In that regard, in the past 10 years, the only thing that has been rising in value against just about everything else is hard assetts led by gold.

If I may, I could post a link to a set of charts I maintain on stockcharts so you could see what I mean in graphic form.

The Euro in particular has been losing ground against not only gold but other currencies too for a good many years now.

All that said, I cannot say whether or not Irish debt is a vehicle for shorting the Euro. It could be I suppose. Anything is possible today. But, in my opinion, there are easier ways to protect against currency depreciation.

Severe Euro devaluation is actually taking place right now. This must be reflected in the yield. Could it even be that British and U.S. speculators are shorting the Euro using Irish debt? Remember George Soros made his pile shorting the Pound.

As Steve Keen eloquently demonstrates in Roving Cavaliers of Credit, credit creation precedes the creation of the currency.

Credit and money are fungible. One changes hands the other is transmitted wirelessly. Same thing.

In fact one of the problems today is that the "value" created by credit which is estimated by the BIS to be over $650Trillion can no longer be supported by the underlying economy. Ergo, the economy is no longer generating enough profit to satisfy the interest obligation needed to service this debt. Hence the various forms of QE which are nothing but more credit.

The key is the marginal utility of the currency which, after 100 years has been exhausted.

I am familiar with the mechanism of fiat currency creation and I think your observations as to the role of inflation are essentially correct.

What I would add, however, is that the fiat currency you are talking about – that issued by nations is no longer the largest currency being issued.

From the beginning of this debt debacle I have argued, and still do, that a good way of understanding what has happened and why, is that the banking system have essentially created their OWN uneregulated currency – a debt backed currency – which they stupidly devalued and whose value has evaporated. The crash of their debt-backed currency IS our crisis.

The banks essentaily abrogatred the right to issue currency to themselves, via the shadow banking and securitzing system. They printed as much as they wanted. They debased it (basing it on worse and worse 'assets' and debts) and were left holding a debased paper currency when it crashed. Since them they have been trying to get nations to replace their worthless paper with our slightly less worthless paper.

During the bubble years their currency, not ours, was the driver and determining force in global finance. The banks renewed interest in our currencies is because they need it to replace the value of theirs.

I have posted many many times on this over the years and have found that more and more bankers and assorted insiders are coming to this view.

Hope this is of interest to you.

There is a limit on size of reply. I don't know why. Google sets these things.

After that, it is clear that it is in the interst of the banks to create as many units of currency as possible. And, guess what! A fiat monetary system is predicated on inflation. And since inflation conforms to the law of diminshing marginal utility, you always need more inflation just to stand still. Thus you always need more units of currency for any given degree of GDP expansion.

So, debt based fiat money is gradually devalued as it moves from the creator, to treasury, to commercial banks, to corporations till eventually it ends in your poket at which point it is at its lowest value because it has been devalued by the prvailing rate of interest of all previous passages. Not only that, but as more units of currency are created in excess of the underlying economy, each unit of currency is inexorably devalued over time.

The corollary to the above is that as money gradually loses value over time, profits progressively concentrate in fewer and fewer sectors of the economy till they concentrate in the finance industy only till, finally, profits concentrate in the hands of the primary dealers (bank bonuses anyone?).

The second corollary to the above is that for as long as banks can maintain a pre-eminent position in the system, then banks can make huge profits in an inflationary environment. BUT by the time inflation hits the point of least effect on the economy, banks can then make huge profits by appropriating the collateral that had been pledged against all previous loans incurred by corporations and individuals during the prior inflationary era.

Now many of you may think that the above does not apply to the UK or France of Germany for example because there are no primary dealers there.

First of all you should know that all countries have a central bank and the equivalent of the USA's primary dealers.

But, even if that were not the case, you must realize that today all world currencies are tied by the magic of the US$ based floating exchange rate mechanism. Hence the Fed's swap lines to assist in bailing out European banks.

