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A Weekly Newsletter for Sunday, February 5th, A.D. 2012
 
 
MARKETS
  Between Friday, January 27th, and Friday, February 3rd, the bid prices for:

Gold fell 0.7 % from $1,737.30 to $1,725.90
Silver fell 0.9 % from $33.99 to $33.67
Platinum rose 0.1 % from $1,619 to $1,621
Palladium rose 2.5 % from $689 to $706
DJIA rose 1.6 % from 12,660.46 to 12,862.23
NASDAQ rose 3.1 % from 2,816.55 to 2,905.66
NYSE rose 0.6 % from 7,876.61 to 8,060.43
US Dollar Index rose 1.6 % from 79.06 to 79.34
Crude Oil fell 0.9 % from $98.83 to $97.19

 
 
 
Here is something I picked up on a website. The original site was not listed so I can't give credit but if found we will give credit where credit is due.

A little Abbott and Costello humor on a problem that affects millions of American families. The commercial by Clint Eastwood failed to show the true Detroit being dismantled for scrap metal, which is our largest export to China. If I am not mistaken the weekend commercial with Clint Eastwood for Chrysler failed to mention the true ownership of Chrysler…Fiat


COSTELLO: I want to talk about the unemployment rate in America.
ABBOTT: Good subject. Terrible times. It's about 9%. (newly released…8.3 if you believe that)
COSTELLO: That many people are out of work?
ABBOTT: No, that's 16%.
COSTELLO: You just said 9%.
ABBOTT: 9% Unemployed.
COSTELLO: Right 9% out of work.
ABBOTT: No, that's 16%.
COSTELLO: Okay, so it's 16% unemployed.
ABBOTT: No, that's 9%.
COSTELLO: WAIT A MINUTE. Is it 9% or 16%?
ABBOTT: 9% are unemployed. 16% are out of work.
COSTELLO: If you are out of work you are unemployed.
ABBOTT: No, you can't count the "Out of Work" as the unemployed. You have to look for work to be unemployed.
COSTELLO: But … they are out of work!
ABBOTT: No, you miss my point.
COSTELLO: What point?
ABBOTT: Someone who doesn't look for work, can't be counted with those who look for work. It wouldn't be fair.
COSTELLO: To who?
ABBOTT: The unemployed.
COSTELLO: But they are ALL out of work.
ABBOTT: No, the unemployed are actively looking for work… Those who are out of work stopped looking. They gave up. And, if you give up, you are no longer in the ranks of the unemployed.
COSTELLO: So if you're off the unemployment roles, that would count as less unemployment?
ABBOTT: Unemployment would go down. Absolutely!
COSTELLO: The unemployment just goes down because you don't look for work?
ABBOTT: Absolutely it goes down. That's how you get to 9%. Otherwise it would be 16%. You don't want to read about 16% unemployment do ya?
COSTELLO: That would be frightening.
ABBOTT: Absolutely.
COSTELLO: Wait, I got a question for you. That means they're two ways to bring down the unemployment number?
ABBOTT: Two ways is correct.
COSTELLO: Unemployment can go down if someone gets a job?
ABBOTT: Correct.
COSTELLO: And unemployment can also go down if you stop looking for a job?
ABBOTT: Bingo.
COSTELLO: So there are two ways to bring unemployment down, and the easier of the two is to just stop looking for work.
ABBOTT: Now you're thinking like an economist.
COSTELLO: I don't even know what the hell I just said! And now you know why Obama's unemployment figures are improving!


Economic Psychology

Edited by Alfred Adask

Economics has been described as “the dismal science” but it might also be described as the “dismal psychological theory”.  The study of economics cloaks itself in mathematical charts, graphs, support levels, fractal numbers and trends.  But in the end, all economics does is try to provide a collectivized presentation of the acts of a myriad of individuals who are in a constant state of turmoil driven by various degrees of fear, greed or indifference, to buy, sell, or save.

Economics is an attempt to: 1) measure the past psychology of the marketplace; and 2) use that psychological measure to predict the future.  That attempt is somewhat like trying to graph the past behavior of a pack of baboons in order to predict what the baboons will do tomorrow or next year.  These predictions have value and some credibility, but they’re not prophecy.  These predictions can achieve certain levels of probability, but they are not and cannot be guaranteed to be accurate.

The inherent inaccuracy of economic predictions is dangerous to economic control.  So long as the people believe the predictions are accurate and certain, the people can have confidence (the market’s most important psychological factor) in the economy.  But if the people learn that economic predictions have as much in common with phrenology as mathematics, they can lose confidence, panic, and collapse the economy. 

Economics is always subject to inaccuracy because it attempts to apply mathematical formulae—that might work well on physical phenomena—to the psychological phenomena of men and women whose motivations can change suddenly and dramatically for reasons that are unexpected and unpredictable.

