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MARCH 23RD28th APRIL 2013


Money & wealth History & future of coinage & money

Doomstead Diner February 2012 edition

Message from the team RE

This issue of the Doomstead Diner Webzine inaugurates a new phase of compiling the most recent month of Diner articles, as opposed to compiling from last years archives. In this way we hope to provide more current topics to Diner readers and bring more new Diners in for a meal at our website. The process of catch up will continue onward until we have a complete volume for 2012, however it will take a bit of time to complete, so we are putting an emphasis now on the more recent material.

April 2013 - Issue 15
The Diners
Writers: monsta666, RE, WHD, Urban Scout Editors: monsta666 Graphical design: monsta666 Pictures: monsta666, RE, WHD Affiliates: Doomstead Diner Facebook, Foxstead operation and SUN project

This issue of the Webzine focuses heavily on Monetary issues, with a 4 part series on Money & Wealth from Monsta, and several articles on the Future of Money from me. There are other topics included also, including articles on the Boston Marathon Bombing, the latest in the ongoing escalation of mayhem occurring here in the FSoA as collapse migrates its way inward from peripheral nation-states to the core of the Industrialized world. The Diner itself continues to grow and mature, with discussions and projects for reaching out into the Real World beyond cyberspace. Several Diners are now engaged in the development of the Sustaining Universal Needs (SUN) Foundation, a Nonprofit organization dedicated to developing sustainable and distributed forms of local food and energy production and affordable and ecologically sound housing for a low energy footprint society. As always also, the Diner Forum remains a hotbed of philosophical debate on the Existential questions of Humanitys place in the Universe, and the Eternal questions of the Meaning of Life. You wont find these lively chats inside the Webzine of course, to join in on that fun you have to stop by the Diner for Breakfast sometime to do some reading and perhaps drop in a few of your own Musings on Life and TEOTWAWKI. A reminder here that several of the Diner Boards are not visible to unregistered Guests, so if you want a more complete view of the Diner you will need to Register on the Forum. Registration also allows all Diners to post to our Forums instantly and unmoderated, so you wont need to wait for approval on your posting. Meanwhile, as always you are free to pass along the Webzine PDF Electronic Magazine to any of your friends to help bring them up to speed on the ongoing Collapse of Industrial Civilization. With a copy of the Diner Webzine on your Tablet, you dont have to be connected to the Net 24/7 to read up on your Daily Dose of Doom, you can even read it out in the Bush while hunting Moose! So, sit back, pour yourself a hefty size tumbler of your favorite beverage and enjoy the most recent month of Doom Developments as chronicled on the pages of the Doomstead Diner! RE Writer

Administrator of Doomstead Diner and founder of Doomstead Diner

Doomstead Diner is a non-profit webzine that is published on a monthly basis. The Doomstead Diner is a fully independent webzine publication, and although affiliated with the Foxstead operation are under no influence from them. The views expressed in this webzine are entirely those of the authors and these authors do not currently trade stock or bonds in the respective markets. We are not investors and this magazine does not offer investment advice! We strive to provide impartial reviews and analysis but should you find any errors please contact us by visiting the Doomstead Diner forums! All characters and pictures shown in this magazine remain the copyright and property of their respective owners. All images in this publication are used solely to promote the article in question and are used under fair use policy.




MONEY & WEALTH SERIES monsta gives a comprehensive explanation on the meaning of wealth and our debtbased currency system. page 05, 12, 21, 31 CONDUITS RE describes the various levers of control (conduits) that the elite utilise to maintain control over society explaining the history on how these conduits were acquired. page 49

Other articles in this edition of the Doomstead Diner

RE describes the general evolution of all monetary systems explaining the limitations and the tendency of currencies to shift from PM to fiat over time.

PALEO FANTASY FALLACY Peter Bauer explores the various fallacies made by various authors on the merits of paleo diet explaining how such claims have no real scientific backing. page 73


In light of recent gold manipulations this article describes the likely future and role of PMs in the exchange market as well as the general economy.

page 45

WHD provides analysis of the recent bombing in Boston raising inconsistencies in the stories provided by the mainstream media.


RE highlights the major point that the elites running the show have no clothes and due to resource scarcity the economy cannot be rebooted like previous crashes. page 59


DINERS ON THE SPACESHIP EARTH The implications of the on-going demand destruction of oil in the US and how this will effect people in the US is given by RE. page 67 4

Published March 23, 2013 | By monsta666

Money & Wealth: Part I

To understand wealth first we must realise that money only acts as a medium of exchange and by itself is not wealth. In addition to being a medium of exchange, money also acts as a means of measuring the relative value between various goods and services. This means of relative valuation while somewhat abstract is essential in any economy as the means of measuring relative values between goods/services becomes too complex without the use of money (for more information on this topic please refer to the Energy-Money Equilibrium series). These issues of valuation only become more prominent in international trade. Despite these obvious advantages all forms of money from fiat to even gold based currencies do not hold any intrinsic value by themselves. In other words we only place value in money because we can exchange items of value for it. In essence the value of money comes largely from the trust and faith that we have placed in it. This is even truer for fiat based currencies that cannot be redeemed for gold. If money cannot be exchanged for goods or services then any notional value money they have will disappear. For example if one was placed with a $1,000,000 and 1000 gold bars in a desert those forms of money would be of little use. You could not eat, drink or keep cool with this money and so without trade money would be utterly worthless perhaps even a burden and liability due to its weight and the danger it would pose against thieves by simply possessing them. From this simple example we can see that money has no value by itself and therefore cannot be counted as actual wealth. While this example may seem a bit silly the mechanics of money becoming worthless through hyperinflation work in the same dynamics. However as noted money derives its value by the fact it can be exchanged for items of value so what we can say about money is that it is a claim on wealth. If we extend this claim concept a little bit further we can say that since debt is a claim on future income (money) then what debt really is a claim to a claim to wealth. That maybe a bit of convoluted way of expressing debt but if we wish to distil this last expression we can simply say that debt and money are both claims on the underlying wealth of an economy. This all sounds nice and rather straightforward but it begs the question of what wealth actually is? Wealth can simply be expressed as the actual assets that a person owns for example a house, SUV, iPhone or other tangible items are all forms of wealth. As a side-note wealth is a measure of stock while money or income is measure of flow. This point while seemingly innocuous now will be an important concept to grasp as we progress further in this topic. As you see these tangible items the items that society values is the true wealth of an economy and the only role that money plays (which intrinsically has no value by itself) is it allows and facilitates the transfer of wealth between various agents in an economic system. The other role money does play is it acts as a store of wealth so if we wish to store money then the money should be able to be exchanged at a later date for the same amount of wealth as if traded that day. At least this is what sound money should do. As we know due to the effects of inflation this proves not to be the case. However it is this issue of money acting as a store of wealth which leads to the first source of confusion between money and wealth. The means of wealth storage via money results in wealth being measured in monetary terms. The issue of measuring wealth through monetary values then leads to the point of determining how things are valued in the first place. In modern economics the value or utility of any given item comes from the exchange value it has in a market. In other words the wealth of any item is only determined or realised once it has a value in the market which it can be sold for. While this may not seem like an issue, at least on first glance, this issue of exchange value does pose a problem. This is because there is a difference between exchange value (the value an item gets in the market) and

Discuss this article at the Money Table inside the Diner Main article When talking about collapse issues one of the most prominent yet most commonly misunderstood areas comes with our basic understanding of what wealth and money really is. Both are seemingly simple matters yet upon closer inspection we find that are many nuances and subtleties in this story that people often miss. This misconception can even be extended to economists or people in finance that are well versed in money matters. Indeed it is the complexity of money and all the financial products that derive from it with things such as bonds, stocks or other investment vehicles that can make us easily forget what wealth is really about. In fact it is this distraction through complexity that makes us commonly believe that wealth and money are one of the same things. It is useful to really grasp what wealth is lest we fall into a trap that many people, including the iluminati, who base much of their wealth in abstract financial instruments.

use value (the value an item has to an individual or society). To illustrate the difference and problems posed by these differences of worth it is best to consider the age old concept of the diamond and water paradox. While water is a requirement for life and therefore has a high use value to people its exchange value is very low while a diamond; which is not needed at all for life and therefore has no or little use value has a high exchange value. This is a curious development that comes from how our economic system places value on items. So what accounts for the difference? The reasons are actually quite easy to explain: water while highly useful has generally been abundant and easy to extract so even though its use value is high its exchange value has been low due to its abundance and easy extraction. Since the opposite is true for diamonds (it is rare and harder to extract) its exchange value has been high even though its actual use value is considerably lower. The large discrepancy between use and exchange values generally occurs for many vital commodities such as food, air and most significantly energy resources. These differences in values have become more pronounced in recent years due to the abundances of energy in the last 200 years of the industrial revolution that have made not only energy cheap (from an exchange value standpoint) but have also made other resources such as food and water cheap as energy acts as an enabler of all other resources. For this reason energy can be regarded as the master resource. As a result of this phenomena it is likely we have grossly underestimated the wealth we have accumulated or perhaps in other cases (such as in fossil fuel depletion) we have grossly underestimated the wealth we have liquidated by only focussing on the exchange value of items and not their use value. While this point may still seem to be of only academic interest it should be noted these very issues do tend to crop up in times of deprivation and economic dislocation when items in high demand are not bought as people do not have the means to pay the exchange or going rates. As a result while the use value of items such as food are still high; perhaps even higher in desperate times (people are more malnourished during these times) since people do not have the means to pay for the goods the exchange value will tend to be lower than in normal times. This leads to the paradoxical situation where the farmer produces a surplus of food even though there are millions of people malnourished or even starving. As a result of this surplus less food is produced (to cut losses from overproduction) which only further exacerbates the situation as there is even less food to go around. These issues can be extended to modern day equivalents when many lands in Africa maybe very fertile yet the amount of wealth is not as high as one would first believe as the exchange value or income ultimately determines the value and wealth of the land. It does not matter how much the people want food, the only thing that matters economically is what people are able to pay for the said food. On the other hand due to the flaws of this exchange value mechanism it can observed that an overweight person from a developed country will gain more utility (in a pure economic sense) from this food than a starving person because they can pay the exchange value and so wealth will transfer to this person as it delivers the greatest amount of utility from an economic standpoint even though the use value is obviously less. This issue is clearly not the best outcome from a social or moral standpoint and this example is a chief reminder of the flaws of the value system used in modern economics. On this topic of land, the other important point can be made about wealth. That is fundamentally all wealth that we see in the planet comes from either the ecosystem of the Earth or the energy from the sun. Normally from a purely economic perspective we consider wealth as items such as factories, cars, roads or other items that have economic value. While such statements are indeed valid and can be correctly deemed as forms of wealth it is important to

note that all these sources of wealth ultimately come from the Earth as they all require resource inputs such as oil, metals etc. to be formed. Therefore from this we can say the economic system that we live in today is actually part of the larger ecosystem and all the wealth we accumulate in the economy derives from the underlying ecosystem we live in. As a result of this we can easily deduce that for the overall wealth of the human economy to grow it must come at the expense of the natural ecosystems wealth. Since all wealth comes from the Earth or the products from the suns energy (which is applicable to many forms of agriculture) it is not technically correct to say man creates wealth rather he merely extracts it from existing resources in the ecosystem.

This relationship between resource extraction and wealth extraction is quite obvious to see in the primary economy when resources are extracted directly from the ecosystems to provide goods of economic value but it can seem even with this wealth extraction concept recognised one may still envision the possibility of wealth creation through the transformation of a resource. To offer an example of this possible wealth creation let us consider the information sector which at its base claims to create wealth by using cheap resource inputs from metals and transforms these input into high value products such as computers and smart phones. While this process does appear to create extra wealth at least on first glance it should be noted that the process of manufacturing these products is highly energy intensive. First to build a typical computer or smart phone requires the resources that are scattered across the globe and as result requires large energy inputs to make these long supply lines viable as the video below clearly suggests:

If the true use value of these fossil fuels plus the associated external costs (due to pollution) were accounted for then it is likely the amount of wealth created through this process would be considerably less. Furthermore as noted earlier all this wealth creation comes at the expense of fossil fuel depletion which is really the destruction of stocks of wealth. If we subtract the true losses of wealth from fossil fuel depletion coupled with the smaller addition of wealth created by capturing the true costs then it is likely no wealth has actually been created in this process. It is also important to note that once these resources are burned they are gone so it really a onetime deal and these stocks act like an endowment from nature. As a result of this it is actually not appropriate to count the burning of fossil fuels as a form of income because really the burning of fossil fuels is a liquidation of stocks of wealth which is a one time deal. To give an analogy it would be like selling your home and then counting the proceeds as part of your yearly income. Such a thought sounds silly but if we consider how many nations count the burning/selling of this resource as part of their GDP (which is a measure of income) it becomes apparent how flawed our accounting system for measuring income and wealth is. In any case what we can say with a good degree of confidence is that any wealth generated from this endeavour will come at the expense of a reduction in wealth in the natural ecosystem. For wealth to be created in the economy either resources or energy inputs must be consumed from the ecosystem. Now this is not to say this wealth extraction process is always unsustainable because in many instances, at least theoretically, it can be sustainable. This sustainability can arise because our ecosystem is not a completely closed system as it receives energy from the sun. As a result of this solar energy land can regenerate and create new wealth in the ecosystem. Indeed for much of human history wealth primarily came from the solar energy of the sun and wealth was obtained into the economy on a pay-as-you-go basis from wealth created from photosynthesis. It is only in the last 250 years that significant sources of energy came from the drawdown of fossil fuels and it is this drawdown that was responsible for the large amount of economic growth in the industrial age. While it is possible in some circumstances for the human economy to grow for a time it should be noted that growth is only really sustainable if the resources extracted from the ecosystem do not exceed the capacity of the Earth to regenerate new resources and empty various sinks of pollution. Unfortunately in the world we live in today our current rates of consumption of resources exceed the worlds regenerative capacity and as a result many vital resources such as topsoil, water tables, fish stocks and animals are all experiencing declines.[6][7][8][9] In addition the amount of pollution emitted exceeds the capacity of the Earths sinks to absorb these waste products and as result the pH in oceans are altering which has an adverse effect on various ocean fauna.[10] On top of all this as the oceans accumulate increasing concentrations of pollutants and the atmosphere grows warmer due to C02 emissions. And this is all occurring at current rates of consumption; if we wish to pursue more economic growth and increase the wealth of the human economy even further then it must come at the cost of further degradation of the environment. If continued then it is likely these set of actions will lead to resource collapse (ecosystem bankruptcy?) and uncontrolled climate change. Another important aspect to consider in this wealth story is that of profit. The normal definition for profit is that the supplier of a good or service must sell at a higher price than they took to produce the good/service. If we consider this from a wealth prospective then this means the cost of procuring the resource must be less than what the transformed resource will sell at the market. In other words the costs of the good/service should be less than the exchange value that it will sell for. However since we are only dealing with the exchange value and do not account for

Furthermore the energy use in manufacturing the product in the factory is also very energy intensive and requires very precise conditions (such as dust free rooms) to be maintained. In fact on a weight to weight basis computer manufacturing is around 10 times more energy intensive than the manufacturing or a car.[1] This high energy consumption all stems from the second law of thermodynamics (to read more information on this topic please refer to the Energy: Part II article). In addition to these facts another general pattern can be observed; that is the more complex any given technology becomes the larger the amount of supporting infrastructure is required to build and maintain the technology. This support infrastructure does not just come from physical items such as longer supplier chains or more sophisticated factories but also in the form of higher education and training required for the workers to operate in these environments. These embodied energy costs while not directly related to the construction of the item itself are considerable and will pose a larger energy cost to society in general. This will be an even bigger issue in a declining net energy environment which is likely to be the case in the coming decades. As noted earlier the exchange value of vital resources such as energy do not capture the true use value of this resource. To understand why this is the case for energy we need to consider how much energy is embodied in the various forms of fossil fuel energy. For example the energy extracted from one barrel of oil is equivalent to around 7 years of labour[2] while the burning of one short ton of coal delivers around three times the amount of energy as a barrel of oil all at a lower cost.[3] While the exchange value in these cases is around $108.50 for the barrel and around $64.96 for coal (at the time of writing) the amount of use value in terms economic output far exceeds their exchange value[4][5] It is this arbitrage between exchange and use value that has been main reason for the explosive amount of economic growth we have seen in the last two centuries during the industrial age.


the use value then it is likely the actual profit from wealth standpoint is less than what we would get from an exchange or monetary standpoint. Whats more if all external costs such as pollution and environmental degradation (environmental costs should include the costs for removal of fossil fuels) are fully accounted for then it is likely that there would be no profit at all in various economic transactions (in certain cases it could be even a negative profit). In fact to obtain a real profit it is likely that a combination of three things must happen. Either the external costs are omitted or resources and/or labour must be exploited. By exploitation the price paid to procure these resources or labour must be below their true use value for wealth to accumulate. It is my personal belief that it is a combination of exploitation and unaccounted costs that allows nearly all economic transactions to produce a profit on paper. Summary Wealth and money are two fundamentally different concepts and the confusion between the two terms mainly arises from the fact we use money as a store of wealth. As a result of this all wealth is measured in monetary terms. However as money has no actual intrinsic value by itself then its value only comes from the fact it can be exchanged for items of value. It is this fact that means all items of wealth is only measured by their exchange value and not their use value. As a result of this money cannot capture the true value of wealth as not all values are accounted for. As a result we cannot accurately account for the loss of wealth due to depletion of various resources and this issue is only compounded by the fact all external costs are rarely accounted for. If all these factors were factored in then it is likely the amount of profit or actual real wealth accumulated through our economy is a lot less than we imagined and could even be negative considering the declining quality of resources that we are now extracting. Finally it should be noted that since money is only a claim on wealth and is not a source of wealth by itself then it follows that if the money supply increases faster than the underlying wealth in the economy then the result will be inflation (if the opposite occurs then we get deflation). It is this dynamic of changing money supply relative to overall wealth that will be explored in the next part of this money and wealth primer. Further reading Economics and Moral Philosophy (feasta) Energy-Money Equilibrium (RE) References [1] = The monster footprint of digital technology (Low-tech Magazine) [2] = What is a Human Being Worth (in Terms of Energy)? (The Oil Drum: Europe) [3] = What is the average heat (Btu) content of U.S. coal? (EIA) [4] = BBC News Market Data: Commodities (BBC) [5] = Coal News and Markets (EIA) [6] = What If the Worlds Soil Runs Out? (TIME Magazine) [7] = Chapter 3: Emerging Water Shortages: Falling Water Tables (Earth Policy Institute) [8] = World fish stocks declining faster than feared (Financial Times: google title name for link) [9] = THE EXTINCTION CRISIS (Biological Diversity) [10] = How will ocean acidification affect marine life? (Ocean Acidification) Monetary terms

Money & Wealth: Part II

Published April 2, 2013 | By monsta666

Discuss this article at the Money Table inside the Diner

Below are a small set of terms that may prove useful for those unfamiliar with financial terminology: Bonds A form of loan (or more correctly debt security) where the party who issues the bond is the borrower (debtor) while the party that purchases and holds the bond is the lender (creditor). A bond will pay interest usually on a quarterly or annual basis and this interest is called a coupon or yield. Nearly all bonds mature after an agreed period of time at which point the principle on the loan is fully repaid. There are some rare instances where a bond never matures. The most commonly traded bonds are local/state government bonds and corporate bonds. There are some hybrid bonds where the bonds can be redeemed for stocks in a company. Bonds tend to offer less returns than stock but the returns are more reliable as they tend to be less influenced by market conditions. Stocks Are a form of equity where a party owns a share (a fraction of ownership) in a company. Shareholders are often entitled to quarterly or yearly earnings through dividends. While the level of returns in stocks is generally higher, stocks carry greater risks as they are more subject to market conditions. Unlike bonds, stocks do not mature and remain outstanding indefinitely unless the company goes bankrupt or its ownership model changes significantly.



