By Peter B. Meyer - 26th of December 2012
The Russian economist Kondratieff discovered, that economic cycles are more powerful than government. And, while government can alter the impact of a smaller "normal" bubble, it is helpless in the wake of a true "Super-Bubble." According to Kondratieff, the government's act is a hopeless charade. The real economic cycle is going to run its course, no matter what government does.

In the 1930s, Russian economist Nikolai Kondratieff produced his theory to explain that TRULY HARD TIMES come in broad cycles, or "Super-Bubbles." These "Super-Bubbles" are typically made up of several smaller or "normal" bubbles.

Now, there is another Super Bubble2 brewing and waiting to explode, it is the derivatives bubble, which huge size lays between US$ 600 trillion and 1.5 quadrillion (1,500 trillion). As comparison GDP of the whole world together is about 65 trillion. Warren Buffet coined this as ‘financial weapon of mass destruction’.

To be more precise, the government can control events for years, even decades. The government can postpone financial devastation, but not to prevent it happening. As Kondratieff said, governments cannot resolve whatsoever, as the real economic cycle is going to run its course, no matter what the they undertake.

A chilling conclusion, in fact, Russian leader Joseph Stalin had Kondratieff executed to avoid that his theories would not undermine Russian citizens' faith in government. But the run of history proved, Kondratieff was right. The government is helpless to stop the natural path of economic cycles.

What happened during the last 25 years is exactly this. We've had a series of financial bubbles fueled by government spending and easy money. Governments have used its power to print money in order to stave off financial devastation. The trouble comes, once too much money is printed and pumped into the economy, and things honestly viewed, don’t get better.

By Peter B. Meyer – 5th of December 2012

Contrary to the general opinion; disasters don’t provide any economic growth or any wealth advantage. The U.S. government announced that gross domestic product grew in the third quarter at an annualized rate of about 2 percent, which today is revised to 2.7%. That’s hardly vigorous growth, but considering the previous quarter’s annualized rate of 1.3 percent, the news was received with optimism. But optimism is unwarranted. As the U.S. Commerce Department’s Bureau of Economic Analysis explained: “The increase in real GDP in the third quarter primarily reflected positive contributions from personal consumption expenditures (PCE), federal government spending, and residential fixed investment.” 

To put it another way, what grew was not the real economy but GDP - a statistical construct that is subject to a myriad of assumptions and dubious measurements as, for example, inflation. And the reason GDP grew at a higher rate is that the government and consumers spent more than previously.

So despite what pundits, politicians, and the news media tell us, this doesn’t bode well for the future because economic growth, as opposed to GDP growth, requires investment, which is made possible by saving. But saving is consumption deferred. One reason people save is to consume more in the future than they can purchase today. An economy cannot consume its way to real, sustainable growth.

Commentators never tire of saying that consumption accounts for more than 70 percent of the economy. But this is highly misleading. Adam Smith accurately wrote, “Consumption is the sole end and purpose of all production.” That implies that consumption isn’t the way to make an economy grow by consuming more. That only sabotages the potential for real growth.

John Maynard Keynes who thought recessions, made the fallacy popular and depressions were signs of inadequate aggregate demand and that therefore saving was harmful. But it’s not true. Rather a recession is the inevitable consequence of a previous boom, or bubble, prompted by money inflation and cheap-credit policies pursued by the government’s central bankers. These policies stimulate interest-rate-sensitive sectors of the economy, such as housing and stages of production remote from the consumer goods level that depend on real savings for sustenance.

But when the Federal Reserve System creates money out of thin air in order to lower interest rates, it gives the illusion of new savings - deferred consumption - and therefore misleading signals to entrepreneurs, who direct resources and labor to parts of the economy that never would have expanded without the inflation. The recession occurs when the central banks print too much money, true consumer preferences come to light, and the inflation-induced investment is revealed for what it is: malinvestment.

Economic recovery requires a shift in resources and labor from where they were mistakenly diverted to where people’s real consumption/saving preferences direct them. This process is costly and time-consuming - and that’s where the need for saving comes in. If the recovery is to proceed, government and its central bankers must keep hands off, and interest rates have to be allowed to find their true market levels. If growth is to resume and employment increases, market corrections can’t be impeded. But politicians and central bankers aren’t typically willing to step aside in such circumstances because they want to be seen to be doing something - even if the something is the wrong thing to do. That’s the position we’re in today.

Long-term investing is risky enough. When government adds to the risk - when no one can be sure what new taxes and regulations may be coming down the pike - investment becomes all the more dicey.  

