The further a society drifts from the truth, the more it will hate those who speak it. ... In a time of deceit, telling the truth is a revolutionary act. George Orwell

Saturday, April 10, 2010

Money matters

I am glad to present another interesting essay written by Dozent (Stan P.), this is a continuation on the subject of Baby Boomers culture (that we fondly refer to as "Monkeys"), this time discussed in the context of economy and money.  I hope you will enjoy it.


Stan (Heretic) wrote Re:

I found that being too "business"-obsessed in the sense of seeing monetary rewards in everything is also a sign of a "monkey".   The reverse is probably also true. Real people want to be paid real money but they (we) are not too obsessed with it. Playing games with monetary reward, that is withholding it when due and rewarding arbitrarily when it is not warranted, is _their_ signature.


I always knew it and I have acted upon it.

What is money (I mean real-money) ? It is equivalent of work or in other terms a rechargeable work-battery   :-)

I like to work. It is normal. Why should I be obsessed with WORK.  If you can not make money then you do work nobody wants.  But the problem is: you NEVER KNOW what will sell.

A few years ago I found your "marketing research.on your sensors a little funny, but "harmless" so I said nothing.  Simply estimating the potential size of the market is a good thing.  But that as far as I would go.

I know "if the product WORKS for me then it will most likely work for others".   I veered off topic. "Monkeys" are obsessed with money because they can not do any useful work. For them money is NOT an equivalent of work. No wonder they print it - they can not not see the equivalence. They either "hustle" money or receive it for being loyal to the boss.  They can not earn it on the open work market because they have no marketable skills.  They can not make things other people need.  They are obsessed wit it because it is their constant problem.

Mind you, this definition automatically defines who is a "human" [in our sense] and who is a "monkey" [figuratively, not literally, in a cultural sense, S.B.].    The critical words are "what people need".

It means that a singer like lady Gaga is a human being because she creates something "people need" and are willing to pay for.   It means she is working for her money. It is a kind of work you and me do not understand, but we can not be Astronauts either.

The definition of "useful work" is that is has a "monetary value" on the market. Loyalty and arse kissing does not have a monetary value on the market though it does have value to the Top Monkey and is rewarded accordingly. However, nothing has been created neither by loyal followers nor the boss.  The money, being an equivalent of work must be stolen by a form of "taxation" or simple extortion.

This defines instantly the role of the government.   What government creates ?   Services ?   What services ? No, the only "product" government "creates" is SECURITY.   Mind you, it is a marketable product and people are willing to pay for it.   Providing security is a full time job.
Now what is a value of a well equipped army.  That depends.  If you are facing Hitler or Genghis Khan, nothing else matters.   The problem is a professional army could not stop Hitler.  If fact, it was wiped out and proved completely useless.   In the end a few million of regular folks had to leave their stores, their factories, their fields, they had to learn to fight and they kicked ass.

So the security it is not worth 50% of MY EARNINGS.   If it is, it is time to make weapons and go to war.

There is a reason why the "monkeys" do not understand the connection between work and money.   For them, there isn't any. No matter how hard they "work" ie talk, go to meetings, make noise and other efforts nothing happens.

There is no product, no buyer, no sale and no money.

Now we can go back and create some definitions.  

[Goods and Services]

To state the obvious: people need things.  In order to survive people need goods and services like food, shelter, clothing, tools etc...     These goods have to be made. For the sake of efficiency and quality work specialization is required so most of the goods we need is made by other people.  By definition services are provided by other people.  Primeval societies "found" things they needed. There was a very high "intrinsic" component in goods.  We hunted land animals and fish, collected nuts, dug roots, used wood, bone, native gold, obsidian and flint.  With few exceptions like fish we have exhausted the available supply of  things we could find.  Now ALL the goods have to be made by human labor.

[Trade and Economy]

The second factor is an economy of scale. It was difficult to kill an animal to catch a fish or to make a bow. It was even more difficult to produce "high tech" product like a bronze axe or a gold ear-rings. It required a skill and a know how.  Once the smith made first good axe, it was easy to make 10 or 20 more.  Then one could trade them for some beautiful sea shells    :-)      You know I am serious there. Trade is as old as humankind.   What was the first trade?   Well, the Bible is probably right: a woman exchanging sex for food though a Snake had nothing to do with it!

