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Jim Cook



Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

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The Best of Jim Cook Archive

Best of Bill Buckler
July 13, 2011
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In the annals of famous quotes about political economy, few have been more succinct and to the point than Ringo Starr’s famous utterance: “Everything the government touches turns to s**t!”

Right now, an unholy combination of government potentates, bankers (central and otherwise), mainstream analysts and (last but far from least) ratings agencies is once again proving the truth of that statement. The problem is that they are doing it in such a way that the potential
consequences are far beyond anything that Mr Starr could have imagined when he gave vent to that quote decades ago. The focal point of it all is the insistence by the (US) ratings agencies that any Greek bailout which involves a downgrading of the capital value of their sovereign debt paper will be deemed a “default”. Why? To quote Moody’s take on the subject:
“We take the view that the exchange or similar restructuring will result in investors receiving less value than the promise of the original securities.”

There is a problem with this interpretation. In the history of government issued debt, there has NEVER been an instance where the “investors” who held this paper did NOT end up “receiving less value than the promise of the original securities”. By the nature of the instrument, no other outcome is possible. Franz Pick put it this way - government debt instruments are -
“certificates of guaranteed confiscation”. . .

If there is one thing above all others which has entrenched the steady growth of government power all over the world in the fiat currency era, it is the universal dependence on government debt paper as the “safest” investment in the world. This attitude has an extensive history, of course, and long predates the fiat currency era. In the nineteenth century in England, for example, when someone said “I have 500 pounds a year”, he “got” that amount in interest (and rents) on his investments. Outside land, the major investment was in “gilts” - the bonds of the British government.

In the era of Gold as money, this debt paper was looked upon as being “perpetual”. Nobody worried about the government repaying the debt. That was taken for granted. All they were concerned with was the government’s continuing ability to service it. Two other things were taken for granted. One was that the money lent to the government would retain its purchasing power over a long period of time. The other was that both interest and principal would be maintained - and paid - IN GOLD.

World War I ended both those assumptions in Europe. The aftermath of the 1929 crash ended them in the US and all over the world. Neither have ever resurfaced. But the trap did not snap completely shut until the last vestige of a Gold connection to the money in circulation was extinguished on August 15, 1971.

That was 40 years ago. For the past two generations, the world has lived with a financial system which is ENTIRELY composed of promises to pay. The “reserve” at the base of this pyramid of debt is the promises to pay of government, aka sovereign debt. And the “reserve” under this sovereign debt is the sovereign debt of the issuer of the reserve currency - the debt paper issued by the US Treasury.

Not one penny of US Treasury debt has been repaid for 51 years - the last time that US government funded debt actually decreased on a year-to-year basis was 1960. Ninety-seven percent of today’s funded Treasury debt total has been accumulated since August 1971. Sixty percent of it has been added in the past decade. Forty percent of it has been added since the first signs of the GFC emerged in early 2007.

This debt is universally looked upon as the “safest” investment in the world. No matter what happens in the financial world, there is always the “flight to quality” to fall back on. To repudiate this monstrous fallacy would be to repudiate the “bedrock” upon which the entire financial system, up to and including the medium of exchange itself, is based. If “confidence” in government debt is lost, the jig is up.

The risks now being taken by the (US based) ratings agencies are monumental. By insisting that the chances are rapidly increasing that the sovereign debt of a growing number of nations might end up worthless, they are risking a loss of confidence in ALL sovereign debt. Why are they doing it? To deflect attention from the growing cracks in the base of the structure - US Treasury debt itself.


.Ó 2009 – The Privateer

(reproduced with permission)


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