Liberty Pile - Libertarian News

Before going to bed I read Chris Laird's public article titled "World Demand Collapsing," http://www.kitco.com/ind/Laird/printerfriendly/nov202008.html. I have seen unsold cars filling lots in prior downturns, though not to this extent nor with this speed. The article mentions that ships are anchored around the world, not just in Hong Kong, that even oil tankers are not sailing. The tankers are full, anchored, and waiting for buyers. No buyers. No buyers? World demand collapsing? That does not make sense.

In China 100,000 factories are to close, workers are going unpaid, and the Government actually is buying and stacking up inventory to keep the wheels turning.

Everything has come to a complete halt.

One consequence will be shortages, even shortages of heating fuel this winter as inventories are used up. Then, expect rapid price increases reflecting these shortages but, since there is no supply to replenish what has been used, there won't be supply at any price.

More whiplash. Greater volatility. People getting wiped out at extremes.

If there aren't any commercial ships coming to American ports even our troops won't be able to hitchhike home.

What does this mean? How is this possible?

The given explanation is "credit crisis," the banks not trusting each other, the seller's banks in foreign countries being unwilling to accept a buyer's bank's letter of credit for fear that the buyer's bank will not be able to pay in 30 or 60 days because the buyer's bank no longer will exist. Does this really make sense when you have global banks, like Citigroup or Standard Charter or HSBC that, in effect, could be issuing letters of credit to themselves? Does this really make sense, since we have no examples of such failures in reality? At this point real economic collapse may be so far along the banks may be unwilling to extend credit to buyers, and that fear may be realistic, but that was not so a month or two ago.

Then I began to wonder how you get the system going again.

For whatever reason the letter of credit system that replaced the real bills system we used to finance international trade prior to 1913 has stopped working. Professor Fekete explains the real bills system in an article I sent out a couple of weeks ago. Real bills provided a pool of funds with which to pay for inventory and labor, a pool based on production of real goods. It was not limited at all by the quantity of gold in they system. That idea is a myth the bankers perpetrated. All you needed were the goods, a buyer, a seller, and a clearing mechanism which, at the time, was gold. The real bills came into existence with the transaction, and ceased to exist when the transaction closed.

Suppose that the fear is not that the banks do not get paid. Suppose that the fear is that they get paid in dollars and that they do not want dollars. Perhaps it is not necessary to have an alternative to the Dollar before you decide you don't want the Dollars buyers are tendering. THE EFFECT WOULD BE IDENTICALLY THE SAME TO THAT WHICH YOU SEE NOW.

Yesterday the FED promised $7.7 Trillion to get the system going. What if you make unlimited dollar credit available, and nothing happens because Dollars no longer instill sufficient confidence? After all, the Dollar System works only because you can use the Dollars you get for your goods and your labor. There is no clearing mechanism built into the Dollar, no way to withdraw from the Dollar World and keep value for you life, your labor and what you have produced.

In other words, we may have cause and effect back wards. If so, then there is no way that the FED, the Government, or anyone else can get world commerce moving with Dollars, no matter how many they print, no matter how much credit they extend. And, for the moment, there is no alternative.

This morning, for example, the Government is to announce what is in effect a new government bank. The proposal, as I understand it, is to use part of the infamous $700 billion as "seed money" and to raise the rest by issuing more debt. To whom? Won't this suck even more credit out of the real economy? Or, are we looking at Central Planning attempts to redirect the flows of money within the economy? I do not think that anyone is smart enough to make this work. The least we know is that it is panic time in DC.

Plus, if the speculations of some of us are correct, that the US is out of gold, then the US is not in a position to lead or participate in any new gold based system. All of us are at the mercy of those who have gold.

All that Governments can do is retire from the monetary scene, open the mints, and let the people create a new currency. That is how it worked before 1800 and continued to work curing much of the century before 1913.

Will Governments have the humility to give up and let us figure this out for ourselves? No likely, and for that reason the situation is dire.