“Printing money” is a worn out metaphor: reflections on what is real

Our current economic system confronts us with a metaphysical dilemma.  Niall Ferguson writes in The Ascent of Money (30-31; emphasis mine):

Today, despite the fact that the purchasing power of the dollar has declined appreciably over the past fifty years, we remain more or less content with paper money … Even more amazingly, we are happy with money we cannot even see.  Today’s electronic money can be moved from our employer, to our bank account, to our favourite retail outlets without ever physically materializing.  It is this ‘virtual’ money that now dominates what economists call the money supply. … Anything can serve as money, from the cowrie shells of the Maldives to the huge stone discs used on the Pacific islands of Yap.  And now, it seems, in this electronic age nothing can serve as money too.

Gary Shilling has maintained that the electronic money that the Federal Reserve has been creating has remained on the bank books as excess reserves because the banks are too afraid to lend it out.  On the other hand, Gonzalo Lira has argued that all the virtual money that the Federal Reserve created and used to buy up toxic assets was in turn lent to the Federal Government by the banks.  Then, the Federal government spent that virtual money on government employees, welfare recipients, medicare, social security, food stamps etc.  Thus, Shilling misses a big point that the bank’s toxic assets and debts of the government have been monetized by this arrangement–and the virtually inflated money is now already in circulation, forcing up the prices of commodities.  Lira calls this phenomena “stealth monetization”: in Weimar Germany, people needed wheel barrels to carry their money.  Today, all that virtual money can be carried in a credit card or a food stamp debit card.  I would estimate that over 95% of my transactions are done with virtual money.  The scary thing is that now central banks are able to create stealth inflation, while lying about the inflation rate which they erroneously confuse with their manipulated Consumer Price Index, because most of the money that exists today is not real–it is not even printed on paper presenting the people with a tangible, visible clue as to how fast it is expanding.  At least in Zimbabwe today, three zeros are added at each new print run–this is inflation that you can see. The US Federal Reserve, the Bank of Canada and the other central banks today create virtual money which gives us nothing tangible with which to see the inflation which is taking place.  The Federal Reserve, until a few weeks ago, was keeping its books a tightly guarded state secret, and so no one except the members of the cabal knew how much virtual money Bernanke was creating or who benefited from it (see Monty Pelerin and My Budget 360).

Now I think of my virtual trading account in which I create virtual wealth through electronic trades on a virtual trading floor, where after three days virtual money and virtual shares change hands.  Then it is recorded in a virtual trading e-confirmation and I’m provided a monthly e-statement with my virtual holdings.  I have healthy net worth, but only as long as others are willing to accept my virtual money, or I can liquidate my virtual assets which are in the form of stock shares that my brokerage account holds for me electronically.  I feel that my investment life is trapped in the Matrix, and I wonder when someone will offer me a choice between the red or the blue pill.  “Welcome to the real world”.

There are today investors insisting upon physical delivery of precious metals.  Banks have perhaps taken massive short positions, selling virtual gold and silver without having much or any of the real stuff.  The word on the street, e.g., is that J. P. Morgan has a massive short position in silver (see Eric Fry); Mish argues that J. P. Morgan probably has a hedged position, but he is admittedly speculating:

If JPM is hurting as the silver bulls claim, pray tell why does it not show up somewhere? Where is the proof JP Morgan is naked short silver?

To be fair, I do wish JPMorgan would comment on this. Why don’t they?

Why don’t they indeed?

Is it possible to create virtual inflation?  What would it look like? I know this: the metaphor of saying that the central banks are “printing money” is worn out and does not adequately reflect the vast quantity of virtual wealth that has been create ex nihilo.  So I suggest we call it instead “virtual money”–or the like, so that we the people can began to get our heads around what the banks are doing to our assets.

Why you can’t pay me to own Berkshire Hathaway

To my post “Warren Buffet Redux“, a certain Johnson responded by linking to an article on Buffet’s support of the sterilization of poor people.