[Money, Value, Currency and Fake Value ]

Trade started as barter. Money was invented later to facilitate the exchange.   Money is a concept. It is a measure of "value" humans attach to goods and services.   Value is the desire of humans to "own" or "consume" goods and services.   However, money has an weakness. It needs a medium to be implement in practice.  A medium like sea shells, iron bars or gold and silver.   The medium has to be convenient to carry, indestructible, difficult and expensive to produce,  impossible to fake, easily recognizable and uniform (that is why diamonds are not money).    It has to have value to humans but it can not have any utility value so it will not be destroyed.    It has to be rare and expensive but not too rare nor too expensive.

The only medium of exchange that survived the centuries is gold and silver.   Over time, gold and silver has become money though it does not have any use and little utilitarian value.

Gold and silver money has serious flaw - the supply is limited by the availability of metal.  However, this is alleviated by increasing the velocity of money and creating credit.   Velocity of money is a fancy name for reuse.   A buys from B, B buys from C etc...  the same money facilitated multiple transactions.

Credit is a legal note created by a creditor, and backed by his tangible assets.   It is an obligation to buy back the note after the prescribed time for the principal plus interest.  This obligation must be enforced by law.   Money is an equivalent of labor.   It works like a rechargeable battery.   It "stores" human labor in a convenient form for later consumption.   However, people rarely need a pure human labor like the "professional" services of a doctor or lawyer.   In most cases we need "goods" ie. things which have been made by labor. The labor itself is hidden from consumer  in the "value" of these goods.   The value of the "product" is a measure of a desire of people to consume it.   Thus, "money" is an equivalent of goods and labor and a store of value ie. desire to consume.  

Credit is equivalent of work to be done in the future by the debtor in exchange for money borrowed from the creditor.   To account for the risk to the creditor the borrower has to pay interest.

Currency is a credit note issued by the government as a legal means of exchange.   In theory, the government promises to buy it back at any time for money.  The government is a debtor, the saver is the creditor.  It is a cheap credit as the government does not pay interest [or very little of it].   Money can not be easily created.   It has to be saved and pooled to create capital.  

Money is an asset and will hold value for as long as people desire gold and other rare objects.

Currency is a piece of paper. It has value as long as the government says it does. This "value" can be wiped out with one stroke of a pen. Currency is someone's liability. It holds value only as long as the issuer is credit-worthy and can pay back its debt..

Gold Rubles and gold Krugerrands are money . The Reichsmarks were currency. It lost all real value on 9-May-1945.

In the mid 20 century something curious had happened - currency had become "money".   The liability has become an asset.  The piece of paper acquired value backed by the creditworthiness of entire nations.  It is not the first time it has been tried.  The kings of France tried this.  The kings of England tried this.  The results were rather sorry - the kings lost their heads.  The current massive experiment lasted 70 years for over 3 generations.  One could think it was successful, but the fraud was just so big it took a very long time for the results to first appear.  Now the cows are coming home.  The currency will go to zero again, but that is a subject for another essay.

This simple definition of  "money" and  "currency"  has a very far reaching consequences.  First, it provides a clear distinction between human producers and parasitic consumers.  Second, it provides a clear distinction between money and currency.  Third, it clearly defines the role of the "government".

There are many people who have no skills or no desire to produce anything. Yet they need the manufactured goods and services in order to survive.   I call them "Monkeys" because just like the monkeys they tend to congregate into troupes and many are actually destructive.  The critical statement is this: since Monkeys do not make anything they can not "earn" money.  They have to steal it or extort it.  They congregate in groups of alike individuals and use agression to hustle a living.
The Currency is NOT money. It is a piece of paper. It obfuscates the role and the very nature of money as a deferred labor.  It enables the incompetent, destructive "monkeys" to pretend they also create "value".

