Collateral Damage

One of the unintended consequences of a world of floating exchange rates has been the geometric growth of debt. The total amount of debt in the world currently sits at around $300 trillion, which is about three times the global GDP. That seems like an impossibility, but the value of all assets on earth is estimated to be around $300 trillion, which means every bit of potential collateral is pledged to someone, somewhere in some fashion. The world is literally drowning in debt, you could say.

Of course, those are just guesses. Some debt is actually listed as both an asset and a liability. Your mortgage is most likely in some sort of synthetic financial instrument as an asset against which there is some form of debt. Government bonds are used for collateral, as they are often considered the most reliable and trustworthy asset on earth. Banks soak up US debt, for example, because it is worth more to the bank than their cash deposits, as they can quickly package bonds into other financial transactions like repo agreements.

It’s also why the US government has no trouble finding willing lenders, despite having record debt and deficits. Those lenders are holding cash, which is not as valuable to them as the bonds. It’s not just the US government. The Germans also enjoy high demand for their debt. In Europe, the German Bund is the preferred collateral in finance transactions. In fact, it is so valuable, there is a shortage of it. The result is there is always pressure on the European Central Bank to not hold Germans bonds.

It is an important thing to understand about the world of modern finance. It is entirely driven by debt. When company X wants to do a deal, it does not reach into its cash reserves to finance the transaction. Instead, it will pledge an asset in a repurchase agreement. This is where it agrees to sell the asset to another party, but simultaneously agrees to buy it back at some point in the future at a fixed price. This is a modern form of pawning the wife’s wedding ring. The company gets the cash and the lender gets interest.

Of course, no tree grows to the sky, but the modern financial system is counting on debt being the exception.

Down in the depths of Europe’s financial system, a nasty blockage is building. The plumbers at the European Central Bank meet next week to try and fix it.

They may be four days too late. Italy’s referendum could just stretch the system to breaking point before then.

At stake is the health of the 5 trillion-euro ($5.3 trillion) securities lending market, which greases the wheels of all manner of derivative, short-selling and structured transactions. A crunch point has arrived in Europe. The last few days have seen an extreme spike in demand in particular for short-dated German government bonds.

These are among the few securities of high enough quality to be accepted as collateral in repurchase agreements. Cash is no good (well, not for the Bundesbank anyway). These agreements operate like high-quality loans whose proceeds are normally used for activities like financing the purchase of other securities. Without them, a lot of other everyday activities — such as bidding at bond auctions and hedging underwriting risk — could seize up.

The demand spike is from the usual year-end surge in demand for collateral getting pulled forward, and has exacerbated a shortage of securities that count as collateral.

In normal times, firms borrow the securities they need and quickly return them — there’s usually a flood of lending and borrowing going on, and the repo market operates silently in the background of Europe’s financial system.

But the ECB’s drive to jump start the economy has led it to buy up about 20 percent of the market for German bunds and other top-quality securities. Schatz — German government bonds of a two-year maturity — had become notably harder to come by. Firms can borrow them from the ECB, but only on the strictest of conditions. The Bundesbank has been even more resistant: it’s long been reluctant to accept any kind of collateral of lesser quality than German government bonds.

What all that means is the modern financial system has come to rely so heavily on government debt that governments cannot issue enough of it. The trouble is, government debt can take cash from the economy. This is fine when the economy is overheated or there is inflation. Central banks can step in and sell their bond holdings to soak up the excess cash. That’s not the case today anywhere in the world. Instead, governments are looking to boost the retail economy by getting more cash into the system.

The result is an unsolvable conflict. On the one had we have a financial system demanding ever more high quality debt, in order to drive growth in asset values. On the other hand, we have a retail economy demanding more cash moving around in the system in order to stimulate economic growth. It’s why smart guys like James Rickards see a financial crisis in the near future. The methods to paper over this inherent conflict are just a delaying action. At some point, the pressure exceeds the restraints and you get a crisis.

An organized unwinding of trillions in debt is never going to happen, so that means we will have a disorganized unwinding of trillions in debt. That’s the definition of a crisis. It is the unexpected, disorganized unraveling of something that probably should never have been allowed to happen. The mortgage crisis is the most recent example. Lending billions to people, who have no way to repay the loans, turned out to be a bad idea. In the fullness of time, the mortgage crisis will be seen as a warning, one everyone ignored.

80 thoughts on “Collateral Damage

  1. Pingback: The Economic Indicators Turn To The Dark Side – Episode 1147 |

  2. Zman said:
    “The mortgage crisis is the most recent example. Lending billions to people, who have no way to repay the loans, turned out to be a bad idea.”
    The root cause of the mortgage crisis was banks selling mortgage-backed-securities (MBS) to investors (both here and overseas); the terms and conditions of those MBS were “opaque” i.e. not easily understood. The payouts on those MBS were structured in such a away that even the slightest decline in home prices would trigger a massive default. Very little of the crisis was caused by ordinary home-owners defaulting on their mortgages, in spite of what the media portrays. The “failure” of Fannie Mae was a pre-planned takedown; accounting rules were changed to make Fannie seem insolvent, when it actually had Billions in cash to tide it over. The takedown had been planned by Hank Paulson and many others who wanted to see Fannie Mae’s business taken over by the TBTF (Too-Big-To-Fail) banks. Recently released documents from lawsuits againt the US Treasury and FHFA indicate that Deloitte-Touche andPriceWaterhouse were complicit in creating the accounting “scandal” at Fannie Mae. Meanwhile, US Treasury has been stripping the assets from Fannie, the way Wall St vampires always do.

