Lending Versus Counterfeiting

What is the Difference Between Counterfeiting and Lending?

Merriam Websters Dictionary defines the noun “loan” thusly:
        1) Money lent at interest

              2) Something lent for the borrowers temporary use

T            3) The grant of temporary use.

A loan typically involves an asset that is idle (like spare money, a spare house, or a spare shovel) which someone else can put into economic use; and the rent typically comprises compensation for said use. Rents typically cover wear and tear (if the real asset is a durable good), or are offered as a premium/profit paid in good intention for the purpose of showing your appreciation for the lender’s generosity in extending their financial asset for your use.

But definition number one above is the one I want to focus on here. Money lent at interest. Recently, the wheels seemingly fell off the wagon with that one, because since early 2009, the Federal Reserve has been “lending” money to the commercial banks at effectively 0% interest.

Why is this important? Look again at the definitions above. If the loan involves money, but is not lent with interest, then the implied motive behind the loan must be “for the borrower’s temporary use” meaning that the Fed must be expecting the Banks to give this money back to the Fed at some point; since one can only “loan” their real property- Otherwise, the “loan” becomes a “gift”.

What’s more interesting is that (as we all know) the Fed doesn’t even have to HAVE the money on their balance sheet in order to lend it- all they have to have is a willingness to credit the commercial bank’s (or the Treasury’s) account with the agreed upon amount, and voila!... there is now money from whence there was none.

Now, for a moment, just Imagine that your neighbor stopped by on a warm Saturday afternoon and asked you if he could use a shovel for a few hours; and you, possessing no shovel, but possessing the willingness to lend him a shovel, suddenly MADE a shovel magically appear in his hand from nothing. Why, you would be as powerful as the Federal Reserve, by golly….

So, in reality, what the Fed is doing is issuing dollars (creating currency), but merely calling it a “loan” without any expectation that they will ever see those funds again.

So, why do they call it a loan? Because the term “loan” always carries with it the connotation that there is a claim (a lien if you will) against the borrower. When the lent asset is currency, then the counterparty is most often the Treasury, who assumes a debt (a bond) in exchange for the lent funds. This debt is then shifted onto the backs of the population as a lien- a claim on someone else’s productivity.

So, we have the few (Central Bankers and Treasurers) pledging the future productivity of others (the masses) against their free will, and without their direct consent. This is an interesting dynamic, since Central bankers and Treasurers are not elected by the masses. The question must logically follow as to how they are legally authorized to represent the masses, or to burden us with the debt that they create when they “lend” more currency into existence.

The Constitution clearly states in simple language what federal money is (a dollar is 371 grains of fine silver). It also states clearly that only Congress has the power to emit bills of credit, and to coin money and regulate the value thereof.

The Federal Reserve’s official bio says that Congress abrogated this power to the Fed via law, but nowhere is there a constitutional amendment that says congress is authorized to abrogate that power.

So the Federal Reserve is out there emitting bills of credit into circulation, and calling them dollars, in spite of the fact that they do not meet the definition of a dollar… So I ask you: What is the difference between counterfeiting and lending?

The answer, if you choose to listen to the Fed, is nothing.

The final portrait of my life will be painted within the memories of the people I knew...

Not sure if the philosophical one-liner above is worthy of Thoreau or Frost, but I thought of it, and decided to share it.

Do you Support our Troops? Then LISTEN to them...

Do you love (I mean really LOVE) your country?

Are you a Veteran? Do you feel free in the land you swore to defend?

Do you believe that America's brightest future has to include DHS, TSA, ATF and other forms of militant authoritarianism?

Are you brave enough to watch this all the way to the end.... ? Are you brave enough to admit it moved you to tears?  I am.

http://www.youtube.com/watch?v=OuRyaRG3tio

Finally, do you trust your own judgement?

Please LISTEN to what your conscience, and those pesky tears, are telling you.

More:

http://endorseliberty.com/defense/?utm_source=YouTube&utm_medium=TrueView&utm_term=no%2Bintro%2BLong&utm_content=DEFENSE&utm_campaign=TrueView%2Bno%2Bintro

How will this economic calamity end?

It will end with a whimper, not a bang.

I like all the recent blather from the Fed (reference: the Dec FOMC minutes) about how we may have reached the limit of monetary policy's ability to deal with the crises we face.

