening right now to the upper middle class but is hidden for the moment behind debt. It will expand to the lower ranks of the wealthy soon. The wealthy do not only consist of parasitic financial interests they also include entrepreneurs, job creators, and innovators. The financial interests will do just fine under the coming wave of asset confiscation and taxation. They will lose some wealth but relatively their position will improve. It is the productive business people and entrepreneurs who will be hit hardest. Decimating your upper classes,  limiting new business formation, and an ever growing government are not a strategy for long term prosperity.

You are correct that a nontaxable or difficult to tax currency will allow some to hide their ill gotten gains however in all honesty this is a lesser concern. If an alternative is not developed we face inevitable cyclical decline into complete collapse. We will soon be entering a period of extreme wealth confiscation and taxation as governments become insolvent and lose the ability to shelter their populace from the consequences of finance. Eventually this will lead to a backlash against the ever increasing collectivism, wealth confiscation, and taxation. Hopefully, this backlash combined with the rise of cryptocurrency will be strong enough to end of fractional reserve while building a stable economic foundation for the future. During the great depression, the leading economists of the day created the Chicago Plan where they advised the government to outlaw fractional reserve banking. The plan failed because it was politically easier to shift the debt and cost onto the government. During the next great depression governments will no longer be solvent.

I can see two scenarios that can lead to hyperinflation.

1) As mentioned a more stable currency regime arises that supplants the fiat system. Cryptocurrency has enormous potential here and offers great advantages over a return to a hard money system like gold. In this case best case scenario we might see fiat hyperinflation as cryptocurrency came to dominate the economy.

or

2) We suffer from complete systemic collapse, governments cannot issue bonds and society deteriorates to the point where it also can no longer effectively sieve assets and thus has to start printing to spend money. If things get to this point we pretty much already in a dark age.

Either way I agree in the short and medium term everything points towards deflation. 

  - it would be nice if it did - it was, after all, the upper class that created the debt in the first place - unfortunately "finance" and the upper class are, if not the exact same people, certainly feeding from the same trough.


- it would be nice to see this "sagging" in practice. It did, I believe, occur on the British upper class during the 1920's and 1930's. Unfortunately, today, they have been replaced (after what, a 50 year interlude ?) by a much more robust and resilient upper class via global capitalism. If some people have their way they will become virtually impossible to tax at all.


 Just read an interesting article/review about Thomas Piketty's new book "Capital", written by a well respected English economics journalist Paul Mason. Here it is :- http://www.theguardian.com/books/2014/apr/28/thomas-piketty-capital-surprise-bestseller. What do you think Coincube ? Inherent contradictions within capitalism ? Sounds a bit like Marx doesn't it   ? Sounds to me like Professor Piketty has absolutely hit the nail on the head AND managed to capture the zeitgeist.
   (ps. interesting he mentions the Marikana mining massacre - if that incident had occurred in Zimbabwe the PM would be calling on Parliament to send in the troops - unfortunately it happened in South Africa. The mine there is own by a London listed UK company, Lonmin. The miners were shot for demanding more than what they were getting - namely living conditions that we in the west wouldn't deem worthy of our pet dogs. 34 men dead. Welcome to global capitalism.)



ps. why are you quoting Anonymint in an article on economics   ? Don't you know that he's only paraphrasing Martin Armstrong, and that Armstrong is only paranoid that TPTB are gonna come hunting for his ill gotten gains again  

There has never been and never will be hyperinflation on a global scale. Hyperinflation requires the ability to run from a low-tier currency regime to a more stable currency regime.

That is why global deflation via bezerk G20 coordinated government asset seizure is so dangerous. This leads to a Dark Age and it is very difficult to get out of.

Make sure you understand this point. It is a critical point at this juncture.

http://armstrongeconomics.com/2014/04/28/is-a-crash-inevitable-the-spiral-vortex-of-debt-and-corruption/

Trying to shoehorn the Laffer limit onto personal income tax rates is an incorrect way to characterize the metric. Rather if I remember correctly, the Laffer limit is approximately 18% of the GDP for total taxation of all forms.

The question is when will it collapse in a catastrophic way ? (if it doesn't evolve smoothly into something better).


Some meatspace gold dealers accept bitcoins. If yours doesn't, they shouldn't be hard to convince.

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Nice piece, CoinCube.  

Many of the .gov tricks they are foisting upon us are old tricks, but old tricks are sometimes the best ones...  I too think that they will wait until they try to seize what they can (get away with) until they fire-up the printing presses all the way.  And milking the rich is time-honored.

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It is just about impossible, IMO, for any group of citizens (probably in any country, but I speak of the USA here) to organize to effect a change.  I believe that we are at the point where it is really everyone / every family for himself / themselves.  Virtual communities like this one help some to do just that.  Spreading awareness...

Financial jiu-jitsu is what is now needed.  My favorite moves are to internationalize assets, buy gold (for CA$H until a way to buy gold with BTC is found -- no shipping address...), and Bitcoin itself.

I am pleased to see a knowledgeable and interesting crew over here!  There are relatively few at Zero Hedge who are good with Bitcoin comments, although on the average very good on financial matters.

EDIT:  Ahh, under "Politics & Society", that's why I missed this one...    

