# Hypothetical - the economy goes bust



## Jikx (3 June 2007)

Where do you put your money?

Gold? Cash? The mattress?


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## theasxgorilla (3 June 2007)

I don't think there is a definative answer.  How bust are we talking here?  Zimbabwe style inflation?  Hedge with gold (or buy Euros??), presuming you don't need the money to live off.  Otherwise buy what you need now because later it will cost more.  On the other hand a bust economy might be deflationary in which case you want to pay off debt as the relative value of any debt held will increase as prices as wages decrease.

As I said, no definitive answer.  You could leave the country or just move your money to a stable or appreciating currency zone, if the bust is largely localised (in today's correlated global markets, hmmm)...people have been doing if for centuries...odd to think of a time that people would emmigrate en masse from Australia, but stranger things have happened.


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## lakemac (3 June 2007)

Turn your non-real assets into gold, get rid of all credit, then wait for the crash to fully take effect (can be up to 3 years) then buy real assets - particularly property (by that I mean a house on a block of land not a unit).

Why?

Lets start with the question few people ask: what causes an economy to go "bust" as Jikx puts it. Firstly there are two types of "bust":
1. a recession
2. a full blown depression such as what happened in the early 1930s and in Japan from 1990.

Both "busts" have at their root cause a reduction in the amount of credit in circulation. By credit I mean the lending of "goodwill" from a bank.
Some definitions of "money" here might help:
cash - the metal coins and plastic/paper notes you have in your wallet or under your matress.
money or deposits with a bank - the number you see printed on the sheet of paper you get from the bank each month.
credit - the "thin air" or "goodwill" if you like that a bank will give you to go and purchase something.

The ratio of these is typically 1 to 10 for cash to deposits ie. you might have $100 in your wallet and $1000 in your bank account and 1:200 for deposits to credit ie. you might have $1000 in the bank with credit/mortgage up to $200,000.

On this basis (and using the famous Pareto 80:20 rule) you can effectively ignore cash and deposits when it comes to working out what is going to happen with an economy. Credit by its sheer size swamps any effect that the other two measure have on an economy.

So now we have to understand credit. What is it? Before I called it "thin air" or "goodwill". It certainly is not money in the normal sense of the word. Banks create credit out of thin air. They don't have to have money in the form of deposits in order to lend you their "goodwill". To prove this have a look at the financial reports of any bank - lets say NAB. Go to the "Statement of Financial Position" page (what used to be called a balance sheet). For a bank its ASSETS are the LOANS it makes. Similarly for a bank the DEPOSITS you have with the bank are its LIABILITIES.

Now for any entity ASSETS - LIABILITIES equals the "value" of a entity. For a bank this means LOANS - DEPOSITS equals the "value" of a bank.

How is it that LOANS are bigger than DEPOSITS?

Banks manufacture credit out of thin air. 
Let me repeat that: *Banks manufacture credit out of thin air*

They don't need your deposits in order to lend you credit.
How does this work in real life, well each bank "trusts" the other bank's "thin air" credit because they each extend the other bank "goodwill". Nothing more, nothing less. They may have a "goodwill" imbalance at the end of any given day but that is soon balanced up before any one bank creates too much thin air. It becomes self regulating for good reason. Should one bank get too far out of whack the whole system of bank credit would collapse on itself.

So we know that credit represents the largest influence on the economy and credit is created out of "thin air".

Since credit is primarily "thin air" it can be both created AND destroyed.
A bank destroys credit by asking you for immediate repayment of the "credit" that they loaned you. Don't think this could happen? For those of you with a credit card or mortgage have a read of the fine print about repayment. The bank can demand FULL repayment of the credit they loaned you usually within 30 days. Don't think they wouldn't do it - think again.

Enter the central bank.

They do exactly the same thing only on a much, much larger scale. Not only do they "control" their "member" banks they control the economy. How? By the same techniques - the creation and destruction of credit.

For those of you who think the goverment controls an economy ask yourself this: can a government create or destroy the single biggest influence on the economy? From the previous analysis credit by far is that single biggest influence so can/does a government create/destroy credit? No. The central bank and its member banks do.

But you say the central bank is part of the government. Think again. Some of you may remember John Howard's lame comments about keeping interest rates low under a Liberal government. You may also remember the direct rebuttal by then Reserve Bank governor Ian Macfarlane mentioned in the Sydney Morning Herald:


> August 19, 2006
> THE outgoing Reserve Bank governor has
> revealed his annoyance at the Howard Government's election campaign promise to keep
> interest rates low - a pledge that he says was "not plausible".
> ...




So we have central banks and member banks in control of the single largest influence on an economy and a government unable to do a thing.

Central banks are there to help us; aren't they? Tell me they are...
Sorry to burst your bubble kiddo - they are there for themselves, not you. They have two goals:
1. interest or what used to be called usary
2. control

Lets take usary or interest. It is what you pay a bank for the priviledge of them leaning you "thin air". How do you pay interest? From the sweat of your brow ie. your productive work what ever that happens to be. That means making something, building something, digging stuff out of the ground or providing someone with service. You substitute your time for cash. You then pay some of that real cash to the banks in the form of interest and bank fees. They keep that interest. That is their profit. That is their real return and they know it. Their loans are worthless thin air, so the interest they get from you is what they are really after - your hard earned productivity.

Now control. Why would a bank be interested in control. See item 1. By controlling people and for central banks, the government, they control the stream of interest. Get people and governments hooked on credit then you can control them.

So we have credit created out of thin air by the banks; central banks being independent of government; credit the largest influence on an ecomomy; credit being able to be both created and destroyed; interest is the primary aim of the banks and control the way banks ensure they maintain that interest stream.

Lets see if this explains a few things:
1. The Great Depression.
2. The fall of Japan since 1990
3. The rise of China recently
4. The tech bust of 2000.
5. Rising house prices across Australia
6. Large exchange rate fluctuations.
The list goes on.

Remember the original question was where do I put my assets if the economy goes bust. We are close.

Great Depression - prior to 1913 the US did not have a central bank. Its banking system (despite several attempts by some bankers to create a central bank in the past) was regional with hundreds of individual banks each issuing its own notes. In 1913 the Federal Reserve Act was passed creating the US central bank know as the Federal Reserve. It is not owned by the US government but by its member banks. By the late 1920s it had taken over the role of printing notes in the US. It had through its member banks increased credit massively. Stock market rose to a peak, people were hooked on credit. Then it pulled the plug. It told its member banks to withdraw credit. Again on a massive scale. Why? It wanted total control over the banking system. In the 1920's it still did not control all the banks in the US. By withdrawing credit the hope was it would cause a panic and a run on smaller non-member regional banks. It did. The most liquid form of money is in the stock market. So if you had to repay credit to the bank - the stock market is the first place you would go to get liquid assets. Sept 1929 - Stock market crashed. Why - first round of credit reduction. However the market recovered somewhat in the next 3 months:







but during 1929 to 1933 the 1929 crash looks like a mere correction (click on image for a full size view):

[URL=http://img389.imageshack.us/my.php?image=sdepressionha3.jpg]
	
[/URL]


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## lakemac (3 June 2007)

Part 2.

The Federal Reserve through both itself and its member banks continued to withdraw credit from the economy until it had what it wanted. Control.

If you understand that the Great Depression was caused by the destruction of massive amounts of credit by the Federal Reserve and you know that they were after control, ever wonder why and when the Great Depresssion stopped? It stopped when the last non-member bank closed its doors in March 1933 (there is an image of the front page of the New York Times from the time which I can't find right now which refers to the one week "bank holiday").

During that time, real cash, not even deposits and certainly not credit was king. Eventually people were forced to sell their land and homes at cents in the dollar. Guess who bought it - the people who owned the banks and the people who were told to cash out before the 1929 crash.

So to answer the question, non-real assets such as stocks in the stock market will reduce in value as the credit is destroyed. Similarly the "price" of houses will drop as credit is destroyed. Gold, whilst having no intrinsic use per se, has two advantages to store value:
1. it is relatively scarce
2. people percieve it to have some sort of value

You can't eat gold nor can you build a house from it, but whilst people perceive it retains some kind of intrinsic value you can, in periods of credit reduction or worse still credit destruction convert it into something to eat and something to provide you with shelter. Be aware though its "price" will go down as credit is withdrawn from the economy. Only cash will retain any direct purchasing power. Gold is better as a longer term holder of value across a depression. Hold and use direct cash (not deposits) during a depression.

In a recession (a mild reduction in credit) deposits of money with larger banks would be the go in my opinion. You have to trust the bank is not going to go under. There is no need to go to gold.

One other thing with gold - it is not unusual for governments to ban the personal holding of gold. The US did this (it is related to payment to the Saudis for oil, but that is for another topic).

Why buy land at the bottom of the depression. It is the one thing that people need besides food water etc. It is also the thing that most of the time is bought on credit. It is also the one thing that changes in price depending upon the amount of available credit in an economy. It will normally rise in value first and often the fastest after a depression and/or recession. Shares take time to rise due to the fact that share prices only rise once people have re-established places to live and work. They distrust the market as it was the thing (as in 1929) that burnt them last.

Still want more proof?
How about Japan. For those old enough to remember Japan in the 1980s was booming. We were all told to go out and learn Japanese - they were going to take over the world. What happened? How could such a strong economy all of a sudden just stop? Japan came to a crashing halt in 1990. Firstly what happened? The Bank of Japan (its central bank) told its member banks through what is called in Japan "window guidance" or its credit control mechanism to reduce credit to Japansese companies.
(cf "Princes of the Yen" by Richard Werner)
As before remove credit the economy slows down or worse still stops completely. Japan has been in deep freeze for more than a decade with little credit until recently.

Interestingly enough for those of you who think interest rates control an economy - if they did, why is it that Japan has not recovered. It has had ZERO interest rates for over a decade. Interest rates are a furphy. They don't affect an economy anywhere near as much as credit creation/destruction. You may also be interested to know that Japan's government and not its central bank controlled interest rates. It didn't help the government. They finally gave up and handed control (there is that word again) of interest rates to the Bank of Japan. But still why put Japan and more interestingly enough, Germany, on ice...?

One answer: China.
More correctly: 4 billion Chinese who don't yet have enough credit and are not, as yet, paying anywhere near enough interest (there is that other word again).

Banks work on interest and control - global control. To create credit in China you have to turn what was basically an agrarian country into an urbanised society that requires loans for houses, wide screen TVs, mobile phones and for business people - other businesses to buy.

To go from agriculture to industry you need technology. To get the technology you have to borrow money for it. Even better if the amount you have to borrow is lower because you have a distressed seller. Germany and Japan are two of the best sources of high technology. They were also the world's factory. "Made in Japan" became a badge of good quality.

You want the Chinese to industrialise so they become urbanised and want credit you have to move the world's factory from Germany/Japan to China. Simple just reduce credit in those two countries and increase credit in China. Now you have Chinese companies buying German and Japanese technology at distressed prices (remember when the Japanese were buying the Gold Coast - same principle). To do so they have to borrow from the banks. Credit creation starts. You need workers - urbanise them. They need houses, units, wide-screen TV sets, etc etc. Of course you lend them credit.

You keep the US going because you need a market strong enough and big enough to be able to buy the stuff you produce in China.

When do you pull the plug on the whole thing - when China becomes self sustaining. In other words when China's internal demand reaches that of what is being currently consumed by the US. Then you have enough people and companies hooked on credit to be able to disconnect the US and raise interest rates. You control the country and your interest rate pipeline is secure.

Next big recession - when China reaches that point of self sufficiency. When? I don't know - yet. Thing to do is to watch the credit creation/destruction by banks. That will give you a heads up.


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## WaySolid (3 June 2007)

Jikx said:


> Where do you put your money?
> 
> Gold? Cash? The mattress?



I suggest a study of history.

I have found it amazing to see what has actually happened in history once you start looking. Ask an Argentinian what it's like to move from the middle to the lowest rungs of society simply because the middle was lopped off.. It's all there and it makes for fascinating entertainment as well. You don't even need to go very far back just have a look at the period 1900-2007 to begin with.

As a historical hedge I would ideally suggest farm land with secure food, water and energy supplies and the support of a strong community in a politically secure country as the best method. If you have geopolitical risk then watch out, I have read that jewelry is the best here as it's easily hidden (forget about gold bars) and even things like krugerands and other pure gold plays are not ideal for various reasons... jewelry... Interesting and I'm not making this up, it's all there for study.

** edit.. Also a wonderful hedge is mobility, the ability to move where things are better in terms of countries. Europe was a community that had evolved beyond wars and was experiencing a period of prosperity, the last crazy woodchuck who had tried to improve the world was Napoleon some 100 years ago... and then along came WW1. Stuff happens I guess, anyone else been following the military build up in the Persian gulf? 

Hard to think of a better country than NZ to be in.. Australia would also rate highly even though honest J has done his best to  align our image as the US's Pacific deputy.


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## lakemac (3 June 2007)

I like your way of thinking WaySolid.
It shows independence and original thought.


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## Rafa (3 June 2007)

fascinating... 

i think real assets are the key...and you need to hold them outright.

one thing i've wanted to know about holding cash tho...

if we have an argentina situation, which say the value of the AUD becomes worthless...

in that case, you would a hell of a lot of dollars be need to buy say a kilo of rice...  but why wouldn't you still need many more 'hell of a lot of dollars, to buy a house??? 

why would a house price fall? is it simply becuase people would have to sell up to repay the banks? or would they prefer a kilo of rice instead of the house? 

sorry, very poorly worded question... (and naturally, the scenario is highly exagerrated)... but i guess what i am saying is, assuming we know when this event is going to happen, is it better to liquidate the 'fully owned' house and get the cash (in gold)? or do you need both, the house and cash/or gold?


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## barney (3 June 2007)

Couple of great posts above there Lakemac ............ 

Working on the assumption that the Banks have now "cultivated" their power over we punters, would it be fair to say it is not really in their bests interests to cause any further major catastrophe's because they would actually be lessening their own "returns" (China excluded at this point in time of course) ............ 

The ideal scenario for the Banks I'm guessing is when they have a balance of maximum returns and maximum control over the majority of punters ......... Creating a severe recession/depression would therefore serve little purpose .... T/F? ........... The real power struggle I guess would then come down to the Banks of the major countries vying for control over each other ........ Is that a possibility in the future? ............. I have no idea .......... Just thinking out aloud re the points you raised..... Interesting.


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## Rafa (4 June 2007)

i would think banks have everything to gain...
wouldn't then simply cease control of all the assets (given we leverage off them significantly)

what about owning shares in banks?


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## lakemac (4 June 2007)

Hi Rafa,
There are never poor questions just poor answers.
However ask better questions and you will get better answers (Anthony Robbins - Unleash the giant within).

The effect in Argentina and prior to that intra-war Germany is hyper-inflation.
What occurs there is the exact opposite of a depression. Instead of a reduction of credit, the economy is swamped with credit (I am talking hyper-inflation here).

Hyper-inflation is caused when the central bank creates credit for the government (as against business lending). Governments are no different to anyone else - they have to have budgets, they earn money (in the form of taxes), they spend money to buy votes and provide services, they borrow (normally from their local branch of their central bank - I kid you not) and they have to repay.

When a government goes overboard on a spending spree (such as what happened when Whitlam came into power) it has to borrow. It does this by issuing government bonds. These bonds pay interest. The interest is paid for by the citizens through taxes, levies etc. (remember interest is the real money in the system - the money the banks want). The bonds are sold in the open market to either other governments or most likely to central banks, either the local one or other countries ones. Ultimately the local central bank has to create credit to buy these bonds to soak up any excess issued by the government. Remember central bank credit is no different to other banks credit - both are thin air - ie. it is money that doesn't really exist.

The more the government borrows the more the central banking system creates credit and the more the central bank gets in interest (remember interest on government bonds comes from taxes).

If you get a government that goes crazy (often politically corrupt) it will continue to issue more an more government bonds to fund what becomes a larger and larger problem. Eventually money does grow on trees - there is so much of it, it is not worth the paper it is printed on and is just like a full deciduous forest during autum. This is hyper-inflation.

In this situation the cost in whatever currency you use becomes astronomical. The instrinic value of the item remains the same - an apple is an apple no matter what you pay for it.

In hyper-inflation housing becomes impossible to buy. In the Australian context our rising credit creation has caused house prices to skyrocket. More credit creation by the banks means higher house prices. Forget the crap the politicians and almost every other pundit puts out about the cause of house prices being high. Pure and simple it is excess credit creation. Reverse the process (ie destory credit) and see how fast house prices come down.

If you owned a house outright:
1. in inflation hold it.
2. in deflation sell it then rebuy after the credit creation process reverses.

Simple buy low sell high principles. The trick is knowing when.

Would you go all gold or some other value store? It depends upon how you think the banks will hold up. If you don't trust the bank move the deposit. If you don't trust the banking system move to gold or precious value store. It also depends upon your trust of the political agenda. Americans would not have thought their own government would outlaw the ownership of gold but it did. Mobility of your capital as well as yourself may be more important than holding it in any land based asset.

Am I parnoid - maybe but history has shown these kinds of things happen with amazing regularity. The key is to watch, learn and listen to the banks.

My friend and I call it "fox speak" (as in foxes looking after the chickens). The banks talk quite openly about the credit creation/destruction process in the press. Why? Because they can - they know nobody is listening. The broadcast this to other banks. For example a press release from the RBA on the 7th May 2004 signalled the end of the housing price rise. "Credit was to slow" claimed the RBA in its press release (source RWE). Golly gee time to cash out your house purchase. Not rocket science once you know how.

Same thing fixing interest rates. Inversion of the interest rate curve is what they call it (google it for more info).


