Category Archives: Capitalism

The future of money is gold, by Alasdair Macleod

Posted on February 19, 2021 | Leave a comment

If the future of money is gold, the future may be golden. From Alasdair Macleod at goldmoney.com:

This article explains why the successor money to failing fiat is gold, not cryptocurrencies. Cryptos can only act as stores of value so long as fiat exists. I describe how a world transacting with monetary gold and properly constituted gold substitutes works. It explains how and why unbacked bank credit expansion, which in natural Roman law was ruled to be fraudulent 1,800 years ago, can and should be eliminated in a post-fiat world, thereby ending destructive credit cycles.

Gold exchange standards, which are comprised of gold-backed money administered by the state, worked extremely well when properly implemented, and it is the siren songs of inflationism that are at the root of the current crisis. If the transition from worthless fiat back to gold standards is handled properly, an initial recovery to fully functioning economies need not take more than a year or so.

The pressure on future governments to reject inflationism in favour of free markets and sound money should not be underestimated. It is not rocket science. All we need are politicians in whose interests it is to see the light and have the determination to take their electorates with them. It will require them to hand back to individuals the responsibility for their own actions, enabling the requisite cuts in government responsibilities and expenditures to be made.

That child of fiat money, the welfare state and all the government actions to protect it will have to end, with the exception of the absolute basics.

The politicians to facilitate these changes do exist, though their voices are not heard. But the moment fiat collapses, we have good reason to believe they will re-emerge from under the misguided consensus they had been elected to deliver. It will be in their clear interest to do so, and monetary collapse giving birth to civil disruption can be avoided.

Introduction

While there is a growing consensus that the days of fiat currencies are finally drawing to a close, the debate about their successor is misinformed due to a lack of understanding about the qualities required of money. This growing consensus is still a minority view, triggered by cryptocurrencies and bitcoin in particular, with enthusiasts claiming bitcoin to be the money of tomorrow.

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Posted in Banking, Business, Capitalism, Collapse, Currencies, Debt, Economics, Economy, Financial markets, Government, Money

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Doug Casey on Robinhood, Hedge Funds, and Class Warfare

Posted on February 17, 2021 | Leave a comment

The Federal Reserve has turned financial markets into casinos so we’ll see more “all in” crazy action like we saw with GameStop and Robinhood. From Doug Casey at internationalman.com:

International Man: We seem to be entering a new paradigm in the financial markets. Social media has allowed a large number of small investors to band together and move markets in ways that were previously inconceivable.

What are your thoughts on this and what lies ahead?

Doug Casey: To start with, most of the people on Robinhood are ultra-unsophisticated—mostly unemployed kids living in their mothers’ basements. A lot of the money that the government sent them—the COVID checks—went into the market.

Of course, Robinhood itself is somewhat problematic with its commission-free trading and no minimum trade size. How can a company make money if it doesn’t charge its customers anything? It does so by having cozy arrangements with hedge funds. In essence, you get what you pay for, and if you don’t pay anything, you can expect to be treated like you’re a product, not a customer. I don’t have any problem per se with Robinhood’s business model, but Robinhood’s real customers are probably the hedge funds, not the public.

I don’t have any sympathy for anybody involved in this—hedge funds, the brokers, or the public. In the markets, eventually, everybody gets what they deserve. Still, the fact that some hedge funds have lost billions is front-page news. And the stock running from like $3 before collapsing from $450 to under $50 at the moment means plenty of late-arriving small fry will have been wiped out on the way down.

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Why the New Paradigm Was Inevitable, by Jeff Thomas

Posted on February 9, 2021 | Leave a comment

Great cultures and civilizations start down the path to ruinous downfall when their government’s start taking from the productive to buy the support of their populaces. From Jeff Thomas at internationalman.com:

the New Paradigm
 

Just as people go through a lifespan that consists of different stages, so empires tend to follow a pattern of stages.

