Ethnic Bomb:Reap the Whirlwind

iStock_000001960007gasmaskSmall-2-249x300deb2f4608e5f8e19509892c485e1826d

 

http://www.huffingtonpost.co.uk/2014/08/19/ferguson-riots-delight-iran-china-and-egypt-as-amnesty-dispatch-team-to-us-soil_n_5691186.html?utm_hp_ref=uk

It has long been a staple of Saxon Axis foreign policy to manipulate ethnic tensions within target states to promote political change. This tactic has been intensively used in the past decade. but the way it has been used recently is qualitively different from the Cold War realpolitik method applied in the decades after the end of the 2nd Germanic war..

The reason for this is that the ‘ethnic bomb’ has been hi jacked by Neo Cons.

That’s right; it was only a matter of time before a dangerous weapon like this fell into the hands of extremists.

 

The ability to foster explosive racial/ethnic/identity conflict is a powerful weapon- look up ‘USA soft power projection’ on Google if you doubt it. We can call this power the ‘Ethnic Bomb’. And we can say that the Ethnic Bomb is the post-modern equivalent of the Atomic Bomb.

 

The ethnic bomb uses ethnic division and grievances (funded by NGOs under the guise of human rights and humanitarian aid), to create a relatively small but dedicated group that will attack the general order of a nation, and create a ‘runaway reaction’ of disorder. Just like ‘liberated’ neutrons are ‘freed’ by an exploding plutonium plug to smash into uranium 236 atoms in a chain reaction!

 

Neo Cons have recently been using the hijacked ethnic bomb to devastating effect in Afghanistan, Iraq, Syria, the entire ‘Arab spring’, Ukraine and Russia, western China, Latin America and on and on.

 

After the atomic bomb was developed, America effectively held the whip hand over the entire world until the Soviet Union developed the ability to manufacture a counterpart. After that, a period of relative stability appeared with neither side ultimately willing to risk the use of a weapon that could escalate out of control.

 

Now worldwide stability is again threatened because no one else apart from the Neo Cons has the ethnic bomb. Because of this Neo cons believe that they are free to use the E Bomb without fear of consequences; or so it seemed. But the process is getting out of hand in Syria/Iraq where a Sunni religious/military crusade threatens to topple the wrong apple cart. In arming and organising the Islamic State, Neo Cons were so psychotically desperate to get Assad and Iran they pushed reasonable safety considerations aside. And now it is blowing up in our collective faces.

So far so bad, but now we have: Ferguson- the Fukushima of the ethnic bomb.

 

Just like atomic weapons manufacture and storage, using and maintaining the E bomb requires a comprehensive safety mechanism. That mechanism was a framework of liberal, progressive ‘universal rights ‘ (which actually means subsuming Anglo Saxon national, economic and political identity at home within a broader framework of rights for others).

 

The Great Society in the 1960’s provided the safety framework required. The Great Society gave the Saxon Axis the moral freedom required to propgandise about conflicts abroad under the guise of human rights and democracy etc.

 

Unfortunately for America the Great Society safety regime has collapsed because surprise, surprise Neo Con extremists are not prepared to stump up time and money for safety measures. Like all crazy people they just want to blow stuff up.

 

Welfare and health care as well as prisons, military and law are all being privatised under the neo con religion. There is no basis to build a civil society among the marginalised in American society. Just like Fukushima was an accident waiting for TEPCO in Japan. Ferguson was an accident waiting for the New World order.

 

And now for the fallout…

 

‘US authorities have been told to show restraint in dealing with the racially charged demonstrations in Ferguson, Missouri – by the Egyptian government. In a bizarre turnaround, authorities in Cairo used language similar to that offered by Washington when Egypt was facing its own protests from Islamists ‘

 

and:

 

‘Criticism of the US over Ferguson has similarly flowed from other repressive regimes, including China, with a comment piece published by the state-run Xinhua news service on Monday excoriating the US for the “racial divide” that “still remains a deeply-rooted chronic disease that keeps tearing US society apart, just as manifested by the latest racial riot in Missouri”.

 

and:

 

If you have ever wondered what expression a man sitting next to a barrel of nuclear waste would have on his face:

 

 

 

 

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The Sin of Wages: Shock! Horror! (not..) Paymageddon!

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index

 

In the latest astounding Shock! Horror! Revelation (see’ Things We Know..’ below)- to hit the economy, discretionary spending and the consumer society took another big hit today when we found out that wages had actually started absolutely falling in Britain.

 

No longer are wages simply failing to keep up with price inflation- we now have outright deflation in wages.

As a consequence the media is quick to inform the public that interest rate rises are unlikely for the rest of the year. Of course this is no surprise to anyone who has been following the restructuring of the economy along MONETARIST lines. Pressure on wages has been caused by:

 

The Rise Of Self Unemployment

 

Self unemployment is like self employment except you don’t have anything meaningful to do. Or any money…This is the privatisation of unemployment just like the privatisation of jails, health care, the military and of course, the issuance of money. Self unemployment is the latest wrinkle in the development of the Secret Economy, a key objective of Monetarism and the Democratisation of Money.

