News & Analysis
The Recovery Meme and Why It's Just Talk
'End of recession' greeted with joy in defiant Notts ... The end of Britain's longest double-dip recession since the 1950s has been welcomed by leading figures in Notts. The Office for National Statistics yesterday issued a preliminary estimate of GDP growth for the third quarter of 1 per cent – outperforming City expectations. The rise is the largest quarterly increase since 2007, and means the UK has escaped its recession after three successive quarters of growth. John Dowson, head of policy and representation at Derbyshire and Nottinghamshire Chamber of Commerce, said the news was not surprising. Chamber research had shown no indications that the economy in Notts was in a double-dip recession. "Indeed, the latest survey found that confidence levels for firms are at their highest level in five years, with as many as 80 per cent planning to grow their business turnover over the next 12 months," he added. – This Is Nottingham
Dominant Social Theme: Thank goodness Britain is recovering. The world is next!
Free-Market Analysis: No. It's just not true. There is no real recovery in Britain or anywhere else in the world, for that matter.
The banking elites that caused this rolling depression are in full cry about the struggles they are taking to cure it. In doing so, they reinforce the meme that the current system is helpful when, in fact, it is the cause of the problem.
Those that run central banks meet in expensive chambers to plot how much money to print. Then they walk downstairs to the microphones and grimly declare that they are worried about "inflation."
What they mean is price inflation but they just use the word inflation as a rhetorical trick to cover up the money printing that IS inflationary. Having done the deed, they portray themselves as disturbed by it.
And none of them can ever say how much is too much.
How do they know? They don't. The history of central banking is one of blood, tears and poverty. There is no recovery from its great grimness. There won't be, either, no matter how any times it is announced in how many places. And, boy, do they try! Here's more from the article excerpted above:
... He also said: "There are still challenges ahead, with weak global growth and the ongoing Euro zone crisis creating difficulties for many firms. Moreover, whilst the national GDP figures are positive for the manufacturing and service sectors, the construction sector – which is also the least positive sector locally – recorded a decrease of 2.5 per cent in the quarter.
"Despite increased confidence levels, access to finance still seems to be holding back investment plans by local businesses. We believe that with the right measures, together with meaningful deregulation, the Government can help to put the economy firmly back on the road to recovery."
Councillor Graham Chapman, deputy leader of Nottingham City Council and portfolio holder for economic development, resources and regeneration, echoed those views, saying: "There are signs of improvement in the city. We are getting more enquiries about developments and there are four to five potential developments in the pipeline.
"However, it is premature to say that the recession has ended. There is still insufficient demand in the economy to create the confidence to invest and the banks are still far too cautious. But we as a council are doing our utmost to try to counter it."
Yesterday's announcement also referred to how the Olympics and Diamond Jubilee bank holidays had helped with the bounce-back. However, Stuart Isbister, owner of gardening and outdoor store The Worm That Turned in Derby Road, said he had not seen any improvement for his business.
"I've been running this shop for eight years and this year has been one of the worst," he added. "This news is obviously positive but I was very surprised by it. I've not been seeing any signs of the economy picking up. I didn't experience any benefit from the Olympics and Jubilee bank holidays nationally."
You can see the memes churning here quite deliberately. First, the top people in Britain announce the "recession" is over ... and then the powers-that-be attribute its ending to the Diamond Jubilee and the English-hosted Olympics.
These are fairytales. The world's current downward spiral is the quite deliberate result of money printing that causes first booms and then busts. Too much money always distorts the economic system. It's an old banking trick, from what we can tell, but aided immeasurably by modern monopoly central banking.
First they expand. Then the economic rubber band snaps back, leaving people dazed and bleeding. And then those responsible begin to point fingers.
We are supposed to believe a bunch of people sailing up the Thames somehow alleviated the monetary misery of billions. We are supposed to believe that because athletes raced each other in big stadiums, the monetary madness of the modern age has been assuaged.
Central banks may have dropped an aggregate of US$5O TRILLION into the world's markets over the past four years to try to alleviate the current downturn they initially caused. We are supposed to believe that boats sailing up the Thames carrying the Queen and her consort have somehow made THE difference.
Even if there is some sort of "recovery" it can't last. The recovery will be a monetary one just as it was in the 1970s. And when all those trillions start to circulate central banks will be forced to raise rates fast and hard, cutting off whatever "recovery" has been mounted.
