The Financial Jigsaw – Issue No. 81

My unpublished (100,000 word) book “The Financial Jigsaw”, is being serialised here weekly in 100 Issues by Peter J Underwood, author

 Quote of the Week: “If we would build on a sure foundation in friendship, we must love our friends for their sakes rather than for our own.” – Charlotte Brontë

NOTE – If anyone would like a free updated, 3rd edition, electronic copy of the complete book, I should be pleased to email a free pdf on request to: [email protected].  The book has many footnotes linking to relevant and explanatory Appendices, websites and videos.

 This article, from ZeroHedge, is well worth a read and the video is revealing.  Here are two billionaires, Ray Dalio and Paul Tudor Jones, talking about the present crazy situation of our global financial system:

https://www.zerohedge.com/markets/dalio-ptj-warn-we-will-kill-each-other-if-our-broken-economic-system-isnt-fixed

            However it isn’t all bad news; there are ways that we can deal with the problems of the increasing wealth gap and the slowing global economy.  I will be discussing more about the positive aspects as the weeks go by – there is hope – it will just take a lot of political action in the right direction:

            “Have you noticed that the world is on fire?  The populist/authoritarian regimes are losing legitimacy. The members of the urban middle class in places like Hong Kong and Indonesia are rising up to protect the political and social freedoms.  These days, it doesn’t take much to set off a giant wave of anger.  In Lebanon it was a proposed tax on WhatsApp. In Saudi Arabia the government raised taxes on hookah restaurants.  In France, Zimbabwe, Ecuador and Iran it was raising fuel prices. In Chile it was a proposed 4 percent rise in subway fares.  The world is unsteady and ready to blow. The overall message is that the flaws of liberal globalization are real, but the populist alternative is not working.”

https://www.aier.org/article/history-was-supposed-to-end-what-happened/

Many moons ago we looked at inflation in Chapter 9 and we have still not experienced much consumer inflation (CPI) so far.  “All the past trends that were deflationary are slowly going in reverse. We haven’t seen the effects of this show up in the data yet, largely because the global economy is rapidly deteriorating, which is putting a brake on the demand side. However, even with the global economy slowing, inflation is starting to tick up in the US.  Can the rest of the world be far behind us?”

https://adventuresincapitalism.com/2019/12/04/inflation-is-coming/

The writer goes on to conclude: “I think the road-map ahead is a market crash, followed by obscene fiscal stimulus. As always, I’m trying to think a few steps ahead here. I’m making a list of beat-down sectors who benefit from this change in government policy. I want to be ready to buy as soon as they get serious about unleashing the stimulus.

You need a crisis that’s severe enough that both political parties can agree on stimulus. We’re not there yet, but we will be. If you thought QE was nutty, wait until you see what drunken sailor mode looks like. Inflation is coming. Be VERY careful if you own assets with duration risk.”

This week we continue to evaluate the effects of a fiat currency-based system in which we are all immersed.  Of course the designers of our global financial system, the Banksters, have no desire to let the masses know how it all works.  Take a mortgage for example.  Just do a simple calculation of the total amount of interest paid to the Banksters over the term of the mortgage – you do the math.

            This is all down to the magic of compound interest, the eighth wonder of the world according to Albert Einstein:  “Albert Einstein reportedly said it. “Compound interest is the eighth wonder of the world.   He, who understands it, earns it.   He, who doesn’t, pays it.”

……And the 99% are the ones paying!

            I have been arguing in Part 2 that ‘happiness’ is something that we can all obtain if we are able to address the psychological issues involved, especially in our work environments where we spend much of our time.  John Mauldin via ZeroHedge has a great article about the ‘gig’ economy and happiness in general:

https://www.zerohedge.com/personal-finance/mauldin-americas-full-employment-hides-dirty-secret

Here is the link to last week: Issue 80

 Now that the Brexit final conclusion has been delayed yet again, I will continue to provide weekly updates as events progress:

 Brexit & Election Update – 6th December 2019

The Brexit deadline remains 31st January 2020 and Boris still needs to get Parliament to agree his new exit plan (WAB) during this period: https://www.bbc.co.uk/news/uk-politics-50125338   . You may follow a daily run-down on the current situation from my friend, Dr Richard North as the election fever progresses:  http://eureferendum.com/   I have said before, Brexit is a process, not an event. It’s correct that the UK will stop being a member of the EU if Boris Johnson’s deal passes Parliament and the country leaves on January 31 2020, which is just over eight weeks away. However, that will not be the end of the Brexit process which could take 10 years to complete a trade deal

            ZeroHedge has a good summary of where the Tory party stands in the current Polls – they are likely to win a substantial majority as voting intentions are at present:

https://www.zerohedge.com/political/uk-conservatives-set-win-large-majority

            Since we are talking politics here, this article is worth reading because it refers to the USA and it would be equally critical of UK and the Anglo-American empire in general.  We ask the question:

How can the public, in any country, possibly control the Government if they are being so viciously and routinely lied-to by the Government and by its ‘news’-media?

