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An invaluable lesson for U.S. Citizens from the bank confiscation in Cyprus
An invaluable lesson for U.S. Citizens from the bank confiscation in Cyprus.
It was almost exactly one year ago to the day that an entire nation was frozen out of its savings… overnight.
Cypriots went to bed on Friday thinking everything was fine. By the next morning, they had no way to pay bills or buy food.
It’s certainly a chilling reminder of how quickly things can change. And why.
The entire crisis sprang from a mountain of debt. The government had accumulated too much debt. The banking system had accumulated too much debt.
And banks had lost a lot of their customers’ money making risky, stupid bets on things like Greek government bonds.
By March 2013, Cypriot banks were almost entirely devoid of cash.
Sure, customers could log on to a website and check their bank balances.
But there’s a huge difference between a number displayed on a screen, and a well-capitalized bank that actually holds abundant cash.
The government was too insolvent to bail anyone out. And as a member of the eurozone, Cyprus didn’t have the ability to print its own money.
So they did the only thing they could think of– confiscate customer deposits.
And they imposed capital controls on top of that to make sure that people couldn’t withdraw their remaining funds out of the banks as soon as the freeze was lifted.
It was a truly despicable act. But again, even though it all unfolded overnight, the warning signs were building for at least a year. Especially the debt.
When countries, central banks, and commercial banks accumulate too much debt, and specifically too much debt relative to assets, you can be certain there is trouble ahead in the system.
Think about it like your own personal finances. If you have a million dollars in debt, that seems like a lot. But if you own a home worth $5 million, you are still in good shape financially.
If, on the other hand, you have a million dollar mortgage for a home that’s worth $250,000, you’re in deep trouble.
The US government’s official, ‘on the books’ debt now exceeds $17.5 trillion. This is an enormous figure.
If the Uncle Sam just happened to have $20 trillion or so laying around, however, this debt load wouldn’t be a big deal. But that’s not the case.
By the US government’s own admission, their own financial statements show net equity (assets minus liabilities) of MINUS $16.9 trillion.
That’s including ALL the assets: Every tank. Every bullet. Every body scanner. Every highway.
Then you have to look at the Central Bank, which is itself teetering on insolvency.
The Federal Reserve’s balance sheet has exploded since 2008, and right now the Fed’s net equity (assets minus liabilities) is about $56 billion.
That’s a razor-thin 1.34% of its $4 trillion in assets (it was 4.5% before the crisis).
Here’s the thing: in its own annual report, the Fed just admitted that it had accumulated ‘unrealized losses’ totaling $53 billion. This is almost the Fed’s ENTIRE EQUITY.
So in the Land of the Free, you now have an insolvent government and insolvent central bank underpinning a commercial banking system that is incentivized to make risky, stupid bets with their customers’ money.
To be fair, I’m not suggesting that bank accounts in the US are going to be frozen tomorrow morning.
But a rational person should recognize that the warning signs are very similar to what they were in Cyprus last year.
And if there is one thing we can learn from the Cyprus bail-in, it’s that it behooves any rational person to have a plan B, even if you think the future holds nothing but sunshine and smiley faces.
Having a plan B can mean a lot of different things depending on your situation– moving some funds abroad, securing a second source of income, having an escape hatch overseas, owning physical gold, holding extra cash, etc.
You’re not going to be worse off for having a plan B based on the possibility that there -could- be some problems down the road.
But if those consequences are ever realized,and Plan B becomes Plan A, it might just turn out to be the smartest move you’ve ever made.
If you think this makes sense then I encourage you to sign up for our free Notes From the Field if you haven’t already done so, and you can also share this article with your friends below so they’re not without a plan B if things do take a turn for the worse.
March 17, 2014
Dallas, Texas, USA
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Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007; $27 Trillion Is “Foreign-Held” | Zero Hedge
While the US may be rejoicing its daily stock market all time highs day after day, it may come as a surprise to many that global equity capitalization has hardly performed as impressively compared to its previous records set in mid-2007. In fact, between the last bubble peak, and mid-2013, there has been a $3.86 trillion decline in the value of equities to $53.8 trillion over this six year time period, according to data compiled by Bloomberg. Alas, in a world in which there is no longer even hope for growth without massive debt expansion, there is a cost to keeping global equities stable (and US stocks at record highs): that cost is $30 trillion, or nearly double the GDP of the United States, which is by how much global debt has risen over the same period. Specifically, total global debt has exploded by 40% in just 6 short years from 2007 to 2013, from “only” $70 trillion to over $100 trillion as of mid-2013, according to the BIS’ just-released quarterly review.
It should come as no surprise to anyone by now, but the only reason why global stocks haven’t plummeted since the Lehman collapse is simple: governments have become the final backstop for onboarding risk, with a Central Bank stamp of approval – in other words, the very framework of the fiat system is at stake should global equity levels collapse. The BIS admits as much: “Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS.
It should also come as no surprise that courtesy of ZIRP and monetization of debt by every central bank, debt has itself become money regardless of duration or maturity (although recent taper tantrums have shown what will happen once rates start rising across the curve again), explaining the mindblowing tsunami of new debt issuance, which will certainly never be repaid, and whose rolling will become impossible once interest rates rise. But of course, under central planning that is not allowed. As Bloomberg reminds us, marketable U.S. government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007, according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally jumped during the period, with issuance totaling more than $21 trillion, Bloomberg data show.
And as we won’t tire of pointing out, China’s credit expansion over this period is easily the most important, and overlooked one. Which is why with China out of the epic debt issuance picture, and with the Fed tapering, all bets are slowly coming off.
Bloomberg also comments, humorously, as follows: “concerned that high debt loads would cause international investors to avoid their markets, many nations resorted to austerity measures of reduced spending and increased taxes, reining in their economies in the process as they tried to restore the fiscal order they abandoned to fight the worldwide recession.” Of course, once gross government corruption and incompetence made all attempts at austerity futile, and with even the austere nations’ debt levels continuing to breach record highs confirming there was never any actual austerity to begin with, the push to pretend to reign debt in has finally faded, and the entire world is once again engaged – at breakneck speed – in doing what caused the great financial crisis in the first place: the issuance of record amounts of unsustainable debt.
