Barnhardt: On Money, Banking, And Men


From Ann Barnhardt:

ON MONEY, BANKING AND MEN (1 OF 3)
POSTED BY ANN BARNHARDT – FEBRUARY 29, AD 2012 11:22 PM MST

If you know how bad the situation is and don’t feel the need to subject yourself to any more of my patented Barnhardt Phillipic and Funeral Dirge for Civilization, take your leave now, because I honestly think that this is the the saddest, most profoundly depressing post I have yet written.

And I’ve written a few.

A few thousand.

The topic is the US Dollar, and currency in general. The Federal Reserve has been willfully and systematically debasing the US dollar for a century by claiming that 2% inflation is the benchmark of a healthy economy. Since the universities and media have been overrun by Marxists, there is hardly anyone alive who A.) is in possession of the capacity to independently think and reason their way through such a question and B.) anyone who cares in the first place.

In addition to the slow grinding debasement by the Fed, the Marxists have finally fully usurped and overthrown the government of the United States, and thus have now executed the coup de grace: wild, flagrant money “printing”, and by “printing”, please understand that we are not talking about the fabrication of paper bills. We are talking about computerized entries into the Federal Reserve’s ledger. The Fed literally types in an addition of x billion or y trillion dollars into its balance sheet – creating dollars out of thin air that exist as zeroes and ones on a computer server – and then use those new dollars to purchase US Treasury bonds. In this way, the Obama regime and its puppetmasters have debased the US dollar by roughly one half the total GDP in less than four years. This iteration of both the United States and the US Dollar are over. There is no way to walk back the damage that the Obama regime has done. They have accomplished their mission, no matter what happens from this day forward.

After reading and reviewing my texts on monetary theory from Mises, Hayek, Friedman and contemporary economists including Denninger, I have come to a profound realization about money and the fiat vs commodity money (i.e. gold-backed currency) debate – and it bodes very, very poorly for us.

First, a few preliminary points.

1. Going to a gold standard will solve nothing. This is not to say that I don’t think that gold and silver are good wealth storage vehicles in this situation. To the contrary, I think they are excellent for these times. BUT, simply reverting to the gold standard, in and of itself, will not turn us around. We will, at some point, be FORCED to revert to the primordial commodity currency paradigm simply because our government and society will collapse, and thus our currency with it. If and when our culture rebuilds itself, if we remain as we are, the exact same problems that have arisen under the fiat money system will emerge again, even under a gold-backed currency.

So why has civilization, up until just within the last few decades, operated on commodity money systems, and why is it plausible to think that any fiat currency could ever have any legitimacy? The reason why civilization has used commodity money, namely gold and silver, up until just recently is because up until just recently, there was no way to instantly verify money held on deposit, or the existence of a line of credit. With computers and the internet, such instant checks are as common as breathing, blinking and walking. We don’t even think about it anymore. We go to the sandwich shop, get our sandwich, and in less than three seconds, the vendor has confirmed that we have funds, and then transferred those funds into his account. In the centuries and millennia past, people would load chests filled with gold coinage and jewels onto sailing ships and set out for distant lands. Why did they take their gold and jewels with them and risk losing that money to shipwreck or piracy? Because they had to take it with them. The only way to confirm your wealth to others was to physically possess it. Physical possession and spot exchange was also the only way to execute mercantile transactions. If we lose telecommunications and computing ability due to the successful detonation of an Electromagnetic Pulse weapon, or simply due to the total breakdown of society and the ability to maintain and power such systems, then indeed, this argument will become moot. BUT, so long as there is near-instant data transmission, commodity money will be theoretically optional (*with a qualifier to be addressed later in Part 3).