In the 1970s Paul Volcker had to raise rates to 20 percent. But the central banks of the day hadn't printed nearly the amount of money they have now. What will it take today? Will rates have to go to 30 percent, or 40? Or even more? Can fiat-using governments really tolerate US$5,000 gold and US$300 silver?
No! We've written over and over that the dollar reserve system died in 2008. What is coming in the future is most likely Something Else. A state-run gold standard. A global basket of currencies. SDRs. Whatever is coming will be more global in scale. The idea is obviously to build a more global government along with a more international money.
Conclusion: People's misery be damned.
Posted by clark on 10/29/12 10:31 AM
My point, Bishoff, was, among various lines of thinking, along the lines of mava's statement: "The majority will never understand the point of the gold standard"
In how many instances in life do People refer to something as a gold standard for that product, industry, whatever?
How widespread is that?
Has it changed over time?
What would that graph/chart look like?
What is the thought process for someone looking at that kind of "gold standard" while being unaware of a parallel with the currency in their pocket?
After it's pointed out to them, how can they go back to looking at things the same?
More on, 'going back', On Us vs. Them:
Click to view link
In Mark's example above, Person A B and C all learn at different rates, how does this tide of awareness shift?
Going forward, will People still refer to other things as being the gold standard, will such referencing expand or contract as things become more obvious as time goes by?
The use of references to other gold standards could be a sort of measuring stick, of many things?
And as a teaching tool,... or as aiding the confusion about the subject of money.
G.M.O.'s drive out the good money,
If they're designed to last forever, they must be as good as gold, right?
Perhaps a funny Person could make a good cartoon video out of all that.
Posted by Bischoff on 10/28/12 02:00 AM
DB: "Interesting points, Ingo, but there have been bond markets throughout history ... "
BISCHOFF: My mistake. I should have made clear that I was talking about interest earned on "gold bond" investments where risk is not a factor, such as "gold bonds" issued by the federal government or well known and stable corporations and businesses.
These are the bonds which determine the "prime interest" rate by competing for the gold savings of individual savers. It is the willingness of individual savers to part with their gold for investment in these "gold bonds" which determines the "prime interest" rate, not a government appointed council.
The fluctuation of the "prime interest rate" for "gold bonds" is too small to present an arbitrage opportunity which could lead to a "gold bond" market. When a "gold bond" market developed in the early 1920s, it was the result of the violation by the NY FRB in selling US Treasury "gold bonds" in secondary markets against the strict prohibition set out in the FRA of 1913. When such market develop, it caused the "distortion" to which I referred.
By no means did I imply that for bond investments to which risk is attached there should not be a legitimate market in which to lay off the riks for a premium over and above the "prime interest rate".
Posted by Bischoff on 10/27/12 08:39 PM
MARK: "If the bond market was 'free' then surely already rates would be higher."
BISCHOFF: It isn't the bond market that requires "freedom". It is the interest rate which needs to be a market "phenomenon".
The existence of a bond market is already a sign of distortion. To understand this comment, one has to understand the difference between the two monetary systems, and how the prime interest rate is determined under each.
The fundamental difference between redeemable currency based on the gold standard, and irredeemable central bank currency is the way the currency is created, and how the "prime" interest rate is determined.
Redeemable currency created under the Real Bills Doctrine, as was all currency in the U.S. until 1933, clears consumer products (close to 90% of all production) from the consumer market. The currency is backed by consumer goods moving to market, and the credit for such currency is furnished by the urgent demand of the consumer for the products. Any difference between the 'selling' and 'buying' in the markets (clearing) is due to savings. The difference that occurs due to savings is cleared with gold. Bread can't be stored to eat when one is old. On the other hand, by exchanging the bread for gold, 'work already performed' can be safely stored as "value" in the form of gold for use in old age. RBD currency makes this process possible.
Gold does not earn interest unless invested. Investment Trusts, not banks are in the business of investing savings. Under the gold standard, the least rate of interest demanded by savers for investing their gold savings is the natural interest rate which ranges between 2.5% and 3%. When gold serves as savings, the variation in the rate of interest on gold bonds is too small to allow arbitrage for a bond market to exist.
