|by Jeff Thomas | May 18, 2015|
Economics should not be an especially difficult subject to understand. In essence, it’s simply the study of how money functions. However, academics, theoreticians, politicians, and financial leaders all stand to benefit if they can manage to complicate the basic principles and muddy the waters of economic comprehension.
No individual has been manifestly more successful at this than the economist John Maynard Keynes. Educated at Cambridge, a bastion of Socialist thinking, Mister Keynes famously published The General Theory of Employment, Interest and Money in 1936, forever changing the world’s perception of economics.
This was quite an amazing feat, especially as Mister Keynes’s goal was not toexplain economics, as had traditionally been the object of the subject; his goal was to distort the study of economics—to confuse economic principles in order to promote socialist concepts.
Socialism had, since its beginnings, been unpopular with many people, as it clearly did not work economically. So, in order to make socialism more broadly acceptable, Mister Keynes, in his book, suggested essentially that, although 2 + 2 = 4, with socialism, 2 + 2 could somehow equal 5.
Mister Keynes recommended that governments control the economy, saying that, in good times, they could tax and regulate the people so that government held the money. Then, in bad times, they could pour that money back into the economy in order to revitalise it. In saying this, he ignored the fact that, historically, free markets tend to be self-regulating—that supply and demand invariably create theirown balance.
Of course, his concept gained the instant approval of all the world’s governments and has held it ever since, as every government would like to control all the money, if at all possible.
Interestingly, just before his death in 1946, Mister Keynes confessed that, in reality, governments, ever dependent upon election cycles, will collect money through taxation and regulation during good times, then immediately spend all of it, then borrow more.
Then, when bad times arrive, the government will not only be broke, but in debt. And, instead of then relieving the economy by going out of business, as any failed business would do, they increase taxation, to keep their own nests feathered. Thus, in bad times, government becomes a country’s greatest detriment to economic recovery.
Back to the present day, we observe both the EU and US governments (and a host of other economically troubled governments) actively pursuing Keynesian economics. As much of the world is presently in the midst of the (still unacknowledged) Greater Depression, politicians in each election cycle, trot out yet another promise for prosperity, always based upon governmental control of the economy—the very same Keynesian concept that created the economic calamity in the first instance.
One year, the promise will be “green shoots.” When that fails to materialise, the next promise will be “shovel-ready jobs,” which also fails to materialise—in every case, because the premise itself was fundamentally, economically unsound.
During downswings in each of these jurisdictions, any government prides itself on declaring, at intervals, that a small percentage of new jobs has been created, in an effort to suggest recovery. They do this in the face of the fact that government employment numbers are skewed to not include those who have given up looking for work.
In addition, anyone who has insufficient work to support himself and his family, but is still employed even one day a week, is counted as “employed.” In the US alone, if all the people who are not fully employed were acknowledged, the present percentage of unemployment would be above 20%.
When an economy is in decline, there are few new real jobs to be had, whilst others continue to disappear. And here is where Keynesianism really comes to the rescue. Since the actual take-home pay of an individual is less important to government statistics than new-job creation, one socialist solution is simply to divide up the existing jobs.
By creating shorter work-weeks—say, thirty hours—many ten-hour jobs open up, and these can be claimed to be “new hires.” Of course, they are improvements only in a statistical sense, as both the thirty-hour employee and the ten-hour employee see diminished standards of living than if a free-market economy had prevailed and both employees may have had the opportunity for forty-hour employment. (This “solution” is now being promoted by the present US government.)
As previously stated, this condition, whilst simple to understand in principle, is hopelessly confused and muddied in practise—a situation that allows it to prevail.
A Practical Lesson
Perhaps it would be helpful to offer, for comparison, a more transparent version of the same condition. From the 1960s through the 1980s, Cuba’s primary export product had been sugar. The USSR was Cuba’s principle customer, paying more than four times the going rate to Cuba for its sugar, in exchange for being a loyal Russian ally.
When, after the collapse of the USSR, the Russians pulled out of Cuba, the Cuban economy, having been based on an inflated product value, virtually collapsed. Large numbers of Cubans, previously employed in the sugar industry, were simply no longer necessary, and Cuba had a problem on its hands.
One attempted solution was the “sharing of jobs” (essentially the same “solution” that is now developing in the US). In the years following the sugar debacle, if you were on a bus, travelling from, say, Havana to Santa Clara, you would have two bus drivers on board for the entire round trip.
One would drive to Santa Clara, whilst the other sat in a seat behind him. On the return trip, the second driver would take over. A pointless exercise that only resulted in a divided paycheque.
