Forests, Fire sales and Mark to Market.

What have Mark to Market accounting rules got to do with English forests and Fire sales?

Officially?  Nothing whatsoever.  In my opinion? Everything.

But it requires reminding ourselves how we got to where we are now.

Back in 2008 the big banks were in fear for their lives, weighed down as they were with hundreds of billions in loans that were defaulting and assets that were losing value as the markets for them plunged and then closed.  The bank’s bad loans meant they had no cash flowing IN with which to pay their own debts.  And their capital was flowing OUT as the value of the assets they had in their vaults declined along with the markets in which they were valued.

They were running out of cash and needed a ton of it FAST. And they needed to stop their assets losing value, or they would be forced to sell more and more of them to raise capital to replace the value they had lost.

The banks had to find solutions to these two separate but related problems.

The losses from bad loans, the so called ‘Toxic Debts’, they solved by getting Henry Paulson to tell Congress that unless it bailed out the banks, there would be social breakdown and tanks on the streets.  The $700 billion Troubled Asset Relief Programme (TARP) was duly passed by a cowed US Congress on 3rd October 2008.  The banks now had a new source of cash to replace that which they were NOT getting from their stupid loans. And that new source was you and me.

The second problem was trickier.  How were the banks to stop their assets from losing value?  The reason they were losing value was because fewer and fewer people wanted to buy them and those who did offered lower and lower prices because the whole market was in free fall.  Not a good moment for anyone to find they had to sell assets to get a little capital.  Such a sale is called a fire-sale.

From the moment the banks realized they were in such trouble that they might be forced in to fire sales, they and their friends began a furious and relentless campaign to have Mark to Market accounting rules suspended.    Mark to market, also known as ‘Fair Value’ accounting simply says your asset is worth what you can sell it for on the open market.  Simple. Or it would be for you and me. The banks raised all sorts complications which I will write about soon.
Whatever your opinion about Mark to Market one thing remains true, the banks were desperate to have these rules suspended because a market valuation of their assets showed they were insolvent one and all.  That would not do. A lot of very rich and powerful people would have found, overnight, that they were no longer either rich or powerful.  

The banks knew they couldn’t stop their assets losing value, so they did the next best thing. They got the accounting  rules changed so they no longer had to tell people that their assets were losing value.  If they didn’t have to tell people, then who could say the assets had lost any value.

After a frantic year of flooding lobbying money into the accounts of the relevant Senators and Congressmen and women, Mark to Market rules were suspended on 2nd April of 2009.  They were replaced by rules called Mark to Model by which the banks could “..use significant judgement in gauging  prices of some investments…”

And suddenly the banks were no longer insolvent and some handy bank-designed ‘stress tests’ were subsequently run to prove it.

Now fast forward to 2011.

Today the nations who bailed out the banks by taking the banks’ debts on to the national debt, are in terrible trouble themselves.  Sovereign debt levels are so bloated that nations are being warned that they MUST lower their debt levels and raise some cash.  And who is warning them? Turns out it is the same banks and financial system whose debts we bailed out.

So far we have borrowed money and printed money and both options are maxed out.  Plus we are now not getting as much cash flow IN to the exchequer because our tax base is shrinking due in turn to  rising unemployment. Two years ago cash flow was the banks problems. Now, magically it is ours.

And now our ever helpful and expert friends in the financial world are advising that we absolutely must cut spending on everything non-essential – which means anything that isn’t a further bank bail out and bond purchase.  (Those we are told are absolutely essential to ensure ‘the recovery’ continues and does not stall.)  And they are further advising that we could also raise some badly needed cash – by selling a few assets!

You might remember how this exactly what was suggested to Greece – that it could pay some of its debts by selling the odd island, or how Ireland could sell off its motorways or airports or electricity grid.

In the UK the advice is being taken up with unsuppressed glee. The British Government has just announced that it plans to sell off a quarter of a million hectares of  woodland that is currently owned by the people.

No one asked us, but don’t worry there will be a ‘consultation’ no doubt.