A bond market only developed when the New York Federal Reserve Bank violated the Federal Reserve Act of 1913 by selling U.S. Treasury Bonds in secondary markets. This eventually destroyed the redeemable FRN currency created under RBD, and gave us the irredeemable FRN CB currency created with the NBA of 1935 in conjunction with the international bullion standard which lasted until 1971.
CB currency is created by monetizing U.S. Government deficits which is backed by the full faith and credit of the people which put the government in place. It is however a currency which constitutes debt. Circulating CB currency amounts to circulating debt. The debt which is sold requires the payment of interest, and when the interest due is added to subsequent deficits to be monetized, the interest compounds. Compound interest is an exponential function which initially has little effect on CB currency. However, once the exponential growth curve intersects the linear growth of debt, CB currency is kaputt. At that point, monetizing of additional debt only increases the overall debt faster and faster.
The subsequent action of the Central Bank is to suck up all bad mortgage and credit card debt in the banking system and to monetize it. When the effect of TARP wears off, the CB resorts to printing money 'out of thin air to keep the system from collapsing.
When Romney is President, he has two choices. To either let the CB currency crash, or to implore the Congress to make it possible to create a competing currency by letting private banks again create RBD currency based on the gold standard. The currency markets will take care of the rest.
As to interest rates under a CB irredeemable currency regime, the FOMC sets the prime interest rate. This is hardly a market decision, yet all the derivative interest rate SWAPs are based on the FED interest rate as if the decision by twelve people was a "market decision". Nothing could be further from the truth. It is amazing how many people fell for the idea of interest rate SWAPs.
The constant lowering of the FED interest rate keeps the big banks alive, but it kills capital heavy businesses by increasing their liquidation values. Bond speculators knew that the FED would have to lower interest rates constantly. They 'front run' the FED by buying bonds before the FOMC meeting, and then sell them back to the FED after the interest rate is lowered.
Of course, with the advent of TARP and the QEs, the bond speculators have been out in the cold. That's what irks them. They look at a huge deflation of their assets, while the cost of living sky rockets. They are adverse to risking their assets in the commodity markets.
On the other hand, they would be much better off to save some of the value of their assets by converting them into RBD currency and gold bonds. However, this must be done while the CB currency still has some value.
Reply from The Daily Bell
The existence of a bond market is already a sign of distortion.
Interesting points, Ingo, but there have been bond markets throughout history ...
Click to view link
The history of ancient credit markets is fairly extensive. In fact, much of the earliest historical record from the fertile crescent—Sumeria, Babylon, and Assyria—concerns itself with the loaning of money. Hammurabi’s famous Babylonian Code—the first comprehensive set of laws—dealt with commercial transactions.
A small ancient example will suffice. In Greece, a common business was that of the "bottomry loan," made against a maritime shipment, which was forfeited if the vessel sunk. A fair amount of data is available on such loans, with rates of 22.5% for a round-trip voyage to the Bosphorus in peacetime and 30% in wartime. Since it is likely that less than 10% of ships were lost, these were highly profitable in the aggregate, though quite risky on a case-by-case basis. This is one of the first historical demonstrations of the relationship between risk and return: the 22.5% rate of interest was high, even for that period, reflecting the uncertainty of dealing with maritime navigation and trade in those days. Further, the rate increased during wartime to compensate for the higher risk of cargo loss.
Another thing we learn from a brief tour of ancient finance is that interest rates responded to the stability of the society; in uncertain times returns were higher, because there was less sense of public trust and of societal permanency. All of the major ancient civilizations demonstrated a "U-shaped" pattern of interest rates, with high rates early in their history which slowly fell as their civilization matured and stabilized, reaching a minimum at the height of their development, rising again as they decayed. For example, the apex of the Roman Empire in the first and second century A.D. saw interest rates as low as 4%.
As a general rule, the historical record suggests excellent investment returns in the ancient world. But this record reflects only those societies that survived and prospered, since successful societies are much more likely to leave a record. Babylonian, Greek, and Roman investors did much better than those in the nations they vanquished—the citizens of Judea or Carthage had far bigger worries than their failing financial portfolios.
This is not a trivial issue. At a very early stage in history, we are encountering "survivorship bias"—the fact that only the best results tend to show up in the history books. In this century, for example, investors in the U.S., Canada, Sweden, and Switzerland did handsomely because they went largely untouched by the military and political disasters that befell most of the rest of the planet. Investors in Germany, Japan, Argentina, and India were not so lucky; they obtained far smaller rewards.
