Common Cents Matters

I haven’t written too much in the last few weeks.  Really, I’ve just been watching in awe.  I felt that any attempts to sum up the goings on in the financial realm would be foolish and simplistic given the historic proportions of events.

Today I must write though.  Today, or rather yesterday afternoon when markets closed, treasury secretary Hank Paulson, announced that the government of the US and governments around the world will be injecting “liquidity” or “capital” into banks in the US and across the world.

A couple questions come to mind right away.  ARE THEY FR%&KING  CRAZY!!!!!  Whew, got that out of my system.

No, but really, I don’t get it.  What capital are they going to inject?  Honestly, who has the capital?  The US government has no assets, no savings, no war chest.  The only assets they have are printing presses and the ability to issue debt backed by taxpayers.  Let’s take the printing presses first.  Sure they can print up the money and buy preferred shares, but is that really injecting capital?  Of course not, that’s Weimar Republican, hyperinflationary.  Now, how about offering debt.  They can do this too, but isn’t debt or rather bad debt the cause of much of this debacle in the first place?  Who’s going to pay it back when everyone is broke?  Seriously, who is going to pay?

Maybe I’m missing something here, but these are somewhat basic questions that deserve real answers.  I’m not holding my breath that I’ll get any real solid answers from Washington.

The best thing to do, is to educate ourselves and then take the action which will maximize our welfare.  All this is highly inflationary.  One of the best things to do is to buy real assets.  Buy things that have the ability to keep up with inflation.   Real estate can be good, depending on what is bought and how.  For simple preservation of purchasing power, gold and silver can be good for cash holdings.  Some stocks can be good too if they have the ability to raise prices and are products and services that everyone needs regardless of the economy.  In the end though, these types of monetary caused bubbles don’t end well for most everyone.

Again, my hope is that if things get bad enough and enough people are educated, that maybe we can get back to sound money and banking system, with 100% reserve banking and a gold/silver standard.

But its mostly out of my control.  I will write and educate as much as I can, but ultimately my hope and trust lie in a power much higher.  As painful as the process may become, I believe that we will come out stronger as people and as a nation.  The greed and lust for power which has fueled this mess, will be laid to waste like it always is.  God Bless Us All.

I feel like everything has been talked to death already.  Everyone has their opinions.

However, I would like to sum things up at least in my own mind as I personally process and make decisions moving forward.

Credit crisis.  What is a credit crisis again?  Here’s what has happened.  Think of your money as a real good.  Say a chair.  You put the chair into storage, a warehouse or a “bank” if you will.  For some reason, that warehouse has the ability to lend out your chair to others and charge rent on it.  The warehouse not only rents out your chair, but it is given credit by government enforcement for 9 more chairs.  It doesn’t physically have those chairs but it can rent them out nonetheless.  So now, not only is your chair at risk, but 9 additional chairs that do not exist and are backed by your single chair.  If anyone of those chairs is damaged during rental, your chair is at risk. As long as everyone pays rent on their chairs and returns them in whole, there are no problems.  However, if one person breaks their chair and no longer pays rent, that puts all the other chairs at risk.

This analogy is obviously not perfect because first of all, chairs cannot be manufactured out of thin air like money can, and in addition the “rent” paid on the chairs is not paid in chairs, like the rent on money is paid in money.   But as you can see, the whole thing is one pyramid scheme.  Banks are lending out money they don’t really have.  In the very best case, if good loans are made, the system functions and people maintain confidence in the system.  All this is true except for one fact.  The interest or rent charged on the money created is not created.  There is never enough money in the system to pay for the interest.  More credit money must be created to pay for past credit money.  Over time this causes a transfer of wealth from those who produce real goods to those that create credit, plain and simple.

This is called usury and is why all religious texts banned it.  Usury is simply interest, not excessive interest, just interest.

The system is flawed.  It is one big house of cards, and rightfully so.  If anything stops more credit from being created, there is a squeeze of the money supply, which sets off a cascade that could destroy the monetary system.  Which in my opinion wouldn’t be the worst thing.   The problem is not our economy, we are the most productive work force to ever walk the face of the earth.  The problem is the money system itself.  Maybe, if we let it fail as it rightfully should, being the house of cards it is, not to mention an insidious immoral wealth transferring machine.  Maybe if we let it fail, it will force real discussion on a better alternative, maybe one that doesn’t allow bankers and the government to create money credits out of thin air, with little to no accountability from the people, obligating us to debt payments for generations.

Here’s to a cleansing.  May the fractional reserve banking system, filled with valueless fiat currency perish and with it the interests of all those who unnaturally benefit from its propogation.  The idea that we as taxpayers, should foot the bill to maintain the very system that quite literally enslaves us is an affront to all humanity.

Economic freedom for all!

http://home.iae.nl/users/lightnet/messenger/report/billions.htm

I challenge anyone to read the above article and find one single fact out of place.  Find one thing wrong with the analysis.

If you or anyone you know is wondering about our current economic crisis.  Read and forward the above article.  It explains how it all works.

by Murray N. Rothbard

One of the best articles on the subject.  Explains exactly what is going on right now and was written 13 years ago.