All of the above is known. What may not be known is just who is issuing, and respectively, purchasing, this global debt-funded spending spree, especially in a world in which one’s debt is another’s asset. Here is the BIS’s answer to that question:
Cross-border investments in global debt markets since the crisis
Branimir Grui? and Andreas Schrimpf
Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007. Growth has been uneven across the main market segments. Active issuance by governments and non-financial corporations has lifted the share of domestically issued bonds, whereas more restrained activity by financial institutions has held back international issuance (Graph C, left-hand panel).
Not surprisingly, given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers (Graph C, left-hand panel). They mostly issue debt in domestic markets, where amounts outstanding reached $43 trillion in June 2013, about 80% higher than in mid-2007 (as indicated by the yellow area in Graph C, left-hand panel). Debt issuance by non-financial corporates has grown at a similar rate (albeit from a lower base). As with governments, non-financial corporations primarily issue domestically. As a result, amounts outstanding of non-financial corporate debt in domestic markets surpassed $10 trillion in mid-2013 (blue area in Graph C, left-hand panel). The substitution of traditional bank loans with bond financing may have played a role, as did investors’ appetite for assets offering a pickup to the ultra-low yields in major sovereign bond markets.
Financial sector deleveraging in the aftermath of the financial crisis has been a primary reason for the sluggish growth of international compared to domestic debt markets. Financials (mostly banks and non-bank financial corporations) have traditionally been the most significant issuers in international debt markets (grey area in Graph C, left-hand panel). That said, the amount of debt placed by financials in the international market has grown by merely 19% since mid-2007, and the outstanding amounts in domestic markets have even edged down by 5% since end-2007.
Who are the investors that have absorbed the vast amount of newly issued debt? Has the investor base been mostly domestic or have cross-border investments grown at a similar pace to global debt markets? To provide a perspective, we combine data from the BIS securities statistics with those of the IMF Coordinated Portfolio Investment Survey (CPIS). The results of the CPIS suggest that non-resident investors held around $27 trillion of global debt securities, either as reserve assets or in the form of portfolio investments (Graph C, centre panel). Investments in debt securities by non-residents thus accounted for roughly one quarter of the stock of global debt securities, with domestic investors accounting for the remaining 75%.
The global financial crisis has left a dent in cross-border portfolio investments in global debt securities. The share of debt securities held by cross-border investors either as reserve assets or via portfolio investments (as a percentage of total global debt securities markets) fell from around 29% in early 2007 to 26% in late 2012. This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis, which is consistent with other recent findings in the literature.
This could be temporary, though. The latest IMF-CPIS data indicate that cross-border investments in debt securities recovered slightly in the second half of 2012, the most recent period for which data are available.
The contraction in the share of cross-border holdings differed across countries and regions (Graph C, right-hand panel). Cross-border holdings of debt issued by euro area residents stood at 47% of total outstanding amounts in late 2012, 10 percentage points lower than at the peak in 2006. A similar trend can be observed for the United Kingdom. This suggests that the majority of new debt issued by euro area and UK residents has been absorbed by domestic investors. Newly issued US debt securities, by contrast, were increasingly held by cross-border investors (Graph C, right-hand panel). The same is true for debt securities issued by borrowers from emerging market economies. The share of emerging market debt securities held by cross-border investors picked up to 12% in 2012, roughly twice as high as in 2008.
* * *
Source: BIS
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Global Debt Crosses $100 Trillion, Rises By $30 Trillion Since 2007; $27 Trillion Is "Foreign-Held" | Zero Hedge
While the US may be rejoicing its daily stock market all time highs day after day, it may come as a surprise to many that global equity capitalization has hardly performed as impressively compared to its previous records set in mid-2007. In fact, between the last bubble peak, and mid-2013, there has been a $3.86 trillion decline in the value of equities to $53.8 trillion over this six year time period, according to data compiled by Bloomberg. Alas, in a world in which there is no longer even hope for growth without massive debt expansion, there is a cost to keeping global equities stable (and US stocks at record highs): that cost is $30 trillion, or nearly double the GDP of the United States, which is by how much global debt has risen over the same period. Specifically, total global debt has exploded by 40% in just 6 short years from 2007 to 2013, from “only” $70 trillion to over $100 trillion as of mid-2013, according to the BIS’ just-released quarterly review.
It should come as no surprise to anyone by now, but the only reason why global stocks haven’t plummeted since the Lehman collapse is simple: governments have become the final backstop for onboarding risk, with a Central Bank stamp of approval – in other words, the very framework of the fiat system is at stake should global equity levels collapse. The BIS admits as much: “Given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers,” according to Branimir Gruic, an analyst, and Andreas Schrimpf, an economist at the BIS.
It should also come as no surprise that courtesy of ZIRP and monetization of debt by every central bank, debt has itself become money regardless of duration or maturity (although recent taper tantrums have shown what will happen once rates start rising across the curve again), explaining the mindblowing tsunami of new debt issuance, which will certainly never be repaid, and whose rolling will become impossible once interest rates rise. But of course, under central planning that is not allowed. As Bloomberg reminds us, marketable U.S. government debt outstanding has surged to a record $12 trillion, up from $4.5 trillion at the end of 2007, according to U.S. Treasury data compiled by Bloomberg. Corporate bond sales globally jumped during the period, with issuance totaling more than $21 trillion, Bloomberg data show.
And as we won’t tire of pointing out, China’s credit expansion over this period is easily the most important, and overlooked one. Which is why with China out of the epic debt issuance picture, and with the Fed tapering, all bets are slowly coming off.
Bloomberg also comments, humorously, as follows: “concerned that high debt loads would cause international investors to avoid their markets, many nations resorted to austerity measures of reduced spending and increased taxes, reining in their economies in the process as they tried to restore the fiscal order they abandoned to fight the worldwide recession.” Of course, once gross government corruption and incompetence made all attempts at austerity futile, and with even the austere nations’ debt levels continuing to breach record highs confirming there was never any actual austerity to begin with, the push to pretend to reign debt in has finally faded, and the entire world is once again engaged – at breakneck speed – in doing what caused the great financial crisis in the first place: the issuance of record amounts of unsustainable debt.
