printing money

The trillion dollar coin approach to middle east peace

rafifarber Economics, The Jewish Libertarian Blog , , ,

There have been rumors and shmumors about America’s intention of minting a “trillion dollar coin” and sticking it in the Federal Reserve in order to bypass the so-called debt ceiling, which is more of a debt elevator. I couldn’t help but think of the Simpsons episode where the government prints a trillion dollar bill and Mr. Burns and Homer escape with it and somehow it ends up in the hands of Fidel Castro and the country survives on the wealth of the trillion dollar bill.

It is rare that I am dumbfounded, but this time I really am. I don’t know what to say. The mere possibility of the minting of a trillion dollar coin is so despicably absurd that I’m overloaded with a litany of potential sarcastic remarks that none of them can fit through the door of my mouth as they’re all crowding together simultaneously and are now jammed in the back of my throat and I can hardly breathe. Jon Stewart did a pristine job I must say.

Let me just start by saying that the source of this problem is that some primordial government, when it came in and seized the local mints and splayed the king’s face over all the coins, decided to give the monetary unit a proper name instead of a weight. For example, “dinars” instead of “ounces”. Then the Alice-in-Wonderland concept of “face value” was born, which doesn’t really exist. If instead of “dollars” the term for money was “grams” then money would be tied to weight instead of fancy shmancy names like “dollar” and the possibility of printing a gram of money or a “trillion gram coin” would be a lot more difficult for the government to do. So they had to rename the monetary unit to some imaginary term.

Two obvious questions are these, reductio ad absurdums, but it’s hard to engage in those when the premise you are attacking is itself so intensely absurd on its own:

  1. If you’re going to mint a trillion dollar coin, why not mint 16 of them and pay off the national debt?
  2. Why make it out of platinum? Why not elephant dung?

Better yet, you want mideast peace, right? And you love foreign aid and meddling. Then by God go all out! Why use it for such a petty thing as raising the “debt ceiling”? I say give the trillion dollar elephant dung to Israel, and then we can buy all of Syria, Jordan, Lebanon and Egypt and every single Arab in the country, pay them outrageous salaries to tap dance for us, and give them each their own personal trained pet chimpanzee to give them manicures and shiatsu massages and build them all gold-plated ivory mansions so they’ll be happy and won’t have to do anything after the daily tap dance for the Jews? Everyone over here will be rich, obviously, and therefore at peace. And the chimpanzee population will have a big boon.

There’s only one problem. How are we doing to break a trillion to get all this done? The local Five and Dime? Or the Five and Trillion?

And you want to use it to get around your stupid debt ceiling?

My Lord the world has lost its mind.

And don’t forget, there is nothing qualitatively different between a trillion dollar coin, and a one dollar bill.

Advertisement

The Fed OD’s on QE3 and bonds go down, the real crash is beginning

rafifarber Economics, Gold and Silver, The Jewish Libertarian Blog , ,

The Fed today announced it would print money until the economy recovers. Ergo, it will print money forever, because printing money prevents economic recovery.

Gold and silver went berzerk today. But bonds did not. They went down. You’d expect, after an announcement that the guys who print money are going to be buying bonds with it, that the value of bonds would go up. If a company is bought out by a bigger company, then the stock goes up, because said bigger company is buying a bunch of stock of the smaller company being bought out. This is what happens in normal markets.

Unless…unless nobody wants any of the shares of the smaller company to begin with and they all think the big company is insane to buy up the smaller company because all they sell is solar powered flashlights, so everyone sells all their shares to the bigger company and the stock actually goes down even though the big company is buying it up because EVERYONE ELSE is selling their shares to the bigger company too.

This is what happened today. The government is selling pieces of paper that promise to pay you dollars in the future. They are selling “stock” in dollars. But dollars in the future are worth a lot less than dollars in the present. Nobody wants dollars in the future. They’re like solar powered flashlights. So they’re all selling them to the fed. And bonds went down, even though the biggest buyer just stepped in and said we will buy bonds forever.

This is it folks. The real crash is starting right now. If bonds are going down today of all days, interest rates are on their way up That means the interest on the national debt is about to go through the roof. Every bailed out bank is going to fail. Again. And this time there won’t be any more bailouts.

Get rid of Stanley Fischer and end the Bank of Israel

rafifarber Economics, The Jewish Libertarian Blog , ,

Economic Policy Journal led me to an article in the Times of Israel talking about how African central bankers are on their way to Israel to figure out why our economy isn’t as screwed up as everyone else’s. The answer is, we don’t borrow as much as everyone else. Instead, we just tax Israeli citizens to the point that they think something’s wrong if their mortgage payments go down for some reason.

Many of the average Israelis who I talk to from time to time when economic crisis becomes the subject line believe that we are safe because we have this genius at the helm whose name is Stanley Fisher who is all-knowing and omnipotent and can save us from any crisis. It’s human nature to attribute all the good to one tangible point that you can see. This is the essence of the emotion that leads to idolatry.

