Monthly Archives: August 2011

Time to pay the piper: Who gets stuck with the bill?

Prior to his recent visit to China, Vice-president Joe Biden tried to assure investors that U.S. Treasury bonds are still a good investment, saying that the US administration “is deeply committed to maintaining the fundamentals of the US economy” to “ensure the safety, liquidity and value of US Treasury obligations for all of its investors”.

Good try, but the Chinese are not buying it, nor, it seems, is anyone else. The Federal Reserve has become of late the biggest buyer of treasury bonds, and Standard and Poor recently announced that they have downgraded the U.S. debt rating from AAA to AA+. Dollar denominated securities are now becoming a “hot potato” as loss of purchasing power of the dollar seems assured.

An August 19, 2011 article in China Daily titled, Experts urge China to trim US T-bond holdings, quotes both Chinese and American authorities and concludes thatChina should reduce its holdings of US Treasury bonds to protect the value of its massive foreign exchange reserves.” Here are some excerpts:

“China should move progressively to cut its holdings of US Treasury bonds and use it as leverage to ask Washington to further open its markets, including the high-technology sector, to Chinese investment,” Xiang Songzuo, deputy director of the Center for International Monetary Research at Renmin University of China, said at a forum.

“Washington should provide a guarantee on the safety of China’s assets,” while it is creating global inflationary pressure through quantitative easing to stimulate its economy, Xiang said

Zhu Chao, assistant dean of the School of Finance at the Capital University of Economics and Business, said Biden’s promises were more symbolic than meaningful.

Stephen Roach, the non-executive chairman of Morgan Stanley Asia, said that the US debt crisis has shaken China’s confidence in Washington but the pro-consumption shift in its economic structure will help reduce the pace of its foreign-exchange accumulation.

“The US debt crisis has taken a serious toll on China’s confidence in Washington’s economic stewardship,” Roach said in a research note.

“China is no longer willing to risk financial and economic stability on the basis of Washington’s hollow promises and tarnished economic stewardship.”

The situation suggests some major policy questions that could have far-reaching effects on the American economy and on the American middle-class. China has, up to now, been willing to accept America’s i.o.u.’s in exchange for all those computers, TVs, shoes, clothing, and other goodies that Americans have been gobbling up at bargain prices. Now the piper must be paid, one way or another. Will Washington “further open its markets, including the high-technology sector, to Chinese investment,” as the Chinese are demanding? Will the U.S. government allow Chinese companies to buy up American companies, real estate, and infrastructure?

You can’t blame the Chinese for wanting real value in return for what they have already delivered. The fault lies with the policies of the past 30 years that, in the guise of “free trade,” have promoted the interests of the few at the expense of the many.—t.h.g.

More about Iceland’s ongoing revolution

This article, Iceland’s On-going Revolution, by Deena Stryker, provides additional information and inspiration.

New Moneeey

I recently came across a series of video animations titled, New Moneeey, which, it turns out, are pretty good. New Moneeey appears to be a group effort but John Ince seems to be a key player. I met John a couple years ago when he came to one of my lectures in San Francisco. I lost track of him for a while but we’ve recently reconnected. I’ve not tried to verify all of the statements made in the videos, but even if off by a factor of 10, they are significant.

John’s credentials are quite impressive. They include a Harvard MBA and whole raft of accomplishments in writing, media, and entrepreneurship. He is the author of two recently published books, The Money Question, and Meaningful Money, and is in the process of preparing a new book, The Wizard of Iz.

Here is the first part of the New Moneeey series. You may want to watch the entire thought provoking series.

Who came within a whisker of beating Michlle Bachmann in Iowa?

The mainstream media will not utter his name, but Jon Stewart does.

Move Your Money

The movement away from dependence upon mega-banks and political currencies is gaining momentum, not only amongst individuals and companies, but also amongst countries that have lost confidence in the international banking establishment.

The Associated Press reports today that Venezuela is recalling $11B in gold reserves. Here are some excerpts:

President Hugo Chavez announced Wednesday he is nationalizing Venezuela’s gold mining industry and intends to bring home $11 billion in gold reserves currently held in U.S. and European banks.

Central Bank president Nelson Merentes said on television that the decision to move the gold reserves was being taken out of “prudence.”

Venezuela has nearly $4.6 billion of its gold reserves in the Bank of England, according to a report by Finance Minister Jorge Giordani that was leaked to the news media Tuesday by an opposition lawmaker.

The report said additional Venezuelan gold reserves are held by the U.S. bank J.P. Morgan Chase, British banks Barclays, HSBC and Standard Chartered, France’s BNP Paribas and Canada’s Bank of Nova Scotia.

Giordani and Merentes, who appeared together on television Wednesday, said they proposed to Chavez that Venezuela’s nearly $6.3 billion in non-gold international reserves such as bank deposits and bonds should be reviewed and transferred from U.S. and European banks to countries they consider safer, including China, Russia and Brazil, among other countries in Asia and Latin America.

It makes sense for countries like Venezuela to hold their reserves in the currencies of countries that actually produce something and from whom they make substantial purchases. While the U.S. remains one of its main suppliers, Venezuela also imports significant amount from Colombia, China, Brazil and Mexico.