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## clowboy (4 June 2007)

Rafa said:


> i would think banks have everything to gain...
> wouldn't then simply cease control of all the assets (given we leverage off them significantly)
> 
> what about owning shares in banks?




I'm pretty sure you can't own shares in the reserve bank, and thats the only one that counts.

In terms of holdong a house and gold/cash, you would in theory be better of all in cash than retaining the house, assuming that a huge inflationary scenario doesnt take place, then you could just buy and hold heaps of fridges.

Holding the house gives a level of security though.  While rice is more important than a house (roof), only by a bit.


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## wayneL (4 June 2007)

WaySolid said:


> I suggest a study of history.
> 
> I have found it amazing to see what has actually happened in history once you start looking. Ask an Argentinian what it's like to move from the middle to the lowest rungs of society simply because the middle was lopped off.. It's all there and it makes for fascinating entertainment as well. You don't even need to go very far back just have a look at the period 1900-2007 to begin with.
> 
> ...



Great Comments.

As to where to put yer dosh? It depend whether the bust is hyperinflationary or deflationary.
Toss a coin, but BB's helicopter comments suggest hyperinflation.


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## lakemac (4 June 2007)

Barney, the banks (or more correctly the families that control the banks) will engineer whatever events (think wars, depressions, inflation or change of government) they need in order to continue their quest for even greater control. There are very large mineral resources sitting in a very bankrupt Russia at the moment. To get China fully hooked (particularly to wrest control from the communist party chiefs) it will take some massive economic upheavals. I really do worry what could be in store when it comes about.

You still have Africa to learn about credit too. Lots of people over there need it don't you know. That will not happen until Africa introduces individual property laws to overthrow tribal land laws (there was an excellent article in the Economist (31/3/2001) about why Africa remains poor - Poverty and Property Rights was the title - see also the book "The Mystery of Capital - Why captialism triumphs in the west and fails everywhere else" - Hernando se Soto).

China solved this problem only recently with the passage of bill to protect some forms of private property (Source: SMH 17th March 2007). Private property in a communist state - now there is a bank at work...

As an aside to all this stuff (I have reams of research material on all this) I just wish schools would teach economics/commerce from the perspective of the banks. It would make for a far more interesting study of both history and economics. It ties in most wars in the last 400 years, assasinations, the rise and fall of various nations and the ultimate rise of the families that control the banking system. Economics has never been so much fun


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## lakemac (4 June 2007)

No unfortunately you can't own shares in central banks.
Shares are really only about control not direct value.
It is the interest stream you want.
Owning high interest bearing government bonds are always a good idea during a depression. How many of us bought 30 year bonds during the early 1980's. You could have got massive returns.

Shares unfortunately follow the credit cycle. See my previous charts on the Dow. Hence owning general bank shares does not protect you. You have to be savvy enough to follow the credit cycle and switch between asset classes.

My pick is to buy rubbish dumps and hold them for your great great grand kids. Why? Nano tech. The ability to reassemble matter in tiny nano-factories. Rubbish dumps will be the mines of the coming generations - they contain a plethora of basic elements necessary for nano robotic factories to reconstruct. Just think one day you will be able to mow your front lawn (assuming you still have a lawn after the drought has finished with it), stick the clippings into a "microwave oven" of sorts and out pops a nice juicy steak. Yummy. Hey it is what a cow does right now...  time for bed I think. Gotta trade tomorrow.


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## x2rider (4 June 2007)

whoa Lakemac 

 Where do you come up with this stuff. If your smoking it then maybe you should be investing in that . then everybody would be so high it just wouldn't matter.

 I'm more along the lines of the film Tank Girl . Water will be where the money and the power will be  and money will be in terms of litres not dollars 

 Gee that was enough brainpower for the rest of the week used up . I might go and have a ly down 

 Cheers martin:goodnight


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## lakemac (4 June 2007)

Hi x2rider/martin.
I sometimes feel like Neo in the Matrix and I sometimes wonder if I could un-know some of this stuff.

What started out seven years ago as a simple question on superannuation has turned into a quest to prove myself wrong.

The simple question was this:
"Is there a way to protect myself in retirement if something like the Great Depression happened?".

That lead to the next obvious question (well it was obvious to me anyway):
"What caused the Great Depression?"

I started researching and the more I researched the more I came across the involvment of the banks - particularly the central banks and several families you may have heard of - the Rothschilds, the Vanderbilts and the Warburgs to name a few.

Initially I thought, like you, this is wacky-weed stuff. Can't be true. But my long deceased accountant father once said to me "understand where money comes from and you will understand the world." How right he was.

Martin I throw this challenge to anyone who doubts the research and my conclusions - do your own study. Go back to the basic data, the financial statements, the history books, the records of meetings, the charts. Prove me wrong. I would love you to. There is just too much of it out there pointing in the direction I have found. I wish I was wrong.

You wonder where I get this stuff - well let me start you off - I mentioned NAB. Go to their website and grab a copy of the 2006 detailed financial statements. In the consolidated balance sheet you will find about $280B of loans which is half of their asset base of $440B. Their liabilities - ie the money you deposit with them is shy about $27B... That is $27B of thin air my friend.

Get a copy of the Masters of the Yen by Richard Werner. He worked within the Bank of Japan for a number of years. Just in case you doubt the veracity of his claims the book contains a huge data mine of references. Go and check those.

Then go down to the Mitchell Library (or its equivalent depending upon where you live) and open the microfiche library on the SMH, Age etc. Check the dates and cross reference it to stock market charts. Go to the RBA and Fed Reserve web sites and pull off the historical data series of M1 (a measure of money only - not credit unfortunately). Plot those series.

Go back in history and research the Rothschilds (see the detailed books by Niall Ferguson) and their involvement in the formation of the Bank of England (whilst you are in that part of the world don't forget to look up tally sticks).

I have one advantage in this - a seven year start on the research material. But as I say don't believe me. Prove me wrong. I would like to believe in Santa Claus Howard and The Ruddy Tooth Fairy, but I can't...


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## theasxgorilla (4 June 2007)

WaySolid said:


> As a historical hedge I would ideally suggest farm land with secure food, water and energy supplies and the support of a strong community in a politically secure country as the best method. If you have geopolitical risk then watch out




You mean like neutral Sweden


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## theasxgorilla (4 June 2007)

lakemac said:


> What started out seven years ago as a simple question on superannuation has turned into a quest to prove myself wrong.
> 
> The simple question was this:
> "Is there a way to protect myself in retirement if something like the Great Depression happened?".
> ...




It's a fascinating story Lakemac, although I would have thought that if history were going to repeat in a sense that we'd have all got our comeuppance after 'dotcom' bubble/bust.  Alas, no new great depression.  Seems that it could be different this time


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## theasxgorilla (4 June 2007)

wayneL said:


> Toss a coin, but BB's helicopter comments suggest hyperinflation.




I think those powers that be probably think that they can lick inflation again if it becomes the issue it was in the not too distant past...and what better way to evaporate away all that debt??


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## nizar (4 June 2007)

LakeMac.
Thanks for those posts.
I definately learnt something and will be looking up those sources not to prove you wrong/right, just to learn more.
Some really good stuff in there.


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## BradK (4 June 2007)

lakemac said:


> As an aside to all this stuff (I have reams of research material on all this) I just wish schools would teach economics/commerce from the perspective of the banks. It would make for a far more interesting study of both history and economics. It ties in most wars in the last 400 years, assasinations, the rise and fall of various nations and the ultimate rise of the families that control the banking system. Economics has never been so much fun




Hi Lakemac, 

Some excellent material here that makes for interesting reading. I am an English and Modern History teacher, and the more I study history the more I come to the conclusion that History is about money. Its not about great personalities, or nations, or even racism. Its about money. And I am certainly no marxist! Perhaps our syllabus makers need to have a quite reflection on this stuff. 

Cheers
Brad

PS. What an interesting thread this is turning out to be!


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## explod (4 June 2007)

I feel humbled before you all.   Four years ago I began my search to protect my retirement portfolio, roughly on the right track but what I have learned on this thread is a wonderful fast track for myself and those beginning.

Thank you this is the best thread I have found on ASF


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## nizar (4 June 2007)

explod said:


> I feel humbled before you all.   Four years ago I began my search to protect my retirement portfolio, roughly on the right track but what I have learned on this thread is a wonderful fast track for myself and those beginning.
> 
> Thank you this is the best thread I have found on ASF




Tend to agree wholly.

Really appreciate it LakeMac, for you taking the time.


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## BradK (4 June 2007)

I just watched an interesting film on the creation of money on You Tube. 

Type in 'corrupt banking system' on You Tube. It is in five parts.


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## lakemac (4 June 2007)

You might also want to get a copy of this DVD:
www.themoneymasters.com

That will really bake your noodle (as someone on the Astronomy thread in this forum said quoting The Oracle from the movie The Matrix).


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## lakemac (4 June 2007)

Thanks for that link Brad.
If you follow the money masters link to their online store, they are selling both videos. Must watch the new one myself.

As to education - well I am not holding my breath. You have to remember that the education system was set up during the start of the industrial revolution to provide workers to that system. Nothing has changed. It still provides workers to the system. School is not about being financially literate.

In fact there are four subjects never taught a school but have the largest impact on our adult lives:

1. relationships
2. the law
3. finance
4. sales

Think about it, you are never taught how to handle a relationship. We bumble along with a few emotional tools we picked up as children and are expected to deal with the complexities of marriage, our own children and a myriad of other intertwined human interactions. Anthony Robbins please step up to the plate. NLP (neuro linquistic programming) should also be there.

The law - mobile phone contracts for a start. Add your first car loan, mortgages, Family Law Act, IR laws, you name it there is a law controlling it. Legal structures - companies, trusts, partnerships, etc etc. How many of you know how the law actually works. For example is a contract legally binding if it is done on just a handshake? (I would be interest to know what people know on this one...). We are never taught.

Finance - those reading this are on their way. But how many ways are you taught to make money in school? One. Subsitute your time for money. That's right a JOB. What about teaching kids how to make a business profitable. Robert Kiyosaki has done a lot in this area of education. It is fascinating watching people play his Cashflow game. Highly recommended.

Sales - well from the moment we start to crawl across a floor (doh! I originally spelt it flaw) we are in sales. The art of persuasion. "Mummy can I have some icecream? Huh? Huh? Pleeeeease mummy". Trouble is we don't learn enough. You are always trying to sell yourself; to get a mate, to get a job, keep a job..., get promoted, sell your company's product (you do have your own company don't you...). Related to sales is marketing. Never taught at school yet as an adult we need it badly.

/Soapbox mode off for now...


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## BradK (4 June 2007)

Hi Lakemac, 

Yes, I agree that the education system needs a fine tune and often wonder at some of it. 

Personal story to show you HOW financially illiterate I was when I left school. I got a $4000 loan to buy a car. I was paying the minimum repayments and I remember thinking, 'gee this is not going down!' ... I marched up to the bank, and it was THEN, only THEN that I learned what interest was!!! 

I can hardly believe how ignorant I was of finances. 

However, I must disagree on Robert Kiyosaki. He simply is a book salesman in my view. And gives shonky financial advice. He never gives any specifics or how to's and I cringe when people I know read him. Don't get me wrong, he is good for educating the mindset, but IMO he is valuable for little else. 

Cheers
Brad


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## lakemac (4 June 2007)

Hi BradK,

I tend to agree on your opinion of Robert Kiyosaki particularly his financial advice, however, his three books:
1. Rich Dad, Poor Dad
2. Cashflow Quadrant
3. Rich Dad's Prophecy

Are a must read. The first two introduce you to his concept of the four types of income stream. The first book is a story, the second is the detail.

For example if you want to start a business make sure it is one you don't like doing yourself - why because you will not want to work there. Own it, control it but don't work in it. If you do you are not a business owner you are what Robert calls an "S" or self employed. I wish I had known that 20 years ago.

The third is a warning about superannuation or in US parlance 401(k) and/or Roth savings schemes.

I have moved on from these books but they are a good starting point for any young (or not so young) person. The key thing is that they make you think.
Something few people do these days.


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## Jikx (4 June 2007)

Fantastic writeup lukemac, I will definitely have a good read of those books during the holiday break!


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## WaySolid (5 June 2007)

theasxgorilla said:


> You mean like neutral Sweden



Yes it's interesting how things can change, I don't know enough of the history of Scandinavia to comment though.

I have just returned from Lithuania in the Baltics which has historically between the meat in the sandwich between Russia and the west, and recently Lithuania has joined NATO and has military bases there as well as troops in Iraq even.

Today Putin was suggesting he could point his missiles towards Europe again if America presses ahead with what is definitely an imperial agenda any further. The US want to put missile stopping technology in Poland and the Czech republic I read. History in this region is written in blood, the unifying theme is just people killing other people going back thousands of years.

I was experiencing my first European winter (-35) when Putin was using the threat to switch off the gas supply as a negotiating tool... It's no little threat you can say.

You hope that the world will muddle through but sometimes it's hard to be positive, as a gen X'er I haven't lived through a WW, depression or global  crisis but accept that it might be unusual for me not to live through such things based on a normal life span.

Largely for geographic reasons it's hard to go past the Southern Hemisphere as a good place to be living whatever is likely to happen.


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## wayneL (25 June 2007)

For your amusement:

http://www.telegraph.co.uk/money/main.jhtml?xml=/money/2007/06/24/cnbis124.xml



> *BIS warns of Great Depression dangers from credit spree*
> 
> By Ambrose Evans-Pritchard
> Last Updated: 5:11pm BST 24/06/2007
> ...


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## lakemac (29 June 2007)

> Virtually nobody foresaw the Great Depression of the 1930s, or the crises which affected Japan and Southeast Asia in the early and late 1990s.



That is because they were not looking in the right place at the right figures.

Credit creation/destruction is the key.
Forget interest rates. They are a furphy.

If you look at the amount of credit (and money to a lesser extent) that was destroyed between 1929 and 1933 in the USA alone, there was a decline of something like 30% in real terms (my research library only has figures for "other money" held by the US Treasury from 1860 to 1947 which is a very poor proxy for credit. Must get some better data to back up my claims... cf P480 Report to the Treasury - Federal Reserve Bank of St. Louis 1980)

Similar figures for Japan after 1989. Credit via the Bank of Japan's window guideance system was choked off. Credit availablity dropped from approx 9% YoY in 1989 to zero by 1992 in Japan (P267 Princes of the Yen - Richard Werner. Also see P122 Figures 11.2 and 11.3 for a comparison to the US Fed credit creation rates).


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## algis (30 June 2007)

Fascinating material.  And an interesting forum overall (found through a search on views of recent 4corner's investigation of call centre work practices at Telstra).

I have looked at video on YouTube as suggested by BradK.  A nice easy to understand succinct summary of the problems of usuries, credit bubbles, and the need for credit creation.  I had very little knowledge of the creation of money prior to this video.

The idea that the economy can only be sustained by increasing levels of debt to service existing debts seemed like a ridiculous one, but it is evident with average household debts in Australia for home loans increasing to the level where they are currently at.  Which suggests that your average Australian will only be burdened with more debt to purchase a house in future.

The need to service increasing levels of indebtedness with further credit creation goes some way to explaining the drop in interest rates and how credit is practically foisted on to people these days (credit cards in the mail etc).  No doubt deregulation of the financial market and the reduction in tariffs in the Australian economy (the recession we had to have)(the time lag in becoming competitive by reducing the national economy to its core competencies - Howard takes credit for this no doubt...) had a lot to do with this as well.

I guess this situation can remain sustainable while the economy continues to grow to stop inflation, but when this stops...  

I just wonder how it would be possible to make any sort of smooth transition from what we have now to something more sustainable.

I came across this site here:
http://www.perfecteconomy.com/

which purports the idea of an interest-free based credit system, but after a brief glance, I am not convinced (will need to study up on this - perhaps someone can explain...).  There is an example of the credit for a $100,000 house based on the 100year lifespan so that people should be able to repay at $1,000/year.  Surely in this example this:
* will create massive inflation (which should stabilise)
* not account for the risk in loaning a house of substantial value
* not account for the lifespan of the land the house sits on....

I found the site that the YouTube video is sourced from:
http://www.moneyasdebt.net/

I look forward to more interesting discussions....


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## lakemac (30 June 2007)

For a more rigourous explaination of things I can highly recommend
www.mises.org - especially the writings of a Mr Frank Shostak (a fellow Australian btw).

Mises and his ilk (particularly Rothbard) form what is called the Austrian school of economic (as against the Chicago school - Milton Friedman was its well known frontman or the dreaded Keynesians who really got it wrong).


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## spartn (30 June 2007)

CAUSES OF THE GREAT DEPRESSION.

There are several explanations for what happened but the most obvious conclusion is that it was the confluence of several shortsighted and commiserating factors. Three main themes emerge: historical factors, central bank policies, and political decision making. For the purposes of this discussion the focus will be on the United States.


The US in the 1920's: Buying into the Boom

The 1929 stock market crash marked the beginning of the Depression. Prior to the crash the stock market had been an important source of funding for industry; thus the crash itself was a contributing factor to the downturn as well as a harbinger of things to come. Since stock prices are based on estimates of future earnings potential, the stock market performance of the 1920's tells a story of runaway optimism for the future. When it peaked a few weeks before the crash, The Dow Jones had risen 597% over the previous 8 years. It was soon to become a symbol of runaway pessimism.

The freeing of capital from government use to commercial use following World War I caused commodity prices to inflate. In 1920, Ben Strong of the US Federal Reserve Bank of New York raised interest rates sharply to prevent inflation. This caused a recession and the stock market to fall. Once hard assets like commodities and real estate were no longer rising in price, money began to pour into stocks and bonds. The Dow started climbing from its low at 63.90 in 1921 and rose 150% over the four years to 1925.  