Derivatives Are contracts that derive their value from some other asset. For example a long-term future contract for a food item derives its value by what the value of food is perceived to be in the future. The most widely known derivative contracts are futures, forwards, option and swaps. Traditionally such contracts were used by farmers as means of insuring they received stable prices for the food they sold throughout the year to protect themselves from food prices which fluctuated quite dramatically during the year. A stable price would aid a farmer when it came to planning their future income and outgoings. In more recent years energy companies have heavily used these contracts for similar reasons. A few years prior to the financial crisis the derivatives market increased dramatically as banks began trading heavily in Repurchasing agreements (Repo) which are basically formal contracts to roll over existing debts. Collateralised Debt Obligations (CDO) which is a form of loan where 100s even 1000s of mortgage loans are bundled together and sold to other parties. Finally there are Credit Default Swaps (CDS) which is basically a form of insurance to protect the lender in case a party fails to meet its debt repayments. The issue with CDS is that the owner of a CDS is under no obligation to buy the product they are insuring against which leads to the moral dilemma where they have an incentive to make the counterparty default. To offer an analogy it would be like owning fire insurance for my neighbours house. Since I do not own the property I am insuring against I would suffer no loss (financial or material) from its burning and would only gain profit if a fire were started by accident. Hypothecation The process where a borrower offers collateral to secure a debt. Thus the lender hypothetically controls the asset should the borrower default. A common form of hypothecation would be mortgages. Re-hypothecation Is the process where the creditor resells the loan that was secured by collateral by the borrower. To take the example used above; the bank will resell the mortgage that you are paying off to another party and then take the proceeds from that sale. As a result the new party holds hypothetical ownership to the collateral, in this case the house. At least that is the theory; sometimes due to how contracts were written ownership of the loan/property can become a matter of dispute.

Fractional reserve banking It is perhaps one of the largest misconceptions that most of the money created in an economy comes from the central bank but this belief, even though it is promoted somewhat by various central bankers, is a false one. In fact most money creation occurs through commercial banks via the fractional reserve banking system. The system itself is largely counterintuitive in the sense that because the process generates money so easily it is rejected for being morally objectionable. Indeed this is exactly what John Kenneth Galbraith a former Economics professor in Harvard had to say about our monetary system:

The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. John Kenneth Galbraith, (1975)[2]
So what is the fractional reserve system? In essence it is the process of how banks lend out money that is a multiple of the amount of deposits (or reserves) held in their vaults hence the term fractional reserve as the reserve amount is only a fraction of the total money supply. To make this clearer it is best to offer a real life example of a working process of this system in action. Suppose we had a fractional reserve system with a 10% reserve requirement. In this scenario the amount of money in circulation will be ten times greater than the amount of deposits held. In other words 90% of the money created will come from commercial banks through bank loans while the original $100 came from the central bank. The process occurs because when a person deposits $100 into a bank the bank will loan 90% of this deposit out and retain the remaining 10% as reserve. However in this process of loaning money out the money supply has increased to $190 and not $100 as one may initially suspect. This is because the extra credit issued does not come from the account of the depositor as commonly thought but is in fact money created out of thin air. This process of loaning new money while retaining the 10% reserve amount will be repeated numerous times until eventually the amount of money in circulation will be ten times greater than the reserve amount, in this case $1000. If this process sounds a little complicated then it may prove useful to watch this video:

Main article

The people must be helped to think naturally about money. They must be told what it is, and what makes it money, and what are the possible tricks of the present system which put nations and peoples under control of the few. Henry Ford, 1922[1]
In the first part of this series we explored the fundamental differences between wealth and money which described that at best; money is only a claim on wealth and is not wealth itself. In this second part we delve more into the actual mechanics of how our monetary system operates how it shapes our world and interacts with the underlying wealth that ultimately comes from the ecosystem.
Note: While this video does explain the process of fractional reserve banking well caution must be exercised against its conclusions made against the Fed. The primary influence on money supply comes from the commercial banks and the fractional reserve system and not the central bank. It should also be known that the free banking era was marked with less financial stability than the post Fed period (1913+) as there was no lender of last resort.



As a note while the example described above may sound dramatic in reality the reserve requirements for countries such as the UK is lower than this as the Bank of England does not actually set compulsory reserve requirements and reserves have been cited as being as low as 2.1% as of 2010 of the total money supply.[3] The table below illustrates how the money supply grows after the first person is given $100. Transaction No: 1 2 3 4 5 6 7 8 9 10 Total It is this fact why the banking system is inherently unstable because if people ever decided to withdraw their money in mass then the bank could not meet this demand as they do not have sufficient funds in their vaults. The reason this system can remain viable however is because the banks know that people generally do not withdraw all their money at once. In fact they have found that if their reserves are sufficient to meet the demands of net withdrawals (that is deposits minus withdrawals) then they can Amount deposited 100.00 90.00 81.00 72.90 65.61 59.05 53.14 47.83 43.05 38.74 651.32 1000.00 Amount lent out 90.00 81.00 72.90 65.61 59.05 53.14 47.83 43.05 38.74 34.87 586.19 900.00 Reserves 10.00 9.00 8.10 7.29 6.56 5.90 5.31 4.78 4.30 3.87 65.13 100.00

remain solvent at least on an on-going basis. This last point is crucial because banks make most of their profits by loaning money so if a system can allow them to loan money by a multiple of the underlying value of deposits then it follows that their profits would increase by a multiple amount also. The important issue here is to match their reserve amount to that of net withdrawals and not total amount lent out (as commonly perceived). Banks must also make an assessment of the risks taken when extending credit as the capability of its lenders to payback loans issued by the bank will vary and if a bank can attract more creditworthy lenders then that will mean the banks capital (which is mostly loans) will be of higher quality. Despite this safeguard and careful assessments of risk banks have gone bankrupt on a continual basis and this is especially true in a country without a central bank. The two main safeguards that are made against a bank run are interbank lending (notable examples include Federal Funds Rate, LIBOR and Euribor) where numerous banks can exchange loans to one another. These loans would serve to cover any surge in withdrawals that took an individual bank by surprise and would allow them to meet this extra demand until the situation returned to normal. It is only if withdrawals remained high for a protracted period of time or the problem was more systemic in nature that greater action would be warranted. The second and final line of defence against bank runs comes in the form of the central bank who acts as a lender of last resort. Quantitative Easing While the central bank has numerous tools to mitigate a bank run (they can lower the reserve requirements for example) the most powerful way of protecting bank is to engage in open market operations, more specifically the purchasing of bonds by issuing credit to the commercial banks themselves. If a central bank lends out money they are increasing the reserves of the commercial banks which allows them to meet their lending obligations (which is often an issue when many loans are no longer repaid). There are two notable points to remember in all this, unlike what is commonly depicted in the media, quantitative easing is not direct money printing. The central bank loans money to its clients (the commercial banks) in exchange for financial assets. In most cases the assets in question are government loans more commonly known as government bonds (or gilts in the UK) however these assets can take other forms with the most notable example being Mortgage Backed Securities (MBS). This exchange of financial assets while often overlooked forms a crucial role in maintaining financial stability. If a central bank actively buys financial products such as sovereign bonds or MBS they are creating artificial demand for these products. As a result two things will happen. First the book value of those loans rises which strengthens the balance sheet (remember loans are assets to banks). As the value of these assets or collateral rises then the ability to repay existing debts will rise. More crucial however is the fact that interest paid on those loans decline allowing banks and governments to make interest payments more easily. In fact it is these purchases and the orchestrated nature of quantitative easing (the central banks often give ample warning before undergoing such programs) that undermine one of the central tenets of central banking. That is many of the advanced economies have laws in place that prevent central banks from lending directly to the treasury or directly funding a government deficit. These measures have been put in place to prevent this form of intervention leading to runaway inflation as this money creation does not go into the wages of government employees which would act as a huge driver of inflation (this would be the case if it were paid to the treasury directly).

Who owns the depositors money?

A simple question with a surprising answer and one that should definitely be noted in the case of bank runs. When someone deposits money into a commercial bank the deposited money is no longer the property of the depositor as the ownership of that money is transferred to the bank. What happens is the depositor becomes an uninsured creditor to the bank and owns some bank equity/shares or bank stock that the bank is obliged to pay back with cash.[4] While this may sound complicated what it really means is that if the bank went into a state of bankruptcy then the depositor is a mere uninsured creditor and unless their money is insured by the government which it will be (at least on paper) if the deposit is less than $/100,000. If however the deposit is greater than this this amount then the depositor will be at the mercy of more senior creditors that will be paid first. It should finally be noted that the most senior creditors are the customers that deal with derivative contracts[5] which is mostly conducted by the too big to fail banks. Seeing as the notional value of those contracts is $639 trillion as of June 2012[6] it becomes questionable how much money any creditor below those senior creditors will receive considering this amount is a multiple of the global economy which is valued at around $70 trillion.[7]



The central banks across the world however have in effect circumvented this rule as the commercial bank buys the government bonds from the treasury who then turns around and sells those bonds (which are likely worthless without this money printing) to the central bank. This dynamic of buying and selling bonds or other financial instruments that are almost worthless to central banks is not limited to bonds and occurs with other financial assets. In effect the central bank is acting like the big bad bank and is the party that buys all the bad or loser loans from the commercial banks that either no else will buy or will not buy in sufficient quantities to make the loans valuable or even viable. However what is significant in these transfers is that the liabilities of the debt repayments shift from the commercial banking sector onto the taxpayer. It is likely that this dynamic has allowed governments and banks to remain solvent as this demand for loans created by quantitative easing has been chiefly responsible for keeping interest rates down. If these programs were stopped or worse the interest rates set by the central bank were raised then the rise in interest rates would likely render many economies and banks insolvent. The fact that countries such as the US, UK and Japan run high fiscal deficits means that every year the interest rate threshold to remain solvent will need to decline year after year unless these deficits can be closed. The second important point - which IS highlighted by the media - is the actual transfer of credit. It is often said that quantitative easing will lead to mass inflation as this printed money will be added to the commercial banks reserves and the banks will then lend this new money out to businesses and people creating a huge rise in the money supply via the fractional reserve system mentioned earlier, the so called money-multiplier effect. While this theory sounds plausible the reality is this has not been the case. If we look at the total money supply we find that despite unprecedented amounts of quantitative easing (in the case of the US $85 billion a month) the total money supply has been increasing at slower rate than prior to the financial crisis:

So why the lack of money growth? The reason for this is the banks see few opportunities to make a profit in lending so instead they hang onto the money. This lack of lending is also reflected by the fact the velocity of money; that is the measurement of how quickly money is exchanging hands has declined markedly since the 2008 crisis and has plateaued since around 2011:

Saying all that it would be a mistake to think the money is simply laying in the banks vaults doing nothing. A lot of this newly issued credit is invested and goes towards the stock market and other forms of speculation. In fact it is these cash injections that have likely fuelled the large amount of asset inflation in the form of rising stock prices. If we look at various stock indices such as the Dow Jones, FTSE 100 and other stock indices as these stock markets have seen significant increases despite poor performances in the general economy (in fact these stock indices are performing more strongly than stock markets in more buoyant economies such as China).

Nominal interest rates: Typical rate you will see in the brochure of a bank when it advertises its interest rates. Real interest rates: Nominal interest rate - Inflation
If real interest rates become negative it creates the perverse situation where it effectively costs money to save while it pays to loan money. This occurs because the rate of inflation exceeds the returns made through interest. When borrowing the opposite will be true. Negative real interest rates benefit highly indebted parties at the expense of savers.



US Stock Market

US economy Notice growth rates do not reflect gains made in stock market:

the result of strong fundamentals in the underlying economy as low or negative growth in the economy cannot justify the gains we have seen in the stock market. It is this combination of gains in the bond and stock market that have been a boon for the government, banks and pension funds. Summary Most money in the monetary system is created by commercial banks and not central banks therefore the supply of money is largely determined by the activities commercial banks engage in. This statement is supported by the fact that despite the central banks intervention at an unprecedented scale through various programs of quantitative easing the total money supply is not only increasing more slowly but the velocity of money is (number of exchanges made with the money) decreasing also. This is due to the commercial banks lack of lending having a greater influence than what the central banks are doing. This leads us to the issue of inflation and deflation. While it is commonly cited that further rounds of quantitative easing will inevitably lead us to a hyperinflation end-point we must recognise that the lack of lending and more significant, increasing amounts of bankruptcies and austerity measures implemented will lead to deflationary pressures as austerity, defaults all cut spending which reduces the money supply. At this present moment of time the inflationary pressures applied by the central banks just about equal the deflationary forces that exist in the main economy. It is this combination of inflation/deflation forces that will make the final end-point more complicated and nuanced than what people will generally expect. Please read part four of this series to find out more about this issue. For observant readers you will notice that all forms of money creation involved the use of loans thus the statement: all money is loaned into existence becomes true. In part 3 we will examine the implications of having a debt based monetary system. References [1] = My life and work (pg. 179) [2] = Money: Whence it came, where it went (pg. 5) [3] = Economics 12th Edition by Lipsey, R. G. and Chrystal, K. A. (2011) (Oxford University Press. pg. 455) [4] = Banking Regulation of Uk and Us Financial Markets (pg. 83) [5] =The Financial Crisis Inquiry Report: Official US government edition (pdf document: enter page 76 on pdf file is page 48 on actual report.) [6] = Amounts outstanding of over-the-counter (OTC) derivatives by risk category and instrument (Bank of International Settlements pdf file) [7] = GDP ranking (World Bank pdf file) [8] = Remarks by Governor Ben S. Bernanke (Federal Reserve Board) [9] = National Economic Accounts (Bureau of Economic Analysis)

UK stock market Notice FTSE 100 has recovered all gains since financial crisis started:

GDP figures obtained from the Bureau of Economic Analysis.[9] UK economy The same cannot be said of the UK economy which is still 3 percentage points below 2007 peak:

This is not the only reason for the stock markets to rise. Another side-effect of quantitative easing is that the artificial demand created for bonds will cause bond yields to decline, so much so that bonds no longer offer good returns for investors. As a result investors will be forced to invest their money in more risky products such as stocks due to the fact that bonds, savings accounts and real estate do not offer good enough returns to beat the current rate of inflation. This issue of low returns is particularly problematic for low-risk pension plans but it is this forced investment into stocks that has also contributed to the recent large gains in major stock markets across the world. It is my belief that the two factors described above have been the chief reasons why we have witnessed large gains in the stock market. Both these reasons have stemmed from the process of quantitative easing either directly through money entering these markets or indirectly by forcing investors to leave the bond market due to lower returns caused by interventions in the bond market. To me it seems unlikely that the gains in the stock markets are



Money & Wealth: Part III

Published April 9, 2013 | By monsta666

M1 money supply (US) M0 + money held in checking accounts. M2 money supply (US) M1 + money held in savings accounts and small time deposits (under $100,000). M3 money supply (US) Broadest measure of money supply and is M2 + all time deposits and other large liquid assets. M3/M0 is the multiplier ratio. M4 money supply (UK) Equivalent to M3 money supply for US is referred to as broad money. M4/M0 is the multiplier ratio. Main article In part two of this series the basic mechanics of how the monetary system works was explained. In part three of this money series we will go into the implications of having a debt-based currency speculating on how it was created as well as discussing the various advantages and disadvantages of using such a system. Debt-based money

Monetary terms

Discuss this article at the Money Table inside the Diner

The terms below should help those unfamiliar with financial terms to understand how to read money supply graphs and what the various metrics are used when determining money supply: Transactional Deposit Also known as a demand deposit account, checking account (US) or a current account (UK). These accounts are used to deposit and withdraw money easily as well as make payments to various other parties. The money in transaction accounts can be used as a medium of exchange. Savings Deposit Are accounts that are used to accrue interest but cannot directly be used as a medium of exchange. To use the money held in a savings account it must first be transferred to a transactional account. Interest generated from savings accounts are subjected to taxes at source before it even enters the holders saving accounts. Tax deductions are income and not capital gain based.[10] Time Deposit Also known as certificate of deposits (US) or bonds (UK). These operate in much the same manner as savings account except that the money is kept for a fixed term until it can be withdrawn. If money is withdrawn before the term has expired then a penalty will be charged. Time deposits are not subject to reserve requirements in the US. M0 money supply (US) Notes and coins in circulation. M0 money supply (UK) Notes and coins in circulation plus the commercial bank deposits in the Bank of England. This metric is referred to as narrow money.

