“He who controls the spice controls the universe.”

Guild Navigator - Dune (1984)

If you are a science fiction fan you’ll probably remember Dune, the excellent novel (a series of them actually) by Frank Herbert, and the film by David Lynch based on the same book. In it, one of the villains, Baron Vladimir Harkonnen, utters “He who controls the spice controls the universe”, the spice being a rare substance harvested in desert and desolate planet Arrakis and without which the universe would would grind to a halt (if you want to know why and have not read the book or seen the movie…just do it!). Instead of “spice” use “credit” and you’d have an adept metaphor of our universe, our western societies.

This week Spiegel Online interviewed Carmen Reinhart, an american economist known for being the co-author, with Kenneth Rogoff, of the book This Time Is Different: Eight Centuries of Financial Folly, in which they study debt crisis and their aftermaths in the last 800 years.

In this interview Ms. Reinhart gives very clear hints as to what the aftermath of the present debt crisis in western societies might be: inflation and impoverishment of savers and the general population. She also mentions the methods by which such an outcome will be achieved: financial repression and monetization of debt (aka Quantitative Easing aka QE).

Ms. Reinhart holds the thesis that governments have forced Central Banks to relinquish their independence in order to finance government deficits that can no longer be addressed via fiscal policies. What she does not say, be it because she does not believe it or because she does not dare, is that governments are themselves subservient to financial markets, an issue that we addressed in TYR reads “… a de facto coup d’état by Wall Street”. Ms. Reinhart utters some truths and chooses to ignore some other ones. The interview is both illuminating and mystifying, but well worth reading.

At the end of the interview…

…Spiegel asks “That sounds like a perpetual motion…”

…and Ms. Reinhart answers…”Of course it is!”.

It is perpetual motion because credit is the spice of our financial universe, a spice created by Central Banks, where decisions are taken by unelected officials, that channel it, at a very low or no cost, thru the private banking system, that multiplies and redistributes it, at a cost, to the rest of the economy. Ms. Reinhart tries to convince us that it is governments that control money, credit. No, Frank Herbert knew better. It is the Guild, the banking industry and their owners, who control the spice…credit…Central Banks…and in the end governments. How do we know?…ask yourself…Cui Bono? “He who controls the spice controls the universe.”

Some excerpts from the interview:

“So what happens is that money is transferred from savers to borrowers via negative interest rates.”

“If central banks try to accommodate and buy debt, there are risks associated with it. Somewhere down the road you are going to wind up with higher inflation.”

No doubt, pensions are screwed. Governments have a lot of leverage on what kinds of assets pension funds hold.”

“…after World War II austerity was easier to pursue, because you had a younger population and therefore less entitlements. Furthermore, military expenditure was easier to reduce. So, the build-up in debt we have seen since the crisis is very rare. Usually you get that kind of build-up when there is a war.”

4 April 2013 TYR reads

Helicopter QE will never be reversed @ The Telegraph Ambrose Evans-Pritchard hints at what the nature of the end-game of this monetary era might be…and it is printing money…forever. With an apparently neutral style and quoting potentially apocalyptic outcomes if permanent money printing by Central Banks is not considered ( “A breakdown of the global trading system might be one, armed conquest or Fascism may be others – or all together, as in the 1930s.”), the idea of a radical change of the monetary and economic system, without democratic consent, is being gradually introduced to a public opinion that is largely unable to understand the consequences of such monetary policies. He concludes: “Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.”

97% Of Spanish Social Security Pension Fund In Domestic Bonds @ Zerohedge “It appears, since the Spanish government does not explicitly have its own Fed to monetize debt, that it has merely plundered another quasi-governmental entity to do the bond-buying reach-around.”

Bank of Japan unveils aggressive easing @ Financial Times “The BoJ said it would double Japan’s monetary base from Y135tn ($1.43tn) to Y270tn by March 2015, mainly by buying more long-term government bonds.”. “We can’t escape deflation with the incremental approach that’s been taken until now,” Mr Kuroda said after the announcement. “We need to use every means available.”.

As Mr. Evans-Pritchard mentions in his article, “There were two extreme episodes of money printing in the inter-war years. The Reichsbank’s financing of Weimar deficits from 1922 to 1924 – like lesser variants in France, Belgium and Poland – is well known. The result was hyperinflation. Clever people made hay. The slow-witted – or the patriotic – lost their savings.”. The policies and situations described in the articles above suggest that it might happen, again.

TYR reads: Bitcoins Go Parabolic

Zerohedge reports about the parabolic rise in the price of the Bitcoin in the last 48 hours and its 1400% rise since the start of the year. The article rethorically asks…”which line item on the Fed’s Balance Sheet is ‘Virtual Currency Transactions’… what better way to destroy an up and coming currency competitor than to blow a bubble in it and explode it?”