Yes, both drivers were now “employed”, but each earned less than he might have in a less socialistic economy. Understandably, nothing improved in any real sense for the Cuban people.
The lesson here is that a socialist government first degrades the free market through over-taxation and over-regulation. Once it has done so and the system is beginning to break down, a socialist government never reverses its policies in the face of failure, it instead redoubles the failed policies.
Having made the pie smaller overall, it then divides up the slices in an effort to maintain the perception that everyone still has his piece of the pie. Unfortunately, that sliver may not be enough to sustain the recipient.
But of course, in socialism, as in governments in general, perception has alwaysbeen regarded as being more important than reality.
As a footnote to the Cuban comparison, it’s instructive to note that, when the Cuban government launched policies like the above-described Bus Driver Economics during the economic crisis that it euphemistically called the “Special Time,” another policy was to limit the expatriation of its citizens to other countries.
As the Special Time grew worse, the penalties for exiting Cuba became more severe. This is another classic symptom of major economic decline—an effort by the government to trap the population from exiting. And not surprisingly, we’re seeing the early stages of this in the EU/US.
As Doug Casey might say, the chances of a people changing a country’s direction from within are “Slim to none… and Slim is out of town.” Socialism, historically, has never ended with a gentle reversal to a free-market system. It invariably ends with further deterioration until the point of economic collapse.
When a country is clearly on the road to socialistic oblivion, the wisest decision might be to get off the bus.
Editor’s Note: Unfortunately there’s little any individual can practically do to change the trajectory of this trend in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s what International Man is all about—making the most of your personal freedom and financial opportunity around the world. OurGoing Global 2015 publication is a great place to start.
Remember all that talk about “taper” last year?
After years of conjuring trillions of dollars out of thin air and rapidly expanding its balance sheet, the Federal Reserve promised to end its unprecedented ‘Quantitative Easing’ (QE) programs.
In total the Fed’s balance sheet exploded from $800 billion to $4.5 trillion between 2008 and 2014. And this wasn’t good news.
A huge balance sheet means that the Fed is overleveraged. It means that they have only a tiny margin of safety in reserve in case there are serious problems in the financial system.
Back in 2008, major banks (like Lehman Brothers, Wachovia, etc.) also had massive balance sheets that were overleveraged, and almost no margin of safety.
When things started to go bad, they all went bust.
So as the Fed spent six years printing money and expanding its balance sheet, they were taking on a substantial amount of risk.
Then in 2014 it supposedly came to an end.
Both Janet Yellen and her predecessor Ben Bernanke promised the world that the Fed would ‘taper’, meaning they would reduce and ultimately eliminate the QE bond-buying programs.
By October, QE officially ended. And the dollar started to strengthen as a result.
But it turns out this was a load of crap.
Every Thursday the Fed publishes its balance sheet for anyone who cares to pay attention, and I track this religiously.
The most recent report showed that last week, the Fed posted a massive increase to its balance sheet– $28.5 billion.
(Most of the increase came from buying mortgage-backed securities– you remember, the ‘toxic’ asset class that blew up in 2008…)
With this huge addition, the Fed’s balance sheet is once again back over $4.5 trillion… within 0.5% of its all-time high.
This is the exact opposite of ‘tapered’. It’s bloated. And dangerous.
The Fed has almost no margin of safety. And if you marked to market the value of the Fed’s assets, they would most likely be insolvent.
Think about the big picture here–
Last week I told you how the FDIC, in its own words, doesn’t think they’re prepared for the next financial crisis. And that major US banks often have razor-thin levels of liquidity.
Now we see the Federal Reserve, once again, has no margin of safety and is effectively insolvent.
And all of this is backed up by the US government that, based on its own financial statements, has a negative equity of MINUS $18 trillion.
This is hardly inspiring.
Most people been brought up to believe that banks are safe. The financial system is safe. The US dollar is safe.
But the objective data here is overwhelming: this system is not safe.
Nobody has a crystal ball… least of all me. It’s possible that things could continue like this for years. Or it could all come crashing down tomorrow. No one knows.
But in the face of so much risk, it certainly makes sense to reduce your exposure.
Hold some assets outside of this system. Own some real assets, whether gold held abroad, overseas property, or a productive business.
Consider moving a portion of your savings to a strong bank in a solvent country abroad.
Bottom line: diversify.
Don’t hold all of your eggs in one basket, especially when that basket is a nation with an insolvent government, insolvent central bank, and over-leveraged financial system.