Baloney I say. The Fed is bluffing.

After all, we reached that same monetary policy limit in Sept of 2008, and yet the TARP still went through, and the Fed still ballooned its balance sheet, all just to save Hank Paulson's Alama Mater, Goldman Sachs.

But enough of what's in the past- bygones, water under the bridge, etc.

Let's talk about 80x leverage in the global dollar marketplace, and weigh that against the only source of ALL US dollar credit for a moment.

Yup, sure as hell, that leverage factor says that the debt is completely unpayable (aka odious), and that the process of deleveraging means catastrophic deflation... No argument from me.

But wait! what about interest rates?

When primary dealer banks can create whatever capital reserve level they need to be at by borrowing from the Fed for 0.25%, and they then can use this credit to purchase US Treasuries that yield ANYTHING better than 0.25%, then there is still plenty of room for this game to continue...

BUT, of course, there is the threat of rising Treasury yields due to a global Treasury demand collapse. Ignoring such a scenario, (or dismissing it out of some misplaced patriotic duty) firmly places one in the same camp that was reading (and believing) Dow 36000 in March of 2000.

Global US Treasury demand COULD collapse this afternoon, or it MIGHT NOT ever collapse (or at least not until all of us are dead).

If Treasury demand in the open market does collapse, forcing upwrd pressure on yields, and  making it harder for the Treasury to issue successful auctions; then the best bet on that day (if/when it comes to pass) will be to simply stand back and watch as the Primary dealer banks buy the rising yield Treasuries, still using newly issued Fed credit that might drift as low as 0.0000125% (or even 0.000000000000000000000125%) ... creating a dollar carry trade that makes Japan's look bush league.
 Meanwhile, the Treasury will need to make sure that all this new issuance can keep the US balance sheet from tipping over, so Congress will raise the debt ceiling (either in continuously increasing increments that rise exponentially; or maybe they will get really smart and just throw a nuclear number at it like 250 Quadrillion dollars) and we will all witness a bout of odious debt creation that will make every tsunami that Mother Nature has ever concocted look tame by comparison.

You may one day see the guys on Myth Busters sailing a boat around the world made out of US Dollars and Duct Tape, just to prove that the dollar still floats globally.

Why is this the most logical outcome, you ask? Simple- hyper inflation NEVER occurs in militarily significant economies. The only way you topple military giants is via internal political upheaval.

You can repudiate our currency, but you can not collect on the debt we owe you, unless you can kick our ass. This is the final lesson the Romans HAD to be taught the hard way by the Huns and the Visigoths, and so too, I fear, it will be for the USA.

Sad, but true, if history is a reputable guide.

The US has a very long (decades as I see it) episode of internal and political degradation to endure before the cyclical lessons of history once again assert their mastery over human hubris and arrogance.
Ergo, global US dollar supply will not be shrinking over any horizon measured in years, or even in decades.

The US dollar is not cooked. The US dollar is merely cooking, but the heat under the pot will never rise above a simmer. The water will boil, but not until we get bored of watching it.

In the meantime, there will be all kinds of crazy currency gyrations, and all kinds of new International Reserve Credit currency ideas that will (again) attempt to willfully ignore what is a basic, fundamental, unavoidable, and inescapable truth:

ALL money is a claim on future production. All of it- credit based money, or hard commodity money- it is all nothing more than a representation of the stored value of work that was done yesterday, but is intended to be exchanged for the results of some other work that will not be done until tomorrow.
Therefore, the ability to borrow work from the future will never go to zero, unless the aggregate value of ALL work ever done prior to today also goes to zero.

The fallacy that deflation destroys value is a myth. Deflation negatively impacts the desire to work (since it creates the perception that work is valueless, and therefore meaningless)- this is the persistent nag that inspired Ben Bernanke to crank out his famous Helicopter Manifesto in 2002.

If you understand the value of work as it pertains to your own psyche (pride, accomplishment, achievement, etc) then you will successfully endure EVERY possible future that this diseased system of political and financial corruption might lay out in front of you...