To observant readers who read the second part you will notice that in all instances described money was created by some form of credit expansion. In other words all money that currently exists has been loaned into existence. As we know, all loans made carry an interest component and it is this interest that means that the money supply must always increase at an exponential rate to meet debt repayment obligations. It is this interest bearing component and the exponential rising money supply that acts as a large driver on why the economy must grow and grow at an exponential rate even if this economic growth comes at a detrimental cost such as environmental degradation, rising social inequality, loss of freedoms etc. as repayments must be made. Another inherent property of the momentary system is that the amount of debt in the system is greater than the total money supply. If you notice with the example provided with the fractional reserve system all money was loaned to new customers what was not highlighted in that instance was the fact those loans carry interest. The same is also true for the quantitative easing; in those instances we can see that the total debt exceeds the money supply because if we include the interest on those loans then we need more money than currently exists. It is this property of the monetary system that means some existing debts (at least if we consider things on a total macro level) must be rolled over with new debts as it would be impossible to repay all the existing debts in their entirety with the current money supply. As a result the existing system can only be sustained if there is continued growth of the money supply and for the money supply to continue growing it requires that the underlying economy must also keep growing. This need for constant economic growth comes because as highlighted in the first part of this series the claims on wealth (money) must roughly equal the amount wealth in the underlying economy. If the number of claims against actual wealth goes out of balance then the value of money diminishes as it no longer offers a reliable means



of valuing wealth even on an exchange value basis. Indeed it is this lack of economic growth in the major advanced economies of the world that is the chief cause for the instability in the financial system. While there can be complex debates about the precise nature of why these events transpired and who is to blame it must be recognised that the inherent properties of the system means it can only maintain stable if there is continued growth in the economy. Unfortunately infinite growth is not possible as the amount of wealth (resources) in the planet is finite so at some point this basic reality must be confronted. This leads us to the question of why such a system came into being in the first place. Why create a system that is so inherently unstable? Now what comes next at least in terms of how the debt based currency was created is informed speculation on my part so it must be taken with a pinch of salt. However we can be sure that this is the system that currently exists so we are only speculating about its creation and not its existence. With that in mind I will offer a number of explanations of why this system was established. One of the major reasons is probably as mundane as a basic ignorance of how the monetary system operates. This allows the money makers to create an insidious system with relatively little resistance. Second the desire to make a return on investment is so high that without proper regulation there is always an incentive over time to use any asset be it food, gold a house etc. as collateral for a loan and then gain an income through the interest accrued by those loans. If a person earns enough income through interest then there will be no need to labour (and generate actual wealth) for an income; you just live through the rents from the interest and you become part of the rentier class. If enough parties seek a return for their investments then over time money will often naturally evolve to become debt based to service those needs. Perhaps the biggest driver for a debt based currency however is that debt provides the means to fight wars more effectively. As we know wars are expensive and as time has gone on wars have become increasingly expensive; so much so that merely taxing the populace was not enough to fund a war. As a result many countries eventually had to find other means of securing funds and this came through utilizing debt to increase military spending. After all it is often the side that spends the most becomes the winner. Furthermore it is the winner of the war that gets to dictate the terms of peace and this often involves passing on the debt and most important of all the interest to the losing state. This is what happened at the conclusion of World War I and explains why the loser, Germany, went bankrupt as it was forced into paying all the debts (from itself, Britain and France) accumulated during the war years. Therefore in light of this it should not come as any surprise that the first ever government bond issued was made by the Bank of England in 1694 to raise funds for a war against France. If all the above is true then we can establish the motive of using this system and why it started but then even this explanation fails to answer the question why this system of bonds (and by extension debt servitude) persisted outside of the wars. Wouldnt it make more sense if the government simply issued debt free money instead of having to pay interest on money it created? The reason why this system of debt likely persisted outside of war is because in many cases the people who fund wars are either rich domestic citizens or foreign investors both of which are likely to hold significant political clout. This relationship becomes even more telling if these investors are other national states especially if that national state is stronger than the debtor nation (examples of this abound between third world debtor states and first world creditor nations). It is because of those reasons that interest payments must be honoured or the country in question will be cut off from international markets.

Over the centuries these debt obligations have become even stronger. First as most countries moved away from monarchist rule to that of democratic governments this meant that debts accumulated through previous administrations never died. In the past when a king died his debt died with him but under a democratic arrangement all debts become that of the state and so debts never expire. This issue is highlighted in the case when a despotic regime is overthrown but the new government is still under obligation to payback old debts from the old regime; such debt is sometimes recognised as odious debt in international law. This issue of debt repayments has become even more acute in todays globalised economy as nations have become dependent on the global economy to provide its basic needs such as food, energy and basic goods. This dependence coupled with the strength of foreign investors who own the largest financial and corporate institutions means that states are beholden to their demands and can only function by staying in this globalised system as national states have, for the most part, lost their autonomy as they have lost their means of production for some vital resource and can only obtain them from other markets. This can lack of production even extends to money itself as states do not create money themselves as all money is essentially created by private institutions that governments must effectively pay a rent (interest) to use; this dependence in obtaining money (debt actually) means the relationship between state and private financial institutions has over time come to resemble more of a parent and child relationship than that where both counterparties wield equal power. This issue of dependence would explain why various EU nations have continued to accept the onerous bailout conditions despite the damage it does to the countrys economy, finances and political legitimacy. This control, through financial dependence, seems to be recognised by various financial elites most notably Mayer Amschel Rothschild who had this to say:

Give me control of a nations money supply, and I care not who makes its laws Mayer Amschel Rothschild
In addition, as noted earlier; all money is created into existence through loans and since these loans are created out of thin air it does not cost the people who issue the loans anything. Because of this money can act as an instrument of wealth extraction due to the interest bearing component of all debts accumulated this system. This means so long as the person controls the money supply it is possible from them to extract wealth from people with no/limited money (or credit) who must not only labour to repay the principle on the loan but they must work that bit extra to pay off the interest on the debt. All thats really required is that the loans issued are not invested too badly to allow someone to accumulate great wealth over time as effectively they will claim a small percentage of the entire countries production. If even this gain is 1% (it is likely higher than this) then through compound growth large numbers will be generated in a relatively modest timeframe. Thus another inherent property of this system is it acts as a form of wealth redistribution that sieves wealth from the bottom and takes it towards the top. It should come as no surprise then that during a period of large banking (and by extension credit expansion) that the level of inequality in society will rise appreciably. The video below describes the points raised quite well:



Note: While Damon explains the money side of the equation well he largely ignores the wealth side of the debate which concerns limited resources. Because of this oversight his theory of how the world banks will rule the world is likely to be false as the large institutions can only be maintained with abundant sources of energy.

Saying all that there are numerous advantages to this monetary system and these must be acknowledged. First of all as already established since the monetary system expands at an exponential rate this insures that the money supply can match the increase in the economy as both tend to expand at an exponential rate. It is important to recognise that the economy is expanding at an exponential rate and is not increasingly in a linear manner (which tends to be what we think intuitively). If we look at the production and consumption of various resources we can see this exponential growth more clearly:



For most of human history economic growth primarily came from expanding populations but in more recent years, economic expansion came about through increased worker productivity. It is commonly stated that this increase in productivity came through the use of machine but as explained in Energy part 1 this increase in productivity primarily comes from the arbitrage between expensive labour energy and cheap energy that derives from fossil fuels. In fact the difference in use and exchange value as described in part 1 of this series has been a huge source of wealth and is one of the instrumental factors in how the US has maintained hegemony over the global economy by not only being the reserve currency of the world but by directly tying their currency to that of oil thus forming the petro dollar. This issue will be described more fully in part 4 of this series. In any case an exponentially increasing economy means more wealth enters the human economy (at the expense of the overall ecosystem) so for a money system to remain stable (in the sense of stable prices) then the claims on this wealth must increase in tandem. This balancing act between money supply and the real wealth of an economy is crucial because if this balance is not kept then we will either see inflation (too much money) or deflation (too little money). Therefore an exponentially rising money supply serves as a good platform in the sense it avoids deflation (a fall in prices) which is a perennial problem of capitalism as there is always the issue of overproduction or as it is sometimes described underconsumption or declining aggregate demand (which is the current issue facing economies since the financial crisis). To learn more about this particular matter it is advisable to read the Waste-Based series (here and here) as this is a topic in itself. It should be noted however that deflation also means that it becomes harder to pay debts which is another big reason why central banks strive to avoid deflation. In fact one of their chief objectives is to avoid deflation. Indeed Ben Bernanke, head of the Federal Reserve, has made a doctrine about avoiding deflation[7] and had this to say about deflation:

It is due to these advantages why this monetary system has persisted and can even explain why a fiat based system has even superseded the gold standard as the money supply can increase faster if it is fiat based and does not follow a gold standard. By doing so, this allows the relationship between a growing economy and growing money supply to be maintained for longer. Saying that, this was not the only reason for the departure from the gold standard and a large cause for leaving gold was to prevent the US losing its entire gold reserves which would eventually lead to it defaulting on its debt obligations. On this note of debt repayments it is important to understand and appreciate the mathematics of compounding growth. Mathematics of compounding growth We often here that the economy is growing annually by 1% or if we are lucky 2.0% and consider this growth rate rather benign and harmless at least from a resource depletion perspective but if we consider the matter more deeply we will find the basic arithmetic that comes from compound growth means that very large numbers can be generated by a modest number of doublings. Albert Bartlett in the video below describes this phenomenon succinctly:

The sources of deflation are not a mystery. Deflation is in almost all cases a side effect of a collapse of aggregate demand a drop in spending so severe that producers must cut prices on an on-going basis in order to find buyers. Likewise, the economic effects of a deflationary episode, for the most part, are similar to those of any other sharp decline in aggregate spendingnamely, recession, rising unemployment, and financial stress. Ben Bernanke, 2002[8]
Another advantage that comes from a debt based monetary system is it reduces the issue of hoarding which is quite problematic in gold based or less developed monetary systems (such as those in Sudan). The dilemma that comes with saving is that money leaves the economy and until this money is spent it is left out of the money supply. If enough people save or hoard money (under the mattress perhaps) then it will mean insufficient amounts of money can be invested which will adversely affect the economy as growth will be severely curtailed. By offering interest to these savers there is an incentive for savers to give their money to the banks who then loan this money out to other users who will invest or spend it in the greater economy. A percentage of the interest gained from those loans is then passed back onto the saver and this is how the saver can accrue interest from their savings account. This method of incentivising savers through interest also has the beneficial effect that less savings must be held by the saver privately to meet on-going expenses thus reducing the cost of providing security in protecting and transporting this hoarded cash.

To understand the significance of compound growth it is best to consider the amount of time it takes for a given quantity to double. The simple method in calculating this would be to apply the rule of 70 which has the advantage of being relatively easy to calculate mentally. In fact if any annual percentage is given (say for the rate of interest) then it is highly recommended you apply this mental calculation in your head to see how quickly it will reach its doubling time. To make a more precise calculation however the following formula should be applied:

Doubling time = In 2/ In (1+R) r= Interest for example 1%=0.01 28


When using the rule of 70 or the formula shown above we will find that the doubling time is 70 years for 1% compound growth and this will decline to approximately 35 years for 2% compounding growth. What is most significant in this process is that after every double the total number of the new doubling amount will be greater than the sum of all the preceding growth. This phenomenon can be easily seen in the table below: Growing quantity 1 2 4 8 16 32 64 128 Cumulative total 2 3 7 15 31 63 127 255

For the mathematically inclined the following formula came from this equation:
FV = PV*(1+r)t 2 = 1 * (1+r)t In 2 = In (1+r)t In 2 / In (1+r) = t where FV = Future Value , PV = Present Value, r = interest t = time

Since all money is created out of interest bearing debt then it means our money supply increases at an exponential rate and can only survive by continued growth. This continued growth while clearly unsustainable has worked well however as the growth in the money supply has matched economic growth that also increases exponentially. However due to maths of compound growth it will become increasingly untenable for this dynamic to continue particularly if energy resources pass their peak in global production. When looking at the depletion profile of critical resources such as oil we find it follows a bell shaped curve:

The significance of this chart is that as demonstrated earlier we live in an exponential world where various resources are consumed at an exponential rate (or needs to meet exponential growth rates) in tandem with economic and money supply growth. However as there are limits to growth due to resources being finite this dynamic of compound growth insures that the end point will be reached surprisingly quickly. In fact as we will find out many of the resources exhibit a bell type curve for its depletion profile and this is most notably the case for oil (see the peak oil article for more information on this). It is likely that when the most critical resource reaches the decline phase of the bell curve we will see issues with the monetary system as well as, on a fundamental level; it will not reflect the amount of wealth that is being extracted. Once this happens it is likely the claims of wealth will go out of sync and we will either experience deflation or hyperinflation as the monetary system can longer reflect reality of the actual wealth in our country. Summary We have a debt based currency system where the vast majority of all money creation comes from commercial banks and not the central banks. As a result it is primarily the commercially banks that will dictate what happens with the money supply. While the central banks can add reserves to these commercial banks this does not create new money for the general economy unless these banks decide to actually loan this money out. If that can happen then there would be an expansion of the money supply. Therefore much of the growth or possible destruction of money will come from the side of commercial banks and it is their activities we must monitor if we wish to determine how the monetary system will unfold.

If we observe the graph carefully we will notice that the first half of the bell shaped curve resembles the profile of an exponential curve and it is this property why the money supply could match increasing rates of consumption quite well for most of the 20th century and the early part of the 21th century. It is after this point of peak however where we will see a mismatch between our money supply and our overall economy. Since money is a claim on wealth if the monetary continues expanding despite a reduction in our economy then we would get high inflation to possible hyperinflation. If on the other hand money is destroyed (via bank defaults or excessive hoarding) caused by a contracting economy then we may get deflation but only if money is destroyed at a faster rate than a reduction in the overall economy. In part four of this series we will explore the possibilities of this hyperinflation/deflation debate. References [1] = My life and work (pg. 179) [2] = Money: Whence it came, where it went (pg. 5) [3] = Economics 12th Edition by Lipsey, R. G. and Chrystal, K. A. (2011) (Oxford University Press. pg. 455) [4] = Banking Regulation of Uk and Us Financial Markets (pg. 83) [5] = The Financial Crisis Inquiry Report: Official US government edition (pdf document: enter page 76 on pdf file is page 48 on actual report.) [6] = Amounts outstanding of over-the-counter (OTC) derivatives by risk category and instrument (Bank of International Settlements pdf file) [7] = GDP ranking (World Bank pdf file) [8] = Remarks by Governor Ben S. Bernanke (Federal Reserve Board) [9] = National Economic Accounts (Bureau of Economic Analysis) [10] = Tax on bank and building society accounts (HM Revenue & Customs)



Money & Wealth: Part IV

Published April 24, 2013 | By monsta666

In part 2 and part 3 we established not only the basic mechanics of the monetary system but also that all major currencies are debt based. Moreover due to the component of interest the total level of debt will always exceed the money supply of an economy. It is this property that means that long-term stability can only be assured if there is continued growth in the money supply and for this growth to remain viable it requires that the growth in the overall economy i.e. wealth increases in lockstep. Since resources and ultimately wealth in the planet is finite it follows that the balance between money and wealth will eventually fall out of sync and we will be faced with a situation of too much money (hyperinflation) or too little money (deflation). This part of the money/wealth series will attempt to answer the question of what scenario is more likely. Main article It is perhaps logical to think that if the rate of wealth extraction (GDP) declines and money supply increases then the obvious conclusion would be that hyperinflation would be the inevitable end-point as the number of claims on wealth (money) would vastly exceed the amount of actual wealth available in the economy. While such a conclusion sounds plausible it is important to consider that hyperinflation is only a relative measurement. That is the value of the currency can only diminish relative to something else so when making such statements it should be made explicit what the currency is hyperinflating against. In light of this it is best to make a small detour by explaining the International Monetary System and the one remaining function of money that has been neglected up to this point which is:

Relative valuation mechanism: Money acts a means of putting a numeric value to every good or service in the economy.
Discuss this article at the Money Table inside the Diner Monetary terms The terms below should prove useful in understanding the content of this article: Anchor/Reserve Currency Is the currency that is most commonly held by foreign central banks as reserves and is most commonly used to settle accounts when trading for vital commodities such as food/oil etc. Fixed Exchange Rate Sometimes referred to as a pegged exchange rate. A fixed exchange rate means a currency is priced at fixed range to another currency most commonly the reserve currency. Fixed exchange rates offer price stability to exporters but this comes at the expense of the country being unable to alter its competitiveness, in terms of exports, on the world market. A fixed exchange rate also leaves the country open to speculative attack meaning the countrys central bank must defend its exchange rate using foreign reserves. Notable examples of a country failing to defend its exchange rate occurred in 1992 when the UK failed to defend its rate in what was to be later dubbed Black Wednesday.[1] Floating Exchange Rate Is when a currency is openly allowed to be traded in the foreign exchange market. A floating exchange rate allows the currencies to become more or less competitive depending on market forces but comes at the expense of greater volatility in currency prices. This issue of volatility is problematic for less developed countries and it is this reason why they tend to favour fixed exchange rate policies. While this function may seem patently obvious the act of adding numeric value to each good or service greatly facilitates trade. To understand why this is the case it is best to consider a situation where no money exists. In a less developed community with no money the main means of exchange would likely be barter. The issue with barter is exchange rates for each item must be made so if we had carrots, tuna and milk we would need to devise an exchange rate for each combination of item i.e. 5 carrots = 1 tuna, 1 tuna = 3 litres of milk, 1 litre of milk = 1 carrot. While this system of barter maybe possible with a low number of items once the number of goods or services on offer increases then it becomes exceedingly difficult to maintain valuations for all items as all the possible combinations for trade become staggering high even with a modest number of items to trade for. This issue becomes especially problematic if the availability of some items is very volatile (say some items go in and out of season). Moreover if there is a large degree of trade taking place it will become necessary to keep a number of goods in reserve as some goods such as tuna would be more easily bartered for certain goods while in other circumstances carrots maybe needed to barter for other items. As we can already see the system of barter is quite cumbersome and the costs of storing all those reserves and maintaining exchange rates for dozens maybe even hundreds of items for future trade create addition costs than can quickly become prohibitive. It is this reason why most communities once reaching a sufficient size develop a monetary system as money serves to add numerical value to all items in question eliminating the need for constant reserves and constant revaluation of exchange rates.



