Pretending They Don’t Exist

Government leaders feign outrage at taxpayer money being given to bankers in the form of bonuses. They struck back by threatening to tax those bonuses in what appears as an all-out assault on the finance industry. The Times raises fears that the banking industry is under threat as a result:

Proposals that could lead to Wall Street bonuses being taxed at 100 per cent could result in “the end of the banks as we know them now”, a leading financier warned yesterday.

Even if it’s 70%, it will still make banking rather unattractive to a lot of people as a career choice in the USA. All this of course is no more than populism on the part of Government, which as usual is making sugar coated legislation with a bitter aftertaste. A tax such as this will sink AIG, which has only just been bailed out. The idea of thwarting bonuses sounds good, but it will trigger a brain drain in the US financial sector, guaranteeing the taxpayer to be left with a useless, expensive corpse on its hands.

Bigger and worse things are happening which remain unchecked.

New money is being issued by the Federal Reserve. This is a more serious kind of theft which affects every honest person. The resulting inflation will be unstoppable and the Fed knows it. An anonymous commenter states:

Will other countries threaten violent force? Will they try to acquire U.S. claims to oil reserves in the middle east and Latin America, and to other “indirect” U.S. claims to commodities–originating from U.S. based companies?

The facts are pretty compelling that the U.S. will have to default on its debt. When that time comes, how will the rest of the world react?

These are very thought provoking questions indeed. That there will be physical (military) ramifications to financial incongruities is a given, especially if the current approach by central banks and governments is pursued. In the medium to long term, the public cannot possibly benefit from anything which has been done by both central banks and governments. All of this spells disaster for ordinary people.

So who are the beneficiaries of all of this? Where did all the money go?

The US Economy should be declared a crime scene.

Could it be people, as yet unidentified, who have been quietly exploiting the various tiers of the economic system to their own advantage? Theirs is an eerie silence. I have no doubt there are many individuals who have access to sensitive (and incredibly advantageous) trading information at stock exchanges. I also have no doubt that people who have sensitive economic and policy data (in draft form) at their fingertips make “good use” of it. They will have surely succumbed to the temptation of making untold profits by knowing the outcome of trades before they take place. The former Chairman of NASDAQ is but a snowflake on the tip of the iceberg of America’s economic corruption. His scheme was simple and easily blown out of the water, but the economic crisis (and the missing money) is an order of magnitude larger than Madoff’s billions.

If you had anything resembling a live feed to the names of traders, quantities traded, buy points, sell points, basically raw, unprocessed stock market data, what would you do with it? Nothing? The point is that, because so much in the economy is now electronic, evidence is easily erased (or planted) and communications are easily intercepted. I don’t know if trading data is being leaked on an ongoing basis, but I would be surprised if it wasn’t. I don’t know if people other than scrupulously honest law enforcement officers listen in on telephone conversations, business meetings, and so on, but I would be surprised if they didn’t. Heck, you can hardly find an honest person in any walk of life as it is!

So instead of printing new money and shooting easy targets (managers working for finance companies), governments should be digging up trading records, exposing insider traders (and all the other fraudsters and swindlers) and treating system problems which allow for opaque business and accounting practices.

Economic Flatus

Economists talk of inflation and deflation. Both are bad and good, depending on who you are. And when there is too much of one or the other, the ones to blame are usually the ones who benefit most. There is of course a third, more flexible group of scammers and swindlers, which causes neither but postures itself to make financial gain from anything that moves.

It’s clear that banks and governments benefit most from inflation. Banks do so by diluting the wealth of the masses and making themselves an essential partner in pretty much every aspect of life through their power to issue new money through fractional reserve banking. Governments benefit through bracket-creep. Taxes rise with inflation disproportionately and governments can appear generous to their constituents by lowering taxes (adjusting them back to original values in real terms) and raising wages (again, adjusting to original values). In both cases, the average individual who busies himself in productive work does not benefit. Nothing deep about that.

In deflation, which has occurred for only brief periods in history, the beneficiary is he who owns no shares or financial instruments but has cash and income. He can pay off his debts (if any), invest in tangible things and support himself more effectively than before.

But with banks and governments set to lose out in a sustained deflationary period, it is no surprise that we have incredibly big “stimulus packages” being thrown around at this time. We are set for an inflationary spiral. With the losses already experienced by soon-to-be retirees in their superannuation savings, we are about to witness their total financial destruction through the devaluation of the money they have left. They are going to be desperately poor.

How to plan for this event? I don’t know exactly, but some how I don’t think buying gold is quite the right option. As much as it gleams and shines and as much as “big money” is rumoured to be purchasing it, I think that for the average punter this is not a way out. It is no sure-fire way forward. It may be a life-saver, however, so a modest amount of gold ownership might be wise if one has money to spare.

The best thing to do now is the same as has always been the case. Get out of debt, spend money only where necessary and work hard. Nothing deep there either. As always, real value rests in the things that are important in life and not what talking heads in fancy suits claim is important.