Topic: Economic Devastation - page 56. (Read 504813 times)

How do you know it will happen in our lifetimes?

Because it is "unsustainable"? That was just as true 100 or 200 years ago.

What is the trigger that is certain to burst the dam at this time, and not just prompt pouring more concrete to create a bigger dam?

Normally the interest rates now should be around 10-15%, to massively restructure the economy from a speculator/spender one, to a savings/producer one,

It might hurt and cause a bit of recession, but mixed with regulation elimination and tax decreases, it should work.



However the clock is ticking: http://www.nationaldebtclocks.org/


It's impossible to increase the interest rates anymore due to the amount of debt that has been created by it. So to illlustrate:





The dam is under so big pressure, that if you stop pushing "water" into the dam's left side, then the water will just smash through and the hyperinflation will be so big that alot of catastrophes could happen in the meantime.

If you dont increase interest rates then the dam will eventually crack and hyperinflation will still come.

There is a 500 year financial pressure buildup we are talking about, and in our lifetimes the dam will break!

HYPERINFLATION IS INEVITABLE NOW, NO MATTER WHAT THE CENTRAL BANKS DO, THEY CAN ONLY STALL IT, BUT THEY CANT STOP IT!

Pardon me but isnt that graph having a low term interest rate due to the debt the world holds, and the money printing available.

Currency counterfeiting is an 5000 year business, from the Babylonian treasurer mixing silver coins with nickel, to the Roman coins being mixed with iron and led, to the modern banking scam of just pure toilet paper printing.

I see the interest rates have spiked in the 1100 when massive wars created huge inflation (soldiers paid with scam coins because taxes are never enough to pay the war costs), then its going low now.

REMEMBER THERE WERENT CENTRAL BANKS BEFORE 1664 AD.  , SO THE INTEREST RATES BEFORE THAT WERE GENUINE AND FREE MARKET BASED!

But not because the money printing stopped, but because it's more efficient than ever, and that the keynesian inflation doesnt leak into the economy, rather it gets soaked up by massive derivatives, stock,bond, estate, precious stones, and luxury items bubbles.

BECAUSE OF THAT CENTRAL BANKS CAN EASILY RIG THE INTEREST RATES, IN THEIR MONEY PRINTING SCAM'S FAVOUR.THEY JUST NEED TO BLOW AIR INTO THE BUBBLE, TO AVOID THE AVALANCHE OF INFLATION THAT IS CONTAINED THERE



Of course if this "dam" breaks, you will see hyperinflation, and I don't know but to clean up this shit, you will probably need 10,000% interest rates or bigger.






It's funny that you suddenly agree with me, last time I talked with you you made me look like an idiot, but with little evidence.

I don't think the nuclear winter is probable, as I told in earlier posts, these are the options on the table:

The problem is not leverage. Rather root of the problem has been that capital enslaved labor until (just recently) knowledge became the predominant component of production startup costs.

Think it out[1] and you will see the generative essence of the issues you are raising are all due to the fact that capital enslaved labor and this actually supported (and required![2]) the large collectivization of society.

A couple of quotes that apply to us all. 

As you correctly argue they can go 'positive' over short periods of time but they are fighting against the trend they are not really positive (and increasingly not so) and just pushing forward demand.

Thus your rough model on cursory glance appears to be reasonable. Good point!

You taught me something[1]

[1] And it isn't first time. Remember your astute private argument that collapse in the USA could not come before 2017. That was before we had clarified Armstrong's model on that point.

Kudos on being able to pull that model out of your hat so quickly. That is what an applied math degree can do.

You are arguing that the profit margins from finance will go negative and this will accelerate the trend towards a future knowledge age and the eventual elimination of finance.

Are you making the case that the profit margins will go negative over the near to medium term due to an artificial bubble in finance created by current market conditions? If that is the case then I would agree with you.

Or are you arguing that the profit margins from finance will go negative for the rest of human history? If so than you have yet to make your case to my satisfaction. There will always be a human desire and market to push forward consumption and a potential profit to lenders who can satisfy this demand. Since I have no reason to think that the current bubble in finance will continue indefinitly the profit margins of meeting this demand should eventually turn positive once more.

Perhaps future profits from finance will follow a damped sine wave model?

CoinCube afaics you always repeat the same mistake (same myopia despite your obvious expertise in logic, math, etc). Annealing only occurs at a fine grained level, not at the macro level. Entropy and time are not reversible. That which is more efficient (anneals better) destroys that which doesn't (that which doesn't needs a crutch such as government theft).