All of the above is known. What may not be known is just who is issuing, and respectively, purchasing, this global debt-funded spending spree, especially in a world in which one’s debt is another’s asset. Here is the BIS’s answer to that question:
Cross-border investments in global debt markets since the crisis
Branimir Grui? and Andreas Schrimpf
Global debt markets have grown to an estimated $100 trillion (in amounts outstanding) in mid-2013 (Graph C, left-hand panel), up from $70 trillion in mid-2007. Growth has been uneven across the main market segments. Active issuance by governments and non-financial corporations has lifted the share of domestically issued bonds, whereas more restrained activity by financial institutions has held back international issuance (Graph C, left-hand panel).
Not surprisingly, given the significant expansion in government spending in recent years, governments (including central, state and local governments) have been the largest debt issuers (Graph C, left-hand panel). They mostly issue debt in domestic markets, where amounts outstanding reached $43 trillion in June 2013, about 80% higher than in mid-2007 (as indicated by the yellow area in Graph C, left-hand panel). Debt issuance by non-financial corporates has grown at a similar rate (albeit from a lower base). As with governments, non-financial corporations primarily issue domestically. As a result, amounts outstanding of non-financial corporate debt in domestic markets surpassed $10 trillion in mid-2013 (blue area in Graph C, left-hand panel). The substitution of traditional bank loans with bond financing may have played a role, as did investors’ appetite for assets offering a pickup to the ultra-low yields in major sovereign bond markets.
Financial sector deleveraging in the aftermath of the financial crisis has been a primary reason for the sluggish growth of international compared to domestic debt markets. Financials (mostly banks and non-bank financial corporations) have traditionally been the most significant issuers in international debt markets (grey area in Graph C, left-hand panel). That said, the amount of debt placed by financials in the international market has grown by merely 19% since mid-2007, and the outstanding amounts in domestic markets have even edged down by 5% since end-2007.
Who are the investors that have absorbed the vast amount of newly issued debt? Has the investor base been mostly domestic or have cross-border investments grown at a similar pace to global debt markets? To provide a perspective, we combine data from the BIS securities statistics with those of the IMF Coordinated Portfolio Investment Survey (CPIS). The results of the CPIS suggest that non-resident investors held around $27 trillion of global debt securities, either as reserve assets or in the form of portfolio investments (Graph C, centre panel). Investments in debt securities by non-residents thus accounted for roughly one quarter of the stock of global debt securities, with domestic investors accounting for the remaining 75%.
The global financial crisis has left a dent in cross-border portfolio investments in global debt securities. The share of debt securities held by cross-border investors either as reserve assets or via portfolio investments (as a percentage of total global debt securities markets) fell from around 29% in early 2007 to 26% in late 2012. This reversed the trend in the pre-crisis period, when it had risen by 8 percentage points from 2001 to a peak in 2007. It suggests that the process of international financial integration may have gone partly into reverse since the onset of the crisis, which is consistent with other recent findings in the literature.
This could be temporary, though. The latest IMF-CPIS data indicate that cross-border investments in debt securities recovered slightly in the second half of 2012, the most recent period for which data are available.
The contraction in the share of cross-border holdings differed across countries and regions (Graph C, right-hand panel). Cross-border holdings of debt issued by euro area residents stood at 47% of total outstanding amounts in late 2012, 10 percentage points lower than at the peak in 2006. A similar trend can be observed for the United Kingdom. This suggests that the majority of new debt issued by euro area and UK residents has been absorbed by domestic investors. Newly issued US debt securities, by contrast, were increasingly held by cross-border investors (Graph C, right-hand panel). The same is true for debt securities issued by borrowers from emerging market economies. The share of emerging market debt securities held by cross-border investors picked up to 12% in 2012, roughly twice as high as in 2008.
* * *
Source: BIS
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“No inflation” Friday: the dollar has lost 83.3% against…
“No inflation” Friday: the dollar has lost 83.3% against….
March 7, 2014
Dallas, Texas
I needed a caffeine jolt late this morning after the long journey up from South America.
And while I’m generally averse to aspartame, high fructose corn syrup, and other government-sanctioned poisons, I did briefly consider a hit of Coca Cola as I walked past a vending machine on my way out of a grocery store.
Then I saw the price.
To give you some quick background, this was the same grocery store my mother used to shop at when I was a kid. And if I was really lucky, we’d stop for a can of coke on the way out– 25 cents back then.
Fast forward to today–. I’m a grown man of 35 now instead of a 9-year old kid. And while the store has changed hands a few times, there’s still vending machine near the entrance.
Same coke, same 12 ounces (though now in a plastic bottle instead of an aluminium can).
Price today? $1.50. [note, this is the vending machine price, not grocery store price.]
Put another way, $1 would have bought me 48 ounces of Coca Cola 26 years ago. Today that same dollar buys me just 8 ounces.
This means that the dollar has lost 83.3% of its value against Coca Cola over the past three decades, averaging roughly 6.6% inflation per year.
Some readers may remember the price of Coca Cola being just 5c back in the early 1950s (for a 6.5oz glass)… meaning the US dollar has lost 93.8% against Coca Cola over the past six decades.
Now, we are taught from the time we are children that ‘a little inflation is good…’
And when central bankers tell us they’re targeting an inflation rate of 2% to 3%, that certainly doesn’t seem so bad. 2% is practically just a rounding error. But bear in mind a few things–
1) An inflation rate of 2% is not price stability.
As Jim Rickards frequently points out, even with just 2% inflation, a currency loses over 75% of its value during an average lifespan. This can hardly be considered monetary stablilty.
And this practice of gradually plundering people’s purchasing power over time is incredibly deceitful.
2) Even if, they rarely meet their target.
As this case shows, 6.6% certainly ain’t 2%. The official statistics and research papers may say 2%. Reality is much different.
3) Wages often don’t keep up.
According to the US Labor Department, the median weekly wage back in 1988 was $382… or roughly 18,336 ounces of Coca Cola.
Today the median weekly wage is $831.40… or just 6,651.20 ounces.
So as measured in Coca Cola, the average wage in the Land of the Free has declined by 11,684 ounces per week– a 63.7% decline over the last three decades.
You can make a similar calculation denominated in Snickers bars, gallons of gas, etc.
If you have a big picture, long-term view, it’s clear that standard of living is falling.
Some readers may remember decades ago– a single parent could go out and, even with a blue collar job, comfortably support a growing family.
Today, dual income households struggle to keep their heads above water. This is the long-term plunder of inflation.
