Thursday, February 11, 2010

2010— Western Fiat-Money Finished? Depression?

2010— Western Fiat-Money Finished? Depression?

By TheDailyBell, Staff Report | 12 February 2010

Sluggish economy leaves many Japanese in the cold … The global economy may be on the mend, but times are still tough for the masses of homeless, jobless people in Tokyo, where the only meal of the day is often a bowl of rice handed out by charities. Although Japan's export-driven economy is back on track, largely due to rising demand from Asia, the United Nations said its recovery was slower than other countries, and predicted only 0.9 percent growth in 2010 compared to 8.8 percent for China and 2.1 percent for the United States.

This sluggish growth, combined with troubles at giant corporations in the world's second-biggest economy, has made earning a living very difficult for scores of Japanese.
"I see no jobs around. It's a really tough situation," Eizo Tsuruga, a 50-year-old homeless man, told Reuters as he sat among others people eating a bowl of hot rice in the winter night. A Welfare Ministry survey showed the actual numbers of homeless had fallen to
15,000 in 2009 from 25,000 in 2003.

Homeless people in Japan have traditionally been elderly, social dropouts, but with the economic situation, the demographics have changed to include laid-off workers, both young and old, and university graduates unable to find work. On a recent Sunday, more than
400 people flocked to a Tokyo park to receive free meals and blankets distributed by local charity Shinjuku Renraku Kai, more than twice the number of people the charity used to see two years ago. Many had queued for hours to ensure they got some cooked rice, often their only meal for the day. "More and more people of all ages are gathering here," said Kazuaki Kasai, a volunteer who has worked at the charity's distribution point in the park for the past 16 years.
— Yahoo

Dominant Social Theme: Sometimes the global economy is down, and sometimes up.

Free-Market Analysis: Is the Western world just struggling through a bad patch? Our argument, voiced with various levels of clarity at various times, is that the West is currently living through a failure of fiat money— specifically a failure of the global anchor currency: the greenback. The dollar is on its way out not because people want it to be necessarily (though some do) but simply because it is failing as a fiat currency. Central bank fiat currencies always fail. China had a number of fiat episodes and the populace was so scarred that fiat money was reportedly even banned in the 1800s. Here's a bit of history on China's melancholy brushes with unbacked paper money:

Fiat Money— China— Flying Money

When the Chinese first started using paper money, they called it "flying money," because it could just fly from your hands. The reason for the issuance of paper money was simple. There was a copper shortage, so banks had switched to the use of iron coinage. These iron coins became over-issued and fell in value.

In the 11th century, a bank in the Szechuan province of China issued paper money in place of the iron coins. Initially, this was fine, because the paper money was exchangeable for fixed quantities of gold, silver, or silk. Eventually, inflation began to take hold, as China was funding an ongoing war with the Mongols, which it eventually lost, largely by issuing excessive amounts of the paper money and not honoring its convertability into specie.

Genghis Khan won this war, but the Mongols didn't assume immediate control over China as they pushed westward to conquer more lands. Genghis Khan's grandson Kublai Khan united China and assumed the emperorship. After running into some initial setbacks with the paper currency, Kublai eventually succeeded, for a time, with the fiat money. In fact, Marco Polo said of Kublai Khan and the use of paper currency:

"You might say that [Kublai] has the secret of alchemy in perfection… the Khan causes every year to be made such a vast quantity of this money, which costs him nothing, that it must equal in amount all the treasure of the world."

Even Helicopter Ben would be impressed. Marco Polo went on to say:

"This was the most brilliant period in the history of China. Kublai Khan, after subduing and uniting the whole country and adding Burma, Cochin China, and Tonkin to the empire, entered upon a series of internal improvements and civil reforms, which raised the country he had conquered to the highest rank of civilization, power, and progress.

"Population and trade had greatly increased, but the emissions of paper notes were suffered to largely outrun both… All the beneficial effects of a currency that is allowed to expand with a growth of population and trade were now turned into those evil effects that flow from a currency emitted in excess of such growth. These effects were not slow to develop themselves… The best families in the empire were ruined, a new set of men came into the control of public affairs, and the country became the scene of internecine warfare and confusion."

— Daily Reckoning.

Interestingly, we can see in the above observations that fiat money first created a wonderland of progress and amusement. That's just what fiat money has done in the West and in Japan as well. It is now happening in China. Wherever fiat money travels it brings tremendous euphoria in its wake, though only to begin with.

Cities are energized with false booms. Farm children flock to the urban environment to take jobs in factories producing ephemeral goods or work at useless government jobs— that are created from tax revenues during the boom time. Initially, because fiat money inevitably has a relationship to government, much of the perfection of society is attributed to a wise, fair-minded bureaucracy. The bureaucracy, by the way, believes it.