We wrote about Bitcoin a couple of weeks ago in Bitcoin a virtual currency that defies the NWO. It is a brilliantly designed currency, but it can blow up…or be made to blow up. If you plan to use it, study it first and go slow.

Bitcoin a virtual currency that defies the NWO

Bitcoin the emerging monetary phenomenon created by a pseudonymous Satoshi Nakamoto in 2009 is no longer a joke, but a potential real threat to the neofeudal NWO whose visible components are the western Central Banks, from the Federal Reserve (FED) , to the European Central Bank (ECB), to the Bank of Japan (BoJ), to the Bank of England (BoE), to others.

Bitcoin poses a direct challenge to fiat based Central Bank created currencies that are continually being debased in order to maintain a “dual” economic system in which the banking industry is continually being subsidized (thru access to cheap money via the Central Bank, thru continuous bailouts paid by taxing the rest of the economy, thru covert inflation achieved by distorting the inflation measures).

It is likely that if the threat posed by Bitcoin materializes, Central Banks will fight it (they have already started), but whatever the outcome, Bitcoin is the most brilliant and lethal tool devised so far to fight a social order described decades ago, in “1984”. Forget, “Occupy Wall Street”, forget “indignados”, Bitcoin might be “it”.

It should thus not be a surprise that, as Zerohedge reported today, “US Begins Regulating BitCoin, Will Apply “Money Laundering” Rules To Virtual Transactions”.

So…What is Bitcoin?

According to Wikipedia, “Bitcoin (sign: BTC) is a decentralized digital currency based on an open-source, peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.”

“Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution. In trade, one bitcoin is subdivided into 100-million smaller units called satoshis, defined by eight decimal places.”

According to Erik Voorhess, that provides an excellent introduction to Bitcoin in his blog, “Bitcoin is two things: it is a digital currency unit and it is the global payment network with which one sends and receives those currency units. Both the currency unit and the payment network share the same name: Bitcoin.”

“As a currency unit, consider Bitcoin like other currencies. The world has euros, dollars, yen, gold and silver ounces, and now it has Bitcoin as well. The properties of the Bitcoin currency unit are as follows:”

  • There will never be more than 21 million in existence, and they are released over time at a declining rate (at the time of writing, about 8.5 million Bitcoins exist).
  • As new coins are released on the set schedule, they are given at random to those who contribute computing power to securing the network. This is called “Bitcoin Mining” but it should more accurately be called “Bitcoin Auditing.” Those who contribute more computing power to this work have better odds of receiving the new coins, but the rate of new coin creation never increases (in fact it diminishes over time until all 21 million coins exist). Inflation is thus pre-determined and ever-decreasing toward zero. The below graph shows the release schedule and inflation rate:

  • Each Bitcoin is divisible by one hundred million. You can thus possess 0.00000001 Bitcoins.
  • Bitcoins are perfectly fungible, they are divided and combined seamlessly in your account.
  • It is theoretically impossible to make a fake Bitcoin (to fully understand why this is true, one needs to study cryptography and fairly advanced mathematics).
  • As a currency existing in a perfectly free market, Bitcoins always have a market price. At the time of this writing, this price is about $4.80 each. Because Bitcoin is global, there are also market prices for Bitcoin in every major national currency from yen to Brazilian reals.
  • Bitcoins are traded like other currencies on exchange websites, and this is how the market price is established. The most prominent exchange is MtGox.com

“So those are the details of Bitcoin as a currency unit, but Bitcoin is also a payment network. As a payment network, Bitcoin replaces the function of banks (especially the Federal Reserve as money creation is not at the whim of any person nor group), inter-bank funding networks (like SWIFT and SEPA), payment processors (like PayPal) and remitters (such as Western Union). The entirety of these massive industries as they relate to the creation, storage, accounting, and transfer of money has been usurped by Bitcoin. If Bitcoin succeeds, it is likely that PayPal and Western Union would be removed from the marketplace. The Federal Reserve (and every central bank) would be made redundant. “Disruptive technology” is thus an understatement.”

Is Bitcoin “money”? Does it have the characteristics that define that elusive concept called “money”. According to the traditional definion, “money” should be a store of value, a medium of exchange and a unit of account. Let’s see:

  • Is it a store of value?. Yes. Why?. Because it cannot be counterfeited and because it is scarce. Only 21 million Bitcoins will ever be issued by 2140. Being a store of value is based on being scarce, and Bitcoin is scarce.
  • Is it medium of exchange?. Yes. Why?. It is used to purchase and sell products and services.
  • Is it a unit of account? Yes. Why?. It is fungible, divisible and can be used to accumulate wealth.

Bitcoin is an experiment, and it could fail. Its success depends on its creators fulfilling the pledge never to issue more than 21 million units, on keeping it scarce. But so far it is succeeding. Check the price of the Bitcoin in USD in this chart provided by Blockchain: It went from 10 USD in July 2012 to 70 USD this last week. Check also the market capitalization of the Bitcoin market in this chart also provided by Blockchain: It went from 100 million USD in July 2012 to about 800 million USD this last week.

