Posted originally on TBP on 27th April 2011 by Reverse Engineer in Economy
Why is it that Sovereign Nations don’t issue their own non-Debt based money, instead of becoming a part of the massive International Banking system based on debt? This is another one of those very tough questions to answer which I believe has its roots back at the very beginning of International banking in the Medici Era (at least for a Modern Era analysis). The goal here in Part II of this series is to make a plausible hypothesis for why this has not ben a viable solution over these centuries, if not all the millenia of the Money Game.
I will start here with a hypothetical country completely disconnected from the rest of the world. Call it Hawaii before Cook arrived. As the first Polynesian Navigator to guide my Catamaran rigged Canoes to the Big Island, I get great Respect from my People who trusted me to Guide them on the Voyage from the Marquesa Islands, and I am unanimously accepted as King on arrival. All those years studying the Stars and memorizing the Constellations and watching Wave patterns really paid off for me. All of Hawaii is MINE! I am SOVEREIGN!
My first act after being declared King by Acclimation is to take on Anna Paquin and Natalie Portman as Concubines, but AFTER that I have to figure out how to administer my new country and distribute out all the assets BESIDES Anna and Natalie.
So next thing I do is to hand off portions of the land to my best buddies to administer, and then after that I have to create some currency for people to use to trade with. There isn’t much Gold or Silver around, but there are a limited number of Macadamia Nuts. They are a good currency because they are small and portable and store well, and unlike Gold you CAN actually eat Macadamia Nuts. However their value is not in the Calorie Content, but rather in their scarcity relative to everything else being produced in Hawaii. They aren’t a debt based instrument, they are based on production already done. If at some point somebody found a way to grow a shitload of Macadamia Nuts the currency would be debased, but as long as the supply remains relatively limited they are a good currency.
Macadamia Nuts function as a great Currency for us in Hawaii until Cook arrives. At this point our Macadamia Nuts only will buy as much of the cool new Metal Knives the Traders on the Tall Ships will take for them. If we want all the STUFF being produced elsewhere, we have to fork over all our Macadamia Nuts for that stuff. Polynesians of the era actually called all the Stuff the traders brought “Cargo”, for obvious reasons. (read Jared Diamond’s Germs, Guns and Steel) You could substitute Gold for the Macadamia Nuts, it does not matter what the commodity is here, the point is that in order to get access to the production of a more advanced society producing such things as Metal Knives, you have to give up your resources to do so. We actually are pretty fortunate to be using Macadamia Nuts which do have some intrinsic value and not be using Cowrie Shells, because the Traders could pick tons of them up off beaches elsewhere.
As we progress along here, in return for our Macadamia Nuts, Pineaapples and anything else we produce in Hawaii, the traders give us in return their Notes, which we can then use to buy Cargo from them. Since we are now exporting all our Macadamia Nuts we don’t have enough of them to use as currency anymore, so now our Goobermint creates its own Notes which are worth some fraction of the value of the Notes the traders give us in return for our produce. We have now become intrinsically CONNECTED to the Global banking system using Notes as our Currency rather than any other abstract item.
Now, if your country happens to be well gifted with Natural Resources to trade for Cargo, the tendency is to basically live off those resources and not Industrialize. A few people at the top of the Pyramid in Hawaii (my Heirs from Anna and Natalie) do very well, but the rest of the population mainly just gets a few Trinkets like Satellite Dishes to put up on their Grass Huts and otherwise lives dirt poor. Read this virtually every Oil Producing nation in the M.E.
