Capitalism...Now In HD: Monetary Shenanigans

Before beginning what will be a radical call, readers should know my last two posts regarding Elliott Wave predictions were and will still be experimental. My counts were wrong, I'm still learning and posting them here is more for my own experience.

Now, onto the topic of the day...monetary shenanigans and the endgame that will result. Please look back on my post, Debt Overhang Haunting; What Ails Bernanke's Sleepless Nights. It is there that I introduced the extraordinary leverage inherent in our credit based (fiat) monetary system. The Austrian economists dating all the way back to Mises and Rothbard have been preaching the dangers of paper money and have been persistent proponents of honest 100% gold money standards. They knew, even way back in the 1970's when all traces of money tied to gold were dissolved that monetary collapse was iminent. The result was persistent currency debacement and more recently massive credit extension.

It is my opinion that the debt outstanding has reached critical mass and the interconnection between credit and assets are now too great. Private citizens balance sheets are in tatters. The Fed and economists, still in denial in their ivory towers, believe they can save us again. Look at the facts; global zero percent interest rates are here and yet the credit system is still locked. Asset prices will fluctuate as they are inherently led by human action, but eventually they will revert towards their fundamental values, which no doubt means lower prices. In the meantime the government and central banks assume to make huge power grabs at the expense of your liberty.

The question that comes to so many minds is "how will all of this be repaid?" A worthy question; the answer...it won't, it can't! It will only be repaid after a currency regime reform, the inciting action being massive uprising after years of pain have failed to solve of of the real problems. It's impossible to say when, but it is not a matter of if. Policy makers may miraculously find a way to kick the can down the road and create the perception that the economy is sound, but this ponzi scheme has an eventual bursting point.

In fact we're already seeing hints of this coming reform at hand as just this week the Chinese announced they will be diversifying their currency and suggest a new world reserve currency via IMF paper. While a new currency is certainly in the works, solving the underlying problems of paper currency with new paper currency is just plain silly and simply shifts political power from a national to global scale.

I am not alone in this thought. Please consider the viewpoint of former IMF economist Gunnar Tomas...The End of Mainstream Economics:

Gunnar:
Yes, I remember that while visiting Iceland in 1982 I was invited by someone in the know to present ideas to the Icelandic Chamber of Commerce.The key to successful economic management, I suggested, was to maintain some appropriate balance between paper wealth and real wealth, the production generated by the economy. I likened this to a ship's superstructure, where the ship is production and the superstructure is paper — if the superstructure's growth is excessive, there comes a point in time — and circumstances that cannot be specified in advance — at which the superstructure will overturn the ship. That is what is happening now and has been going on since 2007.
Egill:

You have argued for a very long time that this system, the world monetary system, was fatally flawed.

Gunnar:

Yes, absolutely.

But in this business there is something else that one discovers early on; namely, that if you are in a position of responsibility in the world monetary system and management, in the world's central banks, the International Monetary Fund etc., then you must always go with the stream if you plan on continuing in that position. This has completely destroyed all professionalism in central-bank management here in Iceland and elsewhere. You must go with the stream and never go against it.

Gunnar:

The system has collapsed and it cannot be rebuilt on the foundations that were put in place with Paul Samuelson's ideology in 1942. It is very difficult to change something like this. I have collaborated for many years with colleagues in an economics group known as Gang8. Icelanders can look it up on the Internet. The group includes economists from Europe and the United States, a total of ten or so. I said to them,

"There is no point debating these issues with those whose livelihood depends on them being sound. We must wait until everything goes to hell in a handbasket, if you excuse the language, and then we will give them our telephone number."

It is awfully arrogant to put it like this, but that is the situation we face today. There is talk here in Iceland of calling on foreign experts to give advice on how to reconstruct the economy or the monetary system. And, lo and behold, they come with these same ideas. In the United States we see how George Bush responded to the unfolding US economic crisis. Barack Obama is taking the same approach. One must realize that this system cannot be salvaged.
It is fundamental nonsense to view money as a factor of production. Money plays many roles, but we live on what we produce. We do not live on paper money that we create as a superstructure on the foundation of our production. We live on what we produce, and with loan indexation we impose a burden on the production sector, monetary costs that have no basis in rational thinking about wealth creation and its financing. Keep interest high and index loan principal, and you impose corresponding cost burdens on production. Loan indexation is completely illogical if you look at it from the vantage point of wealth creation. But it looks eminently sensible to moneyed individuals and pension funds.