Put Money in Thy Purse

Probably the topic readers here are most eager to discuss is the Federal Reserve’s Open Market Committee. Some are under the misapprehension that this panel of extraordinary ethnic concentration sets interest rates. That is only partially true. They set one: the federal funds rate. And even that is not mechanical. The FOMC establishes a target range and then uses debt instrument transactions to buy down or sell up the rate in the market. Rates for such items as mortgages, car loans, and gambling debts are heavily influenced by the FedFunds rate, though not explicitly tied. And thus retain some free range of movement.

The present target range is zero to 25 basis points, a historic low that has been maintained for several years now subsequent to the 2008 market implosion. By driving rates to the floor, it is hoped businesses will borrow to expand, imbeciles will borrow to consume, and savers will seek greater returns in riskier asset classes. Of course if you are a retiree with little appetite for new business ventures or biotech stocks, and would instead prefer just a modest income from your bank CDs, well…fuck you.

That is because the Federal Reserve works from a climate change economics model, which has identified two percent as the inflation that is best in life.

The Federal Open Market Committee (FOMC) judges that inflation at the rate of 2 percent (as measured by the annual change in the price index for personal consumption expenditures, or PCE) is most consistent over the longer run with the Federal Reserve’s mandate for price stability and maximum employment. Over time, a higher inflation rate would reduce the public’s ability to make accurate longer-term economic and financial decisions. On the other hand, a lower inflation rate would be associated with an elevated probability of falling into deflation, which means prices and perhaps wages, on average, are falling–a phenomenon associated with very weak economic conditions. Having at least a small level of inflation makes it less likely that the economy will experience harmful deflation if economic conditions weaken. The FOMC implements monetary policy to help maintain an inflation rate of 2 percent over the medium term. 

A reduction in the public's ability to make accurate longer-term economic decisions

A reduction in the public’s ability to make accurate longer-term economic decisions

And so after some six plus years, many observers are beginning to pine for the halcyon days of two percent CDs. When the power of compound interest could turn $1,000 into $2,000 in only 35 years. Start saving in utero and you may double your money twice. But we’re nowhere near that frantic pace of wealth creation. In fact, despite increasing clamor, the opposite direction is just as likely. This being a somewhat counterintuitive notion since most would think a flat zero forms a fairly solid floor. I can assure you it does not. Zero percent interest rates are merely a psychological threshold, not a financial or mathematical one. As some countries in Europe are learning.

It has long been believed that when it comes to interest rates, zero is as low as you can go. Who would choose to keep their money in the bank if they had to pay for the privilege?

But for the people who control the world’s money, this idea has recently been thrown out of the window. Many central banks have pushed their rates into negative territory and yet the financial system has still to come to an abrupt end.

It is a discovery that flips on its head the conventional idea of how authorities could respond to future economic crises; and for central bankers, this has come as a relief.

Nowhere is the experiment with negative rates more obvious than among Nordic central banks. Sweden – the first to dabble with negative rates – is perhaps the prime candidate for such experimentation.

Many City analysts believe that the Riksbank will continue cutting, reducing its key interest rate to minus 0.5pc by the end of the year. Switzerland’s is already deeper still, at minus 0.75pc, while Denmark and the eurozone have joined them as members of the negative zone.

If inflation is greater than zero and your money is earning nothing, then you are already effectively paying to hold cash. A negative nominal yield only makes the erosion apparent. Though there is much impetus in apparent things–and thus why our government/media complex takes exquisite pains to make many less so. Watching a bank account actually decrease monthly without use must be a sight that focuses the mind. It is the fervent hope of central banks that minds become focused on gadgets and bouncy ball rather than torches and pitchforks. If you don’t want your money to simply evaporate, then you will promptly commence consuming.

Of course the more recalcitrant may pursue another option entirely: disintermediation. They might simply pull their money from a dissolving bank account and live by cash. This being a choice economists consider even worse than not upgrading your iPhone annually. Fortunately we’re developing contingencies for such insolence.

Andy Haldane, a member of the Monetary Policy Committee (MPC [Britain’s banking shitlords]) the UK’s equivalent of the FOMC suggested that to achieve properly negative rates, the abolition of cash itself might be necessary.

Some things just might be necessary, as unfortunate as they are. Western governments certainly don’t want the ability to track and/or freeze every cashless transaction. But if it’s for The Economy, then we just have to prioritize. That’s all.