Our government is not selling this land because it’s an intrinsically good idea to not own any forests or because now is a propitious moment to sell. The government is selling because they say ‘we must’, in order to tackle our debts, whether it’s a good moment or not,  And let’s face it, in a recession it’s not a good moment. Thus it is a ‘forced’ sale – a fire sale.

But who I ask will have the money to buy all these forests? Will you?

The banks have cash. And what is more so do the bankers who work there.  Take RBS for example.  In 2009 RBS made a loss of 3.6 billion pounds.  It had no money to pay anyone for anything. But that didn’t stop them because we had put into the banks tens of billions. So the bank, decided to reward the very same bankers who had bankrupted the bank and lost 3.6 billion that year alone, 1.6 billion pounds in bonuses.

The bank did not pay that money. Remember the banks had no money. It had lost all its money. WE paid those bankers.

Now what do you think those bankers will do with 1.6 billion pounds in bonuses. What to buy?  Oh the decisions!  I know how, about a darling little woodland. There are going to be plenty for sale within easy reach of The City.

And for those big commercial forests, well, what will be needed there are some bank loans. So the banks will loan the money, our money, to companies and funds and ‘high net worth individuals’ (other bankers) who want to snap up a forest on sale at fire-sale prices.  And the banks will turn around and trumpet how they are lending in to the real economy!

The entire sale aims, according to the government’s own figures to raise about £140 – 200 million.  The debt we have saddled ourselves with as a direct result of bailing out the banks, according to more of the government’s own figures is somewhere between 800 billion and 1.4 trillion Pounds. 200 million from the forests will be 0.2 billion or between one four hundredth and one seven hundredth of the debt paid off!  Worth it?  A good use of the nation’s forests.

“Every little helps” though, doesn’t it? And those leases will be up in only 150 years during which time we won’t miss them, no restrictions on access will have been introduced and absolutely no harm will have come to them.  Trust us, we’re bankers!

I wonder why Mr Cameron and Mr Osbourne, feel it will be better to get this widow’s mite from selling a half to three quarters of the last remaining open public woodland into private hands rather than squeeze 200 million back from the banks whose bail out caused our debts to balloon as they have?

Are we selling things because it will really help then long term health of this nation, or are we doing so because this is a perfect opportunity to strip the nation of assets at fire-sale prices?  A perfect privatization.  Push the nation into a fire sale which does what the Tories have always wanted  and set up  the banks for their promised recovery by letting them buy up assets at knock down prices.  Two victories for half the price of one.

And in the logic of fire sales, as one nation sells at knock down prices it lowers the value of similar assets held by other nations.  Ireland won’t be able to get more for its forest than we sell ours for. The logic of fire sales, the reason the banks were so appalled at the prospect of their own assets being sold this way, is that fire sales create a downward spiral. Just exactly the buying opportunity banks love when they are fire is burning someone else’s house down not theirs.

You see banks have a love hate relationship with fire sales.  They hate having to sell their assets at fire sale prices but love it when anyone else does.  

40 thoughts on “Forests, Fire sales and Mark to Market.”

  1. Even more blatant is all the hand wringing about whether and how to regulate bank bonuses.

    Typical government behavior. Create a problem, pretend to find a solution. Spend gobs of money in the process.

    Bonuses would not be a problem had governments not pumped public funds into the banks in the first place.

  2. And I'd like to remind people of the one ongoing massive fraud that is a direct consequence of the suspension of mark-to-market rules in favor of the banks.

    In circumventing mark-to-market, banks can not only appear solvent but, more importantly, can retain investment grade ratings.

    As investment grade worthy entities, banks are by far the preferred investment for institutional funds.

    Institutional funds are, amongst other things, insurance and pension funds; your insurance and pension funds.

    This is THE ongoing bailout nobody is talking about.

    But get this! Bonuses are paid out of total turnover. Thus, institutional funds making their way to banks result in large sums out of which the largest bonuses in history are being distributed.

    Plenty of money there to buy forests and trinkets with.

  3. This is the very definition of crisis capitalism. Stir public fear of debt & disaster, con the public into selling off our assets at fire sale prices, and walk away with cheap assets they can rent back to us at usurious rates almost in perpetuity.

