Steve Keen: The Deliberate Blindness Of Our Central Planners

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aggrivated-

Since gold, the oil trade has backed the dollar.
I do think its all connected.  Here are my steps:

  1. Over at AE, Stoneleigh likes to say that "oil is liquid hegemonic power."  (Is LENR a threat to this?  I think it is)

  2. CAF says that the USD's underlying strength comes from US military capability.  I think, its necessary but not sufficient.

  3. I say, USD is essentially backed by what you can buy with it.  Part of US overall valuation is military strength, part economic/resources/educated population.

  4. Martin Armstrong says, US is a safe haven because there is nowhere else in the world that big money can come and park without moving the market dramatically.  I agree.  Adds to USD strength.

Since US military power is in essence dependent on oil, the USD is backed by oil as well.  Not directly from the standpoint of "oil must be priced in dollars or else we're going to kick your butt", but from the standpoint of controlling the sea lanes - both positively and negatively.  The US sub fleet can sink tankers as well as anything on earth.  Keeping the world dependent on oil, much of which travels by sea, is very useful.

So oil and the USD are tightly connected for sure.

The whole concept of "oil trade must be conducted in dollars" is another myth.  My opinion.  Easy enough for buyers and sellers of oil to swap dollars into a currency they would prefer after the trade - or to engage in a side deal where the price in in USD, but the actual exchange takes place in another currency.

If nobody wanted to hold dollars, they simply wouldn't - at least not longer than it took to make the oil trade.  And no military assult could/would stop that from happening.

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I wonder if the link oliveoilguy posted above where James Turk predicts a Greek bank bail-in (maybe even this weekend) is gaining attention?

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is the result of something else.  It is their Achilles heal, but perhaps it is the desire take their controlling entities (banks) out of the equation of economic causality so an angry public will never try to reform them out of existence.  They have long since learned their power lies solely in the control of public perception. In this case non-perception.  You cannot fight against what you believe not to exist.  The best form of slavery is to convince people that they are free. Hence the vehemence of the absurd arguments.  If something quacks like a duck…   We know these guys are not stupid, I am not buying the institutional blindness based solely on the compulsion of adhering to an economic theory. The desire for power and control has created a different kind of blindness.

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SP-
My sense: this is the shoe-not-dropped from the NFP release on Friday while market was closed.  It was a bad NFP release - drives the dollar down, and gold up.

"Yellen won't raise rates with bad Nonfarm Payrolls reports coming out"

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 This year Easter weekend is one week before the Orthodox Christians celebrate that event. Was Turk specific in his preditions?

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Thanks for the podcast Chris.
I would be interested to hear Steve explain where he disagrees with Austrian economists should you get a chance to interview him again. He always starts off sounding like any Mises institute economist but then gets into a confused (to me) conclusion that having objected to wisdom of central planning the solution is a different kind of central planning. It seems to me that the Austrian economists clearly address his objections to the current economic orthodoxy and his solutions will only compound confusion upon confusion in the monetary order.

On a pragmatic note, I always find it surprising that those who are most aware of the inflationary tendency of our monetary system tend to be deflationists. Austrians seem to have a permanently bearish view on everything (except gold).  Listen to Doug Casey in 1981 being interviewed. This could have been you interviewing him today… but he could not have bee more incorrect and you note he is saying exactly the same thing today, no admission of major error. Just listen to his advice to the widow and how she should put it all in silver.

 

 

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https://www.youtube.com/watch?v=easuUdhW4X0
I suspect that the kinds of reader of this blog would have been keen listeners in 1981 of this interview as well. Worth a full listen to ask yourself why you wouldnt have listened to his shocking advice then, but you would today. 

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prax-
Thanks for the video ref.  Its a fascinating look at history.  Best selling book right there at the top of gold back in 1980.  And he thought he was espousing some sort of contrarian philosophy.

People in the comments section say "he was right, just his timing was off."  Here's the thing.  If you are an investment advisor, and your timing is off by 30 years, that's not just "being wrong", its being horribly, horribly wrong.