There is nothing amazing about Stanley Fisher, except for the fact that he refuses to use his power of printing money AS MUCH as other central bankers. He’s relatively better than most central bankers precisely because he does very little. So what I can tell these Africans who are checking out Israel’s central bank is:

  1. Don’t have a central bank.
  2. If you insist on having one, then just let it collect dust and don’t use it.

Let’s do an analogy here: After the Continental Army won the Revolutionary War, American colonists were begging for George Washington to be their new king. We think that’s crazy, but they knew no better. Get rid of King George, install a new King George. The idea of separation of powers was foreign to them. Even Alexander Hamilton, the guy on the $10 bill, wanted a king, and criticized the Constitution for lacking a provision for a monarch. Hamilton, by the way, was also a proponent of a Central Bank of the United States. Coincidence?

Washington, thank God, refused to be King, and instead we got the Constitution and separation of powers.

Fast forward to today and we want one guy to be in charge of everybody’s money. We think that if we don’t have this one guy in charge, everything will be anarchy. Just like the colonists thought that if you had separation of powers, you’d have anarchy. So we want to crown King Fisher as head of our central bank. We cannot conceive of not having a central bank, just like the Colonists could not conceive of not having a King.

How would money work without a central bank? Very simple. Competition. Different firms would rise coining different monies, and the one that is most trustworthy with the best purchasing power would be the one used in the end. It would probably end up being backed by some metal, if not be that metal itself. No one would use a fiat paper currency if they had the choice not to use it.

So…get rid of legal tender laws, take taxes off gold and silver, and let people use them as money like mankind has been doing for thousands of years. You don’t even have to “get rid” of the central bank of Israel per se. You just have to take away its monopoly control over the money supply and let competitors put Fischer out of business.

Fischer, by the way, was Ben Bernanke’s thesis adviser at MIT. Now the student controls the value of the dollar. The teacher controls the value of the shekel.

I say forget them both. I own gold and silver, something Ben and Stan can’t print away into oblivion.

World War III will be started with a printing press, not a bomb

rafifarber Eurozone Crisis , , ,

Aside from the fact that the mantra is repeated by virtually every media outlet, mainstream and otherwise, why should any Eurozone country defaulting have anything to do with that country leaving the Euro? Except for Yanis Varoufakis, who is virtually the only Keynesian econometrician who seems to have a workable solution for Europe, everyone else just assumes that default equals exit. Why should this be?

Take the United States for example. The US is a dollar zone. All fifty states use the dollar, and California is about to go bankrupt. Is anyone seriously discussing California leaving the dollar zone if it defaults on its debt? No. Miami, where I come from, declared bankruptcy when I was a kid. Did anything happen to my family? No, because we weren’t stupid enough to buy the municipal bonds of a bankrupt municipality. And by the way, Miami did not exit Florida after it went bankrupt. As it should happen in a bankruptcy, those who own the debt lose the money. That’s it.

So why are we even discussing Greece “leaving the Euro”? Why should they? How does that help anything? Who decides if they are going to be kicked out? Who is in charge of the Eurozone who makes these decisions? Why should it even be an option? What is going on here, has anyone asked these questions?

If Greece did “exit,” it wouldn’t be Greece leaving of their own accord. What would happen is that the European Central Bank would stop giving Greece euros to fill their ATMs, and the country would literally run out of currency and they would have to start printing their own. So the answer is whoever is in charge of the ECB makes these decisions.

Who is in charge of the ECB? Mario Draghi, an Italian? I doubt he’s the one who’s going to make the final decision to stop giving currency to a Eurozone member.

Whoever has his hands on the switch is probably in Germany. The implication is that the Germans literally control Europe. They decide who’s in, who’s out, who starves, who lives, who dies. Germany conquered Europe. Again. Without anyone noticing. It’s August 31, 1939, but instead of Poland, the Krauts are about to invade Greece.

It’s interesting. We always thought World War III would be started with a nuclear bomb. It looks more and more likely that it will be started with a printing press.

How the Federal Reserve will lose control of inflation

rafifarber Gold and Silver, The Jewish Libertarian Blog , ,

Over at Economicpolicyjournal, Robert Wenzel is reporting that the Fed is seriously considering another round of quantitative  easing (QE). The reason they’re considering it is that their gauge of inflation, a formula which changes on a whim depending on whether they like the result of their calculations or not, is still low, so there is room to print more money without affecting prices too much.

The reason inflation is low is that in times of economic slowdown, debt becomes liquidated. Debt that once represented dollars becomes nothing. So let’s say Jay owes Mike $10,000 that Mike lent to Jay to start a business in a time of economic boom, say in 2007. Jay got his business off the ground just before the 2008 crash. Mike owns $10,000 worth of Jay’s debt, and as long as the economy is going, that debt is still worth $10,000 because the debt will be paid back. So that $10,000 still exists in the economy in the form of Jay’s debt.

Now the crash happens. Jay’s business fails. He can’t pay back the $10,000. So the value of his debt goes to zero. $10,000 is erased from the economy. The amount of money in the economy goes down, the value of the dollar goes up. Prices go down, so printing money will keep the prices stable.

Problem is, when there is less money in the economy because the Jays in the world can’t pay their debts, the Mikes of the world have less money, so keeping prices stable while people lose money is equivalent to raising prices while people have the same amount of money. Either way they can’t afford to buy as much with the money they have.