    I'd criticize the public for being so gullible, but as we've seen, democracy is broken. We can demonstrate & call our representatives all we want — they don't care.

    The worst aspect of this is that it's entirely unnecessary. Public debt is not a problem. The UK govt can pay its debts whenever it wants. There is no threat of bankruptcy, nor one of massive devaluation.

    It's a con job, pure & simple, a war over control of resources (financial & physical.) They have the power of govt behind them, so they loot at will, regardless of how many people oppose austerity.

    They won't care about our opposition until their continued presence on planet earth is threatened. Meanwhile, they're betting that our standard of living still has so much further to fall that we won't fight back until it's too late.

  4. Re forestry, have a look at Private Eye:

    http://www.private-eye.co.uk/sections.php?section_link=hp_sauce&

    (In case it appears uncertain to you, the last symbol is an ampersand.)

    As I commented elsewhere yesterday evening:

    "This article shows just how misguided the policy of selling off our forestry really is. Unless, of course, the true intention is simply to give some of the Tories' wealthy friends an opportunity to enrich themselves further at public expense."

  5. Holy Maloney!

    One of your best pieces. I love the phrase “A perfect privatisation” – a flawless description of the subtle war we’re in.

    If we have to fight, one step at a time, here is a link to the 38 degrees petition against the woodland sell-off:

    Save our forests

    The thing is, us Brits have been very good at asset stripping our own country for a while now. Adam Curtis’ Mayfair Set gives a compelling account of recent economic history. Part 2: “Entrepreneur Spelt S.P.I.V.” shows how Britain’s productive industry was ripped up and sold off in the 60s and 70s.

    Slater was just the hors d'oeuvres. Thatcher, Major & Blair the main course. Whereas the Condems are merely the icing on the cake.

  6. Golem XIV - Thoughts

    Hawkeye,

    Thanks. 38 degrees is a good organization. I have signed the petition.
    Curtus is a good film maker. I thought the Mafiar Set was very good.

    Ken,

    Thanks for the link. A GREAT lead.

    You probably already know this but, the International Forestry Fund, which Mr Ahern is helping with their aquisitions in Ireland, also bought up forests in Scotland last year.

    International Forestry Fund is a joint venture between Dublin based IFS Asset Managers and Swiss and Liechtenstein based Asset Manager Helvetia Wealth.

    I shall watch out of their name when it comes to Greek or Portuguese forests as well.

  7. It's just beyond sickening, this one (signed the petition)
    the reach of these lucifarian pricks just knows no bounds. the world is their playland, their carnival of infinite gorging & murder & lies upon lies.
    one can only hope that in the next world true justice (way worse than their wildest dreams could conjure) will be served to them, over & over for eternity. Amen.

  8. LOL. Golem: Yes, my moral outrage is palpable.
    Aside from being pissed off about the endemic corruption in society, I'm a barrel of laughs!

  9. Hi Golem,

    Time for me to come off the sidelines! I have been avidly following your blog for about three months now after seeing a link on a Guardian comment to an article on the banking crisis.

    I read Debt Generation over the Xmas break and have tried to stay up with the arguments of your extremely informed contributors. Right from the outset of the crisis I felt that the orthodox view as proposed by the financial establish had a false ring to it and nothing I have learned since has led me to believe otherwise.

    In fact, in recent weeks, I have begun contributing to the debate on Guardian Online under the user name Hyperzeitgeist. Only today I have posted a link to this blog in response to a particularly persistent troll demanding "evidence" of the "conspiracy" to bail out the banks. I doubt he'll follow it but hopefully some people(a little more open-minded) will – which has a nice circularity to it considering that is how I found you in the first place.

    Keep up the good work!

    Kindest Regards,
    Les

  10. Golem XIV - Thoughts

    Hello Les,

    It's kind of you to put a link to the blog. Thank you. Those links really do help a lot.

    I am glad you have come to join us on the pitch. We can do with all the contributions we can get. I shall look forward to any you feel you can make.

