Off the keyboard of RE
Published originally on Reverse Engineering on November 21, 2010
Discuss this article at the Economics Table inside the Diner
|Note from RE: No time this week to write the Sunday Brunch on the Diner, so I went to the Reverse Engineering Refrigerator looking for Leftovers. Found this morsel from 2010. Makes me look like fucking Nostradamus, because if I said I wrote it today, nobody would bat an eyelash.|
Some new information has begun circulating across the Blogosphere which is shedding some new light and new perspectives on the Inflationista-Deflationato Debate. Specifically, its Newz of rapidly spreading Inflation not in the FSofA where the Money is being printed, but rather in Emerging Markets over in Asia. Hong Kong apartments are going for $4500/sq ft, China declares a 4.4% Inflation rate that is probably double that in reality, etc.
The reason for this is Obvious. Capitalista Pigmen who are close to the Money Spigot aren’t taking the freshly printed Toilet Paper and loaning it out to J6P Small Bizman here, said Bizmen are already too in debt to take on more and already are not paying back what they owe. So instead of making biz loans to every Tom, Dick and Harry here, these banks are shoveling the money at every Chin, Chen and Chang over in China. Said Bizmen are happy to build Ghost Cities and Bridges to Nowhere with this money.
Its all pouring into the EMs like a Niagara Falls of Money. This is the “Hot” market with the “endless possibilities for Growth” that our Pigmen Asset Managers like Jim Rogers are investing in as they chase Yield. Does this have the same Stink as all the money that got poured into Eastern Europe after the fall of the Berlin Wall or what? That ended well. The Swiss Banks are going to be eating that mistake until Helicopter Ben Bails them out.
Asia is a HUGE Bubble, or as I like to call it a Liquidity Trap/Asset Class Sinkhole. Such places are like a Roach Motel for Money. You can Check In, but you cannot Check OUT. Or the Hotel California of Money. You can Check Out any time you like but you can NEVER leave with the Money. LOL. Or at least sometime in the very near future you won’t be able to when some Yellow Swan comes in for a landing and everyone runs for the Asian Fire Exit at the same time.
So yea, Inflationistas like Gonzalo Lira and Deflationatos like me have something which we can agree on, which is that massive Money Printing does have to cause Inflation SOMEWHERE, and in this case where the Inflation is taking place is in the Hong Kong RE market and assorted other Malinvestment directed at Asia at the moment. Like the money loaned out here to build McMansions; like the money loaned out to Eastern Europe to join the Capitalista “Party like its 1999” orgy; like the money loaned to Ireland to become Pharmaceutical Exporters; like the money loaned to Spain to build Tourist Resorts for German Pigmen on the Costa del Sol, it is all destined to go up in SMOKE here, in the Greatest Bonfire of Paper Wealth in All of Recorded History.
Roughly 75% of all the Dollars in existence are not here in the FSofA, they are floating around outside our borders, and MOST of them are tied up in some kind of Investment in some Asset class. Most of them are NOT FRNs stuffing the mattresses of the Chinese Overlords. Of actual FRNs, there are only around $1T of them out there, a drop in the bucket of what is probably in the QUADRILLIONS of notional money floating around the Shadow Banking system. The rest of the money only exists as Digibits in a Database, and when as MUST happen eventually all the Assets are Marked to Market instead of Marked to Heisenberg’s Uncertainty Principle, those Dollars will POOF disappear just like Schrodinger’s Cat when you try to pin down its location. You can pin down Position or Velocity, but when you pin down one, the other one becomes undefinable. So when the Velocity of Money goes to Zero, you can’t pin down its Position. It might still exist somewhere, but it’s probably halfway across the Universe by now in another Galaxy along with Schrodinger’s Cat. Unless Han Solo transports it back to us at Warp 10 in the Millenium Falcon, we are SOL. LOL.
I don’t see a Hyperinflation of Huge Influx of Dollars here as Foreign holders of Dollars try to dump them, because they don’t REALLY have Dollars. What they have are DOLLAR DENOMINATED ASSETS, most of it Notional money in the form of CDS, MBS etc. When they try to sell those Assets for Dollars, they will only get Pennies for them, if they can sell them at ALL. Since most of those Assets are in fact held by the TBTF Banks and their Illuminati Owners, POOF they are massively Insolvent AGAIN, even more insolvent than they already are. Is Da Fed going to then go and BUY every Resort on the Costa del Sur at Par from them with still MORE Funny Money? Reducto ad Absurdum, somewhere along the line this collapses.