According to Ron Chernow, in "The House of Morgan", It was in 1925 that Ben Strong made a secret commitment to Montague Norman, Governor of the Bank of England, to help England reinstate the Gold Standard. This action would later be shown to have undermined the British economy but the Pound had been the main medium of international exchange at that time and it was felt to be in everyone's interest to have it be exchangeable for gold. With moral support from the US Treasury, Strong chose to help strengthen the value of the Pound by depressing US interest rates. This depressed the value of the US Dollar and caused the already robust economy to boom. 

It was suddenly cheaper to borrow money to invest in the stock market (called margin investing). Since the Dow had risen steadily since 1921, "small investors leapt giddily into the stock market in large numbers". The margin requirement at that time was only 10%, meaning you could buy $10,000 worth of stock with only $1,000 down, borrowing the rest. With artificially low interest rates and a booming economy people and companies were more apt than ever to invest in grandiose business expansions and over-priced stocks. Mergers and acquisitions soared. 

In 1927, Britain ran into trouble with its gold standard again and Ben Strong lowered US interest rates in sympathy for a second time. This ignited the boom into the speculative frenzy that brought the market to its peak on September 3, 1929. It was like pouring gasoline onto a fire - the flames rose up, no lasting fuel was added, but the economy sure looked great. 

Ben Strong died in October 1928. George Harrison, his successor immediately lobbied for higher interest rates to cool the speculative fervor. Rates were finally raised 1% in August of 1929, but by then it was way too late. The Dow peaked at 381.17. 

The market and the economy had buoyed itself from one source of hope to the next for a whole decade. First it was the end of war-related inflation and booming exports for war reparations, next artificially low interest rates in 1925 and 1927 and booming exports due to a reduced value of the Dollar vs. the Pound. There were major tax reductions instituted by the Republicans under Hoover and finally in June of 1929 an international accord was struck with the Germans (albeit short-lived) over the financing of war reparations, a major issue of the decade. 

By Monday, October 28, 1929 the Dow had fallen 20% to 300. It fell 40 more points that day and another 30 on Tuesday (Tragic Tuesday) to reach a temporary bottom at 230.07. It was down 40% from the peak 56 days earlier. 

George Harrison bravely stepped in to provide tremendous amounts of credit to the banking system. This action prevented immediate bank failures and bankruptcies and a total collapse. The market recovered a good bit of ground but began to fall again before year-end. By mid-1930 this liberal credit policy was to be reversed affecting the money supply crisis discussed below. 

In early 1930, there were 60 bank failures per month in the US but when the Fed tightened its purse strings, things got much worse. 254 banks failed in November and 344 in December of 1930. Among these was the Bank of the United States, with 450,000 depositors it was the fourth largest bank in New York. Although it was a private bank, "The biggest bank failure in American history, the Bank of the United States bankruptcy fed a psychology of fear that gripped depositors across the country." 

In spite of further tax cuts, public works programs and optimistic speeches, spending and thus economic activity just kept going down. The stock market would make temporary recoveries, sucking buyers in, only to free fall again. The Dow finally hit bottom at the level of 41.22 on July 8, 1932, 10.5% of its peak three years prior.

resource: http://www.shambhala.org/business/goldocean/causdep.html

Spartn

:viking:


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## lakemac (30 June 2007)

Ignore the interest rate hype - have a look at the graph of money supply contained in the link spartn provided.

Kool. Thanks spartn.

Check the graph of the Dow Jones post 1929 then post 1933 in my previous entry to this thread (here). The stock market crash looks like a small blip in comparison to the drop from 1929 to 1933. Interest rates don't cause that kind of drop. Only a reduction in credit does that.

Of course most of those bank failures were "non-federal reserve" based banks. Funny how the depression ended just as the last of these banks closed their doors. Control my friends, control.

The story behind gold (and its cousin, oil) is one that is even more fascinating than the banks.

Teaser: consider this - the Saudi royal family only accepts gold for payment in business dealings.

Teaser 2: why did the US make it illegal for its citizens to own gold?
Hint: it has something to do with oil...



> 1933 -April 5 - One month after his inauguration, at the nadir of the Great Depression, President Roosevelt declared a national emergency and unconstitutionally ordered all gold coins, gold bullion, and gold certificates to be turned into the Federal Reserve banks by May 1st under the threat of imprisonment and fines. It was a national confiscation of gold and silver.
> 
> June 5 - Congress enacted a joint resolution, that all gold clauses in contracts were outlawed and no one could legally demand gold in payment for any obligation due to him. This resolution is clearly in violation of Article 1, section 10 of the Constitution.*
> 
> ...




(I think I know too much about this stuff - it give me a headache at times LOL)


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## Boyou (30 June 2007)

Hi ..great thread.Thanks Lakemac and all who have kept contributing such high grade  information.

I'd like to alert you to a book I read recently.

"Empire Of Debt" Bill Bonner and Addison Wiggin.

Lays out the pathway that the U.S. has been on for years..a path to ruin...

Mucho madness!!

Cheers Ya'll


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## lakemac (30 June 2007)

Boyou said:


> Hi ..great thread.Thanks Lakemac and all who have kept contributing such high grade  information.



You are welcome.



> I'd like to alert you to a book I read recently.
> 
> "Empire Of Debt" Bill Bonner and Addison Wiggin.
> 
> ...



Oh dear another one to add to my reading list.
Thanks for the referral.


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## misterS (1 July 2007)

Lakemac.  This is another one of those fascinating threads on ASF that stir my imagination. You've clearly thought a lot about the human condition and society

Reading it, I idly wondered if you had considered whether the control exerted in this fashion was a positive thing. Correct me If I am mistaken but I got the sense this "control" was used in a pejorative sense and that it was these banks which were causing wars and depressions, etc., rather than these being the expression of human competition for resources or other things - sometimes as ineffable as the thin air which comprises "credit" - such as shared delusions of superiority, or even sectional interests disguised as ideals which drive group or national violence.

The existence of small banks, each printing their own currencies seems inimical to a modern economy, so its reform, even in the brutal way described, at least seems a rational move. The fact it vested greater power in the central banks and its members seems a logical consequence. 

However, we needed efficiency improvements of that kind and continue to do so today as evidenced in the increasing efficiency of the internationalisation of markets.

Ironically, we might even be saved from a doubtless oppresive and insensitive single world government, rather than driven to it, by increasing efficiency, integration and rationalisation of markets (including financial markets and instruments) which you characterise as the establishment of "control" by menacing banking dynasties.

Perhaps your mates at the Bank orchestrating this efficiency will actually save us from Orwell's "new world order" imagery of a jackboot forever stomping on a human face?

If there are going to be pivotal (and controlling) structural mechanisms at work in the world, and it seems there must, what would you see as a preferable, universal and underlying control mechanism for humans, if not money and credit?  And if not central banks, who?  The other candidates seem to be less attractive than money and banks.

thanks


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## BradK (1 July 2007)

I am glad that this thread had come to life again. It really makes you think, not so much about the human condition as one poster put it, but rather about the ubiquity of the economy in our everyday lives. 

I wonder if anyone who has a commerce or financial planning degree could comment on whether this sort of stuff is covered in their courses? 

By the way, is the Australian Reserve Bank set up along the same lines as the US Fed? I went to both the Australian and the Bank of England and they seemed to sing from the same hymn sheet. 

Cheers
Brad


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## lakemac (1 July 2007)

Thanks for your considered comments misterS.

Often people are persuaded that central banks are benevolent (they do an excellent job of it too I might add. We are here to help you. This is exactly how the banks sold the idea of the Fed to the US Congress. Of course to ram the Federal Reserve Act of 1913 through you need to do so in the dying hours of congress just before they all leave for their christmas dinners...

There is a country that does not have a central bank.
I point you to this article from www.mises.org
http://www.mises.org/story/2533

The thing to remember is central banks erode your wealth (as does the government through forced taxation) with the dilutitive effect of more credit being created. This means you end up requiring more credit to buy the same goods. The intrinsic value of the goods does not change. A house is still a house but you need at lot more credit to buy one now than you did in the past. Why more credit exists; not because the intrinsic value of the house has gone up (although in desirable suburbs you do get scarcity of supply which will increase the perceived value of the house - same thing with oil, the scarcity of a thing in demand will lift its perceived value to a purchaser).

The other side of thin air credit is that it gets paid back with real sweat. Not thin air. This the banks know. It is the interest stream they want. You have to work ie. create real wealth to pay back the interest on their thin air.

You mention many small banks printing their own currency. This happened in the US during the 1800's. Why is it such a bad thing. Customers get to know which bank is backed by real wealth very quickly. The key is to ask them, how much of their "currency" is backed by some kind of real wealth ie. gold, land title, art etc.

Of course if you are trying to be a national government (as was Lincoln aim) you can't pay for an ongoing war if you have run out of gold. So you need to issue credit and collect taxes. Lincoln did this by stamping the back of existing bank notes with green ink (from this we get the term "greenback"). Only these notes could be used to pay taxes.

You can see how governments need a central bank that issues credit. It holds up the lie that is big government. (As an aside consider this - without national governments war would basically cease to exist. See:
http://www.mises.org/story/2587).

As to increased efficiency I point you to another article from www.mises.org
http://www.mises.org/story/2601
this is a case of lack of efficiency because the free market is not allowed to do what it does. Similarly central banks only exist through a forced legislated mandate. They only exist to control governments.

The other lie the government feeds you is that of social security.
Mises again
http://www.mises.org/story/2586

As to a replacement for central banks - the free market.


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## lakemac (1 July 2007)

BradK said:


> I wonder if anyone who has a commerce or financial planning degree could comment on whether this sort of stuff is covered in their courses?



From my investigation into courses that say FINSIA http://www.finsia.edu.au runs (btw Colin Nicholson is one of their lecturers in stock market analysis), I would say not. They tend to focus on classical economics in which money supply is held to be constant. Even so you can do a reality check here by going to talk to a financial planner (what I call a salaried planner) and ask them if they know how money is created.

Acutally I have a better question that I ask of any financial planner I meet. It is the first question you should ask them. The question is this:
"Are you rich?" pretty confronting, but why would I want to talk to someone who isn't. After all they are going to be suggesting how I should arrange my financial affairs...



> By the way, is the Australian Reserve Bank set up along the same lines as the US Fed? I went to both the Australian and the Bank of England and they seemed to sing from the same hymn sheet.
> 
> Cheers
> Brad



Amen to that  LOL
The RBA is slightly different in setup to the Fed. The Fed was formed by several large bankers forming a corporation which they owned and by sleight of hand became the US governments banker. The RBA was formed by splitting the retail arm of the then Commonwealth Bank off and keeping all the assets in the RBA (neat huh). This was done in the 1950's (have to dig my archives to find the exact date and legislation that caused it to happen). So the real question is how did the Commonwealth Bank come into existence... That is one of my ongoing research projects. Stay tuned.

That aside the RBA operates in the same fashion as the Fed. It issues credit to buy government bonds. However at the moment the Aust government is in surplus. They have paid off their debts so they don't need to issue any more bonds at the moment. However member banks (the big four and others) still create credit under the direction of the RBA.

The Bank of England is a different story - it was created by a Nathan Rothschild, not by the government nor the king. It actually attacked the king's system of money - the tally stick. But that is a whole other story.


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## BradK (1 July 2007)

lakemac said:


> The Bank of England is a different story - it was created by a Nathan Rothschild, not by the government nor the king. It actually attacked the king's system of money - the tally stick. But that is a whole other story.




Any links?


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## algis (1 July 2007)

Further info on the RBA can be found in
"Inside the bank : the role of the Reserve Bank of Australia in the economic, banking and financial systems" by Joan Linklater  which should be available at any state library.


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## Kimosabi (1 July 2007)

lakemac said:


> You might also want to get a copy of this DVD:
> www.themoneymasters.com
> 
> That will really bake your noodle (as someone on the Astronomy thread in this forum said quoting The Oracle from the movie The Matrix).




Just about all these documentary's are available on Google Video:

Money Masters ==> http://video.google.com.au/videoplay?docid=-515319560256183936

America: Freedom to Fascism ==> http://video.google.com.au/videoplay?docid=-1656880303867390173

And if you really want to bake your noodle, watch this one, it ties Religion, 911 and the Federal Reserve all together...

ZEITGEIST, The Movie ==> http://video.google.com/videoplay?docid=5547481422995115331&hl=en


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## stargazer (1 July 2007)

Hi all

This is all great thought provking stuff.  On one hand scary on the other hand a way of reading the signs for some preparation.

To the layman it all looks very complicated and probably seen as far fetched.

Now what action does one take:  Reads all this stuff and decides to act:

Sells the investments be it property or shares
Is all cashed up
Retains the PPOR freehold the title is in their hot little hand.

Time passes the what appeared crisis eases and property doubles after 10 years as is generally accepted.
Shares continue the rescourses boom and the stocks one held are worth many times from when they were sold

Retirement is looming and only have a PPOR.

Or 

The signs and warnings come to pass and ones sits back smug and waiting feeeling pretty good about themselves that they picked it correctly and lucky they got out from the banks grasp.

Or

Stand stands firm putting things together for the retirement stage of there life and it happens and they lose everything

What does one do:

I remember a title wave being predicted for Adelaide in the 70s people sold and left the state etc PANIC. Still no title wave 2007.

How would one put all this into perspective and put themselves in a position either way:
Sell some and hold some perhaps?


cheers
SG


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## Kimosabi (1 July 2007)

stargazer said:


> Hi all
> 
> This is all great thought provking stuff. On one hand scary on the other hand a way of reading the signs for some preparation.
> 
> ...




I think the most important thing to do is get out of debt.

Those that have no debt will be in a prime position to take advantage during/after any bust...

I'll be going into debt, when debt is really hard to get


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## stargazer (1 July 2007)

Hi

Lets face it the modus operandi of the nation has been to get into debt.

People buying properties like there is no tomorrow 106% 100% 95% LVR ETC
Negative gearing or relying on TAX deductions to facilitate purchases and Banks happy to accomodate.

Credit card debt well we all know about that one as a nation

Shares Margin lending being encouraged

Releasing equity for investment more debt.

The Government has got people scared and instilling that they need to organise themselves to be self funded retirees as there is not enough money to go around for retirements in the future.

People are dabbling in areas that they don't necessarily understand look at ACR FIN recently.

So people trying to do the right thing and try and put something in place for their retirement as the BABY BOOMERS appear to be the ones that are most mentioned.  So they are taking on debt.

This can get very ugly if it unfolds in the manner which has been touched on.

Of course as a nation we are a debt ridden one the citizens carrying the debt that is.

First home buyers etc etc

Time to open up a funeral business?

Cheers
SG


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## Julia (1 July 2007)

stargazer said:


> Hi.
> 
> The Government has got people scared and instilling that they need to organise themselves to be self funded retirees as there is not enough money to go around for retirements in the future.
> 
> People are dabbling in areas that they don't necessarily understand look at ACR FIN recently.



Yes.  These two statements should be read as corollaries of each other.
However, there will always be some sort of safety net pension.  The government is, perfectly reasonably, encouraging people to provide for their own retirement and is offering some pretty good incentives to this end.
But there will always be a large proportion of our society who cannot or will not provide for themselves and I doubt we will ever see the time when we simply throw those people entirely on the scrap heap.
Whether anyone would want to be dependent on just the age pension is another question entirely.



> So people trying to do the right thing and try and put something in place for their retirement as the BABY BOOMERS appear to be the ones that are most mentioned.  So they are taking on debt.



Well, I'm a baby boomer and I wouldn't consider taking on any debt.  Neither do any of my friends have any need to do this, so I'd question the suggestion that many baby boomers are taking on debt.
An exception to this could be not baby boomers, but people a generation on who are taking out reverse mortgages with much abandon.  This is all fine as long as they understand the huge debt which can mount up if they live longer than expected.  I can envisage some pretty nasty family arguments on this one.



> Time to open up a funeral business?



Or perhaps before that, get into the retirement village business.  This must be immensely lucrative.  Most of them function on the basis of a "depreciation allowance".  This is pretty funny when you consider how property appreciates over time.  i.e. Say a retiree buys into a villa in a retirement village.  They get just a licence to occupy.  Do not own the land or the villa outright.  Usually it is a 99 year lease.  As an example, say the villa with its licence to occupy is sold to Person A at $200,000.  A condition of sale is that when they sell/die, the village retains the right to onsell the villa and the resident/family is refunded the original purchase price minus usually about 35%.  No proportion of capital gains on the property is available to the resident/family of deceased.
Then the village does a bit of redecorating and then once again sells the same villa to a new retiree under the same conditions, having pocketed the capital gain.  
There is such a high demand for the security offered by retirement villages that they have absolutely no problem getting away with this.

So, before funerals, I reckon it would be worth owning a few retirement villages.


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## ghotib (1 July 2007)

lakemac said:


> The RBA is slightly different in setup to the Fed. The Fed was formed by several large bankers forming a corporation which they owned and by sleight of hand became the US governments banker. The RBA was formed by splitting the retail arm of the then Commonwealth Bank off and keeping all the assets in the RBA (neat huh). This was done in the 1950's (have to dig my archives to find the exact date and legislation that caused it to happen).



The Reserve Bank Act 1959 took effect from 14 January 1960.


> So the real question is how did the Commonwealth Bank come into existence... That is one of my ongoing research projects. Stay tuned.



Here's my potted version, based on a couple of hours running around the Web and drawing heavily on Wikipedia. I'm sure you're already a lot further than this lakemac, but I'm putting it up (a) for confirmation or otherwise; (b) to maybe save you a bit of time after the tremendous work you've put into your posts;  (c) because I've got a heck of a lot of questions.  