However, currency is designed and promoted as the equivalent of money thus the equivalent of labor but unlike labor,  it can be printed at will.   It makes "credit" cheap.   After all, all it takes is to print a piece of paper.   It makes savings an oxymoron.   The banks do not need savings to issue credit.   Sooner or later credit printing gets out of control and the whole fraud unwinds.  We are witnessing it now.

The only products government can manufacture and sell is law and security.   Personal security.  It is a legitimate role and a legitimate products.   In fact, it is priceless.  Laws permit economies to function.  It enables property ownership and civility.   Personal security is the first step to political freedom which has been proven to promote wealth creation.

This has become a book. The real point can be made starting here with the "Monkeys" taking over the government in the times of prosperity and the replacement of  money with currency.  The system starts rotting from the top and the disaster is unavoidable.

I have no desire to write this book.  I know you know the end.  We both know the resulting cycle is very long.  In fact, this may well be the explanation of the Kondratiev's super-wave.  There has to be a longer cycle - about 3-4 generations.  In short, the cycle starts with competent people and real money and it ends with "Monkeys" in charge and worthless paper currency.

See you tomorrow.
Stan P.

(Text in brackets [] and quotes added by Heretic)
Update 24-April-2010.
More comments posted on this subject, see under the previous article.


John said...

This is interesting--nice work.

Stan (Heretic) said...

I am posting more comments by Dozent:

I think we have to explicitely state a few observations:

1. There were ALWAYS more "monkeys" [he means free-loaders, "looters" or "Baby Boomer" type of characters, see our previous essays] then humans. But in the situation of scarcity and survival "monkeys" congregated around competent hunters or war leaders

2. The LAW has been created over centuries to protect the property of "monkeys" not wealth creators. The law protects the incompetent property owners. There is nothing wrong with it, except that the law does not protect wealth creators.
For example in Rome the law allowed the slave owner to force the slave to work for free and keep the proceeds. It was a classic "monkey" paradise.

3. The patent should - in theory protect the rights of the inventor
In practice it protects the rights of "patent owner" who never invented anything.

So here is an unpleasant conclusion: In the environment of plenty work does not count. What is the difference if you have 5 microwaves or 7 microwaves ? 3 cars or 5 cars ? In this situation work is depreciated paper money triumph and "monkeys" are victorious. Sooner or later it leads to shortages.

You know what ? Yhis just might be the mechanism underlying the Kondratiev waves! [Note: originally he put Elliott, I corrected it, H.]

In short: high productivity and "good times" brings oversupply and deflation for the value of work. Tabuns [hordes] of people do not have to work. Entitlements are growing and so are appetites. Taxes are always growing (counter-intuitive) to support the
lifestyles of the ever-growing ranks of "civil servants" and "corporate management". Patents are owned by lawyers and corporations. Sex is triumphant.
Wealth creators are screwed.
Eventually the abuses stiffle the "system" (see Greece, Argentina). The government can not raise taxes. First, they borrow. Next, when they can not borrow they monetize debt. Finally they just print money. Nobody is working.

Shortages of "pork" begin. In the old days this was the moment of opportunity for Atilla the Hun.
Now wars are more bloody and less popular, so it takes longer, but the result is the same.
We can now estimate how long it takes: Greece joined the Euro in 2002. By 2010 they robbed the country and were 400 billion in debt. If they did not join Euro, it would take longer but the result would be exactly the same.
The Big Government was already in place.

In 1940 the America was just as corrupt and inept as today. WWII changed everything. The current crisis was thus inevitable. I am afraid the Swiss invented the only way out of this conundrum. The only way to prevent abuse and the infinite growth of central government is almost no central
government ie. downloading the government functions and taxes to the local level. It means all countries with a strong central government are screwed in the long term.

Staszek [aka Dozent]

Stan (Heretic) said...

More archived discussion - pardon - rant, between Dozent, Heretic and Dav0 on the subject of money wealth and our ruling "apes". Begins with a full quotation of David McWilliams' article.


