The only way to acquire money is from other people and so all money is ‘other people’s money. Monies issued by a government in the form of legal tender is still other people’s money, inasmuch as its primary purpose is to enable other people to carry out financial transactions and pay their taxes to a government.  Thus a government receives a revenue income stream in the form of taxes, taxes being other people’s money. Ideally this revenue income stream would fund all government expenditure, except that politicians buy votes with promises that required an expenditure greater than the taxes received from this income stream. In other words, even before a government is elected into office and during its tenure in office, it increases its commitment to the expenditure of other people’s money through the creation of debt.  In office Governments implement this debt burden by either the issue promissory notes in the form of bonds (gilts), or the simple printing of more money (there is also a third approach in the form of Private Finance Initiatives, which can be considered as having the same fiscal effect as the issue of a bond).  Whenever a government seeks to finance its activities by any means other than the legitimate revenue stream of tax inputs it is actually borrowing other people’s money, which the taxpayer must eventually repay in a future tax revenue income stream. Whatever means a government uses to ‘create new money’ and especially quantitative easing, it is only creating debt and inflation. A government can only acquire debt free money from the efforts of other people increasing the tax revenue income stream.

An electorate entrusts a government to introduce appropriate fiscal measures to maintain a stable economy but then appears to ignore, or be resigned to, the fact that any economic instability is created by government debt. Individuals that pay off the debts incurred on one credit card by using another credit card, use other people’s money and are scoffed at for doing so. Yet that is exactly what a government does every time it issues government bonds (gilts).  In addition: a governments has an unfettered monopoly on the printing of legal tender money, for which there is no fiscal limit in a fiat currency.  Those individuals having to live with the fiat money issued by a government and especially those that have no discretionary income, or very little, are always penalised the most. Government fiscal measures introduced to correct its own fiscal imprudence.  whether it is a government issuing bonds, actually printing more money or taking quantitative easing action, always creates debt and inflation. Inflation benefits the debtor, in that inflation allows the repayment of  ’good money’ with (inflated) ‘bad money’. It always penalizes the holders of  fiat money in that it reduces its purchasing power. If any fiat income does not keep pace with ‘real inflation’, it has the same effect as reducing that income, be it a tax revenue income stream, a salary, a pension, a welfare income, or fiat currency savings.

Government debt has brought about, certainly in the ‘Western Industrialised Nations’, a wake up-call in the form of a financial crisis. A crisis in which compassion fatigue is spreading like a contagion amongst these nations.  National self-interest is being unashamedly flaunted and personal self-interest unashamedly promoted. It seems somewhat Quixotic to rail against economists, politicians and governments, who not only brought about this contagion but are now  shamelessly promoting their national versions of these snake oils. There is no doubt that the western industrialised nations will survive. The only questions is, “In what form“?  A compassion fatigue point seems to have been reached in this crises. Self interest amongst those who contribute to a tax revenue input stream, and governments that distribute it, has turned compassionate perceptions of benefaction into frugal perceptions of munificence.

I mention this because Moonglow is a piece of music that I could listen to over and over. That is except when someone had added the lyrics to it.  Eddie DeLange, as a lyricist, did a poor job and this case deserves the lack of recognition coming from a melody that is rarely played as a vocal. For non-vocal recordings, I particularly like the rendition by of Moonglow by Artie Shaw.  The film Picnic was released in 1955,  however here’s a version of Moonglow by Duke Ellington from 1934.  A recording of “Moonglow” by the Benny Goodman Quartet is part of the soundtrack to the movie The Aviator. and the movie The Fabulous Baker Boys

There was also a sort of ‘segregation’ being practised.  Kids from the same street all had to sit in the same row – I think that this was to prevent outbreaks of violence – not West Side Story, more the ‘Bash street kids‘.  I don’t think that children whose socks stayed up, had clean knees and who lived in homes that had a inside toilet and perhaps even a bathroom used to go to the Saturday morning pictures. Unless of course they could go upstairs for six pence and were allowed to sit where they liked. At the Saturday morning cinema they always showed a serial, Zorro Rides Again, Flash Gordon, Hopalong Cassidy, Superman, sometimes the serial would include a singing cowboy, which caused us all to groan – the boys anyway – singing cowboy films always had girls in them and were full of ‘soppy love stuff’.