Now, if you want to start Industrializing yourself so you can make your own trinkets and start exporting them, you need LOTS of the Notes the traders use to buy the big machines that make trinkets, and they generally cost so much that even years of Macadamia Nut sales are not enough to by them. However, if you have a large population of people willing to work for peanuts, Banksters with lots of Notes will loan them to you so you can build Trinket Factories. They will disassemble complete factories running in Amerika and ship them over to you so you now are the Trinket builder. You of course have to pay lots of Interest on those factories, so actually getting ahead in this game is pretty difficult, although it is accomplished briefly in some places. Of course Hawaii never had a big enough population to make this kind of thing worthwhile, but places like Japan, Korea and China did. This is why large population centers with few resources have evolved into manufacturing centers. Amazingly simple isn’t it? What seems to be a very complicated problem of trade laws and tariffs is not so complicated once you grasp the underlying forces of labor, resource and capital movement. Its not a lot different or more complicated than Water running Downhill actually. I only came to this epiphany very recently though, but to be sure it explains the general movement of Capital through the Capitalist era. If I had figured this out when I was in my teens instead of chasing pussy, smoking dope and doing blackboard contests in the basement of Havermeyer Hall, I’d probably be richer than Soros by now. Water under the bridge though of course, and I ended up rich enough anyhow here from Grandpa the High Steel Walker turned Bootlegger, for as long as the flotsam and jetsam he accumulated retains some value anyhow. LOL.
To return to the topic at hand, over time here the entire world got captured up into this system of Notes run centrally from a few big Banking Houses and Trading companies like the British East India Company, House of Rothschild, JP Morgan et al. Any Sovereign Nation wishing to participate in the Free Trade of Goods and Services had to have their Money tied into the system, valued at some relatively fixed rate against the major currencies the traders used, which after Bretton Woods was the Dollar. Your money can float some on a day to day basis, but it has to hang within a fairly restricted range to remain functional.
At this point it becomes impossible for you to issue Non-Debt based money and use it for international trade, because as soon as you issue it without debt attached, it devalues. So you also now start issuing Bonds at some rate of Interest in order to increase your currency supply, and if you offer a high enough Interest rate on those Bonds then you get George Soros, Jim Rogers, Bill Gross and the rest of the gang flocking to your doorstep to buy them with their Notes. Of course, you better be damn industrious little Beavers to be able to pay off on the interest on those Bonds.
Over time this Web of Debt in Ellen Brown’s terminology has grown ever larger, like a massive Cancer spreading across the face of the earth. In order to be part of the great global game of trading around the Trinkets and Raw Materials to make the Trinkets, you have to be using a Debt based currency the Illuminati can Invest in through your Bonds. You go into Indentured Servitude to the Bond Holders, which is of course why they are called Bonds to begin with.
The Bond Holders of all worldwide debt are the Top of the Ponzi, and in any crash these are the folks that expect to be paid off FIRST. If you have to sell off your Parks and Bridges, lay off all your Sanitation workers and Teachers whatever, you MUST pay the Bond Holders! If you don’t pay off the Bond Holders, its ARMAGEDDON!!!! The Fabulously Wealthy will be impoverished along with all the Pensioners invested with PIMPCO! So everything possible is done to try to keep paying off on the Bonds, or rolling them over into new Bonds, whatever just do not ADMIT that the production is not there to ever pay off on those Bonds!
Now the question is, WTF did the top of the Ponzi Bondholders actually GET the money to loan to you? At some point, it had to be Borrowed into existence with the Central Bank creating the currency. So if you are close enough connected to the center of this, you can Borrow money at very low interest directly from Da Fed to then go and loan at higher interest to somebody else and collect on the spread between those rates. This is bad enough, but the evolution of Derivatives made it even worse, because lots of Banking Houses could create financial instruments like CDS and CDO without ever actually borrowing money from Da Fed to do it. These instruments represent Trillions if not Quadrillions of Dollars of debt obligations that cannot be paid off unless Da Fed goes ahead on a Printing Spree that would make the current one look like a Sunday Picnic.
Needless to say, I don’t think the Political Will is there to do that kind of printing, it would totally destroy the currency and that is not in the interest of the people who hold all the Bonds. The trick here is to keep the House of Cards standing so these instruments do not trip. However, as the debt problem moves up the line to bigger and bigger Sovereigns (next up, Spain and CA), just the amounts necessary to make them nominally solvent is probably beyond the political will of the Banks, and most certainly against the political will of the populations that are forced into Austerity. So at some point here the Ponzi will collapse.