All of which may sound like drivel when most Fed watchers are projecting near term rate increases. But recall the Fed’s explicit target of 2.0 percent inflation. And as you do so, consider that the annual inflation rate in August was 0.2 percent. Just a decimal point away. And recall also the last time the 100 year economic weather simulation showed inflation this low was in the teeth of the 2008 recession. Was anyone talking about a rate increase then?

Negative rates and abolishment of cash aren’t on the plate at the moment, but the Fed has extinguished its conventional ordnance. Another large systemic market shock will see desperate red button pushing in DC. And when enough bodies are flying out of Wall Street office towers, I doubt anyone will even stop to ask Kennedy about the penumbras in his wallet.

16 thoughts on “Put Money in Thy Purse

  1. You triggered me. For some reason, my eyes automatically inserted “camp survivors” after “this panel of extraordinary ethnic concentration”, and it’s not even Thursday yet.
    Anyhow, I think the door is open to bold Swedish entrepreneurs to roll out new local crypto-currencies. One (and this may already be happening) would be the barter of brown/black hair color by blonde women, the way Tide laundry detergent is traded in US ghettos. This could be combined with a foul body spray that is offensive to Allah’s children (if such a thing is possible), to form a Rape Discouragement Basket of currencies.
    Another possibility might be a new non-fiat currency with real, intrinsic value — backed not by gold or silver or copper, but rape. It could be exchanged digitally like Bitcoin (Mohammad and Mohammed could tap their NFC phones together, as if touching wieners in a sauna), or ISIS could teach them how to mint coins. The value of this currency has nowhere to go but up, given the near-zero birth rates of Swedish women (Supply) and the unending influx of new moon-worshippers (Demand).
    You have lemons, Sweden. Make some fucking lemonade. Skol!

  2. Glad you got to the abolishing of cash at the end. It is not just a rogue Bank of England dude talking – I have heard this being mooted a number of times at (finance) conferences over the past year or two. Laying the ground…

  3. Inflation is just a stealth negative interest rate. The original idea by Silvio Gesell was called “stampscript”, notes issued that required paying fees to keep current. If the note didn’t have this month’s stamp, then a tenth of a percent fee would be required to make it legal tender again.

    This was tried in an Austrian village (Wörgl) in the ’30s, and it worked well, there being a dearth of currency locally. The local government at the instigation of the mayor Michael Unterguggenberger paid part of its wages in stampscript and accepted it as payment of taxes and fees. Velocity of money greatly increased as people wanted to pass it on before the fees came due. Negative interest also turned the calculation of present value on its head, a dollar in the future had a present worth of more rather than less than a dollar, so long-term investment became attractive.

    Keynes wrote approvingly of negative-interest currencies, but decided that inflation was a better way to do it – less paperwork, and the bankers who first created the new money got the bulk of the benefits. Governments issuing bonds in their own currency also got their cut with much less trouble than collecting billions of tiny stamp fees.

    So it is possible to keep physical currency in a negative-interest rate system, but it requires a stamp system to depreciate the notes – though now other technology would be more efficient.

    I think that economics has gotten the cart before the horse – that high interest rates lead to inflation. The money to pay the higher interest can only come from increasing creation of money through loans. Creation of money also increases when there is a higher payoff to bankers for lending, while velocity of money goes up as well when people can actually borrow, and bankers are reluctant to lend at near-zero rates. Yet interest rates for Treasury bonds can never rise to the old level of ~6% because it would soon require the whole budget just to service the debt getting rolled over at the higher rates. So negative-interest currencies are likely going to be part of our future until the debt is repudiated or paid off with hyperinflated dollars.

    • > The money to pay the higher interest can only come from increasing creation of money through loans.

      Stock/flow error.

      >So negative-interest currencies are likely going to be part of our future until the debt is repudiated or paid off with hyperinflated dollars.

      Yes.

    • Inverting the time value of money is one of the (academically) more fascinating aspects of negative interest rates. The entire business paradigm is premised on a dollar today being worth more than one tomorrow. Reversing this creates a broad range of behavior incentives that probably haven’t been well vetted.

  4. The economic problems we are seeing today are almost exclusively symptoms of a dying monetary system. Every 30-40 years since 1871 our international monetary system breaks down and has to be retooled with new accounting tricks.

