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Royal Dutch

This is all true, but THESE banks have to go bankrupt and that aint gonna happen.

Frederick N. Chase

I've been finding Fekete one of the few writers tough and independent enough to think creatively about what he calls “Forbidden Research” topics.


For example, he sharply distinguishes industrial/productive capital from financial capital.


He is not entirely alone, as the following excerpt from a down-to-earth article by Michael Kinsley suggests:


“Since 1946, Avis has been sold or reorganized 17 or 18 times, depending on how you count. Each time Avis changed hands or structure, there have been fees for bankers and fees for lawyers, bonuses for the top executives and theories about why this was exactly what the company needed. “


But Fekete thinks harder and deeper on this.


In part, he says that


*

Financial capital (e.g., 30-year T-bonds) is different from industrial (productive) capital. This is despite both being of value and being interconvertible.
*

Financial capital is bad, except when serving merely as a medium of exchange (money).
*

Industrial/Productive capital is an assemblage of capital goods and trained labor sufficiently localized and harmonized so as to be adding value to its input, producing goods or services.
*

Variations in long-term interest rates hurt industries, particularly to the extent they are capital-intensive, BOTH when rates increase AND when rates decrease.

To read more, go to a copy of Kinsley's AVIS article here. Near the end you can click off to Fekete's thinking on how fluctuating interest rates destroy the good capital as they create financial capital.

Elaine Meinel Supkis

Yes, I have also talked about the uncertainty level due to variations in the values and prices of nearly everything including very much, money itself.

People have glommed onto these variations to make money betting on them. The more unsettled and violent the variations, the more money these hedge funds make! So they WANT insecurity and wild swings, this makes them very, very rich. This is why we have no stability anymore.

RobG

Regarding that gem of a quote, that gold as a proxy for moral principles ... I read somewhere that gold *and* silver standard is better (it removes speculation in just one precious metal). And I think I read that the American Colonial founding fathers had figured this out too.

Anthony

Oil is at $134 today

Market Watcher

Accurate description of the situation, Elaine.

Before this is over there will be a de jure nationalization of the banking system. After all, the banks are de facto nationalized right this minute and the Treasury Department and the Federal Reserve are calling the shots. The "money center" banks are on a larger than $1,000,000,000,000 "temporary" Federal life support system as I type.

A heck of a lot of people aren't a tenth as wealthy as they think they are. The musical chairs game is getting real serious.

Could be blood. Could be a lot of blood. Interesting times.

Michael

Elaine,

Thanks for including the the work of these analysts to keep clarifying the incredible problem we face.

Are we are all in agreement that NOTHING will restrain excess credit expansion (including using gold as a currency standard) in a society that believes it requires endless new amounts of cheap credit to prosper (and has "no sound accounting or moral principles")?

Credit expansion at the level required for (non-financial) goods and services investment growth is by nature non-inflationary and sustainable. Credit expansion above that level is merely the creation of credit for PROFIT-MAKING IN FINANCIAL SERVICES, and rapidly generates exponential leverage of debt, which is inflationary and not sustainable (and which pours forth obscene profits to the financial class).

We can accurately describe the 20 year behavior of the Greenspan/Bernanke Fed as REPEATED EFFORT TO SUSTAIN THE PROFITS OF THE FINANCIAL SERVICES INDUSTRY THROUGH UNSUSTAINABLE CREDIT EXPANSION (it's no accident that Greenspan and Rubin were and are Wall Street financiers by profession).

Most of the process for ongoing credit creation is NOT located in the Fed Funds or Discount Rates that get all the attention. The biggest part of the Fed's action in creating excess credit is through open-market Treasury trading, direct and indirect bailouts of banks and financiers who have made (and super-leveraged) bad debt, and refusing to set and enforce tight credit-creation regulations for the banks they "supervise".

However, this Beast got out of the cage even before Alan was on the scene (yes, even during Volcker's reign). Firms that are NOT commercial banks (or central banks) have been creating completely unregulated excess credit for a generation, credit which is completely speculative, completely unstable, worldwide in reach, and larger now than the sum of all the credit (including Treasuries) that the Fed has any direct control over.