An Epiphany For Me.... Eureka

** Preface- After finishing and re-reading this work, I consider it my Magnum Opus on gold, money and the value of labor- I will demonstrate below how the immutable laws of physics interact with the subjective and perceptive aspects of economcs and money in a realtively simple, elegent sense; but it is pretty deep. Prepare yourself **

Gold is money, gold is not money, blah blah blah... the arguments in financial journals bore me to death.

One fact that is inescapable: Gold represents the real work necessary to produce it. I've written about this before.

Gold has been mined and refined continuously for nearly 6000 years, yet all the above-ground Gold in existence would barely fill 3 Olympic sized swimming pools. That's an awful lot of labor for very little end product, dontcha think? Consider this compared to how many swimming pools worth of oil have been extracted, refined, and wasted playing in dune buggies on Southern California sand dunes in just the past ten years.

Originally, gold was sought after by bronze age metal crafters due to it's density and softness- while it was too soft to forge weapons, it was easy to shape, and its yellow color added pretty decoration to shields, sword guards/pommels, and helmets. Because of gold's scarcity and the fact that it was more easily aquired via the theft/death of it's previous owner then it was by mining and refining it, Gold usually ended up adorning implements of the strongest and most powerful warriors, and the more Gold a man displayed on his wares, the more powerful and noteworthy his personal prestige and social status became- Any man who dared to parade around accesorized by Gold was simultaneously demonstrating that he had the skills/means to aquire it, as well as the skills necessary to defend it. Gold was a glaring symbol for all to see that the wearer was not to be messed with...

In other words, Gold moved rapidly from a utilitarian metal to a symbol of perceived wealth and power.

It is only natural that gold would begin to demonstrate its utility as money next. Eventually, the tough guys had so much gold that they and their women could not possibly wear it all (it is quite heavy after all), and there were plenty of people who would gladly trade work, or oxen, or wheat for a few scraps of gold.

(That this sentiment would give rise to the erroneous concept of social class structure, the emergence of Kings, and the common "haves versus have-nots" social dynamic is duly noted; but that is another essay for another day. Today we are focusing on value.)

So, the genesis of gold as the longest lasting, most enduring symbol of money in human history, was anchored by:

1) Its durability and permanence- gold does not react, oxidize(rust) or dissolve as easily as other elements.
2) Its scarcity- gold could only be aquired via work- whether that work was noble and scrupulous:

• Digging, sifting, and refining it, or
• Growing wheat, or cattle to trade for it, or 
• Trading your skills as a craftsman in exchange for it.

or unscrupulous:

• Murdering, robbing, and plundering
• Cheating in games of chance where gold was the wager 

3) Its divisibility- gold is soft, and can be cut into different sized peices, making it easy to denominate into different sized pieces to "lubricate" the negotiation process ("I'll do the job for 3 drams" - "Blashemy you say- Cornwallace has already offered to do it for 2 drams, so it's 2 drams or nothing"
4) Its portability- Cattle have enormous value for the amount of food calories they provide, but they are not easily transported from town to town (and they are nearly impossible to hide- the cattle farmer has no choice but to display his wealth in full view of every cattle rustler in the area)

So, I've been typing for 20 minutes and all I have covered is a brief history lesson. So, on to my epiphany:

Go back up and read number 2 again, and if you haven't already, bo back and read the other post I linked to above.... Now, start thinking about the present day.

Gold (any valid money, actually) is a stored-value proxy for work. When workers/laborers are in scarce supply (low unemployment levels), the proxy value of "money for work" falls. When there is more work to be done than there are workers available to do it, then people willingly trade the value of their work for less real monetary value, and they also save less in both a monetary sense, and in a value sense:

"Since there will still be plenty of work for me tomorrow, why should I worry about earning any more today than I need for today?"

- In other words, during low unemployment periods, the psychological value of money and work typically fall together.

During inverse periods, when there is less work to be done, and there is a preponderance of available labor to do it (aka high unemployment), the value of work (for those who do not have it) soars, as does the value of money (since the future is less stable, people save more, and they look for storage methods that will preserve as much of the original value of their labor as possible for as long into the future as possible)

So, that's my epiphany- the real value of labor, and the real value of money are not inverse to each other, as common sense would suggest. At a very macro, societal level, and over very long timelines, these values rise and fall together as economic employment opportunities concurrently rise and fall.