Monetary stimulation can go on for years. In America, it's been going on for nearly a century— which is probably the far end of what can be expected. But people can live and die under a central banking regime— which is usually a fiat regime (or ends up that way, anyway). Yes, it cannot be emphasized enough that fiat money (along with its enabler, central banking) is a foundational curse. Just as in China, it funds wars, makes the government look wonderfully efficient and even omnipotent, fools people into believing that the non-essential, relatively useless jobs they have are actually essential "modern" work— and inevitably sets the stage for regulatory regimes that must eventually descend into madness and ruin.

Fiat money empowers corporatism (in the modern age anyway) and distorts civilization by helping to implode agrarian republicanism. It is no coincidence that Thomas Jefferson despised central banking— and was in fact the most famous and influential agrarian republican. We can see the remnants of this sort of society in Switzerland, which has passed laws to maintain small farms. It is difficult to create a totalitarian society— even an ephemeral one— in a land of sturdy farmers. Such individuals grow their own food, have access to water and are willing to defend their land. America was a bit like Switzerland before the Civil War but is not now.

But today, we would propose that the West, and the entire globe, is living through a fiat money collapse. Economies all over the world have been inflated to their fullest and people can no longer buy still more useless gadgets nor work any longer at still more useless and superfluous jobs. Too many useful endeavors have been marginalized and devalued, and phony ones substituted and elevated. An implosion is taking place.

The world is reverting to a kind of formal practicality. In America, car companies have shrunk because there are too many cars, and houses are not being built because there are too many houses. Banks are not doing deals because too many deals have been done. All that is working overtime are the printing presses.

While the greenback is exceptionally at risk we would argue that the same thing is occurring, to a greater or lesser degree, in Europe, in Japan, and even in China— despite all the happy talk about the Chinese miracle. Here's a famous investor on the subject of China:

Contrarian Investor Sees Economic Crash in China … James S. Chanos built one of the largest fortunes on Wall Street by foreseeing the collapse of Enron and other highflying companies whose stories were too good to be true. Now Mr. Chanos, a wealthy hedge fund investor, is working to burst the myth of the biggest conglomerate of all: China Inc. As most of the world bets on China to help 'lift' the global economy from recession, Mr. Chanos is warning that China's hyper-stimulated economy is headed for a crash, rather than the sustained boom that most economists predict.

Its surging real estate sector, buoyed by a flood of speculative capital, looks like
"Dubai times
1,000— or worse," he frets. He even suspects that Beijing is cooking its books, faking, among other things, its eye-popping growth rates of more than 8 percent. [[Not unlikely. They are probably even fooling themselves, as local 'party men'— minor bureaucrats— cook the books to look good (shades of the Soviet 'production miracles'). In any event, despite the supposedly high growth, the national output of electricity has not grown and the ranks of the unemployed seem to be growing.: normxxx]] "Bubbles are best identified by credit excesses, not valuation excesses," Chanos said in a recent appearance on CNBC. "And there's no bigger credit excess than in China."
— New York Times.

Everywhere, major economies are having difficulty. We do not believe, by the way, that this is mere coincidence or even the ill effects of globilization. The 'power elite' know very well how fiat money and central banking work. Those at the top of the economic food chain readily anticipated more power falling into their laps— and ultimately facilitating a worldwide, central economic regime— globalization. But we must emphasize that these same people apparently did not take the powerful democratizing effect of the Internet into account. This is most important.

Conclusion: By putting in place the mechanisms that guarantee endless quasi-collapses without proper governance, the power elite profits inordinately. By not understanding that this time around the entire circus would be available for endless, near instantaneous replays on the Internet, the power elite has put the entire system into tremendous jeopardy— probably even beyond their power to 'patch up'. Too many have run across the 'free-market', laissez-faire arguments on the Internet and come to believe (this time around) that the system is fundamentally unfair and even impractical.

Too many have been witness to and have comprehended the full gamut of central banking's and globalization's culture of antisocial, self-destructive tendencies of unlimited greed of the few at the top. None of this was in the game plan, in our opinion. Yet this seeming unraveling of financial certainty has tremendous ramifications for your portfolios. We might suggest a modicum of gold and silver as you watch the various fiat money economies of the world, especially the dollar, sputter and sink.

But best to bury the physical stuff in your back yard…

  M O R E


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The content of any message or post by normxxx anywhere on this site is not to be construed as constituting market or investment advice. Such is intended for educational purposes only. Individuals should always consult with their own advisors for specific investment advice.

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