Venezuela Devalues Almost 47% — Too Late For Many [wealthcycles]

Just like that, boom, devaluation happens, the snap decision of a desperate government with socialist desires to just give and give and give—but first it must take.

Venezuela just devalued its currency, the bolivar, by 46.69%.

If you as a Venezuelan had $10,000 held in bolivars earlier today, it is too late to buy gold and silver to protect from this loss; you now have less than $5,400 in purchasing power this afternoon. If you stored or saved your hard-earned wealth in silver or gold, congratulations: you have preserved 100% of your wealth; and it could even be said your wealth went up 46% in bolivar terms.

Venezuela Bolivar vs Dollar 2002

Japan has promised to print big quantities of yen, an even bigger printing push than the Federal Reserve’s program of $85 billion dollars printed monthly, but Japan said it would do it… in 2014. The Bank of Japan has consistently expanded monetary policy “in drips and drabs” and has not impressed upon the market its determination to weaken the yen. It takes quite a bit of printing to effect a significant depreciation in exchange rates. As these two legacy, debt laden economies—Japan and the U.S.—duke it over which can implement the weakest policies, Venezuela has brought “a nuclear bomb into a currency war knife fight,” as Zerohedge writes.

 

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Fiat Money Kills Productivity [azizonomics]

From http://azizonomics.com/

I have long suspected that a money supply based on nothing other than faith in government is a productivity killer.

Last November I wrote:

During 1947-73 (for all but two of those years America had a gold standard where the unit of exchange was tied to gold at a fixed rate) average family income increased at a greater rate than that of the top 1%. From 1979-2007 (years without a gold standard) the top 1% did much, much better than the average family.

As we have seen with the quantitative easing program, the newly-printed money is directed to the rich. The Keynesian response to that might be that income growth inequality can be solved (or at least remedied) by making sure that helicopter drops of new money are done over the entire economy rather than directed solely to Wall Street megabanks.

But I think there is a deeper problem hereMy hypothesis is that leaving the gold exchange standard was a free lunch: GDP growth could be achieved without any real gains in productivity, or efficiency, or in infrastructure, but instead by just pumping money into the system.

And now I have empirical evidence that my hypothesis has been true — total factor productivity.

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No **** — More Debt Doesn’t Work? [market-ticker]

I’m done being nice.

If you didn’t figure it out this morning you deserve a middle finger in response to any sort of crap email you send me on the subject of what you do when you’re too far in debt.

LONDON—Investors fled from Spanish government debt on Monday, an immediate rejection of the country’s planned bank bailout by the constituency it most desperately needs to impress: the buyers of its own government bonds.

The market rout puts Spain and the euro zone in a dire position. The bailout plan—in which Spain agreed to accept up to €100 billion ($125 billion) to recapitalize banks—was hatched to alleviate the concern that Spain itself could be dragged down by the declining fortunes of its lenders.

There is no solution — here or anywhere else — to excessive and bad debt found by taking on more debt.  That is exactly identical to opening a new credit card when your current one hits its limit and comes back declined!

I’m simply not going to put up with people claiming that we must “borrow more” or “spend more” as a means of solving this.  I don’t give a damn which political party or what persuasion you come from in this regard — all will get one-line middle-finger image in response, and if you run that crap on my forum you’ll do it exactly once, so make your departure memorable.

I’m tired of Lyin’ Ryan, Mittens who both bans guns and has claimed he won’t cut the budget his first year, Obama who can’t get his lips off Blankfein’s and Dimon’s schnozz and folks like Pelosi, Stiglitz and Krugman, all of whom claim that the way to evade a “debt deflation” is to print and spend more money, or Bernanke who claims that “in the intermediate term” we must fix our deficits but “for now we can’t tamper with the recovery.”  And I’m tired of people like Gary Johnson who claims he’s submit a 43% cut federal budget but doesn’t appear to understand what this means in economic terms nor does he address it, nor will he address the places he can mitigate the instantaneous damage that would appear through things like putting a stop to the immoral and outrageous monopolist practices in the medical industry — practices that can only happen with the explicit enforcement capacity of government force.

The Party of Principle eh?  How about just another head on the same damned snake?

All of these assclowns have had four years to prove their thesis and it has been resoundingly disproved by the factual record of what has actually happened.

