If you are new to this blog, you are invited to read first “The Largest Heist in History” which was accepted as evidence and published by the British Parliament, House of Commons, Treasury Committee.

"It is typically characterised by strong, compelling, logic. I loosely use the term 'pyramid selling' to describe the activities of the City but you explain in crystal clear terms why this is so." commented Dr Vincent Cable MP to the author.

This blog demonstrates that:

- the financial system was turned into a pyramid scheme in a technical, legal sense (not just proverbial);

- the current crisis was easily predictable (without any benefit of hindsight) by any competent financier, i.e. with rudimentary knowledge of mathematics, hence avoidable.

It is up to readers to draw their own conclusions. Whether this crisis is a result of a conspiracy to defraud taxpayers, or a massive negligence, or it is just a misfortune, or maybe a Swedish count, Axel Oxenstierna, was right when he said to his son in the 17th century: "Do you not know, my son, with how little wisdom the world is governed?".

Friday, 26 November 2010

"I would recommend you panic" *

The world is going crazy. Americans are printing dollars Treasury papers (and keep getting into deep debt) to sustain whatever is left of their once top lifestyle. Chinese are buying them in order not to let the dollar fail (at least for now). Chinese are pushing whatever they can of this money mountain out acquiring whatever they can in terms of influence, assets, commodities (and rights to them). This mountain overall keeps on growing. In terms of mechanism we are really dealing with the world money circulation system being turned into a global mega version of Lehmans.

At one point, in the same way as commercial banks refused to roll over Lehmans debt in September 2008, China will refuse to roll over US debt. And the whole system will collapse. This will leave China with still a massive real wealth of assets and possibly notionally even bigger mountain of the US T-papers worth as much as Lehmans shares, ie nothing. I think China already accounted this notional loss as clearly this is the way to finish off the US financially and acquire real wealth globally (influence, assets, commodities and rights to them). This is a war in all but name. The US is defenceless unless it uses real weapons. Quite scary.

The US, for political reasons, cannot stop this process itself. The question is what will happen in the US (or how is the US going to react) if China stops this process or it is simply stopped as such a mechanism cannot run to infinity. (If anything the computer power is limited and ultimately such process is bound to collapse for strictly technical reasons, e.g. lack of sufficient memory or processing power for financial transactions.)

This is crazy: on one side financial institutions' executives caught the national budgets by their throats. The queue of countries waiting to be 'rescued' is long (and includes the UK). Today Portugal seems to have got into a 'rescue' mode (following Greece and Ireland). On the other side China got by the throat the US financial system which is an ultimate foundation of the global financial system.

What will happen when China does not buy another tranche of the US T-papers (because it will refuse or... the financial computer system will collapse)? How is the US going to react? I think, the sheer scale of money involved and the past history teaches us that it will be a very sad, if not dramatic, end.

It is clear that the politicians do not understand the scale of what is going on and that it is getting worse. Thus far every 'significant' government decision (like the recent public spending cuts in the UK) for the last 2 years has always been heralded the beginning of the recovery. And as expected, it always got worse. The reason is that the fundamental cause behind this crisis, too great money multiplier, is not getting any smaller. This crisis is NOT a debt crisis. Debt is only a manifestation of the real cause of this crisis: too high money multiplier, that looks on the outside like a debt crisis. It is like pneumonia of an AIDS sufferer. Indeed it is pneumonia but the AIDS is an underlying problem. Why politicians, the mainstream media and pundits still do not get it seems rather impossible to tell.

* - a quote from Hugh Hendry interview

Wednesday, 17 November 2010

Irish crisis: why British government cut public spending

The ongoing financial farce in Ireland shows with crystal clarity why Britain was "persuaded" by the, so-called, "financial markets", pundits and all sorts of experts to cut the public spending. If British kept on spending as much as they used to it would not have enough money to rescue Ireland. The UK would have been on the financial edge itself. According to the Bank of International Settlements in Basel the UK banks' exposure to the Irish debt is 222.4 billion euros (page 16 of the report). If Ireland is bailed out, in fact, it will be British financial insitutions that will be bailed out too. Without having made the spending cuts a few months ago Britain would not simply have money to do so. Hence the UK banks would have ended up in a very deep trouble (if not bankruptcy). To summarise the whole saga (which shows the, so-called, "financial markets" modus operandi):

- first Irish banks were run out of money, thanks to a pyramid scheme that was operated, and ended up in a deep financial trouble; Ireland was "persuaded" to make deep cuts to rescue them; i.e. banks' debt was propagated as the country's debt;

- after everything was squeezed out of Ireland itself its rating was downgraded in order to generate even greater liabilities of Ireland towards the, so-called, "financial markets";

- then countries like the UK, Germany were persuaded by the, so-called, "financial markets" to make cuts in order to create a budgetary room to pay more to the, so-called' "financial markets";

- now Ireland has been "attacked" by the, so-called, "financial markets"; Ireland is simply a conduit to squeeze other countries (like Britain, Germany) that are tied to the Irish debt and make them keep paying to the, so-called, "financial markets".

