Today, we doff our caps to the folks at the European Central Bank. They’ve pulled off the perfect heist.
The euro-feds have opened the valves…turned on the spigots…and let nearly a half trillion euros worth of liquidity flow directly into the very same banks that have proven they can’t be trusted with a penny.
But that’s how a zombie system works. The living give. The monsters get.
And since, at this stage of the credit cycle, the living don’t have much to give, the feds turn on the printing presses.
Then, from whom does the money come?
Gotta come from someone, no?
That’s right… When you borrow it, it comes from the people who lend it. When you tax it, it comes from the taxpayers. But whom does it come from when you just print it up?
Well, at first it appears to come from no one. Nobody reaches in his pocket and finds fewer dollars. Nobody’s pocket has been picked. But how could that be? Nothing comes from nothing. You add a zero to a zero and you still have a zero.
And yet, the zombie banks now have 489 billion more euros in their vaults. That’s what it said in yesterday’s Financial Times.
“Banks snap up 489 billion euros in ECB loan offer.”
This money certainly seems real. The banks can lend it. Spend it. Toss it out the window or down the drain. They can light cigars with it. They can use it to wrap gold coins before sending them out as Christmas presents.
Let’s see, we saw an ad. Mercedes Benz CL class 2011-2012 autos are selling, in round numbers, for $100,000. With this money, you could buy about 6 million of them. Which is probably more or less what will happen to the money.
But what concerns us today is not where it goes but where it came from. Did it come from space? From another galaxy? No? Then, isn’t all wealth on earth owned by someone? Yes? Then, it must have come from some humans somewhere on Earth.
Here’s an answer: Each unit of currency represents a claim on resources. Now, there are enough new units to claim 6 million new Mercedes. We infer that people who had claims on them previously have less of a claim now, because there are only so many new Mercedes available. And since those claims arose from the value of the currency they earned and saved, we further infer that the value of the new money must have been stolen out of the value of the old money. What else can you call it but theft? People who had euros previously now have less purchasing power (at least theoretically). They never agreed to let their money be clipped. They never even knew what was happening to them.
But since we’re in a Great Correction…and since Europe is entering a recession…and since recessions and corrections are basically deflationary (prices fall as demand eases)… the old currency holders aren’t likely to notice…or raise a stink about it.
It may be larceny, but it’s grand larceny. Heck, it’s great larceny. The perfect heist. The poor victims don’t even know they are victims. They have as much money in their pockets and bank accounts on Friday as they had on Monday. And if prices rise slightly, not one in a hundred will blame the ECB.
Meanwhile, over in the USA, the criminal gangs can’t seem to get organized.
Late yesterday came a report that a deal had been struck to extend the payroll tax by 2 months. But a bigger problem is coming up. Just wait ’til next year. Here’s Bloomberg with a full report:
Payroll Tax Tiff Times 25 Awaits Congress in ‘Utter Dysfunction’
Dec. 22 (Bloomberg) — The brinksmanship in Congress over a payroll tax-cut extension may end up looking like a quaint disagreement by next December, when lawmakers must grapple with a fiscal policy debate at least 25 times more costly.
Unless Congress acts by the end of 2012, income tax cuts will expire, automatic reductions in defense and domestic spending will start and the alternative minimum tax will ensnare millions more taxpayers. The same Congress that can’t find a way to extend the widely supported payroll tax cut beyond Dec. 31 will be seeking to bridge long-held ideological differences.
“The prospects are bleak,” said Leonard Burman, a former Treasury Department official who teaches public affairs at Syracuse University in New York. “I’ve never seen such a high level of dysfunction in the 25 years or so that I’ve been paying attention to government.”
The year-end 2012 series of deadlines on tax and spending policy stems from Congress’s tendency to push problems into the future with temporary solutions. This year alone, lawmakers have flirted with a federal government shutdown three times, almost defaulted on the US debt for the first time in history and allowed aviation taxes to lapse for two weeks.
Trillions at Stake
The $4 trillion in expiring tax cuts and $1.2 trillion in potential spending cuts dwarf the $200 billion at stake in the current fight over the payroll tax cut and other provisions, including expanded unemployment insurance. Those items, if extended for another year, would expire at the end of 2012.
Bill Bonnerfor The Daily Reckoning
Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind The Daily Reckoning. Dice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010.
It’s true printed money comes from thin air by effectively clipping a bit of value from all the existing money.
Real wealth comes from people working to create goods and services including capital goods like factories and investing in new knowledge and research that will create tomorrow’s products and services.
What the governments need to do is insure a system that incents people to work and create the goods and services.
If the finace system gums up and many people are not employed then potential wealth creation is slowed.