They tend to start off slowly, making progress as a result of industriousness, understanding that progress is dependent upon hard work and an entrepreneurial spirit.

This is important to understand, as it’s the one essential in the growth of a nation. No nation becomes an empire through complacency or a lack of productivity. Welfare states do not become empires, although most empires end up as welfare states.

So, if that’s the case, what is the progression? And more importantly, what does this mean, considering the dramatic changes that are now unfolding in much of the world?

Prosperity

As stated, prosperity is created through a strong work ethic and an entrepreneurial spirit throughout a significant portion of the population. This is what brings about wealth creation – a condition in which people invest their time and money in a business enterprise that reaps profit. The profit is then re-invested to expand upon that success.

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The rapidly failing EU, by Alasdair Macleod

Posted on February 6, 2021 | Leave a comment

Any honest mark-to-market accounting and loan-loss provisions for Europe’s major banks would sink the EU. From Alasdair Macleod at goldmoney.com:

It is not widely realised that the EU concept is on its last legs. The bureaucratic inefficiencies and bad leadership were fully exposed last week over the inability of the EU to distribute vaccines and the attempts to blame everyone else. But a larger problem is hidden in the euro structure, comprised of banking and TARGET2 settlement systems.

This article discusses the precarious financial position of the commercial banks and the gaming of the TARGET2 system by national regulators to hide bad debts. The bad debt situation is now set to deteriorate at a faster pace thanks to the economic consequences of coronavirus lockdowns and is not helped by lack of vaccines, which defers the return to economic normality.

It is no exaggeration to conclude that the failure of its settlement system will bring down the ECB and the national central banks. The ECB will be gone, and NCBs will reform to administer new national currencies — there can be no other outcome.

With the euro failure the European Commission is likely to cede power to national interests, heralding a new era of immense political uncertainty as new currencies and government financing arrangements are devised.

Introduction

At a political level there appears to be frightening levels of ignorance about the economic consequences of punishing Britain for Brexit at a time when the EU’s own economy is teetering on the edge of a financial crisis.

Last week Britain’s remaining Remainers were revealed by the extraordinary behaviour of the European Union to have been little more than tilting at windmills. Without consulting the Irish or the British, the Commission triggered Article 16 of the Trade and Cooperation Agreement, in effect putting a customs border between Ireland and Northern Ireland. This was in direct contravention of earlier promises to respect the Good Friday agreement by not doing so. It was at the EU’s insistence that no border should exist onshore, separating Northern Ireland from the rest of the UK for customs’ purposes.  Despite this breach of an agreement upon which the ink was barely dry, the British government managed to keep its cool and persuade the EU to reconsider and back down.

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Historical lessons in prosperity vs. poverty, by Simon Black

Posted on February 5, 2021 | Leave a comment

The preconditions for prosperity are few and simple, but they are profound. From Simon Black at sovereignman.com:

As the grandson of Genghis Khan, Kublai Khan had a lot to prove.

So he set his eyes on the biggest prize in the known world at the time: southern China.

Kublai Khan completed his conquest of China in 1279, forging a new empire and creating the Yuan dynasty.

The Mongols were known for their expensive habits— they liked war and women especially. So when the money started to run out, administrators in the Yuan dynasty started printing paper money.

Yuan officials weren’t the first to come up with this idea; the government from the prior Song dynasty had also printed paper money. But there was a huge difference—

Paper currency from the Song dynasty, known as guanzi, was backed by copper, silver, and gold coins.

The Yuan currency, however, was backed by nothing. So whenever the government started to run out of money, they simply printed more.

By 1350, Kublai Khan had been dead for decades. But the Yuan dynasty’s economic overseers were still printing paper money like crazy. And it was causing severe hyperinflation across China.

People’s lives were turned upside down by the government’s fiscal irresponsibility, and rebellions broke out across the country.

By 1368, the Yuan dynasty had completely collapsed, and a destitute peasant farmer-turned-monk named Zhu Yuanzhang rose up to become Emperor and found the new Ming Dynasty.