- after Ireland is "rescued" the, so-called, "financial markets" will continue operating according to this modus operandi; there are more countries in a queue waiting to be "rescued"; the, so-called, "financial markets" will decide the timing.

Is this a conspiracy? No, it is not. This is how, so-called, "financial markets" work. This what the City and Wall Street are really all about. (The rest is simply a pretty transparent smokescreen creating a pretence of legitimate business. Like some Greek restaurants operating, in fact, as illegal cassinos.)

The author of this blog described this mechanism well over a year ago. It is well known to governments, policy and decision makers. The, so-called, "financial markets" are so primitive in executing it that any half intelligent and quarter competent financial observer picks it up immediately. This is, in fact, the very same mechanism that typical loan sharks use to extort money from their victims: tie them up to debt, then set the rules that the debt is ever increasing, persuade them to save on everything, borrow from others and work harder in order to increase payments to loan sharks (these days called: "the financial markets"). Simple and primitive, inni't?

If the British government believe that by making cuts, in the way they do them, they will lead the country to recovery and prosperity, they either do not understand the causes behind the current crisis or are actually working for the interest of the, so-called, "financial markets" (for example, hoping to get a job in the City and get spolis of their actions). Or both. The obviousness of that behaviour defies belief. Or maybe one of blog readers can offer a better explanation? There is a way out however: "Prime Minister, sort out this mess, please". It is not that difficult but it requires really tough decisions (including prosecuting the financial fraudsters and liquidating the pyramid scheme).

Friday, 12 November 2010

US-Sino Currency Rap Battle

(by Next Media)

Thursday, 4 November 2010

Currency wars: where will it end?

The current financial crisis put a huge question mark on the credibility of the major currencies. The rounds of massive quantitative easing - printing of trillions of dollars - of unpredictable consequences, major banks balance sheets crisis, sovereign debt crisis and so on. In the midst of it the economic prospects of the US and the EU still look gloom as there is no apparent revival trend that would lead to a sustainable growth. All the governments are doing looks like life support of the dead corpse of the financial system rather trying to stimulate the economy. No wonder, as the financial system was turned into a giant pyramid scheme it keeps on collapsing. And it will keep on collapsing until the pyramid is liquidated. The currencies such as the US dollar, Euro, the British Pound are in fact such a pyramid scheme vouchers.

The recently proclaimed currency wars underpinned by the current US initiative of quantitative easing, kind of a major fiscal offence, are likely to result in further undermining of the major currencies. In fact it is likely to further undermine the world financial system as we know it which is based on fiat money where currencies represent the credibility and financial worthiness of economies they represent. As currencies are used so crudely as financial weapons their credibility as a value store will soon be gone. So what next?

There are economies and businesses in the world that generate profit. They need to store value in a credible way. If the major currencies lose such a role the natural way will be a come back to a barter-type economy. Buying commodities, land, etc. and trading it. It looks likely it will go in this direction but the system will be managed in far more refined manner rather than a typical barter of a gone by age. The obvious candidates would be virtual currencies. Each of which would represent a basket of commodities agreed by parties to a transaction. The obligation to pay a bearer would not be in any currency but in a basket of commodities. However, one can expect, that typically a payment would be accepted by a receiving party in some currency - or currencies - equivalent at the time when it is settled. Technically there is no limit to a number of such currencies: a new one may be created for the purpose of a new transaction. However one can reasonably expect a good degree of standardisation, i.e. a major 3 - 5 virtual currencies, commodity baskets. This would facilitate trading between them and trading between the contracts based on them. In fact China's massive multibillion dollars commodities-for-cash deals are good early examples that such a system is already emerging.

Virtual currencies would be inflation immune within the commodities they represent. They would be durable and non-perishable as they will not be actual commodities but rights to get them on demand when a contract representing a particular currency is settled (i.e. value is exchanged). Such model should be quite appealing to countries like China and India whose development depends to a large degree on the access to commodities. It should also be appealing to commodities producing and trading countries as they would not be dependant on a very uncertain fate of the US dollar (a major, by far, current commodity trading currency). And as a value store, virtual currencies would always store a real value despite the fact that there would always be a risk of a commodity going up or down against the others. After all, this might not be such a big revolution: ultimately it may lead to re-basing the national currencies, turing a full circle from abandoning de-based and worthless paper money and going through a modern form of bartering. This time round not strictly currency based on gold but on various commodities baskets. However there could be a lot of bumps, or worse, along the way.