The Commonwealth Bank was formed by the Federal Government by the Commonwealth Bank Act 1911, with a Governor who had absolute control (i.e. no board oversight and what seems to me a somewhat confused relationship to government), and no central banking functions. I get the impression that it acted as an agent of government in some ways through WWI, but I'm fuzzy about how. The bank's central banking role expanded from about 1920, to the extent that by 1931 it had acquired a board and enough independence from government to "refuse[d] to expand credit in response to the Great Depression (as had been proposed by Treasurer Edward Theodore) unless the government cut pensions, which Scullin refused to do. Conflict surrounding this issue led to the fall of the government, and to demands from Labor for reform of the bank and more direct government control over monetary policy."

Still quoting Wikipedia: "The Commonwealth Bank received almost all central bank powers in emergency legislation passed during World War II and at the end of the war it used this power to begin a dramatic expansion of the economy. This was also the aim of the Government at the time, which colossally expanded immigration programmes. To respond to this, the bank established a Migrant Information Service. "

I would expect that the Australian central  bank would have modelled itself more on the Bank of England than the US Fed, just on general cultural grounds. It also seems to me that there has never been as much "separation of powers" (so to speak) between the central bank and the government in Oz as there was in the US. 

Which is another way of posing the following question:

Until 1983 Treasury (i.e. the government) controlled the supply of credit, through interest rate setting, not either the Commonwealth or the Reserve Banks. By your analysis, that suggests a fundamental difference in control of money between the US and Oz, at least until that time. Doesn't it? 

Reading what I just wrote, I'm quite sure that I don't understand money supply, in spite of my two semesters of Economics umpty-mumble years ago. Or at least I don't understand why you are so dismissive of interest rates. F'rinstance, I went chasing the foundation of the Reserve Bank because I vividly remember the 1961 credit squeeze, which threw my father out of work and affected the family finances for years. That was initiated when the then Treasurer, Harold Holt, raised interest rates - presumably on government bonds - with the intention and effect of reducing available credit. 

Or are you saying that interest rates are the price of money, so interest rate movements might be either a cause or an effect of the supply of money? 

Very interesting stuff lakemac and others. Thank you.


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## stargazer (1 July 2007)

Hi Julia



> Well, I'm a baby boomer and I wouldn't consider taking on any debt. Neither do any of my friends have any need to do this, so I'd question the suggestion that many baby boomers are taking on debt




Perhaps in your situation and circle of friends.  If you look at the people in those investment seminars they are BABY BOOMERS.  How many times do you hear it LOST ALL THEIR SAVINGS or are still in debt and have LOST IT ALL due to some complicated or slik scheme.
Don't take this in the wrong context i am merely saying that in order for people to get a reasonable standard of retirement they are being put in a position to have to take some steps to invest, otherwise living on a very meagre existence indeed if solely relying on the Govt. Pension.




> Or perhaps before that, get into the retirement village business



.

Yes i know what  you mean my comment was bit of tongue and cheek and in the context that the credit squeeze was on and people were losing their assets.

Cheers
SG


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## wayneL (3 July 2007)

Robert Quackosaki turns Ã¼berbear

http://finance.yahoo.com/expert/article/richricher/37414


> Posted on Monday, June 25, 2007, 12:00AM
> 
> During the height of the real estate bubble, I wrote a column saying that the crash was coming and suggested selling any piece of real estate that was overpriced, questionable, or non-performing. As expected, I received angry replies.
> 
> ...


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## Kimosabi (3 July 2007)

Sounds like a good ploy to wind up owning the whole planet.

Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.


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## lakemac (3 July 2007)

Kimosabi said:


> Sounds like a good ploy to wind up owning the whole planet.
> 
> Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.



They already do Kimosabi.

Robert has some good ideas - I started with his book Rich Dad Poor Dad then moved on to Cashflow Quadrant and his Rich Dad's Prophecy.

However, from my own research, I don't believe Robert fully understands the underlying issue which is the banks. He mentions in that article that wayneL quoted that Japan went bust in 1990 without mentioning the root cause. This is where I find his books hit a limit. Great introduction to the subject of money, starting a business and what is going to happen to the US 401(k) and Roth (superannuation) schemes, but they lack the depth needed for futher investigation.

I still recommend his books to those starting out on this fascinating story. Then I suggest the MoneyMasters video and Richard Werners book The Princes of the Yen. Then the Rothschild's biography by Nial Ferguson. By then you will understand world history, economics and how to survive the banking system.

Mind you just yesterday a bank created some thin air for me. Must go and breath it in LOL...


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## lakemac (3 July 2007)

BradK said:


> Any links?



Best into the Bank of England is the MoneyMasters video
www.themoneymasters.com

It covers the tally stick system and the early part of the bank.
The best background knowledge of the bank of england is in Nial Ferguson's bio of the Rothschilds. Heavy reading though. You have to wade through a lot of personal stuff to get to the meaty bits.

ghotib thanks for the lookup of the Reserve Bank Act. I didn't have time to go back and check my sources


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## Buddy (3 July 2007)

Hey lakemac,
This is a greate thread. I'm only half way through it (time lacking) but am really enjoying the thought provoking ideas.

Question though......... A couple of pages back there is a post from wayneL quoting "BIS warns of Great Depression dangers from credit spree", which appears to be a warning to central banks and governments of impending doom.  I get the impression, from what I have read on this thread, is that you are suggesting that, for whatever reason there is a conspiracy (is that too strong a word) from central bankers and the rest of the banks to create a new world order whereby they get to control the whole shooting match. And I think you are saying that one of their main weapons is the control of credit (by turning it on/off to suit their agenda).  If that is the case, then why is BIS putting out this warning? Are they simply lying about their concerns (suck people into thinking they are good guys) because they ultimately have the power to control credit and therefore save their own skins whilst picking up some cheap property deals when the whole thing turn crapolla.

One other point.... I thought I read where you are saying that China has learnt from Japan's mistake and does not seem to be playing the bankers credit game.  The BIS statement doesn't appear to agree with that. 

Also, I don't think the NAB balance sheet is even as "good" as you state.  The 2006 concolidated balance sheet shows $284bn assets and $456bn liabilities, with $28bn of "thin air".  But within the assets there is about $51bn in trading derivatives & securities and funds due from other banks.  There must be a fair amount of "thin air" in that lot.  And $5bn of goodwill - when the shan hits the fit wouldn't really be worth anything.

One last thing.  There is a blog in todays online "The Australian" about housing affordability.  Check it out. Maybe some of the contributors should read this forum, as their ideas of economic fundamentals are so wacky, they must be smoking some of that stuff you suggested putting in the microwave.

P.S. any views about the World Bank and IMF in all this?


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## nioka (3 July 2007)

Kimosabi said:


> Sounds like a good ploy to wind up owning the whole planet.
> 
> Create a huge boom making money out of nothing, and then deliberately crash it and wind up with everyones assets.



It could happen. It may be happening. It would make a great story for a movie, Any budding authors out there?


----------



## lakemac (4 July 2007)

Buddy said:


> Hey lakemac,
> Question though......... A couple of pages back there is a post from wayneL quoting "BIS warns of Great Depression dangers from credit spree", which appears to be a warning to central banks and governments of impending doom.  I get the impression, from what I have read on this thread, is that you are suggesting that, for whatever reason there is a conspiracy (is that too strong a word) from central bankers and the rest of the banks to create a new world order whereby they get to control the whole shooting match. And I think you are saying that one of their main weapons is the control of credit (by turning it on/off to suit their agenda).  If that is the case, then why is BIS putting out this warning? Are they simply lying about their concerns (suck people into thinking they are good guys) because they ultimately have the power to control credit and therefore save their own skins whilst picking up some cheap property deals when the whole thing turn crapolla.



They can put it out there because few listen. It is what I call fox-speak. The key is to watch the credit cycle not the interest rates. Everybody is focussed on interest rates which are not the real drivers (cf Japan with zero interest rates and a moribund economy, cf germany with hyper inflation during the intrawar period, cf USA/England during the 1970's with stagflation ie. high interest rates and moribund economy).

Think of it like a war - some of the information out there is propaganda. Richard Werners book on the Princes of the Yen has a great section on the way the Bank of Japan puts out all this research on the economy yet none of the main staff really know what is going on with the credit/window guidance system in Japan. Mis-information is a great tool to keep the masses silent.



> One other point.... I thought I read where you are saying that China has learnt from Japan's mistake and does not seem to be playing the bankers credit game.  The BIS statement doesn't appear to agree with that.



I don't think I said that but if my words are not clear or a misunderstanding is possible, China has learnt from Japan only in that they have learnt how central banks work. The Peoples Bank of China has sent/received many staff from that other esteemed institution the Fed. The fascinating thing about a centrally controlled country is that it is much easier to impose your kind of banking on the masses. They are so used to central planning that they know no different. The banking system in China is well grounded in central banking techniques. IMHO the key to the next recession will be the reduction of credit in china. I can only surmise it is going to happen once China's new workers reach critical (borrowing) mass. I have yet to find a reliable source of information on this.



> Also, I don't think the NAB balance sheet is even as "good" as you state.  The 2006 concolidated balance sheet shows $284bn assets and $456bn liabilities, with $28bn of "thin air".  But within the assets there is about $51bn in trading derivatives & securities and funds due from other banks.  There must be a fair amount of "thin air" in that lot.  And $5bn of goodwill - when the shan hits the fit wouldn't really be worth anything.



Grasshopper speaks the truth 



> One last thing.  There is a blog in todays online "The Australian" about housing affordability.  Check it out. Maybe some of the contributors should read this forum, as their ideas of economic fundamentals are so wacky, they must be smoking some of that stuff you suggested putting in the microwave.



Same kind of b***** that came out of the Productivity Commissions report on housing affordability. That report by the RBA had one small paragraph about the inflationary effects of credit creation. Not bad for a report of 59 pages... Yeah right.



> P.S. any views about the World Bank and IMF in all this?



My (limited) understanding of these two is that they are front men; smoke screens; the magicians hand if you will. Look more at the BIS (Bank of International Settlements) than the other two. The World Bank and IMF get involved in highly visible, politically charged situations. Real money men don't do that. They prefer anonymity to publicity. 'nuf said.


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## lakemac (4 July 2007)

A point to people reading this thread, please don't take what I am saying as the truth. Find out for yourself.

Question what you read. Question your sources. Question your assumptions.

I started out researching this stuff 8 years ago.
At first I didn't believe it so I kept looking, digging, questioning.
I built up masses and masses of news articles, reports, comments, books and other materials. Cross referenced it then and only then started to build a coherent economic model for myself.

I throw down, in fact welcome anyone who can challenge this information. I want to know more. Scientific method involves looking at the data, formulating hypothesis then testing against yet more data. Only when you can predict an outcome with some kind of statistical accuracy can you claim to have a valid theory. To date, I would only dare say I have a hypothesis that might be of use nothing more.

By the way for those of you who subscribe to Australian Property Investor have a look at the article on page 14 of the Jul 2007 issue. Talks about property (one of the largest credit creators in the economy) LEADING the economy (in the article they use GDP). Funny how that might happen. Credit creation/destruction leading and economy... Great graph there too.


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## Temjin (4 July 2007)

lakemac said:


> You are welcome.
> 
> Oh dear another one to add to my reading list.
> Thanks for the referral.




Excellent reading there Lakemac, thanks for the great insight! And I'm sorry again, I got another article for you to read and comment.  It's related to Borou's book. 

*It's Official: The Crash of the U.S. Economy has begun* 

http://www.marketoracle.co.uk/Article1291.html

I only got more aware of this scenario from Dr Van Tharp's big pictures idea, but came across more and more of this kind of discussion on the US mounting debt and its implication on the global economy. 

It's going to be interesting to see how all this will wrap up in the future. 

I agree that it is extremely imperative for one to be aware of how the world "operates" and get away from thinking that "everything will be alright" and that the government will take good care of your future in case bad things happen. 

Not to mention if you want your family to live comfortably in the future, be aware of such scenarios and prepare yourself and insure against such possible crash.

It's amazing that when you go out and ask everyone you know about this sort of stuff, they would say you are a pessimistic guy and such thing will never happen. Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.

It's so naive to think that the world economy will continue to function perfectly in the next 50 years and your future is secured simply by working for a company and do what everyone else are doing by investing into the share market or properties through advises from so called "professionals".


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## stargazer (4 July 2007)

Hi Lakemac

When you say keep an eye credit not interest rates where does one look?

Most can find what interest rates are doing.

Credit i am  not so sure.  Most will keep having to borrow for assets and investments is this what you mean.

Also i am curious if this information has helped you at all in th elast 8 years what i mean by this is that did you develop concern of the state of things and stayed out of investing or property.

Chees
SG


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## gfresh (4 July 2007)

> Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.




Exactly.. most do not even understand the concept of 'saving' for anything of worth, and this is not in fact encouraged by any government policy (other than Super, which is forced, housing, which again is forced saving). It's all barely mentioned credit contracts, '36 months interest free!!' and all the rest. This is all fine when the going is good. All I have to go on is the early 90's when things were a lot harder, employment was around 11%, interest rates above that, my mother nearly lost her home, and that wasn't even a full 'crash' compared to the 70's, 30's, etc which things may head towards.

I see it all around me, every day, people loading up on $5k plasma TV's, brand new cars (just today, first 1 million new cars ever sold in Australia last year apparently), etc, etc - when the hard times are just ahead... and they should be aiming for the opposite. 

You can also see the attitude in many of the stock forums, with the "young" (sub 30's  jumping over the latest stocks like there is no question that eventually it's going to go 'big', without any thoughts about the broader risks and the possibilty that the good times may not last much longer. Companies do actually go bankrupt, get delisted, etc. 

As they always say, it's easy to make money in a rising market when times are good, or even great. When times get tough this sorts the men from the sheep.


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## Kimosabi (4 July 2007)

gfresh said:


> Exactly.. most do not even understand the concept of 'saving' for anything of worth, and this is not in fact encouraged by any government policy (other than Super, which is forced, housing, which again is forced saving). It's all barely mentioned credit contracts, '36 months interest free!!' and all the rest. This is all fine when the going is good. All I have to go on is the early 90's when things were a lot harder, employment was around 11%, interest rates above that, my mother nearly lost her home, and that wasn't even a full 'crash' compared to the 70's, 30's, etc which things may head towards.
> 
> I see it all around me, every day, people loading up on $5k plasma TV's, brand new cars (just today, first 1 million new cars ever sold in Australia last year apparently), etc, etc - when the hard times are just ahead... and they should be aiming for the opposite.
> 
> ...




Meanwhile, the crafty ones are already moving into Assets that retain their intrisic value and that can't be created out of thin air.


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## lakemac (5 July 2007)

Temjin said:


> *It's Official: The Crash of the U.S. Economy has begun*



I had a quick read of the article in the link you provided Temjin, the first bit was good but it then failed in the second part in relation to who is financing a country's debt.

I will consider the US and China in this dissertation.
Mainstream economics considers that when a country such as the US begins to import product from a low cost nation such as China they incorrectly assume that it is the low cost nation that is somehow supporting the failing high cost nation. From that article:


> The difference today is that China and other large investors from abroad, including Middle Eastern oil magnates, are telling the U.S. that if interest rates come down, thereby devaluing their already-sliding dollar portfolios further, they will no longer support with their investments the bloated U.S. trade and fiscal deficits.



That doesn't make sense. Consider this, the bulk of the trade deficit between the US and China is exactly that - trade. That means someone in China selling goods to the US and in return getting paid in $US. Ok now you need RMB (that is local Chinese currency) to pay your bills so you convert your $US to RMB via your friendly local bank. Now the bank has $US. Normally local banks don't have much of their assets denominated in foreign currency so they go to the *central* bank to exchange thier $US into RMB. Now the central bank has the $US.

However who issued the $US in the first place - you guessed it the US Federal Reserve - they *own* the $US the other central bank has in its computers. Now look at the published accounts for the US Fed and pay close attention to the foreign credits - in this case RMB (which are owned by the Chinese central bank). Quid Pro Quo. You can only have $US if the Federal Reserve has created them in the first place. Yes other banks may hold $US but remember they are just thin air...

There is a side issue here (yet another piece in the puzzle) to do with how exchange rates move. It has to do with the relative creation/destruction of credit between central banks rather than some currency dealer (eg. George Soros) moving a few billion around the place.

The fiscal (or investment) imbalance is not a real issue as most of that is made up of thin air remember. Besides the same rules apply to investment. If you were in Australia and a Japanese investor wants to buy your Gold Coast property, are you going to accept Yen or would you have to convert it to $A.



> It's amazing that when you go out and ask everyone you know about this sort of stuff, they would say you are a pessimistic guy and such thing will never happen. Obviously, everyone, especially the young (like myself) are suffering from the recency psychological biases. That we have lived through propersity time and since we never lived through a bad recession or a depression, we never thought about the possibilities and implication of it.



You are lucky to even be aware of this information if you are young. I only learnt about it recently (I am close to 50). It is worth reading Rich Dad's Prophecy for another spin on what is coming down the road for 401(k) schemes in the US.



> It's so naive to think that the world economy will continue to function perfectly in the next 50 years and your future is secured simply by working for a company and do what everyone else are doing by investing into the share market or properties through advises from so called "professionals".



Hence my first question to any financial adviser "Are you rich?..."
That aside I have structured myself so that I can move my investments (including my super) between stocks and cash at short notice. I don't own property, although as an asset class it has several advantages (people always need housing). The reason I don't own property is that its return is too low relative to a well structured stock portfolio.


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## lakemac (5 July 2007)

stargazer said:


> Hi Lakemac
> 
> When you say keep an eye credit not interest rates where does one look?
> 
> ...