Paulson says Americans can remain confident in the soundness, resilience of financial system

Hank Paulson sure can tell a good joke.  Haha.

All I have to say is that our fractional reserve banking system and the overleverage and inflation that comes along with it and a fiat currency, is nothing but a house of cards, a confidence game, sleight of hand.  This is the natural result of a system fundamentally flawed.

My one hope through all this is that, maybe, just maybe, this will be painful enough, for enough people that more citizens will wake up and see the system that we have been lulled into accepting for what it really is, a fraud and grand larceny on the highest of scales.  Steal $100 and get thrown in jail.  Steal $100 billion or more, through inflation, interest on money created out of thin air, and off the backs of the average worker, and we call that the Federal Reserve System, the “stabilizing” force in the largest economy on the earth.

Please, how much longer can people continue buying that same tired old line, or the proposed “solutions” offered by the very system that created the problems in the first place.

Maybe, if enough of us think and learn for ourselves we can help get this great nation back together on solid ground.

Viva Libertas!

Credit crunch, mortgage crisis, credit crisis, these are all terms we hear all over the news and even on this blog.

While we all understand it at some level and know that it sounds bad, what does it really mean.  I mean, what is really going on at the heart of the issue to cause it.

This is by no means the end all be all explanation, but this is what I have gathered so far from the situation.

Our nation is based on credit, the money in circulation is all backed by debt of some sort.  Every dollar that is spent is spent because someone took out a loan or a bond.  There is not a single dollar in our economy that is just a dollar.  Someone, somewhere is paying interest on it.

Think about that for a moment.  That is very meaningful.  All dollars are backed by debt.  If you want to talk about taxes being a drag of the economy think about all the interest paid on the money of our economy.  That is for a whole other post, but its important to establish that for our thought discussion here.

What this means is that there is a certain amount of money/credit created and interest is charged on it.  The interest charged must be earned and taken out of the economy.   The only problem is that, that money literally does not exist.  Its like if I created a simple economy of $100.  If I loaned out the $100 and that was all the money in the economy, and I charged 10%, the 10% interest charged would equal $10.  That $10 literally doesn’t exist in the economy.  In order to get the $10 more money or credit must be created.  If the money isn’t created, then the banker or lender can foreclose and take the collateral.

As long as more credit is issued, people can continue to make their interest payments without being foreclosed on, because new additional dollars are coming into the economy all the time.

The only trouble with this is that when new dollars are created, they too have interest on them.  And that interest must be paid as well.  So each year more and more credit must be created, just so the system can continue.  If you’ve ever looked at compounding interest, you’ll see that this situation is not sustainable.  So from time to time credit must be halted.  When credit is halted, its like musical chairs, everyone is looking for their money to pay off their interest, but there isn’t enough to go around.  The ones who get to the money first, “win” in that they are able to make their payments, albeit they work harder to do so.  Those who can’t find the money are foreclosed on.

This is basically what is happening right now.  For some reason credit has stopped flowing.  Why?  At the heart of it, why?  I’m not exactly sure.  People say interest rates dictate demand for money.  But thats doesn’t seem to be true.  All kinds of people could use money, yet interest rates are very low.  So the money is available, why can’t people get a hold of it, or why is it becoming increasingly difficult?

One reason is because lenders are increasing their lending standards.  Why?  Because much of the credit/money they issued recently is not being paid back.  But why is that?  The amount of money owed for many people is greater than what they can pull out of the economy.  Why?  Because credit is not available.  Its hard to figure out the cause and the effect, but what I do know is that if our currency was backed by an asset, not by debt obligations, that we would have a much freerer flowing economy.

The banks wouldn’t make as much on their interest cartel, but the average citizen would be hundreds of times better off.  The whole system of fractional reserve banking and credit manufacturing stinks!  It has to be one of the largest frauds ever perpretrated in the history of the Earth.

That’s just my two cents.  ;)  Now let’s do something about it.  Know the system, exploit the system, change the system.

As I’m sure most know by now that over the past weekend Fannie and Freddie Mac were taken over in a government bailout.

I’m not going to argue if its a good thing or bad thing, yet.  Rather I would simply like to discuss this move and be able to declare it accurately.

Wikipedia’s definition of socialism is:

Socialism refers to a broad set of economic theories of social organization advocating state or collective ownership and administration of the means of production and distribution of goods.

I am not going to argue whether socialism is or isn’t a good way to organize society.  That is for a different post.  However, by reading the definition one would have to declare, no matter what the reasons for doing so, and how seeminly valid they are, that this move for the government to take over Fannie and Freddie is a socialist move.  The state is taking ownership and administration of the means of production and the distribution of mortgages in the US.

According to the definition of socialism from wikipedia, this move must be classified as socialist in nature.

That’s it.  That’s all I wanted to say.  You may or may not like socialism, but a spade is a spade and should be called so.

Some possible follow up questions to ask ourselves:

Are we legally a socialist country?

If not, do we want to be one?

Any other questions you’d like to ask?  Please do in comments.