Modern economics is not rocket science. In fact, it's not
science at all. It's a game, a confidence game. Once paper
passed for money, economics became an elaborate shell game
designed to hide the fact paper had been substituted for silver
and gold. Debt ratings are an attempt to quantify confidence
in paper assets and are an essential part of the game. The
shell game is called "Where's The Money?" The answer
is simple, it's not there.
The question "where did the money go during the Great
Depression?" has now been answered to my satisfaction.
During the Great Depression, money essentially disappeared
and, as a consequence, consumer and business demand collapsed
as did prices, beginning a downward coreolis-like spiral that
was to suck the global economy into an economic black hole.
My study of the Great Depression began in the 1990s and the
subsequent collapse of the dot.com bubble provided a real-time
corroboration of assumptions about the connection between
loose credit, excessive speculation, and financial bubbles;
and, now, in 2008, one of my most troubling questions about
the depression has been answered - where did the money go
during the Great Depression?
Plunge In US Commercial Property, an article by Daniel Pimlott
posted on FT.com (Financial Times) May 21, 2008 provided a
Commercial property prices in the US in February saw their
sharpest decline since records began nearly 15 years ago as
sources of finance for deals has dried up, according to data
from Standard & Poor's out yesterday.
The value of commercial buildings fell 1.03 percent between
January and February, the largest monthly decline since at
least 1993, when the industry was just emerging from a deep
The fall in national property prices comes as banks have
retrenched on lending due to credit crisis and the slowing
economy, causing the volume of deals to slow sharply. The
market for commercial mortgage-backed securities, which until
last August was a major route to cheaper borrowing, has largely
ground to a halt.
Sales of commercial properties were down 71 per cent in the
first quarter compared with a year earlier, according to data
from Real Capital Analytics.
The fact that sales of US commercial real estate fell an
astounding 71 % from 1st quarter 2007 to 1st quarter 2008
is shocking and the implications are quite serious. The cause
of the slowdown, however, provided the very clue I was seeking.
Commercial property prices in the US...saw their sharpest
decline...as sources of finance for deals has dried up...
as banks have retrenched on lending due to credit crisis...
DURING THE GREAT DEPRESSION - MONEY DID
NOT DISAPPEAR - CREDIT DID
The answer to: Where did the money go in the Great Depression?
is found in the metaphor of the shell game. It is now clear
that money didn't disappear during the Great Depression, credit
The money was never there in the first place. Money had been
replaced by credit in the shell game introduced by the Federal
Reserve in 1913 when the Federal Reserve began issuing credit-based
Federal Reserve notes in place of the savings-based money
from the US Treasury.
For details on how the shell game is run, Professor Antal
E. Fekete's description of the check kiting scheme between
the US Treasury and Federal Reserve provides crucial information
for those perhaps wishing themselves to live off the earnings
It is epitomized by an elaborate check-kiting conspiracy
between the U.S: Treasury and the Federal Reserve. Treasury
bonds, contrary to appearances, are no more redeemable than
Federal Reserve notes. It's all very neat: the notes are
backed by the bonds, and the bonds are redeemable by the
notes. Therefore each is valued in terms of itself, rather
than by an independent outside asset. Each is an irredeemable
liability of the U.S: government. The whole scheme boils
down to a farce. It is check-kiting at the highest level.
At maturity the bonds are replaced by another with a more
distant maturity date, or they are ostensibly paid in the
form of irredeemable currency. The issuer of either type
of debt is usurping a privilege without accepting the countervailing
duty. They issue obligations without taking any further
responsibility for their fate or for the effect they have
on the economy. Moreover, a double standard of justice is
involved. Check-kiting is a crime under the Criminal Code.
That is, provided that it is perpetrated by private individuals.
Practiced at the highest level, check-kiting is the corner-stone
of the monetary system.
GOTTERDÄMMERUNG The Twilight of Irredeemable Debt,
Antal E. Fekete, April 28, 2008
THE STUDY OF MODERN ECONOMICS IS SIMILAR
TO THE STUDY OF RELIGION IN A TIME OF IDOLATRY
In the shell game of modern economics, credit replaces money
and when credit gives rise to speculative bubbles, the collapse
of those bubbles leads to the defaulting of debt which causes
credit to disappear and the economy to collapse.
The credit based shell game, however, is nearing its end.