The RBA publishes credit creation figures - have a look on their website for publication "D06 - lending commitments all lenders". It is in the form of an Excel spreadsheet.

The US Fed doesn't publish similar figures unfortunately. By proxy we can only go on M1 (cash deposits) figures which lag the credit creation process by quite a margin. If anyone has a better source of US Fed figures I would be interested myself.

Japanese window guideance figures are similarly hard to obtain. I know Richard Werner (Princes of the Yen) publishes the figures he works out but at a price 

England - similar issue to the US Fed.

Has this knowledge helped me - yes. I kept my super out of the market during the 2000-2003 bear market. I noticed the Fed M1 supply figures started to drop in early 2000. My first success.

On the down side I did miss the property boom from 1995 to 2003. Partially because I didn't know about how the credit creation system worked until 2000 and partially because property is not my "thing" mainly due to low returns relative to stock. Mind you it did stop me entering the real-estate market at its peak in 2003. Instead I went looking for a way to trade options... (I still have a share portfolio tho).


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## Kimosabi (13 July 2007)

MOGAMBO GURU - What is a dollar worth these days?


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## Lucky (20 September 2007)

Excellent thread which I thought was worth bumping for those that may have missed it.  Some very thought provoking issues and subjects addressed well worth the time to read.


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## Shane Baker (20 September 2007)

I know its an old thread but since it has been "bumped" I thought I post where you can see global money supply numbers by country for atargazer/Lakemac as I missed this thread earlier.

Here it is in the bottom rt hand corner

http://www.financialsense.com/monitor.html


Cheers

Shane


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## Sir Osisofliver (19 September 2008)

KAAAA BUMP!!!


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## Glen48 (19 September 2008)

Seems to me there is this big beach ball of Money floating around the world looking for some where to land we had Japan buying up the Gold Coast and the rest of the world the Imperial Palace at one stage was worth more that Canada the Jap banks were lending money to some one to buy a block of land so the owner cloud sell to another person at a higher price both using the same bank and land was 1k"s a SQ meter. the next place for the Ball to land was Dot.Com and then sub prime ..where will it land next Solar going green electric cars if oil goes below $70-80 which seem to be the figure it become un viable to produce.

Have a look at *the Money Manage*r on line and see how wars were financed by banks for both side to fight each other.
Sadly most people don't worry about whats happening out there as it is to much trouble and and only want the Fed's to do somefing when its to late.


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## deadset (19 September 2008)

Check out this guy, I saw this about a month ago :
This is for a laugh, but its food for thought in any case.

He warns "come sept 08, the economy is cracked, cracked" : 
http://www.youtube.com/watch?v=o3H2HM0Fypg

He winds up into a speech after the 2 minute mark.


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## xoa (19 September 2008)

Don't put your money under the mattress, buy a few thousand rolls of toilet paper instead. There will always be demand for it. After our government is finished debasing our currency, the money under your mattress won't be worth the plastic it's made out of.


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## pepperoni (19 September 2008)

With the huge defaults, Id image alot of recently created money will "dissapear" which would contract money supply.

So cereris paribus, its deflationary.

Or is it ... hoping one of the experts can chime in on this one.

We all saw the massive undersupply of US dollars this week and the skyrocketing US dollar last week??


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## ozambersand (4 October 2008)

Many moons ago, in posts on this thread, LakeMac made the following comments:



> Great Depression - prior to 1913 the US did not have a central bank. Its banking system (despite several attempts by some bankers to create a central bank in the past) was regional with hundreds of individual banks each issuing its own notes. In 1913 the Federal Reserve Act was passed creating the US central bank know as the Federal Reserve. It is not owned by the US government but by its member banks. By the late 1920s it had taken over the role of printing notes in the US. It had through its member banks increased credit massively. Stock market rose to a peak, people were hooked on credit. Then it pulled the plug. It told its member banks to withdraw credit. Again on a massive scale. Why? It wanted total control over the banking system. In the 1920's it still did not control all the banks in the US. By withdrawing credit the hope was it would cause a panic and a run on smaller non-member regional banks. It did. The most liquid form of money is in the stock market. So if you had to repay credit to the bank - the stock market is the first place you would go to get liquid assets. Sept 1929 - Stock market crashed. Why - first round of credit reduction.
> 
> The Federal Reserve through both itself and its member banks continued to withdraw credit from the economy until it had what it wanted. Control.
> 
> ...




LakeMac, I notice in a few posts on other threads that “credit” and the availability of it all is crucial to understanding what is going on at the moment.

Therefore, given the points you made earlier in this thread, do you think there is any manipulation of credit going on at the moment (ie *deliberately* withholding it but *not* just from a fear of not getting it back).

If you think this manipulation using credit is happening, who is doing it and why.

I suppose this also creates the question, how much of what is going on currently is deliberate and how much is an inevitable response to what has gone on before?


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## BradK (4 October 2008)

ozambersand said:


> Therefore, given the points you made earlier in this thread, do you think there is any manipulation of credit going on at the moment (ie *deliberately* withholding it but *not* just from a fear of not getting it back).
> 
> If you think this manipulation using credit is happening, who is doing it and why.
> 
> I suppose this also creates the question, how much of what is going on currently is deliberate and how much is an inevitable response to what has gone on before?




Good question - did the Banks just hold a gun to the head of Congress right under the eyes of the world? 

Brad


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## xyzedarteerf (6 October 2008)

> Many moons ago, in posts on this thread, LakeMac made the following comments:
> If you understand that the Great Depression was caused by the destruction of massive amounts of credit by the Federal Reserve and you know that they were after control, ever wonder why and when the Great Depresssion stopped? It stopped when the last non-member bank closed its doors in March 1933 (there is an image of the front page of the New York Times from the time which I can't find right now which refers to the one week "bank holiday").







source full article
http://www.bos.frb.org/about/pubs/closed.pdf


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## ozambersand (8 October 2008)

> NEW YORK, Oct 7 (Reuters) - U.S. stock index futures fell on Tuesday after the U.S. Federal Reserve announced its fourth-quarter term auction schedule, *unnerving  investors who anxiously await signs of some coordinated response by global central banks to unfreeze the credit markets*. Initially futures had risen on *speculation that global central banks might mount a coordinated response *to calm jittery markets and thaw the credit freeze.



So one could speculate given comments in posts above, that the answer/cause of the problem is once again a move to centralise banking. In the 1930's it was to create a central US bank. Now, is it to create a global bank? (Not the "World Bank") but some new entity?


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## CoffeeKing (8 October 2008)

xoa said:


> Don't put your money under the mattress, buy a few thousand rolls of toilet paper instead. There will always be demand for it. After our government is finished debasing our currency, the money under your mattress won't be worth the plastic it's made out of.




Agree, toilet paper is so much softer... plastic too slippery


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## THE BUZZ (8 October 2008)

just spent the last hour and a bit flicking through this thread, really has opened my eyes, appreciate everyone's thoughts, to you LAkemac well done for your efforts and posts, great stuff.
Also agree sorbent for me............................best thing to have when were in the SH_T !!!,. cheers.


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## Buddy (8 October 2008)

From the Lakemac quote:
"During that time, real cash, not even deposits and certainly not credit was king. Eventually people were forced to sell their land and homes at cents in the dollar. Guess who bought it - the people who owned the banks and the people who were told to cash out before the 1929 crash."

This begs the question:
If "the people who owned the banks" purchased "land and homes", how did they pay for it? With folding money, with money held in some sort of bank account, credit?? from their mates? What was it? If we can find out the answer to that question maybe we can work out a way of protecting cash and assets, should everything go belly up in this current mess.


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## nioka (8 October 2008)

Buddy said:


> This begs the question:
> If "the people who owned the banks" purchased "land and homes", how did they pay for it? With folding money, with money held in some sort of bank account, credit?? from their mates? What was it? If we can find out the answer to that question maybe we can work out a way of protecting cash and assets, should everything go belly up in this current mess.




 The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.


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## Buddy (8 October 2008)

nioka said:


> The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.





Ah, I see. A bit of rape and pillage. Oh well, nice try but doesnt help the mugs in this current stoush.


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## lakemac (8 October 2008)

Shane Baker said:


> I know its an old thread but since it has been "bumped" I thought I post where you can see global money supply numbers by country for atargazer/Lakemac as I missed this thread earlier.
> 
> Here it is in the bottom rt hand corner
> 
> ...



Hi SHane,
Thanks for that link.
Initially when I first learnt about all this in a book called "Winning with money" they talked about M1 etc. Since then I have learnt that those indices lag the credit creation cycle and are not a good indicator to use for predictive events.

A better figure is what they call "Austrian money supply" which unfortunately is only available as a proprietary index  (and I don't have access to it  ). That being said the next best proxy is the credit creation figures which are now published by the central banks.


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## lakemac (8 October 2008)

xyzedarteerf said:


> source full article
> http://www.bos.frb.org/about/pubs/closed.pdf



You da man!!!! Thank you thank you thank you


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## lakemac (8 October 2008)

nioka said:


> The purchase was a book transaction only they took the property for repayment of the debt. The old land title deeds used to record this.



I have to say a big thank you to you guys for following up on all this.

My wife thanks you guys too - she had become a "widoogle" for a while there (a widoogle is someone close to you (in my case my wife) that you haven't seen for a while (hence she thought I had died in front of my laptop) because there is so much interesting information out there on Google  .

nioka thanks for handling this question


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## lakemac (8 October 2008)

Ok people, heads up on the world model.

Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.

By the way anyone still think interest rates controls an economy?
No? Good.

Anyone still thinks governments controls an economy?
No? You at the back? No? Ok good.

Lets move on.

Consider this:
Loans are nothing more than a bank extending you their goodwill.
They do this when they TRUST you to pay the loan back with interest.
In ordinary circumstances they work this out by checking your banking history and your job history.

Loan = Credit = Goodwill = Trust

When you exchange that "goodwill" for some goods or services that "goodwill" may end up in another bank's coffers. Trouble is at the end of each day banks don't really trust each other so any difference between the amounts of "goodwill" in each bank's hand has to be covered by one of the following:
1. Another bank's trust/goodwill that both local banks trust; or
2. Central bank loans; or
3. Real cash ie. hot money, money on deposits, gold etc.

The cheapest (in terms of interest rates) is another bank's trust. Most expensive - real cash.

As soon as banks lose trust in each other because they are worried about the other banks methods of checking their customers ability to repay (read toxic collateralised debt obligations (CDOs), no doc/low doc loans etc) then banks will stop accepting the loans/credit/goodwill/trust of other banks.

Not only that the existing loans will be withdrawn as lending stops.
Now we have a credit crunch ie. the destruction of credit.
Welcome to a recession.

The amount of credit destruction determines how deep the recession goes. The length of the recession is determined by other factors.

Which brings me to those other factors.

Those of you who avidly follow my posts may remember I mentioned an article in the Economist several years ago about Africa and why they are a basket case.
The issue is private ownership of land. Without a system of private ownership the banking system as we currently know it will not extend credit.

As I have also mentioned China passed a law which allowed exactly that ie. the PRIVATE ownership of land. This allows the banks to extend credit.

So what is going on here? Simple answer - the banks want to control the land in the urban areas of China. Control that and you control the country.
Currently China has not had its credit totally withdrawn.

But it is coming. They (the people behind the banks) have to send the rest of the nations that trade with China into a recession. That is underway now.
Next will be the gradual then eventually rapid reduction of credit in China. Forclosures as happened in US 1930's, Japan 1990's will be the marker for the takeover. It will also be the marker for the bottom of the current recessionary cycle.

Personally I give it till June 2009 for the credit crunch in China to bite. Our resources stocks will tank and we will be in trouble.

All is not lost though. It takes about 12 months to achieve the transfer of land to the banks. So mid 2010 will be the starting point of the recovery in other economies.

Long term - watch out for the 401(k) schemes in the US. They are due for compulsory drawdown in about 12 years. Next big crunch 2020.

On the rebound coming - post US election. Helicopter money $700B of it, will be out looking for a home. Those clever enough to see it will buy shortly, watch the $700B enter the market, pick it up then by April - latest June, dump as China goes under.


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## BradK (8 October 2008)

Great posting LakeMac.. keep 'em coming. 

What is your take on Ron Paul? 

Brad


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## Gundini (8 October 2008)

WaySolid said:


> I suggest a study of history.
> 
> I have found it amazing to see what has actually happened in history once you start looking. Ask an Argentinian what it's like to move from the middle to the lowest rungs of society simply because the middle was lopped off.. It's all there and it makes for fascinating entertainment as well. You don't even need to go very far back just have a look at the period 1900-2007 to begin with.
> 
> ...




Just wanted to bump this thread. A lot of good readibg here!


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## lakemac (9 October 2008)

Ron Paul is a man worth listening to.
He understands Austrian economic theory.
For anyone interested in that go to www.mises.org


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## Frank D (9 October 2008)

_"The worse case scenario which I didn't want to see is now playing out.

A Monthly and Quarterly close below the Yearly lows constitutes a
 breakout (US markets), which will lead to further erosion in stocks prices 
in the 4th Quarter...and a bear market of lower lows into 2010....

US Weekly report (4th October)._

Lakemac,

Interesting you should say that you have a feeling that the recession 
will bottom out some time in 2010, because I posted the view that
 the markets will continue down into lower lows into 2010 based on
 the closing price of last Friday.

I had a best case scenario of lower prices in 2009, but last week's 
 close on Friday changed my view to a worse case scenario:- a continuation down into 2010.

There will be short-term counter-trend moves, and even a much
 larger counter-trend move next year, but once that 'top' occurs sometime 
in 2009, I have no doubt that global markets will continue down into 2010.


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## Pommiegranite (9 October 2008)

Jikx said:


> Where do you put your money?
> 
> Gold? Cash? The mattress?




Start up a mattress company which specializes in gold thread woven mattresses.


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## Temjin (9 October 2008)

http://georgewashington2.blogspot.com/2008/10/thursday-is-d-day.html 
Could this be it? 

the Big Mac example was clear enough, but still don't fully understand the implications of it. 



> *Thursday is D-Day *
> 
> 
> Forget the stock market gyrations. Forget Bernanke and Paulson's ineffective, unconstitutional schemes.
> ...


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## Ageo (9 October 2008)

Fantastic posts (especially from your Lakemac).

This is by far the most interesting thread i have seen on here 

Now its time off to study credit markets and central banks!  and hopefully pick up some bargains before the recovery period.


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## nioka (9 October 2008)

lakemac said:


> Ok people, heads up on the world model.
> 
> Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess
> 
> ...





China will not fold. They will just build another wall or something else to keep the peasants working for their rice.

I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."


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## Julia (9 October 2008)

nioka said:


> China will not fold. They will just build another wall or something else to keep the peasants working for their rice.
> 
> I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."



Agree.  There is a different philosophy amongst Asian people.  They seem to understand that they create their own outcomes.


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## mayk (9 October 2008)

nioka said:


> China will not fold. They will just build another wall or something else to keep the peasants working for their rice.
> 
> I once had a chinese couple as tennants in a shop. It was in the 80s when things were tough. They said to me "don't worry about their business being bad, Chinese will even go without food if the rent must be paid. They always pay their way."





You are saying this time it will be different...Gee I wonder where I have heard that before.


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## xyzedarteerf (9 October 2008)

lakemac said:


> Ok people, heads up on the world model.
> 
> Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.




makes sense no wonder we are starting to hear a lot of bad press about China such as poisons on Chinese made milk , lead on Chinese made toys...what's next?? 
In a country with a small population as ours it will only take one death before the whole nation stops buying from China.


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## nioka (9 October 2008)

mayk said:


> You are saying this time it will be different...Gee I wonder where I have heard that before.




You'll keep hearing it because it IS different. The earth doesn't stop spinning just because of a pyramid collapsing. Sometimes it's war, sometimes famine, sometimes it's new innovation. This time it was pyramid selling, fraud, greed and deception. Weed that out and we are back in business. Talking of weeds, I think I'll spend an hour or two in the garden. ( When the world wearies and life doesn't satisfy, there is always the garden.)


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## Kimosabi (9 October 2008)

What everyone needs to understand is that what is going on is a Financial 9/11...

The people orchestrating this don't live in caves, they live in mansions and penthouses.

Once you understand that the money is leant into existence and is used by the people who create the money out of thin air to buy physical asset's, all of those things that never quite made sense, starts making much more sense.

Just like the Great Depression 1, the Greater Depression 2 has been carefully engineered and is being executed right now...


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## chops_a_must (9 October 2008)

lakemac said:


> Ok people, heads up on the world model.
> 
> Get ready for the market rebound but don't be fooled. We are waiting on China to fold. They are the key to all this mess.



I think you've got it **** about here Lakemac...

China is not a debtor but a creditor nation. They have the largest foreign reserves of any country, supposedly, and one of the best savings rates. Just look at the success of HSBC...


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## Buddy (9 October 2008)

Kimosabi said:


> What everyone needs to understand is that what is going on is a Financial 9/11...
> 
> The people orchestrating this don't live in caves, they live in mansions and penthouses.
> 
> ...




Speaking of 9/11, with a slightly different slant on things...........
You know, there is an old bearded guy sitting in a cave somewhere near the Pakistan/Afganistan border, who is absolutely killing himself with laughter.  That is between when he says to his lieutenents "Why did I send all those lovely muslim boys, sons, brothers to fight this friggin war? Look what these dickheads have done all by themselves".
So maybe some good will come out of this mess. Maybe those dickheads in the Whitehouse will realise how expensive (in economic terms, because they dont give a stuff about the human cost) their expeditionary fishing trips into far away countries is. I mean really, what's the point? And maybe the other mob will lighten up decide they dont need to spread their crazy suicide bombers all over the place.