If clipping the money greases the economy and incents more people to keep working, it MAY not be a bad thing.
The financial economy is a sort of confidence game. We all work hard to accumulate money because we have some confidence that it will continue to be useful as a claim on future goods and services including Mercedes cars.
We loan out our money with confidence it will be repaid (else we would not loan it)
Governments are working hard to maintain some level of confidence even as the population grows less confident.
Confidence above all is needed. Without confidence in money, much is lost.
What’s this new word you’ve invented, Shawn, “incents”?
I suppose just as the government can invent new money, you can invent new words. Both will ultimately prove worthless.
Paul you seem incensed at my new word. What incented (incentivized) you to post your complaint. Lanquage evolves my friend. New words come from usage. “K”. Usage need not follow the existing words. We are free to invent new ones. Did you have any problem understanding what I meant?
Many nouns have been “verbized” of late and it’s not a bad thing. Grammar is meant to help us communicate, it’s not meant as a straight jacket. We have a handy new expression for anyone overly devoted to the “rules” of grammar. It’s “anal”.
Paul…. don’t even bother!
I’ll stick with english. Thanks anyway, Shawn.
Sure, plenty of words get verbised, like hospital going to hospitalised, or incentive going to incentivised; however loathsome I find these new words, I acknowledge their existence and accept them (much as I acknowledge and accept that certain people are boorish or plain or dull).
I have not, however, ever heard of the word “incents”, and that was why I asked you about it.
This sounds like a monty python skit.
Don’t forget why your here gents, you know, corruption, the potential end of the world as we know it etc etc.
Paul, right it seems to be a new word.
Third-person singular simple present indicative form of incent.
I just know money incents me to work harder.
To may to , to mah to…. We are all being screwed!
tr.v. in·cent·ed, in·cent·ing, in·cents
To incentivize: “would use tax breaks to incent corporations to invest in their future” (Scott Canon).
FOLKS, IT REALLY IS A REAL WORD.
The greatest series of organised thief in history
Yee come into this world with nothing, and yee depart this world with nothing. And this is true regardless of the form or existence of government.
However, no question that money which holds its value has great utitilty in the interim(!) And so, even if you can’t take the gold with you, the only real store of wealth that transcends the ages is in the form of precious metals.
“Deficit spending is simply a scheme for the confiscation of wealth.”
I think the word you’re looking for is motivate. Sorry but incent sounds moronic.
Ah, the smell of insense at Christmas!
Since it sounds moronic it will fit in with the rest of Shawn’s stuff.
Shawn, please don’t be incensed at me. Or don’t incent. Whatever.
Maybe BB could put the conservative crowd to work on a dictionary or something?
“Why Government Theft Continues to Go Unnoticed” is the title of this article. But we need to ask ourselves: Is it really the government stealing from the people through inflation ? or is it private banking institutions they own the Federal Reserve bank ? Are the politicians not just pawns for the bankers. How can they not be when the bankers are immensely more wealthy than any politician can dream of ?
This money has to come from either taxing or inflation. If they will implement tax cut, then it has to come from inflation. Government just can’t simply give the money to anybody, they need to take the money from somewhere and give it to another. Yet, many people are cheering those program like tax cut…
It is very sad to see that wealth is being taken from very same people who supporting the government program and they don’t even realize what happens.
“The living give. The monsters get.”
Well said Bill. Very well said.
Washington, Wall Street and the corporations are nothing but organized crime syndicates backed up by mercenaries, volunteer armies, and police swat teams. They all call them selves government. They really are just like the crips and the bloods but without the tattoos.
Wow, I’ve been thinking the same thing, how perfectly the lack of alarms and bells facilitates the smooth and unnoticed “transfer” of that elusive life blood that is material and yet immaterial at the same time, but perceived to be equally real by the materialists and the theorists alike… I wonder when the general public will catch on….. can you hear that?? alarms and bells!
It isn’t that no one “notices”, its just that the government doesn’t bother to pay any mind to what “anyone” thinks and just keeps going, saying “Pay no mind to the man behind the curtain”. And the other best loved scripting is “Watch the pea, which shell is it under? Watch the pea, keep your EYE on the pea…” Ya gotta admit, Obama’s the best shell man in the business!
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Given a choice, Bernanke will likely strangle the currency (your money)... in favor of “strengthening” the economy.
Eventually, economic reality and markets will collide -- unfortunately, the higher the market, the harder the fall.
How certain business practices wind up jacking up costs before sticking you with the bill.
The Japanese Nikkei fell flat on its face overnight.
While Bernanke Runs Wild, Let’s Talk Ponies