And just to give you a reminder of what things used to cost, I’ve pulled a page from the March 7, 1988 edition of the Bryan Times of Bryan, OH: 26-years ago today.
You can scroll through the paper and note the prices:
25c for a dozen eggs. 69c for a loaf of bread. 49c for a pound of Chicken. A brand new Mustang LX for just $9203.
That’s the Federal Reserve for you. 100 years of monetary destruction and counting.
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Former central banker: “[Bankers] are making it up as they go along.”
Former central banker: “[Bankers] are making it up as they go along.”.
March 3, 2014
London, England
[Editors note: Tim Price, Director of Investment at PFP Wealth Management and frequent Sovereign Man contributor is filling in for Simon today.]
A few weeks ago, William White (former economist at the Bank of England, the Bank of Canada, and Bank of International Settlements) made a frank admission.
And while we search for assets whose prices are less obviously distorted by malign government intervention, it’s refreshing to hear a mea culpa from a member of the economics “profession”.
White said:
“The analytical underpinnings of what we [mainstream economists] do are actually pretty shaky. A reflection of that fact, is that virtually every aspect you can think of with respect to monetary policy, about best practice, has changed and changed repetitively over the course of the last 50 years. So, this stuff ain’t science.
“Think about what’s happened recently. One, its completely unprecedented. People are making it up as they go along. This is hardly science – building on the pillars of the past.
“Secondly, what they’ve been making up as they go along actually differs across central banks [The Bundesbank, for example, is fighting the threat of high inflation, whereas the Fed is more concerned about the prospect of deflation]. They can’t even agree amongst themselves about what’s the best way to do things.
“I’m becoming more and more convinced that all of the models we use are basically useless.
“It’s surprising that we’ve had this huge crisis that the mainstream didn’t predict. It’s gone on for years, which the mainstream absolutely didn’t predict. I would have thought this was a basis for a fundamental rethink about what we used to think we believed. But that hasn’t happened.
“The policies that we’ve followed – on the monetary side at least – since 2007 are just more of the same demand-stimulating policies that we’ve been following, I think, erroneously, for the last 30 years.
“We’ve got the potential to do so much harm by not getting the creation of fiat credit and money right. We’ve got the capacity to do so much harm that we should be focusing much more on making sure that doesn’t happen.”
[End quote]
Doctors at least have the Hippocratic Oath: first, do no harm. If only economists and central bankers had a similar ethic.
But they don’t. So they continue ‘making it up as they go along’, as Mr. White suggests, applying failed ideas with impunity and continued authority to an unquestioning public.
Warren Buffett famously compared financial markets to the card table, observing that if you’ve been playing poker for half an hour and you still don’t know who the patsy is, then you’re the patsy. It seems we are all patsies now.
You can listen to the full interview here:
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The High Price of Delaying the Default – Thorsten Polleit – Mises Daily
The High Price of Delaying the Default – Thorsten Polleit – Mises Daily.
Mises Daily: Wednesday, February 26, 2014 by Thorsten Polleit
Credit is a wonderful tool that can help advance the division of labor, thereby increasing productivity and prosperity. The granting of credit enables savers to spread their income over time, as they prefer. By taking out loans, investors can implement productive spending plans that they would be unable to afford using their own resources.
The economically beneficial effects of credit can only come about, however, if the underlying credit and monetary system is solidly based on free-market principles. And here is a major problem for today’s economies: the prevailing credit and monetary regime is irreconcilable with the free market system.
At present, all major currencies in the world — be it the US dollar, the euro, the Japanese yen, or the Chinese renminbi — represent government sponsored unbacked paper, or, “fiat” monies. These monies have three characteristic features. First, central banks have a monopoly on money production. Second, money is created by bank lending — or “out of thin air” — without loans being backed by real savings. And third, money that is dematerialized, can be expanded in any quantity politically desired.
A fiat money regime suffers from a number of far-reaching economic and ethical flaws. It is inflationary, it inevitably causes waves of speculation, provokes bad investments and “boom-and-bust” cycles, and generally encourages an excessive built up of debt. And fiat money unjustifiably favors the few at the expense of the many: the early receivers of the new money benefit at the expense of those receiving the new money at a later point in time (“Cantillon Effect”).
One issue deserves particular attention: the burden of debt that accumulates over time in a fiat money regime will become unsustainable. The primary reason for this is that the act of creating credit and money out of thin air, accompanied by artificially suppressed interest rates, encourages poor investments: malinvestments that do not have the earning power to service the resulting rise in debt in full.
Governments are especially guilty of accumulating an excessive debt burden, greatly helped by central banks providing an inexhaustible supply of credit at artificially low costs. Politicians finance election promises with credit, and voters acquiesce because they expect to benefit from government’s “horn of plenty.” The ruling class and the class of the ruled are quite hopeful that they can defer repayment to future generations to sort out.
However, there comes a point in time when private investors are no longer willing to refinance maturing debt, let alone finance a further rise in indebtedness of banks, corporations, and governments. In such a situation, the paper money boom is doomed to collapse: rising concern about credit defaults is a deadly enemy to the fiat money regime. And once the flow of credit dries up, the boom turns into bust. This is exactly what was about to happen in many fiat currency areas around the world in 2008.
A fiat money bust can easily develop into a full-scale depression, meaning failing banks, corporations filing for bankruptcy, and even some governments going belly up. The economy contracts sharply, causing mass unemployment. Such a development will predictably be interpreted as an ordeal — rather than an economic adjustment made inevitable by the ravages of the preceding fiat money boom.
Everyone — those of the ruling class and those of the class of the ruled — will predictably want to escape disaster. Threatened with extreme economic hardship and political desperation, their eyes will turn to the central bank which, alas, can print all the money that is politically desired to keep overstretched borrowers liquid, first and foremost banks and governments.
Running the electronic printing press will be perceived as the policy of the least evil — a reaction that could be observed many times throughout the troubled history of unbacked paper money. Since the end of 2008, many central banks have successfully kept their commercial banks afloat by providing them with new credit at virtually zero interest rates.
This policy is actually meant to make banks churn out even more credit and fiat money. More credit and money, provided at record low interest rates, is seen as a remedy of the problems caused by an expansion of credit and money, provided at low interest rates, in the first place. This is hardly a confidence-inspiring route to take.
