AUSTRALIAN ECONOMIST STEVE KEEN CONFUSES CASH WITH MONEY. NO ONE SHOULD LISTEN TO ACADEMICIAN ECONOMISTS AND THEIR FALSE DOCTRINES.

Today, I read this silly work published by Forbes and written by Ph.D. economist from Australia, Steve Keen, who seems to have become a darling among anti-banking conspiracy theorists in the blogosphere. Keen claims that a recent-dead Italian economist Augusto Graziani is the only guy ever who figured out what money is.

Graziani’s own words reveals he had no idea what money is. Graziani revealed himself to be wrong on the subject of money, thoroughly.

Graziani mixed up bank credit with money and in so doing, confused himself, embarrassingly so. Stupidly, Graziani said, “So money is fundamentally the promise of a bank to its customer, and a monetary payment is the transfer of that promise from one customer to another.”

For the entire history of commercial banking, every banker worth his salt would call that credit. Never in the history of commercial banking by anyone who engages in banking and commerce would anyone confuse credit with money as Graziani has.

Money is coined metal by weight and fineness. There is no other definition of money. The Romans said so. It's their word.

It's easy to know what could be money and what isn't money. Money can exist without banking and without legislators.

Cash, which is evidence of deposits circulating in perpetuity, requires banking. Without banking there can be no cash. 

Legal tender is anything legislators deem legal to settle taxation and debt to legislators. Without legislators and their agencies of enforcement, there can be no legal tender.

It should be clear that legal tender cash, which is all that anyone has these days, couldn't be money because it requires both banking and government and it fails to settle debt. Cash is liability of bankers, the same as deposits.

Money, if it were to exist, could discharge debt in payment fully. Contemporary cash cannot do this precisely because it is irredeemable. That means, you cannot demand money (coined metal by weight and fineness) from a banker. There is reason why the technical phrase, demand deposit, exists in commercial banking.

Graziani and Keen get wrong the concept of currency as well. Currency means that which has bearer negotiability. It has never meant anything else. So if a thief buys milk from a grocer using stolen cash, the grocer gets to keep the cash by currency.

Academicians like Steve Keen and Antonio Graziani live in a fantasy land of false definition and fanciful bogus theory that fails to comport with reality. They preach a false doctrine, economics, which is quite pseudo-science.

If academicians like Keen only knew about trade, commercial banking and the jurisprudence with respect to trade, they wouldn't accept false theory such as the one perpetrated by a rather clueless Graziani.

Keen errs in the worst way that anyone could when he foolishly claims, "Banks create money by issuing a loan to a borrower; they record the loan as an asset, and the money they deposit in the borrower’s account as a liability." Heed my words: Bankers never, ever create money nor do bankers lend money.

First, no one has money. All anyone has is either cash or deposits, which can be traded through negotiable instruments like personal checks and ATM cards. Even if there were money, through the entire history of commercial banking, no banker ever lent money.

In the days of money, a banker was a merchant who bought money and debt and sold bank credits. Today, a banker is a merchant who buys cash and debt and sells bank credit. All loans are merely advances of bank credits.

About the only bit Keen gets right is his claim that “banks must be part of your economic analysis.” Of course, all regular readers of Bizarro Theater who have read The Theory of Trading Property for Profit know this.

It turns out that Keen once bet Rory Robertson, who worked as banker for Macquarie Bank. Keen bet Robertson that Australian house prices would collapse. Unsurprisingly, Keen lost.

The terms of the bet had Keen walk from Canberra to Mt. Kosciuszko — 224 kilometres — wearing a T-shirt that read: “I was hopelessly wrong on house prices”.

Long ago, beginning in the mid-1850s, the brilliant banking lawyer Henry Dunning MacLeod worked out the principles of money, credit, currency and the like. MacLeod could do so because as a lawyer and not a university theoretician, he understood property (the right of ownership) and the effects upon property through trade. MacLeod wrote excellent works debunking academician economists with their silly false theories like JS Mill and even Adam Smith.

Here is a later edition of MacLeod's Theory of Credit (1893), which many in America can read free.

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THE MYTH OF TAXPAYER MONEY. IT'S CONGRESS' GREEN, NOT YOURS.

One of the stupider expressions the mindless parrot goes something like this, "The government shouldn't spend millions of taxpayer money on ...".

First, no one has money. Money is coined metal by weight and fineness. Money hasn't existed for decades upon decades. Money, if it were to exist, could exist without banks and legislators.

What everyone has is cash and bank credits. Those who have bank credits can transfer such with negotiable instruments other than cash. Cash itself is nothing more than bank credits circulating in perpetuity.

Cash can exist only with banking. Cash decreed legal tender can only exist with legislators and their agents.


Second, taxpayers don't have property (right of ownership) in anything designated as taxes. In short, it's Congress' cash and bank credit.

Where there is law, there must be duty and right. There can be no duty without right and no right without duty. Without both, there is no law.

The absence of law in the presence of legislators with agency is known as freedom and also known as liberty. Where there is an absence of law and an absence of legislators with agency, which is what most name as government, there is anarchy.

In America, Congress gave itself the right to tax income of Americans. It imposed the duty upon some Americans to pay taxes.

At first, Congress imposed strict limitation in the way in which it could levy taxes.  However, with the 16th Amendment, Congress lifted all restriction it had with respect to taxing income. Now, Congress can impose any taxes without the need of apportionment according to population of the various states.

For those muttonheads who complain, rightly, they should say something like this:

No one should be forced to pay taxes so Congress can spend it on such a waste.