This goes right along with the idea that as the Muni Market collapses, Da Fed will be going in to buy all of THOSE also. And of course Da Fed will ALSO print up enough money to fund the IMF so that all the PIIGS can be Bailed Out, and CA ALSO of course. Meanwhile, EVERYBODY KNOWS the FSofA itself is functionally BK, so for how long is it possible that people keep accepting the idea one BK country can Loan money to another BK one or buy Assets with money it does not have? That this Circle Jerk hasn’t collapsed already is a Testament to the Cognitive Dissonance which occurs in the failure of a Monetary System.
The Geniuses like Helicopter Ben and JC Trash-it who are running the whole show as Illuminati Apparatchiks simply cannot accept the idea that they can’t solve the problem. They don’t really have any answer for this problem other than Money Printing followed by War, and the goal there for the Illuminati controlling the Clueless Apparatchiks is to bet correctly on who wins the war and maintain control over the Banking SYSTEM they use and tie up the right Assets under their own Ownership, and have the New Goobermint validate their Asset Claims once the War is finishes, which in this case it never will in any clear manner like the end of WWII leading to the original Bretton Woods accord. Thus by funneling money to Prescott Bush’s Union Bank, the Thiessen Family was able to maintain their ownership and control over German Industry despite the fact that Hitler, who they ALSO funded lost the War.
Now, as this process works itself through, besides Emerging Markets the next Asset Class where a lot of the Hot Money flows is into Commodities. We have seen already serious Price Spikes there, but such Price Spikes are not Hyperinflation. Commodities are also a Liquidity Trap-Asset Class Sinkhole, but they operate on a shorter timeline than stuff like Property Bubbles, which can take a decade or more before they POP. Commodity spikes have a much shorter timeline, a few months or at most a year. The reason for that is most of them are Consumables like Food and Oil. They take an End Consumer who has money enough to pay the outrageous prices to stay Bubbled Up in price. However, as we saw with $147/bl Oil, this Taps Out the end Consumer VERY quickly, and then you get a crash in the price of that Commodity down to the $35 price level before it started creeping back upward. Whoever bet on it and wasn’t well Hedged or who did not unload his position before the inevitable crash came lost his shirt.
Small Economies like Weimar and Argentina and Chile and Zimbabwe can undergo prolonged Hyperinflation because the Market as a WHOLE does not respond to the fact a small country like that is getting Priced Out of the commodities market. It’s a Small Blip on the Radar if those countries are Priced Out and their population is Starving because their Money has gone worthless. It is NOT a Small Blip if a very LARGE country with a very LARGE Military gets priced out of the Food Market. Then it is a very LARGE Blip which perturbs the Market as a whole, and the price crashes.
You have an even BIGGER issue when one currency functions as the World RESERVE Currency. Then every time you get a Price Spike in commodities, its not just the Issuer of that currency who gets hit, but every country on the PLANET that is using that currency to define Asset Values and their own currency value, if they have one of their own.
What does a Price Spike in Food do here in the FSofA? At the moment very little because food is a relatively small percentage of income for most folks in the FSofA who have not already fallen off the Economic Cliff. For those who have, we also are running the SNAP Card program, insulating this ever growing number of people from “Food Insecurity”, aka STARVATION.
However, in all the Developing Nations (aka “Emerging Markets”) of the world where food is a BIG part of the family budget and there isn’t a Safety Net like SNAP, Food Riots pop up like Mushrooms on a cool and damp morning in Kennett Square, PA. (Mushroom Capital of the WORLD! LOL) This would INCLUDE Chen Rice Wine over in China, because while the Chinese Overlords are doing quite well, your average Chinese Peasant or Factory Worker is still subsisting on an annual salary of like $3000 (the salary J6P would also have if we want to compete with China for cheap labor). Chen is going to be going HUNGRY when Rice goes up 30% in price. Not good for the Stability of this EM. The Chinese Overlords MUST STOP this inflation or else they are going to lose control of their country. So they Bluster at Helicopter Ben to STOP Printing, and HB Blusters Back for them to STOP manipulating their currency. Something gotta GIVE here of course. Who will Blink First? It doesn’t really matter, because when either side does Blink, the only Recourse is WAR.