However I digress; this was intended to be a lead-in to the death (if you believe it) of Sherlock Holmes.  The link between these being that each Saturday morning serial would finish at a climactic moment.  In those days climactic involved the hero – it was always a hero – being in mortal danger.  We of course believed these events in their climactic context (Hollywood wasn’t ready for When Harry Met Sally circa 1944).  Anyway, each week the serial episode would end with a voice-over saying things like:

“Is this the end of Gene Autry”? ( “Hooray” we would all cry!)

“Will Flash Gordon escape from the evil Emperor Ming”? (Threepence to find out)

“Is that really kryptonite in Superman’s pocket”? (We never thought that he had a pocket)

If you watched the Sherlock Holmes episode last night ‘The Reichenbach Fall’ it seems that everyone is asking the questions is; “Is Sherlock still alive”?  We know that Sir Arthur Conan Doyle became fed up with the Holmes character and invented Moriarty to bring about Holmes’ demise.  This supposedly occurred a the ‘Reichenbach Falls.  However, as with the television series, there was a public outcry – people wanted more and so Conan Doyle had to devise a way for Holmes to ‘come back to life’ and so Conan Doyle revived Holmes continuing to write Holmes stories for another 24 years.

The original Dinner for One is already cult viewing on New Year’s Eve in Germany and many Scandinavian countries. In the new version, renamed “the 90th Euro Rescue Summit or Euros for No-one,” the heads of Nicolas Sarkozy and Angela Merkel have been superimposed on the 18-minute film’s two characters. Merkel plays the original 90-year-old Miss Sophie in assuming her friends are there but talks of the former Greek and Spanish prime ministers. She also reprimands an absent British prime minister saying that German would be spoken at the table. And true to the original, Sarkozy the butler ends up worse for wear having drunk for all his mistress’ guests, and then he is warned by Merkel to think about his credit rating!

While British governments have never been supporters of Austrian Economics and would seem to have little understanding of Keynesian economics, in fact, perhaps little understanding of any form of economics: the following post submitted by Tyler Durden on his own site with the title The Real Tragedy Of The Euro, would resonate with the British view.

The realization that the European debacle is much more an issue of political harmonization and Empire-building than one of pure economic band-aid provision should be clear to any and everyone who has followed the words and deeds of the various European factions for the past year or two. Yesterday, we discussed the dithering and competing camps but what is really critical is to understand how we got here and what the underlying social and political wills are among all of the players. There is no better summation of the formation, driving forces, and tensions among European leaders and central bankers than Phillip Bagus‘ ‘Tragedy Of The Euro’. From the simple divergence of the dual visions of Europe with northern libertarians and southern socialists to the Bundesbank’s fearsome reputation for showing up weak governments, Bagus offers a clear perspective on why the EMU is a ‘self-destroying’ and ‘conflict-aggregating’ system but counters that with some views on what the outcome will be and how French governmental pressure remains the cornerstone of the establishment of a European Empire for better or more likely for worse.

The Tragedy of the Euro explains why the Euro-system almost collapsed in May 2010 when the Greek sovereign debt crisis spread to other PIIGS countries.

It explains how the system creates money out of nothing and creates perverse incentives for governments that lead to its own destruction. Without a reform, the Euro-system is doomed for failure.

Beside the European monetary institutions, the book also describes the political interests behind the euro. The single currency was an important strategical tool in the plan of European socialists. It served to get rid of the Bundesbank and the DM that served as brakes on European inflation.

