Greece; Dear Ben Bernanke; Don't steal from my kids

The Fed did the Europeans a favor.

Joseph Gagnon

former Fed official

"The central banks of the wealthiest countries,
trying to prevent a debt crisis in Europe
from exploding into a global panic,
swept in ...by making it easier
...to borrow American dollars.

With what money from where?

Central banks will make it cheaper
...to borrow [US] dollars,
the dominant currency of trade.

Who is qualified by what metric

to borrow how much from whom?

To get the dollars to lend,
central banks go to the Fed and exchange their currency
for dollars under a special swap program.

What could happen

if a central bank prints currency for collateral

for printed money in return

and then do it again and again

untill gasoline is $10 per gallon?

...The coordinated action was a demonstration
of how interconnected the world financial system is,
and that the debt loads of countries like Italy and Greece
are everyone else's problem, too.

AP

Did some economic and political leaders

bail themselves and their compatriots out of their own mistakes,

by pledging trillions of debt and newly created money,

knowing the consequences would be handed down

to many who may be unaware

including the unborn of following generations?

What Hyperinflation reads like; "Venezuelan shoppers amass outside seized stores" "Venezuela Stock Market Up 454% for the Year"

"As soon as Dorisbell Pena received a text message informing her that President Nicolas Maduro seized control of a nationwide chain of appliance stores Friday, she rushed to the nearest outlet in the hopes of finding what's become one of the scarcest items of all these days in Venezuela: a bargain.

A 34-year-old teacher, Pena has watched as the price of a new stove she needs has doubled in recent weeks to 40,000 bolivars even as her 2,500 bolivar-a-month salary stays the same.

"I've got to take advantage of this opportunity today because tomorrow the prices keep going up," Pena said while huddled among friends on the concrete sidewalk outside the Tiendas Daka store in the eastern Caracas neighborhood of Bello Monte.

She's not alone. At 1:30 a.m., shoppers were still arriving to join the hundreds who began amassing in the afternoon after price inspectors said they found evidence of "usury" and Maduro ordered the chain's "occupation." In a televised address Friday night, the president vowed to reopen the stores Saturday and unload their stock of plasma televisions, washing machines and other seized merchandise at "fair prices."

..."I heard the owners of this store don't even live in Venezuela, they're in Miami," said Solano, a 49-year-old salesman of engine varnish...

"Leave nothing on the shelves, leave nothing in the warehouses," he said. ...he also ordered the military to shut down businesses found hoarding products or speculating on prices.

The Friday night frenzy, described by one bargain hunter as an "organized looting," cut across Venezuela's normally insurmountable political divide — a reflection of how near-record 54 percent inflation and shortages of basic goods such as milk and toilet paper are affecting all families in South America's biggest oil producer.

Come nightfall, National Guardsmen, some brandishing assault rifles, helped maintain order..."

http://news.yahoo.com/venezuelan-shoppers-amass-outside-seized-stores-134255341.html

"Venezuela Stock Market Up 24% For Week -- Up 454% for the Year

Athenian money…defined a pattern
which was to repeat in other empires which were to follow
dominance of trade
influx of gold to balance exports
public wealth
liberty
overconfidence
the discovery of loosely managed money
as a stimulating solution to stagnation in an economy near its zenith…
before finally the emptiness of the monetary promise was exposed
leading to rapid national collapse

 

Paul Tustain

The Venezuela Stock Market is now up 454% for the year to date in bolivar terms, though only 278% in official rate dollar terms because of a February devaluation, but still making it the best performing stock market in the world."

http://www.laht.com/article.asp?ArticleId=1145054&CategoryId=10717
.
.

What does Quantitative Easing mean?

When national debts have once been accumulated to a certain degree

[there has never been] a single instance

of their having been fairly and completely paid

The liberation of the public revenue...

has always been brought about by bankruptcy

though frequently by a pretended payment [through inflation]

Adam Smith

Moral philosopher and Father of Modern Economics

If Germany’s central bank suspended the right
to redeem gold backed Reichsmarks during World War I
and 170 Reichsmarks bought an ounce of gold in January 1919,
why did an ounce of gold cost 87,000,000,000,000 Reichsmarks
in November 1923?