The first maxim of economics is:  Don’t spook the herd.  Therefore, it’s very important that economists profess to be very knowledgeable and responsible.   As with all con-games, the economists and governments that “sell” economic theories must manifest an appearance that instills great confidence—even if there’s no basis for that appearance.

•  For example, America’s major banks, fiat monetary system and government are bankrupt and have been for some time. 

We could argue that the system has been “bankrupt” since A.D. 1971 when our government abandoned the last vestiges of a gold- or silver-based dollars and subjected America to a pure fiat currency whereby we can “discharge” rather than “pay” our debts.  Since then, our standard of living has stagnated, some of our industries have fled overseas, we’ve become the world’s biggest debtor-nation, and our economy now teeters on the edge of collapse. 

We can debate when America went bankrupt, but it’s not a recent phenomenon and it’s not an event that we’ll see in our future.  It’s an event that that’s already taken place, but we didn’t notice because our gov-co economists concealed that truth. 

Our actual bankruptcy is old (but concealed) news.  Why is it concealed?  Because it would be bad for the public’s psychological predisposition to trust and have confidence in the economy and the government.  

Nevertheless, there’ll be a moment in the future when that old, actual bankruptcy can no longer be concealed and is therefore “officially” admitted.  Although we are technically bankrupt, we are not yet “officially bankrupt”.  Why?  Because our gov-co soothsayers (economists) know that if they tell the truth, the people will panic and the economy will collapse.  Therefore, our economist/soothsayers seek to conceal the psychological truth under a mass of mathematical mumbo-jumbo and false numbers. 

Q:  What’s the real inflation rate?  What’s the real unemployment rate?  What’s the true size of the national debt?  Why won’t gov-co tell us these mathematical truths? 

A:  Because economics is primarily about psychology rather than mathematics.  If they tell us the true numbers concerning the past or present events, the people may slide into a psychological panic in the near future.

Once the gov-co “officially” admits that it can’t pay its debts, the façade of fiat currency will collapse and we’ll see hyperinflation as people panic and to lose confidence in the fiat dollar. 

Until then, our economy/psychology will be largely supported by lies.

•  Hyperinflation is technically defined as a high rate of inflation—say, anything over 20% per year.

But hyperinflation (or inflation in general) can also be defined “psychologically” as a measure of growing public awareness that their fiat currency is worthless.   As that awareness grows, people first foolishly demand 100 units of worthless currency to pay for what they used to sell for, say, 10 units of worthless currency.   Slowly but inevitably, people realize that 100 (or 1,000) times zero is still only worth zero.  I.e., if a fiat currency is intrinsically worthless (worth zero) then no matter how many units of that currency you have, your real wealth is still zero

When public awareness that a fiat currency is worthless becomes predominate, the people’s confidence in their currency falters.  Without public confidence, fiat currencies devolve into mere pieces of paper.  When hyperinflation (hyper-loss-of-confidence) is high enough, the people abandon their national fiat currencies and move to an alternative currency (perhaps from another country) or to gold and silver.  At that point, hyperinflation (rampant, panic-driven loss of confidence in the currency) may end.

But ending hyperinflation won’t save the economy.  Once people lose confidence in their fiat currency, they become like children “once burned, twice shy”.   Under hyperinflation, people seek to spend every fiat dollar as fast as they can, to avoid losing value (purchasing power) to hyperinflation.  But with a new currency that seems safe from hyperinflation, people (still prone to panic) will cling desperately to every unit of whatever “new” currency they can acquire.  They’ll therefore not spend their new currency and their economy will move from hyperinflation of the original fiat currency to deflation of the new, replacement currency.

•  Deflation is characterized in an enormous public confidence in their currency, but virtually no confidence in their economy.  In deflation, the people don’t trust their economy to provide them with steady jobs and reliable sources of income.  They, therefore, depend on their savings.  They save compulsively; they refuse to spend their currency on anything other than absolute necessities.  Prices (denominated in the new currency) fall, unemployment rises, and the economy slides deeper into depression.  Cash (the new currency) becomes “king”.   

Those without savings denominated in the new currency and, increasingly, without jobs, will tend towards poverty and starvation.  Those who have savings denominated in the new currency will be able to buy properties at fire sale prices.

The big question? 

What will the next currency be? 

For example, if the fiat dollar were failing, and if you could accurately predict the next U.S. currency, then you could buy a lot of that “next” currency now, while it’s cheap.  When the fiat dollar failed, the new currency would become “king” (increasingly valuable).  If your savings were already denominated in that “next” currency, you might become comparatively wealthy. 
 