When Greenspan first used the term "condundrum," it was to express his bewilderment in 2002 at the fact that the Fed's rapid and extensive dropping of Fed interest rates had not produced a generalized lowering of interest rates in the private credit markets. He still believed that the Fed had the power to control credit growth (which he wanted to jack up in his delusion of the threat of deflation) - hence he kept dropping and dropping them; similarly, when the Fed began raising its rates in 2005, Bernanke was surprised that credit continued to be cheap and plentiful and private credit market rates remained low, in spite of the Fed action - hence he kept raising and raising them.

Now that fat financier profits (labeled "the financial system" for public consumption) are in peril AGAIN, the Fed, the Treasury, and Congress are trying every trick in the book (and making up some new ones) to push yet more drastic credit expansion. The private credit market is unsure of itself, for once. It's not the action of the Fed it's unsure about - everyone knows the Fed will provide the bailouts. The uncertainty is whether the greed-driven uncontrolled and unstable credit growth got so big this time (with help from Japan as you persistently point out) that nothing the Fed does can stop a major contraction until ALL the bad debt is cleaned out (which means bankruptcy for most of the fat cat financial firms and many commercial banks - kind of like the Great Depression).

Remember, prices of non-financial goods and services only REFLECT the expansion (inflation) or contraction (deflation) of credit. If you want to know what the real rate of inflation is GOING TO BE in the future, forget the current price of gold or oil, forget the Fed raising or lowering its interest rates, and even forget the private credit market interest rates. Look at the aggregate expansion or contraction of credit and the net decrease or increase in the government, business and household debt levels. It's all right there.

Market Watcher

Thanks for the pointer to Professor Fekete's site. I was unaware of his ideas. Most thought provoking.

Professor Fakete's article GOTTERDÄMMERUNG realy hit the spot for me. He finishes with "The alternative to re-introducing redeemable currency is that the debt behemoth will force the imposition of a capital-levy type of taxation ― à la Solon, 594 B.C."

Have been thinking about this myself. I don't think that a "capital-levy type of taxation" can now be avoided. Of course, this will only "tax the rich", ha, ha. Just wait and see. The joke will be on me, and you.

Phil the thrill

eh, don't worry: someone will start a war before a real solution is reached.

Elaine Meinel Supkis

This posting and what everyone has said here has inspired me to write another article about all this. And all I can say is, 'Wow. What a revelation!' The graph I drew showed some very interesting features.

Namely, it proves that the Fed's SOLE FUNCTION has been to feed the speculative banks. The housing bubble was a side effect, not a cause.

Michael

"The Fed's SOLE FUNCTION has been to feed the speculative banks. The housing bubble was a side effect, not a cause."

PERFECTLY PUT, ELAINE !!!

All the bubbles, crises, interest rates, prices, etc, etc, are ALWAYS the side effects, or outcomes, of credit manipulation.

hardrock

Elaine, So happy to see you introducing your audience to Antal Fekete's works.
You are certainly correct in adding in the name of Henry CK Liu. I predicted 2 years ago that these guys will someday receive Nobel Prizes....IF, IF they are listened to. Should we fail to listen the Nobel Institute may not matter....as it may become nonexistent. They are the sharpest minds writing on economics in the world. [no slight intended Elaine, you are way to 'colorful' for the Economics Prize]

Your work is gaining a wider audience Elaine. Your comments board is attracting more and more of those who work in the financial world who know something is amiss.

When enough people in the world come to understand the blight the 'funny money' crowd has placed on the earth we will rise up and rid ourselves of this curse. It has caused the over exploitation of our planet and is the root cause of overpopulation which has bred unmentionable grief for all living things.

So, the next time you see or hear of some 'environmental' do-gooder program, sponsored by some huge benefactor such as Gates, Rockefeller, Pew, Packard, Exxon, etc, etc, you should know it is all a scam.....as they put their 'foundation money' to work at interest, attempting to exploit every living thing on the earth to further their power by extracting wealth out of the earth and off the backs of working poor worldwide.
You see, 'they' made all that money by being a participant in the 'funny money' game. A true gold standard would stymie the over exploitation and over population of Mother Earth.

Elaine Meinel Supkis

You are right, Hardrock. The environment matters a lot. But the 'solutions' are TOTALLY STUPID. We need to design better social systems and transportation systems, etc. I am a train spotter from childhood and it irritates me all to hell to see the US kill off our railroads, for example.

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

SimaCileCodia

I risk to seem the layman, but nevertheless I will ask, whence it and who in general has written?

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