All the consumable commodities are destined to Spike and Crash for as long as this monetary regime stays functional and/or until the War exits the Political/Economic sphere and migrates to the Battlefield. As long as Oil is priced in Dollars this will remain the case, and the BRIC countries are not going to be able to replace that with another Fiat currency, nor will the World Bank be able to do so. Same problem would occur with ANY Global Currency, based on ANYTHING, even Gold in an Industrial Economy whose total basis for value is on Cheap Energy. That my Gold Bug friends is the REAL crux of the matter. Follow the MONEY. The real MONEY or Economic Wealth of Industrial Civilization is in OIL and its control, NOT in Gold Bars.
Let us do a Thought Experiment. If say TOMORROW all the Fiat Crashed and the House of Saud would only take Payment in Gold for Oil, what happens? Of course all the people who have no Gold are SOL immediately. However, even all you well Prepped Pigmen with some Gold Eagles in your Basement Safe are going to have to cough them up to the House of Saud in order to get the Oil and its Products AND services you depend on, like a Functioning Goobermint that protects your Property Rights. The Oil Producer essentially holds everyone dependent on that Oil Hostage for their Gold, until all the Gold is in THEIR safes. Then what do you buy Oil with (if any is left under their Desert Sands by then)?
Of course it is not quite so simple as that, since Saudi Arabia is a Food Importer, so as long as you are a Food Exporter and can Price Up the Food to match the Oil Price Input you could have a round robin trade going on there of Food for Oil, with the Gold serving as a measure. The problem there is that this trade cannot go on in perpetuity, since while the Gold does not get destroyed, the Oil does. When the Oil runs OUT, the Saudis are left with lots of Gold in the Basement Safe, and nothing to EAT, since of course you cannot EAT Gold, and unlikely anyone with meager quantities of food will trade it for a lump of metal they cannot eat.
The Food exporter is in slightly better shape (but not much) since even though he has No Gold left and No Oil either, he still does have some possibilities for producing Food, though not nearly in the quantity possible when the Oil was flowing in from Saudi Arabia. So with no Oil and now little Gold to function as Money, this population is going to have little to work with beyond Barter to keep the Economy moving, but by then your Goobermint has gone the way of the Dinosaur and nobody is going to be out there protecting your Property Rights over “your” land other than YOU.
You think the FSA is a problem NOW? Wait until the SNAP Card program collapses. Communists will start popping up like Mushrooms on a cool and damp morning in Kennett Square, PA. Over in Greece, the Communist Party is already growing. The reason is their “Socialist” Goobermint isn’t doing jack SHIT to keep them from being turned into Debt Slaves to the Illuminati. The last Refuge for the hopeless and disenfranchised with Nothing Left to Lose is Communism. Its no problem at all philosophically or economically for people who have NOTHING to agree to share Everything. LOL. Only people who have something left to lose are afraid of Communism. You can battle against this only for so long as you keep the number of Have Nots in the Population below a certain Critical Mass. The CM seems to be about 25% of the population Unemployed, where no Safety Net exists to keep them going. At the point you have that many completely off the cliff, you probably have another 50% of the population barely hanging on, and 25% still in Control and doing OK. This is where the Battle for their Hearts and Minds and Warm Bodies to serve as Cannon Fodder comes in, as some in the middle 50% go with the Communists because they are afraid if they don’t they will attacked by the “hoodlums”; and others in the middle sign on to be Soldiers for the Illuminati with a Hot meal and a place to sleep if they fight to preserve the Status Quo. Depending on who wins the battle, you end up with either Communism or Fascism, and in large societies both are variants of the same thing, Totalitarianism. The only time you can get some kind of Middle Ground is when there is sufficient Surplus in the economy to keep everyone at least fed and housed. Such a surplus existed here in the FSofA right through Lyndon Johnson’s Great Society Program, which bought off the FSA for more than 40 years, using the Thermodynamic Energy of Oil first in the years directly following WWII, followed by Financialism and ever upward spiraling Debt in the years since the Great Society. It was NECESSARY to incur that debt in order to STOP what was happening in the FSofA in the 60s, the draining of enough resource wealth to keep everyone fed and housed in the Industrial paradigm. This was resulting locally with increasing Civil Violence, and internationally with Wars of Aggression for Hegemony over the world in places like Vietnam. Of course our Illuminati Masters did not REALLY stop this, all they did back then was Kick the Can down the road a piece with the Great Society.
