02/06/09 Paris, France Zero is a perfidious number. Nobody likes it. Nobody wants to be “a zero.” Nobody wants to get a zero on a test…or zero returns on his investments. It is a line that leads nowhere…with no substance in the middle of it. You can add a zero…or multiply by zeros; it gets you nowhere. And is a zero? Is it something? Or nothing? No one knows.
Some remarkable news in the history of zeros appeared this week. Mr. Gideon Gono, head of the Reserve Bank of Zimbabwe, suddenly shifted from adding zeros to subtracting them. Within the space of 76 hours, Zimbabwe led the world in two opposite directions. On Monday, with prices rising at 231 million percent per year, Zimbabwe was the world’s hyperinflation record holder. On Wednesday, it led the world in deflation…with prices falling 99.999999999% overnight.
Once again, we are profoundly grateful to the nation of Zimbabwe and to its central banker. The latter has turned the former into a marvelous laboratory for bizarre monetary experiments.
The pile-up on the global financial highway has yielded its toe tags and broken mirrors. More than $30 trillion has been lost. Of course, the world’s monetary cops have been on the scene for about a year and a half – trying to get the traffic moving again. But just read the paper. Instead of a recovery…every day brings more skid marks and fresh collisions.
A little bit of the old juice from the central bank will cure a typical recession. It is nothing more than a pause in the inventory cycle, allowing businesses to clear their shelves before they are restocked. But this is not an inventory-driven recession; this is a balance-sheet depression. The problem is not really an absence of credit, but an excess of debt. Throughout most of the post-WWII period, private sector debt in the USA, for example, equaled about 80% of GDP. In the ’90s and ’00s, debt rose to 140% of GDP. The difference is about $6 trillion. Until this debt is reduced, Americans will be reluctant to borrow or spend.
And it is not just the debt itself that must be eliminated. There are too many factories producing too many goods for too many people who can’t pay for them. You can see excess capacity in the unemployment lines too. Suddenly, the world seems not to need so many sales clerks, or welders, or financial engineers. The United States alone may have $1 trillion of excess output capacity and 10 million people too many in the workforce.
Debt and excess capacity can be liquidated quickly – as they were in the panics of the 19th century – through bankruptcies and defaults. But, today, liquidation would have to take place over the dead body of U.S. Fed chief, Ben Bernanke. While that would be our preferred method; alas, it’s not going to happen.
Another way to eliminate debt and excess capacity is to work your way out of them. Unfortunately, that process takes a long time – especially with the feds keeping zombie firms alive and fighting the correction every step of the way. Japan has been working off its excess capacity for the last 19 years. Property prices in major Japanese cities began going down in 1991. They fell for the next 13 years, bottoming out in 2004, 87% below their peak.
Few policymakers will want to follow the Japanese example – certainly not those of the USA. Americans lack several things the Japanese had…such as patience, a favorable trade balance and a thick cushion of domestic savings. On the other hand they have one thing the Japanese did not have; America can pay its debts in a currency it alone controls. If it chooses, it can resort to a third way to get the traffic moving; it can inflate away the debt.
“We conclude that, under a paper-money system, a determined government can always generate higher spending and hence positive inflation,” wrote Bernanke. But with $7 trillion in excess in debt and spare capacity, neither business nor labor has any pricing power. Normally, it would take a long time before inflation returns.
Mr. Gono’s experiment, however, proves that if a government is determined enough…it can always destroy its own currency. Only a few weeks ago, Zimbabwe produced a monetary freak — the world’s first one trillion dollar note. Then, it had a value of about 26 euros. Now, you can use it to buy a cup of coffee in Harare – provided you also have $3 US. On Wednesday of last week, banks were supposed to begin distributing the new currency – in which all 12 zeros on the trillion-dollar note have been lopped off.
The architect of this monetary madness was recently asked his views:
“I sit back and see the world today crying over the recent credit crunch, becoming hysterical about something which has not even lasted for a year, and I have been living with it for 10 years. …I had to find myself printing money. I found myself doing extraordinary things that aren’t in the textbooks. Then the IMF asked the US to please print money. I began to see the whole world now in a mode of practicing what they have been saying I should not.”
Mr. Gono added so many zeros to the national currency, he practically gave inflation a bad name. But now it is inflation that people want – desperately.
And day by day, the world glances over Mr. Gono’s shoulder. First curious…then appalled…and finally, admiringly.
We will do “whatever it takes,” says new US Treasury Secretary Tim Geithner.
Here come the zeros.
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WHY INFLATION ITSELF IS A LIE; WHY IT IS IMPOSSIBLE TO SOLVE THE REAL CONSEQUENCES OF A CURRENCY SUBJECT TO INTEREST
For a hundred years we’ve been told that inflation is the enemy. That’s not the whole truth at all; and there is a reason we aren’t told the whole truth.
To understand why it is impossible to solve the real consequences of a currency subject to interest, we only have to return to what happens as we maintain such a circulation: as we re-borrow principal and interest paid out of the general circulation, the sum of debt perpetually and irreversibly increases so much as periodic interest on debt; and so, in servicing this perpetually multiplying debt, ever more of every dollar is dedicated to servicing debt; and ever less of every dollar can be dedicated to sustaining the commerce which must service the debt.
Thus a circulation subject to interest requires both:
*perpetual*, escalating inflation of the circulation relative to the remaining value of related assets, merely to maintain sufficient circulation to sustain the commerce which must service the debt; and/or
perpetual price inflation, to maintain industrial solubility against the ever escalating sums of debt that commerce must service.
Thus in regard to solving the faults of monetary systems subject to interest, we must also account for the fact that the process of maintaining a circulation dedicates ever more of every dollar to servicing debt, because to eradicate inflation is to impose a circulation which can ever less sustain the commerce which must service the multiplying debt. In other words, eradicating inflation in such a system expedites its eventual collapse.
Only in an economy free of interest/usury can we therefore focus on solving inflation and deflation, because the currency of such systems alone is not subject to multiplication of debt.
Of course then, a purpose of restricting discussion of the faults of the systems imposed around the world to interest, is that you never understand the nature of those unassented systems.
The truth is simple; lies are complicated. The simple truth is; the money we have in our bank and wallet is borrowed from the Federal Reserve (with interest) and they that own the FED are private people. All US money is created by the FED by the government and public borrowing it. These FED people own and control our US currency and have since 1913. Every dollar in circulation is owed, and with interest. To pay the interest owed, the US has to borrow more created money from the FED. This Ponzi game can last about 100 years in a country the size of America. The game is over.
Buying gold won’t feed you in the end, because you can’t eat it and like on Giligan’s island, the rich man had a hard time buying a banana.
The best thing to do is to go to the webs and find a new place to live where food grows in your yard and there is more of it than people. Tonga in the South Pacific is a good place to wind up and hold out till the financial come food crisis is over. When you come back, there will be fewer people and some great bargains on abandoned homes. Like, just move in.
Get rid of the Fed! Wake up, and get your torches and pitchforks and lets meet in D.C. at the Fed (on Constitution Avenue across from the Vietnam Memorial).
Take it, its ours!