This puts Buffet and all his activities beyond the pail for me.  I used to praise his charitable giving.  But now that I see a portion of it is used to exterminate the poor, I am utterly disgusted.  He has the attitude of the Aschen in the episodes of Stargate SG1 2010 and its sequel 2001 (see synopsis below).  The attempt to control the population of a people is an assault and an attack.  I consider it evil.

Synopsis:  The SG1 team meets an advance alien race called the Ashen, who promise to give to earth advance technology to protect them from their enemies the Goa’uld, to provide long life, and to end their problem of over population. SG1 later learn 9 years later however that Ashen’s purpose was actually to wipe out the entire population of earth and to take over its resources.

Reflexions on multiculturalism and Sarah Palin’s caribou (updated with video clip)

The Left has insisted upon multiculturalism to the point of implementing political correct policies which instead of profiling terrorists require that TSA officers stick hands up the crouches of seniors and down the pants of small children, spreading infectious diseases and violating Americans’ Fourth Amendment rights.  Yet these politically correct Leftists see nothing wrong with ridiculing the culture of some people, such as when it comes to the American pioneer values that I grew up with in Alaska.

An article by Aaron Sorkin ranting against Sarah Palin’s shooting of a caribou is making its rounds on the internet;  Jason Dean writes in the Guardian:

West Wing creator Aaron Sorkin today gave Sarah Palin both barrels over her US TV reality show, accusing the contender for the 2012 Republican presidential nomination of shooting an animal “for political gain”.Sorkin, writer of the recent Facebook movie The Social Network, also accused the Fox News contributor of making a “snuff film” after the latest episode of Sarah’s Palin’s Alaska featured the politician going hunting with her father and shooting a caribou.

He described Palin as “deranged”, a “witless bully” and a “phony pioneer girl”. He also said The Learning Channel, the US cable network, “should be ashamed of itself” for broadcasting her “truly awful reality show”.

Dr. Craig Carter says that Leftists like Aaron Sorkin who support abortion rights, i.e. the killing of human babies, but who find hunting repugnant have lost their moral compass:

So all hunting shows are now “snuff films?” All hunters are morally evil? Well, rural America and Canada, now you know how the Ruling Class regards you. It sure explains a lot – like gun control for example. And here I was laboring under the misunderstanding that they wanted the gun registry because they were afraid people would be killed by guns. Turns out they were afraid you might sneak off and shoot a rabbit or deer. The horror!

I just think it is sickening to assert that there is something morally evil about killing an animal for sport. It betrays a lack of clear thinking about what makes killing evil. The human versus non-human distinction is vital to clear reasoning and moral evaluation. Once it is blurred all sorts of weird and contradictory conclusions are drawn by those who have lost their moral compass.

I responded to Carter:  Even many hunters find it morally repugnant to kill merely for sport. But Palin is exonerated since, as many have reported about the show that I didn’t see, she has duly packaged the meat and placed it in her freezer for later consumption. That hunting is thrilling is only a bonus. Many hunters have a deep respect for nature, for the animals and for the need to be stewards of these resources. What our poorly-educated liberal elites like Mr. Sorkin don’t understand is that the subsistence culture is still very strong in Alaska. Agriculture is very poor in Alaska, and so most food must be imported. The rich supply of game meat and fish that can be harvested thus is a traditional part of Alaskan culture, beginning with the natives (of which Palin’s husband is 1/4) and also the pioneers (Sourdoughs). I grew up eating far more venison than domestic meat. As a child I preferred the softer, milder beef to moose, but my parents gave us no choice in the matter.

The left elitists can’t see this as cultural difference between us and them and it proves that they are snobs who have no appreciation for other cultures. So much for multiculturalism that they preach!  I’ve argued elsewhere that the American pioneer is extinct, having died when our friend Sourdough Jim crashed his Piper in 1979–yet when vestiges of that truly American culture survive, the elite want to destroy it.  Those who preach tolerance are among the most intolerant.


The Palin shooting of the caribou can be seen here.  In my mind, Sorkin has blown it completely out of proportion.  I am particularly impressed by Palin’s emphasis on how she learns hunting from her father.  This is a great example of how to pass on values and skills to the next generation, and she shows humility, that even though middle-aged, she still has a lot to learn even from her own dad.  What I don’t understand is why the caribou didn’t run in the opposite direction when she missed.  Perhaps this is Darwin’s survival of the fittest at work.