Jesse over on Café Americain makes the Hypothesis that Da Fed is sufficiently in control of all of this that they can manage a controlled Stagflation, but to me this begs the question of what is going on all around the World all tied to the Dollar as World Reserve Currency. While here in the FSofA we might be able to withstand a Slow Boiled Frog effect of say a 10% yearly Inflation of Prices while Wages Deflate at 10% and not run up into a Rock/Hard Place situation for 5 years, that is not the case for all the impoverished countries around the world where people live on $2/day and 90% of their income goes to just buying enough Rice to make it to tomorrow. As long as Da Fed is “managing” a steady inflation, these folks are going to be quickly (if they are not already there) in a position where they simply cannot afford to buy enough food to eat. If they are in a location where there is no Oil, it’s a Humanitarian Crisis but we don’t send in the Marines. If it is a location where there IS Oil, we clearly DO send in the Marines to try to secure the Oil Fields. We also have to send Food Aid to the faction that will line up with us for the moment, and arm them with AR-15s and RPGs at the very least to try to take back control.
The Financial House of Cards is clearly in a very delicate balance at the moment, and Da Fed has very little maneuvering room between the Hyperinflation/Deflation outcomes. Even small changes in the Interest rate or Money Supply can tip the balance now. That problem is difficult enough by itself to manage, but on top of that you have all these Wars breaking out in marginal countries, and you also have your Natural Disasters like Tsunamis messing up Production out of Japan and Cyclones turning part of Australia into an Inland Sea and now apparently non-stop Tornadoes taking out Airports like Lambert in St Louis.
How many of you noted the story in the Newz that Shillary Clinton was in Japan promoting a “Private/Public” Partnership to help the Japanese rebuild? She was joined by Chamber of Commerce Big Wigs from Nippon and the FSofA, basically BEGGING people not to Abandon Japan. You have to KNOW they are doing this because companies are EVACUATING Tokyo in droves. WTF is going to stay in Tokyo with an Office when they can move it over to Taiwan or Shanghai or Hong Kong or Singapore? The Nip Goobermint is now talking about a “6-9 Month” period to get some control over the reactors. No actual plan here for doing so, but this is the spin. Even if it was only 6-9 months, who would stay there while they figure it out? How long would it take to replace the electrical power generation of those nuke plants? Even a Coal fired plant takes years to build.
The issues Da Fed has to deal with in managing the currency are only a part of the Global issues here, and no matter what they do with the money supply, Da Fed cannot get more Oil flowing out of the M.E., nor can they repair Japanese Reactors and get BAU running in Japan either. They do not seem predisposed to handing out much Free Money to J6P, just enough to feed him and keep him from rioting, and that does not an economy make, at least not the kind of economy we were used to.
The real question is not IF we will slide down Richard Duncan’s curve of per capita available energy, but how fast it will actually occur. Because we are such profligate users of energy here in the FSofA, there is a lot of WASTE in the system that can be cut out before we completely power down, so I am at least hopeful that he is wrong and 2012 will not be the year the Lights Go Out. However I did watch another video of his where he made a good point about Mexico, which is pretty much already a failed state. Their electrical power grid is a joke, held together by duck tape and bailing wire. With their own Oil supply now dwindling, they are not going to be keeping that grid up and functional too much longer. He makes the point that when the lights go out in Mexico Shity, 20M people will start streaming across the border in a Tsunami of refugees. Exactly how we will try to stop that remains to be seen.
To get back to our monetary system, it is far past repair at this point and will have to be replaced by an entirely new one. Our New World Order Globalist Illuminati Masters of course want to run this show, but by no means is it clear they will be able to do so. Over in Finland the True Finn Party has taken power with a No Bailout Policy, and the Euro consortium which is the CENTER of the Globalist movement is coming apart at the seams. If they cannot hold Europe together, how could they hold the whole WORLD together under a single currency regime?
What is much more likely is a breakup Regionally here in the FSofA with first a Command Economy of Rationing and eventually some sort of Local Currencies evolving. Both Food and Fuel will be very scarce, forcing nearly every able bodied person into some aspect of food production and distribution. Regions will probably be governed by former units of the National Guard, the warehouses and silos will be put under guard and a replacement transportation system will develop. I could see 6 guys all on Bicycles hitched to a Wagon pulling grain to silos from the fields, and small Steam Powered Locomotives built from old Boilers utilizing whatever they have available to burn to move the grain around the region on the rail lines. At the other end of the line, more Teamsters on Bicycles pulling the grain into local communities. This until we breed up enough draft animals to pull the wagons.