I leave it to you to work through how that disproves your statement. Remember debt isn't concerned with performance, only with return of capital.

You can refer to my refutation of your mathematical limit proof for clues.

Once this light bulb goes on, I think you will finally understand that I won all the debates about anarchy vs. top-down governance.

The world is about to undergo a radical change in social organization. We will not be going back. The NWO will fight to survive by any means of totalitarianism. But it will lose, or make the human race extinct (e.g. nuclear winter). There is no middle ground because of the economics I explained recently.

http://www.armstrongeconomics.com/archives/36568





P.S. once the epiphany slams you in the face, you will realize that what we face is much more severe than any hopes you've had for a calm or slow resolution to the current crisis. See this post. You now see Armstrong was correct yet again about October 1 being the start of the BIG BANG global sovereign debt crisis. Don't lose valuable time sitting on the fence. What is your game plan? I think you are crazy if you don't take a $5000 rider on a Bitcoin killer. But I don't need you. I just think you are crazy for not doing it. No need to answer me publicly.

I think the terms are fairly clear and self explanatory.

Fractional reserve banking is summarized here
https://en.wikipedia.org/wiki/Fractional-reserve_banking

Money is a more complex concept but for the purposes of this discussion the traditional and simple definition will suffice.
http://www.merriam-webster.com/dictionary/money

If the act of lending was seperated from the process of money creation pulling demand forward would be constrained by natural market forces. No systemic risk would develop as the cost of borrowing would rise quickly as more people borrowed. Interest rates would be set by the time preference of the market plus a risk premium.

For demand deposits (funds that are available for withdraw at any time) 100% reserve would essentially require banks to hold onto these funds and not lend them out. For these deposits banks would simply to act as a secure storage area and would of course charge a fee for this service.

Financial transactions could be accomidated by non demand deposits where a depositor seeking interest could be paired up with a borrower screened by the bank. Lent funds of this nature would not be available for immediate withdraw but but would be returned to the depositor as the debt was repaid or potentially not returned to the depositor if the borrower defaulted. In this model the depositor is taking the role of an investor in the borrower and assuming risk.

There are legitimate and rational reasons to pull demand forward in certain circumstances . The problem arises when the process of lending is allow to pull demand forward systemically and in the process fraudulently debase the money supply. It is the inherent instability of fractional reserve that leads to the boom and bust cycles. The publics general failure to understand the problem leads naturally to the abandonment of sound money which is incompatable with the underlying fraud.  

CoinCube the only flaw I find in your last post is what minor-transgression points out, that if everyone is loaning money at interest, then the money supply and/or velocity of money must grow compounded.

Thus I say debt demands fractional reserves (booms, busts and dominance by an oligarchy whether it be 100% reserves or not is irrelevant, except that if you can enforce 100% reserves the booms and bust are much more contained).

Debt is pulling demand forward thus creating a vacuum of demand in the future because it proposes to assume that guaranteed production can predict the future. It doesn't anneal.

Sequel to post on Economic Totalitarianism ... re Bank-space.
I'm posting this in Economic Devastation - it seems more relevant here

You keep using that word (fractional reserve banking) I do not think it means what you think it means
(similarly for "money")

As I posted earlier :
http://www.firstrebuttal.com/the-feds-fatal-flaw-a-predictable-end/
"The monetary system enacted in 1913 (and all fiat monetary systems), issuing currency backed by interest bearing indenture, was fatally flawed due to a requirement for its very survival to create an ever-increasing stock of money ..."

The flaw is not so much with the monetary system itself, but in particular, it is the way it is used.
Interest on capital is either a time preference, made good with profit, or interest is a
reward for risk. For example, in banking:

As the Bank of England kindly pointed out, banks lend first and worry about
balancing the books later. In other words, they create endogenous credit.

I'm going to throw out some numbers here, feel free to correct me where I'm wrong.
I'm also going to ignore derivative products, and keep things simple.

Bank A is levered 30:1 has 15% ROI, Equity = 3%
Bank B is levered 25:1 has 12.5% ROI, Equity = 4%
Bank C is levered 20:1 has 10% ROI, Equity = 5%
Bank D is levered 10:1 has 5% ROI, Equity = 10%

If bank liabilities are 400, total equity is 22. 

Each banks assets are 30% bank loans, 30% mortgage loans, 30% commercial lending, the remainder are
deposits or other government backed paper. What can go wrong?

Mortgage fraud is endemic, causing 10% losses, and this pushes up commercial losses to 10%,
unlikely (even 3% is enough), but I'm keeping things simple.