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The Great Reset, Part IV: “Stakeholder Capitalism” Vs. “Neoliberalism”, by Michael Rectenwald (with links to Parts I-III)

Posted on February 5, 2021 | 1 comment

This series is the most comprehensive and detailed analysis of the Great Reset. From Michael Rectenwald at zerohedge.com:

Authored by Michael Rectenwald via The Mises Institute,

Read Part I: Reduced Expectations And Bio-Techno-Feudalism here…

Read Part II: Corporate Socialism here…

Read Part III: Capitalism With Chinese Characteristics here…

Any discussion of “stakeholder capitalism” must begin by noting a paradox: like “neoliberalism,” its nemesis, “stakeholder capitalism” does not exist as such. There is no such economic system as “stakeholder capitalism,” just as there is no such economic system as “neoliberalism.” The two antipathetic twins are imaginary ghosts forever pitted against each other in a seemingly endless and frenzied tussle.

Instead of stakeholder capitalism and neoliberalism, there are authors who write about stakeholder capitalism and neoliberalism and companies that more or less subscribe to the view that companies have obligations to stakeholders in addition to shareholders. But if Klaus Schwab and the World Economic Forum (WEF) have their way, there will be governments that induce, by regulations and the threat of burdensome taxation, companies to subscribe to stakeholder redistribution.

Stakeholders consist of “customers, suppliers, employees, and local communities” in addition to shareholders. But for Klaus Schwab and the WEF, the framework of stakeholder capitalism must be globalized. A stakeholder is anyone or any group that stands to benefit or lose from any corporate behavior—other than competitors, we may presume. Since the primary pretext for the Great Reset is global climate change, anyone in the world can be considered a stakeholder in the corporate governance of any major corporation. And federal partnerships with corporations that do not “serve” their stakeholders, like the Keystone Pipeline project, for example, must be abandoned. Racial “equity,” the promotion of transgender agendas, and other such identity policies and politics, will also be injected into corporate sharing schemes.

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Our Fragile, Brittle Stock Market, by Charles Hugh Smith

Posted on February 3, 2021 | Leave a comment

Fake markets that are relentlessly gamed upward drive short sellers out, so there’s no bid to cushion the downside when the gamed market crashes. From Charles Hugh Smith at oftwominds.com:

This heavily managed ‘market structure’ is far from equilibrium and extremely prone to instability.

The relentless melt-up in stocks offers ample evidence that the market is rock-solid and that any decline is an enormous opportunity to buy the dip. That this has worked splendidly for the past 13 years cannot be denied.

This doesn’t necessarily guarantee the next 13 years will merely be an extension of the same trend. The market’s sources of fragility and brittleness are well cloaked by low-volume melt-ups; these vulnerabilities only become visible in high-volume sell-offs such as 2020’s brief mini-crash.

To understand the fragility at the heart of the market, we must return to the Global Financial Meltdown of 2008-09 and former Fed Chairman Alan Greenspan’s explanation of why he and all the other experts failed to understand the market’s vulnerabilities and thus failed to forecast the global crash.

Never Saw It Coming: Why the Financial Crisis Took Economists By Surprise (Dec. 2013 Foreign Affairs):

“The financial crisis that ensued represented an existential crisis for economic forecasting. The conventional method of predicting macroeconomic developments — econometric modeling, the roots of which lie in the work of John Maynard Keynes — had failed when it was needed most, much to the chagrin of economists. In the run-up to the crisis, the Federal Reserve Board’s sophisticated forecasting system did not foresee the major risks to the global economy. Nor did the model developed by the International Monetary Fund.”

In essence, Greenspan argued that the fancy models did not anticipate or capture human emotions in a financial panic. This is a remarkable confession, given the long study of panics and the wealth of research available on human emotions.