    • This is what we in the wordsmithing business call “bullshit.”

      The “root cause” of the mortgage crisis was, in fact, imprudent mortgage lending which led to widespread defaults at the consumer mortgage level. This was driven initially by pressure from FedGov. It started under the Clinton administration under the Community Reinvestment Act and continued under the Bush administration’s policy of an “Ownership Society.” Freddie and Fannie enabled these policies by underwriting mortgages with insane risk profiles (e.g., negative amortization, interest only, no downpayment, 100%+ LTV, balloon, etc.).

      With the consumer loan side of the business compelled to issue substandard mortgage loans, no competent bankster is going to keep those loans on his books, so banks made a perfectly rational decision to offload the risk inherent in those loans to investors, and thus was born the mortgage-backed security (MBS) instrument business.

      Investment banksters soon realized that there was money to be made selling derivative securities, which effectively were bets on the default rates of the MBS issued. Armed with the knowledge that many of the MBS instruments underlying the derivatives were likely to implode due to high default rates on the consumer mortgages underlying the MBS instruments, the investment banksters were busy selling derivatives that were effectively shorting the same MBS instruments they were selling.

      Predictably, consumer default rates increased as the terms on their mortgages changed to their detriment, thus triggering defaults in the MBS instruments and the associated derivatives market. The rest is history.

      Were banksters complicit in this fiasco? Absolutely. But the plain and simple fact is that none of this would have happened but for government interference in the mortgage market which compelled the banking system to issue mortgages which never should have issued. The “root cause” was government-compelled imprudent mortgage lending. All else followed logically.

      • In general, you are correct; but in specifics regarding F&F you are not.

        “Freddie and Fannie enabled these policies by underwriting mortgages with insane risk profiles (e.g., negative amortization, interest only, no downpayment, 100%+ LTV, balloon, etc.”

        No, F & F don’t underwrite mtges..
        They buy mtges from banks and brokers, then repackage them and sell MBS based on those pools.
        However, the vast majority of neg.amort, 100%LTV, NINJA, etc were not qualified under F & F’s guidelines… those were repackaged by other entities as PrivateLabelMBS (PLMBS). Those failed big-time, not F & F’s MBS.
        F & F did not directly cause the ’08 crisis, gov’t policies going back to the ’90s did. The constant harping about them being directly responsible is part of a ten-year campaign to destroy those companies so that Big Banking can take over their business. F & F are very profitable companies which were illegally seized by Treasury and FHFA.

  3. Whoever dies owing the most debt WINS!
    My “credit rating” (a number derived on how much EXTRA I’m will to pay) is non existent.
    Despite high 6 figure “sitting” in the bank, they couldn’t seem to get me a credit card.
    NOR could they seem to offer more than 1% interest.
    Oddly, the money I “loan” to companies too incompetent to check their “officers” parachutes, and outright PAY for their “expenses”, pay better than the bank. If they “miss a payment”, I repossess the principal.
    Just a matter of which “institution” to pull the principal out of,and convert to (physical possession) metals , and when.
    Who SAYS you need a college degree, and license, to engage in “banking”?

  4. Really enjoy the work you do, however, I do find annoying typos like this from time to time; “The result is an unsolvable conflict. On the one had we have a financial system demanding ever more high quality debt, in order to drive growth in asset values.” Should be, ‘on the one HAND’ instead of had.

  5. In the final analysis this can all be traced to nations de-coupling their currencies from hard assets (precious metals {thanks FDR and Nixon}, lesser asserts like oil, uranium and the like) and the creations of monsters like the Fed and the IRS (thanks to that goddamn socialist, globalist prick Woodrow Wilson).

    Thanks to FDR (and the Rothchilds) instead of the natural economic correction we needed in the 30s he lengthened the depression by more than a decade and brought the entire world into the circumstances that led to WWII.  If he had just let the U.S. economy alone we could had well led the world into a recovery.

    Now, after Barry Hussein Mr. Trump will have to clean up the mess created by these asswipes. He’s not even president and he has already made Carrier save 1200 jobs, made Ford pledge not to move Lincoln jobs out of country and about 30 minutes ago announced, standing shoulder to shoulder with the CEO of Sprint (please note that he’s a Jap) that they will be investing  $50 BILLION right here instead of in fucking China for 50,000 new American gigs.

    The DOW has hit record highs 20+ times since his election. NAS RUSSEL, S&P, Oil, the stock market is bullish as hell, even as all the MSM talking heads warned us of catastrophe (BREXIT, anyone?). Isn’t this fun to watch? 