As we progress our general election here in UK nobody is asking these questions – it is all being covered up as the ruling elites fool the populace into believing that it is all a ‘democratic’ process – worth a read:

https://www.strategic-culture.org/news/2019/12/01/why-second-american-revolution-necessary-for-entire-world/

            And here’s a note from ‘Grants’ about the upcoming ECB meeting with their newly appointed President, Christine Lagarde next Wednesday:

https://www.grantspub.com/almostDailyHTML.cfm?dcid=561&article=2&email=peter%40underco%2Eco%2Euk  Worth a short read!

Parliament has been dissolved and there will be no government in charge until the new one is formed on 13th December although administration will continue as normal because our astute civil service will carry on working essential elements of our economy and social responsibilities.

Details of Parliament’s deliberations when sitting can be found here:

https://www.parliament.uk/business/publications/business-papers/commons/votes-and-proceedings/#session=29&year=2019&month=8&day=25

 PART 2

 INTRODUCTION

(The need for Personal Transformation)

 “There is no such thing as a problem without a gift for you in its hands.  You seek problems because you need their gifts”

Richard Bach – “Illusions”

“We really cannot change the external world nor can we change other people.  We CAN change how we perceive the world, how we perceive others and how we perceive ourselves”

Gerald G. Jampolsky, M.D.  –  “Love is Letting go of Fear”

“People who work together will win, whether it be against complex football defences, or the problems of modern society.”

Vince Lombardi

Cultural features of a debt-based economy

There are many ways which a fiat money system affects the behaviour of ordinary citizens. One of the central features of a fiat money system is that it tends to produce near-permanent price inflation. This contrasts with the workings of an economy based on natural monies such as gold and silver.

Under ‘sound money’ regimes price levels tend to stay flat over the long run or even decline, especially in the presence of vigorous economic growth and technological advancements. We witnessed this throughout the nineteenth century in both Europe and America, where deflationary growth had been the rule.

The reality of price inflation shapes culture in a variety of ways and much of this is deliberate, as it has long been an idea among government planners and ideologues of all sorts, even before Keynes, that ordinary people should be prevented from “hoarding” money.

In a free economy with a natural money system, there is a strong incentive to save money in the form of cash held under one’s immediate control. Investments in savings accounts or other relatively safe investments also play a leading role, but cash hoarding is paramount, especially among low-income families.

By contrast, when there is constant price inflation, as in a fiat-money system, cash hoarding is not effective and other financial strategies become necessary. It becomes advisable to exchange one’s cash for “financial products,” thus offsetting the loss of purchasing power of money through the return on that financial investment.

It also becomes advisable to go into debt and leverage one’s investments. Therefore it is rational to pursue riskier investments in order to find a rate of return that can match or exceed the rate of price inflation. This is true across all sectors, including households and productive operations.

Before the twentieth century and the widespread use of fiat money, debt was far less common and there were cultural imperatives against going into debt for consumption. Broadly available credit for households, for example, was virtually unknown before the twentieth century, and only very poor households fell back on debt to finance consumption.

But in a fiat money system, as price inflation diminishes the value of one’s monetary savings, we are encouraged to adopt a short-term perspective. Thus we need to hurry and obtain credit as soon as possible and obtain revenue from that debt as soon as possible, because savings lose value if we just hold on to cash.

It no longer makes sense to save money for a decade to buy a house, for example. It is much more opportune to go into debt to buy a house immediately and to pay back the loan in devalued money. There is then a generalized rush into leverage in a fiat money system since debt-financed investment brings greater returns than savings in cash or equity-financed investments.

It needs to be stressed that this tendency has no natural stopping point; fiat-money systems tend to make people insatiable in their quest for ever higher monetary returns on their investments. In a natural monetary system, as savings increase, the return on investments of all sorts diminishes. It becomes ever less interesting to invest savings in order to earn a return, and thus other motivations shift into the foreground. Savings will be used increasingly to finance personal projects including the acquisition of durable consumer goods, but also philanthropic activity. This is exactly what we saw in the West during the nineteenth century.

By contrast, in a fiat money society, you are more likely to increase your returns by remaining in debt and continuing to chase monetary revenue indefinitely by leveraging more and more funds.  This is how inflation and debt-based systems over time will begin to change the culture of a society and its behaviour.

We become more materialistic than under a natural monetary system. We cannot just sit on our savings anymore and we have to watch our investments regularly and think about revenue constantly because if it is not earning enough, we are actually getting poorer.

The fact that the fiat money system pushes us into riskier investments also increases dependency on others because one must depend on the good behaviour of those on whom the value of our investments depend. Similarly, the higher the level of debt the stronger is the selfish concern about the behaviour of others who may owe us money.

So fiat money creates an attempt to control others through the political system.  However at the same time no household and no firm individually will have an interest in abolishing the fiat system and putting in its place a natural monetary system. The short-term costs of such a transition would be immense.

Thus we see that we are in a ‘reasonableness trap’ in which one is motivated to maintain the fiat money system in spite of all its downsides, and because the culture at this point is so transformed by more than a century of easy access to fiat money and debt.  We have all been conditioned like ‘Pavlov’s Dogs.’