It was Ludwig von Mises who understood that a fiat money boom will, and actually must, ultimately end in a collapse of the economic system. The only open question would be whether such an outcome will be preceded by a debasement of the currency or not:
The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.[1]
A monetary policy dedicated to averting credit defaults by all means would speak for a fairly tough scenario going forward: depression preceded by inflation. This is a scenario quite similar to what happened, for instance, in the fiat money inflation in eighteenth-century France.
According to Andrew Dickson White, France issued paper money
seeking a remedy for a comparatively small evil in an evil infinitely more dangerous. To cure a disease temporary in its character, a corrosive poison was administered, which ate out the vitals of French prosperity.
It progressed according to a law in social physics which we may call the “law of accelerating issue and depreciation.” It was comparatively easy to refrain from the first issue; it was exceedingly difficult to refrain from the second; to refrain from the third and with those following was practically impossible.
It brought … commerce and manufactures, the mercantile interest, the agricultural interest, to ruin. It brought on these the same destruction which would come to a Hollander opening the dykes of the sea to irrigate his garden in a dry summer.
It ended in the complete financial, moral and political prostration of France — a prostration from which only a Napoleon could raise it. [2]
Note: The views expressed in Daily Articles on Mises.org are not necessarily those of the Mises Institute.
Thorsten Polleit is chief economist of the precious-metals firm Degussa and co-founder of the investment boutiquePolleit & Riechert Investment Management LLP. He is honorary professor at the Frankfurt School of Finance & Management and associated scholar of the Mises Institute. He was awarded the 2012 O.P. Alford III Prize in Libertarian Scholarship. His website is www.Thorsten-Polleit.com. Send him a mail. See Thorsten Polleit’s article archives.
Notes
[1] Ludwig von Mises. Interventionism: An Economic Analysis. Irvington-on-Hudson, N.Y.: Foundation for Economic Education, 1998. P. 40.
[2] Andrew Dickson White. Fiat Money Inflation in France, How It Came, What It Brought, and How It Ended. D. Appleton-Century Company Inc., New York and London: D. Appleton-Century, 1933. S. 66.b
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The Fed’s Bubble – Monty Pelerin’s World
The Fed’s Bubble – Monty Pelerin’s World.
The Fed’s Bubble
Debt is the great palliative that has enabled the US and other major economies to escape reality, at least for a time. Ayn Rand described such behavior:
You can avoid reality, but you cannot avoid the consequences of avoiding reality.
It is possible to steal from tomorrow to improve today but only at the cost of having less of a future. That is what both nations and citizens have been doing. The ability to continue doing so has about run its course. The damage done to the future is real and will result in substantially lower living standards for those who foolishly believed that spending beyond one’s income was a miracle created by John Maynard Keynes.
The ability to continue the debt charade is nearing its end. As it slows down and reverses, the poverty and hardship that is covered up will surface. When that occurs, another Great Depression, likely to be known as The Great Depression or The Greater Depression in the history books yet to be written will emerge.
For those wanting to learn more about the emergence of debt as an economic palliative and its implications for markets, a refreshing interview with Fred Sheehan is available at The Daily Bell. Here is one of Mr. Sheehan’s observations:
All asset markets are disengaged from their foundations. They have been elevated by governments and their central banks. Central banks have done so by prodding savers into stocks and bonds. They have set artificially low borrowing rates. These artificially low rates are the source of so many perversities that are not immediately evident but have fractured the structure of companies, industries and the stock market. With Treasury rates so low, the issuance of investment grade, junk, covenant lite, PIKs and almost every other category of sloppy finance that met its maker in 2007 set new world records in 2013. The present and future consequences should be obvious.
Mr. Sheehan captures in one sentence my opinion of today’s markets:
The stock market is a mood ring for faith in the Fed.
Read this article if you want to learn some history and honest economics and understand the risks inherent in today’s financial asset markets.
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G-20 Agrees To Grow Global Economy By $2 Trillion, Has No Idea How To Actually Achieve It | Zero Hedge
Apparently all it takes to kick the world out of a secular recession and back into growth mode, is for several dozen finance ministers and central bankers to sit down and sign on the dotted line, agreeing it has to be done. That is the take home message from the just concluded latest G-20 meeting in Syndey, where said leaders agreed that it is time to finally grow the world economy by 2% over the next 5 years.
The final G-20 communiqué announced its member nations would take concrete action to increase investment and employment, among other reforms. “We will develop ambitious but realistic policies with the aim to lift our collective GDP by more than 2 percent above the trajectory implied by current policies over the coming 5 years,” the G20 statement said.
Australian Treasurer Joe Hockey, who hosted the meeting, sold the plan as a new day for cooperation in the G20.
“We are putting a number to it for the first time — putting a real number to what we are trying to achieve,” Hockey told a news conference. “We want to add over $2 trillion more in economic activity and tens of millions of new jobs.”
And to think all it took was several dozen of politicians sitting down for 2 days in balny Syndey and agreeing. So over five years after the start of the second great depression the G-20 has finally agreed and decided it is time to grow the economy: supposedly the reason there was no such growth previously is because the G-20 never willed it…
There is only one problem: the G-20 has absolutely no idea how to actually achieve its goal of boosting global output by more than the world’s eighth largest economy Russia produces in a year. Nor does it have any measures to prod and punish any laggards from this most grand of central planning schemes. From Reuters:
There was no road map on how nations intend to get there or repercussions if they never arrive. The aim was to come up with the goal now, then have each country develop an action plan and a growth strategy for delivery at a November summit of G20 leaders in Brisbane.
“Each country will bring its own plan for economic growth,” said Hockey. “Each country has to do the heavy lifting.”
Agreeing on any goal is a step forward for the group that has failed in the past to agree on fiscal and current account targets. And it was a sea change from recent meetings where the debate was still on where their focus should lie: on growth or budget austerity.
So who is the mastermind behind this grand plan? Why the IMF of course: “The growth plan borrows wholesale from an IMF paper prepared for the Sydney meeting, which estimated that structural reforms would raise world economic output by about 0.5 percent per year over the next five years, boosting global output by $2.25 trillion.”
The same IMF whose “forecasts” can best be summarized in the following chart (which will be revised lower shortly to account for all the snow in the Northeast US):
Aside from this idiocy, the other topic under boondoggle discussion was the fate of the taper, and specifically how emerging markets will (continue to) suffer should the Fed continue to withdraw liquidity. Here, once again, the developed nations won out, leaving the EMs, and particularly India’s Raghuram Rajan – who has been pleading for far more coordination between central banks in a time of globla tightening – high and dry.