    And there’s more to come. Still 43 days until he’s sworn in. Wouldn’t it be great if we went back to the gold standard? (Just kidding. We’re too far gone for that now.)

    Best election EVAH!

    • Fuel;
      None of the hard assets you mention have any actual, intrinsic, primary production, civilization-saving value (like that of a bushel of wheat or a barrel of beer). They are just tokens of exchange that (importantly) regularly facilitate more efficient production. Their primary value in that role was that, unlike credit money, they can’t be suddenly, arbitrarily and secretly depreciated to the detriment of actual producers.

  6. Following a mathematical ecology framework (which used to bare a more-then-passing resemblance to accounting rules), PRODUCTION is the most basic aspect of economics. And so it will be if the SHTF. The immediate problem will be to get the primary producers in the human food chain, i.e. farmers, to accept our tokens of exchange, direct barter being impracticable, for long enough for the higher level production functions to be restarted. Otherwise the 4 horsemen will surely ride.

    Since this exchange will undoubtedly feature some element of coercion to accept those tokens and to prevent outright theft, one key survival skill will be identify the local warlord early in his ascent. It is tempting to say, “BE that warlord_!” But that is a higher risk strategy: Any would-be warlord ascends by knocking off rivals but can always use extra henchmen from his ex-rival’s posse.

    • I would love to see a new class war, not between the haves and have nots or debtors vs savers, but producers vs leeches. Leeches being defined as government, bureaucrats. Lawyers, academia, the media, the managerial elite, the deep state, big finance, etc.

  7. At long last after many years of waiting for the opportune moment and overcoming bureaucratic hurdles, the digital capital is going into a top-of-the-line water well drilling rig to complete the water systems business launched by my son, who lives next door on our farmlette in the Southern Cone. Everything owned outright, no debt (and those rigs are expensive!), shop on premises, and a solid Texas A & M engineering education combined with six years on an offshore oil drilling platform makes for good possibilities in an under-represented business in our area and beyond.

    This idea began forming about 15 years ago, five years after I believed it would all go blooey and decided to leave the US. I was wrong, of course, and honestly hope I continue to be, but even so, no regrets about putting the eggs into the productive tangibles basket; if anything, I’m relieved.

  8. As long as central banks, and particularly the US Federal Reserve, can issue fiat credit money at will there is no upper limit to the amount of debt which can be issued. It’s not even paper anymore; it’s just electronic bits in a memory register. This tree really can grow to the sky–it’s as simple as tacking another zero on the end every time you approach the credit limit. This observation is the very core of modern monetary theory.

    There will be no financial meltdown in our lifetimes unless either the powers that be want to trigger a financial meltdown for nefarious reasons, or producers of real goods and services refuse to accept credit money in exchange for their goods and services. The former is not likely, as the powers that be have no interest in upsetting the apple cart that is the status quo. The latter can be prevented by government regulation. Hence the drive to ban cash transactions beginning to sweep across the globe (cf, dark money in India).

    Once large-scale cash transactions are banned by governments the only practical option for 99.999% of the population in a modern economy is to suck it up and market your particular goods or services within the credit money system managed by central banks. Neither your employer nor your clients are going to pay you in silver or gold, and reverting to a barter economy is simply not practical unless you plan to go off the grid in the middle of nowhere, like Doug up above. Welcome to the Matrix.

    James Rickards’ doomsday predictions have been consistently wrong for almost a decade. I fell for the Zerohedge-driven, Chicken Little sky-is-falling, Doomsday narrative in 2008/2009 and pulled out of the market believing it was all going to collapse, mostly because I could not wrap my mind around the “no upper limit” implications of modern monetary theory. It was a major mistake and cost me an easy 7-figures in missed capital gains. At the end of the day the fix was nothing more than a circle jerk–the government bailed out the banks, who issued more credit to the government, our national debt went from approximately $10T to approximately $20T, and the DJIA went from approximately 7500 to 18,000. There’s no reason to believe that the next crisis won’t end the same way. Again, welcome to the Matrix.

    As to the particular conflict between issuing government debt and increasing cash in the economy, this is easily resolved by the government issuing wide-scale tax rebates funded by government debt financed by central banks. Voila. Again, welcome to the Matrix.

    Sorry for the long post, but it’s important for readers of blogs like this one to understand that they type of financial meltdown to which Rickards refers is not going to happen within their lifespan. There are serious financial and/or lifestyle consequences (cf, Doug) for failing to understand this.

      • What do you call the devaluation of the dollar by 95% since the fed was created?
        That sure looks like a collapse to me. Granted it is a slow collapse, but that was the point, strip mine it steadily percentage by percentage. That is what “inflation” is about, how they crowed every week, oh 2-3 percent inflation is healthy for the GDP. Riiiight, see the sleight of hand there? Artificially create a false narrative of inflation, you get to play fast and loose with 3% of GDP. Wanna take a guess how much money that is in the size of the economy of United States with it’s productivity potential? Then multiply that skim every year for a century?
        What is left behind is exactly the accumulative balance remaining from that 100 year skim, the end of the collapse which is a big fat zero of derivatives they couldn’t skim anything from.

