Tuesday, March 29, 2011


I refer you here...http://market-ticker.org/akcs-www?post=183130  Now, while one of the mission statements of the "Bee Hive" is to ride herd on the hypocrisy of Denninger and offer truth to his lies, I certainly don't wish the man ill...but damn! He looks like he had a stroke. Ok, ok...that's not the point of this post...just had to use my stinger when the opportunity arose. Ha! Point of fact, I do agree with his mini analysis in this clip. The problem though isn't the validity of this perception, the problem is that Karl, like so many others, never ever analyze the problem back to its root cause. He like so many other "experts" are great at dissecting the obvious but blind in getting to the core of problem that causes all the symptoms they expound upon. There is a root cause to our financial situation. It is not acknowledged, not considered, ignored and avoided, and it ensures that there will be no fix now, later or ever. The following is a brief essay I posted on his site some months ago (pre banishment)...it deal with the nature of money in a credit driven fractional reserve world...it is the fundamental problem with everything. Have a read, post some comments and or questions and if there is any misunderstandings, I'll clear them up..

Karl, you are a brilliant man on all manner of subjects. Very few possess your ability to rationally and logically perceive what is and think through the consequences, cause and effects, origins, destinations and choices involved in very complicated systems financial and not. I think however that you fail to grasp the full nature of our modern money system, what money is, how it works and why it is fundamentaly flawed and as such destined to fail. In all your critiques you always hold out some measure of hope that things can be "fixed" within the blueprint of the current system. That the purging of fraud, the "normalization" of interest rates, the bankruptcy of the inefficient will somehow restore "balance" and allow life to merrily dance along with prosperity for all. I submit that you are missing or omitting some fundamental truths that render your hope for change from within futile and destined for disappointment.

1. You have made the point numerous times that there is an inequality in "zirp" that denies and deprives savers of a means to make a living off of their savings. While I completely agree that "zirp" is a perverted ploy to socialize losses and steals from the masses, I disagree with your premise that savers could ever make a living off interest income and at the same time have a sustainable economy to provide that status. One mans interest income is another mans interest liability. It is a net zero in the general sense in that the rewards of the saver are the costs of the borrower. If everyone were a saver there could be no borrowers, If everyone were a borrower then there could be no savers. It is not a win/win scenario. The idea that "normalized" interest rates would somehow be a benefit to the economy by providing income to savers denies the other side of the coin where borrowers are less well off because of their liability to the savers who lent them their money.

2. I don't think that you would disagree that we live under a credit based system. Credit is money and money is debt. All money is called into being by debt. Without debt there would be no money at all. I think even the most Ben Stein of economists understand this. Why then is the obvious flaw in the system so universally dismissed, ignored or blissfully unknown? If all money is debt then all increases in money supply equals an increase in debt. For a saver to receive interest income there has to be an increase in money supply to provide it. The interest therefore has to be called into being and since all money is called into being via debt, total debt in the system is the sum of the interest due the saver plus the interest on the newly created money to pay that original interest. It is a compounding function. The interest has to be created by new debt which in turn has to be created by more debt which in turn....endlessly like a passbook savings account in reverse. Compound functions of which you are well versed are unsustainable by nature and our system of money is no different than a colony of bacteria in a petri dish expanding at a compound rate until the growth medium is exhausted. You cannot compound grow debt as the system demands and therefore the notion of a system of wealth creation via savings and the receiving of interest is flawed.

3."Growth" is more than a buzzword it is the underlying premise of the system. All forces herald it as good and desireable and all policy is designed to enable it. But "growth' too is a compound function. GDP is not measured from some baseline number drawn from the past, it is a percentage on top of a previous percentage. It is exponential in nature and like the bacteria/petri dish example is impossible to maintain both in the physical sense and the monetary sense. Leaving aside the physical elements of natural resource depletion and environmental destruction and sticking to the monetary element..."growth" requires expansion of the money supply. It is an absolute hand in glove relationship. An expansion of the money supply in a credit based system requires a compounding rate of debt assumption/creation and since that too is a compound function, it is impossible to sustain. Parabolic curves do not exist in nature. They are self defeating and impossible as is any hope of changing a few cogs in the money system machine and expecting it to function against a flawed basic design.

I think it is admirable what you do in standing up against fraud and abuse and manipulation. Those are noble pursuits in their own right. But to have faith and hope that a flawed system can be re-animated by some form of reset is really an endorsement of the proven boom/bust folly that has been endemic to the system for hundreds of years with each cycle becoming progressively greater in intensity. There are billions of stars in the galaxy but we talk in terms of trillions now with incredible indifference to the scale of it all. Where it once took millions then billions then hundreds of billions to re-animate the corpse of the fundamentally flawed system...now it takes trillions and tens of trillions. Proof once more of the compounding destructive nature of a money as debt system that cannot possible be resurrected.

All the kings horses and all the kings men will never put this Humpty Dumpty system of money back together again. We need a complete overhaul and a non usury system devoid of credit as money. There is no other way and all the analysis of what is wrong now is really quite pointless when the blueprint is unworkable.

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