- RBI’S RAJAN: POLICY TIGHTENING MUSTN’T UPSET GLOBAL ECONOMY
- RAJAN SAYS INFLATION IS HURTING GROWTH
- INDIA’S RAJAN SAYS BRINGING DOWN INFLATION BIGGEST CHALLENGE
- RAJAN: DEVELOPED, EM NATIONS AGREE ON NEED TO CALIBRATE POLICY
What inflation? As for coordination, here is what the G-20 did agree on: whatever Yellen says, goes:
Financial markets had been wary of the possibility of friction between advanced and emerging economies, but nothing suggested the meeting would cause ripples on Monday. “The text of the communiqué indicates that the standard U.S. line that what is good for the core of the world economy is good for all seems to have won out,” said Huw McKay, a senior economist at Westpac, noting there was nothing that could be taken as “inflammatory” about recent volatility in markets.
There was a nod to concerns by emerging nations that the Federal Reserve consider the impact of its policy tapering, which has led to bouts of capital flight from some of the more vulnerable markets.
“All our central banks maintain their commitment that monetary policy settings will continue to be carefully calibrated and clearly communicated, in the context of ongoing exchange of information and being mindful of impacts on the global economy,” the communiqué read. There was never much expectation the Fed would consider actually slowing the pace of tapering, but its emerging peers had at least hoped for more cooperation on policy.
Hockey said there had been honest discussions among members on the impact of tapering and that newly installed Fed Chair Janet Yellen was “hugely impressive” when dealing with them.
Indeed, in the three weeks that Yellen has been Chairmanwoman, she has been truly hugely impressive. It’s the next three years that may be more problematic.
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European Banking Crisis: the calm before the storm ? | The Cantillon Observer
European Banking Crisis: the calm before the storm ? | The Cantillon Observer.
Austrian business cycle theory explains that the “bust” phase of that cycle is created by extension of cheap and plentiful credit by a fractional reserve banking (FRB) system. A FRB system is inherently fragile during the bust phase as its’ leverage(lending as % of own capital) exposes the banks to the emerging tsunami of non-performing loans and impaired collateral that are the manifestations of malinvestment.
Yet, in today’s protected and regulated banking industry, the “bust” phase of the cycle is delayed and distorted by the wide-ranging interventionism of regulators, central banks and governments. The ongoing crisis in the European banking sector is evidence of this. Its’ problems of insolvency are unresolved. The ECB is at the centre of interventionist efforts to stall and mitigate a European banking sector collapse that looks increasingly likely within the next 18 months. 1/
Last week the ECB kept interest rates unchanged at 0.25 %. The exchange value of the euro rose and the mainstream media and financial industry pundits all bemoaned Mr Draghi’s immobilism in the face of worsening price deflation 2/. As my November 2013 commentary indicated 3/, there is growing political pressure on the ECB from southern European governments to launch a new round of Eurozone members’ sovereign bond purchases.4/ , as public debt to GDP ratios are increasing for countries on the periphery; and menacingly high too even for some core member countries.
So why has the ECB President kept his powder dry, and is the European banking crisis contained or still perilously at risk ?
Mr Draghi diplomatically hedged at a press conference, claiming that the data available failed to show definitively a confirmed deflationary trend and that though officially measured price inflation at 0.8% was below the Bank’s mandated target 2%, there was no convincing evidence of a Japanese-style deflation in the Eurozone.
The Bank President’s words are meant to buy time, while two related processes – one political, the other regulatory – play out.
The political process is to determine the how Eurozone governments proceed (attempting) to manage the twin crises of growing sovereign debts and growing systemic insolvency risk in the banking sector. The latest event in that process is the German Constitutional Court’s ruling last week that it does not consider that the ECB has been acting within its mandate when conducting debt monetisation – thus allying itself to the view of Jens Wiedmann the Bundesbank President – although it did not explicitly rule that the ECB broke the German Constitution, preferring to pass the parcel on to the European Court of Justice for a definitive ruling.
These legal challenges are a mere proxy war for the real political one between the “Teutonic” bloc led by Germany and the “Club Med” periphery which currently also includes France.
Which returns us to the ECB, whose Governing Council members are composed of a clear majority from the “Club Med” faction. Knowing he has this majority ready to vote eventually for a new round of asset purchases, Mr Draghi is playing a long game.
With ECB benchmark rates already negative in real terms, he is well aware that reducing nominal rates further does little to encourage bank lending. Even with effectively “free” credit, bank lending to businesses is down; as is inter-bank lending. This lack of lending has multiple proximate reasons, but the fundamental one is banks’ own continuing struggle to remain solvent since the onset of the financial crisis in 2007/08. This is where the newest regulatory process comes in.
The ECB is soon to take on so-called “macroprudential” oversight of the Eurozone banking system – a new interventionist approach championed by the G20, IMF and Bank of International Settlements’ (BIS) to reduce risks of failure in the banking system by imposing higher core capital ratios.
Complementary to the EU Commission’s plans to establish a Banking Union (including a Special Resolution Mechanism –SRM – for “bailing in” failing banks), and the BIS’s work to revise and tighten the Basel Rules on bank capital, the ECB is about to embark upon a massive exercise of stress testing all European banks. 5/ A previous round of such tests in 2010 was ridiculed as far too lax. This time the bar has been set higher. It is expected that some banks will fail the stress test, and interested parties are already speculating which, and attempting to guestimate the likely outcome in terms of new capital requirements . 6/
How rigorous these stress tests are is a critical matter for the ECB. Its’ supervisory responsibility for all Eurozone banks enters in force once the SRM measure is finalised later this year . The benchmarks applied for the tests are themselves partly derived from the work of the Basle Committee on Banking Supervision in defining banks’ permitted leverage ratio. Mr Draghi is the chairman of the Group of Governors and Heads of Supervision which oversees these Basle regulators. Interestingly, they recently relaxed the rules on the definition of banks’ leverage, following feedback from the industry that the new rules would entail banks having to raise at least $200 billion in new capital to comply. 7/
The challenge that these regulatory initiatives attempt to address is the massive build-up of leverage in the banking system as a whole. The Eurozone’s banks are the most vulnerable, but the problem is global. Hence the pivotal role of the BIS in defining a common approach.