 

Behind the Secret Economy is the realisation that it is no longer possible politically to defend the disparity of wealth and income that is exploding in the developed economies. So the new priority is to conceal it. This has been achieved by an massive expansion of self unemployment in Britain and America – a hidden army of people working in insecure, low paid jobs with no benefits, no security and most importantly of all, no scrutiny.

 

The Participation Economy

 

The Secret Economy is the flipside of the Participation Economy.

In the Participation Economy you can no longer choose whether to take part in specific economic activity or not. Unemployment benefit creates an economic backstop that allows people some leeway to decide whether they want to participate in the labour market at a given wage rate and conditions of employment. Destruction of unemployment benefit means that the majority of people have to take part in the wage economy at any rate. In other words there is no lower boundary below which wages cannot fall. It is this that explains the ‘shock’ fall in wages.

 

This failure of the lower boundary in wages is felt at the discretionary end of the family budget. It is still possible for a reasonable proportion of the population to pay for necessities, but for a larger and larger cohort of the working population there is less money for discretionary purchases. This is the Death of the Consumer Society I have referred to before.

 

This process is compounded by low interest rates. Low interest rates pressure the national currency to drop in value, making imports that much more expensive. Since people have already cut back on ‘luxury’ discretionary items, the fall in currency value is felt in increasing prices for the raw materials the economy imports.

 

So we have:

 

Imported commodities falling in price- they have to fall in price because people can no longer afford them. If they don’t fall in price they are simply no longer imported. (This is supply chain failure such as seen in Greece with pharmaceuticals. I predicted this five years ago)

This is deflationary

 

Wages falling because more and more people are being dragged into the Participation Economy

This is deflationary.

 

Credit going down in price because of low central bank rates.

This is deflationary

 

Imported raw materials going up in price because the national currencies are falling in value

This is inflationary.

 

Now here is the $64 000 dollar question:

 

Why doesn’t this inflation and deflation net out?

 

In other words why don’t we have a consensus on whether we are experiencing inflation or deflation?

 

In theory we should simply be able to subtract the amount of deflation from the amount of inflation to arrive at a net figure. If there is more deflation than inflation we should have net deflation and if more inflation than deflation we should have net inflation. Economists should be at least be able to agree on this figure even if they can’t agree what to do about it.

 

Instead we have a situation where central bank advisory committees and individual pundits argue over the direction the economy is heading in. Why can’t they come to a common view?

 

Because we have an oil and water economy. Society is separating out into multiple constituent groups that experience inflation and deflation completely separately. You already know this. The official inflation figures clearly bear no relation to inflation as you experience it in the day to day. The most popular explanation for this is that the figures are ‘rigged’ in order to hide the political truth of what is happening to everyone outside the elite.

 

But this is like accusing a blind man of pretending not to be able to see.

 

The blindness is genuine.

 

I have previously explained how introducing privately issued Democratised Money destroys the information feedback loop that allows monetary authorities to regulate the economy. Simply put, once you allow more than one institution the power to issue money, you can NEVER AGAIN know how money is actually circulating (the Shadow Economy). You can never again accurately calculate inflation- even if you want to.

 

We are oil and water because we are using at least two different currencies.

Some of us have access to derivatives – democratised money

Some of us only have access to state money.

So we experience inflation and deflation according to the currencies we hold and to the extent we hold those currencies.

 

But don’t make the mistake of thinking that the economy is being run solely for the benefit of democratised money. The economy is being run in order to achieve a balance between democratised money and state money. At least for the moment.

 

The Secret Economy- Eyes Wide Shut

 

So in the new Secret Economy whenever some new piece of ‘ surprise’ bad news appears, the official expression of the establishment will be one of …well ‘Shock and Awe’ I suppose. And when they are not busy looking surprised it will be..

 

Eyes Wide Shut.

Ps

UK inflation fall to 1.6% lessens likelihood of interest rate rise

CPI fall surprises forecasters who expected smaller dip as clothes discounting and drops in alcohol prices and bank charges fuel decrease

 

 

 

 

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The Face Of It or Because Music Is A Priesthood.. or ‘Afore Ye Go’ or Its Always later Than You Think

Diane-Taylor_2043194cSinead O'Connor

http://www.theguardian.com/music/2014/jul/27/sinead-o-connor-interview-i-deserve-to-be-a-priest

http://tradewithdave.com/?p=21494

 

I DESERVE TO BE A PRIEST-Because Music Is A Priesthood.. says Sinead O Connor

The personal odyssey of Sinead O’Connor has proved to be a object of fascination for journalists, fans and not least of all for Sinead herself. The Sinead shtick is that she is an original and possibly unique cultural and religious voice. Interviewers and fans alike are invited to gaze and wonder: Why does this tortured Catholic chanteuse crop her hair? And why does she have that manic stare? And why is she covered in tattoos? And why does she hate the Pope so much?