Hiding the truth does not change it.  Lying does not change facts.  Claiming that crap assets are good does not make them change in character and payment prospects.  All claims of expected compound growth on an indefinite forward basis are pyramid schemes andunlawful for this reason, yet they’re still being made right here, right now, today.  And claims that “deflation” is “bad” when it is the correction of an intentional and fraudulent credit inflation that you allowed to take place over the space of 30 years, which should have resulted in the banksters and pension fund managers involved drawing 20-to-life prison terms decades ago for running intentional and knowing ponzi schemes are outright lies.

Yeah, sure, there will be more “can kicking.”  I’m sure of it.  But I’m also sure it won’t work, because it can’t.  I said back in 2007 that he only solution to this problem was to ring-fence the government (not take the bad debts onto the government), cram down all the bondholders and stockholders and protect the depositors, force the derivatives to be covered with capital for every dollar of underwater position without exception and let what comes from that happen.  What would have (and still will, if we do it) come from that would be that a lot of so-called “rich” people would be rendered instantly bankrupt and the people they robbed with their knowingly-false promises would then sue them and pick their carcasses clean.

Tough.

Yes, it would have sucked.  Yes, it will suck (worse) now, because we’ve done stupid things in the four interim years.  But it is no less necessary today than it was in 2007 — in fact it’s more necessary as we’re now $5 trillion poorer in terms of federal debt and in terms of total systemic debt we have more now ($54.642 trillion) than we did at the end of 2007 ($50.898 trillion) – 7.4% more!

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Eurozone citizens moving billions to Switzerland [SoberLook]

From soberlook.com

Bloomberg/BW: – Switzerland saw its foreign currency reserves balloon by 66.2 billion Swiss francs ($69.5 billion) over the past month as the country’s central bank spent heavily to prevent its currency from appreciating against the euro, according to data released Thursday.

The franc is considered a safe haven for investors concerned about the euro-zone debt crisis.

The Swiss National Bank held foreign currency reserves worth 303.8 billion francs in May, an increase of 28 percent from the 237.6 billion francs in April.

“A large part of the increase in foreign currency reserves between the end of April and the end of May can be traced to the purchase of foreign currency to enforce the minimum exchange rate,” said SNB spokeswoman Silvia Oppliger.

Indeed we had a big spike in foreign currency reserves of the Swiss National Bank in May.

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The Fiasco of Fiat Money [Mises Daily]

I.

Today’s worldwide paper-, or “fiat-,” money regime is an economically and socially destructive scheme — with far-reaching and seriously harmful economic and societal consequences, effects that extend beyond what most people would imagine.

Fiat money is inflationary; it benefits a few at the expense of many others; it causes boom-and-bust cycles; it leads to overindebtedness; it corrupts society’s morals; and it will ultimately end in a depression on a grand scale.

All these insights, however, which have been put forward by the scholars of the Austrian School of economics years ago, hardly play any role among the efforts of mainstream economists, central banks, politicians, or bureaucrats in identifying the root cause of the current financial and economic crisis and, against this backdrop, formulating proper remedies.

This should not come as a surprise, though. For the (intentional or unintentional) purpose of policy makers and their influential “experts” — who serve as opinion molders — is to keep the fiat-money regime going, whatever it takes.

II.

The fiat-money regime essentially rests on central banking — meaning that a government-sponsored central bank holds the money-production monopoly — and fractional-reserve banking, denoting banks issuing money created out of thin air, or ex nihilo.

In The Mystery of Banking, Murray N. Rothbard uncovers the fiat-money regime — with central banking and fractional-reserve banking — as a form of embezzlement, a scheme of thievery.[1]

Rothbard’s conclusion might need some explanation, given that mainstream economists consider the concept of fiat money as an economically and politically desirable, acceptable, and state-of-the-art institution.

An understanding of the nature and consequences of a fiat-money regime must start with an appreciation of what money actually is and what it does in a monetary exchange economy.

Money is the universally accepted means of exchange. Ludwig von Mises emphasized that money has just one function: the means-of-exchange function; all other functions typically ascribed to money are simply subfunctions of money’s exchange function.[2]

With money being the medium of exchange, a rise in the money stock does not, and cannot, confer a social benefit. All it does is reduce, and necessarily so, the purchasing power of a money unit — compared to a situation in which the money stock had remained unchanged.