What has to be factored in here is not simply banks’ traditional business and real estate lending, important though those are to understanding actual and potential loan losses. Far bigger in scale are the banks’ exposures to the shadow banking sector; their off balance sheet losses; and the recent likely losses on FX futures contracts and interest rate swaps caused by the sell off in Emerging Markets.
Derivatives positions in FX and interest rate swaps are staggering and the total derivatives market is estimated at $700 trillion. Amongst large European banks, Deutsche Bank is said to have Euro 55.6 trillion of gross notional derivatives exposure on its books. This figure is some 200%+ greater than Germany’s annual GDP ! 8/ Note, these are not losses, just exposures. Nevertheless, it would take only a very small proportion of these contracts to turn sour for Deutsche Bank’s entire core capital to be wiped out.
The BIS-defined leverage ratio aims to limit banks’ reliance on debt, using a minimum standard for how much capital they must hold as a percentage of all assets on their books. However, the BIS found that “a quarter of large global lenders would have failed to meet a June version of the leverage limit had it been in force at the end of 2012.” 9/
There is a perfect storm developing then in the European banking sector.
First, there is the increasing likelihood that the ECB will unleash a new round of asset purchases from the banks to flood them with the liquidity they need to buy up their respective national governments’ sovereign bonds and so hold bond yields down.
Second, there is a Eurozone-wide regulatory initiative to recapitalise the banks likely, following on from the results of the ECB’s bank stress tests. Third, there is an increasing chance of a deep stock market correction happening this summer. All three, taken collectively, could trigger a crisis of confidence in the banking sector. An insolvency crisis too should not be ruled out in the event of some large banks failing to recover from derivatives markets exposures in an increasingly volatile currency, interest rate and stock markets environment.
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NOTES/REFERENCES
1/ Using technical analysis and Austrian economic theory, it is being predicted that a stock market “crack up boom” is due some time near Christmas 2014, followed by a fiat currency collapse. Before that, a deep market correction is foreseen starting by the summer. see“The Globalisation Trap: full report”, Gordon T Long.com, 2014 01 15
2/ “Split ECB paralysed as deflation draws closer” A. Evans Pritchard, DailyTelegraph.co.uk,7th February 2014
3/ “Eurozone’s Debt Crisis: is the next phase of the ECB’s “large scale asset purchases” imminent ?” November 2013, mises.org
4/ A few days after my commentary was published, the ECB’s executive board member Peter Praet let markets know that stimulus measures were on the menu via comments in a November 13th Wall Street Journal interview. “ ECB Bank Stress Tests: Catalyst Of The Final EU Crisis?”, SeekingAlpha.com, 2013 11 17
5/ “ECB Bank stess tests: catalyst of the final EU crisis ?” SeekingAlpha.com, 2013 11 17
6/ “Eurozone banks face £42bn ‘capital black hole’”, Kamal Ahmed, DailyTelegraph.co.uk, 8th February 2014
7/“Basel Regulators Ease Leverage-Ratio Rule for Banks”, Jim Brunsden , Bloomberg .com, 2014 01 13
8/ “On Death and Derivatives”, 29 January 2014, Golemxiv.co.uk
9/ op. cit., Bloomberg .com, 2014 01 13
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Guest Post: The Merger Of State And Commerce | Zero Hedge
Guest Post: The Merger Of State And Commerce | Zero Hedge.
Submitted by Stephen Merrill, editor of the Alaska Freedom News. He served in the Navy Judge Advocate General’s Corps and as a Navy Reserve Intelligence Officer
The Merger of State and Commerce
The Leviathan’s Thumb
Many observers of the US economy have come to the realization there are now few truly free markets left within 21st Century Western capitalism.
It seems all investments today are controlled to unfair advantage in some large way by the governments and financial firms operating the markets, especially the market in money itself. The newly-invented powers of the central banks to buy anything, to fund any bailout, can reach into any area of the economy, either to grant large favors or to inflict great pain, typically with the cooperation of the too-big-to-jail banks that own the Federal Reserve and its policies.
The precious metals market is a good example of the Fed and its henchmen inflicting pain. The Western paper gold market has been the long-used tool of Leviathan to bludgeon the world’s only true money.
In one of the Fed’s generous ways the second US housing bubble has been inflated from a river of counterfeit money and a wet-blanket of negative interest rates. The QE Forever giveaway to the Fed’s banker friends through buying toxic mortgages at full price charges on.
A Swinging Pendulum
It is nothing at all new for a nation to defy the basic economic principle that allows for ever increasing wealth benefiting all layers of society. In a word it is liberty.
The underlying concepts of capitalism were best set out by British author Adam Smith. Smith postulated it is the magic of the invisible hand of a free market that best distributes economic resources and best energizes the people and industry and innovation. Smith’s signature work The Wealth of Nations was written well over two hundred years ago.
The magic of Smith’s free market proved to be the model for the first sustained, rapid economic growth in global history, since at least the early Roman Empire. It seems, whatever its academic merit in Ivy League halls, general economic liberty has clearly proven to be the best way to serve all society, given how humans themselves are created, as individuals each seeking a good life and secure family.
European medieval economics between the Romans and the 18th Century Industrial Revolution showed how the vulture practices of monarchs and nobility eliminated even the hope for economic growth or of ever fostering a middle-class, while stifling innovation at every turn. The private institutions empowered by law in that time were the lesser nobility and the Catholic Church.
With the Enlightenment period led by writers like Adam Smith, John Locke and Edmund Burke, the grip of elitism in commerce in Britain and France and beyond began to be replaced by private enterprise and capital quite completely. Individual rewards for productivity and innovation and risk-taking became the driving force for economic decision-making, no longer centered on the whim of the lord or his knights as things have largely returned to in today’s fascist economy. It was the belief in bottom-up capitalism in its rawest form.
The Europeans had suddenly become a juggernaut of innovation and growth after many centuries of stagnation. The United States later in the cycle became the signal success of free-market capitalism.
In the wake of this revolution in society, the 19th Century saw the fastest economic growth in human history, all fueled by economic liberty. For the first time a large prosperous middle-class of workers came into existence in many countries, no longer just the rulers lording over the peasants.