Employment will always be more IMPORTANT than money- easily demonstrated by the fact that if you ask an unemployed person whether they would prefer to have a job, or a free unemployment check, any rational minded person would choose the job. (The fable that if you give a man a fish you feed them for a day, while if you teach a man to fish you feed him for life, is apt), but the importance or priority of a job over money does not change the direction of the psychological value curve related to each, it only changes the ratio by which they exchange for one-another.

Back to today. For the past 40 years, money has only been printed paper, and over the past 20 years, money has evoloved into nothing but data. Well, paper is easily grown, and data is VERY easily conjured into existence, but up until recently, employment has been readily available, so people have been happy to trade their work output for these low-value intruments of exchange (The future's so bright, I gotta wear shades). Things were orderly, stable, and everything balanced out nearly perfectly. Even the global anchor of all this "wealth", oil, seemed to be pouring out of the ground easily enough to keep people from worrying about where their next meal would come from, or where the next tank of gas would come from, or how much long term purchasing value their monetary savings was maintaining.

And then the roof caved in in 2002, and the money printers rushed in and threw up a bunch of monetary scaffolds and temporary supports and the party resumed... and then the roof caved in again in 2008, and the money printers rushed in again and threw up even MORE paper and digital monetary support under the system; and here we are today, where the common faith among many is that the system is gearing up for yet another epic fail...

Why?

Well, by the early 2000's, everyone endeared to the "oil is wealth and paper is money" concept was getting rich by shuffling paper, and buying bigger houses, and partying. The system seemed perfectly balanced and perpetual, but anyone (the few) who understood the immutable laws of physics was getting REALLY nervous...

The second law of thermodynamics states that entropy (the relationship of order to chaos in any system) must always INCREASE (favor chaos) over time. This is to say that all orderly systems must fail, and all well formed structures must disintegrate into less stable states- this is unavoidable, and the more orderly the system is, the higher the probability that it will succomb to the laws of entropy. This concept is easy to see in old buildings that collapse and disintegrate into dust over time, and in fruit that gradually rots into soil, and in beautiful sand castles that degenerate into disordered mounds of sand grains. Even paper disintegrates into dust over time.

Are we seeing the same thing in the global economic/monetary system? Is the global fiat money system succombing to the forces of entropy? History tells us that every paper money system ever tried, has failed, and that all measures of social status and wealth (houses, cars, rolexes, etc) degrade and succomb to the forces of entropy over time.

Now, please go back up and read number 1 above. There is only ONE class of monetary instrument that denies the law of entropy from doing it's nefarious deed: High density precious metals. (I concede that this point is refutable when applied to cosmically huge timescales, for even gold will slowly degrade into Platinum as the Universe continues cooling, but we're talking Trillions of Trillions of Trillions of centuries for that to happen, and I freely admit that I am not so concerned with preserving the purchasing power of my labor for quite THAT long :-)

Iron rusts. Pure Sodium actually "burns" in the prescence of air. Even the highest quality stainless steel degrades to powder when left in the ocean for a few years, but pieces of gold and silver can sit at the bottom of the ocean for THOUSANDS of decades, and will come back up still preserving their original weight, shape, and composition.

Ok, enough on entropy and the permanence of wealth. Back to the present times.

So, we are now firmly entrenched in a period in which employment (the availability of jobs) is low, so the psychological value of work is high and rising, and therefore the psychological value of money should also be rising, and yet the paper money system in place is showing structural cracks in the foundation...

So, how will this all play out? I think the answer lies in Africa.

Wait, AFRICA? What in the hell are you talking about, Robert?

In the global economic boom of the past 60 years, Africa has clearly been the loser. Even with a growing population that demonstrated that it valued work very highly, prosperity just never took hold on the original human continent; and now we are at a point in time where the global economy is contracting, and the perceived value of work and money (to those who have neither) is rising world-wide. This has very interesting (if not sad) repercussions for Africa.... unless some method of increasing the wealth of the African continent can be found that will employ the abundance of African labor, and leverage it to produce items that are rapidly increasing in psychological value world-wide. But, we've all seen the pictures of Africa... there's nothing there but Kilimonjaro and dirt.

Do you see where I'm heading with this? What forms of wealth arise by working the land?

Oil, corn, wheat, cattle, gems... and metals.