Analysing the results of a dysfunctional fiat-money system

We can apply economic analysis to explain cultural transformation due to fiat money and it has a very important impact on our culture. This is something we would not be able to see unless we step back and take a longer-term historical perspective.

Of course, there are many other factors that come into play, but fiat money is an important factor, and the system is perpetuated by the fact that everyone stands to lose in the short run if the current system ceases to function. Moreover, given how our modern culture has been shaped by fiat money systems, changing it runs against the very cultural foundations of our present society.

In spite of the many short-term costs, we should nonetheless dare to change this system, and it is ultimately a question of courage, and insight, and of the will.  Of course it will be imposed on us by the coming collapse when the New Economy emerges which of necessity will have to be based on sound monetary principles so lacking in today’s economic reality.

It is time now to prepare ourselves, both mentally and physically, to meet the challenges which will be presented to us over the course of the next decade or two.  Here is a short article which explains the proposition in more detail:

https://www.theautomaticearth.com/2019/11/the-fed-detests-free-markets/

To be continued next Saturday

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Author: Austrian Peter

Peter J. Underwood is a retired international accountant and qualified humanistic counsellor living in Bruton, UK, with his wife, Yvonne. He pursued a career as an entrepreneur and business consultant, having founded several successful businesses in the UK and South Africa His latest Substack blog describes the African concept of Ubuntu - a system of localised community support using a gift economy model.

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robert h siddell jr
robert h siddell jr

The Vampire Squid (Central Banksters) have bought the USA with their printed Fiat filthy lucre and now control all the Levers of Power; the Oligarchs own the Souls of all TPTB and Fiat is their Life Blood; they would all perish without Fiat (the Federal Reserve Bank). Their New World Order Plan has gone to far (they are working to dispose Trump and to implement Rev 13:16,17). To rid ourselves of Satan’s Fiat System and return to Traditional Sound Money and God’s Ways will not be just an adjustment, it will be by their Death and our Rebirth; it will take a new Great Global Economic “Natural Flood Disaster” per se to destroy the Fiat Demons. That disaster has actually begun and it is the Modern Grand Solar (Eddy) Minimum (as foretold in Rev 6: The Four Horsemen of the Apocalypse). Choose this day who you will serve, come out of her my people, prepare to “flee to the mountains” (be a Prepper not a Schlepper).

Anonymous
Anonymous

I have never been much about financial matters. I guess when a person doesn’t have much in the way money of their own, it is not very easy to worry about those who do have money. After listening to all that has been said about the problems of the various financial institutions and many countries around the world for the past several years, I have still to figure out one burning question about all this debt which so many people say is such a drag on the world’s future. Could someone tell me, to whom do we all owe all this money ?? Somewhere down the line there has to be someone, or institution, which is holding all these promissory notes which are to be paid by the rest of us. I, personally, am fairly debt free at the moment. I still have to pay for my utilities and most of the groceries, but I don’t owe any monthly payment to anyone. I don’t assume to have a plan to repay this person, or institution, all the money which is due to be paid; I would just like to know who or what it is and where they might be located. Does anyone out there have the answer to this question? I am not talking about the “all inclusive THEY”. I am truly in search of the name or title of who holds all the notes for the payment of all this money.

Lars
Lars

The short answer to your question is that you the tax payer are on the hook to repay the debt, with interest, to the central bank, in our case, the Federal Reserve..

Essentially the federal government counterfeits ever increasing quantities of money, spends it, and then forces its citizenry via taxation to repay said money to the bankers, who do absolutely nothing to earn it, not even the work of counterfeiting it, and contribute absolutely nothing of tangible value to society.

It goes something like this:

The ((buck)) in your wallet was printed by the Office of Printing and Engraving, an agency of the federal government ( fedgov for short ), at the direction of the Rederal Reserve ( Fed for short ). Fedgov gives that dollar bill to the Fed, which in turn loans it back to fedgov at interest. Fedgov then uses it to buy a product or service from a private entity such as a company or a contractor; to pay fedgov employees, retirees , soldiers, and politicians; or to provide “free” stuff to welfare recipients.

In these ways the dollar seeps into the economy and ends up in your wallet. But you don’t own it. The Fed does. And fedgov has to repay that dollar back to the Fed with interest by a certain date.

So fedgov taxes you in order to make this repayment. However, that’s not enough, because fedgov also owes interest in addition to the principal. After collecting one dollar via taxation, it needs another dollar, or fraction thereof, to defray the previous one dollar debt. Which means fedgov must print yet more money, give it the Fed, receive it back from the Fed as another loan, so that it can repay the first loan.

But this second loan bears interest too. Which soon necessitates a third loan, with interest yet again. And so it goes on and on: an insidious process of issuing money from nothing in the form of interest-bearing loans, making the money supply ever larger and larger, but never large enough to repay all of the previous debt, due to interest.

Obviously, this an oversimplification of one of the central bank’s primary machinations, the colossal cockamamie heist that it is, but I hope it conveys the idea.

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