As it happens this system is not only useful on a national scale but is especially important when it comes to the matter of international trade where the reserve or anchor currency serves the same function of money as it does with a small community described above. For the same reasons mentioned above, it would be impractical for every exporting nation to trade their domestic currency in exchange for each nation it happened to import into. If this method of trade occurred then every nation would need large amounts of reserves of every currency it happened to trade with and this dynamic would suffer the same inefficiencies as highlighted earlier. To avoid this issue a reserve currency has been established and all nations settle the vast majority of international accounts using that reserve currency. As a result all major central banks hold this currency in their reserve (hence the name). If we look at the chart below we find that there has always been a reserve currency and this dynamic has occurred for hundreds of years:

this system. This weaknesses stems from the fact that if a reserve currency is decided upon then the demand for that currency rises significantly as not only is the currency used for domestic purposes but foreign nations will demand enormous quantities of this currency to settle international accounts. In fact in many cases these international settlements will not even directly involve the country that holds the reserve currency. This large demand creates a strong incentive for the nation holding the reserve currency to overspend and run large deficits so it can supply other nations with the necessary reserves (and liquidity) to allow them to trade. Indeed after only 15 years of the Bretton Woods system being established Robert Triffin made the following observation:

If you choose a currency because its a strong credit, and then give the issuing nation a financial incentive to borrow and print money recklessly without penalty, eventually that currency wont be the strongest credit anymore! Robert Triffin, 1959
This statement would later become known as Triffins dilemma. It was this overconsumption and the subsequent over-indebtedness caused by this consumption that ultimately led to the demise of the Bretton Woods system. Despite this demise however the dollar retained its status as the reserve currency of the world. So why did this happen? As stated earlier the chief reason for this system being implemented in the first place was it facilitated international trade by making it far more efficient so despite its obvious flaws, weaknesses and privileges it bestows to the nation holding the reserve currency the system was maintained for this reason. The other major reason for the dollar maintaining its reserve status was the simple fact that there were no viable alternatives that could supplant the dollar and this fact remains largely true even today. As time went on another problem became apparent and it centred on large exporting nations such as Germany, Japan the OPEC nations and more recently China. The most obvious and perhaps logical action is to think that foreign nations who received dollars for their exported products would sell the dollars they received from their exports in exchange for local currency via their central banks. However if this actually happened then it would have terrible consequences for the export nations future competitiveness. This is because the act of selling dollars would not only cause the value of the dollar to decline; it would also cause their own local currency to appreciate in value relative to the dollar. If this continued then over the time the value of the exported goods would become more expensive and reduce the nations ability to export further products. The solution to this problem was for the central banks of the exporting nations to hold onto the dollars it received from the exporting company and then issue those companies with newly printed money in their domestic currency. Over time however the amount of dollars these central banks held became substantial and so they invested those dollars back into the US economy with the most obvious target for this investment being US treasury bonds. By doing this the exporting nation avoided the problem of an appreciating currency. This dynamic however had the side-effect that an artificial demand for US bonds was created resulting in the rates the US pays for its debts being kept artificially low. This then encouraged the US to spend beyond its means even further as their lack of financial discipline was not punished with higher interest rates as would occur with other nations. This ability to go into debt without incurring any cost became known as exorbitant privilege and is an advantage that no other nation enjoys.

So how do countries decide on which currency becomes the reserve currency of the world? Generally a currency gains reserve status if it is the currency that belongs to the largest and most creditworthy country in the planet. While there are definite benefits to having a reserve currency there are clear weaknesses with

Bretton Woods System

In 1944 when the US officially became the worlds reserve currency with the establishment of the Bretton Woods system as it was clearly the most creditworthy and powerful nation in the world as all its former rivals literally lay in ruin. In this particular incarnation the reserve all other foreign nations had their currencies pegged to the dollar at a fixed exchange rate. The dollar could then be redeemed for gold and $35 was enough to acquire one troy ounce of gold. This dynamic would continue until August 1971 when Richard Nixon closed the gold window making the dollar a fiat currency.



So why did the export nations such accept this dynamic for decades even though they knew the US was becoming increasingly over-indebted, less creditworthy and generally less financially stable? There are several reasons why this dynamic has persisted but one of the reasons could be the simple fact there was no real challenge to the US dollar. Other reasons would be the strength of the US military and influence in international diplomacy meant that many countries were frightened to not challenge the status quo. Perhaps the most significant reason for the US retaining its reserve status however may lie in the fact the US insured that all oil is traded in dollars. The US clearly understood the benefits of this exorbitant privilege and wished to maintain it even after the demise of the Bretton Wood system. To achieve this they had to ensure that people had to use the dollars to obtain some vital resource and that resource was oil therefore by linking the dollar to oil the dollar gained petrodollar status. To insure petrodollar status however the US had to make an agreement with various Arab nations that if they kept trading their oil exports in dollars they would receive their protection from attack. The Arab states agreed to this agreement and have traded their exports in US dollars ever since. This agreement to trade in oil can offer a possible reason why the US waged a war against Iraq as it was said that Saddam Hussein wanted to trade Iraqs oil exports in Euros and if successful this would have posed a clear threat to the USs exorbitant privilege and general hegemony of the US dollar. How is this related to the deflation/hyperinflation story? So the question maybe asked why this detour was necessary in the first place. The reason it is important to understand the international monetary system is because by realising how the system operates we can begin to appreciate that the reserve or perhaps the more appropriate term: anchor currency is the currency which all other currencies base their value on. Considering the anchor currency is the dollar then this means all other currencies gain most of their value by how they are valued relative to the dollar as the dollar acts as the lynch pin to the entire international monetary system. In other words, if the dollar were to hyperinflate then the international monetary system would have no benchmark for other currencies to base their value on and so it would be likely that other currencies would have to hyperinflate themselves to maintain relative valuations to the dollar or more likely global trade would collapse. To understand this phenomenon more easily it is best to offer a hypothetical example. If we consider the dollar to hyperinflate then it must hyperinflate relative to something else. This would most likely be the Euro the Yen or a currency held by an OPEC member. It can be either one; it does not matter. If the dollar hyperinflated against the Euro then the competitiveness of the Eurozone exports would decline to roughly zero as anyone trading in dollars could not afford to buy them. This lack of competiveness may be obvious to see in terms of US customers being unable to afford Euros as the dollar would be worthless but why would it be bad news for trading with other countries? This is because a considerable amount of international trade is settled in dollars and if the dollars themselves are worthless why would the vast majority of exporters continue to accept payment? It is likely they would refuse payment and so trade would drop dramatically (it can be noted that such an event would be highly deflationary as a collapse of global trade would render many companies insolvent). Now the only way trade could continue to remain viable is if the Euro reduced the value of its own currency rapidly to maintain some parity to the hyperinflating dollar. By doing so its exports could remain competitive and exporters can gain some value from their dollar denominated exports although the rapidly changes are likely to bring about its own issues.

It is this property in the international monetary system that almost guarantees the dollar can only hyperinflate once all other major currencies have already done so. The only scenario that can prevent this from happening is if another currency replaces the dollar as the anchor currency. However this seems rather unlikely because most currencies have generally moved from a fixed exchange to a floating exchange rate. This movement is significant because in the past when more currencies had a fixed exchange rate they held more foreign currencies in case they needed to defend their currency to keep it within its fixed exchange rate. By not having a fixed rate then there is no such need to hold these reserves which results in the currency fluctuating over a wider range. This however makes it harder for currencies to move towards a new reserve currency as they need to build more reserves of the new future currency. On this topic of reserves it is instructive to look at the distribution of currencies held in reserve to see what the most viable alternatives for a reserve currency are:

Foreign reserve figures obtained from the International Monetary Fund.[2] As we see the only other currency that could realistically supplant the US dollar is the Euro and as off 2011 just under 24% of all foreign reserves is held in Euros. It remains questionable however if the Euro will actually take over the dollar considering the on-going Euro crisis that is making foreign investors question the future stability of the Euro. Indeed many of the developing countries are shedding their reserves of Euro at a tune of $90 billion since 2011.[2][3] If this trend continues, and it seems likely that it will, then it means the chances of the Euro gaining sufficient worldwide confidence to become the next reserve currencies are slim. If the Euro cannot displace the dollar and become the new reserve currency then it is unlikely any other currency will in the foreseeable future seeing as the next largest reserve currency is the Pound sterling which only makes up around 4% of the worlds reserve currency.



The other popular suggestion for a successor to the dollar is the Chinese Renminbi (RMB) however there are several issues China would need to address in making the RMB a viable contender to replacing the dollar. First it must allow the RMB to be fully convertible so investors can move money in and out of the country easily, second there needs to be greater access to its domestic stock/bond markets which foreigners are largely barred from taking part in. Once these barriers are removed then it can be viewed as a more serious contender but even then the Chinese would need to address the issue of a lack of RMB in the world market. To increase the amount of RMB outside of China it would need to run a trade and capital deficit (as the US did) which is a complete reverse of what policies China is currently undertaking. Due to these reasons it seems unlikely China could become the reserve currency in the foreseeable future. For more information on this matter it is recommended to read Patrick Chovanecs article which summarises the issue quite nicely. This all leads back to the situation that the most likely scenario is the dollar will maintain its hegemony over the world market and so because of this the chances of it hyperinflating will be low until the other major currencies collapse first. It is possible however that another major currency such as the Euro could hyperinflate and this collapse could cause the dollar to hyperinflate as the breakdown in the European banking system may trigger a collapse in the global trade rendering the dollar useless outside its domestic market. Before drawing such conclusions however we must consider the inflationary and deflationary currently at work. On the one hand we have various central banks such as the Federal Reserve with their open ended $85 billion a month QE program and more recently the Bank of Japan following suit with their own $43 billion a month program.[7][8] These programs have created some inflation but only in the assets market and have had a minimal impact on the general economy; this particular issue was addressed in part 2 of this series. The other possible inflationary forces would be in the case of underlying wealth in the economy declining while the overall money supply would increase thus creating a large inflationary force. This inflationary force has been the main driver of inflation in the general economy and as energy prices have risen so has the cost of producing goods/services. Speaking of energy it is useful to note that in the build-up to the 2008 financial crisis the price of oil shot up to $147 a barrel and these high prices likely played a significant role in triggering the financial crisis that was highly deflationary. These deflationary forces occurred because a large number of bankruptcies meant that a large amount of the money supply was destroyed as debt had to be removed from the balance sheets of various banks. Mass layoffs reduced spending and these combination of factors caused not only the price of oil to collapse to $35 but it also caused large scale declines in various assets prices from real estate to stock and even bond valuations. It seems likely that another run up in prices in food, energy and oil prices will likely trigger similar events in the future and unless the inflationary forces are stronger than this then the most likely scenario is for a deflationary end-point. This scenario does assume however that the various central banks will not resort to naked printing i.e. giving money directly to consumers to spend. Which is a big assumption to make and it is very possible that if a countrys sovereignty faces an existential crisis then it is very possible they may resort to measures such as naked printing or money printing directed towards large government projects that will prove highly inflationary. Moreover it is very possible for currencies other than the dollar to face imminent hyperinflation once the world markets lose confidence in the currencies viability.

Summary In the story of hyperinflation/deflation it is important to note these terms are all relative. If a currency hyperinflates or deflates it always does so against some other currency. Moreover for an event such as hyperinflation to take place it requires that people can take their currency and transfer this money into something of perceived value; which will be some other stable currency. This explains why governments always add capital controls during periods of high to hyperinflation as it makes peoples job of moving their money that much harder thus reducing the rate of inflation. To demonstrate this last point let us consider a recent case of a currency collapse. In the case of Zimbabwe in 2009 the people of Zimbabwe could transfer their wealth to an object of perceived value, in this case the dollar. [4] In the event of a dollar collapse however it is difficult to envision such an option being available as the value of wealth held in dollars is not only much higher but the amount of currency (say Euros, gold etc) is unlikely to be available in sufficient quantities to hold all this perceived value. If people cannot transfer these dollars into any other asset then hyperinflation cannot take place. Seeing as a collapse of the dollar would also cause global trade to decline massively it becomes even harder to see how hyperinflation would take off as assets and currencies across the board would be affected. In other words there would be no place where wealth could be reliably stored and maintained (which was not the case in Zimbabwe). It should also be noted that if global trade were to collapse then there would be many bankruptcies and most significant bankruptcies of major international banks. As was hinted on in part 2 of this series many of these banking institutions hold derivatives that are worth hundreds of trillions of dollars.[5] If these contracts were not honoured it will lead to a significant perhaps catastrophic deflationary event. In any case though even if the dollar hyperinflated then the value of the other currencies would quickly diminish as their profits from exports would quickly plunge to zero due to massive currency appreciation against the dollar. The other possible run on the dollar could be into precious metals such as gold but even this is unlikely to create hyperinflation either as there is not enough gold to absorb all the lost value from the dollar. This issue becomes even more problematic if we consider that gold ownership is more concentrated than ownership over actual dollars. Moreover such runs are likely to be prevented either through high taxation of gold related transactions or outright confiscation of gold as happened during the Great Depression.[6] In addition to all this if there is a collapse in global trade the amount of goods/ services in circulation would greatly diminish so the amount of real wealth in the economy would drop while the amount of gold in circulation would remain the same. If the money supply (in this possible case gold) remains stable while real wealth drops then this will create inflation as the claims are not following the rates of shrinkage in the underlying economy. With all that said a great deal of caution must be exercised. These matters are far from certain and it should be recognised that at best everything said is informed speculation. We also need to acknowledge there is a good probability that the government can bring in some monetary policy that is highly inflationary particularly if their very existence is under threat. Then there is always the possibility of a black swan event that can change the outcome of the world economy quite markedly. A war between Iran and Israel or a war between North and South Korea are possible examples of black swan events. In the case of an Iran-Israel war oil pipelines could be destroyed creating such havoc in the oil markets that would likely cease to function making international trade very difficult. A lack of confidence in receiving goods/services could see large exporters dumping their dollar reserves in mass leading to the dollar hyperinflating.



References [1] = Black Wednesday: The day that Britain went over the edge (The Telegraph) [2] = Currency Composition of Official Foreign Exchange Reserves COFER (IMF: PDF document) [3] = Developing World: Euro Loses Attraction as Reserve Currency (SPIEGEL) [4] = Zimbabwe abandons its currency (BBC) [5] = Amounts outstanding of over-the-counter (OTC) derivatives by risk category and instrument (Bank of International Settlements pdf file) [6] = Roosevelts gold confiscation: could it happen again? (The Telegraph) [7] = QE4 Is Here: Bernanke Delivers $85B-A-Month Until Unemployment Falls Below 6.5% (Forbes) [8] = Bank of Japans Haruhiko Kuroda in aggressive growth move (BBC)

Black Swan Event: A low probability high impact event. Such events often take people by surprise however it is actually quite rare for a true black swan event to occur as often the event can be accurately predicted years in advance if people scrutinise data thoroughly in an unbiased manner. The last commonly stated black swan event would be the 2008 financial crisis as claimed by various neoclassic economists. Assuming such events do not transpire however it seems inconceivable that the dollar could hyperinflate unless the government decided to hand people open checks to consumers to spend as these please or started some major government project using printed money (as was the case in the American Civil War). Also while the fate of the dollar is not likely to result in immediate hyperinflation within the foreseeable future the same cannot be said of other currencies. This I suppose could be included as part of the exorbitant privilege that the US enjoys. However even here there is an important fact to take note and that is in recent years some other currencies have enjoyed this privilege albeit to lesser degree. The UK and Japan have enjoyed low interest payments (which are actually negative in real terms) in their bonds despite both economies experiencing high debt, high fiscal deficits, trade deficits AND low growth prospects. The reason this happens is because both these economies enjoy safe haven status due to the on-going Euro crisis. Once the crisis in the Euro is resolved then it remains to be seen how the pound or yen will fair. In the event of a major currency collapse (such as that of the Euro) then it is likely we see appreciation in the Yen, Sterling and most significantly the US dollar in the immediate after mass which is the opposite of a hyperinflation end-point.



History & Future of Coinage & Money

Published April 28, 2013 | By RE

We all love to hate Fiat Money. I certainly write plenty of metaphors about Printing and Burning Up the paper we use for currency (though less these days than the Digibits in your account, accessed with your Plastic Card and Password). As the digibits and the paper dissolve and burn up here however, recidivists of the PM variety pine longingly for the days of a Precious Metal Standard. Gold Sovereigns, the Pound Sterling, that sort of thing. I think many fantasize about their own little cask of Louis dOr Gold coins buried in their backyard, and some may even have the equivalent of that in Gold Eagles or Kruggerands. What I would like to discuss here is the limitations of PM Coins as a Currency, and why they in fact are much easier to counterfeit and debase than the paper stuff is. First off, as you hopefully know, the total amount of gold and silver available for coinage is pretty limited. For Gold, it amounts to about .7 oz for each person on the earth. So, even if you made tiny gold coins of .1 oz each, distributing them out across the world each person could only have an average of 7 coins. One a day, that actually works out nice. Small though that number is, you still could imagine such a system working if in addition to the 7 Gold Coins you might earn each week, you also could exchange them for say 70 silver coins to use in actual commerce. You give say 20 Pieces of Eight to your landlord for rent, 30 pieces of eight to buy groceries, 10 pieces of eight to buy fuel to heat your house and cook your food, 5 pieces of eight to save for a Rainy Day and 5 pieces of eight paid in TAXES. Seems like a fair system right? Now, I am not even going to get into how easy it is to counterfeit and debase PM coinage, but I am nevertheless going to demonstrate to you why even fairly applied; this currency system fails over time.