    • I’m inclined to agree that the big collapse ain’t coming, but I certainly wouldn’t rule it our. Rational thinking is not a universal human trait and emotions can drive, oh, just about any response to a crisis you can imagine. I for one feel better being invested in owned-outright productive tangibles, productive land, well-built houses and low consumption. That’s not a consequence of failed understanding, it’s a “lifestyle choice”, as in a way of life.

      • That’s pretty much my take on things. Prepping for me is part of recreation. I do it for fun. If you visit my places you would have no idea what the secondary use is. This way it is easy to get family involved. They think they are just hunting and fishing while I get them ready for possible disasters.

    • Guest, your description is fairly accurate, but it only describes a part of the whole lay of the land. The population is not set up to play the same games with numbers, and they are getting close to tapping out. One example: a recent auto market report shows that one third of all trade-ins come with negative equity.

      What is going to happen when 100%+ of the majority’s income is spoken for, month after month? Economics might take a physical turn at that point.

      My guess is that from a number of possible scenarios TPTB will choose the most palatable – a form of a debt jubilee. This could be disguised as a strong inflation, possibly combined with expanding government care-taking of those too hopelessly underwater, FDR-style.

      How does someone like Doug fare in such cases? I’d say pretty good. He protected himself up to the Dust Bowl level of calamity. How about you?

      • I saw the reports about car leases. It’s not good, but it’s a perfect example of moral hazard in the world of modern monetary theory. It’s perfectly rational behavior for banks and lenders. They know damn well they won’t get stuck holding the bag.

        Inflation is certainly possible. A debt jubilee is possible. A more palatable response to 100%+ income consumption, IMO, will be a negative income tax, which can be phased out at increasing income levels. We already have such a system in place–the Earned Income Credit (EIC).

        Debtholders win in an in inflationary environment, as they pay back their debt with devalued currency. I have a healthy income, a very small mortgage, over $500k in equity in my home, and plenty of other assets. At least in theory the value of my asset holdings should rise in accordance with inflation. I’ll do fine. If anything I should probably hold more debt.

        If I understand the facts of Doug’s post correctly it appears he and his wife liquidated everything they own, including their retirement assets, and paid cash for 6 acres of land in the middle of WV and a 1989 Chevy truck. It’s not clear whether he’s still working. He’ll be fine as long as he can pay his property taxes, cover any health care expenses, and never wants to retire. I wish him well and totally understand his decision.

        Look, I don’t like the fact that, from a financial perspective, we live in the Matrix any more than you do. Not liking it is one thing. Failing to recognize that fact and the implications thereof is something completely different and, in my experience, leads to financial and/or lifestyle decisions that have negative consequences.

        • Right, debtholders would come ahead as long as the rates lag behind, which would be done intentionally in the partial jubilee scenario (and the banks probably compensated via Fed/Treasury). Should one bet on this by taking on some extra debt like you mention? It can play out many other ways too.

          Doug’s point is that he found a way to mostly opt out of the system (save for his minimized taxes) instead of trying to beat it. Partially this is because the new lifestyle suits him. It won’t suit many of us here though – school-age children, entrenched relatives, other entanglements.

          I think that “no debt/tangible assets” is a pretty sound position to take in this environment, Wyoming or not.

          As for retiring, going forward that’ll increasingly be for government employees only I suspect.

  9. When the dreck hits the fan, rest assured the printing presses will go into warp drive.
    As that brilliant MIT PHD and Princeton U. professor of economics, Ben Bernanke said:

    “The U.S. government has a technology, called a printing press (or today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at no cost.”

    (Note; Bernanke predicted the US economy was just fine, literally, just a few months before the entire US financial system cratered. )

    And the EU central banks also have printing presses.

    There will be no shortage of money if the shit hits the fan; this is a slam dunk.

    Coming to the rescue will be one of the Three Horseman: inflation, stagflation or deflation.
    My guess is a slight deflation, notwithstanding all the money dropped from helicopters.

    Look to the experience of Japan over the last 25 years as a guide. Despite all their money printing and government debt accumulation (I believe they are the most indebted nation on earth as a % of GDP), they have been unable to get their economy out of first gear and inflation there is non-existent (despite the theories of economists).

  10. This is way above my pay grade, but I’d love to see a solution for this that puts the penalties/costs on government and the financial sector as opposed to the productive economy.

  11. Maybe Trump will, like Herbert Hoover, happen to be sitting on an economic volcano when it erupts. Hoover’s mistake was to intervene with counterproductive government fiddling which prevented the crisis from sorting itself out as the 1920 crash had done.

    Let’s hope Trump avoids the sort of dumb moves that Hoover made,

    • I like the Donald more and more, but there is no way he wouldn’t follow Hoover down that rabbit hole if it opens up. No one who actually understands (not thinks he understands, Ben B.) the valves and levers at that level of sovereign finance has ever entered electoral politics, so far as I know.

