All That Glitters is Not Gold

A Confusion of Cause and Consequence

Paper money is inherently risky.  So is electronic money.  Authorities (politicians and bureaucrats) can create it out of nothing.  Monetary economists call it "fiat money".  It is created by fiat of the authorities.  Every newly created item of currency, which adds to the stock of currency on issue, marginally devalues the existing stock.  The abiding risk of paper and electronic currency is not just inflation--the gradual erosion of value of the currency--but hyper-inflation.  The price of goods and services rises because the value of money is falling by the day.

We have all heard the horror stories of hyper-inflation.  Germany in the 1930's.  Zimbabwe several years ago.  Venezuela now.  Money being trucked into a shop in a wheelbarrow to buy a loaf of bread.  That sort of thing. It evidences and portends horrendous economic collapse and an inevitable looming depression.  

The government more often than not has a vested interest in devaluing the currency and inflating the money supply.  That interest lies in the public debt.  As public debt grows through reckless governments spending more than they can raise in taxation, the temptation to inflate the currency (that is, print more money or create it electronically) rises.

Letter From America (About Capitalism, Part III)

State-Wrecked: The Corruption of Capitalism in America--Part III

 By DAVID A. STOCKMAN
New York Times

Published: March 30, 2013

. . . While the Fed fiddles, Congress burns. Self-titled fiscal hawks like Paul D. Ryan, the chairman of the House Budget Committee, are terrified of telling the truth: that the 10-year deficit is actually $15 trillion to $20 trillion, far larger than the Congressional Budget Office’s estimate of $7 trillion. Its latest forecast, which imagines 16.4 million new jobs in the next decade, compared with only 2.5 million in the last 10 years, is only one of the more extreme examples of Washington’s delusions.

Even a supposedly “bold” measure — linking the cost-of-living adjustment for Social Security payments to a different kind of inflation index — would save just $200 billion over a decade, amounting to hardly 1 percent of the problem. Mr. Ryan’s latest budget shamelessly gives Social Security and Medicare a 10-year pass, notwithstanding that a fair portion of their nearly $19 trillion cost over that decade would go to the affluent elderly. At the same time, his proposal for draconian 30 percent cuts over a decade on the $7 trillion safety net — Medicaid, food stamps and the earned-income tax credit — is another front in the G.O.P.’s war against the 99 percent. 

Without any changes, over the next decade or so, the gross federal debt, now nearly $17 trillion, will hurtle toward $30 trillion and soar to 150 percent of gross domestic product from around 105 percent today.

Letter From America (About Capitalism, Part II)

State-Wrecked: The Corruption of Capitalism in America--Part II

 By DAVID A. STOCKMAN
New York Times

Published: March 30, 2013

The culprits (of the coming collapse of capitalism) are bipartisan, though you’d never guess that from the blather that passes for political discourse these days. The state-wreck originated in 1933, when Franklin D. Roosevelt opted for fiat money (currency not fundamentally backed by gold), economic nationalism and capitalist cartels in agriculture and industry. 

Under the exigencies of World War II (which did far more to end the Depression than the New Deal did), the state got hugely bloated, but remarkably, the bloat was put into brief remission during a midcentury golden era of sound money and fiscal rectitude with Dwight D. Eisenhower in the White House and William McChesney Martin Jr. at the Fed. 

Then came Lyndon B. Johnson’s “guns and butter” excesses, which were intensified over one perfidious weekend at Camp David, Md., in 1971, when Richard M. Nixon essentially defaulted on the nation’s debt obligations by finally ending the convertibility of gold to the dollar.

Letter From America (About Capitalism, Part I)

 State-Wrecked: The Corruption of Capitalism in America

 By DAVID A. STOCKMAN
New York Times

Published: March 30, 2013

The Dow Jones and Standard & Poor’s 500 indexes reached record highs on Thursday, having completely erased the losses since the stock market’s last peak, in 2007. But instead of cheering, we should be very afraid. 

Over the last 13 years, the stock market has twice crashed and touched off a recession: American households lost $5 trillion in the 2000 dot-com bust and more than $7 trillion in the 2007 housing crash. Sooner or later — within a few years, I predict — this latest Wall Street bubble, inflated by an egregious flood of phony money from the Federal Reserve rather than real economic gains, will explode, too.

