Best of the Week
Most Popular
1. Investing in a Bubble Mania Stock Market Trending Towards Financial Crisis 2.0 CRASH! - 9th Sep 21
2.Tech Stocks Bubble Valuations 2000 vs 2021 - 25th Sep 21
3.Stock Market FOMO Going into Crash Season - 8th Oct 21
4.Stock Market FOMO Hits September Brick Wall - Evergrande China's Lehman's Moment - 22nd Sep 21
5.Crypto Bubble BURSTS! BTC, ETH, XRP CRASH! NiceHash Seizes Funds on Account Halting ALL Withdrawals! - 19th May 21
6.How to Protect Your Self From a Stock Market CRASH / Bear Market? - 14th Oct 21
7.AI Stocks Portfolio Buying and Selling Levels Going Into Market Correction - 11th Oct 21
8.Why Silver Price Could Crash by 20%! - 5th Oct 21
9.Powell: Inflation Might Not Be Transitory, After All - 3rd Oct 21
10.Global Stock Markets Topped 60 Days Before the US Stocks Peaked - 23rd Sep 21
Last 7 days
Chinese Tech Stocks CCP Paranoia and Best AI Tech Stocks ETF - 26th Oct 21
Food Prices & Farm Inputs Getting Hard to Stomach - 26th Oct 21
Has Zillow’s Collapse Signaled A Warning For The Capital Markets? - 26th Oct 21
Dave Antrobus Welcomes Caribou to Award-Winning Group Inc & Co - 26th Oct 21
Stock Market New Intermediate uptrend - 26th Oct 21
Investing in Crypto Currencies With Both Eyes WIDE OPEN! - 25th Oct 21
Is Bitcoin a Better Inflation Hedge Than Gold? - 25th Oct 21
S&P 500 Stirs the Gold Pot - 25th Oct 21
Stock Market Against Bond Market Odds - 25th Oct 21
Inflation Consequences for the Stock Market, FED Balance Sheet - 24th Oct 21
To Be or Not to Be: How the Evergrande Crisis Can Affect Gold Price - 24th Oct 21
During a Market Mania, "no prudent professional is perceived to add value" - 24th Oct 21
Stock Market S&P500 Rallies Above $4400 – May Attempt To Advance To $4750~$4800 - 24th Oct 21
Inflation and the Crazy Crypto Markets - 23rd Oct 21
Easy PC Upgrades with Motherboard Combos - Overclockers UK Unboxing - MB, Memory and Ryzen 5600x CPU - 23rd Oct 21
Gold Mining Stocks Q3 2021 - 23rd Oct 21
Gold calmly continues cobbling its Handle, Miners lay in wait - 23rd Oct 21
US Economy Has Been in an Economic Depression Since 2008 - 22nd Oct 21
Extreme Ratios Point to Gold and Silver Price Readjustments - 22nd Oct 21
Bitcoin $100K or Ethereum $10K—which happens first? - 22nd Oct 21
This Isn’t Sci-Fi: How AI Is About To Disrupt This $11 Trillion Industry - 22nd Oct 21
Ravencoin RVN About to EXPLODE to NEW HIGHS! Last Chance to Buy Before it goes to the MOON! - 21st Oct 21
Stock Market Animal Spirits Returning - 21st Oct 21
Inflation Advances, and So Does Gold — Except That It Doesn’t - 21st Oct 21
Why A.I. Is About To Trigger The Next Great Medical Breakthrough - 21st Oct 21
Gold Price Slowly Going Nowhere - 20th Oct 21
Shocking Numbers Show Government Crowding Out Real Economy - 20th Oct 21
Crude Oil Is in the Fast Lane, But Where Is It Going? - 20th Oct 21
3 Tech Stocks That Could Change The World - 20th Oct 21
Best AI Tech Stocks ETF and Investment Trusts - 19th Oct 21
Gold Mining Stocks: Will Investors Dump the Laggards? - 19th Oct 21
The Most Exciting Medical Breakthrough Of The Decade? - 19th Oct 21
Prices Rising as New Dangers Point to Hard Assets - 19th Oct 21
It’s not just Copper; GYX indicated cyclical the whole time - 19th Oct 21
Chinese Tech Stocks CCP Paranoia, VIES - Variable Interest Entities - 19th Oct 21
Inflation Peaked Again, Right? - 19th Oct 21
Gold Stocks Bouncing Hard - 19th Oct 21
Stock Market New Intermediate Bottom Forming? - 19th Oct 21
Beware, Gold Bulls — That’s the Beginning of the End - 18th Oct 21
Gold Price Flag Suggests A Big Rally May Start Soon - 18th Oct 21
Inflation Or Deflation – End Result Is Still Depression - 18th Oct 21
A.I. Breakthrough Could Disrupt the $11 Trillion Medical Sector - 18th Oct 21
US Economy and Stock Market Addicted to Deficit Spending - 17th Oct 21
The Gold Price And Inflation - 17th Oct 21
Went Long the Crude Oil? Beware of the Headwinds Ahead… - 17th Oct 21
Watch These Next-gen Cloud Computing Stocks - 17th Oct 21
Overclockers UK Custom Built PC 1 YEAR Use Review Verdict - Does it Still Work? - 16th Oct 21
Altonville Mine Tours Maze at Alton Towers Scarefest 2021 - 16th Oct 21

Market Oracle FREE Newsletter

How to Protect your Wealth by Investing in AI Tech Stocks

Greece Debt Crisis and Bailout Market Volatility, What Just Happened?