Warren Buffet redux

Warren Buffet is worshiped by many investors.  Personally, I respect his ability, follow some of his principles, but remain nevertheless skeptical.  I’ve criticized him for his support of the Obama presidency, saying it was the most costly decision he ever made.  But it turns out I’m wrong, if those who say that he profited from the bailouts, stimuli and generally easy government money that has been handed out, saving the butts of banks in which he had invested (see e.g., Barry Ritholtz).  At Forbes, Drew Mason castigates Buffet aptly over his comments about gold which have apparently led many to forgo precious metals as a hedge against currency inflation, thus allowing government to rob the people through the devaluation of their savings.

But the most damning article that I’ve ever read against Buffet appeared yesterday at the American Thinker.  In it, Christopher Chantrill accuses Buffet of being a robber baron.  The life insurance lobby is apparently vying to have Congress reinstate inheritance taxes in the US.  That’s because life insurance is exempt from taxes at death, and so people with larger inheritances must protect their heirs by taking out expensive life insurance policies.  Chantrill shows how a mega-billionnaire like Buffet feeds upon the small business owners and other little people who manage to put together a nice little fortune through risk, sweat and sacrifice–at their death Buffet buys up their business which the heirs must sell to pay the death tax, or before they die, he rakes in the big bucks through expensive life insurance policies.  It should be criminal, but instead, it is the government which enforces this robbery.

In Canada we don’t have death taxes. No, the law here states that immediately upon death the estate must pay the full amount on RRSP (retirement) savings accounts and retained earnings in any companies that the deceased may have built up.  “Retained earnings” refers to the increased book value/equity that the business owner has in his business.  Let’s say you started a business from nothing 50 years ago and today it is worth $10,000,000 and you own a 100% stake in that business.  Your retained earnings could be as much as $10,000,000 and you would have to pay all the tax all at once the day you die (only a spouse, as with the RRSP, may inherit it without paying the tax).  This has the same evil effect on business in Canada as does the death tax in the US.  I know because someone close to me is forced to pay for a large life insurance policy because when he and his wife have finally both died, all the taxes on the retained earnings are immediately due, and the heirs, his children, would have to shut down the family business to pay the taxes, putting 30 people out of work; his life insurance policy thus is to pay these taxes so that the company can remain intact.  This is a great thing to fear if you are working in a second generation family company, but to be welcomed, if you like Buffet, are selling life insurance.

If that is what it takes to invest like Warren Buffet, then please count me out.  I think righteous investors should steer clear of investments which prey upon hard working business people in collusion with state power.  That just doesn’t seem righteous at all.

The gold ponzi scheme II: Jim Rickards’ anecdotal evidence

A few days ago, I suggested that paper gold was ponzi scheme.  Banks are selling unallocated gold certificates to customers on a fractional reserve basis.  This is what is called a “naked short”.  It is naked because the banks don’t have access to the assets to cover their short.   Jim Rickards reported an anecdote that would verify this very point in an interview with (hat tip Business Insider’s Gus Lubin):  The owner of a ton of physical gold, who had placed it in safe keeping at a Swiss bank, recently asked for delivery, and it took the bank a month to comply with his request, only after requests from lawyers and threats to expose the bank publicly.  The story is told at about the half way point on the MP3 that can be heard here.  The best explanation for this delay in delivering their client’s gold is that that the bank had shorted it, and it literally took them a month to buy back the ton of gold; but they were supposed to be holding it in their vault for the client.

Needless to say, I’m not investing in banks–even the “safe” Canadian banks like the Bank of Nova Scotia; my last position was closed when I bought back a put option on BNS on 21 Oct–I’ve become convinced that banks are far too complicated for a simple guy like me to own.  When they have to cover the gold and silver that they’ve shorted, it will make the sub-prime mortgage crisis seem insignificant by comparison.  Yes, they have shorted silver too.  This is the conclusion of this video (@ 26:35):