Douglas Wilson's Letter From America

And Then, Wham

Money, Love, Desire - Wealth and the Christian
Written by Douglas Wilson
Monday, December 26, 2011

As news comes in that China is starting to teeter, allow me to take a moment to remind everybody that there are two kinds of money. Given that miscreants are often put in charge of economies, the boundary between the two kinds of money is frequently murky, but it is important to note the two kinds of money anyhow.

Wealth is made up of goods and services. One kind of money, the real kind, is a measuring stick for those goods and services. When men are being comparatively honest, paper money can work for a time,

Quantitative Easing 101

Clarke and Dawe give us the idiots guide to Quantitative Easing

The Idols Lie Broken in the Temple of Baal

The Ben Bernank

We posted recently on the folly of quantitative easing, as now being carried out by the Federal Reserve in the US. It is an example of how we move from folly to folly, endless booms to busts. It is part of God's judgement and discipline upon Western society because it lives to vaunt itself against God.

A hilarious animation has been produced which holds the entire modern monetary system and the current Fed policy up to ridicule. Enjoy. Some things are just so stupid that laughter is the best medicine.



It is the fool who has said in his heart, there is no God (Psalm 14:1). Our modern Western culture has become the parody of an asylum run by inmates. Even so, come quickly Lord Jesus. Deliver us from our folly and return us to You. If You do not come to us, we are without hope. Our leaders are idolaters, and our wise are as serpents. Our teachers are false prophets, and the people lie in great darkness. In Your justice, remember mercy.

Of Iron Bars and Foolish Men

 "Helicopter Ben" Provides an Object Lesson for the Wise

Ah, the foolish pride of fallen man.  Civil government is a vital institution, appointed by God, for the good of man.  But when cultures and governments seek to cast off the restraints of God and make a name for themselves instead, bad consequences always follow.  God carries an iron bar, with which He smashes arrogant nations (Psalm 2:9).  Therefore, God says that kings and magistrates are to be warned, and they must show discernment.  They must tremble.  They must bow before the Son.  They must take refuge in Him, not vaunt themselves beyond their duties and stations. 

Now, we know full well that any government in our modern world which proclaims its limitedness and inability and incompetence to fix every problem does not last long at the ballot box.  The people need a god, and government is the deity of the age.  So, responsibility for the minatory divine iron bar hovering over our soon-to-be-smashed pots rests not just with our governors, but with us, the governed, who slavishly genuflect before that which we have taken as our deity.

When governments breach their God-ordained boundaries and go beyond, bad consequences always follow.  These bad consequences are God's iron bar at work.  God is laughing at us and mocking us for our arrogance and pride (Psalm 2:4)--we who have proudly boasted that we will cast of God's fetters and cut His cords.

Here is a case study--at which all of God's people will join our Heavenly Father and grimly laugh at the idiocy of Unbelieving man. When governments manipulate currency, speculative bubbles, which subsequently burst to the pain of many are the result.  So, we in the Western world are in the midst of working through the consequences of a burst residential housing bubble which threatened to bring the entire global monetary system down.  While the causes of the international housing bubble were multilateral, without doubt one of the most damaging drivers was the US Federal Reserve, which, in an attempt to recover from the tech crash of 2002, kept interest rates low through easy monetary policies for years.  The result: another bubble rapidly formed--cheap money flowed into residential housing, pushing up prices and encouraging speculative activity--until that bubble burst in 2008.

Pain everywhere.  Bankruptcies, foreclosures, unemployment, businesses going bust, shattered lives, vast extensions of crushing national debt.  God's iron bar has been busy amongst the broken pots.  But do they learn?  No.  Government and its agencies are competent.  They are to be trusted.  They know what they are doing.  Everyone desperately wants to believe this because they have put their faith in government as their god.

Now the Federal Reserve is doubling down.  Having caused the latest crash with its easy money policies throughout the decade, it is now creating more easy money than ever before in a vain attempt to climb out of the recession it had indirectly caused in the first place.  The result: easy money is flooding into new speculative bubbles.  More crashes, more ruination, more smashed potsherds on the way.  A recent article in Bloomberg tells the story. As a result of the actions of the Fed, the US and the rest of the world has started the mother-of-all carry trades. A "carry trade" is essentially buying something where it is cheap and "carrying it" to where you can sell it for a higher price.