The answer of course, is because she is a Protestant.

No joke. Sinead claims that she deserves to be a priest, indeed has already been ordained as a priest:

“Oh, because I’m a priest?” – O’Connor was ordained in 1999 by the breakaway Latin Tridentine church (like the chewing gum?!?) – “Yeah, well being a priest was just civil disobedience. Although I deserve to be a priest, frankly, better than any of them, in terms of the actual faith and respect [I have] for the holy spirit. That doesn’t mean I’m a good person, I’m not. But you really don’t have to be a good person, in fact you can be a complete fucking cunt – it’s about the level of your faith and whether you actually respect the presence of that holy spirit.”

Aside from the Pope hatred guff, this claim of right to be ordained outside of the authority of the Vatican is Protestantism by definition. On the face of it it’s obvious. Yet neither Sinead or the journalist wants to say it. Why would that be?

Because of moral value

If Sinead is a Protestant then this interview is essentially just another cracker telling you the Pope is the anti-Christ. And crackers telling you the Pope is the anti-Christ are ten a penny on You Tube, as you know. But a Catholic, especially a tortured Catholic telling you the Pope is the anti-Christ-that’s the genuine article, straight from the horses mouth. That carries authority.

The defection critique is the more powerful the more committed the accuser is supposed to have been before his or her change of heart. The Colonel defecting from Assad’s government in Syria will tell you the regime has betrayed the Arab people. (‘Aha! Even his own officers admit he is evil!’ etc etc.) The defector from North Korea will tell you that the leadership has betrayed the ideals of Communism and so on. And of course handlers will make sure that their defectors cause as much trouble as possible from inside the tent, before they flee.

As I have said before, Dave Harrison at Trade With Dave has a nose for the action. A recent post deals with the emerging Bitcoin defection critique, albeit from an angle.

In ‘You lie… Ahead’ Dave argues that as far as new democratised money functions go, you won’t have to decide which you want; it’s possible for society to have it’s cake and eat it. I argue you that as far as new money functions go, you won’t have to decide because the decision has already been made-about forty years ago.

You Lie…’ features clip of a young woman by the name of Jinyoung Lee Englund who got a message from God telling her to go to Africa. Miss Lee neglects to mention whether God indicated she should go on to become director of marketing and communications for the Bitcoin Foundation. But she nevertheless ends up encouraging everybody in Africa to get into Bitcoin on the basis that they have a right to:

‘Global inclusion’

Global Inclusion? sounds like an anti-Christ propaganda gimmick in a low budget Apocalypse movie :

‘…. that no man might buy or sell, save he that had the mark, or the name of the beast, or the number of his name.’…

In contradistinction to Protestantism, Catholicism generally discourages personal religious revelation of the above kind, precisely because you the voice you hear in your head may not necessarily be who it says it is. The obvious danger is that the internal voice tells you that ‘All young women who wear lipstick must die!’ may very well not be The Voice Of God.

More subtly, you may hear a voice telling you that it is Gods Will that you go ahead and do just exactly what you have already decided to do. In truth the decision was already made; pretending you had not already made your mind up is simply a way of adding moral value to your decision. Just like Sinead.

Let us charitably say that Ms Englund may be a little self deluded. Vinay Gupta (also featured in the Trade With Dave post) is altogether more rooted in reality. He is pointing out that the Bitcoin project is failing politically because it cannot address developmental contradictions between Anarcho Capitalism and Libertarian Capitalism, in particular in relation to property rights in Bitcoin.

Gupta suggests one reason for this is the Bitcoin community is somewhat politically undeveloped and not equipped to approach a solution. He also rather slyly implies that the only possible solution available may very well be something ‘no one is willing to name’ yet. By which he means that when push comes to shove all the tortured anarcho capitalistic ideals will go out the window and in Bitcoin we will be face to face with the same forces that gave us Derivatives and the Credit Crunch.

By then of course, the ex ‘Anarcho Capitalists’ will have gained a fortune but lost their moral value. It is not going to be possible to offer a credible critique of financialised capitalism when you are openly in business with the very bankers you were supposed to be getting rid of. So they are in no hurry to leave the tent. At least for the moment.

It’s Always Later Than You Think

In ‘The Matrix’, our hero is told by the Oracle that he is not here to make a decision- he has already made the decision. He is here to know why he made the decision. I cannot think of a more succinct way of describing what Crackernomics is all about. Democratised Money including Bitcoin, is already here. It began with Monetarism in the 70’s. Crackernomics is here to tell you why it happened.