    1871-1914: Classical Gold Standard
    1919-1939: Gold Exchange Standard
    1945-1971: Bretton Woods Agreement
    1971-present: US Dollar Reserve Standard

    As you can see, we’re overdue for a new system.

    The stability of the current monetary system has lived off the legacy and good name of the US Dollar and its reputation of being as good as gold since it used to be exchangeable for x amount of gold at a bank of your choice. The entire world saves their surplus wealth in dollars or US Treasury bonds (a derivative of the USD) as if it were still an asset based currency. This has created a serious dilemma which forces the US to run a perpetual trade deficit in order to maintain reserve currency status and keep the international monetary system intact by supplying the rest of the world with foreign exchange reserves. It’s called Triffin’s Dilemma and you can read more about it here:

    https://en.wikipedia.org/wiki/Triffin_dilemma

    What people are going to learn in this new world of modern, digital, instant transactions is that money is not value itself. It’s only a mental association of value. No different than poker chips or credits in a video game. It’s just a way to keep score. To quote Another, “Your wealth is not what your currency says it is.”

    With that in mind you might come to the conclusion that the economic problems we see are not so much a result of central banks inflating the currency but the original dilemma being that we still save in the same medium in which we transact (as if we were still operating under a gold standard). This will change as people understand that currency is merely a utility that lubricates the wheels of commerce, not a vehicle to store surplus wealth.

    If you think the world is going back to a hard money standard, you’re going to be disappointed. Governments never stick to them anyway, so why bother in the first place, right? There will always be more debtors than savers so easy money will continue to be the policy of the next monetary system. Whether we admit it or not (and for the same reason central banks and governments desire it), easy money is what most of us want because it allows us to erase some of our debt through currency devaluation. It’s human nature to want the largest amount of output while applying the minimum amount of input. For more on the conflict between debtors and savers, please consider:

    http://fofoa.blogspot.com/2010/07/debtors-and-savers.html?m=0

    The US Treasury stills values the country’s gold reserves at $42.22/oz. The Federal Reserve holds certificates for those reserves as an asset on its balance sheet. The gold is still valued at the same amount from the 70s after Nixon closed the gold window. This is done in order to not lend credibility to gold as a vehicle for saving because the US still says to the world “The dollar is as good as gold. Save in dollars”.

    The ECB, on the other hand does not say “save in euros”. They say “we will maintain price stability, use this currency to buy stuff.” And if you look at the Consolidated Financial Statement the ECB publishes every quarter, you can see that line 1 on the asset side of its balance sheet are the gold reserves of the Eurozone member states. They also mark these gold reserves to market every quarter. They don’t value them at $42.22/oz as the US Treasury does.

    Here’s the first president of the ECB, Wim Duisenberg explaining in 2002:

    “The euro, probably more than any other currency, represents the mutual confidence at the heart of our community. It is the first currency that has not only severed its link to gold, but also its link to the nation-state. It is not backed by the durability of the metal or by the authority of the state. Indeed, what Sir Thomas More said of gold five hundred years ago – that it was made for men and that it had its value by them – applies very well to the euro.”

    The euro isn’t backed by gold but gold is treated as the most important asset on the ECB balance sheet. The euro was created to be the model for the rest of the world’s currencies in the next monetary system. It’s the only currency big enough to be there for when the USD’s timeline has expired. So by looking at how the ECB values gold and where its place is in the structure of the euro architecture, we can also determine how the next monetary system will look: The gold reserves of a currency zone (or national CB) will replace sovereign treasury debt as the main reserve on their balance sheet. In other words, the USD/UST-bond is removed as the focal point of the international monetary system and replaced by gold.

    There’s a reason governments and central banks hold massive tons of gold as reserves and also why all the emerging market countries have been persistently adding to their gold reserves over the last several years. Those gold reserves are going to experience a one time revaluation in order to shore up the asset side of the CB balance sheets once the global sovereign debt bubble finally bursts. The ECB will play the lead role in this revaluation with the blessing of the BIS by bidding for physical gold in the open market with euros, while the rest of the world’s central banks follow suit shortly thereafter.

    This revaluation will stabilize the world’s currencies, re-ensure trust in the system, and allow commerce to continue to flow as a new monetary system is established. In the meantime, if you want to follow the lead of the ones who make the rules, the only choice you have is to save your surplus wealth in physical gold (not silver) so you can benefit from the revaluation windfall and insulate yourself from the coming currency devaluation.