While we are looking at history, it bears mentioning that metals-backed currencies have not prevented other economic calamities. Just in the United States, the Great Depression of the 1930’s and the post-Civil War depression of 1873-1879, now called the Long Depression, which was actually caused by the manipulation of silver demand by the German Empire, were not magically prevented by metals-backed currency. Returning to a gold standard would not prevent recessions from happening. In fact, recessions are a necessary fact of economies, and serve to deflate bubbles and restore equilibrium. The only people who promise to eliminate economic recessions are Marxists, and that is because Marxists are liars. Just as all respiring beings on earth must both inhale and exhale, so too must economies. A person who perpetually inhaled would eventually burst their lungs and die. Conversely, a person who could only exhale would asphyxiate and die. But both actions, in a balanced, moderate cycle, are the definition of health. It is the same with economies: periods of expansion followed by a healthy, normal contraction that deflated any bubbles and restored equilibrium, thus setting up the next expansion phase.

2. Metals-backed currencies can be corrupted, too. There are two ways to corrupt a metals-backed currency, and it has happened many, many times throughout history. The first means pertains to coinage, and is to corrupt the metal itself with cheaper metals, such as zinc. The Roman denarius was debased from 4.5 grams of pure silver to less than one tenth of a gram of silver. Hyperinflation was the inevitable result, and the currency had to eventually be totally replaced.

The second means, which pertains to paper and electronic currency, is for the government to lie about the reserve quantity. This could either be done by explicitly lying about the number of ounces in storage, OR could be done by clandestinely issuing dollars to cronies of the oligarchy, which were NOT actually backed by any metal, and thus would be a de facto lie as to the supply. Since the people would be unable to demand a daily audit and reconciliation, the ability to police and reconcile the supply of metal and dollars would be impossible, and exactly the same things that are going on today, namely government looting of the Treasury and debasement of the currency, would continue apace.

ON MONEY, BANKING AND MEN (2 OF 3)
POSTED BY ANN BARNHARDT – FEBRUARY 29, AD 2012 11:20 PM MST

The problem lies in our overtly criminal government, obviously, but also in the banking paradigm itself. Fractional reserve banking with unsecured lending has got to go. In the current banking paradigm, banks are required to keep from zero percent to ten percent (yes, that’s right, ZERO PERCENT) of customer deposits on hand as reserves, and loan the rest of the money out. If a customer deposits $100 in Bank A, $90 is lent out and $10 remains as reserve (and this is the CONSERVATIVE version). Whoever borrowed the $90 then deposits it in Bank B. Bank B then lends out $81 and keeps $9 in reserve. And so on, and so on. If you go through ten cycles this way, you end up with the original $100 being leveraged into $686.19 of deposits backed by only the original $100. This is what they call “money creation.” For you math buffs, this is a limit function. With a 10% reserve requirement on a $100 initial deposit sum, the limit terminates at $1000. With a 5% reserve requirement on $100, the limit terminates at $2000. With a zero percent reserve requirement, the limit is obviously infinite.
A reasonable, non-zero reserve ratio is workable, but only so long as banks are required to carry one dollar of reserves for every one dollar they lend out. These reserves can be either in the form of the bank’s own capital, OR in the form of FAIRLY VALUED booking of the assets purchased with the loan. All unsecured lending must stop. This means that all home mortgages must be marked-to-market every single day, and if the home is worth less than the loan outstanding, the bank must post its own capital against the shortfall. This also means that credit cards, which are totally unsecured because they are used to purchase mostly non-assets, such as meals, gasoline, vacations and pure service commodities, must be backed by bank capital dollar-for-dollar. The bank could sell bonds to raise capital if it wants to make unsecured loans and then would be arbitraging the spread between the interest rate it must pay on the bonds and the interest rate plus default risk on the credit cards. In this way, the worst that could possibly happen, namely every unsecured credit line totally defaulting, would result in the bank owners and investors losing their money – but the customer deposits would be safe because all of the loans against hard assets, which would be properly valued and marked-to-market, could be sold to other banks in the market, and that revenue would fully cover all customer deposits.