In his conclusion, Bagus points out that:

The institutional setup of the EMU has been an economic disaster. The Euro is a political project; political interests have brought the European currency forward on its grievous way and have been clashing over it as a result. And economic arguments launched to disguise the true agenda behind the Euro have failed to convince the general population of its advantages.

The Euro has succeeded in serving as a vehicle for centralization in Europe and for the French government’s goal of establishing a European Empire under its control—curbing the influence of the German state.

…and in response to what the future will bring for a system whose incentives destined it for self-destruction, he sees three possibilities: first, the system will break up; second, the Stability and Growth Pact (SGP) will be reformed and finally enforced; and third, incentives toward having higher deficits than other countries will lead to a pronounced transfer union. In the current crisis, it seems that governments are hovering between options 2 and 3 – what scenario will finally play out is anyone’s guess and with Greece’s March deadline looming, perhaps now is a good time to read and understand what is really at stake for the Euro zone.

The book has been generously released on pdf by The Mises Institute:

BagusToE

Owl was telling Kanga an Interesting Anecdote full of long words like Encyclopædia and Rhododendron to which Kanga wasn't listening.

Unlike Owl I always have a problem spelling Tuesday - my shortcomings here saved by a spellchecker, google, and an intuitive notion that something doesn’t look right.  When extraordinarily large valuations are put on artifacts, it simply doesn’t look right, especially when the artifact being purchased appears to be trivial, like a comic book.  But this of course misses the point, which is that the investment in artifacts can be a means of hoarding wealth.  This also means that large exchanges of money for artifacts has to take place.  However: regardless of the price that an artifact may sell for, in a world where the medium of currency exchange is fiat money, any sum of money becomes irrelevant.  With fiat money, there is no need for money to exist in a form that requires its physical exchange. The ability to buy a Renoir, Buggatti, Louis Quinz, or the first issue of the Superman comic, incurring large financial transactions, relates more to a credit rating than the actual ability to produce the money required. The first issue of the Superman comic sold recently for a record $2.16m and it’s highly unlikely that the buyer attended the sale with a suitcase full of money or even attended the sale at all, being able to make the purchase by telephone or some other electronic means. For a comic issue published in 1938, originally costing  just 10 cents, $2.16m is a good return.  In 2010, the relative worth of $0.10 from 1938 was:

When the United States closed the commodity based link between gold and the dollar in 1971, the world entered a new age of fiat currency .  Fiat money is supported by nothing more than people’s faith in their government’s issuance of banknotes and coinage and foreign investors having faith in a government’s sovereign credit rating.  Post 1971, most of the major trading currencies became fiat money, which ‘floated’ in a market environment, this being in a world with a history of paper money defaults.  Historically, no government has had the discipline to maintain its currency, fiat or commodity based, without resorting to the printing of money for political gain and financial loss.  Those who invest large sums buying artifacts and investing in commodities such as gold, do so because of an innate distrust in the long-term value of any paper money.  For example, if we take a 1938 $0.10 cents as the reference point, then measuring its worth using the CPI index in the above table would seem to indicate that introducing fiat money in 1971 was inflationary. In the thirty-two year period up to 1970 the original $0.10 cents became a requirement to spent $0.28 cents to have the same buying power (all things being equal).  In the forty-year fiat money period up to 2010, this $0.28 cents now required the spending of $1.51 dollars to have the same buying power (all things being equal).   The thirty-two year period 1938-1970 has a multiplier of 2.8 and a thirty-two year period from 1971 to 2003 has a multiplier of 4.5. The increase in the multiplier over the fiat money period suggests that money is inflating at a greater rate than during the earlier period.  However, the 72-year multiplier for a 1938 Superman 10 cent comic book is 21 million (that is: for a 10-year-old who bought the comic in 1938 and sold it in 2011 at the age of 83)!

• Facts are meaningless. You could use facts to prove anything that’s even remotely true!
• Oh, people can come up with statistics to prove anything, Kent. 14% of people know that.
• If you really want something in this life, you have to work for it –Now quiet, they’re about to announce the lottery numbers!
• Just because I don’t care doesn’t mean I don’t understand!