Thus, it is highly misleading to rely on the investment performance of history’s most successful nations and empires as indicative of your own future returns. (At first glance, it might appear that the above lists of winners and losers contradicts the relationship between risk and return. This is an excellent example of "hindsight bias"; in 1913, it was by no means obvious that the U.S., Canada, Sweden, and Switzerland would have the highest returns, and that Germany, Japan, Argentina, and India, the lowest. Going back further, in 1750, France and Spain were the mightiest economic and military powers in Europe, with England an impoverished upstart with uncertain prospects.)
The interest rate bottom of 4% reached in Rome is particularly relevant to the modern audience. Not before, and perhaps not since, have the citizens of any nation had the sense of cultural and political permanence experienced in Rome at its apex. So the 4% return at Rome’s height may represent a kind of natural lower limit of investment returns, experienced only by the most confident (or perhaps overconfident) nations at the top of their game.
The Austrian economist Eugen von Böhm Bawerk stated that the cultural and political level of a nation could be discerned by its interest rate: the more advanced the nation, the lower the loan rate. Economist Richard Sylla notes that a plot of interest rates can be thought of as a nation’s "fever chart," with upward spikes almost always representing a military, economic, or political crisis, and long flat stretches signifying extended periods of stability.
Posted by mava on 10/27/12 07:51 PM
Awesome comment, my friend! I totally enjoyed your writing.
Except that it seems to me that the absolute rarity will be a person A, B in the middle near the majority, and the vast majority of people will eat C!
It looks to me, that with the above distribution, the process does make sense, as it then serves to redistribute wealth from C thru B to A.
@ Peter VC,
Yes. I think so too. There is a minimal chance for a gold standard. The majority will never understand the point of the gold standard, for one. Secondly, the majority will be looking for a system that promises them the redistribution from the minority's wealth. Of course, they never actually get that, like a donkey never actually gets the carrot, but that is the whole point why they are the majority - their IQ is in the base of the normal distribution chart of IQ, and therefore all the schemes are designed to target them, the majority.
Posted by mark on 10/27/12 12:32 PM
If the bond market was 'free' then surely already rates would be higher. Who would lend to governments, who are already significantly in debt, running budget deficits with no coherent plan to reduce either, at current interest rates. Only those who are regulated to do so (e.g. pension trustees) pushed into doing so (advisors-modern portfolio theory) and when still there is not enough demand then the buyer of last resort is the actual issuer.
Hence the Government Bond market is not free but is openly manipulated thus dragging prices of other assets higher and yields lower as capital is desperate for income. Capital owners do not appreciate that an income stream is only from taking an investment risk and at this stage in the economic cycle should be going to 'old' cash that is gold and silver (no yield as its money/cash)rather than buying investments for an overvalued income stream. If 'they' allowed rates to rise the system fails.
So surely they cant do what they did in the late 1970s to preserve the fractional reserve fiat based system. Surely their only option is a return to a gold standard but not before fiat is so diluted relative to gold that the debts mean little. Hence a steady appreciation in the prices of precious metals until all fiat gets converted to gold at a rate far higher than current. In that event all fiat capital has a choice.
Convert now at current gold prices that are arguably cheap or wait until your capital is automatically converted at a fraction in the future. Hence if three people all own $171185 digital dollars - person A could convert now and buy 100 ounces. Person B waits 3 years and buys 50 ounces at the then price $3522. Person C waits 5 years when a bank holiday is called on weekend and on the Monday the price is fixed at $7044 and they have 25 ounces. Person C represents a significant minority who will effectively have all their life savings and efforts devalued by 75% for the rest their lives. What say the DB?
Reply from The Daily Bell
We tend to agree ... Good points about the bond markets ...
Posted by Danny B on 10/27/12 10:25 AM
Just to add one small thought.Thousands of years ago, it was deemed necessary for "money" to be a store of value. Paper currency has never fulfilled this requirement. Paper currency has never survived.
In 1965, the silver was removed from American coins. In 1965, the first troops went into Viet Nam and the Great Society programs were started. We became the welfare-warfare state. Printing the reserve currency was our free ride. The free ride is coming to an end.