Initially, as things progress, only Bank A is insolvent.

If Bank A goes into bankruptcy, Banks B and C become insolvent. Bank D has problems
with liquidity. The financial system locks up because nobody trusts anybody anymore.
If these banks are in Unicornland, Banks A, B, and C throw up their hands and declare
themselvs bankrupt, the government seizes them and puts them through receivership, and
in the process the "Money" supply shrinks by ten precent, balancing risk and reward.
Bank D now has a monopoly, but is levered 30:1, is split into four banks, and the game continues.

Where capital gains interest at risk, losses limit the increases in credit.

Anyone want to set out what would happen in the real world? Anyone?

BldSwtTrs I have addressed your queries below. In the interest of clarity and brevity I have reordered and condensed some of them.  I suspect we are going to agree on very little but I will point out where I believe your reasoning to be flawed.  


Fractional reserve banking is theft and not understanding this appears to be a fundamental misconception on your part. There is a strong market demand for liquidity and fractional reserve banking has profitably exploited this demand worldwide. However, the relevant question is what competitive advantage allows fractional reserve institutions to so thoroughly dominate the market for liquidity.

Fractional reserve wins the competition for one simple reason. It has lower costs. A lender participating in fractional reserve is able to lend money they do not have. They do this by promising their depositors that funds can be withdrawn anytime on demand while simultaneously lending those very same funds to the broader market. By creating multiple and therefore fraudulent claims on each unit of currency a bank is able to meet the market demand for liquidity at a lower cost than competing methods of finance.
  
In any other industry making promises you cannot keep would be considered fraud. In this particular instance fraud is very profitable so multiple quaint but false justifications have been developed to defend it.

Central banks arise naturally due to the instability created by fractional reserve banking. Fractional reserve banks are prone to failure. Everything is fine until enough people start to call in outstanding claims. Bank runs naturally arise from fractional reserve and a devastated public demands action making central banks an easy sell to an angry public.
 
This is not rocket science and economist used to understand this. Shortly after the last wave of massive bank failures in the great depression a number of influential economists recommended the Chicago Plan. It was ignored in favor of massive government subsidy of banks via FDIC.

Chicago Plan
The Chicago plan was a collection of banking reforms suggested by University of Chicago economists in the wake of the Great Depression. A six-page memorandum on banking reform was given limited and confidential distribution to about 40 individuals on March 16, 1933. The plan was supported by such notable economists as Irving Fisher, Frank H. Knight, Lloyd W. Mints, Henry Schultz, Henry C. Simons, Garfield V. Cox, Aaron Director, Paul H. Douglas, and Albert G. Hart. Suggested reforms included the abolition of the fractional reserve system and imposition of 100% reserves on demand deposits.


Central banking arises naturally from the economic booms, busts and bank runs inherent in fractional reserve economics. It should not be looked at as fundamentally separate from fractional reserve but as logical growth of a fraudulent business. Much like the mob benefits from taking over the police fractional reserve banks benefit from central banking.


If you are arguing that oligarchy with fractional reserve banking is better than communism you will find no argument here.


You are focusing on mutual obligations and creating an overly simplistic model. You appear to be envisioning a simplistic flow scenario such as Sally owes John $100 who owes Tom $100 who in turn owes Sally $100. Yes there is likely some overall debt that could be satisfied in this manner. However, this is a very small portion of total debt. I suggest you read this article on why it is mathematically impossible to pay off the national debt.

http://www.zerohedge.com/news/2015-05-22/it-mathematically-impossible-pay-all-our-debt

Our current system of coining money creates principle without creating the interest this results first in the financial impoverishment of
the masses and later the impoverishment of governments.  


On the contrary I think I have accurately described the role of finance in today’s economy. I am less certain that it will be harmful in the long run. Modern finance seems to be progressively undermining the nation state and driving political consolidation across national borders. Perhaps this will allow us to more quickly transition to something better. I certainly would not defend the track record of the nation state and strong government. A close look at WWI and WWII would disabuse any rational observer of that notion.      

The poor are those who don't join the Knowledge Age. The upside is so high and the cost-of-entry is so low and declining always, that they launch into the Knowledge Age within 5 days of having laptops dropped into an area where the kids are illiterate.

http://www.technologyreview.com/news/506466/given-tablets-but-no-teachers-ethiopian-children-teach-themselves/


Now please, please, please stop wasting our time.

It's not because the risk/reward ratio is favorable that there is no risk.