  12. Credit Market Defn: Credit market refers to the market through which companies and governments issue debt to investors.


    The financial position of the US includes a minimum of $270T (1,576% of GDP) in assets & debts of $146T (852% of GDP) or Net Worth minimum of $124T (723% of GDP) as of 2014.

    Net Worth is a measure of financial health including financial obligations & service capacity. The US & its economic sectors has remained relatively consistent over time. It dipped during the recession & has largely recovered.

    Since a significant part of the increase in US Total Credit Market Debt is asset-backed, e.g. mortgages, the system risk is less. The families that bought homes substituted mortgage payments for rents—their monthly costs generally stayed the same. The mortgage loans adds substantially to the TCMD but builds significant equity net worth through home ownership.

  13. That’s why if you have zero debt and $50 in your pocket, you’re one of the richest (but not wealthiest) people on earth.

    The Wizards of Smart need to find a new god to worship. GDP growth is tied inextricably to population growth and government spending. The first one is in decline in the West and in most industrialized nations (hence the immigration push). The second is increasingly dependent upon a shrinking pool of taxpayers due to slow population growth, and replacement by low skill workers (who consume, not pay, taxes) who history shows are incredibly bad at math and self government.

    The world might need to move old school. Real property, real assets, etc. That’ll either be forced on the Technocrats by a collapse or forced on them by a popular revolt. Right now, it’s the second one.

    Hence Merkel’s “racist” call for a burka ban. The sane people are trying to take the wheel from the drunk, and the drunk is screaming, “No! No! I got this!”

    • I really don’t think the people who cooked up the currency arrangement we have today could foresee the massive debt build. I remember the 80’s and it was an article of faith among Reagan’s people that debt markets would impose spending discipline on governments. It’s why they focused on tax cuts. They figured that putting a hard political limit on taxes would force spending cuts eventually. Instead, we had a quadrupling of per capita, inflation adjusted federal debt.

      Similarly, no one in 1980 could imagine the sorts of synthetic investment instruments we see today. The technology to manage them was not in existence. The first mortgage backed securities hit the world in the 1980’s. The idea that you could securitize tobacco taxes, for example, was not dreamed up until the 90’s when technology made it possible to track such things.

      But, there is nothing new in the world. The rail boom in the US led to a massive debt bubble and the result was the long depression.

      • A similar fallacy underpinned the eurozone. It’s creators assumed that the strict rules of joining the euro would impose discipline on governments. We’re seeing how that turned out.

      • You want a fun read on how this plays out? I dislike most if not all modern fiction but a novel by Lionel Shriver, The Mandibles, has it nailed. Life amongst the progressives when the bill comes due. A fun read a hoot but that author is going to be strung up if she ever sets foot on the Yale campus

      • With all due respect, Z, the reference to the rail boom/bust is inapposite. Those were the days of hard money. Money creation was subject to a strict limit because it was convertible to gold and/or silver. In a world of hard money, when railroad bonds collapsed there was no way for the banking system to paper over the collapse of the credit bubble. Now it’s as simple as adding a zero to the credit limit and issuing paper.

        When Nixon closed the gold window in 1971 it ushered in a new era of government finance. The bond market was able to maintain spending discipline for a brief period of time while the central banks behaved responsibly. But once governments and central banks crawled into bed together it was game over.

        Query: in an era of near-zero interest rates and unlimited debt issuance, why does the US government bother to collect taxes? The US can simply issue bonds to cover its expenses and repeatedly roll those bonds at zero percent interest. If we’re going to live in the Matrix we might as well bring our Skittle shitting unicorns along.

        • In the the 19th century, printing greenbacks first to pay for the Civil War and then to finance all sorts of other things, which is what prompted the Coinage Act, made a mockery of hard money.. That’s largely blamed for the sudden contraction of the money supply.

          As far as Nixon, he had no choice. The Breton Woods regime was collapsing. The system we have today was finalized in the Reagan years as the Louvre Accords.

          • Poor Tricky Dick. The Euros and Arabs were getting ready to destroy us by “redeeming” all of those Euro- and Petro-dollars for gold, and Nixon gets blamed by everyone for saving the country from insolvency. I haven’t looked in a while, but the only thing I’ve ever been able to find online about the Petrodollar and Eurodollar crisis is a paper written by a Red Chinese academic in the 1970s. Yet I remember you couldn’t pick up a magazine or news paper at the time without running across an article or two about it right next to the news about Rutherford and Aaronson attending the party conference in NYC.

            William Jennings Bryant didn’t get crucified on a cross of gold, but Dick Nixon did.

      • I think the people who cooked up the currency arrangement we have today really don’t give a shit. They are rich beyond comprehension because of how they manipulate that debt. It was the whole point to begin with.