Until Americans awaken to reality and force politicians to pass amendment that limits the sum of taxes any American must pay each year, say a total of 12% to whatever legislators, whether Congress, any state or any county, nothing shall change. In short, there should be a known maximum sum any should be forced to surrender to all legislators. Let the states' legislators and Congresses fight it out from a highly restricted pool of potential taxes.

It makes it oh so easy for legislators because they have trained you to believe it's "your money." In so doing, legislators have conditioned you to pay gobs of taxes willingly while tricking you into believing you have a voice in how the collected taxes get spent.

You don't. You have no say precisely because you lack right in cash and credit taken from you in the form taxes.

You have no right in any cash or credit in which Congress has property unless Congress imposes duty upon itself and grants you right. That is what Congress does with welfare programs like Social Security, Medicaid and Medicare.

Legislators have the rights to part of your income, which they call taxes. You have the duty to pay them in a manner in which they order you to do so.

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SEVEN YEARS LATER, WHO IS TO BLAME FOR THE CREDIT CRISIS CAUSED BY THE RESIDENTIAL REALTY BUBBLE? THE U.S. CONGRESS.

Most chucklehead laugh-track TV-watching Americans would like to blame who they believe are evil commercial bankers for the credit crisis of 2008.

Most Americans are bamboozled by politicians. Politicians are too smart for Americans. Politicians easily trick Americans with speeches and TV performances.

The true culprits of the residential realty fueled credit crisis were the men and women of the U.S. Congress,  the Congressmen of the U.S. House of Representatives and Senators of the U.S. Senate.

Successive U.S. Congresses make all the rules through their law, directly and through their agencies, which they authorize. Successive U.S. Congresses caused the residential realty crisis and largest credit bubble in U.S. history through their agencies.

The U.S. Congress through its agencies bundled up mortgages into securities known as mortgage-backed securities (MBS) and hired investment bankers to broker those securities. Successive U.S. Congresses created Government Sponsored Enterprises, GSEs, which make MBS. These GSEs are the Federal National Mortgage Association (Fannie Mae), Federal Home Loan Mortgage Corporation (Freddie Mac) and Federal Agricultural Mortgage Corporation (Farmer Mac).

Another player for the U.S. Congress, the Government National Mortgage Association (Ginnie Mae) did not issue MBS. However, Ginnie Mae technocrats provided backing for MBS by guaranteeing investors the timely payment of principal and interest on MBS backed by federally insured or guaranteed loans — mainly loans insured by the Federal Housing Administration (FHA) or guaranteed by the Department of Veterans Affairs (VA).

When all hit the fan, the U.S. Congress made for-profit Private Mortgage Conduits into their scapegoats. A PMC is a firm created to purchase and pool house loans and ready such for sale as securities. PMCs are the private sector equivalents of the GSEs. In the period of 2003 to 2007, PMCs were affiliates of major firms — GMAC Mortgage, Bear Stearns, Citimae of Citicorp, Countrywide, GE Capital Mortgage, Prudential, Ryland.

According to the Federal Reserve, from their own numbers on Mortgage Pools or Trusts, from 2003 to 2007, the outstanding principal balances of mortgage-backed securities insured or guaranteed by GSEs grew 48.1%, growing at a rate of 8.2% a year. In the same period, the outstanding principal balances of mortgage-backed securities of PMCs grew at an eye-poping 242%, growing at 27.9% a year!

It is from these figures that laying blame on PMCs seemed all too easy. What was a 79%-21% split at the start of Q1 2003 became a 60%-40% split by Q4 2007.

However, for every $1 of PMC MBS, there was $1.35 of GSE MBE. Total Congress involvement through GSE and direct agencies Ginnie Mae and the FHA came to $1.50 for every $1 of PMC MBS.

Said another way, Congress involvement was one-and-a-half times that of PMCs. Congress involvement in MBS and MBS guarantees between 2003 and 2007 was 50% bigger than all private involvement combined.

Of course, members of successive Congresses couldn't have done this without having enough voters put them into office. They could not have gotten those voters without first either giving them or appealing to their desire for welfare — Social Security, Medicare, Medicaid, SNAP, TANF, Section 8, Pell and many more programs.

During the residential realty credit bubble, there were far too many who borrowed way too much, well beyond what their incomes could support, overpaying way too much for houses they could not afford at the selling prices they should not have paid. Far too many played the game of "getting rich quick" by flipping taking out even bigger mortgages using the proceeds of each flip to buy cars and luxury vacations.

Ah, greed — striving to get something without giving up something in trade — is a horrible error. Oh so many borrowers were greedy with their big eyes seeing dollar signs as they  became flipping realty for big profit geniuses. It's hard to have sympathy for people driven by greed.

Commercial bankers weren't greedy. Commercial bankers sold a product — their credit — and bought a right of action in a purchase and sale from those seeking mortgages. Bankers played by the rules.

People buying houses, taking out HELOCs to buy shiny new BMWs, Mercedes and Ford Expeditions, cars that were once priced beyond their incomes, reckoning they could pay off their HELOCs when they flipped their houses for higher prices, well, that's greedy.

Far too many borrowed too much, many of whom never should have borrowed ever based on their incomes and the potential for price rises in other necessities. As soon as gasoline prices hit highs, many couldn't pay mortgages and drive to work. A little thing like rising gasoline prices drove them to default and technical bankruptcy.

Investors buying mortgage-backed securities, which bundled mortgages based on faulty interpretation of statistics, suckered by blue-skies sales pitches, well, that was stupid. MBS investors were stupid.

And for the last seven years, Federal Reserve central bankers have been taking on these junk MBS, effectively bailing out the previous owners of MBS.



American borrowers were greedy. Blaming businessmen for engaging in business puts the blame where no one should.

Here is an interesting graphic published by the New York Times.