 

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Madness In His Method Or Known Unknowns and Unknown Knowns and Unknown Unknowns and… etc… etc..or “The old normal not the new normal not likely to be the new normal,” he said. The nicest thing about not planning is that failure comes as a complete surprise, …

http://www.telegraph.co.uk/finance/personalfinance/interest-rates/10929882/Mark-Carney-new-normal-will-see-rates-go-to-2.5pc-and-stay-there.html

 

http://www.theguardian.com/business/2014/jun/29/uk-interest-rates-bank-of-england-charlie-bean

 

http://www.telegraph.co.uk/finance/newsbysector/banksandfinance/10952024/FCA-Dozens-of-banks-spring-to-life-after-red-tape-cut.html

 

http://www.wsws.org/en/articles/2014/07/07/pers-j07.html

 

http://www.theguardian.com/business/2014/jul/08/uk-manufacturing-surprise-drop-jolts-economic-recovery

 

http://www.telegraph.co.uk/finance/financialcrisis/10960563/Portugal-banking-crisis-sends-tremors-through-Europe.html

 

‘Reports that say there’s — that something hasn’t happened are always interesting to me, because as we know, there are known knowns; there are things that we know that we know. We also know there are known unknowns; that is to say we know there are some things we do not know. But there are also unknown unknowns, the ones we don’t know we don’t know’.

 

Donald Rumsfeld famously fashioned his wonderfully surrealist philosophy of American intelligence in 2002. In specifics he was referring to weapons of mass destruction. Fundamental to his (cough) reasoning was that the fact of Iraqi WMD, which was a given that could not be contradicted.

 

Planning was simply a matter of organising events so that they never could contradict this given, even when it was obvious that there was no prospect of weapons ever being found. After a decade of resulting chaos, slaughter and suffering in Iraq it can be said that in contradistinction to the well known aphorism: There is madness in his method.

 

Methodical madness is an appropriate way to sum up what is going on in Crackernomics.

 

The Known Knowns-That Is What We Know We Know.

 

We know that Bank of England base rate is going to be two and a half percent. How do we know this ?- because George Carney says it is 1

 

Carney tells us we should know that

 

“The old normal is not the new normal. It is not likely to be the new normal,”

 

The “vulnerable position” of family finances means any increases will be “more limited and more gradual than in the past”.

 

‘Things have changed. Households have a lot of debt. The Government is consolidating its financial position. Europe is weak. The pound is strong.

 

Apart from a disconcerting similarity to the ‘war is peace ‘ catechism in 1984 this is unremarkable. But then Carney says this:

 

‘The financial system has been fundamentally changed – it has to carry a lot more capital,‘ it has to carry a lot more liquidity insurance and it will pass on those costs to borrowers’

Keep that last bit in mind. It simply doesn’t make sense-does it? Surely permanently increased costs for the banks should mean rates higher than the previous long term average-not lower? What could be the explanation for this apparent contradiction?

We’ll come back to this.

 

Another thing we know that we know is that less is never more when it comes to banks and banking:

 

In the Telegraph:

In an attempt to make the banking market more competitive, the Government has given the FCA and PRA new powers after a perceived failure of their predecessor, the Financial Services Authority (FSA), to encourage new entrants’.

‘Whereas just five new banks were given the green light in the year to April – roughly the average over the previous seven years – 25 applicants met the regulators to discuss entering the banking market, the FCA and PRA said in a review of barriers to entry for banks’.3

 So we need more institutions that can potentially fail to choose from. Which is a bit like keeping a house fire going until the firefighters can arrive to put it out…

After the ‘known knowns’ there are the:

 

Known Unknowns Or Things We Know We Don’t Know

 

We don’t know why the USA economy shrunk in the first quarter- could be something to do with the weather( Isn’t this usually an English excuse?)

 

We don’t know why British manufacturing showed a surprise drop in output5

 

The Bank of International Settlements is telling everybody that it knows that the Wall Street party must end but it doesn’t know what is going to happen4

 

We also know that banking in Europe is in a perilous condition6 There is a constant low level rumble of banking failure stories, particularly on the periphery of Europe. It seems inevitable that one of them is going to get out of hand.

Which brings us to:

The Unknown Known

 

‘Psychoanalytic philosopher Slavoj Žižek extrapolates from (these) three categories a fourth, the unknown known, that which we intentionally refuse to acknowledge that we know’….

‘Abu Ghraib scandal shows that the main dangers lie in the “unknown knowns” – the disavowed beliefs, suppositions and obscene practices we pretend not to know about, even though they form the background of our public values.”

http://en.wikipedia.org/wiki/There_are_known_knowns

What links all the economic stories I have referred to is the element of ‘surprise’- a ‘surprise’ fall in output, a ‘surprise’ run on the bank. Everything seems to be a surprise. Like the ‘surprise’ lack of WMD and the ‘surprise’ decent of Iraq into chaos. The ‘surprise’ heart attack on the way to your daily visit to Dunkin Donuts. Why is there no general attempt to link cause and effect in the mainstream media?