–Homer Simpson

Apart from any hedonistic desire to own such artifacts, there is no doubt a pragmatic view that it affords the best protection against ubiquitous  inflationary money and especially fiat money.  The extraordinary appreciation in the value of artifacts and the post 1971 upward trend of gold prices, could be considered to represent:

1. Increasing discretionary incomes in favour of those able to invest in artifacts and gold (the rich are getting richer).
2. A shift in capital investment in favour of investment in artifacts and gold (the hoarding of wealth)
3. A better indication of monetary inflation than any published government figures.
4. The possession of insider information by those who really understand money markets.

Whilst this appreciation in the value of artifacts and gold may represent any combination of the above,  investors simply moving their wealth out of fiat money fits them all. Those wishing to hoard wealth are aware that fiat money is not a suitable vehicle for doing so, it never holds its value. Historically, fiat money has always been the most inflationary currency medium.   Those who are able, always convert large sums of their discretionary fiat money into commodities (gold) and artifacts (treasures).  An activity that accelerates as confidence in the stability of fiat money declines, to the point at which there is a run on fiat money and a financial crisis.

Monetary scholar Edwin Vieira claims that every 30 to 40 years the reigning monetary system fails . The following graph on the price of gold would seem to support Viera’s analysis. The price of gold over the period shown in the graph below, would suggest a link between the value of gold and the global introduction of fiat money in 1971.  The unusual peak in 1980 is coincident with the Russian invasion of Afghanistan which caused investors to trade dollars for gold when fear gripped the market (another indicator of the inherent instability of fiat money).  Despite a calming of the markets, the upward trend in the price of gold that began in 1971 never returned to its 1971 value.  It did remain ‘relatively stable’ during the period 1982 -2005, if averaging approximately $335 ± 33% per troy ounce can be called relatively stable.  It is suggested that 2005 was a pivotal year for gold prices, as the price of gold has increased year on year since then and shows no sign of abating.  It remains to be seen whether or not the seemingly exponential increase in the price of gold, post 2005, marks the end run for the life cycle of fiat currencies and the end of relatively stable money.

Dogbert the Megalomaniac & Ratbert the Consultant

Nevertheless: there is some vindication for my views on ‘collusion’ and Grignon’s views on money as debt in the formation of the Eurozone.  Here an artificial currency was created, which could be seen as taking Grignon’s solution of ‘personal credits’, to its greatest conclusion. That is: of National Governments issuing ‘personal credits’ on behalf of the nation in the form of  Government Bonds or Gilts.  This led me to post The Trojan Börse.  I am drawn to the Austrian School of Economics ,  which explains why I am drawn to this critique of Grignon.  But we should be grateful to Grignon for drawing our attention money and the seriousness of the problem.  Unfortunately it takes a financial crisis to awaken  this interest.  At which point, all hope of reforming the financial system is lost.  When governments collude with financiers and economists to solve the problems caused by the crisis, we are grateful when they do so. Once the economy returns to a stable money supply, any interest in Grignon and his views moves to the fringe.

CLICK FOR GLOBAL DEBT CLOCK

There is however one thing remaining and that is the debt and who is in debt to whom. A while ago I recall that someone looked into world indebtedness and facetiously drew the conclusion that The Earth must be in debt to the rest of The Universe. This was because every country in the world had an external debt load (barring about three). Obviously the earth is not in debt to someone else in the universe – unless you are a conspiracy theorist – but it is true that there is a global indebtedness.  What really matters, is not the debt, but the ability to pay off the debt with the interest that the debt accrues and the consequences of any inability to do this. This ability to repay, or not repay, is related to the debt of a nation and its GDP, which in terms of debt repayment is a ‘cash flow’ issue.