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ELITES SEEK TO PUNISH WORKERS WITH A CONSUMPTION TAX, OR A TAX ON WORKERS' WEALTH

Tim Worstall is a Fellow at the Adam Smith Institute, which exists as a think tank to promote libertarian and free market ideas. Worstall also writes for Forbes.

Today, Forbes published a work of Worstall's in which Worstall rather stupidly claims a consumption tax is not a tax on wealth. Worstall wrote, "This is rather the point of it in fact: it (consumption tax) entirely exempts wealth from taxation." 

Worstall does not know the first thing about wealth. Wealth is the name given to property put to purchase and sale for cash and credit. 

A consumption tax is a tax on spending on goods, whether chattel or services. Said another way, a consumption tax is a tax on wealth. That is all it ever can be.


The word consumption enters into economics from the Physiocrats. Most economic historians consider the Physiocrats as the first modern economists. The Physiocrats were Frenchmen (Quesney, Turgot, Le Trosne, others) who sought to justify taxation on merchants and financiers while justifying no taxation on farmers. 

In their explanation of a trade, which they called exchange, the word the Physiocrats wrote was consommation, which Englishmen translated as consumption. By consumption, the Physiocrats meant the purchase of something after first gaining the means by selling something else.

Le Trosne said, 

"There is this difference between an Exchange and a Sale, that, in an Exchange, everything is consummated, or completed (consommé) for each party. They possess the thing which they desired to procure, and they have only to enjoy it.

"In the Sale on the contrary, it is only the purchaser who has attained his object, because it is only he who is in position to enjoy. But everything is not ended for the seller.

"Exchange arrives directly at its object, which is consommation (consumption, completion). It has only two terms, and is ended in one contract. But a contract in which money intervenes is not consommé (completed, consumption), but it is necessary for the seller should become a buyer, either himself or by the interposition of the person to whom he transfers the money.

"There are, therefore, in order to arrive at consommation (completion, consumption) which is the ultimate object, at least four terms and three contractants, of whom one intervenes twice."

To the Physiocrats, the trading away of wealth in the form of cash or credit for wealth as products after the cost of production, which they called the produit net, is what they meant by consumption. Thus, the Physiocrats knew at least two kinds of wealth — products of the earth and money. 

Wealth is anything that can be bought or sold. Socrates said so in his dialogue known as the Eryxias. The Romans said so. English jurists of courts since the 1700s have said so. So too have American jurists.

Worstall conflates both capital with wealth as well as production and trade. 

Capital is property put to making stuff.  The name for property put to purchase and sale for cash and credit is wealth. 

Though most think of property as things possessed, property always has meant the right of ownership and never the thing owned. Only when property gets created, can trade arise between two persons.

Production is the use of capital to create property in potential wealth, which all know as stock or inventory when in chattel form, or to create property in actual wealth, which all know as work, in services form. 

Trade is the purchase and sale of property as wealth.

Labor is the poor man's capital. Work sold for wages is wealth. Wages acquired in a purchase and sale of work for wages is wealth. 

So too, is the same for the firm. Machinery and labor are the capital of the firm. Product sold for income is wealth. Income acquired in a purchase and sale of product for income is wealth.

Inventory (stock) is property that has potential wealth and derives from capital. Inventory never sold, though still property, is loss. Inventory does not become wealth until traded. 

Production uses capital. Trade requires wealth.

Until trade happens, nothing is wealth. Though someone has property in a beat-up, used bicycle that goes unsold while on offer at a lawn sale, because the bicycle remains unsold, the used bicycle never becomes wealth. 

However, when bought new in a purchase and sale, the bicycle became wealth of the seller and the cash or credit used to buy the bicycle became wealth of the buyer.

If someone has property in say a house, a banker might consider such property an asset — property that has potential to gain a street price in a purchase and sale. And as such, a banker might consider the asset as collateral, which is property pledged against debt owed on credit borrowed. 

Worstall then goes on to further embarrassment when he writes, "What a progressive consumption tax does do is tax the returns to capital that are then consumed." Brushing aside his horrible grammatical expression, "does do," Worstall reveals that he does not understand commerce and business.

When a capitalist invests, a capitalist uses his wealth to buy a right of action to a share of profit, if any, earned by a firm run by an entrepreneur.  The return to capital is profit. And all profit is income.

Credit capitalists use cash and credit as capital to produce income earned from the shares of profits purchased from entrepreneurs. The credit capitalist lends credit at interest because that is the product the credit capitalist sells.  

In trade, wealth trades for wealth. So credit is the wealth the capitalist sells in a purchase and sale to buy a right of action. The right of action is wealth the entrepreneur sells in a purchase and sale to buy credit.

In his tirade against capitalism, silly-minded Thomas Piketty has said, "...the past devours the future," stealing his famous quip from another Frenchman, philosopher Henri Bergson. Yet, as I show in Thomas Piketty, Revivalist Preacher of Born-Again Socialism. The Second Great Awakening of Socialism has Come to America, wealth in the present that becomes capital creates the future.  In short, the present creates the future! And that is what capitalism and credit is all about. 

Income is the name given to property in cash or credit acquired in a purchase and sale for other wealth. An income tax is a tax on profit and thus the return to capital, but it isn't a tax on capital. It's a tax on wealth. All income taxes are taxes on wealth.

All income is the same, whether gained by the purchase and sale of work for cash and credit or gained by the purchase and sale of rights of action to future profit for cash and credit.

As I say in Interest, Capitalists and Futuristic Time Cops, for a theory to be useful and closer to truth, it must apply equally to many things observed. In agreement, de Fontenay said, "Wherever there is a revenue you perceive capital. The theory of revenue must be the same for all classes of human production." 