It never ceases to amaze me reading the amount of Bile spit at the Free Shit Army on the pages of TBP, and more than a few other Blogs I read. Since the very MOMENT money became used as the instrument of commerce back in the time of the Sumerians, every one of these societies has been stuck with the dichotomy of Haves and Have Nots. For the great preponderance of the time in between, from about 5000BC to 1865AD or so, explicit Slavery was the answer to the Have Not problem. The Industrial Revolution made many if not most forms of Productive Human Labor quite valueless by replacing it with the thermodynamic energy of Oil, so you didn’t even really need Human Slaves anymore in the direct Ownership sense of an individual Human Life. Economic slavery became the order of the day, as a whole new economy developed based on the consumption of the Oil resource. As it grew, many forms of “Make Work” industries developed to employ people, but they didn’t really produce anything of value. In fact the people who make the MOST money produce nothing at all, they merely sit behind a Bloomberg Terminal and place bets on where the next Bubble will pop up. Closer they are to the Money Spigot, more money they have to Leverage and bet, the more they make. Thus Goldman Pigmen can go an entire MONTH not losing bets on a single trading day. Nice work if you can get it of course.
All the make work stuff of the post Industrial economy led by the IT sector never resolved the problem of poor folks falling off the economic cliff for one reason or another, and the Industrial Economy never could provide enough Good Paying jobs to keep everyone employed. It only did for a while here in the FSoA when the Industrial Capacity everywhere else in the “developed” world had been LEVELED in WWII. Once that capacity was rebuilt, and then additional capacity overbuilt in Asia, the price of Industrial Labor fell precipitously, and it was an easy thing indeed for Unions to be destroyed and Capital to move its way over to Cheap Labor countries like China. That merely accelerated the process of more people falling off the economic cliff here in the FSoA, which in order to maintain social cohesion necessitated an ever expanding population of the FSA. Many of them did find work in low paid service sector jobs for a while, but as the consumer based economy of the Industrial paradigm collapses, so also collapse all those service sector jobs. So every day now the FSA increases in its numbers, to the point now where even many of our readers are members of the FSA, collecting their UE checks after being downsized out of their job as an IT Engineer or having that job outsourced to an Indian Geek in Delhi, who will write the same code for 1/10th the price the FSofA IT Geek needs to pay his mortgage.
Although certainly the 30 Blocks of Squalor and the long term FSA populating those decaying streets are the most visible evidence here of the collapsing Industrial Economy, for now less visible members of this army are hunkered down Squatting in McMansions yet to be foreclosed on, collecting UE Bennies and feeding their children with SNAP cards. Those McMansions still look pretty good if they are still occupied since they were all built in the last decade, but in a few years they will have the same dilapidated quality of the housing in the 30 blocks of Squalor. No money available to do maintenance, no money to buy gas for the John Deere Riding Lawn Mower.
People revile the Free Shit Army until the day they JOIN that army. Ever so parochially, they believe “This will never be ME!”, since they have their Sheepskin from the University of Illinois where they studied the Productive Subject of IT, eschewing their interest in the Fine Arts so they would be prepared for a Job in our economy. As this economy spins it way downward, all those nice young WHITE boys and girls who started families and moved into McMansions will quickly become members of the FSA as well, if they are not already. Should those boys reject the UE Bennies, should they reject the SNAP card to feed their young children? Who in their right mind would do that?
As we transition out here from the Industrial/Information Technology age, unless as a society we provide some buffer to make the transition, MANY people will go Hungry, and they won’t all be the Black folks in the 30 Blocks of Squalor who fell off the cliff quite some time ago, barely after explicit slavery was abolished after the War of Northern Aggression. More and more, the FSA is going to be composed of the predominant group of White people who for a while rode the Great Train of prosperity that followed the accessing of the thermodynamic energy of Oil.