In not posting capital against unsecured loans, the banks are indeed naked short selling our currency – and it matters not whether that currency is gold-backed or not. The credit card customer is promising to pay back (deliver) a loan with money that they do not have and does not exist, and they won’t be able to borrow. So, the bank and the customer together are colluding in the naked short sale. The long on the other side is the citizen and taxpayer who will subsidize the inevitable “need” to print more dollars to “bail out” both the bank and the customer. Taxes will be raised and the currency will be further debased, causing price inflation – a one-two punch to the citizen. This is EXACTLY what is happening to us today.

Well, the reality today is that banks are both writing massive quantities of unsecured loans and doing nothing on their side to balance the ledger, AND they are failing to honestly and realistically book the values of their hard-asset loans. The big banks are still booking home values at their original purchase price – not the fair market value today. Given the housing bubble, most mortgages today are underwater and are worth far, far less than the principal balance to say nothing of interest. This is why I say, echoing others, that the major banks in this country are not just totally insolvent, they are insolvent multiple times over. If the government wasn’t criminal and the favored banks of the oligarchs actually had to comply with Sarbanes-Oxley, the entire system would implode into a singularity tomorrow.

For more info and a much better explanation of the concepts covered to this point, do purchase “Leverage” by Karl Denninger – a very easy-to-grasp, detailed explanation of the whole, stinking mess.

CLICK HERE TO BUY “LEVERAGE”.

ON MONEY, BANKING AND MEN (3 OF 3)
POSTED BY ANN BARNHARDT – FEBRUARY 29, AD 2012 11:14 PM MST

And that brings us to the conclusion and actual point.

All of the stuff outlined above is all well and good to talk about, but as I was reading, including opposing thoughts from other schools, including the Austrian School which advocates full-reserve banking in some instances, namely demand deposits – a possibility to which I am not entirely opposed – I kept running into the 400 pound gorilla, which is silently acknowledged, but never really discussed, because the discussion would inevitably lead to talk of morality and thus . . . religion.
At the end of the day, any currency is backed not by physical commodities or a collective abstraction called “a government”. No. A currency is backed by the character and integrity of men that constitute the issuing nation or body. In short, WE ARE THE GOLD. We are the bearers of the “full faith and credit” which backs our Federal Reserve notes today. And that, dear readers, is why this country is not going to turn itself around anytime soon, and is almost certainly doomed in the short-run.

Every text I read over the last few days always included a very brief caveat that all of the preceding theory was, of course, contingent on a moral society with a functioning rule of law, honest regulation and a populace that was mostly honorable and trustworthy. This caveat was phrased differently in each instance, but it was always there, hanging over everything else like a fine mist. If you have a nation of moral degenerates, all bets are off. If the people are more dishonest than honest, and the government is nothing more than a mafia, then all economic systems and all postulations fly apart at the seams. If there is no rule of law, and if theft, graft and looting are the prevalent systems of economic activity, then no matter what your banking system, no matter what your currency – fiat or commodity-backed, your system and your economy will absolutely, positively fail eventually.

Sadly, that is where we are in this country. Sure, there are still good people, but as a percentage it isn’t even remotely enough to bear the burden of the massive moral degeneracy of the others. Even among those people who would never steal or loot, there is a decided lack of courage to stand up to those who do steal and loot. The MF Global confiscation proves this. People have mostly rolled over and taken having their money stolen, shrugging their shoulders and telling themselves that there is nothing they can do – and then going back for more, continuing to patronize the very exchange that facilitated the theft and fraud. To my knowledge, only one broker has exited the field on purely moral grounds in a pre-emptive action to protect clients, and as a protest to the injustice of the system itself.

Our government is saturated with corruption, looting and outright treason and criminality, and yet most people simply cannot be bothered to care, much less to act, and are thus passively complicit. A non-trivial percentage of the population are planning and maneuvering to best “benefit” or profiteer from the criminality and fundamental dishonesty of the paradigm. Others are attempting to enter the oligarch class themselves under the guise of running for political office – and make no mistake, this encompasses both the so-called left and the so-called right on the political spectrum. The degeneracy is everywhere.