A matter of life and debt

I met a small businessman during the week whose business is down by a third this year. He used to have a business with an annual turnover of eu 1 million in 2008 and 2009. This year, turnover is down to eu 650,000. So he is slashing prices and doing deals to stay afloat. He is optimistic that he can survive, if this is as bad as it gets. If there is another slump next year, he’s gone.  He also told me that one of his main landlords was his local council, which owned a site he used for storage. His business needs this land, which is not being used for anything else and is only useful for surface storage of machinery. So his turnover has slumped, his prices have been slashed and his margin has evaporated, but the council still put up his rent this year. He went to the council, and explained that he was barely surviving and couldn’t pay.  The council responded by saying it didn’t care and it also had to survive. He made the point that, if he went bust, the council would get nothing, because there was no other business around to take up their land. The council acknowledged this, but said that, based on previous years’ margins, he could easily afford this.  In short, the civil servants concluded that, if he was still in business, he was wealthy enough to pay the extra rent.

[to be cont]

Stan (Heretic) said...

- 2- [cont]
For them, there are only two states of private business: either you are open, in which case they can saddle you with any bill, or you are closed, in which case they will find someone else to pay the money. The problem is that both sides are hurting. The council has seen its money dry up. The cash it was getting from planning applications, rezoning and the like is gone, so it needs to get cash somewhere else. It sees the businessman as a revenue source, rather than a wealth generator. For the businessman, his business is down, his overdraft has been cut and his working capital is now his diminished cashflow. He is facing austerity, combined with a credit crunch and a rent hike. He sees the council as a bloated government organisation that needs to give him a break. This is what austerity looks like in a hard currency system, and it is by joining up the dots, from bottom to top, that we see why our current obsession with the euro is killing us. The euro limits the amount of credit in the country and forces deflation. But, without credit and inflation, the inherited debts will grind us all down. When you have disparate countries in a currency union, you get huge variations in demand. In the good times, too much money flows in, creating the illusion of wealth. This creates expectations of inflation, so people front-load their spending to catch up with a moving target.

In bad times, too much money flows back out, creating the reality of stagnation. This creates deflation where prices are falling, so people postpone spending and hold back. When you can’t print your own money in a deep downturn, the recession gets worse. It also goes on for longer than necessary. The businessman in the above case goes bust – and, ultimately, so too will the council. Having squeezed all it can out of the businessman, it must turn to someone else or cut back dramatically. So taxes are raised. But the more taxes that are raised, the more the people who have money take their money offshore. We saw this classic behaviour in Ireland in the 1980s and 1990s with deposit interest retention tax (Dirt). If we don’t do a deal between bankers and debtors, where both sides take the pain and debts are restructured with a significant portion of debt forgiveness, we are simply going to blow the currency apart in the next big debt crisis. The Greek crisis isn’t the real thing. It is just a warning sign of what is to come. In geological terms – given that we are all volcanic dust experts now – Greece is the smaller volcano whose eruption is the warm-up act for the really big one.

The most obvious solution is to change the currency arrangement by concluding that the German economy is too strong for the rest of us and should go off on its own with its own currency. History also tells us that this conclusion is not radical, but actually quite normal. Either the government presides over this currency change in an organised fashion, or it happens anyway, in chaos, through capital flight, currency speculation and a financial crisis. Consider what is happening now, just five days after the bailout that was supposed to save the euro. The demand for gold has skyrocketed in Germany over the past few days. Ordinary Germans are reacting to their government’s willingness to print money in order to bail out everyone else. Fearing inflation, they are buying gold. Meanwhile, in Athens, the financial markets are full of rumours that Greeks are hoarding euro notes with German serial numbers. If Greece leaves the euro, they can redeem these German-issued notes at their full value. (The assumption is that euro notes printed by the Greek central bank will be worth much less.)

Stan (Heretic) said...

-3- [cont]
All the while, the euro is weakening against the dollar, yet politicians talk about having borrowed hugely to save the currency. However, experience going back to the 19th century indicates that, after a huge credit bubble, the choice is simple: either you can save the currency or save the economy, but you can’t save both. If European governments want to keep the currency, they must impose austerity on their countries in order to squeeze more out of the budgets to pay the debts that their countries and peoples incurred in the boom. They transfer the debts of the private sector to the state, or vice versa, with guarantees and backstops. So the marginal euro in tax revenue goes to pay the rotten legacy of history, rather than to build the foundation for the future. What European governments don’t seem to understand is that you can’t have a weak economy with a strong currency. The only way you can sustain that is by borrowing even more now to plug holes, which is precisely what the EU is doing. The fundamental truth that our establishment has yet to appreciate is that a strong currency comes from not having any debt, rather than from incurring more debt.