The economy naturally wants to deflate now because people cannot pay their debts. And the Fed keeps pulling it the other way and trying to inflate it. What you have here is a massive tug of war, and someone is going to win. That someone is the Fed, because as much as debt can be liquidated and money erased from the economy, the Fed can always, always just print more.

What will happen? After some round of QE or another, probably after the Euro collapses, gold and silver will suddenly become the only preserver of value that exists anymore. Dollars will be erased from the economy, which should push the value of the dollar up, but the Fed will have printed so many of them that it can no longer increase in value. With no Euro, everyone will pour into gold and silver simultaneously.

That’s when those who own gold and silver will escape with their wealth, and those holding paper will be in serious, serious trouble.

Gold and silver are not investments – they’re money

rafifarber Gold and Silver, The Jewish Libertarian Blog , , ,

Last Friday the stock market experienced a sea change. Perhaps even a game changer. Gold suddenly skyrocketed $66 (about 3.5%), and gold stocks went up almost 7% in one day. You can look at this in one of two ways. Either the value of gold went up, or the value of the dollar went down.

The truth is probably somewhere in between, leaning heavily towards the dollar losing value. Gold and silver generally don’t gain or lose value so rapidly with such volatility. After all, it’s not silver and gold that is being magically produced by a Federal Reserve computer. The increase in the stock of gold and silver is rather slow. Watch this ingenious video and you’ll see that the cost of almost everything has pretty much stayed constant since the 1960’s in terms of silver and gold.

Except, of course, for education, which has been so grossly inflated because of government loans that even in terms of silver the price has skyrocketed.

This tells you several things. First, a silver dime or silver quarter from 1964 or earlier (all dimes and quarters were made of 90% silver before 1965) can buy the same thing today that it could buy in 1964. Second, if you had saved all your money in silver dimes and quarters, then you’d have the same purchasing power today that you would have had in 1964. If you had saved in pieces of paper called dollars, you would be able to buy very very little.

Here’s more: The price of gasoline has actually gone down since 1964, not up. If you want to see that in practical terms, then take 10 dimes from 1964 or older. That’s one lousy dollar in legal tender, and go fill up your tank. One dime will buy you a gallon of gasoline. One dollar in silver dimes will buy you 10.

Owning dollars is opening yourself up to government theft, because the government can just print them. Imagine if there was a magical elf that could simply conjure silver out of thin air. Don’t you think the price of silver would go down? Sure it would. You wouldn’t want to own it anymore. Well, there is a magical elf that can conjure up dollars out of thin air. It’s called the Federal Reserve. So why would you ever want to own dollars? After all, they grow on trees.

Why There is No Way for Europe to Avoid Collapse

rafifarber The Jewish Libertarian Blog , ,

Come sit around the fire while Crazy Economic Collapse Uncle Rafi explains why there is no way out for Europe in the simplest terms you’ve ever heard. The key to international finance is this: If a 7 year old can’t understand it, chances are it’s a bunch of bullshit.

I read some more crap today on Bloomberg about the grand master bazooka artillery plan that the European Central Bank has to come up with to “solve the European debt crisis.” Something about “recycling funds via financial instruments through the IMF and out it’s newly defined cloaca that excretes Euros” or something. I had no idea what I was reading. It sounded so sophisticated and financish that it made whoever wrote the stupid thing sound really smart. But I’ll put my life on it that the writer had no idea what the hell he was even writing about.

It reminded me of a psychology class I took in college where I wrote this paper having absolutely no clue what I was even saying, but it sounded very sophisticated. Don’t ask what grade I got.

So here’s the short answer of why there is no escape: This is a cultural problem. In hebrew, Talmudic speak, it’s called a tarbus ra’ah, a bad culture. The basic problem is this. You have X amount of wealth in Europe. But you have X+50 amount of debt, that X wealth can’t cover. So, you have one of 3 choices and a Wild Card:

1) Work your butt off to create X+50 wealth out of the current X wealth you have to pay off all your debt.

2) Print X+50 Euros, thereby not creating any new wealth, but rather diluting X existing wealth to smaller units to make it look like X+50, but really it can only purchase X because prices will go up. Anyway, pay back your debt in cheap Euros and watch the middle class disappear and possibly revolt.

3) Call it a day and default, and watch the global economic system cascade.

Wild Card) Sell Vatican City to the highest bidder for X+100, give the Jewish People 50 for all the stuff that was stolen from us over the past 2000 years and stuffed in Vatican vaults, and pay off the debt with the rest.

Choice 1 ain’t gonna happen. Choice 2 might happen, but then people will lose faith in the Euro, and 3 will quickly ensue anyway. The Wild Card is an option, but I doubt the Pope has the guts.

In life, the truest things are the most simple to understand. Ain’t no complicated “financial recycling” gonna do nothin’. Either you got the money, or you don’t. And you don’t, so you gotta print it, because you won’t give up your precious 35 hour work week and welfare systems, and if you even try, the entire Unionized continent will go on strike because they think they DESERVE printed money, driving you even DEEPER into debt than before.

Heh, good luck Europe. See you on the short side.