  11. G & gang: Back in the 70s, we were mired in a another financial shakedown. Us 'Merkins had to wait hours to gas up the gas-guzzlers (being a kid back then was pure magic –no implied sarcasm. We had GREAT music & films back then & stuff we bought was actually made in the USA).
    Sorry to digress.
    Peter Finch espouses rage like nobody's business in Network (classic 70s film)& think he won a posthumous Oscar, too:
    http://www.youtube.com/watch?v=dib2-HBsF08

  12. Just returned with the dogs from a walk in a private forest ( a fantastic sunny day, nice a crisp under foot, a joy ), no restriction on access or charge, a few noisy woodmen cutting a few dangerous looking trees down, but thats country life for ya! and a bobcat keeping the paths serviceable for public use.

    it has many routes, picnicking areas, wildlife zones all well marked out, as well as fishing areas and bike tracks, if I had read your post before I left I would have obviously rioted and smashed the place up, as I should rightfully own it, obviously through the righteous state or other dead hand organisation manned by Guardian readers earning six figure sums.

    In fact the idea has attracted the attention of the local bird watchers who wish to restrict the happy ramblers kicking up the habitat of the very rare honey buzzard by buying up and managing the area better than it is done at the moment, what's needed is a re-education committee obviously, probably based in some city govt. building.

    after all its only the private sector that is corrupt, it must be the profit motive?

  13. You know what suprises me more than anything? Why has none of these shysters been shot or publically assaulted? These filthy swines have brought this country to her knees and still we do nothing. What on earth is going to make the people of this country angry for gods sake?

    What we need david, in my opinion is direct action, the only thing that government and banksters understand, just think what mr diamond is thinking today as he gets away with the biggest rip off the world has ever seen. I wonder after consulting his family, which mercedes or ferrari he has decided on for the next few months?

    And now they want to sell off the life-blood of our land? You know what, I am fuming we just sit here and type rather than do something about the abject distruction of our country. The time for talk is over, we need to stop one and all who would put us in perpetual servitude to criminals.

    I am mad as hell as what is happening in our country, and I WANT to stop it, what do I do? Who do I go to? The establishment is corrupt, the media is corrupt, they are all corrupt, we should stand as one and take these mother fuckers on. Pardon the language, I am fuming about this.

    A hostile takeover and no bullet shot. Where is our backbone?

  14. Hi Sean,

    Thanks for clearing that confusion up for me. Your clear logic has swung me round. Collective ownership of property / land obviously just leads to people "rioting and smashing the place up".

    After all, only the state / Gvt can be corrupt.

  15. Golem XIV - Thoughts

    Steady inthemix96.

    It might seem like we're doing nothing with all this typing but we are in fact doing the most revolutionary thing. The process of unshackling ones imagination and being able to help others to do the same is the first and largest step in the disintegration of the hegemonic views and assumptions which have hitherto bound us all.

    Violence is seductive and even to talk of it is cathartic. But it plays into the hands of those who would discredit all oposition.

    This issue, for many many people, will bring together disparate and simmering discontents and bring them to the boil. This is a stick fashioned for us to beat them with. We should say a silent thanks for the greedy idiots who thought it up.

    Sean,

    Wrong side of the bed today?

  16. David, great post as usual. Apparently, as Ken points out, here in Ireland plans are afoot to privatise Coillte, the state-controlled forestry body that owns 7% of the land area of our country. The government maintains a fiction (refuted by the EU) that Coillte is a private company, which means that it falls conveniently outside Freedom of Information legislation, even though the only shareholders are two government ministers.

    For anyone who wants to know more, here are some good links:

    http://fisnua.com/?p=442%20 (decent summary from the page of a new political party called Fís Nua)

    http://www.woodlandleague.org/ (excellent site on Coillte and Irish forestry policy)

    A couple of stories from the Sunday Tribune:
    http://www.tribune.ie/article/2010/dec/05/aherns-international-forestry-body-could-own-7-of-/
    http://www.tribune.ie/news/home-news/article/2010/dec/19/bertie-ahern-in-expenses-paid-trip-to-china-for-fo/

    A nice pic of Bertie on an IFF junket last year schmoozing with representatives of the China Investment Fund:
    http://www.helvetia-wealth.com/the-international-forestry-fund-presents-to-the-china-investment-corporation,143.html

    And here is a petition you might want to sign:
    http://www.thepetitionsite.com/2/help-save-irelands-forests/

  17. Sean, I understand where you are coming from. It means you CARE. There is NO justice in this society. Period. Which is why I stated in previous comment that these barbarians will see divine justice.
    If you are near London, there is a HUGE TUC march on March 26. . . at least we may as well use our freedom of speech while we still have it.