If you are that wrong, for that long, there is something fundamentally incorrect in the way you view the world.  That is an opportunity to go back to the drawing board and figure out what it is.   That's certainly what I had to do.

The good news is, he got a nice lesson in humility from the 20 year gold bear market that followed.  I suspect he's more reasonable now than he was then.

Regarding Keen-

He's not a goldbug or Austrian - my sense.  He just faults classical economics that ignores banks, debt and money.  He's also big into constructing computer models that he then uses to try and replicate what really happened in the economy as a way of exploring the validity of his assumptions.

It could be that he thinks there is a role for central planning, just that such planning should definitely be informed by models of the economy that actually map to reality, rather than the faulty models in use today.

If you listen to his lectures, you may notice that Keen doesn't mind fiat money, he just wants much stronger controls over banking, given how critical of a role they play.  He also sees a role for government too, for counter-cyclical spending action during the inevitable down cycle.  Lastly, he provides what he feels is a way out (the Debt Jubilee) which I think is intriguing but I'm not certain about all the implications of his plan - or if it could realistically be executed.

I sure like his approach a lot better than "try 6 years of austerity, Greece…I'm sure it will all work out someday…"

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Tom-
I think parallel money systems are exactly the right solution, but the problem is twofold: counterfeiting, and the exchange rate.

Because gold is so darned expensive, counterfeiting gold coins is a real issue if they will be used at retail, say.  Basically, they are thousand-dollar bills.  It would probably be an issue for thousand-dollar bills too, if we had them.  If inflation picks up, someday we might have them too!

Second, what do we write on the coin?  One Thousand Dollars?  What's the coin worth?  If gold price floats vs the dollar, that makes most economic sense, but then how can a person know from day to day what that coin will end up being worth?  Either everyone knows the current gold-USD exchange rate, or we set a peg.

And if we set a peg, there are always the problems with actually keeping that peg.  So it really needs to float and have an exchange rate.

And if it has an exchange rate, it is basically like a foreign currency, which tend to move around - just like gold does now.  And if there is a float, there will generally be a bid/ask spread, to compensate the receiver for risk.  But since everyone has phones and apps these days, having everyone know the current rate seems pretty easy.

It reminds me of what I saw in Vietnam when people used both dollars and VND in parallel.  There was an exchange rate which pretty much everyone knew, but it was approximate.  $1 = 16,000 VND, at least back then.  ($1 = 21,500 VND today; now we see why they like dollars).  Cambodia has much the same thing.

It did actually work.  I met someone in Vietnam who had a small business in forex conversion; he'd get dollars from the street vendors and go off and convert them all to VND in bulk, and make a profit on the spread.

It would make accounting for business a bit more complicated.  At retail, you'd have to add in "gains and losses from gold exchange" as a line item on the P&L.  Not the end of the world.  Your bank would also have a rate it uses for deposits, changing during the day.

In Thailand, at the gold shops, they paint the current gold bid/ask price on the window of the shop in the morning, and as it changes during the day.  Spread is typically 100 baht ($3) vs a current price of 18,500 baht, or about 0.5%.  If you sell them a 5-unit gold bar, you end up losing 500 baht on your 92,500 transaction, which is a lot better deal than you get in most US coin shops.  The shop only gives you that rate for gold bars they fabricate.  Its not a parallel currency in Thailand, but it is relatively close.  The bars don't circulate - the Thais pretty much expect everything above a certain value to have a high risk of being fake (gee I wonder why?) so there's no way some merchant would just accept a gold bar.  A prospective buyer at retail would have to run off to a gold shop to get currency and do the swap first.

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Thanks Dave.  I agree that parallel currencies would be an ideal, though not perfect, system.  It would certainly be better than anything we've tried before.  The complexity and imperfections in such a system would be a small price to pay for the stability and predictability it would offer. And the best feature would be the anchor that the precious metals would provide on the fiat currency.  Things would only be allowed to get out of whack so far before "the market" would start making its displeasure and distrust of the fiat known.

