Month: November 2019

This is as the news appeared in the New York Times on the morning of October 20: “The Bank of France, which has about $600,000,000 of short-term balances in this market, yesterday notified New York banks that the 1 1/2 per cent. rate of interest now being paid on foreign bank deposits by local institutions was unsatisfactory. The French bank of issue indicated that unless a higher rate was provided it would seek other employment for its huge dollar balances.”

Since the Dawes Plan took effect–since 1924, that is to say–Germany’s net payments on account of reparations, according to her own figures, have amounted to $2,350,000,000.

In the same time, still according to her own statistics, she has borrowed from other countries the incredible sum $3,750,000,000.

To any suggestion that the government shall set its printing presses free and flood the country with fiat money, all our economic intelligence reacts with no. Only those will say yes who are mentally or politically unsound. And if a government is obliged by vote of the unsound to do it, then everybody, including the unsound, will begin to hoard gold because gold is the one kind of money no government can make or dilute.

The problem is that so much credit, that is to say labor, is trapped, frozen, locked up in the world’s industrial machine, that people cannot afford to buy the whole of its product at prices which will enable industry to pay interest on its debt. This is perhaps the most involved from of pyramid that human ingenuity has yet devised.

It is believed that on Cheops alone 100,000 men were employed for twenty years. And when it was finished all that Egypt had to show for 600,000,000 days of human labor was a frozen asset.

Before the Committee on Finance of the United States Senate, the head of the second largest national bank in Wall Street, who represented also the most aggressive bond-selling organization in the world, appeared and said: “We are merchants. With respect to bonds generally, we are merchants.”

When they have been living on credit beyond their means the debt overtakes them. If they tax themselves to pay it, that means going back a little. If they repudiate their debt, that is the end of their credit. In this dilemma the ideal solution, so recommended even to the creditor, is more credit, more debt.

It’s fascinating, isn’t it? China buys up more than 80 percent of the world’s gold supplies in the first quarter of 2017, gold prices barely rise, and Bloomberg, Reuters, and the Wall Street Journal don’t breathe a word of it. But China bids up the world’s avocado supplies and the Western mainstream financial press is all over it…. I smell a Pulitzer here for this groundbreaking work on Chinese avocado demand!

We are not months into this trend, Luke. China was admitted to the WTO fifteen years ago. The Euro began trading seventeen years ago. The US financial system was shown to be made of “balsa wood and baby tears” eight years ago. China and Iran began transacting oil in CNY four years ago. Global FX reserves peaked and began falling eighteen years ago. China and Russia began transacting oil in non-USD nearly two years ago.

Because Wall Street is generally a young man’s game, and as I said before, young men generally don’t learn anything from history until it happens to them.