  18. Last day of the petition dudes.

    Les, good luck with the troll 😀

    I'm sure you guys must have heard of Micheal Ruppert. I watched the documentary Collapse yesterday which rings true to dah-sab's control of anything useful as they all know the end of days is coming, nothing is getting fixed (insert Inthemix96's post here).

    One positive was the 100th monkey. Wonder what number we're up to?

    Inthemix96, if your anywhere near South Wales there is a public meeting on thursday HERE

  19. You know what suprises me more than anything? Why has none of these shysters been shot or publically assaulted?

    (Insert disclaimer re: advocation of violence here) Yeah, I wonder about this as well. There was violence all over the shop in the 1960s, but that torrent seems to have been reduced to a drop or two here & there.

    I think the answer is that while individual people are rarely the target of political violence, anonymous groups of people are — suicide bombings, airport bombings, etc.

    Maybe those prone to political violence have concluded that killing one person at a time doesn't make much difference, as the person is just replaced with someone equally reprehensible. And it seems to make a more explosive, so to speak, point when dozens are killed at once, rather than one person.

    So while eliminating one particularly awful person might be satisfying in the sense that this particular person is no longer around to perform awful deeds, the chances of that changing anything are pretty much nil. But these days, big ol' bombings get people's attention, and sometimes even start wars.

  20. Golem XIV - Thoughts

    This was posted by Inthemix96,
    but under another article.
    I took the liberty of moving it
    to where I think it was meant to be.

    David and Teri, Got you loud and clear, and thanks for that teri, if i'm near london, I will join you all. This is beyond parody at times, some of the bull these folk spew from their mouths is astonishing. I mean come off it, how on earth is it in any of our interests to sell off the nations forests? Who thought that pearler up? Who thought we would follow it hook line and sinker? As sad as it makes me, you know what? They will sell them anyway, no matter what we say, no matter what we do, it is a done deal. One more nail in the coffin of this once great and proud land. As I said earlier, a complete hostile takeover, and not a bullet shot. What have I brought my kids into? Where only the greedy and corrupt prosper, where only the criminal and sociopathic make the real choices? This has got to change, if not for us, then our children, or those not yet born.

  21. Interesting article in Bloomberg today:
    “Unlike other nations, including the U.S. and Ireland, which injected billions of dollars of capital into their financial institutions to keep them afloat, Iceland placed its biggest lenders in receivership. It chose not to protect creditors of the country’s banks, whose assets had ballooned to $209 billion, 11 times gross domestic product.
    Iceland’s minister of economic affairs, says the decision to make debt holders share the pain saved the country’s future.
    With the economy projected to grow 3 percent this year, Iceland’s decision to let the banks fail is looking smart — and may prove to be a model for others.”

    Iceland proves Ireland did wrong thing by saving banks

    This is the root of the current problem. We can’t remove the asymmetry of “privatised profits and socialised losses” without restoring privatised losses.

    Surely, without making debt holders “share the pain”, we’re not quite “all in this together”, are we?

  22. Who says you can't renege on your debts?

    "Iceland's minister of economic affairs, says the decision to make debt holders share the pain saved the country's future.
    With the economy projected to grow 3 percent this year, Iceland's decision to let the banks fail is looking smart – and may prove to be a model for others."

    http://www.bloomberg.com/news/2011-02-01/iceland-proves-ireland-did-wrong-things-saving-banks-instead-of-taxpayer.html

    Surely, without making debt holders "share the pain", we’re not quite "all in this together", are we?

    (P.S. Sorry for re-posting, but thought this went through, but it seems to have disappeared!)