Discuss this article at the Money Table inside the Diner Originally published in the Reverse Engineering Yahoo Group on June 7, 2009 Note from RE: Monsta and I have both been engaged lately in taking a deeper look at how Money works, particularly in the aftermath of the Gold Smackdown that went down in the paper/digital markets a short while back. This is not a new topic of course, its an old one in the collapse blogosphere, particularly as it relates to the effects of Deflation & Hyperinflation, and Ive hit on the topic numerous times in the past. In the course of putting together the most recent series on Money, Monsta turned up the following articles originally published on Reverse Engineering. Since they relate to my last Future of Money article, Im republishing them now here on the Doomstead Diner.

You always have some people who save, and some who spend. In a situation where nobody is ALLOWED to borrow or lend, nobody can spend more than they actually earn, and similarly nobody who earns more than they spend can make any money in interest payments. However, even in the absence of THAT, the system still fails, and the reason is the Savers or Hoarders if you prefer. Say you start out your system with 100 people, 7 Gold coins to a person for 700 total Gold Coins in your community. To augment that, you have 7000 Pieces of Eight you use for daily commerce. Your entire economy is defined by 7000 POEs and 700 GCs. Start out, Week 1. J6P Saver gets through the week saving his 5 POEs. So does another J6P Saver. Joe Spender cannot spend more than he earns, because he isnt allowed to borrow. What happens in Week 2? Well, in Week 2,



if you assume half the J6Ps are savers and half spenders, 50 of them will be hoarding 250 POEs. That means after that week, 3 POEs are out of circulation and in the Piggy Banks. In said scenario, with half the people saving about 8% of earnings and half spending and no borrowing or lending, it would only take about 28 weeks before ALL the POEs were out of circulation and sitting in Piggy Banks! You could exchange them all for the 70 GCs you have and get another 28 weeks out of it, but at the end all the money left is in the hands of the 50% of Savers, the other half of your Tribe has NOTHING. What do you DO with that half of the Tribe? Put them in Prison? They didnt even go into DEBT! They just did not save while others did. Well, we added on to this idea with interest and lending, and even more exotic financial instruments like CDS contracts, but the principle remained the same over the ages, and more and more of the money got centralized over time. The ONLY thing that ever really redistributed wealth of the monetary kind was war or revolution; Savers generally are not predisposed to GIVE their money away to spenders. Its not just Borrowing and Lending that wreak havoc on a monetary system; its the whole concept of SAVING. As soon as you have some Squirrels in a society who harbor a fixed amount of nuts, eventually the nuts run out for all the other squirrels. It doesnt even matter if they did it fairly or by insidious theft (the latter being the leading cause since about 1600AD), you STILL get the effect of half your society as Haves and half as Have Nots. Even THAT isnt the real problem though, you could always just Exile the Have Nots. The real problem is you dried up the liquidity in the money supply, which is fixed because its based on PMs. It gradually comes out of circulation as people save, or in more common circumstances as Goobermints tax it all away from you. Like a Vacuum Cleaner, eventually all the money ends up in ONE bank. Long as you accept what is IN that bank as money, there can be no more commerce past barter. That is the Restart that has happened over and over again through history. Monetary system crashes, Barter replaces it, monetary system reintroduced by hoarders of Gold. Gold Bugs actually are the BIGGEST cause of Fiat Money. Because they accept Gold as Wealth, they lay the seeds for a Fiat Money system to follow it. What I am trying to drive home here is that a monetary system based on Precious Metals CANNOT work. Its just a precursor to the Fiat system, which ALSO cannot work. The whole CONCEPT of Money is wrong. That is what is so hard to make people understand.

Far as a sustainable Banking System, I have written about this a few times, and its my hypothesis we need a system based on Food Energy, the Calorie of the food kind which is related to the kilocalorie of the Joule kind which represents thermodynamic energy. The closest historical model I am aware of is from Feudal Japan, where a Koku of Rice represented Wealth. However, as with all the other monetary systems this one also was open to abuse, as more Koku Notes were issued than rice actually existed, especially in times of famine. The BIG problem you always have in a monetary system, whether it is Paper Money or PM Coins is making the Money Supply MATCH the absolute output of the society in terms of its food supply. Fossil Fuels THOROUGHLY disguised this problem with the Green Revolution, food became EXCEEDINGLY cheap, to the point it had to be GIVEN away in the form of Food Aid, which of course just exacerbated the Overshoot Problem we face now. Retreating here now, REVERSE ENGINEERING our way back off this problem requires two things primarily. First it requires tying the currency we use to the ABSOLUTE amount of food produced in any year worldwide. Then it requires honest accounting to withdraw or add currency to circulation as the total amount of food calories rise or fall in a given year. ALMOST impossible to do of course, but not completely IMPOSSIBLE either. Essentially, you have to issue NEW Currency each year based on the total Harvest, and this also prevents you from SAVING any money from year to year. The only thing you could actually save is the REAL commodity its based on, if it was Koku its RICE. If in ADDITION to the Harvest, you ALSO had 5 Bushels of Rice in your Doomstead Larder, Koku Currency could be issued on that as well. Max SAVINGS for any individual with such a system? Perhaps around 7 Years, the max you might keep bushels of rice stored in your grain cellar without it going bad or eaten by mice. Do I hear JOSEPH here? Do I hear the BIBLE? Hello, that shit was written with 5000 years of human experience gone before it, all that stuff about Never a Borrower or Lender Be and 7 years of Famine were written for a REASON. Why do you think they wrote all that shit about the Golden Calf? The Gold thing left them impoverished OVER AND OVER again! So eventually a bunch of them said to HELL with that, and made a new set of rules, which of course nobody really followed. Economic systems and savings is all about consolidation of POWER. They became increasingly complex with time, but the fundamentals remain true. Because some peoples save and others spend, wealth consolidates over time as long as you define some object as the repository of wealth. That object historically was PMs, lately it has be US Treasuries, but in NEITHER case did these objects represent REAL wealth in absolute terms, they only represent it for so long as a particular monetary system holds up, which traditionally is no more than around 50 years. Thus the reason for that other tradition in Judaism, the Jubilee Year, were all debts are Forgiven. I am not in favor of Jubilee Monetary system. I advocate for a yearly system based on the absolute number of food calories produced in that year. Clear Accounting of the production, and then a clear issuance of currency to match what was produced plus what was saved from prior years. That is correct accounting of the wealth, and trade can proceed from there in a Mark to Market fashion, NOT mark to Make Believe. There still will be winners and losers, there still will be savers and spenders. However, outrageous accumulations of wealth will not be possible, not past the 7 year lifespan of most food. I am OK with somebody being 7 times wealthier than me because they are a good saver. I am NOT OK with somebody being 7000 times wealthier than me because their ancestors took control of our monetary system. That is patently unfair, and needs to end here. End it will, by default in both senses of the word. A contracting economy cant support a monetary system based on growth, and in the absence of copious amounts of Energy, our economy is destined for contraction for the foreseeable future.



Published April 14, 2013 | By RE

Whither Gold?

The folks with large positions in Euro based assets dont really HAVE a lot of Euros stuffed in Mattresses, they are levered Hedge Funds who have to liquidate one asset to buy another, and if they are liquidating into a losing position they are getting progressively deeper in the hole. They have to find an asset INCREASING in value as fast as everything they have is losing value just to stay even. What is increasing in nominal value? The Stock Market of course, because that is what Da Fed is propping up! You dont wanna buck Da Fed, so you dont buy Gold, you buy APPLE if you are a Eurotrash Hedge Fund manager looking to reallocate assets. The next issue you have to deal with is who has money? and who has Gold? The reality here in the FSoA (and in Europe and China too), is 80% of the population has no more in the bank than a couple months worth of Bills, which they need to keep liquid and in the bank to pay those bills. They cant realistically keep this money in gold coins in the basement safe, run to the coin dealer when they need to pay a bill, convert it at whatever the spot rate for the day + the dealers charge to dollars, run to the bank and deposit it, then write a check on this to pay a bill. Similarly, any company still in Bizness isnt paying their employees in Gold Eagles in little Pouches, they have a Payroll Account and are paying in Dollars or Euros. Similarly, they have accounts to pay their suppliers and pay their fixed bills. They cant keep all this money in Gold and liquidate as needed to pay bills, its all moving around too fast for that from one persons account to another. This is where most of the MOVING money in the system is, its not in large stashes of cash that some squirrels could take and shift to Gold coins to store value. Not to mention, when you go from $1900 to $1500 in the course of 2 years time you are LOSING money at 10% a year, which is not a great store of value. Maybe long term gold coins hold more value than fiat, but short term for the last 2 years they got HAMMERED. After looking at where the Money is, you gotta look at where the Monetary Gold is. When I say Monetary Gold, I mean the BRICKS of Gold held in the CB Safes, not Gold Wedding Rings, which generally dont get sold off until somebody is really hurting. The only people with large amounts of Gold to SELL are the CBs, Sovereign Wealth Funds and a few Illuminati. They can either Dump gold on the market if they want to see the price go down, or Buy it if they want to see the price go up. Gold Bugs call this manipulation, but its what any pigman does when they hold a near monopoly position in any commodity. That is how the Game WORKS. What is most curious here is that DESPITE the fact CBs are BUYING gold, the price is still going DOWN. What that tells me is that Hedge Funds are liquidating Gold positions faster than the CBs can or will buy that gold at the moment. Which only makes sense, because it is the Hedge Funds that are NOT quite TBTF that are in the deepest doo-doo, especially in Europe. Certainly the Ruskie Mafia in Cyprus got hit hard here, despite the fact the better connected escaped out the Back Door in the City of London.

Discuss this article at the Economics Table inside the Diner The financial story of the weekend is the 4% hit Gold took going into the weekend, dropping $88 to finish below $1500/ oz. The fall isnt limited to just this week though, its been ongoing since Gold hit its peak at around $1900/oz back in early 2011. Predictions from the Gold Bug crowd at the time being that Gold was set for Parabolic Liftoff, heading for $5K or even $10K/oz. Never happened of course and its been on a pretty steady downward track since Q2 of 2012. Whats happening and why? One important factor most recently was the collapse of the Cyprus Ponzi, which led me to short Gold a couple of weeks ago.

There also is likely a Margin Call Event coming down the pipe from this in Europe. It will force Liquidation of Assets across the board, and the Eurotrash have a lot of Gold. I forsee a massive Collapse in the PMs market when the Euro Collapses. I think it is a 6 month-1 year timeline. Disclosure: I am going to short PMs and go LONG on the Dollar through this Shitstorm.

While the Cyprus Event accelerated this trend, its been ongoing in Eurotrashland for quite some time, everybody is liquidating assets trying to get out of the Euro Sewer. Thing is, its not so simple as just trading a pile of Euro Toilet Paper for a Shiny Paperweight.



So what is the medium and long term prognosis here for the PMs? Well, since de-leveraging in Eurotrashland still has quite a ways to go here, downward price pressure on Gold is likely to remain pretty strong, and you would have to count on Da Fed and the PBoC to buy it and keep the price propped up. In this respect, Gold Bugs should be GLAD the CBs are manipulating the market, because if the PBoC STOPPED buying, in all likelihood the floor would drop out from under Gold. Like with the Bond Market though, the CBs will try to keep any given asset class from being abandoned en masse by buying it. What level the CBs see as right for Gold is hard to say, and depends a lot on political machinations. My guess is a floor around 1350, but subject to change if/when TSHTF in the Nip Bond Market or Italy or Spain go Tits Up. Then you are likely to get wild Volatility and Fluctuations as liquidations are undertaken and the hoi polloi scrambles to dump whatever Toilet Paper they are holding in favor of what shiny paperweights they can locate. Finally in this mix is general psychology, which is not the same amongst the vast majority of Homo Sapiens as it is amongst Doomers. Doomers see the End Game as IMMINENT, so those who do have some wealth are putting it into Possessible PMs if they believe in this asset class as a store of that wealth. Long term they do likely hold more value than Toilet Paper, but how much more is a very open question. For most people here in the FSoA and stronger Eurotrash economies like Krautland, while they may not be happy with their Goobermints they dont see them as in imminent danger of collapse. Current Boomers and Silents receiving Social Security checks dont see it likely the check wont arrive next month, and they are likely correct in that assumption. Overall, the number of people who BOTH see collapse as IMMINENT and HAVE enough money to drop a significant amount of it into PMs as a choice is EXCEEDINGLY small both relative to population size AND relative to the centralized wealth pools controlled by the CBs as proxy for the Illuminati. J6P cant push around the prices of these asset classes, he doesnt have a big enough slice of the financial pie with which to do it. So one can only assume that those who do hold the vast majority of Monetary Gold will manipulate the price best they can until the Plug gets Pulled at some other end of the financial spectrum. When that occurs, its hard to predict where the CBs will put their support behind, but not sure it will matter either because the system in general will be so out of whack that no commerce will be moving anywhere.

In that longest term outcome for this post, I would agree with the Gold Bug that Gold will hold more value than Fiat does, but probably not by a whole lot and it will be difficult to keep, difficult to exchange and likely taxed to beat the band as well. Right now, its mainly a speculative medium, a GAMBLE only to be taken if you can afford to lose the bet. I sure would not leverage gold Short or Long now, it can swing as wildly as Bitcoin. Like all the rest of the financial markets it is a CRAPSHOOT. Gold has some appealing properties which made it work both as Currency and as a Store of Value during the expansionary period of the Money game in the community of Homo Sapiens. Its chemical properties make it difficult (impossible without Nuclear chemistry) to produce at will, thus you cant counterfeit real gold, though you can of course do metal dilutions that are difficult to detect during typical commerce. It lasts essentially forever, doesnt rust, hell its even impervious to that most corrosive of environments, sea water. Still TONS of gold sitting at the bottom of Davey Jones Locker in basically the same condition it was when a Spanish freighter was sunk by a French Privateer. Regardless of those qualities, to function as Currency, Gold had to be widely distributed, which it once was but no longer is. Because it was perceived as a store of value, it was over many millennia CENTRALIZED into very large pools, which really dont ever get redistributed, they just wheel them from one cage to another in the basement of the FRBNY. Ive never run into a Gold Bug who could plausibly explain to me how these huge piles of Gold would ever be broken up and redistributed out to J6P as Coinage to use as currency. As long as there ARE big centralized Piles of it, whoever controls those piles controls its going price on the market, not selling any if they want the price to rise, dumping if they want the price to fall. It behooves those in control to keep a floor price under gold, but also not to let it rise to stratospheric levels, because then it loses representative value. Put it this way, if Gold were to rise to $10K/oz, 10 1 oz coins could buy a nice Doomstead in the Ozarks. Happy Days for a Gold Bug if that were to occur, but a highly unlikely outcome here. Nowadays, the PM market is a Casino, mostly well controlled by those who control vast quantities of it, and also control the Mines where it is dug up from under the ground as well. If you do have a lot of extra spare change and place a Bet on the PM Number on the Roulette Wheel, youre probably better off than holding Euros, but in the near term not better off than holding Dollars, especially if you are leveraged, which just about all hedge funds are, and Sovereign Wealth funds also for that matter. As a future Currency, Gold holds very little promise, its mostly well sequestered into Safes controlled by others far more powerful, and its not ever coming out of those safes for redistribution. Its value is just PERCEIVED value, not Utility Value. Unlike a gallon of Gas, it wont make your SUV go anywhere. Unlike a patch of Land in the Ozarks, it wont grow any food for you to eat. Most of all, unlike Friends, Gold will not stand by your side and help you protect and defend you children and loved ones. Bet on something you can depend on. Bet on your FRIENDS. Bet on COMMUNITY. That is the FUTURE, not Gold and not Money. The ROOT of all EVIL. RE



Published April 7, 2013 | By RE


Discuss this article at the Kitchen Sink inside the Diner Originally published in the Reverse Engineering Yahoo Group on November 18, 2009 Note from RE: These articles were written originally on either or, but I no longer can find them. There were also 2 other parts lost somewhere in Cyberspace. As I recall I covered the Food Conduit and Education Conduit in those articles. I may try to do a rewrite in the Future to complete the series. I was pondering some today on Dmitri Orlovs latest rant in Part II of his 4 part, The Oceans are Coming series. Whether or not you buy the idea that there will be a significant sea level rise over the next century and what the ramifications of that are isnt what I am concerned with in this post. Its some observations he makes about the nature of Trade as it developed and how the Interior of the NA Continent eventually got exploited through the Railroads. This resulted in something of an epiphany for me, and I have a better grasp now of exactly how control over Conduits allowed wealth to become so centralized and allowed one group of players to exert so much control over seemingly autonomous nations. From Dmitri:
It is very important to understand that, unlike the ancient and compact settlement patterns of Europe, and unlike its dense and active network of navigable rivers and canals, North America consists of a rather narrow but thickly settled coastal zone known as the Northeast Corridor, and the vast expanse ofWildWest. Historically, the colonies survived through ocean trade. Until the advent of coal-fired railroads, the only parts of the interior that were economically viable were the ones that were within easy reach of a navigable waterway. Even then many inland settlers found grain to be too bulky for trade, and used it to make whiskey.The Erie Canal made Chicago a town rather than just a portage between the Great Lakes and the Mississippi River.The reason was simple: before the advent of railroads, it cost as much to transport cargo 30 or so miles overland as it did to ship it across the ocean.