The fall of a society can happen very quickly. Our society has taken roughly 50 years to topple. If the previous example of the Russian culture is any example, we can expect it to take many multiples of 50 years to undo this damage, if and only if the pendulum has reached its maximum amplitude and now begins to swing back, which I fear has not yet happened. Morality cannot be legislated. Cultures cannot be purged of evil, selfishness and sloth overnight – even with a war. I cannot lie to you and tell you that short of Divine Intervention, this situation will resolve itself in any of our lifetimes. We had “it.” We had “it”, and we squandered “it”, and now “it” is gone, and no governmental, economic or monetary policy will get “it” back. “It” can only come from God, dwelling in the hearts of men, and God only comes to men if they specifically ask Him.

We, the people, always have been and always will be the ultimate backing commodity of our currency, because at its core, money is merely the representative device for a man’s capacity to produce and create. Dishonest men do not create or produce. They steal. Thus, the currency of a morally degenerated society is by definition degenerate itself. The currency of a degenerate society is the proxy not for a man’s ability to work and think, but rather a proxy for a man’s capacity to steal and evade work.

We used to be like gold – beautiful and warm. Now we are like pig iron – cold, brittle and good-for-nothing. And THAT is what constitutes the “full faith and credit” that backs the U.S. Dollar. So long as our culture remains degenerate, our currency can never be anything but spiraling, worthless trash.

16 responses to “Barnhardt: On Money, Banking, And Men

  1. philosophyofuse

    I’ve had that dude as an instructor. Top notch guy. Given that someone bothered to take the time to redact his nametape I won’t mention it… but nonetheless less, good training from down to earth people. “roll left, roll right, on your back on your belly, roll right roll left, on your belly on your back”

  2. Could be worse . . . I’ve heard that NONE of us are getting out of this alive.

  3. B Chandler

    I’m keen to know if the author is willing to put organised religion in the crosshairs. After all, the vast majority of preachers have concerned themselves more with filling collection plates than advocating that “it takes only the indifference of good men for evil to flourish”.
    I’m not trolling. It just gets my goat when our problems are put down to a parting with God. I might say “fair enough” if there is a distinction made between God and the impotent treasurers that claim to preach his word.

    • The author Ann Barnhardt is a Latin Mass convert ed Catholic who rails on “super fun rockband church” and the Marxists in the Catholic church ALL OF THE TIME. So the answer to your question is yes. She also says she will never leave Jesus even if every priest and everyone else around her falls short. This woman goes on epic rants. You should look into her more.

  4. The mischief of electronic money:

  5. “…It just gets my goat when our problems are put down to a parting with God. I might say “fair enough” if there is a distinction made between God and the impotent treasurers that claim to preach his word….”
    It gets my goat even worse as a believer. Every supposed “man of God” who takes the states protection, via the 501c3 corporation status, spits in God’s face and Christ’s by literally saying: “The gates of Hell CAN prevail against this church,, so I will do as Caesar commands and take on the mantle of the state as my permission slip to preach” I don’t know what bible they read, but the ones I have read all say the same: The gates of Hell shall not prevail against my church, and: If you love me, you will obey my commands. Seems simple, Rushdoony, and Gary North can fill in the pieces as to how that works out, or simple reliance on the Holy Spirit. But that’s just me and my hateful Christianity talking, according to the preachers I have told this too, but they actually never responded.
    WayneB

    • I am in agreement with you on the mixing of the Church with the government of the nation-state.

      I understand why Churches do it, but I cannot stand that many prefer a tax status to speaking truth.

      Speaking against Church-state collaboration and nation/government worship has led to me being unwelcome in more than one place…

      AP

  6. “So long as our culture remains degenerate, our currency can never be anything but spiraling, worthless trash.

    Concur.

    AP

  7. Among the practicing Christians out there, remember, there may be legions of people playing “church”, and many legions more using it as a country club, and a social circle, and still more trying to convince people that they are somehow “the elect”, and everyone else is not, and yet more just going to church because they think it is the right thing to do. There is still some silver, among the dross. A remnant I believe it’s called. People that have an actual relationship with G*d, know they are sinners, and try to walk the walk, not just talk the talk. To become a moral nation again, it will take a lot of us coming under judgement, and then discipline, before we wake up and smell the coffee. It is always so, in history. We get full of ourselves, forget Who G*d actually is, and tell lies without end. Ann is right about all this.