The historic credit contraction that began in August 2007
is still in progress. Despite the efforts of central bankers,
credit is still disappearing and, just as in the Great Depression,
the credit contraction is continuing to spread causing more
and more debt to default.
Credit, the fertilizer of human debt, when no longer available
effectively spells the end of the legalized shell game masquerading
as modern economics; but the kreditmeisters, their global
confidence game now damaged by an unexpected lack of confidence
on the part of the marks, sic investors, however, will not
give up their scam easily.
THE CONUNDRUM OF THE KREDITMEISTERS
Those running the shell game, the central bankers and their
codependent brethren, investment bankers, are terrified of
losing their day jobs, They have lived well for three hundred
years (since the establishment of the Bank of England in 1694)
leveraging the productivity of others and we can be assured
they will do everything in their considerable power to keep
their lifestyle intact..
At this time the central bankers are collectively engaged
in financial triage as they attempt to replace the credit
that is rapidly being withdrawn in the face of ever increasing
amounts of defaulting debt.
Following the same play book they used in the aftermath of
the dot.com collapse, the Fed has quickly cut rates from 5.25
% to 2 % but this time they will not ignite a housing bubble
as they did the last time. This time, they will do worse.
This time, they will burn down the house.
BURNING DOWN THE HOUSE
In the long run, there is no short run
In retrospect it will all be clear, the mistakes, the reasons,
the excuses, the results. Now, however, in the beginning of
the collapse, events appear more problematic, the outcome
still unknown. Nonetheless, even in the fog of unexpected
events, certain things can be known and safely predicted;
and, one of them is that we are now on the road to hyperinflation.
Appointing "Helicopter Ben" Bernanke to head the
Federal Reserve now is akin to sending Sammy the Bull, the
mafia hit-man, to negotiate with the Palestinians and Israelis;
and when the news comes back that Sammy the Bull shot and
killed the Palestinians and Israelis at the negotiating table,
we should not be surprised - just as we should not be surprised
that Ben "the printing press" Bernanke is erring
on the side of excess in the current economic crisis by providing
even more credit, by shoving even more debt based paper into
now a burning house.
WHEN A HOUSE OF PAPER MONEY BURNS
Hyperinflation is to inflation like pneumonia is to a cold.
Though similar, the former is much more consequential; and
whereas pneumonia can sometimes kill, hyperinflation is a
veritable death sentence. Hyperinflation always ends in the
total destruction of paper money. In hyperinflation, the value
of paper money reverts to its mean - ZERO.
The past is indeed prologue when it comes to humanity, printing
presses, and the recurrent desire of governments to turn paper
into gold; which through the alchemy of central banking is
possible - though only for a limited time.
While central bankers and governments do not intend to cause
hyperinflation anymore than drunk drivers intend to crash,
they are nonetheless responsible for the decisions that lead
to hyperinflation and deflationary depressions.
The United States has experienced high rates of inflation
in the past and appears to be running the same type of fiscal
policies that engendered hyperinflations in 20 countries over
the past century.
Professor Laurance Kotlikoff, Federal Reserve Bank Review
St Louis July/Aug 2006
The US is the largest economy in the world and the US dollar
is the world's reserve currency. Its central bank, the Federal
Reserve, is the most influential, and Ben "the printing
press" Bernanke is its chairman. We should not be surprised
at what is now going to happen to the US, the US dollar and
the world economy.
As the Fed is busy bailing out international investment banks
with America's money, we should be more concerned with what
is going to happen to us; because when the US dollar goes
up in smoke, the US economy will go down in flames and the
world economy will stumble badly, if not collapse completely.
Hyperinflation will destroy both the US dollar and the US
economy and the world will not be unaffected. Professor Kotlikoff's
warning about a US hyperinflation was published in 2006; and,
now in 2008, US printing presses under Fed chairman Ben Bernanke
are running faster than they've ever been run before.
HYPERINFLATION IS LIKE STEPPING OFF A CLIFF.
YOU ONLY EXPERIENCE IT AFTER YOU'VE GONE TOO FAR
Friedrich Kessler, a law professor at Harvard and at Boalt
Hall UC Berkeley described the onset of hyperinflation during
the Weimar Republic in Germany.