      • “The idea that you could securitize tobacco taxes”
        What happens if/when the gov’t decides to eliminate all Federal taxes on tobacco?
        That sort of unexpected event could be engineered by gov’t (even by unelected bureaucrats), with the express purpose of destroying those particular investors.
        The gov’t (via FHFA) changed accounting rules “unexpectedly” for Fannie Mae and Freddie Mac; suddenly their $50billion cash reserves were declared not enough. That was the root cause of the Mortgage “crisis”.

  14. Martin Armstrong is another smart guy I like to follow. He has all kinds of things to say about government debt.

    • And, we haven’t actually experience a true float in all currencies. Dirty float is really what we have seen for the currencies that matter. Wait till they all truly float.

  15. I’m only an amateur economist at best, so I have a question: when did businesses become more of a financial instrument than a production instrument?

    • Seems to be a gradual transition over the past 30 years I’ve been working. Taxes, regulations, labor troubles, laws and more regulations, and foreign competition have made it impossible for the operations guys to deliver profits in many industries. So management keeps looking at the finance guys to pull a rabbit out of the hat and magically deliver profit.

      I try to avoid investing in companies that don’t make their profits with easily identified products or services. In part because the sham might fail while my name is on the stock certificate, and partly because they may decide to screw me like they’ve been screwing everyone else.

      • Now that I think about it, I read another comment on another site that said international business these days is mainly tax, regulation, and wage arbitrage.

        • Methinks that was my comment on this blog a while ago. It was posted in reference to a free trade issue.

    • When they got rid of the gold standard and created the Federal Reserve, which is neither, it just the twelve banking families laundering a nations intrinsic wealth through their private banks and strip mining it of it’s actual real value, then selling off the devalued derivatives.
      They make nothing, they create nothing of value, they rigged a system to extract that value and creation of value.
      What was it old man Rothschild said about power he would have letting him create a nations money system?

    • Directly on point …

      There was never a shortage of gasoline during the Bush years that justified a $4++ a gallon price at the pump. It was a shortage of futures securities. The CEO of Marathon explains the phenomenon in that video.

      In my opinion, securitization inflates the cost of everything we buy these days, from food, to gasoline, to real estate, to rent. So even if you don’t have any debt, you are still working for the bankers.

  16. It’s fun to watch how deeply the left is in bed with the banks. They can’t pay for big government without the debt bubble, so the banks must be protected at all costs, ideology be damned.

    • Not hide, reject it. I say that with total sincerity. It is not what these insane governments are doing that matters, it is what each of us do, and how it all begins with each of us. That’s the truth my friend. Don’t let anyone tell you different
      My wife and I chose, key word, made the choice to divest ourselves of all debt. Not. A. Penny. Of. Debt. We seen it coming in 2007, gut instinct told us it wasn’t going to end well. It was obvious, the debt/derivative/401/cheap mortgage interest system was a shakedown operation to strip mine the dirt people of their intrinsic wealth dressed up as prosperity for all. Like the European Union.
      We started by working every hour extra we could get for a year and a half. saved every penny possible. We cashed out our retirement assets. Sold everything but our basic prized personal possessions, tools and equipment. Sold 2 houses we owned, paid the notes off. We bought a 1989 Chevy pickup, put $3 grand into it in new parts. All said and done we came out with grand total $54,370 the day the last house sold. We jumped in the old beast, drove from NH. to WV, got a $30 dollar a day motel room, and began looking at property. We ate out of a cardboard box and cooler, every property we looked at, we said real nice like, we have $46,500 dollars in cash, right now, right here, show us a clear title we will buy this house. No offense, we are not getting a bank loan. Here’s our number, give it a think, call if you want to sell. In 3 days we owned outright a 6 acre old farm that was listed at $110,000, taxes $276 a year, closing costs, county fees and tax stamp – $375. We logged off an old windbreak to clear for more garden space, it had old growth rock maple and cherry trees that sold for venire logs and we recouped 8 grand in cash, that we used to buy the components and bits, to build our own off grid wind/solar system.
      We still have that chevy pickup, no debt, we live a wonderful wholesome stress free life, raise most of our food, and if the SHTF tomorrow, we would barely notice.
      Was it easy? No, but neither is being an indentured debt slave.
      I’m writing such a personal story, because I know there is a better way to live, and live free. It is so wholesome and care free compared to our mainstream life, that even now, sometimes it is difficult to not have thoughts of how programmed and brainwashed we were into accepting and living that debt slavery system.
      We did this.
      You can too.
      No way, how about thrive instead?

      • I own nothing that I didn’t pay cash for except one vehicle that was on a company lease before I bought it. Primary residence has an underground propane tank and generator. Also have a farm where I can survive off the grid. And a residence in another country that pays for itself with a small grocery in front. Still I’m sure I’ve taken many things for granted, and something will surprise. It always does.

        • You forgot to list the rifle. I know you have a rifle. If you don’t have a rifle you are going to meet some unprepared fellow who none the less has a rifle, probably not his own.

          • Like land, you ain’t Man unless you own a rifle.
            It’s property, that is the first thing.
            Property is freedom.
            Debt is a form of indenturing your freedom by not outright owning your property. A rifle is to protect and defend you property, including your rifle to begin with.