    Yes, there are several more tools like QE4, or negative interest rates that can be deployed in order to extend the current monetary system a while longer. But we’re getting closer to the end game. That end game won’t include a cashless society though. In part because drugs, hookers, and illegal gambling are too big a part of the economy. But mostly because “helicopter money” will be the last weapon in the Federal Reserve’s arsenal. That’s how Helicopter Ben earned his name.

    I’ll close with this quote from FOA:

    “My friend, debt is the very essence of fiat. As debt defaults, fiat is destroyed. This is where all these deflationists get their direction. Not seeing that hyperinflation is the process of saving debt at all costs, even buying it outright for cash. Deflation is impossible in today’s dollar terms because policy will allow the printing of cash, if necessary, to cover every last bit of debt and dumping it on your front lawn! (smile) Worthless dollars, of course, but no deflation in dollar terms! (bigger smile)”

  5. Start saving in utero and you may double your money twice. But we’re nowhere near that frantic pace of wealth creation.

    Lol’ed hard at this.

    @RJPadavona Some very astute comments Of course we have already seen fiat devaluation. Wages paid in cash are stable these last 8 years for most while real asset prices have skyrocketed since 2008. Housing, stocks etc etc have doubled or more depending on the country. So. The working and middle class are paid in fiat currency but the assets they would like to buy (that aren’t Chinese junk electronics) have doubled. An effective devaluation of earnings power if you ask me. Its why all the youngsters can’t get on the housing market and away from their parents.

    Interesting points on the need to revise upwards the value of Gold. Problem with gold is that it is hard to store and secure and since I will need many gold bars being so filthy rich, hard to barter with. The GLD ETFs etc (would not trust my money with them). Surely if hyperinflation is the only end game to save debtors, other real assets (anything real other than cash) are still the place to be.

    I like commercial real estate in my home country since it is usually bought leveraged and as inflation kicks in, debt reduces of course, elevating equity and cap rates are still 7-8%

  6. @RJPadavona so what you are saying is an “effective” return to the gold standard, correct? The old argument was that a return to the gold standard would be massively deflationary because there is simply not enough gold. However of course, that assumes the value of gold stays stable. What sort of revaluation windfall (movement in gold price) would be required?

    It seems like the removal of cash would make our western totalitarian regimes salivate. Just think of the extra data coming into N S A.

  7. @Uprising,

    Not sure what you mean by gold being hard to secure or store. Ever heard of Brinks? Several other vault services are out there as well. Most people aren’t as wealthy as you claim to be so a sock drawer or safe deposit box will probably suffice.

    You won’t be using gold to barter with. Fiat currency will be with us for a long time to come. Every country that has experienced hyperinflation continued to use the local currency as a medium of exchange. They just used more of it! Currency is what people are already familiar with and there are those pesky legal tender and contract laws that aren’t going anywhere either.

    I’d stay away from commercial real estate. The credit-fueled consumption binge is coming to an end. Land is always good to own since there’s not any more of it being made. But I’d still rather own gold because there’s a very liquid market for it if you need to sell.

    And no, I’m not talking about a return to a gold standard. A gold standard is when your currency is redeemable and fixed to a certain amount of gold. What I’m saying is that the national gold reserves are going to be revalued in order to shore up the asset side of the central bank balance sheets as all the sovereign debt implodes that also resides on the asset side of those balance sheets.

    They will do this because it’s the path of least resistance. They already own the gold reserves and gold is the only asset that can function as a super container to absorb all that imploding debt. Reason being because it’s used very little in industry. A high gold price doesn’t have a major impact on the overall economy such as other commodities like oil, silver, or copper. There’s about fifty cents worth of gold in your mobile phone at today’s gold prices. If the price of gold went to $50,000 or even $100,000/oz it wouldn’t make your electronics all that much more expensive. And most likely a different metal would replace gold for industrial use after a revaluation anyway.

    Once the USD hyperinflates to nominally cover US treasury debt obligations, the national gold reserves will be revalued (following the ECBs lead), and the global economy will start to function again. I expect central banks to continue to shoot for a 2% annual inflation target as they do now. That seems to be the agreed upon inflation rate. The main feature of the new monetary system that will be different from the current system is that the US will lose it’s exorbitant privilege of issuing massive amounts of treasury debt to fund its profligacy. The USD will then be on equal footing with other currencies and have to balance its trade based on production levels. A level of taxation that reflects the size of the government will also be a requirement in the new system. Improper currency management will be noticed very quickly in the rate of price inflation and will be naturally discouraged due to the threat of civil unrest.