What is more, an increase in the money stock can never be “neutral.” It will necessarily benefit early receivers of the new money at the expense of the late receivers, or those who do not receive anything of the new money stock — an insight known as the “Cantillon effect.”

Because a rise in the money stock benefits the money producer most — as he obtains the newly created money first — any rational individual would like to be the among the money producers; or even better: to be the sole money producer.

Those who are willing to disrespect the principles of the free market (that is, the unconditional respect of private property) will want to obtain full control over money production (that is, holding the money production monopoly).

Once people have been made to think that the state (the territorial monopolist of ultimate decision making with the right to tax) is a well-meaning and indispensible agent, money production will sooner or later be monopolized by the state.

The (admittedly rather lengthy) process through which government obtains the monopoly of money production has been theoretically laid out by Rothbard in What Has Government Done to Our Money?.[3]

Having obtained the monopoly of money production, government will replace commodity money (in the form of, say, gold and silver) with fiat money, and the regime of legalized counterfeiting gets started.

Commercial banks will press for fractional-reserve banking, meaning that they should be legally allowed to issue new money (fiduciary media) through credit extension in excess of the reserves they obtain from their clients. Fractional-reserve banking is a rather attractive profit-making scheme for lenders; and it provides government with cheap credit for financing its handouts (well) in excess of regular tax receipts.

Fiat money will be injected through bank-circulation credit: banks extend credit and issue new money balances which are not backed by real savings. Economically speaking, this is worse than counterfeiting money.

Fiat money is not only inflationary, thereby causing all the economic and societal evils of eroding the purchasing power of money and leading to a non-free-market related redistribution of income and wealth among the people; banks’ circulation credit expansion also artificially lowers the market interest rate to below the rate that would prevail had the credit and fiat-money supply not been artificially lowered, thereby making debt financing unduly attractive, especially for government.

It is the artificial lowering of the market interest rate that also induces an artificial boom, which leads to overconsumption and malinvestment, and which must ultimately end in a bust. Mises put it succinctly:

The boom cannot continue indefinitely. There are two alternatives. Either the banks continue the credit expansion without restriction and thus cause constantly mounting price increases and an ever-growing orgy of speculation, which, as in all other cases of unlimited inflation, ends in a “crack-up boom” and in a collapse of the money and credit system. Or the banks stop before this point is reached, voluntarily renounce further credit expansion and thus bring about the crisis. The depression follows in both instances.[4]

III.

A fiat-money regime depends essentially on the demand for money. As long as people are willingly holding fiat money (and fiat-money-denominated government, bank, and corporate bonds, for that matter), the fiat-money regime can be run quite smoothly, for then people raise their demand for fiat money as its supply increases.

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Bank of England to consider £50bn stimulus for economy [Telegraph]

Bank of England policymakers may opt to inject a further £50bn of stimulus into Britain’s ailing economy this week, according to leading economists.

Bank of England to consider £50bn stimulus for economy

Worsening economic prospects could force the hand of the Bank’s Monetary Policy Committee, which last month voted to pause its purchase of government bonds after pumping £325bn into the market through quantitative easing.

Since then however, the data have painted a picture of a worsening, not improving outlook for the British economy, and there is no sign of a solution to the eurozone crisis.

The Office for National Statistics said the recession that began in the first quarter was deeper than it initially thought, with the economy shrinking by 0.3pc in the first three months of the year and not 0.2pc as it previously estimated.

Then on Friday the Markit/CIPS manufacturing PMI showed the sector shrank at the fastest pace in three years in May, suggesting manufacturing will be a drag on the wider economy in the second quarter.

George Buckley, economist at Deutsche Bank, said the grim manufacturing PMI survey was “a game changer”.

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A Fractional Reserve Banking Simulator

Frackin’ Reserve Web Edition is a web port of Frackin’ Reserve, which is a desktop version of Frackin’ Reserve Web Edition.

Frackin’ Reserve Web Edition lets you simulate the cycles and processes of fractional reserve banking and compound interest. It’s almost the same as the desktop version, but the range of parameters is more limited and some percentages are used instead of pure numbers.

Try the simulator

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