Posted by: graemebird | September 22, 2008

The American Financial Crisis Is Not Complicated.

I was struck by a comment by pommy on thoughts on freedom. His theory wasn’t that he himself didn’t know about monetary economics. Rather he had the idea that the current crisis is really complex and that the authorities are doing a pretty good job of fixing things.

If you understand banking the matter is not the least bit complex. You have a ponzi-scheme/counterfeiting racket. Any financial instution can go under if people remove their deposits, and a great deal of unproductive activity goes on when you have monetary inflation. A great deal of redistribution of wealth and disruption to real business goes on because of the high money growth and the consequent instability of spending. And it affects business-decision-making on all levels.

The idea then is to lessen the extent of the ponzi-racket if you don’t have the guts to cut it out entirely. Which meant that at any point at all in the situation, all that needed to be done, if for quasi-religious reasons you need to be minimalist about it….. was to add cash and a reserve asset ratio together.

Once you do that there is no need to bail anyone out, banks will go belly up from time to time but it is no threat to anyone. And if from there on in you don’t have money growth, except what is needed to maintain nominal gross domestic revenue, then eventually the size and scope of the financial industry will reduce and most of the employees will get proper jobs.

Whats so complicated about that? The complexity comes in trying to gauge when an elephant balancing on his trunk will fall over. This really is impossible to know. You know that he could fall over at any time. But you can get 1000 alleged experts in risk management and they won’t be able to tell you the timing of it.

Notice that, as opposed to bailouts, simply adding cash and a reserve asset ratio doesn’t lead to more liabilities on the part of the public. It will lead to less profits on the part of the banks and less bonuses for the bankers since they make their money via new money creation and the secondary effects of the new money creation.

All this isn’t the least bit complex. And once you have plenty of cash out there and a very high reserve asset ratio the serious halt to monetary growth and the deregulation can begin.

However I’m missing out one fact. The government and bankers are natural counterfeiters. So they will abuse any such system, so easy to sort out in theory. This is one reason amongst many that having fixed things up as far as the current crisis is concerned one would need to continue until one had purely private 100%-backed commodity-money.



  1. And here’s the idiots response:

    ason Soon Says:
    September 22nd, 2008 at 11:46 am
    Potential thread of doom. too bad Humphreys is screening out a certain avian, heheh

    JC. Says:
    September 22nd, 2008 at 12:13 pm
    Hey Jase:

    does birdy have all these followers? hahahahhahahhahaha

    You seen some of the comments?

    “terrorist bankers”



    Thats the response. No argument. Just HAHAHAHAHAHAHAHA

    Its the old HAHAHAHAHAHA argument. No attempt to understand monetary-economics. In Jason’s case a feignt towards fraud banking which he himself does not believe in.

    It took me quite some time to truly realise I was dealing with real low-wattage types here. Note that they both admit to being ex(?)-lefties.

    But in reality the problem is pretty simple. You have a small inner circle of cash. And a much larger outer-circle of money or “money supply” which is pyramided money.

    To end the instability you must make the inner circle larger in relation to the outer-circle before you can slow down the growth of the outer circle. When thats done you can de-regulate.

    This is a very simple thing that neither JC or Jason have ever been able to grasp on account of them being dim bulbs.

  2. “SteveEdney Says:
    September 22nd, 2008 at 11:35 am
    Any comment on the ban on short selling which is going on world wide JC. Must becausing some trouble in options markets if you can’t hedge.”

    Steve, short-selling is just being used as an excuse. What happened is that a while back sensible people were talking about the disaster of fractional-reserve-short-selling…. aka naked-short-selling. This is no good and its fraud. The practical implication of it is that small business start-ups are being starved of good capital when they need that capital to expand.

    But the politicians who are responsible for the current crisis have conflated the two radically different practices tendentiously. As the dumbass JC attempted to do awhile back as a substitute for making an actual argument.

    Its amazing how much confusion that can be put about by this sort of wordplay. In any case the politicians are blaming short-selling for longstanding problems that have lead to the latest crisis. Its almost identical to them throwing the responsibility onto the oil chiefs for high oil prices when they are more to blame then anyone. They just lash out at people and set up scapegoats in order to throw off the heat from their own racket.

    Short-selling is an excellent practice. It alerts the market to problems earlier than would otherwise be the case. It would be even better if insider-short-selling is allowed.

    Notice that JC is against insider-trading but is for naked-short-selling and fractional reserve. Anything to make it easy to make money without doing anything useful one supposes.

  3. A typically dumbass response from JC at catallaxy. This is about where Catallaxy is right now. Low wattage. Trying hard not to let any serious thinking invade into their tiny brains:

    “JC. Says:
    September 22nd, 2008 at 1:28 pm
    you must make the inner circle larger in relation to the outer-circle before you can slow down the growth of the outer circle.

    Which circle is he talking about? He’s making it sound as though it Dante’s inferno.”

    Really grappling with things is JC. I’d swear the dumb bastard simply cannot understand the issue at all. Perhaps I lost him when I said “circles”. It just got a little bit too hard at that point.

  4. Steve Munn delivers some home TRUTHZ to one of the monetary-cranks:

    “melaleuca Says:
    September 22nd, 2008 at 2:05 pm
    Soon, your failure to post even once on the financial crisis shows that you have a yellow streak where your spine should be. You should turn in your latex batman costume, you pretentious cowardly loser.

    Also note how you said the whole thing was just a beat up when I warned you about this impending problem several months before the shit hit the fan.

    At the end of the day you’re just another substandard spruiker not unlike Comrade Kim and Saint Banish.”