    Long term savings will not be held in cash instruments as they are now. I believe physical gold will be the vehicle for long term savings. Short term savings (less than 10 years) will still be held in cash instruments like CDs, savings bonds, or treasury bonds. A rate of interest will be offered by your bank or sovereign bond issuer that will compensate for what you’re losing through price inflation.

    There’s nothing inherently wrong with fiat currency as long as you’re not saving your surplus wealth in it. Money is meant for spending, not saving. Long term savings should be held in physical assets that are not subject to counterparty risk. Barring a Mad Max style apocalypse, we’re never going back to hard money like a classical gold standard. Easy money is here to stay, just not as easy as it’s been for some. Where we are going is toward honest money, which is simply “money that doesn’t purport to be something it is not”.

    http://fofoa.blogspot.com/2011/05/return-to-honest-money.html?m=0

  8. When something is made complicated it is often to hide it’s simplicity. Criminal simplicity in this case.

    In 1913 the Jewish bankers who had already taken over the British Empire with the Bank of England Act took control of the emerging new Caucasian world power – the USA – with the Federal Reserve System Act. On Christmas Eve I believe. Traitorous Congressmen took the coin to betray the Constitution and the European people who saw the USA as a free country for Whites from Central Bankers and Aristocracy. (They had previously attempted to assassinate every President who opposed a Jewish central bank. JFK was the latest.)

    Lets simplify it.

    1,000 goyim farmers each produce 1,000 potatoes. That’s a million spuds. If there are 1m silver ounces in circulation and spuds are the entire world economy, then each spud is 1 silver ounce. But silver (or gold) cannot be printed so the paper scam is introduced. So, now replace the million metal ounces with a million paper notes called Federal Reserve Notes. If accepted, these are worth 1 spud each.

    Now the owners of the printing press print “inflation” over a couple of decades and now there are 2 million FR notes but there are still only 1 million spuds produced annually. So now the goy farmers still do all the work but the product of their labour is now only half of the money supply. The owners of the printing press who printed themselves into ownership of half the economy now can buy half of all the spuds without ever planting or sowing!

    And that, in simplistic but nevertheless true terms, is how Western Civilisation fell into the hands of the Jews.

    And it is why we are at this moment powerless to stop their policy of extermination of White people.

    And it is also why they hate Adolf Hitler so much. They killed him for the same reason they killed Kennedy. They both printed a fiat currency not controlled by Jewish central bankers. The difference is Kennedy just hinted at the hidden world rulers in a speech whilst Adolf just named them and started getting rid of the fuckers.

    • MFW people call me of being a conspiracy theorist…

      “Please tell me the word you use to describe the founding of the Federal Reserve. Whatever that word is, I am a theorist of it.”

    • I have three children, and none of them have ever seen an interest rate: “Daddy, what’s an interest rate?”

      Negative rates on deposits are what comes next and, of course, making it harder and harder to get cash out of banks.

      Personally, I’m investing heavily in not giving a fuck.

  9. The other point that’s interesting is that if physical cash is abolished and everything becomes electronic, then the distinction between negative interest rates and taxes suddenly becomes a lot smaller. In other words, if the Feds take out 1% of your money and it gets electronically destroyed, or if they take out 1% of your money and transfer it to themselves, it amounts to the same thing in the eyes of the average person. Hence you no longer need to have long arguments about why inflation is actually a stealth tax.

    I suspect negative nominal interest rates are one of those questions where the political economy will end up being perhaps more important than the pure economics. Getting around the zero lower bound on interest rates would actually be a very useful tool in the hands of a competent and honest policymaker – given the psychology, it surely would be incredibly effective at spurring spending. But the reason it would be effective is the same reason that people would furious about it – that they really hate seeing their money disappear mechanically every month while getting nothing in return.

  10. Pingback: This Week in Reaction (2015/10/04) | The Reactivity Place

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out / Change )

Twitter picture

You are commenting using your Twitter account. Log Out / Change )

Facebook photo

You are commenting using your Facebook account. Log Out / Change )

Google+ photo

You are commenting using your Google+ account. Log Out / Change )

Connecting to %s