  23. Thou seems to protest too much. A current theme here is – Are we in a democracy or not? If we rule out the vote-rigging electioneering machines of the Western Democracies which, of course, is supported by the MSM (see 2004 US Presidential Election), we definitely live in a democracy. I'm constantly amazed by my fellow Americans who still buy into the two-party BS of TPTB. It is just mind-numbing how friggin' stupid and rationalizing my fellow Americans really are. So that leaves CRISIS! I've taken to provisioning myself for at least a year, and strongly vocalizing my support of everything TPTB are undertaking. Kind of like "Reverse-Psychology." Oh the banks are great… oh that Obama he's just great… oh those Egyptians are all terrorists… And you'd be amazed how the dumb-bastard Americans eat that up! And with that continued march toward feudalism eventually there will be CRISIS! And then things will definitely change. And remember the poor people (Serfs) will outnumber the rich people (Royals)BIG TIME! The only really bad thing is my suspicion that "The Royals" will go to extreme lengths to support their continued rule over their Serfdoms. But to counteract that – as we saw in Russia and now Egypt… once the people get the military on their side… well it's all over for "The Royals" after that. If you know military/law enforcement types… talk to them about what they'd do if ordered to murder, torture or erstwhile go against their own people… direct them to Oathkeepers… http://oath-keepers.blogspot.com/2009/03/oath-keepers-declaration-of-orders-we.html, Open their eyes to the fact that they're Serfs just like the rest of us. When "The Royals" lose the Army, Navy, Air Force and Marines… well that might just be a great place to start!
    As far as democracy? There really is two ways to go 1) educate the voters or 2) hurry their march toward Crisis. I think #2 will be a whole lot quicker.

  24. @old dog – followed your link – AAAAARGH!

    We have bought WHAT? Our sickly cut-stricken country just bought WHAT? Half a trillion dollars of US-govt debt???

    Have they no idea how worthless that paper is? Its almost certainly the now-proven-empty MBS sold to them by the banks..

    Let me get this straight ala Golem:
    The banks are insolvent and trade their worthless paper for nice shiny new QE dollars with the US govt.

    Who now turn around and sell the worthless paper to the british people for their solid pounds. The british govt are then short of cash and cut everything to the bone & raise taxes.

    Eventually the worthless paper is taken to the market to sell it and all of a sudden mark-to-imagination is replaced by mark-to-market reality. Worthless paper turns out to be, well, worthless.

    Guess who has lost out? Not the banks that's for sure.

    They are laughing at us. May they laugh all the way to their eternal damnation.

    The truth is, the USA is now playing 'too-big-to-fail' in the same way the banks have been.

  25. richard in norway

    ben gabel

    the US has been playing the too big to fail game since reagan and been getting away with it

    where do you think the banks got the idea from

  26. @ Inthemix

    there have already been anecdotal instances of retribution taken out on bankers and politicians in, for example, Alabama. I reported on a few cases on my blog.

    The thing is that as soon as this type of action becomes more common and spreads, that will be the signal for the authorities to create a diversion that, this time around, will be a global conflict in my opinion. But it is MY opinion … which is worth exactly what you are paying for it… but that is the logical ramification of deliberate currency debasement (debt based fiat money will always and everywhere debase the currency).

    @ Ben Gabel
    Western currencies and most other currencies today are Dollar based and draw their worth from a system of floating exchange rates. This is a fancy term meaning that each sovereign pledges to buy other sovereigns debt.
    For all intents and purposes, the floating exchange rate dynamic is now broken seeing that all Western sovereigns are unable to spare any money once they are done monetizing their own sovereign debt (quantitative easing).
    So now, any floating exchange rate action that is going on is necessarily carried out via convoluted and very opaque transactions (i.e. swap lines) and inherently involves more QE ergo more artificial credit creation. Things are so opaque in fact that entities like the Fed as of last week successfully maneuvered to have new legislation passed whereby any losses won't appear on their books.
    Anyway. All that is to say that at the end of the line, the creator of the currency must co-opt its allies to give the appearance of viability. Hence other than having the Primary Dealers buy their own country's sovereign debt and quickly turn around to sell it back to the Fed, the USA also needs the UK and other countries to keep the gig going as long as possible…
    But it is a gig… and we are at the end of it… we are horribly close to the final denouement and, from where I am standing, it looks ever more like a war somewhere that will employ our jobless and our homeless and our hungry as cannon fodder…
    It's been done before… it will be done again…