  8. I didn’t leave the church. The church left me.

    That’s okay, though. For the church left God, as well.

  9. 1. Denninger often doesn’t know what he’s talking about with respect to money systems and gold standards. He’s not interested in correcting his errors, and he bans commenters who point out problems with his preferred flavor of American constitutional central planning.

    2. The “business cycle” of booms and busts, bubbles and recessions, is a consequence of a central bank printing money. It’s not due to business, it should be called the “central bank cycle”. The business cycle stopped during the reign of England’s Queen Victoria, who held the quantity of money fixed and did not counterfeit. Check it out.

    3. The ‘America has lost its morality’ perspective is collectivist. It assumes that 400 million humans in North America can somehow be averaged together for moral purposes. This is nonsense.

    http://en.wikipedia.org/wiki/Granfalloon

    A granfalloon, in the fictional religion of Bokononism (created by Kurt Vonnegut in his 1963 novel Cat’s Cradle), is defined as a “false karass.” That is, it is a group of people who outwardly choose or claim to have a shared identity or purpose, but whose mutual association is actually meaningless.

    Examples The most commonly purported granfalloons are associations and societies based on a shared but ultimately fabricated premise. As examples, Vonnegut cites: “the Communist Party, the Daughters of the American Revolution, the General Electric Company — and any nation, anytime, anywhere.

    Truth is, the remnant has not lost its morality, and to survive it needs to figure out a way to defend itself from the voters that surround it.

  10. Miss Barnhardt: Thanks for the excellent article which parallels my sentiment quite closely. You labeled me and my fellow r-calf members last spring as “marxist’ when we had a little debate over fair trade and adherance to the ’28 Stockyards and Packers Act. [if it's a problem, then remove it as a law].
    I allowed as time marched on in your young intellegent life, that you’d realize that all that we as youngsters believed in are in fact BS: as in corporations, the ‘rule of law’,’ free trade’, the financial system, the nonsense of packing interests controlling cow/calf producers destiny in NCBA etc etc……all would be found to be fraudulent….as they surely have been shown to be today.
    In your next few years, you will leave the Denver metro and return back to your god-given roots and enjoy what matters…….family, natural creation apart from man-made crap, liberty, slow and fast moving precious metals and community when you need it.
    You are maturing at the speed of light, ma’am and you will be as radically adamant as the rest of us here rather soon.
    may you be blessed
    Your kicked around friend near Deer trail

  11. Grouch, MD

    Just wondering what kind of shotgun that is….

  12. I have a great idea.

    Why don’t we have the govt get completely out of the business of dictating what we use for money and regulating the banks?

    If someone wants to practice fractional reserve banking others want to use the money those banks issue, fine.

    It’s all just trade.

    As long as the govt forces us–directly or indirectly– to use money it provides, it will use that power to steal from us.

    It’s what govt’s have been doing for thousands of years.

  13. “In short, WE ARE THE GOLD.”

    Matthew 5:13
    “You are the salt of the earth; but if the salt has become tasteless, how can it be made salty again? It is no longer good for anything, except to be thrown out and trampled under foot by men.”

  14. trivium pursuit

    Part 3 of 3 is the most profound insight on why we are where we are in this allegedly Representative Republic that I have encountered in 40 years of deep reading on history and economics. In this day of shallow education and shortened attention spans, I never expected to come across anything like the profound insight and clarity she put forth here. I submit that the above paragraphs are nothing less than the Unified Field Theory of Western Civilization. One of the Founding Fathers said that the system of government they had put together would only work for ‘a moral and religious people. They will utterly fail for any other’. In a few paragraphs, Ann just explained to us why that is so. Yes, it’s depressing, and the successfully and designed outcome of an amoral state education system. Well done Ann.