Income gained from capital gains is not different at all from income gained by labor. As bad and immoral as income taxation is, as long as income taxation is going to exist, then capital gains should be taxed at the same rate as ordinary wages and salaries precisely because all income is the same.

A tax on capital would be a fee paid to license a dump truck that hauls gravel to pave roads since the dump truck is the capital. A tax on capital would be a fee paid to pollute the air during the blasting of pig iron with pure oxygen while producing steel since the blast furnace is the capital. A tax on capital would be a fee paid for a building permit since the labor put to building is capital. 

A tax on capital would be an impact fee to develop one's property in undeveloped land. Undeveloped land goes into making improved land — land with structure on it — to become wealth when sold in a purchase and sale for cash and credit, often obtained through a mortgage.

If only Worstall had read my work, Why is the Economy So Horrible? Because Academia Economics is Fake, he could have disabused himself of many false beliefs. For a guy working for a free-markets, libertarian think tank, Worstall doesn't understand capitalism at all.

For most, obvious confusion rests in that most fail to see property means right of ownership and not what is owned.

• So anyone has property in chattel, which are things. 
• So anyone has property in work produced from the mind or the body, such as a surgeon who sells his surgery skills in operation and buys income. 
• So anyone has property in libability — right of action — against a debtor to whom he has lent credit in a purchase and sale of a share of profit.

The entirety of trade, or commerce, or real economics ties up with two words — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade. 

A society is association of strangers who have come together because of the desire to trade — to trade property for property, and when we talk about such property, we give it a name, wealth.

To trade, someone needs to produce property — the right of ownership — in chattel, in work or in rights of action — at surplus under efficiency (sales must exceed cost) to gain profit so to buy property in what is wanted (lacking) and sell property in what is not wanted (surplus). 

Bare subsistence manual labor isn't going to produce much property in surplus, if at all. So, producers take to using property in other things, or that which we call capital, to produce property in surplus, or that which we call stock, in hopes of sale, transmutting that stock into wealth; or if they are selling completed work, then transmuting property in labor, which is capital, directly into property in work, which is wealth of the laborer.

For most, their obvious confusion further gets exacerbated because the dynamics of trade — property in various states — is too much for their minds to grasp.

Most get lost in thinking about trade in the same way that most fail to grasp relativity. Thoughts of changing frames of reference are too hard for most to handle.

Capital is one thing and one thing only. The name for property put to making stuff is called capital. Capital is property of production. It doesn’t get much simpler.

So credit lent becomes capital of the entrepreneur used to buy fixed capital (buildings, equipment) or floating capital (electricity, diesel). So wealth used to capitalize a bank becomes the capital of the banker.

All of the names mankind uses for property — capital, wealth, asset, collateral, stock — are names of property in various states — production, trade, estimation, deals of credit, potential sales.

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42 YEARS BEFORE ADAM SMITH THERE WAS A DUTCHMAN NAMED JACOB VANDERLINT. IF ONLY BEN BERNANKE KNEW ABOUT VANDERLINT.

Yes, it's true. Forty-two years before Adam Smith and his famed, An Inquiry into the Nature and Causes of the Wealth of Nations (1776), a work highly derivative of the Physiocrats and Dudley North (read: Plagiarism), there was a guy named Jacob Vanderlint. Vanderlint had a work published in 1734 titled Money Answers All Things.   

If only Ben Shalom Bernanke, the Ukrainian-American, and former Chairman of the Federal Reserve had read the work of Vanderlint.

Vanderlint's work is concept-dense. To get a good understanding of the work, you need to know quite a bit about English, especially how a Dutchman would have expressed early modern English in 1734.

Right away, Vanderlint lays down what all should know. Money only ever is coined metal by weight and fineness. Anything made from paper never could be money.

Take notice how Vanderlint nails it when he expresses the idea that money is the measure of contract between any two men. In other words, money is the tally of property for property.

Vanderlint stresses again, that money means gold and silver with this follow up passage:

Notice here but a few paragraphs in, Vanderlint lays down the true quantity theory of money: 

Take note Vanderlint lays down the right quantity theory of money and not the bogus one preached by far too many of total money to total goods. The right one is total money to total population. After all, it's one man who trades with another man according to each of their preferences and not according to the amount of goods produced.

Once a man buys all his limited imagination can muster, any sum of buying power in excess of his fulfilled desires only goes to inflate prices through excess bidding.

Here, Vanderlint says the more money per capita, the higher prices shall be. The lesser the money per capita, the lower prices shall be:

And here, Vanderlint shows the true genius inside him as he reveals that bank credit works the same as money (gold or silver coined) and as long as a strict credit to money ratio gets maintained, credit will lift prices and circulate goods as if credit were money itself:

Vanderlint warns that if too much credit raises prices, it shall raise the cost of production and  thus exporters shall need higher prices to cover their costs. Vanderlint further warns that no amount of raising taxes on imports against superior competitors shall change the situation unless the excess credit gets taken away.

Next, Vanderlint goes on to say that when wage earners have money surplus over their necessaries, trade flourishes. In other words, Vanderlint has said that when buying power rises, or said another way, when true wages rises, trade expands:

...

In the balance of the work, Vanderlint argues to bring forth more land into cultivation to drop prices for food and drink and thus raise buying power of wage earners. The work is quite impressive even for today as Vanderlint has provided data and cited footnotes.

And truly this is the whole of it. Any policy by central bankers should be such to bring higher return to capital by bringing higher return to workers. For it is workers who buy stuff.

No amount of plying individuals with cash and bank credits is going to do anything but raise prices and enrich already entrenched players. Yet, by doing so, every one is made worse off. 