      • Doug;
        I sincerely hope that you don’t lack the goodwill of your neighbors. Should the SHTF the ability to ‘retain title’ will be key to your strategy and all similar ones. Being armed and dangerous all by yourself alone (not that you are advocating this yourself, but others are) will not be sufficient. Five organized, hungry, improvident-but-armed locals are likely to be a match for any ‘prepper’ (again, not that you are one).

        Being from da Nort, I am aware of the delusion among outdoors-oriented suburbanites that they can simply head for the woods and live off the deer herd. They don’t understand the following:
        – There are already locals there who are counting on the same resources. They are well armed and very familiar with the terrain.
        – The long term carrying capacity of that land in pre-industrial times was about 1 person/square mile. So those locals already well exceed this limit. Amish farming is not possible due to climate and soils, etc.
        – Those locals are already pretty well organized via local Legion/VFD Posts, VFD’s, town government, etc.

        So, anybody just showing up would be well advised to have all or most of: 1. Strong pre-existing local social connections; 2. Their own assets; 3. Valuable skills (e.g. MD, welder, etc.); 4. Valuable commodities to trade (e.g. ammo, dried food in quantity, etc.). It seems you have #’s 2 & 3, so if you also have #1, you’re probably good.

        • It’s not hard to get socially connected when there is only one other permanent resident on your road. The notion that the places we choose to set up bug out locations are already heavily populated is easy to assume, I understand, just try getting to some of them. In fact, getting there when you will have to is a problem that we all think a lot about.

          • Make it a life instead. Why wait for disaster or tribulation. Win against this destructive construct the banisters create by their economic slavery to debt. Agrarianism is what created this nation. People went into the frontier of their time and created small closely knit thriving communities. That is what I and many others have done. We win big time too. Winning is a great thing. Winning your liberty even better.

        • A fella decided to try the hermit life and moved way out. After a while he became lonely and lo and behold a stranger appeared. They got acquainted and found out they were distant neighbors. The stranger said there was gonna be a party and would he like to attend. He says sure. The stranger says I gotta warn ya there might be some dancin’. Oh, that won’t bother me. Well, there might be some drinkin’. Oh, that’s OK. Well, there might be some sex, too. What should I wear? I wouldn’t worry about it, just gonna be you and me.

        • You know it. Love to answer your question.
          We have become befriended by so many of our neighbors, and become close allies, because of the culture in these mountains. It is difficult to define in words. It is truly provincial, there is deep underlying current of faith and a quiet sense of providence. People make it their business to know you, it isn’t nosiness, it is tiered priority by family kith and then the tribe of community. And it goes no further, a closed loop culture. It is clannish in nature.
          We are definitely imports on these ridge lines, and me, I’m a Yankee through and through, but I tell everyone I’m a Hillbilly with a different ascent, being I’m born and raised up in the White Mtns of NH.
          But what really counts is we have friends for life, people who we count on and they us.
          Give you a wonderful example. Last year, happens to be the very first person we met, on the day we pulled in with the UHaul trucks, a guy who stopped, jumped out, introduced himself, and offered to help us unload, whose best friend happened to stop on his way home, and do the same. Well this fellow, whose wife and mine are like sisters now, on his own, without saying a word, drops off 4 cords of split firewood and stacks it in our woodshed. And wants nothing for doing that. Of course we all up here help each other, because most up on this mountain are looking out for each other. It is not that people are so much generous, it is how my friends and niebhors see their world, it is very important to them, and they understand what matters is local local local, the rest of the outside world comes a far 2nd.
          It is also an economy of living. The horse trading and trust inherent is a great dynamic, it’s here you take this, I’m not using this garden tiller, what will you take for it, nothing it’s yours. Sound strange?
          Well this is how it works: I trust you to trust me on giving you that tiller, because trust is worth far more than money, because you and me, we are gonna trade our trust for other things and help, till we die, and our family, and our satellite of friends and family. No money need come into the picture. It’s a system of barter, reliance, community, and trust.

          • Doug;
            Praise God, you’re there. Your story should be the example_! Don’t just show up expecting to eat.

          • The food here in WV is awesome. It’s a huge part of life. There is a festive component to around family and friends. Being it is rural and sparkly populated in the rugged mountainous areas like where we reside. Wild game is a large part of a lot of peoples diet, no lack of deer or turkey, and home canning is a long held tradition. Fermented corn and cabbage, pickles too. We can half our food we eat. There’s weenies and peppers, canned deer meat and stew, squirrel gravy, green beans & potatoes with bacon, of course lots of garden produce. Black raspberries and blackberries grow wild like how Maine’s blueberries do, and you can easily pick 20 gals of those bramble fruits for jam. There’s Ramps in the early spring, and because it is a boreal rain forrest up above 2000 ft elevation, mushrooms by the five gallon bucket, hen’s of the woods and morels are the WV favorites. You can literally eat of the woods.