 

There seems to be an unwritten agreement in the mainstream media to express general bafflement when disconcerting stories come up. They simply don’t make sense do they? Not if interest rates are going to be 2 ½ %. And interest rates ARE going to be 2 ½ %. So these stories probably don’t mean anything…

 

Which brings us finally to

 Unknown Unknowns or more accurately The Great Unknown

 

The size and nature of the shadow economy is the greatest unknown of all. And this is deliberate. The Democratisation of Money is the privatisation of information, (Secret Economy). This seems hardly believable, but it is happening. The democratisation of money is linked directly to the figure of two and a half percent itself.

 

I can usefully return to the metaphor of a bookie. When you bet on a horse race you are not actually betting on which horse will come first. You are actually betting on whether the bookie will pay out or not. That is what a bet is- a number of people put money in a specific pot and generally a smaller number of people take money back out, triggered by a specific event. The ‘odds’ that you are given reflect this risk of being paid out. The smaller the book for any given race, the smaller the odds (potential payout) that can offered by the bookie. If only two people bet on a race and the total amount of their bets is $14, the bookie can’t offer odds of 100/1 on one or another horse. He would simply go bankrupt in short order.

 

The same is true of money. The central bank interest rate is the odds on money being exchangeable for value at any given time. The odds are directly related to the total size of the book- the economy.

The two and half percent interest rate and increased capital (state money) requirements go hand in hand. They are a reflection of the fact that the state money book has shrunk. That a significant proportion of the economy is now in the hands of derivatives.

 

Just like nation states, financial institutions that create and trade in privately issued money- democratised money, are required to hold foreign currency as a hedge. In other words forced to hold an increased amount of dollars or pounds to offset the risk of holding derivatives. This increased requirement to hold state money currency is called macro prudential policy.

 

It is not banks and financial institutions that are being squeezed by the new rules. It is the state money component of their assets that is being squeezed. State money is being squeezed by MONETARIST politicians. The state money book is smaller so the odds (interest rate) it can offer is smaller. What state money there is, will now permanently be used in part as a guarantee for privately issued money derivatives. That is how interest rates can be lower despite bank costs being higher.

So what proportion of the economy is in the hands of derivatives?

The long term average for interest rates in the post war period was around 5%. Previously I have suggested in line with a number of other commentators that the new normal for interest rates would be somewhere around 3-3 ½ %. Now Carney says 2 ½ %.

Which means the proportion of the economy which will be allocated to privately issued money- derivatives, is going to be bigger than I thought. Given the difference between 5% and 2 ½% it indicates that HALF the economy will be allocated to democratised money.

Which is a lot of democratised money.

Know what I mean?

PS

Waitrose sales in shock fall as 2013 summer hard to beat

http://www.theguardian.com/business/2014/jul/11/waitrose-sales-fall-2013-hot-weather

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The Sin Of Wages Part 2

In part one I described how parties  trading in individual currencies would need to rely on a record of credit worthiness in the form of a credit history. This would provide evidence of ability to pay but NOT a guarantee of payment. This is because an individual currency would be SOVEREIGN as all currencies are.

Monetary sovereignty means precisely only paying your debts if you want to. This is the definition of sovereignity. Any other definition is a fraud.

To issue money collectively it would be necessary to have a wealth creating authority backing up the currency. In modern capitalist states this role is fulfilled by government.

The risk factor in using any currency is expressed as a differential in price and ultimately as an exchange rate. For those who only have the value of their work to sell the exchange rate amounts to a hidden tax on labour every time you use any currency.
There would be no hidden tax in a personal currency- You cannot tax yourself!

Collective money issued by a group rather than an individual pools the individual risk factors involved in using in that currency. Someone who is dealing with a national currency no longer has to concern himself with the individuals ability to pay but a nations ability to pay.  If a person holds a national note in his hand he proves his earning capacity ‘up front’ by virtue of possessing the note.

The value of a currency increases as the credits it obtains and trades in are successfully paid off. This results in a virtuous circle. This increase in value is expressed as a discount value and a use value. Everyone who uses a currency benefits from these discounts (collective purchase of credit).

Benefits are maximised the more people use a currency. These benefits offset the hidden taxation inherent within use of that currency. Any outside body that issues money within an economy necessarily has a negative effect on this process. Credit does this.

With these necessary monetary conditions in mind we can have a look at derivatives and whether they fulfil the conditions necessary to be considered as money. I argue that derivatives are privately issued money. In order to make this money tradable and valuable, the creators of derivatives manufactured a ‘nation’ and an ‘economy’ to go with it!

Any currency needs a credit history  
Derivatives manufactured such a history based on the earning power of mortgage holders. In some sense the mortgages themselves were only incidental to the information that was gathered in the process of issuing the mortgages. It was the information about wealth creating power that financial institutions were trading in not the mortgage values.

Any currency needs a wealth creating authority
Democratised money derivatives are supported by a troika of:
Monetarist government
Credit Agencies and
Mortgage companies

(A Mystery Explained

You might have wondered why Monetarist stooges Clinton and Bush chose to support the massive extension of mortgages for the poor. This is usually explained as having something to do with the desire to extend opportunity and home ownership etc. Given the relentless attacks of Monetarists on the poor, especially non-white poor, in the aftermath of the Credit Crunch this hardly seems plausible.  However, once you understand the massive increase in mortgages as an opportunity to add another tax to the poor and to strip away the discount benefits that state money brought, you can see why Monetarists like Clinton and Bush were very much in favour of it.)