Posted by Bischoff on 10/26/12 11:42 PM
CLARK: "I wonder how many "gold standards" there are in the world?"
BISCHOFF: I am not being snarky, but what's the point of your question... ???
The gold standard is the gold standard. Depending on the amount of gold involved, refined gold is a measuring devise to measure "value", just like a yard stick is a standard to measure distance, or a kilo weight is a standard to measure mass.
A U.S. Dollar, Canadian Maple Leaf, Austrian Dukat, South African Krugerand are all different amounts of refined gold used to measure "value", just as distance can be measured in meters or in yards, or mass can be measured in kilos or British pounds. In either case, a standard is a standard.
So, what are you trying to learn by asking how many "gold standards" there are... ???
Posted by seer on 10/26/12 11:04 PM
In the late 70's Volcker first raised rates but let up too soon and in the early 80's he sustained high rates for many months- Reagan was crying for the FED to let up-business moved overseas and a recession to boot- Reagan cut taxes once and then raised them 11 times. He used large scale deficit spending to prop up the economy which was later helped by gains in computer technology. The 1987 stock crash was hardly a hiccup in the real economy. Also lower oil prices were significant. Since the world is not using money of value and are using what I like to refer to as Tokens, it will be interesting how the Bankers and elite controlled governments try to find some creative solution to the current mess. Since the US FED has not been audited who is to say it does not have a 250 trillion token war chest?
Posted by Danny B on 10/26/12 10:21 PM
Ahh Clark, you mention the eternal McDonald fries.
Click to view link
Genetically modified to never go bad.
Click to view link
If you search on ; [Euro crisis is over], you get 198 million pages. If you narrow it down to the last 24 hours, you only get 59,000.
If you look at the crisis in Britain, you get mixed results.
"Recovery has been weaker and slower than in any cycle for which reliable records exist, including the Great Depression of the 1930s."
Click to view link
So, what's the solution to this problem? It's the same solution for every problem;
PRINT. The newest competitive sport.
"As shown below, the U.S. Dollar (UUP) and British Pound (FXB) tend to be negatively correlated"
Click to view link
So, what are the British doing? 45 % say that they are trying to make ends meet.
Click to view link
Everybody is printing currency,,, which is a very effective way to lower wages.
The law of supply-and-demand works for wages just as well as commodities. When British productivity is at par with Bangladeshi productivity, wages will stabilize.
Posted by clark on 10/26/12 05:55 PM
I wonder how many "gold standards" there are in the world?
On the side of a McDonald's bag the words, 'gold standard' are in bold & gold:
WHY ARE OUR FRIES THE GOLD STANDARD?
BECAUSE ONLY A SELECT NUMBER OF POTATO VARIETIES MAKE THE CUT.
"... What will it take today?
Will rates have to go to 30 percent, or 40? Or even more? Can fiat-using governments really tolerate US$5,000 gold and US$300 silver?"
Exporting the devastating effects of inflation via war, comes to mind.
Couldn't "they" just point to those things and say, "it's ok."
Forever? And the People will believe them? Forever?
Perhaps a simple word, like, 'Freedomista" could break a trance?
For the young anyway...
For the old S.S. recipients soon top revolt?
Lyrics from a 2013 top 40 pop song:
I'm still not sure what I stand for.
Most nights I don't know anymore.
Posted by alexsemen on 10/26/12 01:46 PM
Sweet little lies always is beter than the ugly truth.
I'll should believe only when they will be decimated as the Romans did it.
Until then is just a bunch of lies and statistical propaganda. Business as usual !
Nothign new, as I could remember thay said at least 5-6 times that the crisi is over.
Thank you and best regards DB !
Reply from The Daily Bell
you, too ...
Posted by Peter VC on 10/26/12 12:04 PM
A state-run gold standard ? SDRs or global baskets ? What needs explaining in this reasoning is why - after global currency collapses- public confidence would be instantly available for another of the same... ? I can accept there may be public confidence in a gold standard, but that would be difficult to imagine under war or civil/social unrest circumstances... the inevitable result of the collapse.
I am not convinced. Not that the above is their plan. It probably is. But their plan will refuse to work out as planned...
Reply from The Daily Bell
We didn't say it was logical, just how it seems to work. Remember, most people still don't realize the massive scale of these apparent manipulations ....