    Soon responds by quickly scurrying behind one of the punditti.

  5. Err, does anyone else but you regulary comment on your blog. It looks like you’re talking to yourself but factoring in snippets from other conversations.

  6. No the comments have pretty much fallen away.

    But I like to respond to anything dopey that Soon or JC say on Catallaxy. They are happy with socialist money and in denial that its the cause of the problems the Americans particularly are having.

    They take an anti-intellectual approach to nearly all matters and just work on the basis of gut prejudice.

    So for example if its global warming…. if they feel it in their gut then it must be valid science. Fractional reserve… if they feel it emotionally that this is a good thing, then thats what they work with.

  7. Good on Glenn Beck. He gave Ron Paul a hard time earlier about the war on terror. But now he’s claiming that Ron Paul had it right all the time on the economy. So now there is a resurgence of Ron Paul on the media. They are all going after him for comments.

    Here is Wolf Blitzer giving Ron some airtime.

    This was a big part of Ron Pauls campaign. Over here people were mystified at why he placed so much emphasis on monetary policy. John Humphreys frustratingly enquired “Why doesn’t he just say he wants higher interest rates” showing his total ignorance on the matter.

    Ron Paul gave monetary policy the emphasis it deserves. Just like I have these last two years. It has to be front and centre.

    The ignorance in the world of economics is quite incredible. Sinclair Davis once said that all you need is inflation targeting and that we ought to concentrate on advocating for a tax cut.

    Ignorance all around.

  8. Mr Bird,

    I fear you are just polluting your blog quoting those ignorant cattleaxians. JC and Soon have clear vested interests in maintaining the status quo, and as for that Edney fellow if he’s going to JC for advice he’s getting dumber by the minute.

  9. Probably a good point. These are pretty stupid people. When you’ve been proved right and they don’t even see it after the fact.

    I was very impressed with Glenn Beck who really was having a go at Ron Paul over foreign policy (both these guys positions were righteous enough) and then when this deal comes down he realises that Ron’s been proved right in his emphasis and description of the racket. And so he invites him back on the show. That shows some class.

    Not like these Catallaxians. Small brains. No class.

  10. Pommy is over at thoughts on freedom singing the praises of Paulson. Pommy is a share speculator as well. So its a case of “no investor left behind.” He’s saying that associates of his knew Paulson and reckoned he was the most honest nicest guy around. They don’t meet a very good crowd in the banks one supposes.

    These are people who consider themselves libertarians. Pommy joined the libertarian party. Bizzare. They are for crony-socialism and always were. Honest-Paulson bails out his mates with 850 billions in government money. Not a neutral addition to the monetary base but a direct bailout. Rewarding failure. This is the capitalist way (in the view of these day-traders) and in accordance with Pommy’s libertarian principles.

    This is not just Pommy calling everyone a nice bloke in a ringaround of niceness. Pommy slaps down John Snow who I thought was rather good and hopefully wouldn’t have laid out 850 billion to crony-town. And JC chides someone for straight-talking that brought down a bank. And JC sees nothing odd or strange about an industry where telling the truth openly can get you blamed for presitgious firms, filled apparently with honest men of great genius and productivity….. for prestigious firms falling like a bad hand in poker.

    But in no way is this abnormal or cronyism or is there anything suspect about it at all. Just normal business in their bonehead view of the situation. Not crony-socialism at all. Not a subsidised-cartelised industry in anyway. He’s doing the old: You sound like you are talking about conspiracy…. And if you sound that way you must be wrong and ridiculous.

    There is just no helping the stupid understand. Its a case of “I’m alright Jack. And I’m on the subsidised end of the foodchain so screw you fella”

    Now that I’m thinking about it thats what would have been good about no bailout. It would take some of these smug stupid bastards down and we’d have a changing of the deck chairs.

    It goes without saying that Pommy is also a persistent CO2-Bedwetter.

  11. Mr Bird,

    Its a sad state indeed all these so called libertarians yelping to the government for money. He says there is no moral hazard but a smart CEO will have accrued millions in bonuses which if they are smart are not in their own company.

    Should we remove limited liability Mr Bird? Obviously ponzi-money is at the root of these problems but limited liability would also seem to be a problem.

  12. Oh stop sucking up to ‘Mr Bird’ , Dick.

  13. Mr Soon,

    I was always taught to be polite even in the face of ignorant fools such as yourself. thus I will keep address Mr Bird in this manner.

    Perhaps you can argue a case with regards think should be done to restore the situation. I presume you would advise a buying some more printing presses madly churning out $100 bills until the Fed can afford to own all the mortgages in the US. Am I right?

  14. Bird

    Stop blaming the banks and the central banks because you’re unhappy in life. Factional and fiat don’t deserve such abuse.

  15. Mr JC,

    One doesn’t have to be such a shameless fan of big government just because they are pissing in your pockets at the moment. Think about the implications of having this power put in the hands of the mandarins. All likely to be soon under the sway of a man who may turn out to be the American Mugabe once the power this grants him is under his sway.

  16. Thats right. I wouldn’t be down on your case if you weren’t so self-serving about it. Your attitude could be that you didn’t create the system. And you could give moral support to reform.

    A gentleman called Doug French has spoken at least twice at Mises. He came in a multi-millionaire the first time. You could hear the humility in his voice the last time he showed up. He was a banker to Las Vegas real estate and he’s won and lost a lot of money in this racket but he never let the hand that was dealt him affect his sense of what is fair and what is good. So you CAN benefit from this racket without being a weasel if you so choose.

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