Guest Post by Jim Kunstler
The stock market is zooming this morning on the news that only 5.7 million people in Florida will have to do without air conditioning, hot showers, and Keurig mochachinos at dawn’s early light Monday, Sept 11, 2017. I’m mindful that the news cycle right after a hurricane goes kind of blank for a day or more as dazed and confused citizens venture out to assess the damage. For now, there is very little hard information on the Web waves. Does Key West still exist? Hard to tell. We’ll know more this evening.
It is my sincere desire to provide readers of this site with the best unbiased information available, and a forum where it can be discussed openly, as our Founders intended. But it is not easy nor inexpensive to do so, especially when those who wish to prevent us from making the truth known, attack us without mercy on all fronts on a daily basis. So each time you visit the site, I would ask that you consider the value that you receive and have received from The Burning Platform and the community of which you are a vital part. I can't do it all alone, and I need your help and support to keep it alive. Please consider contributing an amount commensurate to the value that you receive from this site and community, or even by becoming a sustaining supporter through periodic contributions. [Burning Platform LLC - PO Box 1520 Kulpsville, PA 19443] or Paypal
-----------------------------------------------------
To donate via Stripe, click here.
-----------------------------------------------------
Use promo code ILMF2, and save up to 66% on all MyPillow purchases. (The Burning Platform benefits when you use this promo code.)
The one-two punch of Harvey and Irma did afford the folks-in-charge of the nation’s affairs a sly opportunity to get rid of that annoying debt ceiling problem. This is the law that established a limit on how much debt the Federal Reserve could “buy” from the national government. Some of you may be thinking: buy debt? Why would anybody want to buy somebody’s debt? Well, you see, this is securitized debt, i.e. bonds issued by the US Treasury, which pay interest, and so there is the incentive to buy it. Anyway, there used to — back in the days when the real interest rate stayed positive after deducting the percent of running inflation. This is where the situation gets interesting.
The debt ceiling law supposedly set limits on how much bonded debt the government could issue (how much it could borrow) so it wouldn’t go hog wild spending money it didn’t have. Which is exactly what happened despite the debt limit because the “ceiling” got raised about a hundred times though the 20th century into the 21st so that the accumulated debt stands around $20 trillion.
Rational people recognize this $20 trillion for the supernatural scale of obligation it represents, and understand that it will never be paid back, so, what the hell? Why not just drop the pretense, but keep on working this racket of the government borrowing as much money was it wants, and the Federal Reserve creating that money (or “money”) on its computers to infinity. Seems to work so far.
Rational people would also suspect that at some point, something might have to give. For instance, the value of the dollars that the debt is issued in. If the value of dollars goes down, then the real value of the bonds issued in dollars goes down, and as that happens the many various holders of bonds already issued — individuals, pension funds, insurance companies, sovereign wealth funds of foreign countries — will have a strong incentive to dump the bonds as fast as possible. Especially if backstage magic by the Fed and its handmaidens, the “primary dealer” banks, keeps working to suppress the interest rates of these bonds at all costs.
Would the Federal Reserve then vacuum up every bond that others are dumping on the market? They would certainly try. The Bank of Japan has been doing just that with its own government’s bonds to no apparent ill effect, though you kind of wonder what happens when a snake eating its own tail finally reaches its head. What’s left, exactly, after it eats that, too? My own guess would be three words: you go medieval. I mean literally. No more engines, electric lights, central heating….
In this land, we face a situation in which both the value of money and the cost of borrowing money would be, at last, completely detached from reality — reality being the real cost and value of all goods and services exchanged for money. Voila: a king-hell currency crisis and the disruption of trade on the most macro level imaginable. Also, surely, a massive disruption in government services, including social security and medicare, but extending way beyond that. And then we go medieval, too. The mule replaces the Ford F-150. And The New York Times finds something to write about besides Russia and trannies.
The value of money and the cost of borrowing it is about as fundamental as it gets in a so-called advanced economy. You can screw around with a lot of things running a society, but when that goes, you’re flirting seriously with anarchy. In the meantime, we’ll see how the social glue holds things together in those parts of Florida that are entering a preview of medieval attractions in the electrical blackout days ahead.
GG&G?
Not to worry about anarchy or Medieval lifestyle.
TPTB will keep us proles enlightened with a new currency regime that will placate everyone. The media, especially the NY Times and WAPO will extol its virtues, along with every major TV network and NPR. Confirmation bias will be achieved with ad nauseam repetition.
A yahoo headline read: “Hurricanes Harvey, Irma could cost US economy $290 billion, estimate says”
This got me thinking along the very same lines as JHK:
Does anyone notice that damages are always measure in dollars? This is NOT an accident. $290 Billion…who cares? That can be conjured in a single keystroke by the Fed. Never is mentioned the ACTUAL costs of these disasters in energy, human effort, natural resources or the biggest resource of all, time.