  27. Rebecca,

    People at the turn of the last century found it hard to believe another great war would be possible. The industrial revolution was then just beginning. Steam and electricity were revolutionizing every day life. Biology and chemistry were making medicine more effective. All the sciences were making great strides and Darwin's theory was keeping people busy to refute his findings or mesmerized in wonder.
    War was furthest from people's mind.

    Anyway. The observer effect ensures that things will happen exactly because they are unexpected and nobody is looking at the issues that lead up to a particular outcome.

    Also, when you think of global war, it helps if you disregard the reasons for hostility towards another nation. This coming war like many before it, is a war of expedience.

    When large swathes of Western society will be in quick succession unemployed, homeless and then hungry and when, at the same time, the governing elites will be caught red handed in scandal upon scandal as it is happening, it will not take much to coalesce the social unhappiness of people in different countries into a revolution. Notice in this regard what is happening in developing nations.

    But Western leaders cannot let revolution happen in the West. If they allowed revolution to happen in the West, in one fell swoop we would be proved to be no more righteous or moral than your garden variety Moubarak or Mugabe.

    So, before any revolution will take hold in the West, our leaders will create a diversion and pack us off to the front.

    This is what it looks like from where I am standing.

    Debt based fiat money logic dictates that the efficiency of the currency wanes over time till it loses all effectiveness on the wider economy. We are there today. But whereas in 1929 it was only America that had reached the limits of monetary policy and in 1971 it was only the West, today monetary policy has lost traction globally.

  28. I reside in the Middle East. From my vantage point, I see a number of things. On one hand, I get to interact socially with people ranging from the local elite and common folk as well as expatriate "expert" consultants and tourists. On the other hand, I experience first hand the cognitive dissonance born of what I hear and read from the main stream press and people I meet and the reality on the ground.

    Expatriate experts and diplomats by and large are thoroughly out of touch with reality not only in the geographic area where they happen to be posted but also at home. Common folk too, be they foreigners or locals, have a hard time making the part of things but generally speaking, they firmly believe what they read in the main stream press… and most truly believe there are foreign evil forces at work to destroy "our way of life". Even those whom purport to be well informed and capable of objective critical thought feel they are well informed because they consult a wide variety of sources. The thought that the main stream press may not be a reliable source of information does not even picture as a remote possibility.

    This is all to say that the majority of Western population can easily be swayed to take action against some hapless sod in some faraway land whom, incidentally, can also be blamed for the misfortune that has befallen us. Because they hate us for our quality of life.

    I will hope for your outcome to materialize but am preparing for what I think the outcome will be.

  29. @ guidoromero,

    I hope that if the US is stupid enough to try to manufacture yet another war in the mid east, that it will only result in a catalyst for people all around the world and in the US to say ENOUGH!

  30. Uh! Middle East.

    This is the thing. What is afflicting our monetary system today is our inability to expand credit markets. Ergo we have lost the ability to induce that type of inflation that results in a general rise in prices that in turn result in a nominal rise in fiscal revenue. Today you are witnessing inflation in commodities which in fact act as a tax on consumers thus negating a general rise in prices (the creator of the currency can create more currency but cannot decide where it is spent – most economic actors are trapped in debt so that more money made available does not result in consumers making use of it in the wider economy – it instead is used by investors to hedge against the debasement of the currency and by emerging market producers). Rising commodity prices also curtail the purchasing power of emerging economies more severely because developing societies allocate a much higher percentage of income to food than we do in the West.

    So, in an economy predicated on consumption, rising commodity prices result in reduced GDP thus reduced fiscal revenue.

    The whole thing is made worse by low industrial capacity utilization (diminished pricing power) and by my pet peeve, diminishing marginal utility of debt.