Ben Bernanke might be a genius when it comes to academia economics, but the man is functionally retarded when it comes to trade, banking and real life.

The worst bit about Bernanke is that you are paying for his personal, social experiment as he applied his fanciful academia egg head theories. 

Americans are now in the sixth year of the Greatest Depression as evidenced by the sixth straight year of true decline in GDP. Bernanke touted himself as an expert in the Great Depression caused by Franklin Delano Roosevelt. 

Had Bernanke only read Vanderlint, Americans might be living in Good Times right now rather than Hard Times.

Vanderlint's genius reminds me of another Dutchman of sorts.

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DO YOU STILL BELIEVE THAT INFLATION MEANS RISING PRICES RATHER THAN RISING BANK CREDIT?

Elsewhere, I have shown that Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

I have explained that as money is coined metal by weight and fineness and that money can exist without banking and government. You do not have money and never in your lifetime have you had money.

Today, there is only cash, which is evidence of past bank deposits circulating in perpetuity and checkable deposits, which, too, is bank credit.  Both cash and deposits must have banks and banking to exist. 

Many continue to accept the myth spread as a false meme that inflation means higher prices, that somehow prices cause inflation. Nothing could be sillier than to believe something could be the cause of itself.

The supposed most widely used measure of inflation fails to measure inflation precisely because the Consumer Price Index (CPI) measures prices and not inflation. The government tricksters at the Bureau of Labor Statistics who give you the CPI measure current inflated prices by a base of past inflated prices. 

Using data from the Federal Reserve and the Bureau of Economic Analysis, I have shown that prices have been falling for years even before deflation that has been underway since 2007.

Yet, if you have doubts of what I teach, read below a smattering of writing from a treasure trove of works I have at my disposal. All the writers say the same. 



Inflation is a rise of bank credit beyond trade needs. Inflation leads to the profit squeeze when the sum of sales on extant prices set by winning bidders is below the outlay for production. When many awaken to their lacking the means to pay bills, this leads to crisis and subsequent collapse of trade. This collapse all know as recession or depression.

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LOSING ITS LUSTER. THE SECRET FUTURE OF GOLD REVEALED.

The gold bugs likely will hate seeing this, but the future of gold hardly looks shiny. Once we price gold in gold-weighted dollars, we see reality. Let's have a look.

From when Nixon slammed shut the gold window, gold hit its all-time peak of $377.28 (in GWDs) in July 1980. From there, gold fell, first violently and  then slowly until hitting its all-time low of $51.94 by April 2001. Gold fell a whopping 86.2% from its peak to its trough!

Yet, when we look at gold in GWDs against the true prime rate deflated by the FRBU deflator, we see a strong relationship.


True gold prices closely follow the true prime rate. Where true gold crossed the true prime is when the banking crisis of 2008 hit. And while Fed Res bankers have kept true prime flat since 2009, gold has been falling.

Looking back to the first chart, we see that when Greenspan kicked in inflation of the credit bubble with a fury, gold traded higher in lockstep with higher true credit.

True gold rose 1.54 times between Jan 1, 1999, and March 31, 2008, from $59.24 to $150.36. True gold fell from that peak 17.1% hitting a short-term low at the end of Q4 2008 before shooting up 38.1% at the top at the end of Q3 2011. 

Between 1999 and 2000, gold rose 9% on a rise in true prime of 18.7% and then retreated 11.3% as Greenspan engaged in rate suppression. And then gold shot up thereafter following the final massive leg of inflation of the bank credit bubble.  

Between the end of Q1 2004 through the end of Q2 2006, true prime rose a whopping 108%. Gold went along for the ride fueled by cheap credit. 

The true gold price rose 28.5% from the start of the banking crisis Q3 2008 after true peak credit plateaued beginning Q4 2007.  

Since then, the true price of gold has fallen 39.4%. Where true prime goes, gold goes. Extended ZIRP of Fed Res bankers has pushed down gold from it's peak true price hit at end of Q3 2011.

The true price of gold tracks the true prime rate and its magnitude of tracking depends upon the state of bank credit.

Now let's look at gold versus black gold.



While the relationship isn't exactly a love fest, West Texas Intermediate, though volatile by comparison, seems to hint the way of gold.




So, unless Fed Res bankers lose their minds, again, its not likely that we shall see another Greenspan-Bernanke credit bubble for years, perhaps decades. 

In the short-term, when Fed Res bankers return setting the Fed Funds Rate in relation to the "normal" state of affairs, and thus when true prime rises, gold might hitch a ride and thus as a short term speculation play, there might be profits. 

However, it's likely the gold play of 2001 to 2011 was one of two-in-a-lifetime chances to profit substantially from gold.

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THOMAS PIKETTY, REVIVALIST PREACHER OF BORN-AGAIN SOCIALISM. THE SECOND GREAT AWAKENING OF SOCIALISM HAS COME TO AMERICA

Socialism Revivalist preacher Thomas Piketty has written the new millennial age bible for crypto-socialists everywhere luring them from the shadows to the new socialist church.

This Second Great Awakening of Socialism is sure to stimulate reformers seeking to remedy the evils of society, which they believe capitalism drives, as they strive to usher in their anticipated Second Coming of progressive Utopia.

This Second Great Awakening, this socialist resurgence could alter life, worsening life for working Americans unless stopped.

Already we have seen mass-scale camp meetings such as Occupy Wall Street. Those who flocked to Occupy Wall Street listened to revivalist oratory and sang hymnody. Many unwitting Americans who watched on their taxpayers' financed, welfare-funded, big, flat screens have been converted to socialistic thought through this enthusiastic preaching.