Its success also depend on it being widely accepted. This condition has the characteristics of a self-reinforcing loop: The more it is accepted, the higher the chances of it succeeding as a medium of exchange. So far the prospects are good. Transactions mediated by Bitcoin are growing fast.

As Bitcoin is decentralized, it can be hard to find all the resources one might want. Below is a list of some of the most useful websites and tools for learning about and engaging the Bitcoin economy (compiled by Erik Voorhees)

Paytunia.com – Very nice online ewallet service with Android app. Store your coins here.

BitSpend.net – Enables you to buy ANYTHING online by paying with Bitcoin. Very cool.

Bitcoin.org – Official site of the Bitcoin project, download the wallet software here.

MtGox.com – The leading Bitcoin exchange. Buy and sell Bitcoins here.

BitcoinTalk.org – The official discussion forum, and large enthusiast community.

Wiki.Bitcoin.it – Encyclopedia of most aggregated Bitcoin knowledge, very extensive.

Bitcoin.it/wiki/trade – Partial list of companies that accept Bitcoin as payment.

Blockchain.info – Tool for viewing accounts, payments, and numerous economic statistics.

BitcoinCharts.com – Shows current market prices and economic statistics.

Preev.com – Super easy Bitcoin<->fiat calculator, multiple currencies supported.

BitcoinMonitor.com – Live view of transactions as they happen on the Bitcoin network.

Paysius.com – Enables businesses to automatically accept Bitcoin payments on their website.

Bit-Pay.com – Another excellent merchant solution for businesses that wish to accept Bitcoin payments.

Coinabul.com – Leading gold and silver bullion seller for Bitcoin

Coinapult.com – Send Bitcoin via Email or SMS

WorkForBitcoin.com – Bitcoin job board – freelance projects which pay in Bitcoin.

TYR reads “… a de facto coup d’état by Wall Street”

David Stockman On “The Great Deformation” And The US Treasury As “The M&A Department Of Goldman Sachs” @ Zerohedge Zerohedge publishes this excerpt from David Stockman’s upcoming book The Great Deformation: The Corruption Of Capitalism In America

David Alan Stockman (born November 10, 1946) is a former U.S. politician and businessman, serving as a Republican U.S. Representative from the state of Michigan (1977–1981) and as the Director of the Office of Management and Budget(1981–1985).

Excerpts from the introduction to The Great Deformation:

“The fiscal cliff is permanent and insurmountable. It stands at the edge of a $20 trillion abyss of deficits over the next decade. And this estimation is conservative, based on sober economic assumptions and the dug-in tax and spending positions of the two parties, both powerfully abetted by lobbies and special interests which fight for every paragraph of loophole ridden tax code and each line of a grossly bloated budget.”

“Fiscal cliffs as far as the eye can see are the deeply troubling outcome of the Great Deformation. They are the result of capture of the state, especially its central bank, the Federal Reserve, by crony capitalist forces deeply inimical to free markets and democracy.”

“Why we are mired in this virtually unsolvable problem is the reason I wrote this book. It originated in my being flabbergasted when the Republican White House in September 2008 proposed the $700 billion TARP bailout of Wall Street. When the courageous House Republicans who voted it down were forced to walk the plank a second time in betrayal of their principled stand, my sense of disbelief turned into a not-inconsiderable outrage. Likewise, I was shocked to read of the blatant deal making, bribing, and bullying of the troubled big banks being conducted out of the treasury secretary’s office, as if it were the M&A department of Goldman Sachs.…”

“By the end of the Bush administration it was starkly apparent that a Republican White House had wantonly trashed all the old-time fiscal rules, and it had been done by political neophytes: Hank Paulson and his posse of eager-beaver Goldman bankers. But I had been at the center of the most intense fiscal battle of modern times during the early Reagan era and had learned something they apparently hadn’t: that the Congress is made up of representatives from 435 mini-principalities and duchies, and they reason by precedent above all else. Once Wall Street, AIG, and GM were bailed out, the state would have no boundaries: the public purse would be fair game for all.”

“I found this alarming in view of the long ago Reagan-era battle of the budget that had ended in dismal failure. Notwithstanding decades of Republican speech making about Ronald Reagan’s rebuke to “big government,” it never happened. In the interim, Republican administrations whose mantra was “smaller government” only made Big Government more corpulent, so plainly by 2008 there was no fiscal headroom left at all to plunge into “bailout nation.””

“After I left the White House in 1985 I wrote a youthful screed, The Triumph of Politics, decrying Republican hypocrisy about the evils of deficit finance. But I had also tried to accomplish something more constructive: to systematically call the roll of the spending cuts not made by Ronald Reagan, and thereby document that almost nobody was willing to challenge the core components that comprise Big Government.”