And if someone doesn't care about failure in an entrepreneurial endeavour, it's because he has already some comfort (ie. has a survival surplus), or has other income streams or know he can quickly obtain new ones.
But someone who is poor and/or unemployed with no income stream will care a lot about failure since he has not surplus to begin with. So if you are talking about wealthy individuals (or the best in their domain with highly marketable skills), sure they will not care about failure, but basically everyone else will care about failure.

There is no risk in fine grained innovation. The unpredictability is subsumed by the upside (opportunity cost!) and the lack of impact on an individual's surplus in survival goods:

http://www.catb.org/esr/writings/magic-cauldron/magic-cauldron-2.html

You are extrapolating beyond the utility of finance and trying to apply it to where it no longer is relevant. It is because you have not looked at the composition, you just blindly apply some top-level concept where it is inapplicable.

Stop your nonsense posting.

(you entirely missed the entire point of my seminal essay in the opening post! and you go on and on ignoring the key point I have clarified to you now several times!)

You think finance exists because of predictability whereas finance exists because of unpredictability.

More unpredictability = more finance.
Innovation requires failure.

You cannot innovate if you don't take the risk to fail. Knowledge formation is done by trial and error.

You cannot not innovate if you are not ready to fail. That's why finance will be needed in the future, because it's protect individuals against risks tie to the innovation process.

Fractional reserves don't exist without debt. Debt doesn't exist without the ability to predict the future. Innovation can't be predicted.

Thus fractional reserves require failure. This failure can either be dealt with frequent bank runs (and short-lived economic depressions) of the 1800s which eventually metastasized to JP Morgan bailing out the USA banking system and the formation of a regionally autonomous Federal Reserve system to buy corporate paper. Which metastasized to a centralized Fed which can do what ever the fuck it wants to do.

The Knowledge Age will destroy debt formation because finely grained innovation and the maximum division-of-labor can't be financed (predicted). The debt-based NWO world will spiral off into eugenics once it can't expropriate from the Knowledge Age.

Burn your finance degree. It will become useless.

CoinCube, I have read your three posts about fractional reserves.

*I think you are making a mistake when you say that there is not enough money to repay the existing debt plus the interests. The way you wrote it, it seems as if it was one of Ludwig von Mises idea. I would be really surpise if he wrote something like that. Did he really write that?

Debt is a stock and money is a flow. One bank note can be used to pay a lot of debt, it just needs to circulate.

We can even imagine an economy where debt and interests are repaid without money. Let's assume we are both alone one an island. I borrow from you the equivalent of 100$ of fish, you tell me that I now owe you the equivalent of 110$ because of the interests.
Then we both agree to asses the value of my work at 10$ an hour. So some time after, I work for you during 11 hours and... boom, I have redeem my debt. How beautiful is that?


**I know pretty well the Austrian Business Cylcle Theory and I don't think it's the main cause of the booms and busts like you seem to think. I think boom and bust might indeed be partially caused by the distortion of the money price, itself caused by fractional reserve and central banking, but it's only one part of the problem (and the main culprit is not fractional reserve but central banking - see the next point). Without fractional banks and central banks there would still be booms and busts because there are basically caused by human psychology and the way knowledge acquisition works.

***You are describing a system where a Central Bank exists. That system is fucked up, we agree. But you don't explain why fractional reserve without central bank would sucks.

Without a central bank, banking become basically like any business. A bank provides what the market wants: liquidity. Central banking fucked up the market because it basically subsidy the offer of liquidity.
But without central bank, the offer of liquidity depend on the demand of liquidity, like any other market (and there would still have boom and bust of weaker intensity, because a free market operates by trial and error, as knowledge acquisition does - see the point before).

****You are saying that fractional reserves kill the midde class. Why in such country as China -where fractional banking exists- the middle class is expanding fast?


In conclusion, you have read Rothbard, he is against fractional banking so you probably have been influence by him. It's all well and good BUT Rothbard demonstratation is completly false on that point. He wrongly thinks fractional reserves are a steal. All his hostility comes from the fact that he mixes up of a free market operation and a steal. Hayek, which is way clever, is not against fractional banking. He understood the root of the problem is central banking (to be precise, the monopoly of central banks).

And on a more broader note, I think you are overestimating A LOT the role of finance in the world's woes, and are underestimating the role of governments (you almost describe them as victim of the evil finance) and human psychology.

I will come back to the topic of knowledge and finance later when I have more time, for now I just wanted to react on your posts on that subject. It will probably help us to move forward with the initial discussion.