Second Great Awakening socialist revivalists pull chapter-and-verse from their playbook of trickery railing against purported evils of capitalism, damning capitalists and crying for mercy for all of the down trodden workers and welfare needy-greedies.

Piketty has become the Henry Ward Beecher of the Second Great Awakening of Socialism, luring many to come forth and become worshippers, baptized into a Born-again Socialism.

Piketty's Postmillennialist socialism theology is a call to purify society of capitalism as preparation for the return of Socialist Utopia. This is why Piketty calls for Progressive reforms.

Yet, Piketty's demonic false religion is easily exposed, which I have done in these:

• Thomas Piketty, 696 Pages Of Foolery Destroyed In Less Than Five Minutes
• Ut Oh, Someone Better Tell Thomas Piketty About L > G Too
• More Bad News For Thomas Piketty P > G Too!

SERMON OF THE PAST DEVOURS THE FUTURE

Piketty preaches a fire and brimstone sermon of "the past devours the future." Piketty strives to seduce the minds of seekers with such phrases as 

"A market economy based on private property, if left to itself, contains powerful forces of convergence, in particular with knowledge and skills; but it also contains powerful forces of divergence, which are potentially threatening to democratic societies and to the values of economic and social justice.

"The principal destabilizing force has to do with the fact that the private rate of return on capital, signified as "r", can be significantly higher for long periods of time than that rate of growth of income and output, as signified by "g". 

"Hence, since inequality r > g implies that wealth accumulated in the past grows more rapidly than output and wages, this inequality expresses a fundamental logical contradiction. The entrepreneur inevitably tends to become a "rentier", more and more dominant over those who own nothing but their labor. Once constituted, capital reproduces itself faster than output increases. i.e. the past devours the future."

Few know that Piketty stole his now famous line from the late 19th century-early 20th century French philosopher Henri Bergson (1859–1941) who said, “The pure present is an ungraspable advance of the past devouring the future." 

Bergson is the guy who believed in élan vital, an invisible force that could be harvested, embedded into an inanimate thing, and activated with electricity to create life!

But is it true? Does "wealth accumulated in the past" that becomes capital devour wages and output? It turns out, this is the central contradiction of Piketty rather than capitalism.

According to reality, rather than hoarding their wealth, rentiers take their year before return, levering up their wealth to create more capital, putting their wealth at risk!

In short, the present creates the future! And that is what capitalism and credit is all about. 

In 77 of 84 years, rentiers — landlords and dividends earners — for every $1 rentiers earned, spending on capital rose by more than $1 in the following year. In 69 of 84 years, spending on capital by entrepreneurs — farmers and proprieters — rose by more than $1 for every $1 earned. 

In short, through the genius of credit, capitalists leveraged their wealth to bring forth capital into the now. This is how an economy grows.

Credit is expected profits of the future embodied in property. Thus, credit is a kind of conditional property. Credit embodies estimates of prices for future sales and prices for future outlays.

Credit arises from worthful rights, rights to existing goods, rights to expressible services, rights to future profit should such materialize. The one who extends credit, in truth, buys a right of action against the borrower for a preferential share of profit, should profit materialize.

Reality reveals the irreality of the socialist revivalist preacher Piketty. The irony of it all is that Piketty preaches heresy relative to the reality of trading property for profit, but his preaching gets absorbed as orthodoxy as standard academia economics.

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FIRE, BRIMSTONE, ZOMBIE APOCALYPSES, OH AND PEAK-OIL PREACHERS. BEWARE!

The Internet has been a magnet for all kinds of crazies. One kind who can attract the crazies is the doomsayer.

While some doomsayers advocate prepping for the zombie apocalypse others preach fire and brimstone over peak oil and it's cousin, climate change.

Of late, I discovered Our Finite World by Gail Tverberg. Her blog first came to my attention through an article published at Zero Hedge written by her Russia and the Ukraine – The Worrisome Connection to World Oil and Gas Problems. 

Ms. Tverberg pitches herself as "actuary interested in finite world issues - oil depletion, natural gas depletion, water shortages, and climate change." Ms. Tverberg believes that "[o]il limits look very different from what most expect, with high prices leading to recession, and low prices leading to inadequate supply."

Ms. Tverberg has gathered what seems to be a cult into her Chicken Little church of doom over oil.

After addressing the doom and gloom of her article in PUTIN'S RUSSIANS AREN'T MEDDLING IN UKRAINE BECAUSE OF OIL and mentioning such in a comment on her blog, Ms. Tverberg directed a few comments to me among which are:

“The taxes depend on the selling price of oil and gas, as well as the cost of extraction."

and

"Russia has different tax laws that we do. It changes the taxes monthly, to get as much as the market will bear. The taxes depend both on extraction costs and price available in the market place. I am not sure how different it would be from calculating pretax profits, and taking, say, 90% of it.”

ME: Taxes have nothing to do with costs. Taxes do not depend on costs at all. Taxes are an unearned share of profits. Without profit, there cannot be taxes.

All prices get governed by the one, true, infrangible law of trade — the Law of Prices. The Law of Prices holds the winning bids of purchase and sale in the face of what is on offer sets the price. 

All firms get governed by the Axiom of Profit — the sum of sales on prices set by winning bidders must at least equal the cost of production otherwise a producer goes to ruin.

If the price of something is $10 and cost to produce is $10, there is no profit. Politicians can't levy taxes on $0. If the cost to produce is $11, there is a -$1 loss. Politicians can't levy taxes on -$1 loss.

The ability of politicians to collect taxes works the same the earth over and through all of history. Jurisdictional tax laws can't overcome reality of the constraints to trade — the Law of Prices and the Axiom of Profit. 

