All currencies are an inverse pyramid based on the dollar

The global fiat monetary system is a ponzi scheme, when growth contracts, slows and stops the pyramid collapses. That is why we are in a period of constant quantitative easing, without this liquidity injection the whole pyramid comes crashing down but is that a terrible thing? It would be if there was not a system to replace this one and that is the Real Bills Doctrine. Courtesy of           Alistair Macleod @ Gold Money:

When US money supply measured by M2 stood at $11 trillion in December 2013, I calculate that total broad money of the next largest 50 countries ranked by GDP amounted to the equivalent of a further US$67 trillion at current exchange rates. And that’s only on-balance sheet: we must add in global shadow banking, estimated by the Financial Stability Board to have been an extra $67 trillion in 2011, probably about $75 trillion today, given its recent rapid growth in China. So when we look at US broad money supply, we should be aware there is a further mountain of money thirteen times as big ultimately based on the dollar.

As long as bank lending, industrial investment and consumption are all expanding, the sun smiles. It’s when it stops that problems arise, and why markets reacted badly to the idea of tapering and are increasingly nervous about China’s credit bubble and attempts to rein it in.

More specifically the danger arises from a slow-down and possible reversal of cross-border investment, particularly with emerging economies. Between 2000 and 2007 investment from advanced economies into emerging markets grew at an annual compound rate of about 18%, and between 2008 and 2011 it slowed to about 5% (McKinsey, 2013). The beneficiaries of this investment, global financial assets (all equities, bonds and loans) averaged growth of only 1.9% annually in dollar terms between 2007 and 2011. If we could measure it today the overall return would probably be a big fat zero.

So whatever analysis of individual countries might tell us, it has been easy to miss the threat of a deepening global recession, a risk increased by diminishing cross-border flows. What a time for the Fed and the Peoples Bank of China to decide to reduce the rate of monetary expansion for the two largest economies! These actions are too late to achieve the hoped-for orderly exit from excessive monetary expansion. Continue reading

Co-ops May Increase Worker Life Expectancy

Courtesy of Popular Resistance:

Dave Boyle, a UK-based cooperatives expert, wrote in Economia last March on “the strange re-birth of co-operatives in Britain.”

The article cited research conducted by Co-operatives UK, which documented the superior performance of Britain’s co-ops throughout the recession.


Among the organizations’ findings:

  • 98% of UK co-operatives were still trading three years after formation compared to 65% of traditional companies
  • Since 2008 the UK economy shrank 1.7% while co-ops grew 23%
  • 56% of UK coops are in disadvantaged areas
  • 88% of UK coops seek to minimize their environmental impact compared to 44% of traditional businesses who say they have “taken no action whatsoever”
  • Engaged employees are 87% less likely to leave an organization
  • 85% ‘agree’ or ‘very much agree’ that being a co-operative gives them a business advantage.
  • 85% actively use their co-operative status in marketing

Add to this, being a cooperative owner-employee may even help you live a longer life.

Boyle writes about the findings of David Erdal, author of Beyond The Corporation: Humanity Working. Erdal found that life expectancy for Italian citizens in a town with a high degree of cooperatives was 2.5 years longer than that of citizens in a nearby town without cooperatives.

When Erdal mentioned this finding to a chair at UK cooperative retailer John Lewis Partnerships, Boyle writes, these findings were confirmed—John Lewis’ “partners” (their word for employee-owners”) lived longer than their peers employed by other, non-cooperative retailers. The organization had to revise its actuarial tables. Continue reading

Coordination of the Natural Social Interaction

Courtesy of Sandeep Jaitly @ Fekete

The aim of this paper is to show that the monetary/financial system that develops is a representation of some form of productive social interaction. The monetary system is the consequence, not the cause, of productive social interaction.

Money is defined as that substance which is the ultimate extinguisher of any debt. As a consequence the substance(s) used as money must have perceived value in and of itself. Menger described the iterative procedure by which a substance was promoted to money by the people themselves in ‘The Origin of Money (1892.)’

There is no record of the date at which humanity first gave value to gold and silver because the Sanskrit literature that first referred to them cannot itself be accurately dated. However, we can be sure about the mechanism that resulted in their promotion to the monetary metals courtesy of Menger.

The substance which is promoted to money will necessarily have very high inventory to primary production ratio (also known as stocks to flow ratio.) This arises from the fact that incremental additions to one’s personal holdings of this substance do not affect one’s personal terms of acceptance of this substance. This substance must exist, just as the largest number amongst a set of numbers must exist.

If one arranges all commodities on earth by the stocks to flow ratio, two metallic commodities stick out markedly: gold and silver. The extent by which these two metals differ from the next substance in terms of stock to flow is astounding and testimony to the exceptionally long period of time over which humanity has valued these two metals. There can be no other explanation.

With the monetary substance chosen, the evolution of the financial and payment system – merely a mirror of the natural ‘social interaction’ that arises from the fact of our own existence – can begin.

Economic activity is a base synonym for ‘social interaction:’ the farmer sending wheat to the miller who sends flour to the baker who makes bread for consumption. The crude extractor sending oil to the refiner who sends on refined petroleum distillate to the retail pumps. These are all examples of social interaction. Interaction that is not related per se to the medium used for money. Interaction that occurs by the very nature of our existence. Interaction that must recur for the maintenance of our existence.

A defined amount of the monetary substance is the unit of account of multiple aspects of this social interaction. An extended social procedure stretched over countless millennia itself gave birth to the monetary media, so it is quite clear to see that neither the monetary substance itself, nor the amount in existence, would influence that social interaction.

Social interaction occurs in different ‘forms’ and ‘frequencies.’ For example, the sale of bread by the baker is pretty much guaranteed whereas the sale of the new jet engine to the aircraft company is not. This is an example of differing forms of social interaction.

The construction of an airport takes a different period of time (usually) to the construction of a residential home. This would be an example of differing frequencies of social interaction. Continue reading

The UK’s 2-Tier Economy – London (And Everyone Else)

Courtesy of Zerohedge:

London’s economy may be decoupling from the rest of the U.K. at an accelerating pace. As Bloomberg’s Niraj Shah explains, the capital’s contribution to U.K. output, house prices and financial jobs are all at a record high while the suicide rate is at a series low… while the rest of the nation is ‘not’.

London Contribution to U.K. GDP at Record High


London’s GDP is larger than that of 12 of the 18 euro-area nations. London’s share of U.K. output measured by gross value added rose to a historic high of 21.9 percent in 2011, the latest available data from the ONS show. Scotland accounts for 8.2 percent of U.K. output. One in 28 Londoners is a millionaire, according to wealth analysts Wealth Insight.

Financial Sector’s Growing Dominance


The number of financial services jobs in London rose above the pre-crisis level last year to 688,000, according to lobby group TheCityUK. City jobs are forecast to rise by 2.7 percent this year to 707,500. The financial sector accounted for 21.1 percent of London’s output in 2010. Sixty percent of inner London workers are graduates, compared with 29 percent in northeast England, the ONS says Continue reading