It was horrible. Horrible! Like lightening it struck. No
one was prepared. You cannot imagine the rapidity with which
the whole thing happened. The shelves in the grocery stores
were empty. You could buy nothing with your paper money. From
Fiat Paper Money, The History And Evolution of Our Currency
$28.50 by Ralph T. Foster, email@example.com (510) 845-3015
This book, a primer on the end game, is everything you wanted
to know about fiat paper money and were too afraid to ask.
At Session III of Professor Fekete's Gold Standard University
Live in February, I discussed the possibility of a sequential
or simultaneous hyperinflationary deflationary depression,
the economic equivalent of having both a severe heart condition
and a possibly fatal cancer at the same time. Such is not
impossible; in fact, it is increasingly likely.
I highly recommend the thorough and studied analysis of hyperinflation
and concurrent possibilities in John Williams' Hyperinflation
Special Report, Shadow Government Statistics, Series Issue
No. 41, April 8, 2008, http://www.shadowstats.com/article/292.
John Williams also references and recommends Ralph T. Foster's
Fiat Paper Money, The History And Evolution of Our Currency
The critical question should now be asked: What can we do?
THE PARACHUTE OF GOLD AND SILVER
JUMPING OUT OF UNCLE BEN'S SPUTTERING HELIPCOPTER
The following is from The Nightmare German Inflation, Scientific
Market Analysis, 1970, which describes the extreme hyperinflationary
conditions during the Weimar Republic in the 1920s:
The ones who fared best were the small minority who had the
foresight to exchange marks into foreign money or gold very
early, before new laws made this difficult and before the
mark lost too much value.
The difference between 1920s Germany and today is that there
are no longer any currencies convertible to precious metals.
In the 1920s, when hyperinflation destroyed the German mark,
other currencies were still tied to gold. Today, this is no
longer the case. Today, only gold and silver will offer guaranteed
monetary refuge during the coming crisis.
A hyperinflation is a monetary phenomena caused by the rapid
printing of money not convertible to gold or silver. The inflation
of the paper money supply happens gradually, but hyperinflation
is itself a sudden-onset phenomena. Suddenly and unexpectedly,
inflation becomes hyperinflation and unless you are already
prepared, it is already too late.
Today, we are moving closer to the end game, the resolution
of past monetary sins when the banker's shell game is exposed
for what it is - a monetary abomination, a parasite on the
economic body that over time kills the host on which it feeds.
Be aware. Be careful. Be safe.
Note I: I now have a blog, Moving Through The Maelstom
with Darryl Robert Schoon. My first blog discusses the underlying
reasons for our increasing series of crises.
Note II: I will be speaking at Professor Antal E.
Fekete's Session IV of Gold Standard University Live (GSUL)
July 3-6, 2008 in Szombathely, Hungary. If you are interested
in monetary matters and gold, the opportunity to hear Professor
Fekete should not be missed. A perusal of Professor Fekete's
topics may convince you to attend (see http://www.professorfekete.com/gsul.asp).
Professor Fekete, in my opinion, is a giant in a time of small
About Darryl Robert Schoon
In college, I majored in political science with a focus on
East Asia (B.A. University of California at Davis, 1966).
My in-depth study of economics did not occur until much later.
In the 1990s, I became curious about the Great Depression
and in the course of my study, I realized that most of my
preconceptions about money and the economy were just that
- preconceptions. I, like most others, did not really understand
the nature of money and the economy. Now, I have some insights
and answers about these critical matters.
In October 2005, Marshall Thurber, a close friend from law
school convened The Positive Deviant Network (the PDN), a
group of individuals whom Marshall believed to be "out-of-the-box"
thinkers and I was asked to join. The PDN became a major catalyst
in my writings on economic issues.
When I discovered others in the PDN shared my concerns about
the US economy, I began writing down my thoughts. In March
2007 I presented my findings to the Positive Deviant Network
in the form of an in-depth 148-page analysis, "How to
Survive the Crisis and Prosper In The Process."
The reception to my presentation, though controversial, generated
a significant amount of interest; and in May 2007, "How
To Survive The Crisis And Prosper In The Process" was
made available at www.survivethecrisis.com and I began writing
articles on economic issues.
The interest in the book and my writings has been gratifying.
During its first two months, www.survivethecrisis.com was
accessed by over 10,000 viewers from 93 countries. Clearly,
we had struck a chord and www.drschoon.com, has been created
to address this interest.