Smart corporations around the world have worked out that it is now ridiculously cheap to borrow money in the US (thanks to Ben Bernanke) and invest it in higher growth areas. They are rushing to get some of Ben's freshly printed money, with virtually zero interest rates attached, then returning to their home jurisdictions, selling the American dollars for local currency (thereby pushing down the value of the US dollar still further), investing it, getting a reasonable return, then eventually paying back the US in depreciated US dollars. The trade is a no-brainer.

Foreign companies also are tapping U.S. markets for cheap cash, selling $605.9 billion in debt through Nov. 15 compared with $371.8 billion for all of 2007, before the Fed cut the overnight bank-lending rate to a range of zero to 0.25 percent.


Sinochem Group, the Beijing-based petroleum, fertilizer and chemicals producer, sold $2 billion of 10- and 30-year bonds on Nov. 4. Two days earlier, state-owned Korea National Oil Corp., based south of Seoul in Gyeonggi, sold $700 million of five-year senior unsecured notes, according to data compiled by Bloomberg.

Corporate cash sloshing across U.S. borders is an unavoidable consequence of the Fed’s low-rate strategy, Wood said. Export Development Canada, the government agency that provides financing help for Canadian exporters, last month tapped the U.S. market for $1 billion in 1.25 percent notes. Those funds also will be available to support companies’ domestic activities, following a two-year expansion of the agency’s mission in 2009 to help businesses navigate the credit crunch.

Then follows the understatement of the week:

“I have begun to wonder if the monetary accommodation we have already engineered might even be working in the wrong places,” Richard Fisher, president of the Federal Reserve Bank of Dallas, said in an Oct. 19 speech.

Yuh thunk?

And the same carry trade is now well underway amongst American companies with offshore business interests.

U.S. corporations’ overseas investment in the first half of 2010 exceeded the amount that foreign firms spent in the U.S. on factories and acquisitions at an annual rate of almost $220 billion, according to the Commerce Department. In the first half of 2006, the last year before the financial crisis, the net flow favored the U.S. at an annual rate of about $30 billion.


More than half of outbound investment this year landed in Europe, Commerce data show. In April, Valmont Industries Inc., which manufactures light poles and communication towers, issued $300 million in 10-year notes. The Omaha-based company said it would use the proceeds to help fund its $439 million acquisition of Delta PLC, a London-based maker of similar products. . . .

There’s no mystery behind corporations’ interest in foreign markets. As the U.S. struggles to recover from the deepest recession since World War II, business prospects in other countries are brighter. The International Monetary Fund predicts the U.S. economy will grow at an annual rate of 2.3 percent next year, compared with 9.6 percent in China, 8.4 percent in India and 6 percent in Chile.

 So, an iron bar has just smashed into Ben Bernanke's money helicopter.  He launched it to help the US economy recover--in particular, to reduce unemployment, so as to help prevent all those housing foreclosures.  Instead, the money is rapidly moving offshore because carry trades appear to offer good, low-risk returns.  Meanwhile, bubbles begin to form and grow.  We already have one in commodities and raw materials well underway.  US corporations will inevitably over-invest offshore (the carry trade obscures the risks and makes speculative investment appear relatively secure).  That bubble will burst eventually as well, leading to billions being wiped off US corporate balance sheets yet again, causing yet more stress--including to banks, who will have been risking their balance sheets to help fund US corporate offshore expansions. 

Lingering stagflation is now the most likely outcome in the US.  Year of low, dribbling domestic economic growth, coupled with rising prices due to higher commodity prices and higher imported goods costs. 

God's iron bar at work amongst the potsherds. 

The antidote, we hear you ask?  There is none--as long as Unbelief continues to deny God, and looks to government instead.  Well, actually the antidote is simple.  Don't create money out of nothing.  Let the market set the price of money (interest rates).  Invigilate over fraud, false representation, incomplete disclosure, conflicts of interest, and acting in bad faith.  Let business failures fall where they may. 

We are, however, absolutely certain that this antidote will not be considered for a moment--any more than a heroin addict will give up simply because he is asked to stop using.  The people will not let their government apply the antidote--until the day comes when what is printed on US currency is true--that indeed, the nation overwhelmingly actually does place its trust in the Living God, and not in government. 

Until that time, God's bar will continue to lay devastation down.