The same economic revolution is happening across most of Asia during our 20th and 21st Centuries. Just one example, tiny city-state Singapore has proven once again the amazing achievements for all citizens from unbridled capitalism. Singapore has risen from post-WWII devastation to the top of the world economic ladder without ever asking for or accepting foreign aid from any nation. Singapore is the heir of Ancient Athens, the first free city, the founder of monetary silver.
Adam Smith’s Lassie Faire capitalism has become though the ancient, barbaric relic in our modern fiat money Western world economy, especially in America. No living American has experienced an economic system that can be fairly described as general capitalism.
The US has now what is called a “mixed economy” involving many “public-private partnerships” and “professional self-regulation” and “social programs”. These are modern phrases that explain the slow return to feudal ways.
Monopolies of political power or of markets yield huge profits for the few over generations without much having to change a thing. Monopoly power is a distant mirror of feudal nobility. It operates in both the public and the private sector and so often in direct combination with each other. Power not only corrupts: power wins, power stagnates, power destroys.
The Money-Changers Above the Law
Then there are the market traders in a fiat, debt-fueled world.
Whenever free markets can be conned, fixed or disrupted there is a lot of money to be made in the process. There always has been short-term gain for those insiders who manage to fleece the public by harming the secure, uninterrupted flow of goods and services and finance and information.
Most economic transactions, at their base, rely on a large element of trust. Deceit punishes trust to self-advantage. Deceit harms the economic market itself, beyond the impact of the con-jobs in play. A marketplace chocked with deceit is a fraud itself, the absence of the rule of law. Only the law can fully deal with deceit in order to allow a free marketplace to even exist.
The more hidden processes used by modern bankers and traders to obtain unearned wealth is little different in its societal effects than robbing a convenience store is, or robbing hundreds of thousands of convenience stores actually, given the numbers typically involved in white collar crime at the highest levels.
The counterfeiting of the private-public central banks, that strangles the middle class to further enrich the wealthy, is daily theft on the grandest scale. Counterfeiting by central banks now affects almost every investment decision.
In the end, it is little different than the peasants always giving a one-third share of their crops to the royal duke just because the King says so.
The Rule of the Cartels on Main Street
This collectivist syndrome in the United States is far from limited to the Congress-buying Wall Street cartel and the subject of finance. The same general form of corruption permeates an increasing number of professions and businesses. Even tattoo artists and legal process servers have earned their guild status by law in many states, hoping to, like others do, choke off low-price competition in their field.
The national health-care industry seems to have become almost a single cartel empowered by federal spending. The Obamacare spending bonanza is designed to pay off every big healthcare interest in sight and the health-insurance industry to boot.
The provision of education in the United States has long been the fiefdom of rigged markets and systems.
The socialism model rules primary and secondary education almost alone. Even 40-years of abject failure in effectively educating students has failed to dent the nationwide taxpayer spending spree for this state-imposed monopoly rule in the most crucial work there is for society. Alaskans today pay over $18,000 per student for K-12 education. Test scores are well below those of students from some third-world countries.
A mix of public and private institutions rule US higher education as a single-minded oligarchy. This cartel is primarily empowered by federal spending in the form of student loans. The younger generations are saddled now with a trillion dollar in debt to repay college tuition and fees that no longer deliver a good job.
The lawyer guild has controlled its market for professional services in every state in the union for generations. Market-fixing remains one of the central goals of bar association rules: ditto for the physician guild.
Part private business organization, part government institution, part professional guild, part bank regulator, entirely self-interested, the creature from Jekyll Island, the Federal Reserve, has become the go to mechanism for replacing free markets with aristocratic privilege. He who issues the money controls the nation the phrase goes.
The Unifying Force
But the ultimate overarching rigged system in the US is the effective monopoly by two private political cartels sharing the same basic agenda, the Democratic Party and the Republican Party. As a consequence of these two faces of modern fascism, the nation and its liberty has been for sale for more than two generations now.
This welfare-warfare party, one bent on ever expanding centralized power, has owned the Congress and most of the Presidents going back to WWI and the founding of the Federal Reserve. The success in keeping the “two-party system” in place has had far more to do with the special privileges granted by law to Democratic and Republican candidates than to any good reason for a lack of meaningful political competition.
What is the fundamental error of governance made in all of this modern injustice?
It is the practice of the government surrendering open elections and free markets to officially anointed regulatory systems that then form an unchallengeable oligopoly within their bailiwick.
In the case of public regulation rather than a guild system, the regulated industry invariably become the effective master of the industry regulators, like Democrats and Republicans have for instance in US politics. Within any regulated business, the temptation of well-heeled collegiality from industry always wins over government regulators eventually or, more often, the people that appoint the regulators.
With professional guilds in power its officials take over entirely for the government in controlling the business and its participants. Professional guilds as a rule disconnect their own disciplinary code and market-rigging from the courts as much as possible, the place where everyone else is required to go for such matters.
Self-regulation for a profession invariably becomes mostly a program for less competition for guild members. It freezes the present elite in their power and position, a never ending goal of humanity it seems.
In a wider sense, the officially anointed protector of the public safety, whether it is the state bureaucrat or a private guild official, over time becomes an enabler of reduced accountability for wrongdoing, a way to keep standards low for the industry or service by locking out competition and even the law, to the extent possible.
The US economy has regressed to feudal ways like these in such force that a variety of private guilds, cartels, unions and oligopolies exercise, officially or in practice, many of the powers of government itself, especially those powers assumed by but never granted by a constitution to the government. It has all become a part of the “the law”.
The Revolution Looms Anew
Today’s economic model was best summed up by dictator Benito Mussolini in one short sentence: “Fascism … is the perfect merger of power between the corporations and the state”.
But tyranny also has its life-cycle within the balance between the past and the future. Once the past becomes far too much of a millstone for the future generations to carry any longer, governments fall and debt and servitude recede.
Empires can fall largely without violence and allow a new, freer system to emerge, as most of the satellite states of the Soviet Union achieved. Or the legacy of fallen empire becomes violent chaos followed by renewed oppression, like the French Revolution.
This bottom-up style revolution is happening to nations across our 21st Century. The future lies in the balance. The bell tolls for all Western nations, too.
So, in the United States, it seems, liberty will have its chance again before too long.
Olduvaiblog: Musings on the coming collapse 