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Guest post by Hawkeye – Wall Street fiddles whilst the US burns

Things are hotting up in the precious metals markets. Something is definitely brewing. The bilking continues unabated, yet far from emerging from crisis the Western economies are stagnating (at best).

A few weeks back Max Keiser wrote a piece about how a

“complete disregard for the rule of law is at the heart of the issue as to why the U.S. dollar is selling off. There are simply no rules against counterfeiting, insider trading, and market manipulation at every level of the banking system including the Fed and the Treasury”

This was echoed by an article from Jim Willie called Deflationists and blind eyes:
“As long as the insolvent big US banks remain in operation and are not liquidated, as long as toxic paper repositories rest under the USGovt roof, as long as the USGovt deficits remain well above $1 trillion annually, as long as Quantitative Easing legitimizes the debt monetization without checks, the GOLD PRICE WILL RISE INDEFINITELY. It is that simple.”

So what on earth is going on?
It seems that the answer lies in a recent IMF Bombshell:
“According to the latest IMF official forecasts, China’s economy will surpass that of America in real terms in 2016 — just five years from now.”

That’s not long at all. No-one in the mainstream media is communicating the extent of tectonic shift that is taking place in the murky world of haute finance.
The USA could very soon lose world reserve currency status (along with monopoly pricing of oil in dollars too). And this will be a profound change to the world order. It will radically shake international commerce, the price of oil, gas, food and commodities and dramatically affect peoples savings and investments. Only a small number of people understand or appreciate this. Are they helping to prepare the world for this transition, or are they just plundering the public purse in nervous anticipation?
Wall Street fiddling, whilst the US burns?
There has been much talk & debate about what this dollar end game would look like. Will it be a monumental deflation (an uber Great Depression) or how about a Weimar style hyperinflation? Really though, we can’t have deflation without debt destruction. And for the moment there has been no appetite for (traditional) debt destruction anywhere in the world. Fiat paper contracts are being honoured.
A slightly lengthy article by FOFOA gives a flavour of what could happen to the dollar. FOFOA foresees a hyperinflation scenario to socialise losses:
“Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender.. Inflationists and deflationists implicitly agree on this point… we differ only on the question of who, borrower or lender, will take the hit.. someone will pay. But there is a third option that is missing…the hit can be socialized. Human nature has followed this path for thousands of years. You know the old joke about outrunning the bear? Well, these lenders will influence our financial policy as such. They will try to get their debt securities liquefied first, spend the fiat and in this process outrun you and I. Leaving anyone they can beat to the mercy of the hyperinflation bear eating their remaining fiat assets…”

The hit is certainly getting socialised guys; for the moment creeping inflation, but potentially a rapid upsurge to hyperinflation.
Those in the know then will likely acquire land, resources and physical precious metals (such as Gold and Silver) whilst the fiat valuation is heavily suppressed and before inflation starts running away with itself.
A legalised land grab right under our noses.
How confident are you then, that you’re ahead of the herd?

4 Responses to Guest post by Hawkeye – Wall Street fiddles whilst the US burns

  1. ahimsa April 29, 2011 at 6:59 pm #

    @ Hawkeye

    Re FoFoA's article:

    He makes an curious societal division of debtor vs saver (as apposed to labour vs capital)

    Ultimately, every penny of every debt must be paid — if not by the borrower, then by the lender..

    However, if modernday lenders never had the money in the first place to genuinely lend, in what sense do they end up paying the debt if borrowers default?

    ..there is a third option that is missing…the hit can be socialized. Human nature has followed this path for thousands of years.

    Previously human societies followed the path of debt forgivenss and debt jubilees for thousands of years, why is there currently zero appetite for this debt destruction?

  2. Fungus FitzJuggler III April 30, 2011 at 6:31 am #

    Hawkeye confuses the Golden Rule.

    Easy to do. Normal rendition not relevant the proper version is here: "He who has the means to take the gold makes the rules. "

    USA tortures the innocent, invades other countries and uses nukes covertly, off Aceh in 2004. So? Of course their criminal gangs bend the financial rules. They accumulate all the power that way.

    However, when they come to attack China, in self defence of course, they may get a nasty surprise.

  3. Hawkeye April 30, 2011 at 10:54 am #

    Ahimsa

    A thought provoking question, so forgive my somewhat long response.

    Yes, certainly there have many instances of debt jubilees in history (indeed the biblical term of “forgiveness” is reputed to refer to financial debt “forgiveness” as much as it is to forgiving other unjust actions).

    I guess the point that FOFOA is making (and that I am emphasising) is that direct debt cancellation is so far removed from being a possibility that a third, more subtle means is more likely; hyperinflation is a form of debt cancellation, but one that destroys the currency (and many aspects of an economy) in it’s actions.

    The book “Fiat Paper Money” by Ralph Foster suggests more than 6,000 fiat currencies have disappeared over the years (hundreds in the last few decades alone). Hyperinflation is just one dramatic way in which these currencies die a death (no paper currency lasts forever).

    In instances of debt enforcement I posit that wealth becomes more concentrated, whereas debt cancellation / forgiveness actually has wealth equalising consequences (I hope to produce some Agent Based Modelling of this theory at some point over the summer). Enforcing debt through bail-outs and austerity means that both the borrower and society at large pays the price for bad credit creation. Lenders are not taking the hit.

    Seen in these terms, the issue is then one of understanding whether the forces of wealth concentration continue to dominate. A rapid debasement of the US currency (along with the other interconnected fiat currencies) just escalates the wealth concentration stratagem. It socialises the “hit” just as badly as bailouts and austerity (just much more subtle). And in a way, the strategy isn’t new, Joseph Tainter’s excellent theory on the collapse of complex societies suggests that this approach of debasing the currency was enacted throughout the dying phases of the Roman empire.

  4. Hawkeye April 30, 2011 at 10:58 am #

    Fungus

    Your premise relies on the assumption that the US remains a coherent nation state, and that it actually holds a substantial amount of gold in sovereign hands.

    If the dollar gets a major thrashing then gold holdings will likely end up in private hands with no national allegiance. The US military empire is intertwined with the petro-dollar standard. Once that link breaks, all bets are off.

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