Suddenly, everything I've read in Adam Smith's The Wealth of Nations makes even more sense to me than before (as do many of the works of Murray Rothbard and Ludwig von Mises), and even though I signed off long ago on Mises' premise that money is a proxy for the stored value of work, I never fully realized that these values, from a global psychological perspective, must rise and fall in unison like a long, wide amplitude sine wave, based on the general employment level.
Unemployment raises the perceived value of work, and it increases the personal need (demand) for more valuable forms of money.

All these arguments about "Gold is a hedge against inflation" versus "gold pays no income so it is financially worthless" are completely capricious and irrelevant.

Gold is permanent. Low unemployment levels are not; and faith based paper money systems are not, because entropy must de-construct faith just as readily as it de-constructs sand-castles.

The law of entropy can not be reversed- sand can not be "un-weathered" back into granite, and nature does not randomly create sand castles by combining wind, water, and sand (although there is no physical law that says this is impossible- it is only very VERY unlikely).

Only new, temporary orders can arise out of chaos, and these new orders are all doomed to submit back to chaos just as every temporary order prior to them did.

Likewise, only monies that maintain scarcity, and possess the durability to survive the periods of economic chaos can move into the next period of temporary economic order.

Now, I've always considered myself to be pretty sharp, but last night at about 8:30pm as I drove home with a tasty load of Mexican take out, I suddenly felt much smarter and more enlightened than I had been at 8:29 as the intellectual and subjective link between the value of money and the value of employment wired themselves together in my brain...

So that is the most complete rationale I can provide for why your real physical savings must not be deposited into paper or digital intruments if you want them to maintain trade/purchasing value that can only rise and fall based on the concurrent rise and fall of the real value of labor over time...

Random Thoughts...

1) Obama said he would rather be a great one-term President than to win a 2nd term just for the sake of holding office for 4 more years.... ummmm, yeah, but if a President is truly great in his first term, then isn't the 2nd term pretty much a lock?

3) Bernanke tells Ron Paul that gold is not money. Congratulations, Mrs Bernanke- you gave birth to a fully qualified idiot.

4) If Gold is not money, and if Gold has no value, then why was it necessary for Nixon to close the Gold exchange window in 1971? Think about that one for a good, long time...

Sovereignty... It's all about YOU, not them.

The individual human person (read: YOU) is under attack by those who have every want, need, and desire, to maintain the power of a very simple lie.

This lie, within whose envelope we are born, educated, trained, and thoroughly indoctrinated, is simply the concept that sovereignty is somehow hierarchical...

There are two common ways that this lie is fostered and maintained:

1. Passive Authority- we dazzle and impress others with our brilliance, and those that we impress begin to look to us as somehow superior to them, and soon they revere us and address us as authorities and eventually they begin to yield their sovereignty to ours. This is typically the avenue of Preisthoods and Academia... it relies on bureaucracy and process to maintain the illusion.
2. Aggressive Authority- Individuals or groups leverage the imbalance of some strength to directly impose their super-sovereignty over those who are "weaker" than they.

Over time, sovereignty yields to higher soverignty, until people organize into "sovereign states" and states into nations, and the next thing you know, we have some ass-clown with a teleprompter standing at a podium declaring that he can wage war against another population of people (human beings- each with personal conciousness and free will) without the approval of his own sovereign state; because he is acting as part of a coalition of other states under the "authority" of an even higher super-sovereign...

And while aggressive authority (number 2 above) is certainly more efficient than passive authority, it is also inherently less stable (since you never really know who is going to submit, and who is going to fight back), so the best "uber strategy" is to combine both methods in a hybrid system that completely obscures a singularity of truth that can not be seen, heard, nor discussed...

Sadly, this entire analogy can also be allegorical to another term:
Parenthood.

Without respecting the absolute sovereignty, consciousness, and freewill of other people on an individual level, there can (and will) be no true freedom for our species- ever.

The greatest day any parent should look forward to is the day their offspring say "Take a hike you idiot- I'm taking responsibility for my own life", but instead most parents live with fear and dread of this ever happening...

The nature of the human condition is why we seek affirmation from others, and it is why we so willingly sacrifice our individual sovereignty in the process of searching for some higher meaning.

In other words- the smarter we think we are, the more stupid we prove ourselves to be.