What’s horrifying is that President Obama, Fed Chairman Ben Bernanke, and Congress have been doing precisely the opposite of what economic recovery requires. In addition to the programs, the Obama administration has tried to prevent the housing market from correcting for the massive distortions wrought by the Fed and federal housing programs as they inflated the infamous bubble. Again the government and its central bank seem determined to re-inflate the housing bubble. For example, under QE3 the Fed for the foreseeable future will buy $40 billion worth of mortgage bonds each month, providing easy money and low interest rates for the mortgage market. “Our mortgage-backed securities purchases ought to drive down mortgage rates and put downward pressure on mortgage rates and create more demand for homes and more refinancing.” Bernanke said.  

This is precisely the sort of policy that set the table for the housing bubble and consequent Great Recession in the first place. No good comes from artificial stimulation of markets.

The Fed also plans to continue to hold the federal funds rate to near zero well into 2015. To the extent this keeps other rates down, people will be discouraged from saving and encouraged to spend and borrow. Thus, the government is discouraging savings needed for sustainable economic growth.  

“Policy makers have cost the U.S. economy a decade or more of normal economic growth,” is said. That represents real hardship for millions of people. The politicians and their appointees once again have shown themselves to be incompetent managers of the economy - which is to say of our lives. It is time that all privileges, regulations, and interventionist entities - including the Fed - were eliminated and that a free economy is allowed to emerge. Economic growth is too important to leave to the government.

"The broken-window fallacy," wrote Henry Hazlitt in his 1946 gem Economics in One Lesson, "under a hundred disguises, is the most persistent -- and rabble-rousing -- misunderstanding in the history of economics."

Taking his cue from the 19th-century French economist Frederic Bastiat, Hazlitt tells the story of a vandal who breaks a bakery window. The baker supposedly stimulates the economy with his purchase of a new window. Never mind that he'd hoped to buy a new suit with the money and the glazier's gain is the tailor's loss.

"No new 'employment' has been added," Hazlitt sums up. "There is no upside to wealth destruction. But try telling that to the folks who calculate GDP.

"It is very likely the ‘Sandy’ hurricane will be given credit for any fourth-quarter fake economic growth. After all, that's how government affects the GDP. The more it spends, the higher economic growth appears to be." And it gets worse: Private-sector production - the stuff that doesn't get shifted from one pocket to another is falling. With consequence, real economic growth is falling even more.

By Peter B. Meyer – 18th of February 2012

The FED lends the bankers money. Then, the bankers turn around and lend it back to the feds. The banks are happy; they're making money on a risk-free trade. The regulators are happy; what could be safer in a bank's vault than US Treasury bonds? Investors are happy; it looks like the financial sector is making money again. And the feds are happy; they're able to finance their deficits. What good does it do for the economy? NONE. Doesn’t that look like a scam?

Nevertheless, global central banks have printed trillions of dollars and euro’s to boost their economies, as they say, which is a straight lie! These bailouts usually solve the immediate crisis, keeping banks from collapsing. Apart from tackling the main problem; the huge amount of debt owed remain untouched to increase at an ever faster and accelerating pace, which is exceptionally dangerous because debt growth is compounded, which results in ever faster growing debt expansion. And that's happening right now, because additionally money is borrowed to pay the interest over earlier debt. And that went on for the last 40 years. Moreover they also have failed to resolve other important issues, like high unemployment and falling home values. And worse, this printing of global currencies is reducing the purchasing power, thus punishing savers and pensions.

Nevertheless, global central banks have printed trillions of dollars and euro’s to boost their economies, as they say, which is a straight lie! These bailouts usually solve the immediate crisis, keeping banks from collapsing. Apart from tackling the main problem; the huge amount of debt owed remain untouched to increase at an ever faster and accelerating pace, which is exceptionally dangerous because debt growth is compounded, which results in ever faster growing debt expansion. And that's happening right now, because additionally money is borrowed to pay the interest over earlier debt. And that went on for the last 40 years. Moreover they also have failed to resolve other important issues, like high unemployment and falling home values. And worse, this printing of global currencies is reducing the purchasing power, thus punishing savers and pensions.

The ECB says it will give away as much as $1 trillion on February 29th. The European crisis is far from over, the endgame will be a bailout of the entire European banking system organized and financed by the FED.

“There will be no exit strategy for the ECB and the FED from their easy money policies. A reversal of its easy policies would destroy the entire EU banking system overnight.” “Just like the Fed, the ECB can talk tough about how it will withdraw liquidity ‘in a few years.’ But once that future arrives, there will be no withdrawal. The money printing tsunami won’t be reversed. The implicit merger between the banking system, the state and central banks will gradually be viewed as explicit.” “Investors, and savers slowly, are going to see this scenario as inevitable, so you should prepare for the inflationary consequences, ahead of the crowd.”

Let’s see, how does this work? You are deeply in debt. So, the bankers lend you money so you can continue making payments. You go even deeper in debt, and the bankers lend you more money so you can keep making payments, and so it keeps going on.

