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Wherein lies the value of
today's paper money?...
or, the root cause of today's monetary crisis and impending recession - Part
(Sep 15, 2007)
Newcastle, England –
Depositors lined up to pull their money out of Northern Rock PLC, one of
England's largest mortgage lenders yesterday. In an unprecedented monetary
move, the Bank of England "injected" an undisclosed amount of "liquidity" --
a euphemism for printing up and doling out more "non-backed paper money,"
specifically, the British Pound -- into Northern Rock to stem the run on the
bank. Northern Rock has 25 billion Pounds in deposits and 87 billion Pounds
in residential mortgage loans, much of the latter bundled as commercial
paper and sold to other institutions as backing for still more commercial
paper. The blind leading the blind with no "mark to market" valuation since
the paper is not really traded.
depositors in the U.S. lined up around the block to pull their money out of
Countrywide S & L, America’s largest sub-prime mortgage lender who recently
borrowed $12 billion at not-so-good interest rates to bail itself out of
pending bankruptcy. In a pretended show of faith in the Federal Reserve's
lowered interbank fund rate change from 5.25% to 4.75% and 30-day extension
to pay back the loan, Bank of America pretended to "borrow" $2 billion from
the Feds and "loan" it to Countrywide to stem Countrywide's bank run by
Meanwhile, the U.S.
Federal Reserve and European Central Bank, and the Bank of England have been
"injecting" massive amounts (hundreds of billions of dollars weekly) into
their respective monetary systems to convince citizens that all is well in
the global economy.
What is the common
thread running through all of the above economic crises?
All of the paper money and
commercial paper, from the U.S.
dollar to British Pounds to the Euro to sub-prime mortgages to bundled bonds
of re-sold sub-prime mortgages to regular mortgages to hedge funds and
derivatives created out of any of the above,
are non-collateralized pieces of paper.
PAPER. Why? Because that's what's
pushed by econ profs at all the universities, central banks, governments,
and national legislatures. Non-collateralized,
non-backed currencies and commercial PAPER
is the economic policy du jour.
Even the housing
mortgages and especially the sub-prime mortgages are mostly just paper,
since they were over-bloated loans for hyper-inflated housing prices in a
now collapsing real estate market.
None of the paper
money currencies in the above discussion, the U.S. dollar (Federal Reserve
Note), the Euro, or the Pound, is backed by gold, silver, or any other hard
commodity. All paper currencies today are non-collateralized, fiat (forced
by the government) paper.
boob-heads with PhDs in Quantitative Economics from leading universities
will erroneously reply: But wait, Mr. Duck, the Federal Reserve Note is
backed by America's GDP. To which Mr. Duck replies: Au contraire, mes
amies, because the Fed Reserve does not own every individual's house, car,
computer, or private property and thus cannot offer each individual's
private property as collateral for the paper Federal Reserve Note. There is
no true relationship between the amount of paper currency printed up by
governments and said government’s Gross Domestic Product (GDP), which itself
is a bogus economic calculation by erroneously assigning historical exchange
ratios (prices) to one or both sides of the trillions and trillions of
historical market trades or presumed market valuations which change minute
by minute. GDP is not collateral for fiat currency, period.
Now that we have
put that canard to rest -- the false notion that paper money can be
collateralized by a nation's GDP, we must ask the question that free market
and all other economists have asked since time immemorial. Namely, wherein
lies the value of money? And more specifically for today's economic crises,
wherein lies the true value of paper
Let's start at the
beginning and keep it simple. Let's discuss the philosophical concept of
value as it pertains to money.
(Stay tuned. The
true definition of value in economic
theory is not what you think it is. Value
evolves into exchange ratios (prices) and requires freedom and free markets
to create market prices. Value
refutes the labor theory of value AND the commodity theory of value. The
true definition of value shows how
trades are unequal not equal, and why -- if we keep on the current path --
we are headed toward a huge recession fueled by those monetary manipulators
who are supposedly saving us. How can one save oneself and one's family
jewels during the coming crisis when the government suspends habeas corpus
and enacts martial law?) To be continued
tomorrow... -- FM Duck
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