Thanks, I had not been aware of this book before. From the summary it sounds like the author was way ahead of the curve on a number of issues. I certainly was not aware of these issues in 2007.

I will have to pick up a copy.

http://www.douglassocialcredit.com/publications_gripofdeath.php

Compelling and thought provoking.  Thanks CoinCube!

Divide, Conquer, Enslave: Finance Part III


Central banking is a resilient institution. Historically there have been many attempts to destroy it but it always grows back stronger then ever.
In Part I and Part II we explored how fractional reserve banking exploits the power of money creation to impoverish the middle class. Today we will see that the upper classes are not immune. They too are eventually decimated by finance.

Fractional reserve leads inevitably to cyclical boom and bust. Our tolerance of this system has profound social and economic consequences. With every rotation of the "business cycle" the  middle class finds it harder to maintain a quality standard of living. As the populace suffers from cyclical but progressive economic strangulation many find they simply cannot get ahead. Intuitively they feel the system is rigged against them but they do not understand how or why. Growing progressively desperate they turn to the only actor willing to help. They petition the government.


Responding to public demand government steps in and tries to halt finance induced crashes. However, government does not simply print money to mitigate the cyclical monetary crunch. True money printing would harm vested financial interests and is taboo. Instead government enters the arena meekly as the sucker borrower of last resort. Once government is ensnared the triumph of finance is complete.  Government debt is paid via taxation and taxation primarily targets the upper class. Thus with the capture of government finance gains the ability to siphon wealth from the upper class.

A time honored strategy in war is divide and conquer. It is easier to subjugate a people who are fighting amongst themselves. Finance and fractional reserve divides the public into two competing blocks of victims. The poor as we have seen become ever poorer with each "business cycle". They  look at the relatively well off and cry Thief! The entrepreneurs and productive increasingly suffer under ever higher tax burdens. They point to government and the welfare recipients and cry Thief!

Government does not handle this conflict well. Unable to decide between competing citizen demands it waffles. It spends to support the poor but does not raise taxes. The result is ever larger government debt. Each attempt by government to buffer the finance induced downturn simply delays the liquidation of middle classes assets by transferring that liability to the government and eventually to the upper classes via increased taxation.  Bailouts are thus a transfer wealth from the productive upper classes to well-connected financial interests. Finance uses the business cycle to harvest the  poor, and bailouts to harvest the rich.

The long-term costs of all this are borne out by the majority of the ill-informed public who are too busy fighting over a myriad useless conservative versus liberal disputes to address the root cause of their suffering. Meanwhile government in its misguided attempt to "help" becomes so indebted that eventually it can no longer service its loans.


Government can and does shield the people from their folly for a time. However, its ability to do so comes to an abrupt end when it reaches the limits of its solvency. Once the solvency threshold is reached  government must choose to either default, cut spending, or raise taxes. The effects of inertia, a population dependent on government benefits, and powerful financial interests will ensure it chooses to raise taxes. Matt Taibbi of Rolling Stone described the most powerful investment bank as a "great vampire squid wrapped around the face of humanity, relentlessly jamming its blood funnel into anything that smells like money." This image neatly  captures the reality of finance today. Feeding the squid just increases its appetite.

Eventually the upper class starts to sag under the weight of ever higher taxation. This slows growth and leads to jobs becoming hard to find. As the economy declines the clamor for ever more government intervention grows louder. The predictable result is more deficit spending more debt and eventually more tax increases. Both conservatives and liberals are complicit as both argue only for their own narrow interests. Conservatives argue for minimal government and low taxes while simultaneously supporting the finance induced vampirism that decimates the middle class. Liberals correctly feel that the deck is stacked against the poor and look to level the playing field via big government and taxation regardless of the damage these policies do. The great beneficiary of this battle between idiots is finance.

Eventually rising taxes will hit the laffer maximum where an increase actually lowers revenue obtained. Various academic studies have placed this rate as somewhere between 40-70%. The French are already taxing high earners at 75%. Once governments hit this maximum they face a stark choice between default, printing money (direct printing not bond issues), or seizing assets. The obvious choice for politicians is to seize assets via some form of wealth tax. Such seizures will become ever more common as governments around the world slide into insolvency. The result will be  progressive deflation not inflation as wealth tries to get off the grid and hide from the taxman and the velocity of money declines.


It is only much later when assets can no longer be effectively seized that government will turn on the printing press. Those in the know will have placed their funds in hard to seize assets prior to this time. The hum of the printing press will signal the start of hyperinflation.

In short fractional reserve is a disease which progressively weakens and consumes its host. Left unchecked it corrupts society driving us to extremes of debt, taxation, and eventual systemic failure. It does thus while masquerading as a natural part of the economy.  It's closest biological parallel is that of metastatic cancer.

Finance Part I: Understanding the Parasite
Finance Part II: The Parasitic Cycle
Finance Part III: Divide, Conquer, Enslave

References:
Shelby Moore III, Understand Everything Fundamentally
http://www.coolpage.com/commentary/economic/shelby/Understand%20Everything%20Fundamentally.html
Matt Taibbi The Great American Bubble Machine, Rolling Stones July 9, 2009
http://www.rollingstone.com/politics/news/the-great-american-bubble-machine-20100405
Ludwig von Mises. Human Action: A Treatise on Economics 1949
http://mises.org/Books/humanaction.pdf