One can only live in hope.
Yes, I know :topic but this constant use of the term "financial 9/11" draws me to make this observation.


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## Kimosabi (9 October 2008)

Buddy said:


> Speaking of 9/11, with a slightly different slant on things...........
> You know, there is an old bearded guy sitting in a cave somewhere near the Pakistan/Afganistan border, who is absolutely killing himself with laughter.  That is between when he says to his lieutenents "Why did I send all those lovely muslim boys, sons, brothers to fight this friggin war? Look what these dickheads have done all by themselves".
> So maybe some good will come out of this mess. Maybe those dickheads in the Whitehouse will realise how expensive (in economic terms, because they dont give a stuff about the human cost) their expeditionary fishing trips into far away countries is. I mean really, what's the point? And maybe the other mob will lighten up decide they dont need to spread their crazy suicide bombers all over the place.
> 
> ...




Buddy,

You may want to go have another look at 9/11.

There is a growing body of evidence that Bearded Men in caves didn't do 9/11, but the dickheads you refer to in the Whitehouse and their cronies in the Banking System...

Do your own research, draw your own conclusions.  You may be disturbed by what you find...


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## Buddy (9 October 2008)

Kimosabi said:


> Buddy,
> 
> You may want to go have another look at 9/11.
> 
> ...




Yeah, yeah! I heard all that stuff.  But I dont want to get into that argument. My fault for going :topic  That'll teach me. But i'll bet you London to a brick that the bearded guy is still having a good chuckle.


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## algis (10 October 2008)

A reminder that now that levels of credit injected into the world economy have slowed, we will see a greater ownership of the ecomony by those that lend the money at interest.  You guessed it, this will occur through foreclosures.

The reason this situation occurs is because the available pool of 'money' in the economy has stopped growing due to the reduction of inflows of new credit.  If the magnitude of 'money' that is returned to lenders to service interest rates if higher than the amount of new credit brought into the economy, then those who loan the money own more of the economy.

I still have trouble seeing truth in the conspiracy theories that this credit crunch is planned by the central banks.  They do end up ultimately owning more, but the overall state of the globe is reduced, no?  The assets that are usurped are degraded?  Witness Detroit.  Or the USA in its entirety.  Lots of foreclosures, so ultimately the banks end up owning more, but country is decimated.  The benefits could only be in the long term assuming rebuilding occurs.


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## Jikx (10 October 2008)

algis said:


> I still have trouble seeing truth in the conspiracy theories that this credit crunch is planned by the central banks.  They do end up ultimately owning more, but the overall state of the globe is reduced, no?  The assets that are usurped are degraded?  Witness Detroit.  Or the USA in its entirety.  Lots of foreclosures, so ultimately the banks end up owning more, but country is decimated.  The benefits could only be in the long term assuming rebuilding occurs.




Well, you have to ask yourself this - would all those "foreclosed" properties even be built if it wasn't for the excessive lending from the beginning? So they end up owning properties which they paid for themselves, with no-one wanting to buy it off them, and no-one wanting to rent off them. No, I highly doubt the conspiracies but quite obviously no-one wins. And exactly what does the reserve bank do with all this property anyway?

On another note, I find this entire market crash very fascinating. I cannot believe how bad this has gotten since I started this thread over a year ago. Back then, we all could smell something was wrong but it appears we all just sat on our hands hoping we could get out before it exploded! 

I mean, I sold out of a lot of my stocks almost 2 years ago now. BHP was $28, Rio was $85, and I was cursing myself to hell when I saw these stocks almost double. And here we are now, where suddenly I see these stocks (and more!) drop like a rock below even what I sold them for all those years ago. It's interesting, and it's scary!


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## lakemac (12 October 2008)

For those following my comments on bank trust comes this excellent article.
Brings together the cost of borrowing (between banks) and credit issues.

http://mises.org/story/3146


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## lakemac (12 October 2008)

Ok for those claiming cultural issues will save the day, I point you in the direction of a once fabled Asian country called Japan.

As I have said before for those old enough to remember we were all told in the 1980's to learn Japanese as they were taking over the world.

And yes there were those (as some posters here have claimed about China) that Japan was unstoppable. Well that was the theory, at least until the Bank of Japan (BoJ) decided otherwise.

Go back to USA in the "roaring twenties" circa 1920-1929. Same thing.

For the doubters - full credit for doubting what I am saying. However go and do some indepth research and build your own world model. If you can explain events for the last 400 years then you will probably come out with the same model I ended up with. I never thought history and economics would be this fascinating. I only wish they taught like this at school - wow!

People don't be fooled by the momentum of an economy. Both Japan and the USA had that in there respective times. Both stopped in the space of 12 months as the credit/goodwill/trust evaporated or was actively destroyed.
Any one care to cite any references, theories and or models, that can convincingly persuade me otherwise. You will need that 400 year history lesson as well.

What do the banks do with these "impared" assets? Two things:
1. remortgage them (think of land as a fisherman's bait/hook).
2. economic control (then see point 1).

You have to remember how do banks make money and exert control.
The only true money is interest. Loans = credit = goodwill = trust = thin air... which is not real. Interest is paid by people working - doing real jobs - nailing house frames together, serving you a meal, fixing your car, digging iron ore out of a mine. Banks lend you thin air in order to get you to pay them interest.

Control is exerted by owning land which gives you the ability to influence government which extends your ability to collect interest. Why do you think the big US banks in the early 20th Century lobbied Congress to pass the Federal Reserve Act (cf its passage in the dying hours of the last session of Congress in 1913 - even Woodrow Wilson, the then President, questioned the veracity of what he was signing into law - pity he was such a wimp  .


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## Kimosabi (12 October 2008)

*The Bankers 9/11*
10-8-8

The US - now world - financial crisis has given nations a golden opportunity, but will they seize it, asks Eric Walberg

This Wall Street bailout - yes, bailout, not "rescue" - is yet another boondoggle by the neocons, pulled out of bankers' back pockets, and being enacted in an atmosphere of panic orchestrated and spread around the world to make sure it got passed ASAP. A bankers' 9/11: implode a few bank towers to make sure the system as a whole survives.

As the dust settles, it is clear that nothing much about our casino capitalism is about to change at all. But what is to be expected from the likes of United States President George W Bush? Joseph Stiglitz comments, "This 'cure' is another one of these rearrangements: by stripping out the bad assets from the banks and paying fair market value for them, the value of the banks will soar." It is a ruse based on the "trickle-down economics" made famous by president Ronald Reagan. Throw enough money at Wall Street and a few drops are sure to hit Joe Public.

Legislation that shows a corner is being turned, a new leaf turned over, would require addressing issues such as the wars in Iraq and Afghanistan, the monstrous military budget, the even bigger trade deficit, the massive tax cuts to the rich over the past 28 years, the very debt-based system of money creation - none of which got the time of day as legislators prepare to end their final working session this year. But then even a Barack Obama would not be able to extricate himself from the spider's web that is the US political system today, as his hearty support for the bill and support of President George W Bush show. Funny how Federal Reserve Chairman Ben Bernanke, accompanied by Secretary of the Treasury Henry Paulson, seemed to pull the $700 billion 450-page Emergency Economic Stabilisation Act out of his hat like a magician.

Was this plan in the wings, just waiting for its chance in the spotlight? And does it make sense to let the fox work out a plan to save the chickens as they come home to roost? Isn't it more likely that he will ensure the long life of his progeny first, always keeping in mind that enough chickens must be kept alive to reproduce and feed the foxes? To use another metaphor, does it make sense to put the pilot who hit the iceberg in charge of the lifeboats?

Adam Smith writes in The Wealth of Nations: "The proposal of any new law or regulation of commerce which comes from this order [profit takers], ought always to be listened to with great precaution, and ought never to be adopted till after having been long and carefully examined, not only with the most scrupulous, but most suspicious attention. It comes from an order of men, whose interest is never exactly the same with that of the public, who have generally an interest to deceive and even to oppress the public, and who accordingly have, upon many occasions, both deceived and oppressed it."

Instead, it was railroaded through Congress and the Senate in a mood of hysteria, irresponsibly orchestrated by the very foxes who created the problem. The plan is intended to infuse the financial system with cash to "thaw" frozen credit markets (as if it is a natural process) and prevent a deep recession. So where have the $600 billions in tax cuts over the past eight years gone? Isn't printing more dollars like pouring water through a sieve? And is yet another $150 billion in tax breaks over the next 10 years really the answer?

The programme will send the federal deficit through the roof, even as it approaches record levels. The Treasury will have to borrow the money, requiring a bill increasing the government's legal debt limit by - surprise - $700 billion, to $11.3 trillion.

In the early 1990s, Sweden fought off a similar meltdown, also brought on by deregulation, which involved giving the government good as well as bad assets, and it survived. There is also "the Buffett model": Warren Buffet put money into Goldman Sachs, getting preferred shares and warrants, i.e., both protection when prices slide and participation when they stabilise. This would have worked better as a way to save the banks and protect taxpayers, even if it didn't address the underlying problems.

Two bright spots: insurance for deposit accounts was increased from $100,000 to $250,000 and pay for senior executives at firms participating in the programme was capped. CEO salaries have skyrocketed in the past two decades; for instance, Lehman Brothers' Richard Fuld received $466 million from 1993-2008 and a whopping $62 million "golden parachute" exit pay on resigning last month, as his firm chalked up a $6 billion loss and declared bankruptcy. Executive "pay" does not include the de rigueur hefty stock options and perks. Treasury may now ban excessive salaries and bonuses, as well as these golden parachutes for executives at firms that receive direct infusions of federal cash. Companies that sell assets in government auctions will lose tax deductions if salaries for their top executives exceed $500,000 a year, and outgoing managers who take severance packages triple their annual salaries will be required to pay a 20 per cent excise tax.

There are still those who have the chutzpah to protest against attempts to cap these salaries. "The bailout is about saving the economy, while executive pay is a separate, and complex, issue," says corporate governance expert at the University of Delaware Charles Elson. "It is not appropriate for government to be setting the salaries of executives," said Scott Talbott, senior vice-president for government affairs at the Financial Services Roundtable, a trade lobbyist. But not even the foxes are listening to such whining anymore. Paul Hodgson of the Corporate Library cuts through this cant: "This financial crisis is a direct result of the compensation practices at these Wall Street firms."

That Hodgson is spot-on is revealed by the intrigues of Joseph Cassano, head of AIG's London Financial Production office from 1987-2007. He used this obscure operation as a base to amass a fortune, specialising in such suspect "plain vanilla" products as "interest rate swaps" and "collateral debt obligations" (CDOs), and even dreamed up "credit default swap insurance" for these CDOs. There was never any intention of paying out any "insurance" claims - it was simply an old fashion pyramid scheme which netted Cassano personally hundreds of millions. He resigned last year as AIG went into the red, in part dragged down by his operations, and refuses to speak to the media. Multiply this by a few tens of thousands and it begins to add up.

However, there were lots of the usual pork barrel treats added to sweeten the bill and ensure its passage, including a 39-cent tax break for an Oregon firm that makes children's wooden arrows, tax breaks for Alaska fishermen and Samoan businessmen, $128 million for race-car track manufacturers, tax breaks to small television and film producers and for the production - none of which has anything to do with the crisis.

Senator John McCain's attempts to tar Senator Barack Obama for merely consulting with the former chief executive of Fannie Mae - a contention hotly denied by the Obama campaign - backfired when it was revealed that Freddie Mac was paying McCain's campaign manager, Rick Davis, $15,000 a month until two months ago - a total of $2.5 million since 2000, betting on McCain to be the Republican nominee. McCain previously insisted that Davis had had no involvement with the mortgage company for the past several years.


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## Kimosabi (12 October 2008)

The $700 billion boondoggle has been passed, with a virtual carte blanche for the Treasury secretary and the Federal Reserve chairman, the foxes, to pay their canid friends whatever they want - for their mistakes. The original proposal gave the secretary unlimited power to spend the $700 billion, not just on mortgages, but on any "financial instrument" he liked. This was tightened somewhat, with two boards, including an "independent" congressional panel, an "independent" inspector general (shades of Gogol) and an oversight board staffed by the treasury and housing secretaries and the Federal Reserve chairman. Yes, oversight by the foxes and a Congress beholden to lobbyists. This will be sure to do the trick.

Absolutely no mention was made of the more than $500 billion which the Iraq war has cost in the past five years, the $600 billion in tax cuts since Bush came to power, the $650 billion military budget, or the $850 billion trade deficit. Cumulative borrowing from abroad during the six years of the Bush administration amounts to $5 trillion. The $700 billion figure begins to pale in comparison to this profligacy and mismanagement.

In these final months of his presidency, Bush has pulled another weasel out of his hat, pushing through a policy that rewards his criminal friends and avoids any need to reverse his disastrous foreign and domestic policies. Yet commentators feel sorry for him, calling it a hollow victory. He is finally being forced to eat some crow, they say, made to preside over the biggest government intervention in decades, largely abandoned by his fellow Republicans in the House. His CEO friends will find their wings clipped and their golden parachutes taken away. And, if the plan has lost money after five years, his successor must submit a plan to Congress for recouping those losses from the financial industry, perhaps through new fees or a tax on securities transactions.

The ultimate irony here is that the Titanic took the lives of the rich as well as the poor. At least in those days, there was a sense of honour which allowed the innocent women and children to escape. Imagine the Titanic today: as the ship sinks, all are scrambling without any sense of shame for the lifeboats, abandoning any attempt to patch the huge holes - which could easily be done given the will - resulting in one and all being swallowed by the abyss.

A real rescue plan

The financial bailout is not a plan that fundamentally alters the relationship between government and business, as is being touted. It will not solve the underlying crisis that the US finds itself in. It will fundamentally alter the relationship between the US and the world, but more because of the panic it precipitated and the accumulated effects of the other disastrous policies of the Bush era - the wars, the deficits in trade and the budget. Therein lies the golden lining. The neocon con is over. The public outrage should be mobilised to push for a real solution. What would a sober plan look like?

- For starters, it would require the government to renationalise Freddie Mac and Fannie Mae, paying the current market value for the bad assets, not a penny more, and taking all loans, both good and bad. Why should the government only take over the culprits' bad loans? After all, the management of these once-upon-a-time government agencies - intended to help the poor purchase homes - having filled its pockets, has left behind a mess. But many of these bad debts are made up of such fraudulent "investments" as CDOs, and are now so convoluted, they could well be worth nothing. The foxes insist that when the market rebounds, the government will magically be able to sell the bad loans at a profit. This sounds suspiciously like the strategy in the early 1990s during the Savings & Loan scandal, which rewarded the culprits and cost the taxpayer $350 billion. Caveat emptor.

- The Glass-Steagall Act, passed in the wake of the stock market crash of 1929, and designed to separate banking from securities activities, should be immediately reinstated. It was repealed by Congress in 1999 (guess who lobbied for its repeal?), allowing banks to make fast money from risky investments in securities and derivatives, and led to the subprime scandal earlier this year. The entire swamp of "financial services" should be drained and strictly controlled in future.

- As part of a clean-up of the financial sector, the failed and failing banks should be put under direct government control, their records opened to independent investigators. Culprits should be prosecuted and lose their ill-gotten gains (in as much as they are accessible, considering the ubiquitous offshore banking system). Salaries of CEOs and management would be adjusted in line with government salaries.

- There should be a moratorium on housing foreclosures. Instead of handing $700 billion over to the banks, the government should use it to pay off all delinquent mortgages. This is the proposal of the Yale School of Management's Jonathan Koppell and William Goetzmann. Mortgage rates should be capped, and lenders should take part of the beating by agreeing to renegotiate mortgage values in light of the falling values.

- Taxes should be increased - returned to their pre-Reagan progressive rates - rather than decreased. The negative savings rate in the US is the elephant in the room, with few people producing real goods, and virtually everyone living on credit. US citizens must own up to their flight from reality.

- The deindustrialisation of America must be stopped. If the country produces only arms and dubious pieces of paper, there is no way it will be able to pull itself out of the hole it has dug.

- The poison that is euphemistically called the international financial system must be radically reformed. The G8 (sorry, G7) should be mobilised to enact legislation ending offshore banking - used to launder money and keep illegal earnings out of the hands of investigators. British Prime Minister Gordon Brown has called for a new global financial regulatory system and he should be given an immediate "yes".

- Speculation on "floating" currencies, which rakes in billions every day for speculators, must end. For 30 years, even mainstream economists such as James Tobin have been urging the taxation of earnings made from speculation on currency fluctuations, the so-called Tobin tax, with the goal of reducing this practice and the instability it causes. In effect, it allows speculators like George Soros to rob the broad citizenry of the world. Tobin's idea is to tax the Soroses and give the proceeds to third world development. Better yet, exchange rates could be fixed and adjusted in an orderly fashion to prevent such speculation and the undermining of economies it leads to.

- Most important, the US government must be forced to abandon its reckless policy of war and militarism, and reign in its profligate spending, issues which so far have been entirely absent from the debate.

To those that howl that all this amounts to socialism, so be it. Remember Northern Rock, the British building society that suffered a run on it last year and was nationalised? With more and British banks needing rescues these days, public confidence has become so fragile that Northern Rock is now seen as the best place for savings because its deposits are fully guaranteed by the government. Socialism works. There Is No Alternative - TINA - as former prime minister Margaret Thatcher loved to spout about capitalism. While private pension funds fold, Social Security plods on. By going too far in filling their pockets, banks have proved the bankruptcy of the entire system.

Some of this sense has "trickled down" into the revised plan. The FBI has opened 26 investigations into fraud by the failing giants, though as with the investigation of the Enron collapse in 2003 there is little likelihood that - leaving aside sudden mysterious death - any culprits will suffer more than a handslap. Finance Services Committee Chairman Barney Frank said he plans to rewrite housing finance laws, broaden executive pay limits to more corporations and pursue new regulations to rein in excessive risk-taking on Wall Street.