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SYNOPSIS OF THE ORIGINAL BALLET
INTRODUCTION BY SIMON MORRISON
Prokofiev wrote a detailed, number-by-number scenario of the ballet, dated May 16, 1935, in consultation with Adrian Piotrovsky and Sergey Radlov. It was subsequently vetted by Soviet cultural officials, including Sergey Dinamov and Vladimir Mutnykh, and revised. The original, handwritten document (with the Act IV happy ending) and two typed revisions (without) are found in the Russian State Archive of Literature and Art in Moscow. This synopsis derives from the May 16, 1935 original.
Scene 1: Early morning on a street in Verona. Romeo passes by, pensive, and ignores the maidens seeking his attentions. The mood is tense. After an orange is thrown through a window, servants of the rival Capulet and Montague families begin to fight. The alarm sounds as the violence escalates into a brawl. It is quelled when the Prince of Verona threatens death to those involved in future disturbances.
Scene 2: Servants prepare for a ball at the House of the Capulets. Juliet, just fourteen years old, enters with her nursemaid, who struggles to get her into her gown. The guests arrive, among them the uninvited Romeo, Benvolio, and Mercutio in masks. During a ponderous dance for the knights, Juliet dances with Paris, her intended suitor; she treats him politely and indifferently. Romeo catches sight of her and falls instantly in love, forgetting his unrequited relationship with Rosalind. His closest friend Mercutio enlivens the gathering with a buffoonish dance, after which Romeo and Juliet perform a madrigal. Juliet disentangles herself from Romeo and playfully dashes from the room. Tybalt, meantime, recognizes Romeo as a member of the rival Montagues. Tempers flare. The Capulets escort Tybalt out the door as the guests disperse. Juliet returns to the empty, half-darkened hall, looking for a kerchief that she dropped during her encounter with Romeo. She blushes when Romeo emerges from behind a curtain. They perform an amorous pas de deux, after which the nursemaid appears and advises Romeo to leave.
Scene 1: The public square fills with revelers celebrating the carnival season. Cheerful and animated, Romeo strolls through, preoccupied with thoughts of Juliet. Mercutio teases him while a street dance and procession begin. The nursemaid seeks out Romeo at Juliet’s behest and, after exchanging humorous bows with Mercutio, gives Romeo her ring; the couple is secretly betrothed. Euphoric, Romeo dashes out amid the continuing festivities
Scene 2: Friar Laurence performs the wedding ceremony in his chamber.
Scene 3: Mercutio and Benvolio enter with their companions. The surrounding street dance suddenly halts when Tybalt bumps up against Mercutio. The two stare at each other like bulls. Romeo, fresh from Friar Laurence’s, tries in vain to restore calm. When Mercutio impulsively confronts Tybalt, a duel ensues, ending in the hapless Mercutio’s death. Romeo resolves to exact revenge and battles fiercely with Tybalt until the latter is slain. Recalling the Prince of Verona’s edict, Benvolio wraps Romeo in a cloak and urges him to flee.
Scene 1: The scene shifts from the public to the private sphere. Romeo, about to escape Verona for Mantua, bids farewell to Juliet in the predawn haze of her bedchamber. Upon his departure, the nursemaid warns Juliet that her parents have come to see her with Paris, her presumed suitor. Juliet weeps, then grows hysteric as her father orders her to marry.
Scene 2: Juliet turns for help to Friar Laurence, who suggests she feign her death with a sleeping potion. Once everyone believes her dead, Romeo can spirit her away to Mantua where the two may live in peace.
Scene 3: Juliet disingenuously informs her parents she will marry Paris the next day. With wedding preparations underway, she takes the potion and falls fast asleep in her bedchamber. Paris presents a gift-bearing retinue, with which he intends to greet Juliet before dawn. The gifts include an emerald, carpets, and exotic contraband goods. Juliet’s mother and nursemaid attempt to rouse her. When she does not wake, they conclude that she has died.
Having returned from Mantua to reclaim Juliet, Romeo enters her bedchamber, dispatches the servant, and gazes forlornly down at her. He too thinks that she has died and prepares to stab himself. Friar Laurence enters the room and tries to stop him; the two struggle for control of the knife. The ruse is revealed as the sleeping potion wears off and Juliet begins to breathe. Friar Laurence joyfully sounds the alarm for the townspeople to gather. Romeo first moves to embrace him, then approaches Juliet, carrying her away from the crowd into a space all their own. Friar Laurence directs the attention of the townspeople to the departing lovers. They are now alone. Juliet slowly comes to herself in Romeo’s arms; everything in their movement reflects their emotions.