Stock-Markets / Financial Markets 2010 May 24, 2010 - 01:21 AM GMT

By: Howard_Katz

Stock-Markets

Best Financial Markets Analysis ArticleThe events of the last few months have been far more important than I had originally given them credit for.  The bottom line was when a group of European nations, together with the International Monetary Fund, gave loans to Greece to pay off the rioters.  That very day Jean-Claude Trichet was in the financial markets buying bonds


Of course, Trichet was not buying bonds with his own money.  None of the political figures we read about in the newspapers and who parade about pretending to be full of love and generosity actually give their own money.  Indeed, even the European Central Bank did not give its own money.  Further, if we search through the countries of Europe, we do not find a single one of them with extra money to give to Greece.

Then what was this all about?  Why were markets rushing up and down?  Why were the newspaper headlines screaming?  Why was there violence in the streets, with people being killed?  Everybody wanted to borrow, and nobody had any money to lend.  That, of course, is the way of the world.  If you don’t like this fact, then I suggest you take it up with the Creator of the world.  If you don’t like the Creator you have now, then just change your religion and get another Creator.  No problem, human beings have been doing that for a long, long time.

So Jean Claude Trichet did not have any money to lend to Greece.  Where did he get the money to buy European bonds?  The answer is that he printed the money out of nothing.  That is, he counterfeited it.

Now Trichet is not the worst of a bad lot.  He is more like the best of a bad lot.  And that is the problem.  If Europe could not stand up under these pressures, they can not be trusted to stand up to similar pressures in the future.  And whenever someone in Europe in the future wants to spend more money than he has earned, this will be the “solution.”

Of course, the printing of euros will depreciate the value of the euro.  Thus, when the people of Greece go to spend their money, they will find that there has been a general rise in prices.  The printing of money does not create wealth, and they are just as poor as they were before.

There are two dramatis personae in this sad tale.  The first consists of the protestors.  These are mostly members of the Greek anarchist movement which dates from the protests against the Greek military junta in 1973.  These protests led to the fall of the junta in 1974 and its replacement by a democracy in 1975.

These people live in a world where there are only two political parties, a party of love/peace and a party of hate/war.  (Supporters of the second party prefer to call it a party of strength or practicality.)  The party of love and peace is called the left.  The party of hate and war is called the right.  These two parties are continually contesting with each other.  First the left wins.  Then the right wins, etc.  For example, Julius Caesar was on the political left during his lifetime (1st century B.C.).  But those who followed in his footsteps and called themselves “Caesars” morphed into the political right (Kaiser, Czar)

What characterizes the political left is their ability to explode into violence while still maintaining the self-image of love and peace.  The typical leftist will have the idea firmly fixed in his head, “I am a person of love” while he is throwing a bomb or murdering a fellow human being.  For example, Stalin was described in the media as a person of the left even while he was murdering his fellow Bolsheviks and killing millions of his own countrymen.  (Stalin killed, not only Trotsky, but pretty much all of the original Bolsheviks who made the 1917 revolution with him.)  Frequently, these leftists will switch over to the right (Mussolini and Hitler).  Then, a person of the right might feel remorse for his crimes and switch over to the left.  Both sides have lost the concept of a middle ground where human beings have rights and where everyone’s rights are respected.

This ability to twist one’s mind into a pretzel and believe what one wants to believe is very characteristic of both left and right.  The Greek protestors, you remember, were trying to get more wealth by rioting in the street, setting fires and killing people.  Yet these actions characteristically destroy wealth, not create it.

The second dramatis personae in this story is the paper aristocracy.  All central banks in the world today create money out of nothing.  This has a set of consequences which transfer wealth from one group to another, as follows:

The most important task of any central bank is the manipulation of the rate of interest away from its free market level.  Prior to the 1780s, charging interest was banned in all countries.  (In 1786-87, it was legalized in the northern U.S. and Britain.)  Since there are always many people who want to go back to the past, there is always a political force for zero interest rates, and it is the bias of all central banks to lower the (real) rate of interest below its free market rate (which was about 5% real for over a century during the period when the U.S. had little or no central banking).

The way it manipulates interest rates is by buying government securities, Treasury bills being a good example.  A one-year T-bill is redeemed at par (100).  It is issued at some price below par, and the interest consists of the difference between the issuing price (or current price) and par.  For example, a T-bill may be issued for 95.  It is redeemed at 100.  Thus the interest received by the buyer is 5/95 = 5.26%.  The current U.S. rate for the 1 year T-bill is 0.35%.

Modern central banks have no capital of their own (although historically central banks started out as ordinary banks and then got special privileges from the government).  The only way that a modern central bank gets money is by printing it (although this is usually covered over with a collection of lies.  For example, modern American money contains the words “Federal Reserve Note.”  But a note is a credit instrument.  It certifies that one party owes money to another, and all notes specify the interest rate which the borrower has agreed to pay to the lender.