Although we have had some form of World Trade for a long time (The Silk Road to China goes back to at least the Han Dynasty before the time of Christ), it was really in the 17th and 18th Century that trade really began to pick up with improvements in Navigation and the Technology of Sail. This enabled a number of things; primary among them was the ability to ship bulk goods cheaply. Overland shipment of goods prior to the Railroads required heavy labor of men and animals and was exceedingly slow and expensive. Large sailing ships however could move quite a bit of goods with very few men and the power of the Wind. Knowing the routes and how to navigate them across the Oceans gave anyone who had such knowledge a huge trade advantage, and early on these routes were kept very secret by the people who knew them. Dutch Pilots had some of the best Rutters, which were extremely important early on before Navigation techniques allowed the fixing of longitude by chronometers which could function on a sailing ship. So early on, the Dutch East India Company was able to basically gain a Monopoly on trade because they had sole control over the conduits for that trade. The British East India Company did basically the same thing a bit later, but not much. At either end of the line, the Trading Company which controlled the conduit could take ALL of the profit involved in making these voyages with goods, so long as at either end no Goobermint Tariffs were dropped on them. So these folks quickly declared all Tariffs were detrimental to Trade, and the concept of Free Trade was born. On the Silk Road, free trade never existed, all along the way you had to pay for safe passage to some local Warlord, but travel on the High Seas circumvented all that nonsense, plus you could carry a lot more stuff cheaper than over the roads. So you make a LOT of profit this way, so long as nobody will drop a charge on you along the way. The folks who owned and ran these companies became wealthier than the Sovereign States they chartered their companies in, and those states became beholden to them. That was the beginning of Regulatory Capture. However, up until the Railroads got invented, this form of mass profit taking was limited to Coastal Trade. The vast interior of the NA continent couldnt be exploited for its wealth. Just clearing the area of the native population took some time, but even after that you couldnt move a whole lot with just Teamsters and Wagons of Grain. The Railroads were a Game Changer here, and building them allowed the same folks who controlled the Shipping Lanes across the Oceans to control shipping across continents. Again, these companies did not want the individual States they passed through to be able to drop tariffs on them, that would have killed their profit margin. So through the same type of regulatory capture, these Railroads got their own Rights of Way and they took all the profit from the trade of goods over long distances overland this way. You couldnt as a local business compete with the Railroad to transport your goods another way, and they could charge you almost the entire cost of producing your grain to ship it to market. The only way you could compete would be to Distil the grain into Alcohol, and then because of its far smaller volume ship that yourself via Wagon to the big markets where it would fetch a good price. Thus the reason heavy Taxes were placed on Alcohol and why independent Distillation was made Illegal.



This control over the Railroad conduit became even more important with the invention of the ICE and the need to move Bulk Barrels of Oil to Refineries. You might have a large Oilfield sitting under your property in Oklahoma or Texas, but without a Railroad Spur to move it cross the country to a refinery, it held no value. So you pretty much HAD to lease your Oil Rights to Standard Oil, because they controlled the conduit of the railroad also. If you were close enough to the Coast, you might build a Pipeline yourself to ship the goods out via a tanker ship that was part of the Plot in There Will Be Blood, a film about the early Oil Industry in America. These same folks took control over each emerging Conduit, from the beginning telegraph Lines owned by Western Union to the Phone Lines of Bell Telephone to the Electricity produced by Edison Electric. Edison was of course backed by JP Morgan and the Vanderbilt family. Private Companies are all operating on the same Biz model which was monopoly control over a conduit through which they could sieve profit from everyone who used it and became dependent on it. Sure it was always possible to refuse this stuff, and the Amish did to a large extent, but MOST people bought the Progress. It improved their standard of living, though of course it improved the standard of living of those who controlled all this stuff a whole lot more. I dont want to ignore here the most important Conduit of all, the Conduit of MONEY, which is the intermediary in transmitting value from one place to another. This was the FIRST conduit which became Monopoly controlled, and the same Banking Families have been in control of this conduit since its inception in the colonial era on this go round. About everyone here now knows that the Money produced by the Fed isnt our money, it belongs to the Banks who produce it, and these banks are held Privately for Profit. Gold as money, while it is possible to use was a direct challenge to the Private control of money, and so since Private money has been used, Gold has been taken out of circulation and sequestered away in vaults. Its never going to come out of those vaults in any great quantity, and even if it did there isnt enough to go round anymore, so it doesnt present the danger it once did to private money distributed by the Banksters. What presents a danger to the Banksters now is that they are rendering their own money quite worthless, with nothing to really replace it. Just as there is nothing really to replace Oil to run the transportation system either. All of these conduits are failing in Cascade Fashion now, from the Money to the Shipping industry to the Electric Grid and eventually here to the Communications grid. The civilization that grew up around these conduits is wholly dependent on them, and cannot survive without them. This is not to say individual people and communities cannot survive without them, just the civilization organization cannot. Those who will survive are those who are most able

to live without these things, but that is a remarkably small segment of the population of the developed world. Those who built and control this system are the ones MOST dependent on it for maintaining their control. Once that is lost, so also will the power they have be lost. Its all dependent on maintaining control over conduits which will no longer exist as the Oil becomes ever scarcer. Knowledge of this makes Planning for the Future fairly straightforward in theory, if difficult to implement in practice. It means progressively removing yourself from dependence on all the Conduits, from Shipping to Electricity to Communications to Money. Very hard if not impossible to achieve in highly populated areas, somewhat more possible to achieve in remote low populated areas. However, ALL areas short of some incredibly isolated places deep in the Amazon are likely to experience quite a bit of Fallout (of one sort or another), and besides that INDIVIDUALLY IMHO I think it is quite impossible to be Independent of all the Conduits and also Independent of all other people in a Community to overcome their loss. So people who survive this will have to come together in Tribes, and have enough selflessness to give of themselves for the greater good of the Tribe. Greed and self-interest does not payoff in such societies, and people who conduct themselves in such a manner will go the way of the Dinosaur. The Meek Shall Inherit the Earth. Right after the Meek get VERY VERY ANGRY. Conduits: Part II If you were reading closely, you should notice that I glossed over something very important with respect to the early Conduit of Shipping in the Colonial era. Read this portion of the first post: At either end of the line, the Trading Company which controlled the conduit could take ALL of the profit involved in making these voyages with goods, so long as at either end no Goobermint Tariffs were dropped on them. So these folks quickly declared all Tariffs were detrimental to Trade, and the concept of Free Trade was born. On the Silk Road, free trade never existed, all along the way you had to pay for safe passage to some local Warlord, but travel on the High Seas circumvented all that nonsense, plus you could carry a lot more stuff cheaper than over the roads. What is inaccurate in that statement? It ignores a very important part of the early trading through this period, which was PIRACY. It was not in fact completely impossible to have your merchandise taxed, because it was VERY taxing to have to fight off Pirates who would relieve you of your cargo somewhere out on the High Seas, where NOBODY had any Jurisdiction really. 100% Taxation rate on an individual cargo vessel, though so long as you only lost maybe 10% of your vessels this way, not outrageously taxing. When the piracy got bigger than that, THEN you got a problem.



The Railroad era was no different here, in order for the Railroads to gain their Rights of Way through Indian Territory, to keep those Native Terrorists from breaking up the tracks; they needed a Cavalry to go out and wipe out anybody who might not want a Railroad passing through their land. Once again, the Military made it possible for the Capitalists to exploit whatever wealth there was through exclusive control over the Conduit for trade, enforced by the Military which was part of Da Goobermint. Capitalism could not possibly FUNCTION without Goobermint Backing, and Goobermint could not function without the Wealth being sieved up by these conduits. A marriage made in HELL of course.

What you had early on here in the Capitalist paradigm was one set of naval based thieves fighting with other naval based thieves for any and all wealth that could be transported about in ships. Spanish Conquistadores, the Marines of the era basically stole Gold from the Aztecs, then French and British Pirates stole the Gold from the Spanish ships. LOL. French Pirates were actually chartered by Da Goobermint and got funding from the East India companies through Stock Offerings; this was all just good Capitalism in da olden days. LOL. Did it ever really change? Nah, of course it did not, it just got obfuscated through all sorts of rules and laws for legalizing a variety of forms of theft but that is a complex topic for another post. In this post, I just want to examine exactly why Goobermint and Navies got so big, first with the British and then our own Navy, which is absolutely astounding in size and scope right now, though its coming to the end of its working life-span. The reason is to secure Trade routes over the Ocean from Piracy, to basically extend the Law of your country out over the High Seas. To ENFORCE such laws out there, you gotta have Ships of the Line, fast ships with Cannon that can protect your lumbering freighters loaded down with plundered Gold. The English built the best Navy, and they took control over all the shipping lanes with that Navy. Individual Pirates eventually could not compete with this, as the British East India Company, rather than paying their Taxes to the Pirates found it a better deal to use part of their profit to fund the Navy of Britain. In this way, the Military became the Enforcement Arm of Capitalism, connected through Da Goobermint. Thus began the Military-Industrial complex and its capture of Da Goobermint, which occurred LONG before Eisenhower identified it here in the US post WWII. What this should tell you is that for so long as Capitalism has existed, it has NEVER been divorced from Da Goobermint, they are in fact one in the same thing. The Trade of Capitalism cannot be legislated and organized without the POWER of the Military, which comes from Da Goobermint.

You can see over and over again how the Elite in charge of the Capitalist system used the Force of Goobermint to basically STEAL wealth from any indigenous population, even when the indigenous population supposedly constitutes Da Goobermint. As long as you buy Capitalism, you buy a military enforcement arm designed to steal wealth from somebody else. You CANNOT make Something from Nothing, and Capitalism never did. It just was a remarkably effective means of state sponsored THEFT, from its beginnings in the time of the Spanish Conquistadores and Mayer Rothschild, to its current dying days now. Why is it dying? Because the CONDUITS are dying. Or rather the ability to control the conduits is dying. The shift to Oil made Navies dependent on this, and so to control the high seas now, you need a LOT of oil. A few Nuke powered Subs and Carriers CANNOT control the great expanse of the Oceans, particularly when they are busy



Conduits: Part III Information Property Rights Conduit

supporting Land Wars in a few hotspots around the globe. So you now have the re-emergence of Piracy along the coast of Somalia, and soon to be prevalent across ALL shipping lanes. There simply no way the US Navy, big as it is, will be able to be funded and take on ALL the theft which is going to be part of this game. The actual amount of Wealth that they can protect to be moved is not sufficient to fund the hardware and manpower required. MOST of this stuff is bound for Davey Jones locker once push comes to shove here. It costs a LOT to build a big naval vessel; it is CHEAP to build a small cruise missile or even a speedboat with a torpedo warhead on it and some Suicide Towel Head ready to drive it. Big Boats are freaking SITTING DUCKS. They move real slowly, they cannot turn fast; you can hit on them easily as they enter or leave a port. You might not know where they are out on the high seas, but if they are going to fulfil their function as trade conduits, they MUST make port. SOMEBODY will hit on them and put them down, this is inevitable. Many other conduits will die here also quickly. The electrical infrastructure is already teetering, HUGE blackout recently through Brazil, blamed variously on Hackers and Overload, whatever the cause is you know this has to become more prevalent as time goes by. The internet? Damn, one good hacker who gets pissed off when his Network Admin job goes south probably could take down the whole ball of wax. I dont have to tell you how fast the MONEY conduit can go down here. You can see for yourself the volatility in the markets. All its going to take is a massive run on some asset class somewhere; it could be in freaking Hong Kong. Margin Calls get triggered, and the whole thing goes BALLISTIC. No idea here what exactly will be the trigger, whether it is financial or political or military I have no real clue. I DO know however that these conduits have reached the end of their working life-span, and they will COLLAPSE. This is inevitable, because of two very important principles. One, you CANNOT make Something from Nothing. Two, Infinite Growth in a world of Finite Resources is IMPOSSIBLE. This is the Brick Wall the Illuminati are running into here, and its WHY they will go down BIG TIME. Once the systems go down, they are DOG MEAT. Coming Soon to a Theatre Near You.

As we passed into the Information Age, one of the most important Conduits for sieving wealth has been Intellectual Property law, which allows Ownership of something which doesnt even have a physical form, you cant see it, touch it, smell it or taste it. The ownership of Ideas. Most people see inventing something and gaining a Patent on the idea as a legitimate way to achieve great wealth. Invent the Light Bulb, like Edison and you become wealthy, right? Well in fact Edison never did get all that wealthy, since the Vanderbilts and JP Morgan took most of the profits from his inventions. He didnt starve though. In reality, Patent law and Copyright law is used as a means to control new conduits as they emerge. Yes, the person who invents such thing sometimes will get rich from it, but not as often as you would think. If you dont sell out your invention to the big corporations, they will reverse engineer what you have come up with, tweak it enough so they can get a new patent and leave you in the dust. Defending your patents in court is expensive, and long before you might win such a battle if you are a small inventor you will likely be bankrupted in the fight. Those who really succeed arent the inventors themselves usually, its the people who will ruthlessly STEAL the inventions and monopolize a market. The Big Gorilla, aka Bill Gates is the classic example of this. However, as much money as the Big Gorilla has made here, his empire is also being co-opted and undermined by bigger powers, who funded Google. Where do you think Sergei got all the money to turn Google into the behemoth it has become in just a few years?



Google now controls the Internet for all intents and purposes. Cloud Computing where you dont actually have the software on your own computer but you have to access the internet (at a charge of course) in order to access a program on somebody elses computer to manipulate and store your data (another charge) is the new model here. Has anyone else here noticed the absolute dearth of worthwhile programs you can buy which will work on your own computer now? Anything you can buy generally is locked up tighter than a Catholic School Virgin with a Kevlar chastity belt. You have to pay Licensing Fees to operate the software you buy year in and year out. Fortunately for me, I bought most of the really good programs before they all got locked up this way, including legacy Op Systems to run on any old computer. Most of the new stuff just has bells and whistles, nothing outrageously new and great has been created in the computing world since spreadsheets and databases and basic graphics programs, insofar as I am concerned anyhow. I have all my old software and it runs great. The only thing I like the Internet for is as a communication medium to write on. PAYING somebody to hold my data on their computer and use their programs? Ill NEVER do that. Its just another form of Taxation really. Unfortunately for anybody NEW coming into the game NOW, its becoming less possible all the time to get software that will run on any computer, particularly as they change the Op Systems so eventually they wont even run the old software anymore. With some new computers, you cannot even take a Magnet to the hard drive to wipe it and then get it to run some programs after loading an old Op System, because they program in blocks in the chips on the motherboard. Fortunately again, I have a decent supply of older computers and laptops and spare parts which should last me the rest of my life without ever buying a new one. However, for MOST people, they will be limited to what the hardware producers will build, and it ALL will have Digital Copyright Protection software built onto the motherboard. To get these computers to do anything USEFUL, you will HAVE to sign up for Cloud Computing on somebody ELSES computer, and use the Internet to Access it. This is the Information Conduit that our Oligarchs have taken control of now. It was for a while a matter of CHOICE whether you would use the internet, and how you might use it. Now the choice is being removed, if you want to do business in any way, you MUST use the internet to access Cloud Computing. This is the Biz Model of control over a Conduit, repeated here for the Information Age.

Of course, this model will not succeed long term, because the rest of the conduits are already breaking down. The massive amount of power to run all the network servers is going to become increasingly expensive, and the ability to repair all the lines of fiber optic cable and copper wire will become ever less possible. In pieces, the internet will begin to break down, and then with it will go the ability to sieve profit in this way. How long it takes for this Conduit to break down completely is anybodys guess, but IMHO 20 years is a max here. At least I hope it lasts that long, since it would take it to the end of my time walking the earth. Ill definitely miss the ability to write here on the net when it disappears for good. However, I will NOT miss the Taxation that comes from being obligated to participate in some Conduit if you want to be a part of the society that is using it. Ill pay my $100/mo Communications Package from ATT which gets me my Cell Phone and Internet for so long as this is not such a huge part of my paycheck I cannot afford it anymore. Ill be damned if I will buy any more than that though. However, it still just does KILL me on a philosophical basis to know that every $100 I send in to keep my Communications lines open is money going straight into the pockets of the Oligarchy. Long as I want to continue to participate in this society, I HAVE to pay that Tax. When they jack up the rates to $500/mo for these services, Ill probably have to drop out of this end of the society, and that will no doubt come to pass as ATT tries to survive. Just like Citibank raising CC interest to 30%. If you want a CC and what that does for you, you HAVE to pay those rates. Your only other choice is to opt out. Go Galt as some Ayn Rand Fans call this phenomenon. Ayn Rand was philosophical idiot, but the phenomenon is nonetheless true as an observation of what occurs in such scenarios. Most folks will Go Galt here not by choice, but because they HAVE to. Youll stop paying your income taxes, because you will lose your job. Youll stop paying your property taxes, because you will lose your house. Youll stop buying Cloud Computing on the Internet to run your Biz because you will HAVE no biz. Will you REFUSE the Handouts of Unemployment, Welfare and Food Stamps when YOU fall off the cliff? You would be a fool to do so of course. People who espouse principles here of despising the Leechfucks are almost to a person going to become Leechfucks themselves quite soon. Too bad we wont be able to read about it here on the internet, I would really enjoy seeing these folks eat crow. Whether we hear about it or not though, Eat Crow they will. Coming Soon to a Theatre Near You. RE



Yes, We Have No Bananas

Published April 5, 2013 | By RE Discuss this article at the Frosbite Falls Daily Rant inside the Diner As the Collapse marches its way around the world and both Sovereigns and Banks are discovered to be completely Insolvent and BROKE, the BIGGEST of Newzpeak inventions is the idea of Recapitalization. This sounds Technical and Capitalist enough that most J6Ps buy it without a PEEP, even when their own Deposit Money is stolen for the purpose of Recapitalizing a Bank which has just gone BK and lost everybodys money! If I go BK, does anybody Recapitalize ME? WTF do people accept the idea FAILING Banks who JUST lost EVERYBODYs Money should be Recapitalized, with the SAME jackasses running the show who just lost everything? What a fucking RACKET! Anytime you Go Broke in the Casino, you just Recapitalize and go out gambling AGAIN! You just gotta be close enough to the Nodes of Power at the Top of this Game to ALWAYS get Recapitalized, even when the whole SYSTEM goes Kaput! Then there is the Nonsense of Splitting Failed Banks into a Good Bank with performing Assets and a Bad Bank with all the garbage. Who will Buy Stock in the Bad Bank? The Bad Bank is just a Newzpeak Euphemism for TAXPAYER LIABILITY. Da Goobermint gets the Bad Bank, the Illuminati get the Good Bank! Theres a Fair Deal for you! Privatize the Profits, Socialize the Losses in a NUTSHELL! Next is the Dumbass idea of Nationalizing Failing Banks. WTF do I want to Nationalize a LOSER company? Put the whole NATION on the Hook for the bad debt of said Bank, thats a GREAT IDEA! Why not just let the LOSER Bank go to the Great Beyond and start a NEW Bank on a National Level? Why NOT is because of course everyone bought into the system, and if you let those Bad Banks go Belly Up, lotsa folks wont get their Pension Checks. Hell, they wont even get back their Savings or Checking Account Money nowadays! Money is a SYSTEM people become dependent on, just like say having a Smart Phone. When I was a kid, you had a Phone at your house, that is how people could talk to you from far away, but you did have to be HOME to receive the call. Answering Machines, the precursor of Voicemail didnt exist at the time. Those Cassette Driven Recorders didnt emerge until I was well into my teens. Nowadays though, you simply cant EXIST and be a part of the TechnoEconomy without a Smart Phone, to not only keep you Hooked in to communication with your Workplace (why didnt you pick up? We NEEDED you to come in and fix the Server Crash!), but of course also to Tweet to all the WORLD your latest 1 sentence declaration on Monetary Collapse! Even fucking Bill Gross of PIMPCO Tweets idiocy! Somehow though,before Voicemail, before Answering Machines, before even the Fucking TELEPHONE was invented, society managed to function OK, to one extent or another. In my parents time when they were kids, though the Telephone had been invented, almost nobody even had a phone in their domicile. How did they Call in Sick to work in those days? Answer, they didnt of course. Workplace made do, so-and-so isnt here today. If SaS does this too often, he gets fired. Now though, you gotta answer the phone, concoct a REASON (my dog is having a mid-life crisis!) and show up next day with a note & diagnosis from the Canine Social Worker to explain yourself and your Dogs emotional angst. LOL.