“Thus, the giant social insurance programs of Medicare and Social Security had barely been scratched; means-tested entitlements had been modestly reformed but had saved only small change because there weren’t so many welfare queens after all; farm subsidies and veterans’ benefits had not been cut because these were GOP constituencies; and the Education Department had emerged standing tall because middle-class families demanded their student loans and grants. In all, Ronald Reagan had left the “welfare state” barely one-half of 1 percent of GDP smaller than Jimmy Carter’s, and added a massive structural deficit to boot.”

“But that was twenty-five years ago, and whatever fiscal rectitude had existed among the Republican congressional elders at the time had long since disappeared. During the eight years of George W. Bush, the GOP had pivoted from spending cuts not made to a spending spree not seen since the presidency of Lyndon Baines Johnson—adopting Medicare prescription drug benefits, massive growth in education spending, the monstrosity of the Homeland Security Department, sky-high farm subsidies, and pork-barrel excess everywhere. Worse still, the defense budget had doubled and the so-called Republican brand had been reduced to tax cutting for any reason and in whatever form the lobbies of K Street could concoct. George W. Bush thus left the White House trailed by previously unthinkable bailouts and a deluge of red ink which would reach $1.2 trillion and 10 percent of GDP, even before the Obama stimulus. What was truly galling, however, was that the Wall Street satrap occupying the third floor of the Treasury Building had talked the hapless Bush into a $150 billion one-time tax rebate to “stimulate” the economy.”

“I had long since parted ways with the supply-siders and had left the White House with my admiration for President Reagan considerably dulled by his obdurate inflexibility on the runaway defense buildup, and his refusal to acknowledge that the giant deficits which emerged in the 1980s were his responsibility, not Jimmy Carter’s. But despite all this, I thought that the Paulson tax rebate was a sharp slap in the Gipper’s face. President Reagan’s great accomplishment had been the burial of the Keynesian predicate: the notion that Washington could create economic growth and wealth by borrowing money and passing it out to consumers so they would buy more shoes and soda pop.”

“Now Paulson was throwing even that overboard. Didn’t the whirling dervish from Goldman know that once upon a time all the young men and women in Ronald Reagan’s crusade, and most especially the father of supply side, Jack Kemp, had ridiculed the very tax rebate that he peddled to Nancy Pelosi in February 2008 as Jimmy Carter’s $50 per family folly? At length, I saw the light, and it had nothing to do with Paulson’s apparent illiteracy on the precepts of sound fiscal policy. The bailouts, the Fed’s frenzied money printing, the embrace of primitive Keynesian tax stimulus by a Republican White House amounted to something terrible: a de facto coup d’état by Wall Street, resulting in Washington’s embrace of any expedient necessary to keep the financial bubble going—and no matter how offensive it was to every historic principle of free markets, sound money, and fiscal rectitude.”

TYR watches “Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence”

Jim Rogers: We’re Wiping Out The Savings Class Globally, To Terrible Consequence @ Peak Prosperity

Chris Martenson interviews Jim Rogersan American investor and author. Rogers is the Chairman of Rogers Holdings and Beeland Interests, Inc. He was the co-founder of the Quantum Fund with George Soros and creator of the Rogers International Commodities Index (RICI). In the interview Jim Rogers draws attention on this unique moment in financial history where most central banks engage in “money printing”, wiping out the western world’s saving class, and creating the foundations for a potentially devastating future.

“For the first time in recorded history, we have nearly every central bank printing money and trying to debase their currency. This has never happened before. How it’s going to work out, I don’t know.”

“Throughout our history – any country’s history – the people who save their money and invest for their future are the ones that you build an economy, a society, and a nation on.”

“In America, many people saved their money, put it aside, and didn’t buy four or five houses with no job and no money down. They did what most people would consider the right thing, and what historically has been the right thing. But now, unfortunately, those people are being wiped out, because they are getting 0% return, or virtually no return, on their savings and their investments. We’re wiping them out at the expense of people who went deeply into debt, people who did what most people would consider the wrong thing at the expense of people who did the right thing. This, long-term, has terrible consequences for any nation, any society, any economy.”

Bernanke & Hockey Stick Inflation

Yesterday, in his biannual testimony to the USA Congress, the president of the Federal Reserve, Ben Bernanke, asserted that inflation under his and Mr. Greenspan’s mandate was no more than 2% a year. While this might be “true” using Bureau of Labor Statistics (BLS) data, please check ShadowStats for a true picture of inflation in the USA. Even using BLS data, it is very informative to check a chart of inflation of the USA from 1775 until 2012. Please note 2 dates: the creation of the Federal Reserve in 1913 and the decoupling of the US Dollar from gold under the Nixon administration in 1971.

Inflation under 2% per year? Look again