It can be proven in economic theory and has been the case in every society in which money has circulated that notes (or other credit instruments) cannot circulate as money.  This is because people will not use them as money.  When a person has both a note and ordinary money and wants to buy something, he decides to keep the note (because it pays interest).  He pays for his purchase with (non-interest bearing) money.  Thus, it is the non-interest bearing instrument which circulates and acts as a medium of exchange.  In other words, a “Federal Reserve Note” is not a note.  And calling it a note was simply one of many lies which emanated from the group around J.P. Morgan at the time they slipped over the Federal Reserve System on a country which had regressed badly in its knowledge of economics.

In modern central banking, pieces of paper, which have been printed up by the central bank (emblazoned with all kinds of fancy words and symbols to impress the ignorant), are declared to be money by the government (in what is known as a legal tender law).  This says that you must treat this fancy paper as though it had more economic value than similar pieces of paper.  The original paper dollars issued by the Federal Reserve in 1933 were required to be treated as though they had the same value as 1/20 oz. gold.  This value does not come from it being a note or a security.  It comes because the government has “blessed” this piece of paper with the words “legal tender.”

It should be noted that, although the situation may differ from country to country, here in the U.S. the legal tender enactments by Congress are illegal, hence null and void.  This is because we have two levels of law in the U.S.  There is the government’s law, imposed on the people.  And there is the people’s law, imposed on the government.  The people’s law is the Constitution.  This is the supreme law, and any statute law which conflicts with it is null and void.  (Those interested may read the debates of the constitutional convention, Aug. 16, 1787, in The Madison Papers.  The authors of the Constitution were very hostile to the paper money which had been issued during the 1770s and early 1780s and intended to ban it.  The vote to ban paper money in America was 9 states to 2 states, and this has never been changed.)  Thus, our current government is illegal.  This is not a laughing matter because the Coinage Act of 1792 imposes the death penalty for debasement of the currency, a fact which should give Ben Bernanke, Alan Greenspan and Paul Volcker serious pause.

“SEC. 19. And be it further enacted, That if any of the gold or silver coins which shall be struck or coined at the said mint shall be debased or made worse as to the proportion of fine gold or fine silver therein contained, or shall be of less weight or value than the same ought to be… every such officer or person who shall commit any or either of the said offences, shall be deemed guilty of felony, and shall suffer death.”

Our current U.S. money has not only been made worse as to the proportion of gold therein contained.  It has been made zero.
As the central bank buys Treasury Securities with its printed money, it forces their price up, and, as we have seen, this forces the interest rate down.  But low interest rates are beneficial to borrowers (which are primarily the nation’s large corporations).  They are harmful to savers (who are primarily the middle class).  In this regard, the central bank is stealing enormous amounts of wealth from the nation’s middle class and giving it to the very rich.

As noted, as a side effect of the lowering of interest rates, the central bank acts like a counterfeiter, printing money out of nothing.  This causes all prices to rise.  However, they do not rise equally.  The wages of labor rise more slowly than the prices of goods.  Thus real wages go down.  Because of this, real wages have been declining in this country since 1972 (one year after Nixon completed the abolition of the U.S. gold standard).  Since real wages are declining, real corporate profits go up.

I call the people who benefit from the printing of money and easing of credit the paper aristocracy.  The paper aristocracy always wants more paper money and is trying at all times and in all countries to urge the central bank to issue more money.  To accomplish this, there have to be a continuous series of crises (real or imagined) to serve as an excuse.

So behind the Greek protestors are the paper aristocracies of the world stirring up the media into a hysteria.  The paper money Trichet is now issuing will raise prices throughout Europe, including Greece, and the Greek protestors, instead of getting richer (as they think) will get poorer (in real terms).  Trichet’s claim that he will sterilize the money he is now creating is a standard central bank lie.  I have heard that promise many times, but I have never seen it kept.

That is what is going on in the world today: a group of stupid and venal people who think they can get something for nothing by throwing a tantrum and acting like children and a group of sophisticated and shadowy rich people who manipulate these fools behind the scenes and use them to steal from the ordinary people of our time.

This may be the end of the attempt to make the euro into a semi-sound money, which started so auspiciously a decade ago.  The idea of a paper currency bound down by rules now appears as a failure.  The only money which has prevented the depreciation of the currency in world history is gold or silver, and this is the only system which has brought prosperity to mankind.

I invite interested readers to subscribe to my fortnightly (every 2 weeks) newsletter, the One-handed Economist.  This applies my general theory of economics to specific stocks and commodities, making recommendations as to what to buy and what to sell.  You may subscribe by visiting my website, www.thegoldspeculator.com, and pressing the Pay Pal button ($300) of by mailing a check for $290 ($10 cash discount) to The One-handed Economist, 614 Nashua St. #122, Milford, N.H. 03055.  Thank you for your interest.


© 2005-2019 http://www.MarketOracle.co.uk - The Market Oracle is a FREE Daily Financial Markets Analysis & Forecasting online publication.


Post Comment

Only logged in users are allowed to post comments. Register/ Log in