Dependent most of us are in the Industrial Economy on our Automobiles, and Cheap Fuel to push them down the Road to get us to Walmart to buy Everything at Low, Low Prices Every Day and to get to the Workplace or to get the Kids to Skuleetc. That is a tough dependency to BREAK, but NOTHING compared to breaking the dependency on the Monetary System. Removing yourself from this inside Industrialized Nations is for all intents & purposes quite impossible for most people, there isnt any real Wilderness left to escape to and do Jeremiah Johnson. OK, up here in Alaska you can still sorta do it if you stay on the move all the time, but soon as you drop down a Cabin anywhere the Rangers will drop in on you. You certainly cant start a COMMUNITY out in the Bush without Goobermint dropping in to regulate your lives. A LAW up here is if you have kids, your Domicile has to have Hot Water and Toilets. You cant keep your kids if you live in TeePees and use the Great Outdoors as a Toilet like every other mammal does. Child Protective Services will drop in and take the kids and drop them into the Foster Care system. Which is a pretty good Racket also if you DO live in a McMansion with Hot Water, you get around $700/mo from the state for every kid you take in this way. The state does NOT however pay the Original/Biological Parents 700 Bananas/mo to maintain the kid. How fucking STUPID is this system? The coming REALITY of course is that the State is FRESH OUT of Bananas. Amongst the FIRST Casualties of Banana Shortage will be the Pension Funds of J6P, first the Corporate Ones from BK companies, then the Municipal and State ones, finally the large Goobermint ones like Social Security. All these funds are already being raided to keep the failing banking system propped up with creative accounting tricks. Sadly of course, JUST raiding Pension Funds isnt sufficient to prop up a system which in Euotrashland is leveraged probably 100:1, and here is probably 50:1, though nobody KNOWS really because so much of the leveraging is in the Shadow Banking System of Derivatives. No, now they ALSO gotta Haircut the Depositors, who dont REALLY own their Money as soon as they Deposit it in a Bank. Once deposited, the Bank is free to Legally Gamble it however they like, Pledge it as Collateral 10 times over in Rehypothecation schemes, and it just ONE of those bets goes South and they get a Margin Call, you can say Bye-Bye to your Money. So, due to insufficient Pension Funds and Deposits to STEAL here to make good on all the various BAD BETS of Filthy Rich Pigmen Banksters, after everything is STOLEN, what is asked for NEXT? RECAPITALIZATION! Let me explain this concept to you in PLAIN ENGLISH. Somebody else can translate it into Kraut for our Kraut readers.

The Chinese Readers are SOL since we have no Han Diners I am aware of at the moment, and the Chinese are TOAST anyhow. LOL. The folks who Own the World run this system of Ownership through the TBTF Banks they Own. If the Bank goes Belly Up, they lose everything, money and Ownership, it all gets thrown into a big Bankruptcy Pool to be divided up and sold off to whoever still has some money, which really is about nobody. What recapitalizing a Bank really is takes theoretical Future Tax Revenue from the Taxpayer and GIVES it to the Uber Rich, the VERY SAME PEOPLE who just LOST EVERYTHING to begin with! As I said at the beginning of this Rant, WHAT A RACKET! You cant EVER go Broke, every time you lose your bets in a big CRASH of the monetary system you are running, you get J6P to recapitalize you because you so expertly handled his life savings last time. In reality however, Capital is not Debt nor is it the Fiat Money representing that Debt nor is it even Piles of Gold stored in Basement Safes of Sovereigns, Illuminati or Small Time Zero Hedge Piglets either. Capital is the Resources of the Earth, Energy stores in particular in the form of Fossil Fuels through the Industrial Era. Through the process of the War Machine and the Legal System regulating Property Ownership, a small Cabal of People gained control over most of the important Resources of the Earth, Land to begin with, Energy stores in the form of Coal & Oil through the Industrial Era. Here in the FSoA, around the time Da Fed was chartered in 1913, this Cabal was probably around 150 Industrialists and Banksters, probably somewhat larger now though the ones who got in earliest on the Ponzi remain the most powerful ones here. In the FSoA,you can identify the Rockefellers, Astors, Vanderbilts, Morgans et al, the Robber Barrons of the 1800s as the main players. Part of a still larger Ponzi which goes back to the Collapse of the Roman Empire, same general Monetary System has been perpetuated throughout the millennia, though it took a Big Hit during the Dark Ages. Did not disappear though, it was mainly perpetuated under the auspices of the Holy Roman Catholic Church through the Dark Ages. This crowd mainly identified by the Rothschilds, Kuhns and Warburgs on the Banking end, and the Plantaganets, Hapsburghs et al on the Political End in Eurotrashland. Why is it every time there is a Massive Monetary Crash (and this is not the first one by any means, they occur regularly every 80 years or so), the SAME people get Recapitalized by J6P to remain in what appears to be Perpetual Control over the Resources of the Earth, and the Political Systems which Goobern the life of J6P? The reason was probably best stated by Henry Ford, who went BK around 5 times on his way to becoming one of the worlds most Wealthy men:

It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning! 62


You see, probably 99% of people have ZERO understanding of how the Monetary System works at ALL. They simply TRUST in it, and they dont have smarts enough to separate and devise their own. In fact you DO have to be VERY SMART and CRAFTY to set up a Monetary system which will last any length of time at all, and even then you have to have Political Control over vast resources of the Earth to do it. Such has been the case for most of History, going right back as far as the Tower of Babel. Those IN CONTROL recruit and sift out people who can run such a system, Ben Bernanke and Mario Draghi are examples of that. The Smartest Guys in the Room. J6P cant field anyone who holds a Candle to these guys, they ARE really smart, even if they are working from some really flawed basic principals. So when a given iteration of the Monetary System fails, you get a buncha Wars as was the case in Eurotrashland from the collapse of the Roman Empire circa say 350AD or so, or WORLD WARS as was the case around 1900 to Present Day. WWII never ended, its just been pursued at a somewhat lower level regionally since Armistice was signed between the major powers of the Industrial Era. Why do we get stuck with a NEW iteration of the same Bad Old System every time so far? Because when the Monetary System collapses, the SAME people are in control of the Military Apparatus. J6P has no control over that, he just ends up as Cannon Fodder fighting the battles as new alignments and geopolitical and economic structures are refabricated. This leads MANY people to believe this will be the case in perpetuity, it is a Popular Meme amongst many Diners even. I have Ranted at length on numerous occasions why this is not so, but I STILL dont have too many BELIEVERS on this subject. Its hard to get people to understand Money to begin with, still harder to explain a Paradigm Shift of this nature. You see, all reconstructions of this type of Monetary System depend on a SURPLUS of Capital, aka NATURAL RESOURCES. Mathematically speaking, you simply cannot reconstruct such a system in the absence of such resource, THAT is the Capital! Its not the money, its not even the Gold. It is what those things REPRESENT, and when it is GONE, both represent nothing at all.

Are resources COMPLETELY gone? Of course they are not, but relative to current population size, they are in serious DEFICIT. You cannot get any REAL GROWTH out of this, no way no how, so you cannot pay any Interest. Thus you get ZIRP. Under ZIRP, Pensions, Equity Investment, everything FAILS. ZIRP is a KLUDGE to keep the system rolling another day, but it fails to bring return on investment, regardless of money printing to prop up markets. That is mainly just a redistribution of wealth mechanism, taking money from the Poor to Prop up investments of the Rich. All going south though, just the poor get hit first here this way. The structure is bound to implode mathematically speaking, it doesnt have basic energy support to keep it running. It CANNOT be rebooted in the absence of copious energy, or a massive population die off of Homo Sapiens. The latter is a likely outcome, but such a massive die off would deconstruct Global Power Structure, so you still dont arrive at equilibrium this way. Youll just get a lot of flux in the system as it re-equilibrates. I dont think too many of the Pundits understand the equilibration dynamics, I am quite sure John Michael Greer doesnt, nor Jimmy Kuntser. Dmitry Orlov to an extent. Steve from Virginia sorta gets it, but he traps himself in the 1700 Paradigm most of the time. Anyhow, Recapitalization of Banks is COMPLETE garbage, and needs to be Politically Repudiated, which it will be. Unfortunate OUTCOME of that is most of the systems we take for granted will collapse, and EXTRAORDINARY number of people will DIE. So it goes. You cant make an Omelette without Breaking a Few Eggs. RE



Published April 17, 2013 | By William Hunter Duncan Discuss this article at the Conspiracy Table inside the Diner Let me say first, any speculation about what happened in Boston, April 15, should be prefaced by empathy, for those who died, for those who were so gravely injured, for those in the immediate vicinity who were traumatized. (It should also be noted that this is a slightly edited version of what appeared originally here in the forum, to better reflect new information, and to correct factual errors.) Blessings to you. All. Now, let us consider the evidence, like rational people. First, let us consider the bombs. Supposedly, pressure cookers filled with gunpowder, nails and ball bearings. If you have any familiarity with a pressure cooker, and most people do not, a pressure cooker is generally a fairly heavy apparatus. It has to be, to contain the high pressure and heat, to not blow up in your kitchen, as you are cooking or canning. Typically large enough to hold at least four quart-sized mason jars, though as many as eight or more. So the smallest pressure cooker is going to weigh, empty, between 15-25 lbs. Full of gunpowder, nails and ball bearings, more like 50-70. The authorities are saying now, these bombs may have been carried to their destinations in back packs. Can we assume then, that one person lugged a big heavy back pack through a large crowd, dumped it in a garbage can, then retrieved another backpack, made another journey through the crowds, dumping big heavy backpack in another garbage can, with nobody noticing? Or are we talking about multiple bomb droppers? Which is a conspiracy. Unless these bombs were placed well before the crowds showed up. Still, these are going to be awkward things to lug around, and dump; doing so would stand out, among those preparing for the event. Unless the bombs were already in the garbage cans, when the cans were placed there, in which case the person(s) who put the garbage cans there, are either employed by whatever company or gov agency that is in charge of the receptacles, or person(s) masquerading as such. Assuming the bombs were in garbage cans, as early reports stated. Second, one can be relatively certain, that just about every square inch of downtown Boston is covered by closed circuit TV (CCTV). So, there should be video of whomever put those bombs there. Third, lets consider the time the bombs went off, just before 3pm. The winner of the Boston Marathon crossed the finish line a full three hours before the bombings. That means, all the elite runners were done with the race by approximately 1:00-1:30, which means most of the media, public officials, important peoples, would have vacated the scene by 3pm, with most of the people remaining, regular Joes and Jills, supporting family and friends running the race. Forth, the bomb exploded on Patriots Day, a Massachusetts holiday, and also tax day. Close to the same day as the Oklahoma City bombing in 94, and the burning of Waco. Which has led many to surmise that this is the work of home-grown right-wing extremists. Boston being of course site of the original Boston Tea Party. Five, there are conflicting reports, relative to the official story that there was no forewarning of an attack, that officials were running drills with bomb sniffing dogs, in the vicinity of the bombs, during the race, prior to the bombs going off.

Boston Marathon Bombing

As to the CCTV, do not expect to hear anything about that in the MSM. One, they do not like to allude to the everincreasing surveillance state, at any time, under any circumstances. Two, if there is video, we are not likely to see it any more than we have seen video of Adam Lanza breaking into and rampaging through that elementary school in Connecticut, though we know there was CCTV coverage. (What is the point of all that surveillance if it cant catch bombers in plain sight?) As to the timing of the remote controlled bombing, and it being tied to domestic right-wing extremism, there are indeed many right-wing gun nuts who glorify the Boston Tea Party, who fetishize the Constitution, who despise government in all its forms. Ask yourself however, even if the bomber is a right-wing lunatic crazy man, precisely what irrationality would justify in his mind, killing random regular folk, and not government agents, so typically the targets of right-wing rhetoric? Even in the Oklahoma City bombing, most of those killed were employees of the Federal Government. As to the reports about drills that flies in the face of the MSM story that there was no forewarning, as well as circumstantially tying it to 9/11, the 7/7 bombings in London, and the shootings @ Sandy Hook Elementary, official drills coinciding, even mirroring, the actual attacks. (The MSM and Gov still maintain, contrary to considerable evidence, that there was no forewarning of 9/11.) The Liberty movement is aflame. Go to, or, and you can read about their fears, that this is another false-flag operation designed to demonize the Liberty, Patriot and Tea Party movements, and take away their guns, i.e. initiate total martial law, lockdown in America. This is not without reason. You will never hear the MSM, for instance, discuss the 2 billion+ bullets the Department of Homeland Security has ordered in the last year, or the 1000+ bullet-proof check points. This is news every American should know, but it is not news the MSM will report. Several Obama administration officials, law enforcement officials and MSM pundits have already alluded to home-grown terrorists, that oh-so popular catch phrase of fascist authoritarian control freaks everywhere. Whatever the case, whoever did this is INSANE. And I personally lean toward blaming agents of a secret cabal of behind the scene, fascist authoritarian control freaks, for whom most of the global population is cannon fodder. It doesnt matter to these people, these fabulously wealthy monsters, who gets blown up, be they in Afghanistan, Pakistan, North Korea, Iran or the streets of America. The point is the maintenance and consolidation of power. Total information control; as many observers note, a fearful people are a pliable, compliant people. It really isnt complicated; it is only that such an evil is something few are willing or able to contemplate. Most people, like the people who died in Boston, and those so gravely injured and maimed, just want to go through life staying out of trouble. Well, increasing trouble is coming, of which Boston is only a glimpse. And just remember, no one on this earth is more fond of bombs than governments, and all governments are controlled by the moneychangers. I suspect those bombs were already there when the winners of the Boston Marathon crossed the finish line. If this was about maximizing mayhem, that would have been the time to set those bombs off. Unless this was about controlled mayhem, in which case, better to kill, injure and maim a bunch of people who dont matter. It is often said, the simplest answer is generally the right one. Conventional wisdom would suggest, this is the work of a right-wing crazy person, or an Islamic fundamentalist. But in a world where the Lusitania, Pearl Harbor, the Gulf of Tonkin, 9/11, 7/7, Sandy Hook and even Aurora, are all known or suspect of conspiracy, when the FBI and CIA are known and suspect of cultivating terrorists, the simplest answer may very well be the one answer hardly anyone is willing to consider that this world is controlled by a vicious, ruthless people, for whom the ends ALWAYS justify the means.



Diners on the Spaceship Earth

Published April 23, 2013 | By RE

Oil production at all the main Legacy fields such as the North Slope here in Alaska is in decline, with the persistent Myth promulgated in the MSM that Horizontal Drilling and Fracking will produce enough to replace the lost production from the conventional Oil fields. If that were really true, the Oil companies would have been ramping up this production to keep the demand up and keep the game going, but the fact of the matter is that said companies are shutting down Refineries here and in Europe because the demand isnt there to justify their existence. The only reason they can still show a profit is because the price is so high, and the few people with money/credit left are Bankrupting themselves to keep buying it. Eventually there wont be enough of them left either to keep 1/2 the number of refineries open, at which point it shrinks again to 1/4. Then 1/8 etc until finally there isnt enough tax revenue coming in to keep maintaining the roads and bridges, and Open Gas Stations can only be found in a few small Ringfenced local economies. No more Happy Motoring for ANYBODY after that, drive a few miles outside a Major Metro there will be no Open Gas Station around to fill up your Jag or Maserati, even if you are a Filthy Rich Pigman. The other Myth promulgated is that besides Fracking producing enough liquid fuels to replace the lost production from fields like the North Slope and Ghawar, Happy Motoring will transition off the ICE and move to EVs, battery powered vehicles running on Electricity. The problems with that idea are abundant, overall the battery technology is itself very dependent on fossil fuels for extraction and refinement of the Rare Earth Metals used in the more durable rechargeables, and the Electric Grid as it stands is decaying and having major issues with Demand Destruction as well. As more McMansions get abandoned because the ex-Suburbanites cant pay the Mortgage, the revenue stream to the Local Power Company drops off the map. They keep cutting back on Staff, maintenance is deferred, breakdowns and blackouts become more common. What do you DO if you have driven your EV to the next county over to visit Grandma and her Lights are OUT, so you cant charge up the Prius to drive back home? Are you going to wait for the Solar PV Panel on the Roof of said Prius to recharge the batteries? Maybe with REALLY sunny days in a Week or Two the PV panels could generate enough electricity to get you halfway home.