So, yes, a restricted number of banks benefits first and third during a normal economic cycle and, when deflation inevitably follows the previous inflationary era, they stand to gain by appropriating real assets.

Golem,

Banks are perceived to be the pillars of the system. That is; the political, social and economic system. Hence the reason politicians are bending over backwards to protect and save the banks.

Most politicians do not understand the Faustian pact they entered in with the banks via the imposition of a particualr variety of monetary system.

Money comes upstream of any human dynamic. The system chosen to manage this dynamic is what ultimately drives all dynamics.

Banks successfully sold a debt based fiat monetary system to the politicians whom in turn imposed the system unilaterally and arbitrarily upon society.

The reason politicians were sold on the idea of fiat money is because it gives the appearance to enable government to spend liberally. But the reasons the banks imposed this particular system is two fold.

On one hand, in a debt based fiat monetary system a restricted number of banks are first and third in line to benefit from every single unit of currency created. This is because when treasury requests the creation of 1 unit of money, the central bank creates the currency and hands it over to treasury at interest. But in order to inject this unit into the economic system, treasury hands this unit of currency to banks. So, in the case of the USA for example, the Fed creates a Dollar bill, gives it to Treasury at interest and then treasury gives it to the primary dealer banks. The interesting thing here is that the Primary Dealer banks are also members of the Fed.

Thus, banks benefit first and third from the creation of each single unit of currency.

The ECB is very different from the Fed, or at least from what the Fed has become. The ECB must still go out into the bond market and actually issue real bonds to real bond buyers. The Fed simply creates money by “buying” its own bonds. In other words the ECB is still a central bank while the Fed has become a government within a government.

What is even scarier is that the U.S. bond market controls the Fed not the U.S. Government. Andrew Jackson was right. He believed that if inter-state banking was allowed it would destroy the Union. Unfortunately the growth of that Union means that the Bank of America may now destroy the world economy. Old Hickory is rolling in his grave.

I wondered how you were doing personally but did not want to ask. I hope you can make it through this reasonably intact. It must be hard.

I am not surprised that the politicians of all parties have been reluctant to get involved in your struggle. For example, I have been watching Brian Hayes for some clue as to what FG is thinking. Brian seems to have excellent PR skills but totally lacking in substance. That is so typical of young up-and-coming politicians everywhere, they are all hat and no cattle.

What about the legal profession? Surely now more than ever Ireland needs a strong legal corps? The young legal graduates should be scouring the Constitution for ways of curbing the power of day-to-day government. Surely this Government acted ultra vires in guaranteeing everything the “banks” touched.

I have always been surprised at how little Irish people understand the power of their Constitution. The reverse is the great strength of American democracy. Any truck driver can quote it in full to you.

The Irish do not seem to understand the difference between their republican concept of sovereignty and the British "Supremacy of Parliament" concept. They seem to think that like Britain they have a sovereign government rather than a sovereign people. I guess the Irish law profession thinks it is still English. They even wear the wigs.

PS. Thanks David for giving us all this excellent platform for discussion.

Another day, another Euro ?!?

Pat, I notice with interest your comment re Fine Gael in general, and Mr. Bruton in particular. To be fair, let me state for the record that the Labour party has known about this for many weeks at this stage. As they told me only last Thursday, they were just busy with more pressing matters. I am not sure that had it not been for an angry Guardian reader that decided to address the issue head-on by writing to TDs (MPs), this would have been raised at all. At the risk of further depressing you, I should probably tell you that although I did not meet with any Sinn Fein politicians, the matter was brought to their attention. A friend of mine, who is a senior professor and head of department at one of Ireland's leading universities, wrote to a Sinn Fein senator and offered to introduce me to him. My friend never got a response.

Once again, I would like to thank Golem and everyone who has commented, for your support. The last 3 years have been very tough. However, thanks to family, friends, and strangers, in Ireland and abroad, I am still around, holding my head up high 🙂

W.