Real business thrives as long as the currency in use is accepted by all, and there is enough of it around to lubricate the economy. The history of currency changes is dramatic. There is no easy way to do it, but the wealth of a country is real wealth: the wealth of people, the brains, talent and the growth of the economy. If an economy doesn’t grow but tries to pay back huge debts, it will turn into a debt-servicing agency, which hollows out the productive marrow of the society. This is not a recipe for success, but a harbinger of disaster. If we want to be a dependency of the European Central Bank, then giving eu 7 billion (which we don’t have) to Greece is the right way to go. If we keep going this way, Ireland will end up with a huge EU-subsidised public sector, a small but highly productive multinational exporting sector and hardly any domestic small businesses in the middle. Is that what we want?


Stan (Heretic) said...

-4- [cont]
From Stan P.

Date: Fri, May 21, 2010 at 8:07 AM
Subject: Curious !!!!
To: Stan B.


This is both curious and precarious. The author reminds me of Mr. Mieczyslaw Rakowski, (the minister of propaganda of communist Poland).

On one hand, the guy seems sincere. He is writing objectively about the reality and seems sympathetic to the plight of small business.Then he writes the followin conclusion: The euro limits the amount of credit in the country and forces deflation. But, without credit and inflation, the inherited debts will grind us all down.

This statement expresses one gigantic lie and one gigantic fraud. A lie is "inherited debt". No sir, you did not inherit any debt! This debt is brand new. The money were borrowed by your banks and your government who engaged in a "carry trade" and run a currency Ponzi scheme. While I can not be sure, I am pretty sure the Author salary and bonuses were paid by this "inherited" loans - at least since 1995. This was the ONLY source of cash and credit.

The fraud is that "Euro is killing us" because it "limits the amount of credit". He would obviously prefer that the Government could issue an "unlimited" amount of credit to continue to pay his salary, his bonuses and to fund his indexed pension plan.

This is pure Kali's logic [Sienkiewicz book character - "theft is only when somebody steals from me"] or shall we dare to say "Greek's Logic". Then he says "people front-load their spending...". Ah, so that "people" and Euro are responsible, not the government and its paid journalists!

Next he writes "So the marginal euro in tax revenue goes to pay the rotten legacy of history, rather than to build the foundation for the future". According to this statement the Government and its "tax revenue" should build the "foundation for the future".

Finally he concludes "you can’t have a weak economy with a strong currency". That is simply not true. The example are pre-WWII Poland and Portugal. You can have a very strong gold-backed currecny with a very weak economy. There is one condition: Government CAN NOT print money. Which means the money has to be backed by gold and silver. This forces you to live within your means whether you like it or not.

The one thing he is right about is debt. Too much debt. Here is my thesis: you will ALWAYS have too much debt and money printing in the FIAT monetary system. The governments will print because they can. One does NOT and CAN NOT have huge debt in gold based system. The lender will think 3 times before lending an ounce of gold [note by SB: - providing that it is not a high multiple fractional gold system as in 1920-ties USA.]. Gold is "precious" for a reason!

Stan (Heretic) said...

-5- [cont]
[respose by Stan Dozent P. to McWilliams]

Dear Author,
You are going to find out the hard way that Governments are building nothing except themselves. Capitalism refers to "capital" for a reason. Government is to "govern" not to "build" even if it was capable of doing so. If you have not learned it in school, you WILL learn it in life - the hard way. You deserve the punishment the laws of economy and market forces are about to inflict on you.

Europe is in deep s**t because the money is FIAT, Backed only by the government promise. Currency is not an asset. It is a "bank note". It is debt of the bank to the depositor and saver. The currency is not gold. Gold is one of the means of implementing it. Currency is a measure of human work, human ingenuity plus the natural resources in a usable form.. (Usable means extracted and concentrated or at least technically and economically possible to extract). Money is a promise of work to be done. The Governments broke this promise by printing money they can not buy back. They treated the currency like paper it is printed on and paper it has become. FIAT money could work if and only if it is treated just like real gold - unprintable and undestructible means of exchange.