      • Come visit my little blog and I promise to get back to work on it! We lead similar lives, You’ve decided to follow the Subsidiarity Principle and I agree, it’s a better life for one and all, and best of all, it could be a way of phasing debt out of our lives, although politically, it will be a difficult if not impossible task; our host is likely correct that the unwinding will be by default (pun intended) instead of by design.

      • DOUG– I’ve been thinking of going the other direction, back up to New Hampshire. Forest land in the remote areas seems cheap ($1000/acre), even taxes seem cheap, plus no state income tax.
        I’m intigued to know why you’ve left, and why you chose W.Va? Is it just the warmer climate?
        PS ??you paid total $46k for 6 acres, less than half of the asking $110k??

        • Nunnya- Yes winters where a factor. I miss a lot of NH, it is a stunning country up in the north country. You should go for it, specially if you have a home based income or something to make it viable to be self sufficient. I think if your a custom maker of traditional handcraft you can do well with some basic common sense business sense up in the north.
          My wife is from Missouri, it was getting too much for her bones. Cost of living overall was a factor, though long winters in the north country makes for not optimal agrarian living. NH had changed drastically since my youth also. I think after that red diaper commie bitch Shaheen and her bloodsucking husband infiltrated the political system, it was downhill from there. They brought their friends with them, it was like shooting fish in a barrel for them and their corruption, the whole Clairmont School case was a money strip mining operation for them two, it was a planned invasion of cultural marxism into a culture ripe for the plucking. At the time there was much I didn’t understand how dirty this political class is. I grew up next town over from Fabien, on the western side of Little and Big deception Mtn’s, if you are not aware, that is Brettonwoods, home to the infamous Brettonwoods conferences. Now what is the chance of all that? All those King’s grants, and the colonial enclaves from Sandwich up through Bear Notch into the Presedentials, that is where the Tory loyalist bugged out during the war of 1812. You see their cultural marxist trust fund brat decedents everywhere up through the Notches. To me, vile evil creatures, the predecessors of the special snowflakes today. Like everywhere they go they are meddlers, insidious busybodies who think they are rulers of us dirt people.
          Truthfully, I’d drop everything, go back in a new york minute if there was good viable possibilities of fighting an insurgency. I think it is coming at some point. There’s still some Roger’s Rangers blood that runs deep in a few veins up there.
          But I love the indomitable spirit of the hillbillies here, those scotts Irish are stubborn proud fearless people. They didn’t jump over the Monogahela mountains into the frontier for nothing. A high percentage of the formidable warriors of the war of independence came from WV and NH, so it’s a toss up for me in that respect. A lot of NH and WV at the 2000ft and higher elevations are pretty close to similar, some places it’s freaky how much, except the lower latitude in WV really makes for just a lot nicer winter due to the suns position being higher and warmer. There is an economy of living and culture in the rural parts of WV that are like how NH was when I was growing up missing now. Those damn yankees from down in flat land are like illegal aliens, they brought it all with them when they began to invade in numbers in the 90’s.

      • Wow Doug. I can only imagine the amount of liberation you both must feel. Long before you and I existed millions were self sufficient. You and your wife are an inspiration and God bless you with what you’re doing. I’m curious though….kids? If so, are they or have they adopted your style of financial liberty??

        • Lord bless you too. Thanks for the kind regards man. It is a nice thing knowing everything is securely your own. It can not be taken from you. That is a great observation you bring up regarding self sufficiency and determination, it’s freedom right?
          Kids are all grown, they have their own lives, and are getting to the age where they are beginning to question the status quo and seek more freedom. In the beginning they called us crazy for moving down to WV. In fact almost everyone we knew basically said some cheese fell off our crackers moving to hillbilly land, some got down right hateful. Which is like an entire different story. Tell you what, the lies and bigotry of revised history we are taught up north about the South is pretty bad stuff. That revisionism, if anything can be called racist, is as dirty rotten low down as it gets. Want to talk about supremacists, them northeast marxists are the pure definition of racist.
          So in another fashion, living in WV is like giving those marxists the finger, being I’m a Yankee, it’s exercising my liberty right there too. Down here your a copperhead if your a Yank that rejects those northern meddlers.
          But you know, all you got to do is start, what we did, we began small, a step at a time. It’s not difficult. Probably the hardest thing is changing your thinking. That is the major hump you got to get past. After that you kind of adopt the thinking habits and frame of mind, and you discover all sorts of ways to live freedom. It is nothing profound in particular, but the whole process is more a zeitgeist.
          Probably why the Alt-Right is so despised by so many. Zietgeist scare people who will do anything to stay in their “comfort zone”. But thats the thing, freedom is courage to do things, it is action, the act. It’s choice and individualism. Helps if you got a little rebellion in you. And Faith, got to have that savings grace. Like the great hymnal, Savings Grace speaks of. The catechisms of Christianity are about liberty deep down. After all, the greatest insurgent guerrilla who resisted and defied the worlds tyrants and potentates of the time, maybe of all times was a man named Jesus Christ.

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