Such rearguard actions are mere crumbs. What is most shocking of all in this latest Bush-induced crisis is that the neocons created a worldwide panic to railroad through a bailout which leaves the criminals in control of the world's financial system and their rules of play intact. 

http://www.rense.com/general83/bankers.htm


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## cordelia (12 October 2008)

watch this video (link below) to find out all about the banks.....It will make perfect sense of what is happening now......It looks a bit like a religious promo at the beginning..but it's not......it was a bad choice of intro IMO......you can always skip part 1 ..the stuff about 9/11 is too hard to ignore...perservere..it's very enlightening...

http://video.google.com/googleplayer.swf?docId=5547481422995115331&hl=en&autoplay=1


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## cordelia (12 October 2008)

Don't believe what you read in the newspapers.......The media is nothing more than a conduit for misinformation, designed to influence public sentiment in such a way as to benefit the hidden agendas of those who own it.....It's the perfect tool for mass indoctrination......

People often make reference to the "herd mentality"...unfortunately it's really hard to see the herd...when you are part of it......The media makes sure you don't see the herd........Even the journalists, TV reporters don't see how they are being used...They are none the wiser........Just like mushrooms...kept in the dark and fed BS.......

The true weapons of our society are words and images.....both of which are controlled by the media.....Think about what you know? where did that knowledge come from? How many people read books anymore? Most obtain their beliefs from the TV or newspaper......

The Internet is the perfect mass communication tool.....People even buy shares on advice they receive in chat rooms...as unbelievable as it seems....The Internet is a lawless environment where people can say anything they like.....and who are these people? 

This crash is like no other because of the mass communication .....IMO.....You cannot escape the bad news......You would have to turn off your TV, switch off your mobile, not use the Internet and not speak to anyone.....In fact, the only way to avoid the constant barrage of bad news is to cease interacting with anyone at all...

Even my mother, who has absolutely no idea about finance, was telling me about interbank lending rates......


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## lakemac (12 October 2008)

cordelia - but did she understand why they are important?

If she did she is probably a lot wiser than most of us here...


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## cordelia (12 October 2008)

lakemac...yes she did..that's the interesting part.....when a Nana starts getting concerned about Interbanking lending rates maybe it's time to start buying....


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## lakemac (12 October 2008)

People - I just sat thru that video (all 300MB / 2hrs) worth of it.
First time I had watched it.

As I have already said to Cordelia privately - oh my oh my oh my.

Do yourselves a favour and watch it. The first 10 minutes are a bit off-putting but keep going, it is really really really worth it.

I am just totally blown away 

Thank you Cordelia for providing the link


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## Ageo (12 October 2008)

Well while im waiting for it to d/l i viewed an interesting article im sure you have read lakemac.  Made very interesting reading, thanks for the site btw as it has plenty of good info

Economic Depressions: Their Cause and Cure
http://mises.org/story/3127


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## baja (13 October 2008)

cordelia said:


> watch this video (link below) to find out all about the banks.....It will make perfect sense of what is happening now......It looks a bit like a religious promo at the beginning..but it's not......it was a bad choice of intro IMO......you can always skip part 1 ..the stuff about 9/11 is too hard to ignore...perservere..it's very enlightening...
> 
> http://video.google.com/googleplayer.swf?docId=5547481422995115331&hl=en&autoplay=1




I just watched this, thank you for the link.

Blown away. Most of it regarding current events just solidifies my position on  things. Still, it leaves me at a loss at the end, somewhat powerless. What can you do? Keep spreading the word, getting everyone informed I guess?


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## Kimosabi (13 October 2008)

baja said:


> I just watched this, thank you for the link.
> 
> Blown away. Most of it regarding current events just solidifies my position on  things. Still, it leaves me at a loss at the end, somewhat powerless. What can you do? Keep spreading the word, getting everyone informed I guess?




The solution is to STOP participating in their system and to educate EVERYONE.

These psychos only get their power from our ignorance and participation.

Practical things to do include:

Grow an Organic Vege Garden with some fruit trees/herbs etc = Food Freedom

Learn about Herbs, Natural Healing/Nutrition etc = Health Freedom

Learn about HHO/Water Fuel Cells etc = Energy Freedom

Learn how to reclaim your personal and property soveriengty thus extracting ourselves from their Man-made Admiralty/Commercial laws = Legal Freedom

Stop watching their Television, reading their Newspapers/Magazines etc = Mental Freedom

If we can all attain Food, Health, Energy, Legal and Mental Freedom, the psycho's loose all of their power.

Welcome to the Rabbit Hole, the question is, do you want the Red or the Blue Pill....

Another Great Video to watch is Esoteric Agenda ==> http://video.google.com.au/videoplay?docid=-6030443037963555139

There are a tonne of similar videos to watch here ==> http://www.kokomotion.com/TWH/docs/expanded.html


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## Ageo (13 October 2008)

Kimosabi said:


> The solution is to STOP participating in their system and to educate EVERYONE.
> 
> These psychos only get their power from our ignorance and participation.
> 
> ...





Interesting you mention that, the 2nd amendment that the 4 fathers wrote i believe was to repel something similar to this, to be free in each state. Now imagine if these people behind all these acts actually had a brutal leader in charge? with unlimited amounts of money and power what would stop 1 to rule the country if not world? i remember a key common element dictators had....... they all disarmed their citizens which basically meant (no way to fight back and overthrow the dictatorship). I know its off topic but i thought it was relevant to the video. The 4 fathers knew that if something like this were to happen again that citizens would have the right to bear arms.

But back on topic and more importantly how can we profit massively from all this information


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## ozambersand (13 October 2008)

Thanks for the link Ageo, this part was interesting.....


> Economic Depressions: Their Cause and Cure
> Daily Article by Murray N. Rothbard | Posted on 10/2/2008
> [This essay was originally published as a minibook by the Constitutional Alliance of Lansing, Michigan, 1969.]





> Mises, then, pinpoints the blame for the cycle on inflationary bank credit expansion propelled by the intervention of government and its central bank. What does Mises say should be done, say by government, once the depression arrives? What is the governmental role in the cure of depression? In the first place, government must cease inflating as soon as possible. It is true that this will, inevitably, bring the inflationary boom abruptly to an end, and commence the inevitable recession or depression. But the longer the government waits for this, the worse the necessary readjustments will have to be. The sooner the depression-readjustment is gotten over with, the better. This means, also, that the government must never try to prop up unsound business situations; it must never bail out or lend money to business firms in trouble. Doing this will simply prolong the agony and convert a sharp and quick depression phase into a lingering and chronic disease. The government must never try to prop up wage rates or prices of producers' goods; doing so will prolong and delay indefinitely the completion of the depression-adjustment process; it will cause indefinite and prolonged depression and mass unemployment in the vital capital goods industries. The government must not try to inflate again, in order to get out of the depression. For even if this reinflation succeeds, it will only sow greater trouble later on. The government must do nothing to encourage consumption, and it must not increase its own expenditures, for this will further increase the social consumption/investment ratio. In fact, cutting the government budget will improve the ratio. What the economy needs is not more consumption spending but more saving, in order to validate some of the excessive investments of the boom.



It looks like the exact opposite of what Mises recommends will happen....... so expect a long drawn out recession. 
One answer to the above post was spelled out by Lakemac in the third post in this thread:


> 3rd-June-2007, 04:20 PM    #3
> lakemac
> Turn your non-real assets into gold, get rid of all credit, then wait for the crash to fully take effect (can be up to 3 years) then buy real assets - particularly property (by that I mean a house on a block of land not a unit).


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## moXJO (13 October 2008)

I noticed in the link provided by cordelia ( I think it was Zeitgeist) about the two british SAS members caught shooting civilians while being dressed as Arabs. Bits and pieces to prolong the war I suppose. Hope our boys are not being instructed to do the same.




> AUSTRALIAN special forces troops in Afghanistan have accidentally killed a district governor and two of his bodyguards in a botched raid that will pose a further setback to the battle against the Taliban insurgency.





http://www.smh.com.au/news/world/aussie-troops-kill-three/2008/09/18/1221331074591.html


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## cordelia (14 October 2008)

I came across that video four days ago  in another forum.....I am not one for conspiracy theories.....but the evidence was compelling.....

I will never forget the moment George Bush  addressed the American public following 9/11..he looked like he was lying...as if he knew about it before it happened.....I have mentioned this on several occasions to people I know but they all say it's ridiculous......

So when I watched that video I knew it was the truth.....

Sometimes the truth is ridiculous....It's so ridiculous people find it hard to believe...

We think we have more freedom because of the ease of communication..mobile phones...internet etc etc but really it's just easier to track us down and monitor what we are doing...

To give you an example when I grew up it was much more difficult for my parents to find out where I was.....That knew who my friends were but didn't have access to our personal conversations....

Enter myspace......I have three teenagers.....all I have to do is google one of their buddies ..and they have hundreds...they are all linked and some of them are careless with access.....These kids put everything online for the world to see......all any savvy parent has to do is access their Myspace...

Do I do this no.....because information is passed around so easily that if anyone does anything they shouldn't do then it spreads like wildfire.....I am informed before I even have time to question...where's the fun gone...

I would hate to be a teenager today......there's no privacy


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## Ageo (14 October 2008)

Its funny when 9/11 happened 1 pakistani man explained to me why he believed the U.S government was behind it and after a long think i actually thought so myself. This just added to that belief


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## cordelia (14 October 2008)

baja said:


> I just watched this, thank you for the link.
> 
> Blown away. Most of it regarding current events just solidifies my position on  things. Still, it leaves me at a loss at the end, somewhat powerless. What can you do? Keep spreading the word, getting everyone informed I guess?




baja: you are not powerless....that is the misconception we all have as individuals......Many individuals make a crowd......Our voices are important....All political movements have started with just one voice...Finding others who have the same beliefs is empowering...but if we don't have the courage to voice those beliefs then our lack of courage diminishes our power..

Currently we are a society of dispersed individuals...this is not a good thing.....like minded individuals need to group together and from a crowd....


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## Ageo (14 October 2008)

Kimosabi said:


> There are a tonne of similar videos to watch here ==> http://www.kokomotion.com/TWH/docs/expanded.html





I have watched a couple of video's on that site now, the money video's (monopoly men, money as debt etc...) are crazy but totally relevant. I could see alot of truth in it. Lets just say that if it were to be true then we are all dumb sheep hehe


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## ozambersand (15 October 2008)

A while ago, I posted the question here.......


ozambersand said:


> So one could speculate given comments in posts above, that the answer/cause of the problem is once again a move to centralise banking. In the 1930's it was to create a central US bank. Now, is it to create a global bank? (Not the "World Bank") but some new entity?






> World needs new Bretton Woods system, says UK PM
> From correspondents in London
> Agence France-Presse
> October 14, 2008 08:18am
> ...



Aaah, finally get an answer.....


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## Green08 (15 October 2008)

> Looks like a good reason to have the secret inside US government to be so angry to orchestrate and do 911, blame outside terrorists and hope for the best...with their impending 700 billion scam to the american taxpayers.
> 
> http://money.cnn.com/2008/07/11/news...ion=2008071120
> 
> ...




Fact is stranger than Fiction

Why haven't caught Osama maybe GW knows where his is quietly.

Wouldn't surprise me. GW is an idiot but a clever nasty idiot


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## Temjin (15 October 2008)

ozambersand said:


> A while ago, I posted the question here.......
> 
> 
> 
> Aaah, finally get an answer.....




Here we go, the next big scam.  

While we are powerless to change all this, we can at least do something to protect ourselve and our families from this treachery.


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## Punter44 (22 October 2008)

G'day all,

I am new to this forum and have found this particular thread very interesting indeed particularly the commentry from lakemac.

I read this article today which I thought was extreme but not entirely out of the question....




Why real estate spending could make Australia the new Iceland
Paul Sheehan | October 19, 2008

On July 30 Hans Redeker, head of foreign exchange strategy at BNP Paribas, Europe's biggest investment bank, predicted: "The Aussie is going down, big time."
Back then - it already seems like a long time ago - the Australian dollar was sitting majestically at 97 cents to the US dollar, which was taking a battering. But the Aussie did, indeed, go down, big time. Within three months it had crashed by 33 per cent to US65.5 cents. Now Redeker has issued another warning to Australia. We'll get to that. But first, let's look at his track record.
December 2006: Redeker predicted a sharp recession in the United States, saying the condition of its housing market was worse than the experts were stating and the flow-on effects would be much worse than predicted. That was almost two years ago. He was right.
January 2008: he predicted the Aussie dollar was facing two years of decline, and expected to see it fall to 66 cents. He was right. He also predicted a rise in financial market volatility, higher inflation worldwide, higher interest rates in Asia, weakening demand for Australia's minerals exports from China, and a weaker sharemarket in China, all of which would drive down the Australian dollar. Since then, the Shanghai sharemarket has crashed 50 per cent from its peak.
October 2008: two weeks ago Redeker repeated his claim that abundant foreign money had been available to Australia and too much of it had been spent on real estate, creating a speculative bubble: "The easy money went straight into real estate - Australia will now have to generate 4 per cent of GDP to meet payments to foreign holders of its assets. This is twice as high as the burden faced by the US."
After the Australian Reserve Bank slashed key interest rates by 1 per cent, Redeker also told London's Telegraph that he was concerned about what the Australian Government may do: "Yes, Australia has a fiscal surplus, but that does not offer as much protection as people think. If the Government boosts spending further, the current account deficit will spiral out of control."
And what has the Rudd Government just done? Boost spending.
There was certainly no discussion of the current account deficit spinning out of control, or Australia's excessive debt, when the Prime Minister, Kevin Rudd, launched his $10 billion economic stimulus package last week, nor any from the Opposition Leader, Malcolm Turnbull, who offered in-principle bipartisan support.
It gets worse. Redeker continued: "There is a risk, however remote, that Australia could face some of the foreign funding difficulties we have seen in Iceland."
Iceland! Iceland was the most leveraged economy in the developed world when it became the first economy to be bankrupted by the credit crisis. You do not want to be mentioned in the same sentence as Iceland unless the discussion is fishing or blondes.
After quoting Redeker, the Telegraph's global business columnist, Ambrose Evans-Pritchard, weighed in with his own commentary: "The immediate problem for Australia's banks is that they gorged on offshore US dollar markets to fund expansion because the interest costs were lower. They were playing on a huge scale with leverage. European banks face much the same problem as dollar liabilities come back to haunt, but Australian lenders have pushed their luck even further."
Gabriel Stein, of Lombard Street Research, weighed in with this, after noting that Australian household debt had reached 177 per cent of gross domestic product, almost a world record: "It is amazing that in the midst of the biggest commodity boom ever seen they have still been unable to get a current account surplus. They have been living beyond their means for 10 years. What worries me is that productivity growth has been very low: they have been coasting after their reforms in the 1990s."
The global financial world is watching the Australian dollar because it holds a key to the great unanswered question of this uncertain era: will the global market punish a currency for its declining interest yield? Or will it reward a currency because of the soundness of its economy? Central banks are acutely interested in the answer.
Evans-Pritchard thinks the early signs are hopeful that the answer is the good one, that nations will be rewarded for having sound economies. But he does not believe Australia can escape the consequences of excess: "Australia has allowed its net foreign liabilities to reach 60 per cent of GDP during a decade-long boom, twice the level of the US. The country will, in effect, have to pay 4 per cent of GDP in the form of rents to foreign asset-holders as the bill for such extravagance falls due."
The bill is falling due. Earlier in the year Australians travelling in Europe would have paid about $1.50 for every euro spent. Today they need $2.10. The Aussie dollar is weak again, despite all the luck of the China boom. This raises a number of awkward questions. Did the lucky country became the greedy country? Did it fail to sufficiently embark on a program of nation-building during the resources boom? Was most of the bonus redistributed as tax cuts, which were spent chasing bigger mortgages, bigger homes, new cars and general consumption, stimulating short-term economic growth but not enough on long-term productivity and higher savings?
During 17 years of unbroken economic expansion and a 10-year commodities boom, it took a lot of people, borrowing a lot of money, taking a lot of unproductive risk, to get to where we are today: a nation with excessive debt and excessive vulnerability to external circumstances barely within our control.


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## Ageo (22 October 2008)

Interesting article Punter thanks

got a link to where you got it from?


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## lakemac (22 October 2008)

Thank you for the praise Punter44.
It makes the effort worthwhile if I can at least open your eyes to other possibilities.

I have had some questions regarding the source of credit figures.
The best source for those figures is the websites of the central bank in the respective countries.

US - Federal Reserve - table H.8
http://www.federalreserve.gov/Releases/H8/default.htm

Aus - Reserve Bank Of Australia - table D2 and D3
http://www.rba.gov.au/Statistics/AlphaListing/index.html

UK - Bank of England

China - Peoples Bank of China

Japan - Bank of Japan

EU - European Central Bank

A quick google search and/or search on their respective web sites will pull up credit data - it sometimes is called lending aggregates or such like.
Search search search.


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## Punter44 (22 October 2008)

Ageo said:


> Interesting article Punter thanks
> 
> got a link to where you got it from?





Read the article on smh.com.au


http://www.smh.com.au/news/opinion/...g-for-australia/2008/10/19/1224351052160.html


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## lakemac (22 October 2008)

Punter44, I want you (and others) to think about something independently of what a journalist is printing.

If I want to buy something in say, Australia from an Australian resident, what currency will I have to have in my hand (or bank account) in order to complete that transaction? Aussie dollars right?