Your Government broke the promise it made when issuing the "bank note". Currency is a bank debt. It has become a bad debt because the borrowed principal will be paid back fractionally. You will ALL all pay for this, regardless how weak or strong your economy is. Just like the Germans in the 1923 - You will all learn NOT TO F@@K WITH MONEY.

Stan P.

Stan (Heretic) said...

-6- [cont]
David Coffey wrote:

Wow. Stan(P) you have some good points. I don't think McWilliams is on govt. payroll but he could be accused of not being vociferous enough in his criticism. I don't know Rakowski so can't comment on the comparison.

I definitely agree with the fundamental premise that the Euro is ultimately flawed because it is a FIAT currency. I do know in Ireland that McWilliams tried to advise people to assume some personal responsibility for their finacial futures. Particularly in regard to property.

He was a staunch critic of the widespread attitude that because people's houses had appreciated significantly, that they should not regard the value as an asset and borrow against it. He made a short series of programs where he parodied people who remortgaged their houses to buy SUVs and chrome fridges and have their back gardens decked installing BBQs etc. Not that it's wrong to buy nice things, just that it's wrong to do it with borrowed money and 'perceived' wealth. You saw this first hand yourself when you stayed with me in Lucan. Have we been short changed by our govts and European currency?

You bet!

But individuals must burden some responsibility for their own predicaments too. I can't speak for other countries but myself, had first hand experience of people who considered themselves to be rich and acted as such, just because their house had appreciated in value. I used the funds from my house as real capital to fund a business in an effort to generate real wealth and consider myself to be a little different from my peers in Ireland. I believe that our governments in Europe have acted criminally in bailing out our banks and using our money to fund bloated civil services with about as much use, as a hind tit on a sow. I can say that having heeded McWilliams advise 10 years ago, I didn't succumb to the Irish meme and though I am not rich, I didn't assume personal debt on luxuries in the manner of my peers and at least consider myself worthy to criticise with my head in the air.

Stan (Heretic) said...

Stan B. wrote:

Stanley P. wrote:

Stasiu, show it to Kinka!

While it is nice to know one detail on HOW they operated and have a written confirmation of the outright fraud we KNEW for quite a while the fraud was involved - not just stupidity. You can bet the Icelandic Government KNEW and ALLOWED IT. There is very little room between "aggressive accounting" and fraud. The "aggressive" is the one who gets away with it. 8-)

The question really is - why they did it? They have borrowed 600 billion [eu] and "invested it". Why they needed more? To pay 6% "interest" to attract more "investments"?

We know German and other European banks participate in "naked short selling" and got so used to it they consider it "normal". When Merkel banned it, they named it an "assault" on the "free market". We know central banks and Governments engaged it it and treated the "public purse" as an ATM. They still do.

No, they have not raided the taxpayers for the "common good" nor to fight a war. They do it to line their own pockets and live well without. working.

We know CDS are a fraud since its inception. It is a casino-style bet with risk borne by taxpayers financially backed by them.. Mind you - the forces at work are almost incomprehensible to us. They are stronger then all these fraudulent Governments and banks. I think knowledge it is a fraud is quite widespread. Just what the heck you do! You can only wait until this plays out and try to survive. As an exercise. $100 is still "money" to me.

Can you IMAGINE what a Billion is? No? Then try to imagine a TRILLION. What is the difference between $5 trillion on the balance sheet of the FED which they can not possibly pay back and the printing press of the Weimar Republic? In the Weimar days it also WORKED for a while!

The bottom line "F@@K THEM". Protect yourself and your family.

Stan P.

Stan Bleszynski wrote:

This column describes how Icelandic banks issued love letters to each other swapping their debt securities and using the other bank’s debt as collateral. This ruse ensnared not just the Icelandic Central Bank, but also the ECB a fact that has only recently come to light. The ECB's lack of transparency on this is a serious problem.
---- End Of Rant ---