Discuss this article at the Energy Table inside the Diner Of all the charts and graphs which can be pulled up off the net to demonstrate that the Peak Oil corner has been turned, none do it more effectively than the Total FSoA Gasoline Sales History chart published by the EIA at the top of this article. Retail Gasoline sales to J6P essentially fell off a cliff beginning in 2005, actually well before the collapse of Bear Stearns and Lehman Brothers and the implosion of the Subprime Mortgage Market, all today seen as watershed moments in the ongoing collapse of Industrial Civilization. Today in 2013, retail gasoline sales are 50%, HALF what they were at the Peak of Happy Motoring in 2005. That is roughly 8 years of time, an average rate of decline of around 6% per year. Assuming no other trend line changes, retail gasoline demand in 2021 would hit ZERO. This all while total population size (if you believe the stats) continues to INCREASE, which can only mean a lower per capita usage of energy through this period. It may not take that long of course if the Dollar crashes, or it might take longer if some sort of plateau effect takes place as portions of the world economy are triaged off the Oil Jones, but there is no evidence to support the idea said demand will ever Rebound, or that if it did rebound that Gasoline could be produced in sufficient quantity at cheap enough price to supply that demand.



Its pretty obvious why there is so much Demand Destruction in Gasoline consumption now here in the FSoA, one only has to look at the UE figures and the size of the Employed workforce to see the reason for it. Although the BLS persistently massages the UE figures by dropping people off the stats, the actual number of working age people gainfully employed continues to drop, all while the total population continues to increase. Although we do use copious amounts of gasoline to drive around willy-nilly for no good reason, in REALITY the major use of the automobile is to get J6P to and fro his workplace in the Morning and Evening Rush Hour. The Billions of Gallons of Gas wasted by J6P sitting in Rush Hour Traffic Jams for the last 50 years here in the FSoA is impossible to calculate, but those gallons were a HUGE portion of the demand for Gasoline in the Car based economy developed here in the post-WWII era. Fewer people employed means fewer people driving to work, less gas consumed. Old Retired Boomers & Silents dont usually consume that much gas, besides a few who cruise their Bugout Machines around the country to visit Grandkids. They mostly sit home these days and get into arguments on Internet Message Boards and Blogs like the Doomstead Diner. LOL. Consumptive still of Electricity, but it doesnt use much Gas.

Right beneath everyones NOSE, the effects of Peak Oil have been ongoing in earnest since 2005. Really of course they began long before that in the late 60s and 70s, evidenced by the Political Turmoil in those years as well as the Oil Embargos by OPEC, not to mention the closing of the Gold Window by Nixon in 1971 and the ever increasing Debt load taken on in the intervening years to mask the effects, at least here in the FSoA. Now however since the problem has gone GLOBAL rather than LOCAL, the old tricks of Masking resource depletion with Debt Issuance is no longer working too well. There are no Credit Worthy customers anywhere on the whole GLOBE left now, and there are no SOLVENT Banks or Sovereigns left who can lend to anybody either! Anybody who thinks the Chinese or Germans are really solvent needs a wake up call, neither of them are. They just have positive account balances measured in debt other Insolvent countries owe them. Will the FSoA EVER pay back the $2T in USTs held by the Chinese? With WHAT? They dont even need J6P as SLAVES, they got 1.3B of their own Slaves to Feed & Clothe here. So inexorably and in rather RAPID time here we see the economic system collapsing in tandem with the Energy extraction and Distribution system, which really TOOK OFF in the late 1800s with the development of the Railroads and then Standard Oil under the aegis of John D. Rockefeller. EVERYTHING in the Industrial Economy since that time

The effect is of course synergistic, since so much of the economy is based on people driving around willy-nilly, as fewer people do this, more jobs are lost. Now its not just Retired Silents hanging out at home getting into arguments on the Internet, UE GenXers and even Millennials are doing it too! Nobody has REASON to leave the house, they dont have JOBS to go to! The only reason to leave is to go to Walmart to pick up Food for the Week, or even MONTH if you really wanna conserve on Gas usage. In most cases also, people are not SOOOO far from their local Walmart they cant ride a bike pulling a trailer to pick up Groceries using their JPMC SNAP cards either. That crew represents near 50M people in the FSoA now, close to 15% of the whole population NOT using any gasoline at all!



was based on a seemingly ENDLESS supply of Cheap Energy in 1880, but what in fact was a quite LIMITED supply which enabled a huge Population EXPLOSION of Homo Sapiens, which just ended up CONSUMING said energy all that much faster. I remember reading as a 2nd Grader in Brazil out of a textbook that we had a 500 Year supply of Oil, which perhaps we did at the population size and per capita consumption of the era, but the Exponential Function took care of that problem in 50 years. It is plain OBVIOUS as a Pimple on your Nose that we are running short on the Cheap Energy necessary to run the Industrial Lifestyle. Every last economy tied to this system is in some stage of Collapse now, barely 8 years since Gasoline demand started to Crater here in the FSoA. All due respect to John Michael Greer, that is NOT a Slow Catabolic Collapse, it is a fucking HEAD ON COLLISION with REALITY.


What can you DO about this problem? It is not going away here, and Goobermint cannot really solve the problem, at least on a Global Basis they cant. Locally it may be solved for a while by the Big Ass Military stealing resources from some places to keep Happy Motoring going here in the FSoA for another day, week, month or year, but that strategy gets ever less effective all the time as the Costs for running such Wars grow ever Greater, while the resources captured are ever less productive. When the War Machine cannot feed ITSELF, it collapses on the Grand Scale and this is still a bit down the line, though perhaps not as far as some people believe. The best you can do is to find others who understand these problems and who see the Writing on the Wall, and plan together with them a new Life in the Post Industrial Economy, such as it may evolve here in the future. Here on the Diner, this is what we DO on a daily basis as we hash out TEOTWAWKI. Such discussions formed the Genesis of our SUN Project, for Sustaining Universal Needs, and we invite all others to join with us as we plan for a BETTER TOMORROW. Only through Cooperation and Selflessness can anyone make it through the shitstorm coming down the pipe here. NOBODY will survive going it alone, not even up here in the Bush of Alaska, not in the Yukon Territory either. Such strategies only might preserve your life for a bit, they wont resolve the problem of making the society of Homo Sapiens compatible with the rest of Life on Earth. It is up to us to remake ourselves to be in harmony with the Spaceship Earth, and to do this TOGETHER. That is what it MEANS to be a DINER ON SPACESHIP EARTH. RE



Published April 22, 2013 | By Peter Michael Bauer


should three: mimic our ancestors lifestyle to attain maximum health and well-being. This triad of premises has led to all kinds of pop cultural fads, but three stand out more than others: diet, exercise, and sex/family. Books like Born to Run encourage bare foot, long distance running. Books like The Paleo Diet inspire readers to cut out grains and starches from their diets. Books like Sex at Dawn have many people questioning their marriages and monogamy. These books, along with hundreds of others, posit that modern human life goes against our biological human nature. Sixty-one pages into Paleofantasy I had to stop. I looked back at the pages Id read, filled with highlighted sections, notes in the side margins, and folded dog ears in the corners. Clearly Ive been reading over this with a fine tooth and comb. Marlene Zuk is a college professor of evolutionary biology turned decent pop cultural science writer. If you were unfamiliar or new to any of the paleo ideas, you could easily be tricked by this book. Quite easily in fact. Its hard to argue with someone when they are so skillfully able to slip their subversive premises by you. Its similarly hard to continue reading a book that bases all of its counter-points on a foundational strawman. If your initial premises are incorrect, than all of your points are going to reflect this. I gave up after 61 pages. Let me share with you why. The main premise of her book is to show that humans have evolved in the last 10,000 years and that great evolutionary changes actually can happen very quickly. So when people say we have caveman DNA living in a technological era its not quite true. She presents a lot of evidence that our DNA has changed quite rapidly since the development of agriculture and civilization. This, however, is a strawman argument against paleo lifestyle: no one is actually saying our DNA hasnt changed. No one credible anyway. What she doesnt understand, is that the caveman DNA living in a technological era comment is meant to be an anecdote. Of course DNA has changed over the last few thousands years. Anyone who would claim otherwise would be rather foolish. She doesnt so much argue the basic premise of the paleo craze: that humans havent evolved much in the last 150,000 years. Her argument is more like, Sure, we havent changed much, but we have changed, and more importantly, are still changing. To this I would say, the paleo craze doesnt disagree and it lies more in a misconception of the author, a misrepresentation of the basic premises, an unclear understanding of the full picture.

Discuss this article at the Primitive Living inside the Diner Originally published in Urban Scout on April 10, 2013 When I saw Paleofantasy on the shelf at the bookstore, I got excited. Finally, another Clan of the Cavebear! I was disappointed to discover that Paleofantasy is not a fictionalized novel about paleo peoples. Rather, it is a popcultural, non-fiction book about how the paleo craze (that has been growing for some time now) is allegedly based on a false understanding of evolution. The first premise of the paleo craze (of which Rewilding is definitely a relative if not, driving force) is the idea that our culture, over the last 10,000 years or so, has changed faster than our bodies (or more specifically, DNA). The second premise is that this means our bodies are not designed for the differences in culture of the modern era, but more suited to our prehistoric, or paleo, past. The third premise is that because of premise one and two, we

Her second premise is that there was never any time in human history where humans were a perfect specimen of evolution. If there is no static point of human evolution, why would you ever strive to be like a previous version of yourself? Why pick 10,000 years ago? Why stop there. Why not pick 100,000 years ago? In her mind, it makes about as much sense as projecting how humans will be living in 5,000 from now, and try to eat that way/exercise that way/fuck that way right now. This again, is a genius commentary on Paleo Diet proponents like author Loren Cordain, whose paleo diet is a one-size-fits all diet of lean meats. The reality of the paleo diet is that there is no such one-size fits all. Paleo peoples everywhere ate quite differently. There were however, basic principles of diet that are not present in modern times, and people are suffering for it. The author of Paleofantasy doesnt really talk much about the science of why paleo is healthier though, instead she focuses on her (inaccurate) perception of the paleo lifestyle, based on specific examples of a few authors who clearly dont speak for the evolving movement.



The paleofantasy is a fantasy in part because it supposes that we humans, or at least our protohuman forebears, were at some point perfectly adapted to our environments. To think of ourselves as misfits in our own time and of our own making flatly contradicts what we now understand about the way evolution worksnamely, that rate matters.That evolution can be fast, slow, or in-between, and that understanding what makes the difference is far more enlightening, and exciting, than holding our flabby modern selves up against a visionaccurate or notof our well-muscled and harmoniously adapted ancestors.

compromises. This is not about DNA, or evolutionary biology. This is observed science of what makes cats that are living today, healthier. The paleo craze may have a few flaws in its story, but it doesnt change the results. There are so many variables that have changed and that are always changing that our bodies have come no where near adapting to these changes. Of course the author doesnt make the leap of ecological concern: that the modern culture we are living in is insanely temporary. Our culture is destroying the biosphere at a rate of 200 species extinctions a day. Im not worried about adapting to milk. Im worried about humans (and all other-than-humans) adapting to the radiation that will be released into the atmosphere when the nuclear power plants meltdown during the collapse of industrial civilization. At least one aspect of her book gives me hope: according to the research, evolution can happen very rapidly. She seems more preoccupied with understanding the timeline of evolution than the suffering of an individual. She waxes poetic about all the advancements in technology that are allowing us to see the rate of evolution. This is meaningless to me, the lactose intolerant guy, who cant eat dairy, doesnt want to eat dairy and has ceased eating dairy. There is clearly a middle ground with paleo. Its not an accept all aspects of paleo culture since we will never be quite clear about what that was, but an adapt the most reasonable and scientifically backed ideas. Like, geez. Gluten is bad for you. Of course the author talks about how there was a time when humans didnt eat meat and were not adapted to eat meat. Those first several thousand years of meat eating were probably a bit uncomfortable as our bodies adjusted. Perhaps as uncomfortable as I am when I am hunched over a toilet (a device that has been shown ignores the posture our bodies have evolved to poop in) and shitting my brains out from a couple of beers the night before. Yeah, the bowels of people using toilets may have evolved to make them get fewer hemorrhoids, but not by much. Squatting is still better. The most annoying thing is that she has some really great points. Points that perhaps should be brought up more in conversations about paleo lifestyle. Its unfortunate that she doesnt quite get it. Her points would only strengthen the paleo community. Im sure that it will only continue to expand and incorporate a lot of her points about evolution. Much of what she says is not contrary to the science behind paleo. This is the most ironic part of her book. It feels a bit schizophrenic. Really though, it took 55 pages in to find the most obvious premise guiding this woman: sociopathy. While talking about the agricultural revolution, she drops these gems.

Although we can admire a stick insect that seems to flawlessly imitate a leafy twig in every detail, down to the marks of faux bird droppings on its wing, or a sled dog with legs that can withstand subzero temperatures because of the exquisite heat exchange between its blood vessels, both are full of compromises, jury-rigged like all other organisms.The insect has to resist disease, as well as blend into its background; the dog must run and find food, as well as stay warm.The pigment used to form those dark specks on the insect is also useful in the insect immune system, and using it in one place means it cant be used in another. For the dog, having long legs for running can make it harder to keep the cold at bay, since more heat is lost from narrow limbs than from wider ones.These often conflicting needs mean automatic trade-offs in every system, so that each may be good enough but is rarely ever perfect. Wanting to be more like our ancestors just means wanting more of the same set of compromises. Recognizing the continuity of evolution also makes clear the futility of selecting any particular time period for human harmony.Why would we be any more likely to feel out of sync than those who came before us? Did we really spend hundreds of thousands of years in stasis, perfectly adapted to our environments?When during the past did we attain this adaptation, and how did we know when to stop? Clearly she doesnt understand that the paleo trend doesnt reject this idea. Yes, humans with ancestors who have drank milk over the last few thousands years have evolved to digest it more thoroughly than other humans. Who cares? My ancestors have that gene. When I eat dairy and get sick, when I eat grains and feel horrible, Im not holding an image of my ancestry up. Im feeling like shit because milk gene or no, its still not there. Is she suggesting that I should just suffer through life with diarrhea so that at some point in the future humans will be able to safely digest hormone and puss filled milk? Should we start eating uranium, in spite of any suffering, because in a million years we will be able to eat it without dying? In spite of the fact that humans have evolved, science still says that the paleo diet leads toward better health than the agricultural diet. Nowhere in the book does she examine the overwhelming evidence that supports this. Rather, she nit picks particular aspects of the driving philosophy behind the paleo lifestyle that dont exactly hold up. This however is misleading. Even though the story of why Barefoot Running (for example) may not be completely accepted, it doesnt change the overwhelming studies suggest that its better for you. Nowhere does paleo lifestyle say that humans arent evolving or that there is a perfect state of humanness. Rather, the idea is that, we havent changed in a great enough way. To use her metaphor about dogs, we are like Tundra wolves, placed in the Sahara desert. Or a Chiwawa in the arctic. The paleo diet isnt just good for people. Domestic cats can survive on grain-based cat food. But their health greatly improves when they are given a natural, carnivorous diet. Some may have evolved to digest grains better than others But wanting to be more like their ancestors seems pretty fucking smart to me, since their bodies are still designed for the older set of

While a larger population has obvious drawbacks, including overcrowding and high demand for resources such as clean water, it also has a sometimes overlooked benefit: more fodder for natural selection to act on.

What this means is that the population explosion after agriculture, despite its well- known drawbacks, also carried some important positive changes that may have been overlooked. Cochran and Harpending also believe that human intelligence increased dramatically once groups became larger, via the same more-tickets-in-the- lottery mechanism. Adam Powell and colleagues at University College London suggest that group size, not necessarily related to the birth of agriculture but among early humans in general, was the key to the uptick in cultural and technological complexity, and evidence of long-distance trading emerges in the archaeological record.



A benefit? A positive change? This language reveals the authors world view. Benefits are subjective. Positivity is subjective. Who benefited and how? What makes this positive to the author? Who cares about so-called intelligence? Why should that matter to a scientist? If Evolution is continuous, but it is not goal-oriented, if evolution is simply a game of trade-offs then it is neither positive nor negative. It simply is Human culture dictates world view and world view decides what is positive or beneficial. Clearly, the hunter-gatherers who were slaughtered at the hands of civilization would disagree that population growth of their neighbors was a positive change. But okay. Fine. Lets look at this evolutionary scale of trade-offs from a humane perspective. We are trading Dolphins for humans who have adapted to using iPads. We are trading the Amazon Rain Forest for humans who can digest milk. We are trading 200 species a day for humans to be able to build a resistance to the Black Death. We are trading the entire biomass of the planet for the production of more humans But at least um, well like evolve a bunch and shit. Whoever could think there was a positive side to this clearly has no empathy and is a sociopath. Clearly this book was written by a professor of evolution with a boner for civilization.

The paleofantasy is a fantasy in part because it supposes that we humans, or at least our protohuman forebears, were at some point perfectly adapted to our environments.

Looking back at one of her main premises, it becomes pretty obvious where her misunderstanding comes in. The paleo lifestyle does not suppose that humans were ever perfectly adapted to our environments, but rather, our culture was making a more equal trade off with the environment and this in turn was a healthier lifestyle for all. Dont believe me? Just ask the dodo. Oh wait. You cant.