Second, what do we write on the coin?
That doesn't seem so difficult, even for the average American who doesn't think much about these things. Just state the pure metal content in the coin: 1 gram pure gold, 0.1 oz pure gold, 1.0 oz. pure silver, etc.  Then the buyers and sellers would just have to come up with a quick and easy way to convert that amount of metal into today's (or this second's) fiat dollar value.  Products and services for sale would soon come to be priced in fiat dollars and ounces of metal, or if the seller insisted on one form or another the buyer would have to bring that form of payment or exchange it at the business, if allowed.  My guess, though, is it would be simplified even more once we were up and running.  I imagine people would keep their actual gold and silver safe at home or in a custodial account at some appropriate business (NOT a fractional reserve bank) and only access it to get some spending money (fiat dollars).  There would also be more businesses like "Goldmoney" where you use an electronic debit/credit type card to access the gold and silver in your account (where you would be charged for the service and the business would be required to keep 100% of your metal in actual, physical storage).

The "Goldmoney" approach using electronic transfers for payments would go a long way toward dealing with the counterfeiting issue.  Actual gold and silver coins would be used fairly rarely in hand to hand transactions once such payment services were widespread and well understood, except perhaps by old  dinosaurs like us who just like the "feel" of the actual metal and distrust computers .

I believe a constantly floating price system would have to be the way to go as pegs have in history been shown to be a major problem, whether too high or too low or not flexible enough.  The constantly floating peg would also be the needed mechanism for the precious metals to provide the crucial anchoring effect on the fiat currency, and the politicians and bankers who prefer to abuse their power over it.

OK. Now that we have decided a parallel currency system incorporating fiat dollars and gold/silver would be the ideal system, what can we conclude?  We can scratch it off our list of what's possible in this current reality because it makes too much sense!!   Actually, everybody who is able to rape the public using the current fiat system would be against such a system because it would destroy them.  The politicians and financial elite would fight (ARE fighting) this to the bitter end, because we either wouldn't need them anymore or they would have to transform from our masters/owners into our public servants.  Ya, right.  But maybe the coming Crash will give us a brief window of opportunity in which our masters/owners are devastated and allow us to step over their corpses to create this better system.  We can always hope.  In the meantime, as the looming final battle draws closer, I stand with Catniss Everdeen when she warns the overlords: 

https://www.youtube.com/watch?v=qnmSzD6x4tc

Tom

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Here's my suggestion: link GoldMoney (or bullion vault, etc) up to the ATM system, where you can just get cash and or make normal electronic payments which automatically sell your holdings at whatever the current market price happens to be.
Heck, if I can get ATMs to spit out money in all these foreign currencies using my USD bank account, why not be able to do the same for gold money/bullion vault/etc?

Perhaps they already do this.

Gold really is like a foreign currency.  As a result, there will be some friction during conversion.

Unless the buck blows up thoroughly, I don't see us having things priced in gold at retail.

 

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Lets see. The US has the privilege of printing money and yet you are all poor. Something is fishy. So where did the money really go?
It looks to me that I have been wrong. Completely wrong. 

Think about it. The entire 53 Trillion buys a lot Lamborghinis. No- All that money did not go to the mythical top 1%.

As further evidence that History is arranged to support the observation, it has arranged for the entire wealth of the planet to be funneled into leaving.

The planet.

Let one smart cookie explain the finances. No Prof Keen , the financial engineers are not stupid. They have a goal that you are unaware of.

Catherine Austin Fitts at the Secret Space Progra…: http://youtu.be/w0mimIp8mr8

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Yeah. It took me a couple of goes at CAF's video before her talk sank in. She goes very fast. Did you get the part where she said that the wealth had been deliberately moved out of the US?
One small itty-bit concern. Why is she still talking? Why did They allow themselves to be defeated by a mere court ruling? Why even bother to allow her to take the issue to court, when they have other means of shutting her down?

I need an explanation of this fact before I can move the Bead of Certainty closer towards 98%.

EDIT: Of Cause.!! It is a Kludge. History and physics are full of them in order to support the Observed Reality.  My grasp of this philosophy is still new and tenuous.  I shall need a few more examples before it becomes intuitive