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Thursday, 21 June 2012

The economic future of the US, Germany, the EU and Jersey

The US Treasury Black Hole
Sucking in all available Capital 
A failed paper currency, a fiat currency with no intrinsic value, cannot be replaced with another paper currency. Gold backed currencies are now inevitable.

The pre-eminence of the US dollar is currently enshrined within the SWIFT (Society for Worldwide Interbank Financial Telecommunication) system but as a result of the aggression of the United States relaince on this system for the settlement of international trades is fading. Iraq was the first nation to accept settlement for oil in euros rather that in dollars, perhaps a reason for the successive invasions. But now other countries are breaking ranks and beginning to accept settlements in other currencies; Russia, China, Japan, Iran all of them are moving away from the US dollar as the means of payment.

You may have heard yesterday that there would be no QE3 but that Operation Twist would be extended. Well there are a couple of issues, firstly Quantative Easing has never ceased. It is simply not possible to go on endlessly spending more money that you do not have without printing more; whether it is the US, the UK, Switzerland, Japan or another nation someone, somewhere is printing ever more money and that money is being sucked into US Treasuries which is having a black hole like effect on all available capital.

Secondly what exactly is Operation Twist? It is the purchase of short dated treasuries and the sale of longer term treasuries, quite literally 'kicking the can down the road', the trouble is that eventually you reach the end of the road and the end of the map and 'thar be dragons' with their piles of gold. With interest on 30 year bonds closing in fast on 2% and interest on ten year bonds closing in on 1% and with the US already paying $450 billion a year in interest there really is no way that these interests rates can rise without bankrupting the nation.

Interestingly there is a way that the Banksters can profit from this. The US federal reserve is a private company owned by the major banking families, it could simply declare itself bankrupt. If bankruptcy is declared then what will happen to all those federal reserve notes, more commonly called dollars? Well they become irredeemable, although more than likely some provision will be made to ensure that the dollars held by foreign nations are reedemable.

Interestingly it is within the lifetime of some Germans that exactly the same thing happened in their country, an economy based on war inflated out of all proportion and the currency essentially became worthless, with the price of a single egg rising to 4 Billion Reichmarks by the end of the second world war, inflation in Hungary at one point actually hit 12.49 million percent, it is therefore not unsurprising that the Germans (and more particularly the Austrian School of Economics) have a slightly different view of economics to the more familiar Keynesian model, and one that has proven to be more accurate.

The Soviet Union too had its own collapse as a result of over-centralisation and excessive regulation, this is within most living memories, so it is surprising that the European Union has sought in the period since to emulate the mistakes of the Soviet Union, but it is not surprising that repeating the same mistakes has led to the same conclusion.

Russia has a vast wealth of natural resources, Germany has the management and technological skills and China (an economy which is being ever LESS regulated and allowing ever MORE personal freedom) is a vast untapped market with the inherited capabilities of all the Hong Kong entrepreneurs.

It would seem likely that these nations would be ready to rescue the world system with new gold backed currencies, but only once the western system finally fails. They will not want to be blamed for the collapse, and rightly so, it is not their fault. But they are quietly moving all the gold from the western banks and Germany is quietly collecting all the gold from the Southern European nations in preparation for what is to come.

So where did the PIIGS nations (including France) go wrong? In 1999 when the Euro floated these countries enjoyed 3% rates on their borrowing, rather than use this to improve their economic standing they went on a massive spending spree - yes they over paid their civil servants and gave out over generous benefits to bribe the electors to vote for them but for example in Greece military spending was ramped up, for no particular reason. A large proportion of this increased spending flowed  back to Germany.

Nigel Farage '20% of the funds for the Spanish Bailout Will Come from Italy
who will lend to Spain at 3%, but this money will be borrowed from the market at 7%' 

In Jersey we have acted like a PIIGS nation, our civil servants are vastly over-paid, our government is vastly over-spending on services that we never really needed and still don't. Spending in 2005 broke £500 million for the first time, in 2011 it was up to £735 million and can anyone tell me what the extra £235 million pays for?

What do we have now that we did not have in 2005 except for massive immigration and a corresponding increase in the number of benefit recipients? This is the mindless and nonsensical pursuit of GDP growth at all costs, because someone, somewhere set a target that could not be met by any other means.