So lets say I am a Canadian citizen that wants to buy your house here in Australia to use as an investment property. Are you going to accept Canadian dollars or Aussie dollars? Aussie probably as you can't spend Canadian dollars here in Australia to buy anything.

So as a Canadian (or any foreigner) I would have to first convert my foreign currency into local currency right. Where do I go to do that? A bank of course (those of you who know my posts can see where this is going can't you LOL). Now the local bank is happy enough to take the Canadian dollars and give you (minus their fat commission in the form of currency spread) Australian dollars. Where did those Aussie dollars come from? And secondly where did the Canadian ones go to?

There is one bank authorised to create Australian dollars - yes kiddies the RBA. Same as in Canada only their central bank can create Canadian dollars.

Now don't get confused by credit creation and currency. Non-central banks can create credit/goodwill/trust to be issued between other local banks but they are all basically dealing in local currency. If you have a foreign currency it is the central bank that you are ultimately dealing with (bet you didn't know that...). The source of the currency ie. Aussie dollars here rests with the RBA. You can only exchange foreign for local currency by ultimately going to the RBA (of course your local bank branch handles the front office transaction).

So if in a fictious land lets say the benign (LOL again) central bank did not create any more currency out of thin air we would have a fixed amount of currency units in circulation. Certainly a fixed amount of *exchangeable* currency. Remember this is not a loan. That happened in your foreign (in this example, Canadian bank). This is just a currency exchange.

With me so far? Good.

So here we have a fixed amount of currency but because investment properties are really good investments in this ficticious country everybody wants in. So the demand for a *fixed* amount of currency would go up. With a fixed supply and higher demand the "price" of that thing goes up. Correct? Indeed simple supply and demand - economics 101. The price in a currency situation is called an "exchange rate".

The higher the exchange rate the more demand for a currency right? Well only partially right. Why only partially? We don't live in a ficticious land. Our central banks keep creating more currency. And so does the other central bank. So exchange rates not only vary because of the supply and demand for a currency but more importantly because of the *RELATIVE* rates of currency creation (or destruction) by each central bank invovled in the exchange transaction.

You will have to think about what I just said - I know it gives me a headache every time I have to explain how exchange rates work and why non-government foreign debt is not an issue in all this credit mess.

The reason non-government foreign debt is not and issue is once the money is exchanged into your local currency the debt essentially has to stay here unless it can be exchanged back out. (That is a topic for a later discussion).

Back to central banks and exchange rates. We know that all currency has to pass thru a central bank on its way to be exchanged. We know that central banks create/destroy currency. Question is how much of an exchange rate movement is due to the central banks. Remember they can create an unlimited amount of currency out of thin air (think the Fed "finding" $700B to fund the bailout - that did not exist before a computer created it). So if the Aussie dollar has gone down so much there are two factors we need to consider:
1. how much Aussie dollar thin air has the RBA created?
2. how much Aussie dollar currency was exchanged for say $US by private means.

Both are required before you can properly work out what the drop in the $A really means (by the way I don't have these figures - anyone care to do the research I would love to get a copy of them).

What is worth considering is this. Just before the fall in the Dow the $US surged against all other currencies. Now we know the Fed was pumping thin air (ie. more US currency) into the baloon in order to keep it afloat. So here we have a central bank making enough new dollar bills with as much value as the leaves from several deciduous forests which should push down the exchange rate (more supply same demand) but even in spite of this massive increase in supply the exchange rate kept going *UP*... In other words the demand for $US was so high it even outstripped the massively increased supply of same from the Fed which was as we speak debasing the US currency even more.

What gives? Someone knew something. Remember this happened *before* the stock market correction. Why did all this money get converted into $US? Anyone have an idea? Lets see who has a handle on the concepts...


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## ozambersand (22 October 2008)

The whole currency issue confuses me I will admit. 
I downloaded some figures on exchange rates between the Aussie dollar and the US, Euro, Great Britain pound and the Japanese yen from the Reserve Bank site. Then I used multipliers so that they could be compared better on the one chart.
Which gave me this:


As you can see we were going along pretty consistently all year until 30th September when we tanked against all of those currencies.
Why did we tank compared to the others while they seemed to hold up pretty consistently with each other?
Why was it so sudden?
In actual fact, the biggest drop was on the 7th October and the biggest after that was the 10th October. What happened on these two days to create that much movement?
Also, Lakemac said above that:


> Just before the fall in the Dow the $US surged against all other currencies.



If this was the case, wouldn't the paths of the US and the others be very different. From what I can see the US and the Yen at least have tracked together vs the Australian dollar at least. Haven't got figures though on how they are trading in terms of each other though.
As you can see I am a tad confused.....


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## lakemac (22 October 2008)

great chart ozambersand.

part of our $A tumble was the China syndrome.
The $A got dumped because of the fear our resources boom was over.
But I don't buy into that totally. The reason I don't is that central banks have a much larger pot of currency to play with because they created the pot to start with... (remember they are the only ones that can create/destroy their respective currencies). So I am applying Pareto rules here. ie. 80:20 ratios. Thus who actually moved the market?

One thing I should point out here is I don't have an answer to this yet. All I know is that exchange rates are a combination of demand for a currency and the actions of central banks creating thin air.

As I said I get a headache too - currency is not my forte.


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## frenzel (23 October 2008)

The US$ went up and stays up because everyone was/is moving to US T-bills as a safe haven from whatever else it was they were invested in.  These require US$ to buy.

So I've read anyway.  Still getting my head around currencies and exchanges.

Have just gone through the entire thread and have definitely learnt a lot.  Thanks to all for a very interesting read.

Suggest having a look at some of the videos on this link.

http://www.chrismartenson.com/crash-course/chapter-1-three-beliefs

Some very good visual explanations on money creation by banks, and the issues we have going forward re currency and inflation.


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## Bat_Ears (20 April 2009)

Thanks for all that LakeMac. Its a lot to think about. What are your thoughts at the moment?

Also, on the first page of this thread you said (two years ago) that the banks would want China to industrialise so they could consume more, so that they would rely more on credit. 

Anyway, you said that the next recession would be when China reached the point of self sufficiency. Since we are now seeing a recession, were you right?


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## kincella (20 April 2009)

there were groups of people in the US who years ago planned a 'manufactured financial crisis'.....
anyone out there fealing a bit duped....now we have all the biggest banks saying they are ok now ???

an extract......

America waits with bated breath while Washington struggles to bring the U.S. economy back from the brink of disaster. But many of those same politicians caused the crisis, and if left to their own devices will do so again.

and this extract.....
Both the Living Wage and Voting Rights movements depend heavily on financial support from George Soros's Open Society Institute and his "Shadow Party," through whose support the Cloward-Piven strategy continues to provide a blueprint for some of the Left's most ambitious campaigns

http://www.americanthinker.com/2008/09/barack_obama_and_the_strategy.html

http://www.discoverthenetworks.org/groupProfile.asp?grpid=6967


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## lakemac (21 April 2009)

Bat_Ears said:


> Thanks for all that LakeMac. Its a lot to think about. What are your thoughts at the moment?
> 
> Also, on the first page of this thread you said (two years ago) that the banks would want China to industrialise so they could consume more, so that they would rely more on credit.
> 
> Anyway, you said that the next recession would be when China reached the point of self sufficiency. Since we are now seeing a recession, were you right?



Given we are now offically in a recession according to the RBA and China is at the point of self sufficency, then I guess I must be right 



> China central bank chief says economy turning around
> AFP
> AFP Asian Edition
> Mar 25, 2009 20:00 EDT
> ...


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## lakemac (21 April 2009)

Kincella, I had a quick read through those links in your post.
My take on those: Yes the left has an influence on policy (cf ACOSS has the ear of Ken Henry doing the tax reform at the moment), however, the left lacks a crucial ingredient - money (or more correctly credit).

The unfortunate thing is that you get corporate welfare (terrorism, Fannie Mae, TARP etc) propping up big business. When such extreme forms of "capitalism" fail the left come in and start claiming capitalism doesn't work.

Personally my preference is to push "free enterprise" rather than capitalism or fascism dressed up as a totalitarian state pretending to be a softer version of communistic socialism (go all that - there will be a test later on LOL).

All of what we have, all the advances over centuries, all that is due to free enterprise - competition between business for you, the customer. When a government steps in because of some special interest group to redistribute wealth distortions in free enterprise start to appear and mutate to what we currently have - a cancerous version of capitalism.

The problem is politicians have only one driving force - winning the next popularity contest. There are more people who thru choice want the easy way out - more regulation, more personal welfare, more handouts which always results in more government and hence more taxes. Add to that the use of outdated, provenly wrong and downright dangerous ideas such as Keynesian stimulation and we have a receipe for disaster.

The movers and shakers of the world don't like to be taxed and regulated out of existence. Innovation gets stifled, the old order calcifies in (cf General Motors). Unfortunately the average under educated worker thinks simple fixes will work - and the politicians pander to that with things like the $900 stimulus handout. If the government had said well you can get $900 now but in 2 years time you are going to have to pay back $1500 do you still want it?

Personally (and this goes for a question Bat Ears asked) I am getting ready for a period of high, if not hyper inflation. Get out of cash get into hard assets - commodities, real estate, mining companies. China is doing this right now. The days are numbered for the US dollar. The only reason it is holding up is there is no ready alternative for a world currency. Change that and the US dollar becomes about as valuable as a peso.

We are heading into inflation - not if, when. I give it till the end of the year when we see the signs of inflation hitting.
And just for the astute:
http://www.theaustralian.news.com.au/business/story/0,28124,25361998-643,00.html


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## Julia (21 April 2009)

lakemac said:


> and the politicians pander to that with things like the $900 stimulus handout. If the government had said well you can get $900 now but in 2 years time you are going to have to pay back $1500 do you still want it?





Sadly, the response of much of the public probably would have reflected the short term view of the government, and they would have said 'yes' to the $900, essentially ignoring the rider about the $1500/

Given that many believe they will never have to pay the balance on their credit cards, they'd probably take the same view about the $900/$1500 question.
"A bird in the hand....." etc.

And now the government is indicating that there will be a third stimulus package.   No worries that expectations are that most of the second package will be saved, just keep on borrowing and throwing the money out there.

Unless in Package Mark III they are going to fund necessary infrastructure like roads,health and water.  No objections to that and it would be very welcome.


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## MR. (17 May 2009)

lakemac said:


> I am getting ready for a period of high, if not hyper inflation. Get out of cash get into hard assets - commodities, real estate, mining companies. China is doing this right now. The days are numbered for the US dollar. The only reason it is holding up is there is no ready alternative for a world currency. Change that and the US dollar becomes about as valuable as a peso.
> 
> We are heading into inflation - not if, when. I give it till the end of the year when we see the signs of inflation hitting.




Interest rates rise because of the “lack” of money as what appears to be beginning now. (deposit interest) Remember it’s not the interest rates it’s the money supply. RBA has no control over rising interest rates unless they start printing excessive amounts of the stuff. Food goes up and basic living items because the loans which produce these products and get them to our tables, have risen. What about the other items? The items we don’t really need! They want to put them up but no one is buying them. So they continue to drop in price just to get a sale.

Meanwhile contractors and manufacturers are lowering their quotes and the average persons wage can now drop. I am still having trouble seeing how inflation comes into the equation without more leverage by the public. 



> Now is the time to get out of cash?




Is it? I keep thinking it’s not.  I get into real estate as you suggest. The properties both sides are reduced in value because of the “lack” of cash causing foreclosures etc. Your/my new property is now valued as per next door. We just lost money because it could have been better spent. 

I‘m saying “Now is too early.........” 
I would like to be convinced otherwise..... 

On a side note:
China has a tonne of US dollars which if they converted will unpeg their currency from the US, makes China’s currency rise which in turn makes China less competitive in exports. Could China be buying metals by the likes of Copper because it’s better than holding US dollars? Inflation? If the US domestic consumption is slow to return and China happens to get it's domestic economy increasing strongly "beyond stimulas". The Chinese won't want their Yuan pegged to the USD anymore will they!


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## MS+Tradesim (17 May 2009)

MR. said:


> On a side note:
> China has a tonne of US dollars which if they converted will unpeg their currency from the US, makes China’s currency rise which in turn makes China less competitive in exports. Could China be buying metals by the likes of Copper because it’s better than holding US dollars? Inflation? If the US domestic consumption is slow to return and China happens to get it's domestic economy increasing strongly "beyond stimulas". The Chinese won't want their Yuan pegged to the USD anymore will they!




I initially sent this as PM to MR but for the record I'll share my unsophisticated thoughts in the open....

Up front, I'm not that economically inclined. I don't really know the ins and outs but I do know how people think and that's what I'm betting on.

China recently made some comments about having the IMF special drawing rights become the reserve currency. I don't know if I see that happening, or certainly not soon, because the USA will take a protectionist policy stance. They won't give up their position lightly. 

However, China understands what most of us know - the US dollar has got big problems. They're inflating the crap out of the dollar with the amount of debt they're issuing in order to pump back into the system to try and support their already debt-based economy. We know that can't end well. Debt supporting debt. That's how the current crisis originated. It's beyond credulity to think it will be the solution, yet that's the play of Western govts. It's my belief that the US dollar will eventually lose its reserve status and that's when their chickens will really come home to roost. 

I believe that will be informing Chinese policy as they shore up gold reserves, base metals etc in order to deplete their US dollar reserves and have something more tangible backing their wealth reserves. 

So I'm just thinking out loud there to say I completely agree with you. China has to wind back their reliance on exports and the safest way for them to do that is to internally provoke consumption demand. How they will do that from a policy perspective I have no idea. But I do know human nature and the way I see it, the Chinese are getting a taste of Western consumerism and they like it. The growing middle class are enjoying their new found 'luxuries', especially those who are children of the revolution that endured a quite spartan lifestyle for decades. They're not going to just sit back and wait for the USA to start filling Chinese coffers again.

Further, unpegging their currency will increase their own foreign purchasing power. What can we expect to result from that? Given they currently have the market cornered on cheap manufacturing what are they likely to want to buy from other countries? Apart from raw materials, I don't know yet but I'll be doing some more thinking on that to look for opportunity. Possibly food. Will some countries basically become farms to feed China? Fertiliser companies to increase farm productivity? Wool for clothing? etc etc. Like I say, I don't know but there is a large domino play here which will prove very lucrative for those who get it right.

I don't know the timeframe this will play out over. I'm not banking on it in the near-term to profit off in the next week, or month or 6 months.

As a side-note, one long-shot that might unfold is America becoming the next China....massive unemployment, debt-distressed economy, rising Asian and Chinese affluence....perhaps the future of the USA is cheap manufacturing. 

Just some of the thoughts I'm ruminating on these days.


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## saiter (17 May 2009)

MS+Tradesim said:


> China has to wind back their reliance on exports and the safest way for them to do that is to internally provoke consumption demand. How they will do that from a policy perspective I have no idea.




I've heard of this idea on other forums but I don't understand how it would make China "grow" (assuming that this is what the Chinese government wants).

The way I see it, all money from the government/corporate sector would be paid to the worker through wages which will then be paid back to the government/corporate sector through consumption. All they're doing is passing the buck around and they're just "sustaining" themselves. If they were exporting, then money would be flowing in from elsewhere and allow for growth.



MS+Tradesim said:


> As a side-note, one long-shot that might unfold is America becoming the next China....massive unemployment, debt-distressed economy, rising Asian and Chinese affluence....perhaps the future of the USA is cheap manufacturing.




Yup, and the official language will become Chinese : If the USA ever gets to that stage, then I think they'd just rape (with their awesome military) all other countries for money so that they could get back to their previous lifestyles.


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## MS+Tradesim (17 May 2009)

saiter said:


> The way I see it, all money from the government/corporate sector would be paid to the worker through wages which will then be paid back to the government/corporate sector through consumption. All they're doing is passing the buck around and they're just "sustaining" themselves. If they were exporting, then money would be flowing in from elsewhere and allow for growth.




It's not either/or. It's both/and.

Chinese have a high savings rate. IIRC, their savings/income ratio is the highest in the world. One simple way for them to grow is to spend more of their savings. 

http://news.xinhuanet.com/english/2009-05/03/content_11305373.htm 

Hopefully they don't fall into the debt/consumerism of some Western countries.


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## Wysiwyg (17 May 2009)

> http://news.xinhuanet.com/english/20...t_11305373.htm




This Roach fella is quite bearish on the Chinese economy as seen in another article. 


> their savings/income ratio is the highest in the world.



It would be interesting to know whether the record car sales this year in China are debt laden or owned. After all, the second biggest outlay for the majority is a motor vehicle and the ensuing running costs.


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## MS+Tradesim (18 May 2009)

MR. said:


> Could China be buying metals by the likes of Copper because it’s better than holding US dollars?




MR,

Reckon this will interest you.
http://www.bloomberg.com/apps/news?pid=20601009&sid=a5yhtDZx75kw&refer=commodities


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## MR. (18 May 2009)

MS+Tradesim said:


> MR,
> 
> Reckon this will interest you.
> http://www.bloomberg.com/apps/news?pid=20601009&sid=a5yhtDZx75kw&refer=commodities




Makes a bit of a mockery out of the assumption that when copper prices start to rise it’s the first sign of a recovery!

with thanks.......


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## RazzaDazzla (14 March 2010)

Just watched Money as Debt and am downloading money as debt II as I type this.

Scary stuff! I never thought of myself as a "conspiracy" theorist, but it all makes perfect sense. As an example, I was even offered a credit card the other day by HSBC. If I accept the deal, they'll give me $60 once I make a purchase on the card! This is ludicrous that a bank would pay someone money to borrow money!

Anyway, yeah; very thought provoking stuff!

How does one avoid the end of money as we know it? Stay consumer debt free and only borrow to buy appreciating assets?


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