Dollars (any currency) is just a stand-in for things of real value. And, again, this is not an accident. The government’s power–as well as the banks’ and all the massive corporation–is entirely dependent on maintaining this illusion.
“The stock market is zooming this morning on the news that only 5.7 million people …” —–from the article
The MSM said SIX MILLION.
5.7 million ….. 6 million …………. don’t you people see what’s going on here??
All those Floridians without power are JOOS !!!
Harvey’s cost keeps going up every day, by the hour. It was under $200 billion a couple days ago. It might hit $1 trillion by the end of the week.
If I go by MSMfuks assessment of Irma …. that bitch might hit $1 trillion right out the gate. Increases will follow thereafter.
CNN still going strong today with the histrionics, doing their damnedest to spark interest in their crapshow. “Look at all the fronds everywhere!! And, over there! A completely uprooted tree! And further down the street, a puddle of WATER! It’s going to take a while until people can come back to this dangerous neighborhood, Anderson!” I’m NOT bullshitting. That’s not verbatim, but pretty much the gist of some blond bimbo’s reporting this morning … of course, done with breathless and overdone excitement.
Fux — at least this morning — decided to shitcan Irma coverage. Instead they ran original 9-11 footage and then commentaries. Brit Hume was talking about how terrific it was that it unified the country. (I can’t wait for Yellowstone to explode and give us really big unity) Then he talked about what a fabulous job our government did to prevent another such attack … how safe we are. #fukmeded Then I turned off the tv. And people wonder why I’m pissed all the time.
The debt ceiling is just another gov’t ploy to keep the rabble contentedly in their cages. It’s primarily been a Repo run scam in that they are, we’re told, the fiscally prudent wing of the bird of prey. It’s also why they are tanking so bad that Steve Bannon could call the assholes out on national TV by name, i.e. Ryan and Mc Connell without fear of consequence. At long last the american people are waking up to the farce that is the 2 party duopoly leaving TPTB with one last prescription: “you go medieval”.
Beautiful. Fucking beautiful.
“This is the law that established a limit on how much debt the Federal Reserve could “buy” from the national government.”
I am pretty sure the the “debt ceiling law” has nothing to do with the FED and is more about how much debt the Government can emit into circulation.
I may have it wrong, but I am pretty sure the FED doesn’t have to lift a finger here.
I have given it a lot of thought and the “monopoly Fiat” money can be increased in two ways.
1. By any new net debt increase if the Federal government.
2. By the fractional reserve lending multiplier.
A Government bond is a money substitute and trades as well as money, although it might be worth more or less based on how interest rates go. I could now pay you in leu of cash with a Government bond, and you could sell that bond later for cash. Really the effective amount of money has increased by the the value of the bond. You emit bonds (debt), you emit a money substituent. You do not need the Fed. I think I read this on Denniger’s site and I have come to fully support it.
I have come up with a few thoughts. If is a strange twist of fate that on the gold standard, lending money was dangerous due to deflation from productivity/innovation growth. Things were good for consumers. Things were getting cheaper. This was bad for the banks since loans could sour more easily from this natural deflation. Hence all the bank runs, in the banks leveraged states, on the gold standard and hence the push to create a backstop for bank runs ie, the FED; lender of last resort.
With the elimination of the Gold standard and its natural deflation creation, the Banks are protected by the FED’s effort of creating currency inflation.
I also think it is a twisted turn of Karma that when the “US attempts do get something for free” (by issuing unbacked bonds it will never pay back) it gets punished when the US is over “consuming”. It has to finance the bonds from foreign sources. For the foreigners to get the $s to buy the bonds they must first send the US goods in exchange, putting US workers at a disadvantage. It would seem to me that given constant investment income from overseas and a widening balance of payments deficit implies a widening trade gap and the workers suffer as result. I made some rough calculations based on yearly balance of payments deficits and think the cumulative balance of payment deficit is around $10 tr.
The irony is that Trump thinks he will fix the economy by spending more money ie. more debt. If my thinking is right he will probably create more unemployment in industries subject to foreign competition. It is like Newton’s first law. “Every action has an equal an opposite reaction”.
I welcome any comments. I certainly do know it all.
Are the bonds backed by the government? Not really; in the last analysis they are backed by the THREAT OF GOVERNMENT COERCION to collect the value of the bond. Are the bonds a sound investment? Not in a world where the bonds are denominated in dollars THAT THE GOVERNMENT CAN PRINT AS MANY OF AS IT WANTS.
Sorry for all the shouting, but you have to understand these things. A bond is a promise to pay in the future a value denominated in a currency that SHRINKS; as long as they keep printing more dollars than the country can support (in real goods and services), anyone who buys a government bond is potentially a SUCKER. Or, WORSE, the benefactor of THEFT from those who produce goods and services and pay taxes.
Currency is not MONEY and MONEY is not currency. Learn the difference, and why you are being taken advantage of when you equate the two.