As an example, Portugal’s economy is shrinking at a 5% annual rate. Italy, Spain, Greece and Ireland are not in much better shape. There will be less income for the resp. governments. So what do the Eurocrats do? The same as the US does. They give the banks money, hoping the bankers will distribute it around.

The truth is that Central Banks and the Feds are privately owned. The banks that are members of the Central Bank Systems own them. Another truth is that the current debt-based monetary system was designed by greedy bankers that wanted to make enormous profits by using the FED and Central Banks as a tool to create money out of thin air and lend it to their respective governments at interest. And that plan is working quite well. Most people don’t understand how any of this works, but the Elite they do know.

Here is how it works.  The Federal Reserve lends gigantic piles of nearly interest-free cash to the big Wall Street banks, and in turn those banks use the money to buy up huge amounts of government debt.  Since the return on government debt is higher, the banks are able to make large profits very easily and with very little risk. This scam was also explained in a recent article in The Guardian….

Consider this: we pretend that banks are private businesses that should be allowed to run their own affairs. But they are the biggest scroungers of public money of our time. Banks are lent vast sums of money by central banks at near-zero interest. They lend that money to us or back to the government at higher rates and rake in the difference by the billion. They don’t even have to make clever investments to make huge profits.

All this is causing inflation, which is a “hidden tax” that continually robs all people of their wealth. The Central Bankers always says that they are “committed” to controlling inflation, but that never seems to work out so well. And current FED Chairman Ben Bernanke says that it is actually a good thing to have a little bit of inflation. He plans to try to keep the inflation rate at about 2 percent in the coming years. So what is so bad about 2 percent?  That doesn’t sound so bad, does it? Well, just consider the following excerpt from a recent Forbes article….

The Federal Reserve Open Market Committee (FOMC) has made it official:  After its latest two day meeting, it announced its goal to devalue the dollar by 33% over the next 20 years.  The debauch of the dollar will be even greater if the Fed exceeds its goal of a 2 percent per year increase in the price level.

But, an increase of 2% a year over a period of 20 years will lead to a 50% increase in the price level. It will take 150 (2032) dollars to purchase the same basket of goods that 100 (2012) dollars can buy today. The “dollar” in 2032 will be worth one- third less (100/150) than what it is worth today

Now you understand why the banks are doing so fine. They earn money without taking the risk of lending to the real economy. Creating higher bonuses for the bankers themselves, to make money on taxpayers account. “How would the economy then function without the FED? Something has to take its place, right?”

No, the truth is that we don’t need anyone to “manage” our economy. The respective Treasuries could be in charge of issuing currency, while the free markets determine the interest rates. The world does not need to have a centrally planned economy.

The way today’s system works, whenever more money is created, more debt is created too. For example, whenever the government wants to spend more money than it takes in, which happens continually, it has to ask its Central Bank for it.  The government gives Treasury bonds to the Central Bank, and the Central Bankers give the government “Federal Reserve Notes” in return.  Usually this is just done electronically.

So where does the Federal Reserve get the Reserve Notes? It just creates them out of thin air. Wouldn’t you like to be able to create money out of thin air? Instead of issuing money directly, the government lets the Federal Reserve create it out of thin air and then the government borrows it. Sounds stupid? But that’s exactly the way it works.

When this new debt is created, the amount of interest that the government eventually pays on that debt is not created. So where will that money come from? Well, eventually the government will have to go back to the FED or its Central Bank to get even more money to finance the ever expanding debt bubble that it has gotten itself trapped into. It is a debt spiral that is designed to go on perpetually.

You see the reality is that the money supply is designed to constantly expand by the Central Bankers. That is why we have all become accustomed to thinking of inflation as “normal”.

Now everyone is doing the right thing. Households are reducing spending. Business is reducing its costs. GDP growth is falling and investors are taking shelter in Treasury debt. So what's the problem? Well, the FED and Central Bankers can't bear to see people doing the right thing. They want them to do the wrong thing - that is, they want them to spend money they don't have on things they don't need. Why? Because it makes the economy look good, and makes them look like they know what they are doing.

As long as the dollar rules, Washington’s power will rule. As Rome debased its silver denarius into lead, Rome’s power to purchase compliance faded away. If “Helicopter Ben” Bernanke inflates away the purchasing power of the dollar, Washington’s power will melt away too.

Where does this end? It isn’t known yet, but very much likely in Hyperinflation.

Recommended:

Since the majority of the official media either is owned or controlled by the Elite, you only read the lies and not the truth. To better understand today’s reality it is suggested to printout this essay with the previous four about: Inflation, Deflation, Stagflation and Hyperinflation, and keep those on hand. Even better forward those 5 issues to all your friends and family members. Spread these messages and wisdom for a better understanding about the state of affairs of today’s crisis. It certainly will help to speed up the recovery process!