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In Defense of Hedge Funds. Gamestop Squeeze Hides Market Excess Risk, by Daniel Lacalle

Posted on February 1, 2021 | Leave a comment

Short sellers are often heroes, exposing bad managements. From Daniel Lacalle at dlacalle.com:

The short-squeeze forced in Gamestop and other stocks through Reddit’s WallStreetBets has generated a massive media frenzy against hedge funds and comments all over social media hailing the decision of a group of small investors to trigger a huge repurchase of a beaten-down stock.

The first thing we need to understand is that hedge funds play an essential role in markets. They provide liquidity, and in many cases are the ones that buy when the largest proportion of equity and bond markets, long-only investment funds, panic, and sell massively.

It is interesting to see how the average citizen and the media tends to blame hedge funds for market crashes when these investment firms account for less than 3% of global assets under management.

When markets crash it is not because of hedge funds attack, but because long-only large funds sell. However, the activity of shorting (borrowing a stock and selling it to repurchase it afterward at a cheaper price) has been demonized numerous times, and usually by CEOs of companies that are missing earnings, underdelivering on their strategy, and destroying value.

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Game Over, by Kevin Duffy

Posted on February 1, 2021 | 2 comments

Shorting stocks is not nefarious, and given the central bank-fueled fun and games that have gone on in financial markets for these many years, shorts should be more prevalent. From Kevin Duffy at lewrockwell.com:

It’s a big club, and you ain’t in it.”  – George Carlin

The GameStop frenzy has struck a nerve with so many because it represents a morality play: David vs. Goliath, outsiders vs. insiders, the downtrodden upending the corrupt financial elites.  To many long-time critics of bailouts, the Reddit crowd who made out like bandits signifies the beginning of a long-awaited populist revolt.  To the young and tech savvy, this is the passing of the old guard which offers a glimpse of the future.

Lost in all of the hysteria and spin is the real struggle taking place on Wall Street, that between bulls and bears.  After 12 years of nonstop Federal Reserve-abetted asset inflation, the bulls have been winning so often, their ranks have swelled while those of the bearish community have dwindled.  The short seller, that most extreme expression of skepticism, has nearly gone extinct.  It was he who the Reddit crowd targeted and whose grave they’re now dancing on.

Table 1: Bear funds, a dying breed

Markets are cyclical, but memories are short.  How many celebrating in stock forums like WallStreetBets remember the 2008 meltdown or dot-com bubble bursting?  As Jim Grant warned, “The only permanent truth in finance is that people get bullish at the top and bearish at the bottom.”  Kicking someone while they’re down is

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Posted in Banking, Capitalism, Currencies, Debt, Economy, Financial markets, Government, Investing

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GameStop, by The Zman

Posted on January 29, 2021 | 1 comment

Gamestop and other epic short squeezes are the kind of nonkinetic guerrilla warfare against the establishment that should be encouraged. From The Zman at theburningplatform.com:

Until a few days ago, most people had no reason to think about GameStop, a retail chain that sells video games and accessories. If you have kids, you probably know the place, because your kids like to go there. Otherwise, the only reason to think about the place was to wonder how they managed to survive as a brick-and-mortar operation in a world dominated by on-line retailers. They exist as a reminder that humans still prefer in-person shopping, even if it comes at a premium.

That is the funny thing about the GameStop story. While other traditional retailers struggled to maintain margins, they are an exception. This is a company with ridiculously high margins. Even with a drop in sales due to the great reset launched by the managerial class this year, they maintained their margins. Whatever they are doing in their shops, people think it is worth a premium. Despite this, their stock was a dog, falling below $4 until the recent explosion.

It is the explosion in their share price that has them in the news. The share price as of the close of business yesterday was $347.51. The pre-market ask is $489.00 as these words are being typed. That number keeps going up, so it is not unreasonable to think that shares will be trading at or above $500 today. Everyone now wants a piece of the winningest stock since the dot-com bubble. If you had this company in your portfolio six months ago, you are a very happy investor.

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