This new group of the Impoverished and Disenfranchised will be led to revile the old group of I & D, and our Illuminati Masters will direct their hatred toward them, with an ensuing Race War quite likely as a result. Even more likely to begin over in Europe than here in the FSofA, if you read blogs like the Gates of Vienna and the subtext of policies the Dutch MP Geert Wilders espouses. Over the last 20 years, from France to Germany to the Netherlands, they have been importing cheap labor and filling up their “suburbs” with Muslim populations to do the scut work of their society, but as they run out of scut work for them to do more of them fall onto their social welfare roles. Now at best they would like to Export all these folks back to the countries they migrated from. A bit easier to try and justify than exporting the Black population of the FSoA back to Africa since they have been here since the 1700s, but equally implausible in practical application. Since exporting the Impoverished is less possible now than it was when the Jews migrated out of Europe toward the shores of Amerika, one can only suspect a new iteration of the Final Solution being undertaken over in Europe. Here in the FSoA as well this time also.
The FSA is an artifact of Industrialization and exchanging Explicit Slavery for the Economic Slavery of Capitalism. A Trade Off was made starting in the time of Otto von Bismark to develop a Social Welfare state that would handle the problem of the Have Nots that has always existed since monetary systems were implemented in the aftermath of the Agricultural Revolution. Utilizing the Thermodynamic Energy of Oil, it has through this period in the developed Industrial economies been possible to “buy off” the impoverished by providing them a basically free living, although not a very pleasant one in the various Ghettos around the world that are mirrors of the 30 Blocks of Squalor. As the Oil Age comes to a close, its no longer possible to do this Buy Off, which leaves only two possibilities, explicit Slavery or Death via the Final Solution.
Here in the FSofA, because the FEAR of Communism has been so thoroughly inculcated into the population, unlike Greece its unlikely that we will see a real resurgence of a Communist movement like the Wobblies of the Great Depression. FDR only managed to hold this off at the time by buying time with some Socialist reforms like Social Security and the Myth of Home Ownership financed through Goobermint guaranteed Loans from Fannie Mae. It was a last ditch compromise by the Illuminati of that time financed with the Thermodynamic Energy of Oil, then present in copious quantities underneath fields in OK and TX. In the intervening years since, the Illuminati consolidated their control running a Corporatocracy which is now morphing into an explicitly Fascist State, evidenced by increasing intrusive Full Body searches at all Air Transit Checkpoints and ever expanding control of commerce in all sectors of the economy. The whole apparatus is so well entrenched now it is doubtful any kind of Communist movement would stand a chance of success, so for those of you worried about that outcome here, its not likely. You will of course have to live with the alternative, a Fascist Goobermint which watches your every move and controls every aspect of your life. All you can really do during this period is wait for said Goobermint to eventually collapse on itself through internal corruption and the collapse of the Conduits. That could take quite some time, depending on how well our Fascist Leaders are able to run the War machine along with the Police State. Given the general level of Incompetence in Goobermint and decreasing Energy to hold the system together, I don’t think the timeline will be all that long, however.
We are now fresh OUT of Can Kicks, and there is nowhere in the world with great resource wealth to rape anymore, certainly not China, which is already a post industrial Cesspool. All the Hot Money Helicopter Ben is Printing is going into Malinvestment in Asia, hyperinflating their economies and setting up enormous Bubbles waiting to burst in every Emerging Market. When it collapses, as it MUST, there will simply BE no place for Capital to migrate to. Nowhere left to Run, Nowhere to Hide. Then it will become a real Global War of the Haves v. the Have Nots, and the number of Haves will be exceedingly small in number. ALL the Conduits, including Money will collapse in the course of this War, and the Death Toll coming down the pipe is close to incalculable, though it cannot be more than the entire population of Homo Sapiens, so it has an upper limit as an Extinction Level Event.
I keep my fingers crossed this is not the end of our experiment with Sentience on this planet. I do hope that there are at least a few remaining small tribes of people who will rebuild a new civilization based on better principles of Stewardship of our Planet and Generosity toward Others, rather than the Planetary Rape and Intraspecies Greed which defines Capitalism. The only thing for sure here is that if that time does come, its not going to be for a VERY long time, and the intervening years are going to be filled with Death, Anguish and Pain beyond measure for most of Humanity. The most important thing to come from that time is to make sure that Justice is Done, and the Greedy are made to Pay for their Sins. There is no level of Violence too great to Exact Retribution for the Violence done to the world and its people by Capitalism. Eternal Justice WILL prevail, and the Meek Shall Inherit the Earth. Right AFTER the Meek get very, VERY Angry.
See you on the Other Side.