Any currency pools the individual credit histories of those that use it and therefore pools the risk involved in trading in it

This is the defining characteristic of derivatives as money. Financial institutions took the earning capacity of sub prime lenders and high value lenders and pooled them together creating a hybrid credit risk. The credit rating agencies gave this pooled risk AAA status. Effectively the high value low risk mortgage payers carried the poor sub prime mortgage payers. This is exactly what happens in a national currency.

Any currency is a hidden tax on individual labour power

Democratised money derivatives derived such a tax as this from pooling sub prime mortgages. Unfortunately these taxes on labour on top of the other hidden taxes embodied in the mortgage agreements were too high for sub prime borrowers to support. It was this that led to the Credit Crunch.

The use value and exchange value of any currency increases as debts are paid off

Which is precisely why traders realised derivatives were worthless to the extent that the credit agreements( debts) would not be paid off. This realisation that the credit would not be paid back directly undermined the use value and discount value of derivatives. This was a result of the fact that democratised money derivatives were so new. Given more time they could stabilise and prove out the amount of wealth that they could generate. Unfortunately time ran out when interbank lending rates meant that the exchange rate between state issued money and privately issued democratised money became too great. And this explains QE in Monetarist terms; as a means of buying time for democratised money derivatives to prove themselves. When it is felt that derivatives have successfully rooted themselves as privately issued money, QE will fully end.

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The Wages Of Sin/The Sin Of Wages- Be Sure Your Sins Will Find You Out Part 1

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Cash- One Piece @ a Time

Here at the United States of Everywhere I have argued that we are transitioning into an economic system where private institutions are able to issue their own money. I have argued that this Democratisation of Money will increase in scope and depth until it has transformed property rights and the fundamentals of Capitalism, as we have known them. It will be an enlightening thought experiment to imagine a world where this process is taken to its logical conclusion- a world where everyone issues and uses their own individual currency.

 

In this world everybody would be trading, (that is exchanging whatever they had to offer for goods and services), on entirely individual terms. Since most people only have their individual labour to sell, this would mean people exchanging work for goods and services completely outside any collective social context. This would be a neo Liberal dream. This would by Ayn Rand’s idea of Heaven.

Of course it would never be possible for everyone to actually issue his or her own currency would it? You probably have a vague feeling that such an economic system would be far too complicated and open to fraud. Except of course that if you think about it for all intents and purposes fraud would be impossible because all the mechanisms that make fraud possible would be absent…

 

Ok that might be too far to go in one leap; lets take a step back for a moment. What would living by your very own currency mean in the simplest instance?

Since this is Ayn Rands dream I will put one of her ‘characters’ to some use as an illustration. John Galt is our protagonist with the GALTHALER as a personal currency to trade with. Now John Galt will buy and sell stuff based on… the value of John Galt, or more precisely the value of Johns ability to create wealth. This value is formalised in the individual currency that John issues. It is important to note that this, or any other currency is NOT A GUARANTEE THAT THE ISSUER WILL PAY DEBTS. It is a formal description of the ability to pay debts SHOULD THE ISSUER SO CHOOSE.

 

This is what the Federal Reserve, the Bank of England and every central bank does. Capitalist central banks are formally independent- they have no wealth creating value of their own (or at least they didn’t used to have…) But backing central banks like these is the force and authority of the respective governments that created them. Modern governmental authority based on Germanic Land Democracy is precisely the authority to create wealth.

 

Back to our prospective trading partner deciding whether or not to deal with John. This partner will need some criteria on which to do so. In the remote past there were considerations of culture, family, religion etc that all operated as bona fides for any prospective trade partner. But in a modern culture that isn’t going to work, at least in the practical short term, so we are going to need something else. That something else would be the business history of the person we are dealing with.

 

Is this starting to ring any bells yet? Let me elaborate:

  • The business history of John Galt is not just a collection of anecdotes about what this or that person did or did not do. It is a record of whether they kept to the terms of previous contractual arrangements they entered into.
  • It is also a record of what commitments they have presently that might prevent them fulfilling any future contract
  • In essence, it is a record of whether it likely to be profitable to do business with them as compared to the risk of doing business with them.
  • As you might have already guessed, it is essentially a credit history,

 

If John Galt wants to exchange his GALTAHLER for a weeks groceries from the corner shop, he would effectively be asking the shopkeeper for CREDIT; this is exactly what happens in international trade between sovereign nations. John and the shop owner are acting as sovereign entities. After the transaction in our example the shopkeeper has a debit on his book for the value of a weeks groceries but he has the GALTHALER to redeem against John Galts labour at a future date (or alternatively to exchange with anyone that will take them).