•  The first problem with all fiat currencies is that they have no intrinsic value and thus, they are not a reliable store of value

The second problem is that the public does not, and often cannot, understand that their fiat currency is intrinsically worthless.  How can you explain to most people that a $100 bill has no value?  For most people, the idea that the currency they’ve used for decades is worthless is almost incomprehensible. 

But, as people lose their savings, their jobs and their property, they’ll begin to understand the difference between a money that has intrinsic value (and is thus a store of value) and a fiat currency that has no value.

•  During hyperinflation, people will still accept a fiat currency—but only for short periods of time.  For example, consider Zimbabwe’s almost-unprecedented hyperinflation. Even as new Zimbabwean fiat dollars became worth one thousandth, then one millionth, then one trillionth of the old Zimbabwean dollars, the Zimbabwean people continued to use their hyper-inflating currency because even a fiat currency has some value so long as some “greater fool” will accept it in payment for goods and services.

But Zimbabweans wouldn’t retain their fiat currency for long.  They might take one trillion Zimbabwean fiat dollars for a loaf of bread at 10 AM in the morning, but they’d spend that trillion for five packages of chewing gum within the hour.  Hyper-inflating prices weren’t merely rising monthly or daily, they were rising hourly.  Zimbabweans knew that if they accepted one trillion fiat dollars today, it might only be worth 500 billion tomorrow.  Therefore, to get maximum value out of the 1 trillion fiat dollar received today, they spent it immediately.

•  The hyper-inflating Zimbabwean fiat dollar “stimulated” the Zimbabwean economy.  This “stimulation” is exactly what Keynesian economists recommend for a recession:  flood the economy with more fiat dollars and all the damn fools out there in TV-land will spend, spend, spend and thereby “stimulate” the creation of more jobs, more income, and—tah-dah!—the economy will be saved!

See, economists know that the people are so stupid that they can be easily manipulated and motivated by the “scientific” distribution of large sums of fiat (worthless) currency.  It’s like motivating monkeys by giving them an M&M every so often.  Even when you shift to plastic (fiat) M&Ms, the ignorant monkeys will still follow you and even do tricks to get another fiat M&M. 

Using fiat currency to manipulate “monkeys” (you and me) is the fundamental idea behind “Helicopter” Ben Bernanke’s determination to end the recession by flooding the U.S. economy with trillions of fiat dollars.  Bernanke’s distribution of fiat dollars is intended to “stimulate” the “monkeys” to just go buy something . . . anything.

•  As proof of the validity of the Keynesian theory of “better living through monetary stimulation,” we need look no further than Zimbabwe.   There, the Zimbabwean government issued quadrillions of Zimbawean fiat dollars and the economy was not only saved, it was so “stimulated” that it became the foremost economy in all of Africa and even the world.

Oh wait . . . that didn’t actually happen, did it? 

In fact, despite all of the Zimbabwean government’s quadrillions of inflationary “stimulation,” the Zimbabwean economy collapsed. Result?  In A.D. 2009, Zimbabwe legalized transactions in currencies other than Zimbabwean fiat dollars.  Zimbabweans abandoned their hyper-inflating Zimbabwean fiat dollar and began to rely on other fiat currencies such as the U.S. dollar and euro.

So, what does the Zimbabwean experience tell us about Keynesian notions concerning monetary stimulation of an economy?  What does Zimbabwe imply will be the likely result of “Helicopter Ben’s” determination to also inflate the US fiat dollar to save the economy?  Does Zimbabwe’s experience teach us that Keynes and Bernanke are equally full of “crapola”?

Probably.  But not necessarily.

If applied to a limited degree, monetary stimulation by means of inflation, might work—at least until the “monkeys” realize that their currency is no longer a “store of value”.

•  To be considered “money,” a currency must be a recognized store of value.  People must have confidence that they can sew a stack of paper dollars into their mattresses and those paper dollars will have as much value (purchasing power) five years from now as they have today.

If the government causes 3% annual inflation, the people may only lose a little confidence in their fiat currency.  Five years from now, the fiat currency in their mattresses will still have “pretty much” the same value as it has today.  Thus, a moderate application of monetary stimulation (inflation) might not induce panic and an excessive loss of public confidence in their fiat currency.

But once inflation exceeds some psychological limit (and that limit probably varies from nation to nation), the people realize that their fiat currency is no longer a store of value.  Once people realize they can’t use their currency to save their wealth, they’ll tend to spend of that currency as fast as they get it.  (There’s little reason to save a currency that’ll be worth less tomorrow than it is today.)

Anyone who’s taken out a mortgage has been at least partially motivated to do so by the promise of repaying the debt with “cheaper dollars”.  That’s inflation—it “stimulates” people to spend now rather than save. 