Only through subsidy, can politicians steal from some and either give buying power to bidders, forcing up prices to at least break even or pay for costs of producers to give the appearance of profit.

Elsewhere on her blog, she made rather outlandish claims in what seems to be attempts to support her gloom and doom preaching. 

"Since 2005, (1) world oil supply has not increased." ~ Gail Tverberg

ME: The EIA shows that world oil output has grown 6.7% since 2005.

Gail Tverberg: "Oil limits seem to be pushing us toward a permanent downturn, including a crash in credit availability, loss of jobs, and even possible government collapse."

ME: From the start of 2005 to peak credit in April 2008, loans and leases in bank credit grew 40.6%! Oil production barely grew at 1.3%. Clearly, oil is not causal for credit. 

Gail Tverberg: "Oil supply limits appear to be a primary cause of the 2008–09 recession." 

ME: An immense credit expansion arose and when expected forthcoming profit failed to materialize, collapse quickly followed. This is the same story of every undue credit expansions. 

From an interim low of $1,286.14 trillion (inflation-adjusted)  in January 1994 to a peak of $3,354.06 trillion (inflation-adjusted) in April 2008, credit grew 160.8%. During the same period, world oil output grew a whopping 23.3%! So where is the supposed oil supply limit?

In contrast, between January 1, 1980 and January 1, 1990, credit grew 19.9% (inflation-adjusted). Yet, world oil output only grew 3.8% during the same period. However, GDP grew a whopping 111%! 

[See: THE BUBBLE ALAN GREENSPAN COULDN'T SEE WITH ROUTINE DATA COLLECTED BY HIS ONE-TIME EMPLOYER, THE FEDERAL RESERVE and INFLATION REVEALED! "REAL GDP" AND FEDERAL RESERVE BANK UNITS ]

If oil were the driver of credit and economies, then doomsayers need to explain how banking and credit expansions arose before the advent of petroleum as a source of energy.

Gail Tverberg: "I have made the point several times that the price of oil is now too low for many exporters to make the money they need to and too low for energy companies to continue their exploration and drilling without borrowing huge amounts. This is a huge problem."

ME: Ms. Tverberg fails to list any exporters. Never does Ms. Tverberg mention what are the exact production costs for any of the firms much less an industry average.

If her assertion were true, there would be mass exodus of these purported many from the field of production. Supply would rapidly fall. Winning bidders would need to bid more to gain property in the smaller output of what would be on offer. Price would rise as a consequence. Excess profits would follow, which would induce new entrants.

Yet, why doesn't anyone see her false scenario happening. Instead, the EIA reports ever growing world output. 

Gail Tverberg: "Prices are either (1) too high for consumers, or (2) too low for producers, or (3) both."

ME: Exactly for which consumers and exactly for which producers? It's odd how Ms. Tverberg never identifies all whom she claims suffers.

If prices are too low for producers, then Ms. Tverberg could explain how the top revenue producers on earth with profits in the tens of billion are oil producers. The list of the world's biggest revenue producers, all highly profitable is a who's who of oil producers — Royal Dutch Shell, Exxon Mobil, Sinopec, China National Petroleum, BP, Total, Chevron, Gazprom, Petrobras, Valero.

Gail Tverberg: "You are not reading what I have written."

ME: I have read what Ms. Tverberg has written. What she writes is fiction. 

Instead, here are the facts:

In 9 of the 22 years between 1983 and 2005, as reported by the EIA, year-over-year U.S. total gasoline retail sales by refiners in thousand gallons per day fell. Yet, as reported by the Office of Highway Policy Information, Federal Highway Administration of the US DOT, in every one of those years highway vehicle miles traveled grew a whopping 80.9% from 1.6528 trillion miles to 2.9894 trillion miles!

Clearly, technological advance in automobiles has led to more miles being driven per gallon. Doomsayers never account for technological advance.

Economies grow because of efficiency in the production of property, which means the right of ownership and never the thing owned. Efficiency of production arises from technological advance.

Economies exist because those of mankind need to produce property they don’t want to trade away in purchases and sales for property they do want.

No one can enjoy something owned by someone else. They must trade for it first.

Men produce things for the purpose of trading those things through purchase and sale in effort to secure profit expressed in buying power, which today gets embodied in cash or credit. Men do so because they believe their gained buying power sooner or later will let them buy something else wanted, which better suits their living, than what it is they sell.

Credit is expected profits of the future embodied in property. Thus, credit is a kind of conditional property. 

Through borrowing and lending, a credit deal transforms hard to market property as wealth into property as capital. 

Credit coins less merchantable property into more merchantable property. Credit coins property to capital to merchantable property. In so doing, credit represents the long sought for alchemy as credit transmutes differentiated property into metaphorical gold.

Credit truly is the philosopher's stone.

The entirety of trade, or commerce, or real economics ties up with two words — property and profit. Without profit from effort, anyone would lack buying power to buy anything else. Without property, no one can trade. 

Trading property for profit is what commercial life is all about. 

Stay tuned. On, February 6, 2014, Ms. Tverberg predicted "collapse is practically right around the corner, beginning in the next year or two"  because she believes there is a limit to growth-driven worldwide trade.

Yet, the room for growth in trade is enormous almost unfathomably so. The 3.523 billion who live on less than US$2.50 a day would argue there is plenty of room for growth. The 5.637 billion who live on less than US$10 a day would argue there is plenty of room for growth. That's 80% of worldwide population!

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THE BUBBLE ALAN GREENSPAN COULDN'T SEE WITH ROUTINE DATA COLLECTED BY HIS ONE-TIME EMPLOYER, THE FEDERAL RESERVE

Since peak credit of fourth quarter 2007 of $1.134 trillion (deflated in FRBUs), loans and leases in bank credit of all commercial banks has fallen a whopping -46.31%!