Is this Extinction Level? No it is not, but it most certainly is Civilization Ending. It doesn’t even take a Thermonuclear War to occur either, all it really takes is for the energy we accessed through the industrial era to become less and less available. Which pretty much everyone here agrees is already occurring. The likelihood of being able to substitute for this lost energy either with Nukes or Renewables in the next 50 years is pretty small. The Energy necessary to build those things is going to disappear faster than we can build enough of them. Its not even clear after Fuk-U-Shima that anyone is going to WANT to build a Nuke, although in some areas I am sure some will be built. Not nearly enough though to substitute for the lost fossil fuel energy we have been accessing.
Accessing Nat Gas reserves and Conservation can and probably will draw this whole thing out some, so I don’t necessarily agree with Richard Duncan that by 2020 we will be Lights Out everywhere. I do think though by 2020 that Poor Nations like Mexico will be Lights Out by that time. It really is remarkable just how FAST almost all the world got Wired up for Electricity, even towns in Afghanistan have it, although likely it is pretty intermittent there. Problem being of course by wiring up EVERYWHERE, we used up the available energy to drive the system that much faster. When we ran out of enough of it here on our own shores to drive our power systems, we had to start importing it from elsewhere, and this should have clued everyone in at the time that the writing was on the wall, but it did not generally do that. Why? Because everyone was sold on the idea that coming down the pipe at some time in the future was a replacement for it created by Human Ingenuity. Fusion Power being the Holy Grail there, and BILLIONS were spent in pursuit of that technology, with the greatest Physicists and Engineers of the last 60 years all engaged in the project in one way or another. We built Super Conducting Super Colliders, and individuals in labs messed with their ideas for Cold Fusion. 60 solid years of research in Nuclear Physics since the Manhattan Project, and NOBODY has been able to make this idea work at positive EROEI.
You have to wrap your mind around the concept that the energy we accessed to run the Civilization of Homo Industrialis is going Extinct, even if some of the people manage to survive that extinction. We had a Century Long Party burning the candle very brightly in the Industrialized Nations, but now that Candle is running out of Wax. We are halfway down the candle, but in the intervening time we bred up 6 times as many people as when the game started, so Per Capita energy available is much less than at the beginning of the game. The fact it is skewed in distribution keeps the FSofA burning brightly right now, but once we cannot maintain sufficient military force to keep the Oil moving in this direction, we will quickly be in the same boat everyone else is in. Our standard of living will approach that of the current 3rd World. This is inevitable now, its just a question of how long it will take to slide down and how the society will adjust to the new reality.
To look at this whole post from a Fourth Turning perspective, how does this Turning differ from the American Revolution, the Civil War, and the Great Depression? In each of those prior Turnings our Society was accessing Greater Wealth and Power. After the American Revolution, we were accessing the vast Wealth of the North American Continent and all its Resources. After the Civil War, we were accessing the thermodynamic energy of Coal and beginning the Industrial Revolution. After the Great Depression and WWII, we were accessing the thermodynamic energy of Oil and growing into the Information Age. What is there left for us now to grow into after THIS Fourth Turning. I put to you that we have nothing left to grow into now, and so we must as a species go into a period of shrinkage that we have not experienced since the Dark Ages and the Black Plaguei. Like the original Dark Ages, I think this period will last near a Millenia, and who we are and how we come out of this at the end is anybody’s guess. We may never come out of it and go the way of the Dinosaur, that remains a possibility, but one I hope does not come to pass.
For those of us who lived through the Age of Oil in the Industrialized Nations, even if you were relatively Poor you got quite a ride. It was however a One Time ride that only a select portion of Humanity got to really enjoy, and it is now passing into History. Those who follow us will curse us for our profligacy, at least for so long as they can remember it, which probably won’t be more than a couple of generations. After that, there will only be the Ruins of what once was, and a Planet gradually healing itself of the scars left by Industrialization. One can only hope that somewhere, somehow, some Tribe will make it through the Zero Point to rebuild a better society with better principles of existence. We did it after Toba went Ballistic 70,000 years ago, we can do it again. It will be a very long time from now before that comes to pass however.
See You on the Other Side