Surprisingly, a loss of store of value is what economists want when they: 1) institute a fiat currency; and 2) inflate that currency.  Economists want people to sense there’s a little inflation in order to motivate them to spend rather than save their currency. 

However, as a fiat currency inflates, it necessarily loses value until its perceived purchasing power approaches its intrinsic value (zero).  That’s why all fiat currencies last for only 40 to 60 years.  They’re designed to be inflated.  But there’s a limit to inflation.  When that limit (zero purchasing power) is approached, the people abandon that fiat currency for a new currency or for whatever else will provide a reliable store of value.

•  Insofar as fiat currency is intended to “stimulate” people to spend rather than save, the gov-co must provide people with some alternative to savings for their old age.  We don’t mind being unable to save our fiat currency now so long as gov-co promises provide some substitute for savings later.  Fiat currency necessitates the promise of Social Security, workman’s compensation, unemployment insurance and even welfare. 

A fiat monetary system that’s intended to stimulate spending now rather than saving for later, will inevitably result in little or no savings.  Sooner or later, all fiat currencies will be admitted to be worthless and all savings denominated in fiat currencies (stocks, bonds, IRAs, 401ks, bank accounts, etc.) will also be shown to be worthless. 

The U.S. and global economies are approaching the moment when we must admit that our savings in fiat currency instruments are virtually worthless.  What happens when gov-co admits that—guess what?—there’s no So-So Security; there’s no gold in Ft. Knox; there are no viable retirement programs;  it’s every man for himself? 

What then?

I guarantee that the average life expectancy will decline dramatically (just as it did for Russians after the collapse of the Soviet Union) as the elderly—without savings or welfare and no longer able to work—are pushed into malnutrition and medical neglect. 

Savings denominated in the fiat currency will be worthless. People who depend on savings or retirement programs denominated in fiat currency will tend to die. 
 
•  If economists causing inflation exceed inflation’s “psychological” limits, they can cause an irreparable loss of confidence in the currency. Once that confidence is lost, inflation will no longer work to manipulate the “monkey” and the economy will sink from recession into depression.

Nevertheless, there is a “final solution” to economic depression.  Looking back in history, we see the means by which America emerged from the Great Depression: WWII

In fact, it might be argued that the fundamental difference between a recession and a depression is the remedy.  I.e., you escape a “recession” with inflation; you escape a depression with war.  Once the “monkeys” refuse to be “stimulated” by more inflation, you’re in a depression and the only quick way out is to start a war.

•  To escape the Great Depression, we needed a war.  But gov-co couldn’t just invade some innocent foreign country.  Washington needed public support to go to war.  Fortunately, Japan attacked Pearl Harbor and provided the necessary pretext for Americans to fight.

To amp up the Viet Nam war, our government fabricated the Gulf of Tonkin attack to motivate the public to support the war.

More recently, the 9/11/2001 attacks on the World Trade Center provided the necessary pretext for the American people to support the wars in Afghanistan and Iraq.

It’s likely that before we start yet another war to stimulate our economy, we’ll need another foreign country to appear to attack the U.S.  Such attack should motivate the American people to support yet another “war of liberation” (and of economic “stimulation”). 

Perhaps a beloved aircraft carrier (say, the aging Enterprise) could be sunk, killing most of its 3,000-man crew. 

But sinking a carrier might not be enough to motivate war-weary Americans to support another war.   It might work; it might not.

Why take a chance?

Sure, we could knock down a couple more buildings (as happened in 9/11) but that’s been done.  The American people need a newer, bigger event to motivate them to support another war.  That’s why government economists may need one or more small nuclear devices to be detonated in one or more U.S. cities.  That’ll stir the hornet’s nest; that’ll make the people support another war.

Of course, if one or more nuclear devices were detonated on American soil, we’d need evidence to prove who was responsible for those detonations.  We can’t very well attack just anybody just because a couple of bombs go off, right?  First, we gotta finger somebody for the rap—and then we can kill ‘em.

So, if some bombs explode on American soil, we’ll need an investigation (something like the Warren Commission) to determine who’s responsible.  Then, we’ll need a credible spokesman to present the evidence of the attacker’s identity to the public.  Perhaps, Collin Powell (who presented compelling evidence to the U.N. in A.D. 2003 that Iraq had Weapons of Mass Destruction and therefore had to be invaded) will be available.
And then . . . with the people’s support . . . gov-co can devastate whichever nation has been found guilty of the attack on our beloved “homeland”. (Homeland, Homeland! Uber Alles!)

Americans will thereby be economically stimulated to go back to work building bullets and bombs, and the economy will be saved!  And all we have to do is murder a couple hundred thousand innocent people!

Isn’t economics grand?  It’s just so . . . sophisticated . . . scientific . . . and . . .  civilized.




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