Here is the bubble that Alan Greenspan claims he could not see during his reign as Chairman of the Federal Reserve of the United States. Not only did the bubble run from 1994 to 2006, but also the bubble continued into his successor's Ben Bernanke's reign.

Loans and Leases in Bank Credit, All Commercial Banks in gold window dollars.



Anyone who knows how to calculate the slope of a curve could see the rate of change in credit as time went onward.

After a steady level of credit between 1980 and 1990 and following credit decline to bottom in April 1994, credit took off in two massive stages, the first between April 1994 and January 2001 and the second, between January 2004 to April 2008. 

Anyone who dabbles in stock charts knows this pattern all-too well. 

If only Greenspan knew about Federal Reserve Bank Units, he could have calculated true credit using the FRBU deflator.

Federal Reserve Bank Units (FRBUs), or if you like better, Federal Reserve Buying Units are what circulate goods and services in the U.S.A. and elsewhere on earth.

As I show in WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS that through the brilliance of a futures market, Americans could safeguard their livelihoods for all time returning to freedom, returning to living among a people who get rich from earnest effort rather than political connection.

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HOOVER DIDN'T SPEND ENOUGH! A MEME BORN IN A VACUUM, EMPTY OF REALITY, BELOVED BY THE FOOLISH EVERYWHERE.

Once again in my life, I came across the oft-parroted false meme "Fretting over its cost when capital and labor are plentiful is Hebert Hoover economics," which is another way of saying Hoover didn't spend enough. Today, I read that expressed foolery over at Bloomberg.com.

In case you don't know, Herbert Hoover was President of the United States between the years 1929 and 1933. Hoover is the guy the Ph.D. priests of Academia Economics like to blame for the Great Depression rather than the guy they should, President Franklin Delano Roosevelt. 

Of course, Roosevelt was president who criminalized money by confiscating gold from Americans, and thus the guy who forced Americans into the legal tender cash system of the Federal Reserve.

Owing to party politics, Hoover nailed the job as the U.S. Secretary of Commerce under President Calvin Coolidge. President Coolidge said of the chronic meddler Hoover, "That man has offered me unsolicited advice every day for six years, all of it bad." 

Of course all should realize that Congress and not any President decides spending; and that Hoover signed in law massive spending increases during his term in office.

According to the Office of Management and Budget of the U.S., Hoover inherited the 1929 budget from Congress, which decreed federal spending at $3.1 billion. In the following years, Hoover signed into law, spending that increased to $3.3 billion in 1930, $3.6 billion in 1931, and $4.7 billion and $4.6 billion in 1932 and 1933. Over his four years, Hoover increased spending a whopping 48%! As a percentage of GDP, Hoover agreed to almost triple spending between 1929 to 1933, from 3.64% to nearly 9%!

Throwing out the crazy 1862-1865 war spending of the war-mongering Lincoln and the 1918-1919 war spending of the war-mongering Wilson, between 1792 and 1929, average Congressional spending as a percentage of GDP calculates to a scant 2.62%.

Taken from the National Bureau of Economic Research, Wikipedia lists 33 recessions after 1792 start with the Panic of 1797 up until the Great Depression. 


There is no correlation between Congressional spending and whether Americans experience recession or expansion in their economy, none. Recessions hit both after periods of increasing spending by Congress as a percent of GDP and decreasing spending as a percent of GDP. 

Recessions are periods of reckoning after the growth of credit outstrips the growth of output owing to credit being priced too cheap, or that which we call inflation, and profits fail to materialize. When enough discover that receivables cannot get collected and payables cannot get paid from income on sales — the profit squeeze — crisis arises.

Many come to see they cannot afford to stand losses formerly sustained in lines of business and thus shutter those lines. Efforts get underway to kill off all those firms unworthy of credit and whose existence constitute a standing menace to legitimate business enterprises.

Recessions are resultant of bad credit practices, especially by bankers. The residential realty bubble of the 2000s is a period of inflation that led to widespread bankruptcy because enough became incapable of servicing debt owed on extended credit.

The speculative expansion of inflation leads to the need to adjust credit lower through forced credit liquidation, which results in declining valuation of assets and a lessening ability to meet outstanding credit obligations. 

Academician economist priests all preach in their Temples of Academia that government spending is the key to bettering an economy.  However, they state their claims upon the false premises — utility and scarcity — of the pseudo-science of economics. 

Paul Krugman, the public face of the Economics Temple of Academia forever pushes the false Hoover meme to support his false beliefs that increased government spending is the key to a better economy. If Krugman's claims were true, then how can Krugman explain why between 2007 and 2014, Congressional spending as a percent of GDP has averaged 21.65% and yet most Americans have seen no improvement in their financial affairs.

In WHY IS THE ECONOMY SO HORRIBLE? BECAUSE ACADEMIA ECONOMICS IS FAKE, I reveal property and profit as the basis of all trade, also said as commerce, or what is authentic economics. 

In the end, credit is the means by which property, which is the right of ownership and never the thing owned, gets called into existence. When more property gets called into existence than profits arise for which to pay for new property, the debt duty owed to credit cannot get paid.

So why does inflation happen? Well, YOU LIVE AT THE MERCY OF A CLOWN-CAR DRIVEN BY MEN AND WOMEN OF THE FEDERAL RESERVE. 

And what is the fix for this? Well, WHY FUTURES MARKETS SHOULD SET THE FEDS FUNDS RATE RATHER THAN THE FEDERAL RESERVE BOARD OF GOVERNORS

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