Ponzi finance units must increase its outstanding debt

in order to meet its financial obligations

A transition occurs over the course of an expansion

as increasingly risky positions are validated by the booming economy

that renders the built in margins of error superfluous

encouraging adoption of riskier positions

Eventually, either financing costs rise

or income comes in below expectations

leading to defaults on payment commitments

"frequently by a pretended payment [through inflation]"

Hyman Minsky

 

The United States is doing the same thing, except we have the world's reserve currency at the moment.  When Venezuela's currency becomes worthless, the population will most likely adopt the US Dollar as a means of commerce, much like the black market does currently.

 

Next up may be Argentina, Vietnam or some other more centrally run nation who are functionally bankrupt as we are, but without the military firepower and financial infrastructure.  Having oil and other commodities priced in US dollars is key to maintaining a better position than Europe, Russia and China.

Are taxes rising or falling if a population is exposed to capital confiscation by inflation?

Nations are not ruined by one act of violence,

but quite often, gradually, and almost imperceptibly,

by the depreciation of their currency through excessive quantity.

 

Nicolas Copernicus

Discovered Earth was not the center of the Universe

 

Did the leaders of most emerging economies essentially steal their citizens’ savings. by lending money to developed economies to keep currency exchange rates relatively low, to encourage more sales of manufactured goods?

Why did the Athenians create more money by decreasing gold and silver coin content during the Peloponnesian war?

Athenian money…defined a pattern which was to repeat in other empires which were to follow;

 

dominance of trade,

influx of gold to balance exports,

public wealth,

liberty,

overconfidence,

 

the discovery of loosely managed money as a stimulating solution to stagnation in an economy near its zenith…before finally the emptiness of the monetary promise was exposed, leading to rapid national collapse.

 

Paul Tustain

Andy Xie on Inflation

In modern economics, monetary stimulus is considered an effective tool to soften the economic cycle. While there are many theories about why monetary policy works, the dirty little secret is that it works by inflating asset markets. By inflating risk asset valuation, it leads to more demand for debt that turns into demand growth. In other words, monetary policy works by creating asset bubbles.

 

It is difficult to reverse this kind of stimulus. A complete reversal requires that household, business and government sectors decrease debts to pre-stimulus levels. This is why national ratios of indebtedness-debt to GDP have been rising over the past three decades while central bankers smoothed economic cycles through monetary policy. It led to a massive debt bubble that burst, leading to the ongoing slump.

 

The current stimulus round is different in terms of its effects. Despite low interest rates, household and business sectors in developed economies have not been increasing indebtedness…

 

…The bottom line is that, regardless what central banks say and do, the world will be awash in a lot more money after the crisis than before -- money that will lead to inflation. Even though all central banks talk about being tough on inflation now, they are unlikely to act tough. After a debt bubble bursts, there are two effective options for deleveraging: bankruptcy or inflation. Government actions over the past year show they cannot accept the first option. The second is likely.

 

Hyperinflation was used in Germany in the 1920s and Russia in late 1990s to wipe slates clean. The technique was essentially mass default by debtors. But robbing savers en masse has serious political consequences. Existing governments, at least, will fall. Most governments would rather find another way out. Mild stagflation is probably the best one can hope for after a debt bubble. A benefit is that stagflation can spread the pain over many years. A downside is that the pain lingers.

 

If a central bank can keep real interest rates at zero, and real growth rates at 2.5 percent, leverage could be decreased 22 percent in a decade. If real interest rates can be kept at minus 1 percent, leverage could drop 30 percent in a decade. The cost is probably a 5 percent inflation rate. It works, but slowly.

 

…The Fed is effectively influencing mortgage interest rates by buying Fannie Mae bonds. This is the most important aspect of the Fed's stimulus policy. It effectively limits Treasury yields, too. The Fed would be in no position to buy if all Treasury holders decide to sell, and high Treasury yields would push down the property market once again.

 

The Fed hopes to fool bondholders or lock them in by quickly devaluing the dollar. Foreign bondholders have already realized losses. The dollar index is down 37 percent from its 2002 peak. A significant portion of this devaluation is a down payment for future inflation.

 

…The main purpose of monetary policy ahead is facilitating the deleveraging process, either through negative real interest rates and-or income growth. Preventing runaway inflation expectation is a key constraint on monetary policy. One key variable to watch is the price of oil, with its major impact on inflation expectation. If oil prices take off again, the Fed could be pushed to raise interest rates sooner and higher than expected.

 

Andy Xie

Caijing Magazine