    Put it all together and what you begin to see is that regardless of where the war starts and for what reason (we are not short of potential triggers: from Venezuela to North Korea via Iran we have plenty of sacrificial lambs we can throw out the window) the next war must be taken to a geographic area that roughly snakes from India, through China to South Korea and/or Japan.

    … I can hear you think "WTF!"… 🙂

    You see. Bringing industrial capacity back to the West today would do little to solve our predicament because we already have sooooooo much industrial capacity globally that building even more capacity on our shores will collapse everyone's pricing power.

    So what is the next best thing you can do?

    You have to somehow reduce everyone else's industrial capacity. And while you are at it, wipe out significant chunks of infrastructure (roads, bridges, dams, power lines, ships, ports…) so that after the war is done, we can start lending some more fiat money for the reconstruction.

    … and Bob's your proverbial uncle… the health of the debt based fiat monetary system is restored… if only temporarily….

  31. Here is something a propos I came across today:

    http://www.lewrockwell.com/reed/reed197.html

    Excerpt:
    "And of course we are herd animals with a formidable tendency to attach ourselves to groups – it doesn’t much matter what groups – and fight other groups. Thus football teams, bowling clubs, political parties, and wars. Patriotism is exactly the instinct that makes people cheer frantically for the Steelers against the Packers, and armies are just Crips and Bloods with more elaborate switch-blades.

    All of this I suppose explains why so many are either flatly uninterested in the war or, à la Fox, very interested but without knowing anything about it – where it is, who is fighting whom and why, how the place got that way. Emotionally it is the Bulls vs. the Lakers. Intellectually it is an empty jar.

    And yet it remains, or seems to remain, that the public, almost all of it, has not the slightest grasp of the war – and, by easy extension, of anything else outside the borders. When I listen to Bill O’Reilly, I want to hold up a placard behind him, asking his audience: Where is Yemen? What is the capital? Have you read a single book on Afghanistan? Read any book on anything? Heard of Eric Margolis? Can you distinguish Sunnis from Albigensians?"

    Add to the general ignorance, the much more dangerous ignorance of what animates our societies; i.e. the monetary system.

    Starting wars is easier than you might think

  32. Forests are a subject that many people feel very strongly about, and past attempts to privatise them have run into stiff opposition. Yet the money that can be raised by selling them is really very small compared to the national debt. The TPTB are surely aware of these things.

    Perhaps this is an issue that the government is ultimately prepared to concede, but only after it has acted as a lightning rod for public discontent. Meanwhile more important (to TPTB) decisions get made under a reduced public gaze. This could be similar to the way in which some people think that Tony Blair used the fox-hunting issue as a distraction around the time of the Iraq war.

  33. The history of civilisation on this planet, is full of examples of fallen empires, destroyed mainly by the same type of people, as the greed ridden power junkies at the top of our now various piles of crap, who, as usual, think they are in total control & everything will follow their plan. The mass of people are basically just trying to survive, & would prefer not to question the party line, it's easier & a lot less scary to see things in black & white, to do what you are told, to play safe & unfortunately from my experience, a lot of people are capable of acting as badly as their masters, if given the chance. Milgrams experiment proved that. It all reminds me of ancient Rome, with it's invented bogeymen & bread & circuses. I have this sneaking feeling that this latest experiment in civilisation might well implode, like the planets resources, it doesn't seem sustainable. I imagine a trigger, maybe economic, maybe an enviromental event, I don't know, that will cause a chain reaction, causing our already shaky dominoes to fall down, one by one.
    We, especially in the West, seem to have this idea that everything will just carry on in the same old way, like people probably did just before the Black Death turned up. We seem to have that attitude of " It will never happen to me/us " despite all the historical evidence to the contrary. I hope I am wrong about this, maybe we can pull ourselves back from the brink, I hope so, but when I switch on the TV & see the kind of people who are in charge, & have always been in charge, I think it will only be by default. Despite all this I am blessed with a lunatic optimism, we have to at least try & keep chipping away, not that I can do much, I am busy trying to survive myself.
    PS thank you for having me realise that I am a wave & commiserations on the loss of your Mother.

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