 

Is the note that the shopkeeper received from John Galt the same as a credit note? No, because a credit note is denominated in another, usually a national currency. There is no sovereign freedom implied in a credit note.

 

Clearly there is risk for the shopkeeper in this agreement and that risk implies a premium. That premium is the additional incentive the shop owner requires to be incentivised to do business with John. It is the effective exchange rate between GALTHALER and SHOPPOUNDS (the shopkeepers own currency).

 

If John Galt has a bad credit history, the corner shop will either refuse to do business with him, (not accept GALTHALER in payment), or will charge John extra over an above the cost of the groceries in SHOPOUNDS to make it worth the shopkeepers while to take the risk.. The difference, or ratio of difference is the exchange rate between GALTHALER and SHOPPOUNDS.

 

It is important to remember that since this is a credit agreement, its value changes over time, in the same way that a credit agreement is serviced by making payments over time. The value of these payments is a function of time and a function of risk. To simplify, the longer a borrower makes the payments on time, the less risky (and therefore more valuable), those payments are.

 

We have clarified the relationship between trade, currency, credit and risk. In the light of this we can look at state money again

 

First of all the term state money is somewhat misleading. Modern capitalist economies don’t have a currency issued by the government. That would be a COMMON CURRENCY, which we are given to understand that would cause all kinds of problems..(And so it would, but not for us!) We have a currency issued and controlled by private entities under the supervision of the state.

 

But that is not to say that state money does not have real benefits. I have explained how issuing and dealing with your personalised currency would require an additional premium to be paid. State issued money pools the individual risks that each individual has and at the same time collateralises their collective wealth creating ability. It is this pooling of risk that precisely defines money in relation to credit. This in turn allows the development of collective capital, which accrues to the value of state money.

 

Put simply in the same way that collective bargaining allows a group discount on buying goods and services, collective – national buying allows a group discount to be obtained on credit. But not just on nation to nation trade; on every single transaction within a nation state.

 

Where does this discount go? It goes to the user of a state currency individually. But more importantly some of it goes to the currency itself. The currency appreciates in value. This is a virtuous circle. The more the currency appreciates in value the more useful it is to an individual to use it. And when the individual uses it more, it appreciates in value. VOILA!

 

Once you understand this, you start to appreciate that every specific credit agreement effectively steals a portion of this collective wealth. Every time a financial institution signs a credit agreement with a person in Alabama they are effectively stealing a portion of the value of a dollar spent in New York. This is private institutions given the legal right to tax the labour of the nation!

 

‘But no nation would willingly agree to this!’ I hear you cry.

 

And you are right, no nation ever would. So the nation will never be collectively approached with this iniquitous proposition.

 

INSTEAD THEY WILL SIGN THE NATION UP FOR THIS TAXATION, ONE PERSON AT A TIME THROUGH CREDIT AGREEMENTS!

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Economic Freedom and its Enemies or Loving the Alien

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 ‘Help me Milton…’

 

“If everyone demanded peace instead of another television set, then there’d be peace.”

― John Lennon

 

 

The period immediately after WWII saw the introduction of modern consumerism in western European economies.

 

Consumerism as a political force was closely tied to the Cold War. Consumerism was a totem of the idea that in the ‘West’ ordinary people are free politically and economically and that these freedoms are interrelated and interdependent.

 

Consumerism was founded on the idea of disposable income, which in turn was founded on the idea of discretionary expenditure. Discretionary expenditure is money you spend as and where you choose. What was innovative about post war policy in the west was the idea of creating mass discretionary expenditure and corresponding mass economic’ freedom’.

 

In order to build a consumer society it was necessary that the economic system was capable of producing enough disposal income for ordinary people so they would have something to spend. This gave rise to the concept of a living wage; it was the accepted norm that one man could earn enough to keep a family. Where this did not happen the state would take up the slack. It is important to realise that this was NOT the idea of the economy providing each person with enough to live on but the idea of having enough on top of necessities to buy stuff just because you wanted to. Discretionary spending defined the idea of western economic freedom in the post war period.

 

The three main areas where western states stepped in to ensure provision of necessities adequate enough to support a consumer society were Education, Health and Housing. But it was NEVER the intention of western states to provide the most egalitarian education. or the best availablehealthcare. or the highest possible quality public housing. At no time did western states provide more of these necessities than was just enough to support a consumer society. This support for consumerism defined the limit of what elites were willing to support in post war welfare provision.

 

For an elite under sustained domestic and international moral and political attack, what made the costs of consumerism worthwhile was that it supported the political message that the enemies of freedom were ‘out there’ and that the defence of individual freedom should be facing outwards to deal with this.

 

The ideological message of consumerism was that :

The enemies of freedom are alien (to our ‘way of life’).

The alien enemies of freedom were pro coercive state (while we are pro ‘welfare’ state).