In terms of GDP we now find a world that is mostly in debt, but in debt to whom?  In the simplest terms:  Governments are in debt to their taxpayers. It is the taxpayer who eventually must bear the burden of this debt.  And would that it were that simple!  We have effectively, what may be called direct and indirect tax contributors. Direct taxpayers contribute to the government’s budget without being paid by government to do so.  This is called the private sector: except that it isn’t all private.  If the ability to pay taxes in the private sector is accrued from government contracts – paid for by the government (taxpayer) – then it could actually be adding to the debt.  Just like the public sector, where all tax contributions are paid for by the government – in effect the government paying itself.  I know that the division between the public and private sector is not this simple, but that leads us to another story which would inevitably include Government Bonds and the printing of money.

Keynes premised that the accumulation of capital through the power of  investment was the main justification for the Capitalist System.  An accumulation of capital only made possible through the unequal distribution of wealth.   Capitalist, like bees, saved and accumulated, those less fortunate only benefited when able to service less needs. The immense accumulations of fixed capital which were built up during the half century before the First World War, could never have come about in a Society where wealth was divided equitably. This Capitalist system depended for its growth on a double bluff or deception.  Firstly; that the laboring classes accepted having very small slice from this ‘cake of wealth’, which they and the capitalists were co-operating to produce.  Secondly; an acceptance that the capitalist classes took the lion’s share of the cake (conditional on them consuming very little of it). “Saving” became a duty and ‘investing’ in the growth of the cake the object of true religion.  Saving was for old age or for your children; but this was only in theory.  The virtue of the cake was that it was never to be consumed, it simply ‘grew’.

No one would be much the better off  if the cake were shared all round, it was really very small in proportion to the appetites of the consumers (even at that time). Society was not working for the small daily pleasures but for the future security and improvement of the race,—in fact for “progress.” If the cake were allowed to grow in proportion with the population – and with compound interest – perhaps a day might come when there would at last be enough to go round. The two pitfalls to this prospect were that the population would outstrip the accumulated growth of the cake and, however much grown, the cake would be consumed prematurely as in a war.

In this Keynes was pointing out that the principle of accumulated wealth based on inequality was a vital part of the pre-First World War order of Society and ‘progress’ as it was understood then.  Emphasizing that this principle depended on unstable psychological conditions, which it may be impossible to recreate. These being; that it was unnatural for a population minority to accumulate such huge wealth when so few enjoyed the comforts of life. However, the war had disclosed the possibility of consumption to all and the vanity of abstinence to many. In discovering this bluff , the laboring classes were unlikely to forego so much.  The capitalist classes, no longer confident of the future, were likely to enjoy more fully their liberties of consumption so long as they last, and thus precipitate the hour of their confiscation.

Written by Keynes nearly one-hundred years ago; he may be right in attributing the accepted order of society to an unstable  psychological condition, but wrong in thinking that may be impossible to recreate it without adding the caveat – ‘in a Democratic Capitalist society’.  Saying that it is unnatural to distribute wealth so disproportionately while so few enjoy the comforts of life could be considered as Keynesian altruism.  The unequal distribution of wealth is something that history and contemporary world society would suggest  is the norm.  That is until there is insurrection against such iniquity, this providing only a temporary respite until the inequality is restored. He is certainly right in suggesting that the laboring classes may no longer be willing to forego a larger share of the ‘cake’ and in the capitalist classes loss of confidence in the future.

What he is unlikely to have foreseen, at the point of his writing here, was how large this cake was to grow encouraged by Machiavellian interpretations of the economic theories he was to develop.  That capitalist governments would foster the ‘global liberties of consumption by many other than the wealthy’.  That this would be the ingredient of an insatiable growth, a growth fueled by wealthy investors and precipitating its decline. That wealth creation schemes, achieved through the manipulation of wealth by the wealthy, would excluded and exploit the many.  In recognising the economic folly inherent in such manipulation by the wealthy and the abrogation of economic rectitude by governments, Keynes was to write later that; capitalism, wisely managed, can probably be made more efficient for attaining economic ends than any alternative system yet in sight, but that in itself it is in many ways extremely objectionable.