The Phaserl


You Will Be Poor

by Robert Gore, The Burning Platform:

How much of your wealth does the government want? How much do you have?

There has been a progression through each iteration of monetary theft. A trial balloon launches, usually from academia, which proposes an “innovation” contrary to reigning practice and orthodoxy. A curmudgeonly minority reject it; the majority, securing their places on the intellectual fashion forefront, excoriate the old and after a suitable time for faux consideration and discussion, embrace the new.

The public, insufficiently appreciative of the arcane language, abstruse reasoning, and self-evident erudition and brilliance of the experts, sometimes presents an obstacle. It was hostile towards the US’s first foray into monetary theft: central banking. The anti-central bank contingent won battles for 137 years, but lost the war in 1913. J.P. Morgan and cronies laid the intellectual groundwork: conferences, scholarly papers, legislative proposals, and a Greek chorus of the day’s one-percenters singing at the top of their lungs that America needed to join the civilized world and establish its own central bank.

If you understand the main purpose of central banks, then notwithstanding obfuscatory “Fedspeak,” endless media drivel, and academics’ Greek-letter-laden equations, you know all you need to know about these larcenous institutions. They exist to make it easier for governments to steal, and everything else is window dressing. Gold is finite and requires real resources to find, mine, and mint; central banks’ fiat debt can be produced in infinite quantities at virtually zero cost and exchanged for the government’s fiat debt.

Substitute central bank “notes” for gold and the resources available to the government expand dramatically. It can, in conjunction with the central bank, conjure its own money. Couple a central bank with 1913’s other “innovation”—the income tax—and lovers of government had the wherewithal for their fondest dreams, one of which was American empire. World War I, the US’s first involvement in Europe’s wars, followed close after 1913’s depredations, notwithstanding President Wilson’s vow to stay out in his 1916 reelection campaign.

Franklin Roosevelt and Richard Nixon completed the switch from a gold-backed currency to fiat debt. After Nixon slammed shut the gold window in August, 1971, there have been no legal constraints (aside from the farcical debt ceiling) on either the creation of government debt or Federal Reserve purchases of that debt. The only constraints are political and those policy makers and central bank bureaucrats impose upon themselves, in other words none.

Whatever jolt debt monetization once might have given the economy has disappeared since the economy reached debt saturation before the last financial crisis. The increasing debt burden is slowing rather than promoting economic growth, and will soon, if it has not already, stop and reverse it. Elevation of financial asset and real estate prices (aka “bubble blowing”) supposedly promotes wealth effects that trickle down to the broader economy. The claim was dubious when first made during the housing bubble. Rising wealth inequality since then has revealed its absurdity. Whatever debt-based speculative “wealth” has been created has gone mostly to the financially well-connected who can borrow at negligible rates.

Quantitative easing was an application from central banking’s conventional tool kit—debt monetization—although its magnitude and global scale were unprecedented. More recent central bank “innovations”—zero and negative interest rates (ZIRP and NIRP) and now, proposed bans on cash—amount to outright theft. It is doubtful that even proponents believe their own transparently phony rationalizations for these measures. ZIRP and NIRP destroy the return on saving while rewarding debtors. And who are the world’s biggest debtors? Profligate governments, who are financing their unsustainable improvidence at history’s lowest interest rates and picking the pockets of individuals, companies, pension funds, insurance companies, and other entities that must generate a reasonable safe current return to meet future liabilities.

Proposed bans on cash, or even active discouragement of its use, are the next milestone in governmental larceny. Once all “money” (a misnomer, it’s really debt; there has been no “real money” in the global financial system since 1971) is forced into the banking system, it doesn’t take much imagination or foresight to see what comes next. The civil liberties’ implications of the government keeping track of everyone’s money and how it’s spent are of course ominous. However, the main reason the government wants financial assets confined to the banking and financial system is so that it can purloin them. Once bank accounts, brokerage accounts, insurance accounts, pension funds, and other easy-to monitor repositories of financial assets become the only stores of value, the government can partially or wholly nationalize—steal—assets and perhaps the repositories themselves.

At every juncture, the government runs into the self-defeating consequences of its policies; ongoing larceny threatens future larceny. Increase debt, taxes, and regulation enough and the economy collapses, putting a dent in government’s revenues. Nobody worries about grandpa and grandma eating cat food because ZIRP and NIRP deprive them of retirement income, but when those policies threaten the solvency of the insurance industry and pension funds and the government may be called upon to bail them out, it’s cause for concern. Any future moves by central banks to raise interest rates will be driven by that unacknowledged concern.

The financial system as a whole is heavily leveraged, its liabilities are many times its equity. Economic collapse would wipe out financial system equity, as it did in 2008, whether deposits are forced to stay in the system or not. The government has no equity to wipe out. Forced to stay, deposits will be expropriated by the government for its benefit or the benefit of the financial repositories (so-called bail-ins). That’s obviously only a one-time expedient that will temporarily forestall, but not prevent, ultimate insolvency for either the government or the financial system.

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1 comment to You Will Be Poor

  • rich

    They won’t…

    Corporate Executives Are Making Way More Money Than Anybody Reports

    There are two methods for measuring compensation. One appears everywhere. The other is correct.

    In a 2015 Huffington Post op-ed entitled “Gilead’s Greed That Kills,” the economist Jeffrey Sachs wrote that Martin “took home a reported $19 million in [2014] compensation—the spoils of untrammeled greed.” But that figure, which is recorded as Martin’s total 2014 pay in the Summary Compensation Table of Gilead’s SEC filings, is based on the EFV measures of his stock-based pay, not the ARG measures. In 2014, according to those same filings, Martin actually took home $192.8 million, and in 2015, when his total EFV pay was reported as $18.8 million, his actual take-home pay was $232 million. From 1996 through 2015, as Gilead’s CEO, Martin’s total EFV compensation added up to $209 million, but his total ARG pay was just over $1 billion, of which 95 percent came from stock-based compensation.

    Accurate knowledge of how much executives like Bresch and Martin got paid raises the more fundamental question of how they and other senior executives manage to realize these enormous gains. A focus on ARG compensation reveals the overwhelming importance of stock-based pay in total compensation, which, in turn, affects the way executives run companies: They can take actions that drive up stock prices, even if temporarily, simply for the sake of increasing their own realized gains.

    Throughout the American economy, senior executives have become enamored with stock buybacks as a potent means of manipulating their companies’ stock prices. Over the past decade, net corporate stock issues (that’s new shares issued minus share repurchases, plus shares retired in merger-and-acquisition deals) have drained more than $4 trillion from all U.S. non-financial corporations. The 459 companies in the S&P 500 that were publicly listed between 2006 and 2015 did $3.9 trillion in buybacks, equal to 54 percent of their net income. That’s on top of the $2.7 trillion that these companies distributed to shareholders as dividends, representing another 37 percent of net income. Through stock buybacks of this magnitude, executives effectively participate in the looting of the corporations they run. In some cases, the stock-price increases last just long enough for the executives to exercise their options, have their awards vest, and sell the acquired shares.

    Enabling all this is the SEC, the U.S. government agency that is supposed to regulate the stock market to prevent manipulation of stock prices. In fact, since 1982, under Rule 10b-18, the SEC has not only enabled but even promoted stock-price manipulation. That’s in addition to sanctioning a mismeasurement of executive compensation that obscures the ways in which senior executives benefit personally from the manipulative boosting of their companies’ stock prices.

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