The enemies of freedom were extremist, (and willing to sacrifice ‘freedom’ in favour of equality or justice whereas we have the best of both worlds)

 

The importance of these concepts to the rehabilitation of  Capitalism in the post war period can’t be overstated. In essence, consumerism was/is a fusion of nationalism, rhetoric of economic democracy and a limited amount of material progress. This ‘facing outward’ strategy was completely successful for western elites and has shaped the entire conception of economic freedom ever since.

 

Since the end of the Cold War, ‘democratic’ discretionary expenditure has come under repeated attack culminating in the ‘Credit Crunch’ period that has seen double digit (roughly) falls in the spending power of the vast majority of ordinary consumers across the western world. In Mediterranean economies this fall has been magnified by a large factor. A fall in spending power tends to be expressed disproportionately in the purchase of discretionary items. After all, you are less likely to buy another pair of training shoes if you have a large, outstanding electricity bill. This explains in large part the hotly debated deflation seen in developed economies. There is deflation. It is deflation in discretionary purchases and it reflects the effective end of the mass consumer society.

 

This deflationary effect has been magnified by the abdication of the Monetarist state from necessity provision. This withdrawal from provision of healthcare, education and housing has been justified by the Credit Crunch and the need to restructure welfare expenditure. The effects of the state no longer taking responsibility for housing, education and health are becoming increasingly clear. University tuition fees and housing mortgage cost now comprise a large and ever increasing part of the budget of newly forming households. The forthcoming rollout of medicine privatisation will intensify this effect. Expenditure like this requires credit for most people. The requirement for credit to provide necessities as opposed to desires or investments produces a Permanent Credit Economy.

 

Perhaps  this is really just the old argument about state vs. private provision of services? Perhaps it is simply a matter of people re-ordering priorities- a few less trips to the cinema, no holiday this year. In other words is it possible that the Monetarist state abdication for provision of necessities will have no fundamental, negative effect on the economic well-being of the majority of people?

 

The answer is no. It is easy to see this if we consider the risks involved. Private provision of housing, medicine and education all entail an element of private risk- or put more accurately, monetisation of risk.  If I buy a house, invest in education, or decide on a private health policy with various deductibles etc. I am undertaking private, personal risk. The house may go down in value. The degree I get may be worth less than the cost of obtaining it. The health insurance I have may not cover a serious illness or accident. This much is obvious.

 

But underpinning this risk/insurance model is a credit model that is harder to see at first glance. It is this credit that allows the monetisation of risk. If you buy education, housing, or medicine you do so on credit. In other words you don’t pay for these things outright; you can’t afford to

 

Anyone who obtains credit pays a premium for that credit. This premium reflects the risk inherent in the agreement. The risk that the borrower will default; the risk that the loan will not be as productive as another agreement. This premium is the interest rate. The interest rate is the means by which the risk is monetised; it is the means by which wealth can be extracted from the risk. But more important than the financial loss to the borrower is the more subtle loss of freedom; the freedom of the borrower is curtailed by the credit agreement. You do not have a money history but you DO have a credit history. And it follows you around.

 

However, the most important loss of freedom occurs on the level of society as a whole. If a group of people is effectively self insured through the public provision of goods (as in state provision of health, education and housing), then no credit monetisation of risk is possible and no extraction of wealth is possible. Further, no imposition of outside agreements is possible. The people who self insure are SOVEREIGN; that is to say self enclosed, beholden to no one.

 

This is more than just collective sharing of risk. This is sovereignty. Sovereignty is by definition a self-sealed system that no outsider can break into. Sovereignty is the key to economic freedom. In fact, it is the only real economic freedom there can ever be. All other talk of economic ‘freedom’ is simply political rhetoric.

 

Once you understand the full power of public ‘sovereignty’ as an ‘alien’ economic and political force, you understand the horror that capitalist elites felt at the realisation they were infected with it.  At the end of WWII, just as China was passing into Communist control and away from western influence, so health and education at home was being taken over by another foreign power! The sovereign plebs!

 

Like a cancerous tumour, this alien sovereignty was growing inside the bowels of the weakened capitalist system. And just like the cinematic victims of the Alien ‘face hugger’, elites were forced to supply the parasite with blood and oxygen or die! Only in this context can we truly understand the endless western Cold War emphasis on witch hunting the ‘alien’ and the ‘enemy at home’ . In effect, for sixty years western elites have been shrieking in pain and terror like Lieutenant Ripley in ‘Alien’:

 

‘Get it out! get it out!’

 

Western elites see the end of state provision of health, education and housing as a great healing. They see the end of the consumer society as a great boon. No more economic sovereignty for the plebs. They will learn again their true place in the scheme of things. The tumour of public sovereignty has taken forty years of painful surgery and Monetarist radio therapy and still it is not all been removed.
But we are getting there.

 

For we aliens however, the end of sovereignity is the end of the consumer society. For aliens like us it is the end of whatever economic freedom we had. We can look forward to a future in a glass bottle in the laboratories of the Weyland Corporation.

 

I hope you know who the real enemies of YOUR economic freedom are now.
 

 

 

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