Meanwhile, back in the U.S., there has been a growing grassroots movement in which savers are taking their money out of the large banking corporations and moving it into credit unions and locally owned banks. One significant development is the Move Your Money Project, “a nonprofit campaign that encourages individuals and institutions to divest from the nation’s largest Wall Street banks and move to local financial institutions.” Go here to find one near you.

In my May presentation to the Financial Planning Association, I provided a resource list that included financing alternatives for enterprises and options for savers and investors.

As a side note, you may be interested in viewing Dylan Ratigan’s recent rant on MSNBC, in which he complained that the “Banking system is corrupt and defrauding us.” You can see it here.—t.h.g.

A mega-dose of reality

The message by Silver Shield titled,  5 Reasons Why American Riots Will Be the Worst in the World, by may seem rather harsh to some, but it is one that needs to be heeded. I recommend that it be read in its entirety, and that the embedded videos be watched. The article ends on a hopeful note saying,

This collapse will not result in a One World Order. The Elite that are trying desperately make this happen will no longer be able to operate in secrecy. Their minions will lack any legitimacy with the people they rule. After all who is going to trust a President who says he did not see this coming when you and I can see it coming from miles away. The result after a very violent Anger phase is going to be massive decentralization of power not more centralization of power. Local communities, cities counties and states will assert more power over the daily activities of our lives. Some will slip into tyranny to make order out of chaos. Others will attract the best and brightest by embracing freedom and honest money. The end result is a life where we can reach our highest and best self. How we get there is a rough road, but one I feel is easily traveled if you are aware and prepared.

Let us work together to ease the transition and assure a happy outcome.

My movie now available, and the further decline of the dollar

In early May, I gave a presentation to the Financial Planning Association, which I titled, Financial Planning in the Emerging Butterfly Economy. The slide show was posted here shortly thereafter. Now, thanks to Bill Jackson, we have that presentation in movie form, complete with my slides and narrative. You will find both of these listed in the sidebar to the right under, My Audio-visual presentations You can also view the movie by going directly to the Slide Show Album on my Vimeo site,

You should also be aware that the United States has for the first time in its history, lost its triple-A debt rating. Standard & Poor’s announced on Friday that “it lowered its long-term sovereign credit rating on the United States of America to ‘AA+’ from ‘AAA’. Standard & Poor’s also said that the outlook on the long-term rating is negative,” which suggests that further downgrades are likely. You can read the entire S&P statement here.

The recent budget cuts agreed upon by Congress are a mere drop in the deficit “bucket.” As I said many years ago, so long as the debt-money system based upon compounding interest prevails, the federal government budget cannot be balanced. As we have seen very clearly in the recent bailouts by government of banks and financial institutions, government is the borrower of last resort. If government does not play that role, the entire global financial system collapses, as it almost did in 2008.-t.h.g.

Has the chrysalis stage begun?

Dave Gardner is director of the upcoming documentary GrowthBusters. Here is his recent article that appears on the website of the Center for the Advancement of the Steady State Economy (CASSE).

Gardner points out that there is good reason to celebrate the “bad” economic news being reported in the media. Hopefully, his upcoming film will include something about compound interest and the debt-money system that has been driving endless growth of production and consumption. Debt growth must cease if we are to make a smooth transition.-t.h.g.

Good News: Economic Recovery Stalls!

Posted By Dave Gardner On August 3, 2011

by Dave Gardner, director of the upcoming documentary GrowthBusters

Economic news last Friday was quite positive. Annualized U.S. GDP growth was less than one percent in the first half of 2011.

However, I would hazard a guess that, oh, some 99.9 percent of the world considered this bad news. It was characterized in the New York Times [1] as a “snail’s pace.” Journalists and commentators around the world are predictably typing out words like weak, anemic, malaise, gloomy, bleak, doldrums and stagnation.

So why would I celebrate? Do I get perverse, morbid pleasure at seeing my fellow humans unemployed, upside down in their mortgages, or dining at soup kitchens? I do not. The fallout of the recession is real, it’s painful, and it’s sad. But steady or declining GDP is not bad news. Nor is the drop in consumer spending [2] reported Tuesday.

While many impacts of the recession are tragic, these are the pains of adjusting to a new reality: the end of growth. They are a necessary part of a temporary phase. We might call it the cocoon phase, as we metamorphose into something more beautiful.

Consider these headlines from the past two years. Are they good news or bad?

  • Recession Puts Babies on Hold
  • Tiny House Movement Thrives Amid Real Estate Bust
  • Home Production Falls as Economy Languishes
  • Global Coal Use Stagnates Despite Growing Chinese and Indian Markets
  • Total Municipal Waste Generation Dropped
  • Home Depot Calls a Halt to Rapid Expansion
  • European Union Carbon Pollution Drops
  • GM to Close Hummer
  • Gasoline Spike Fuels Surge in U.S. Bicycle Sales
  • Bottled Water Consumption Growth Slows
  • 30-Year Growth Spurt Ends for Average American House Size
  • Ad Spending Down
  • Airlines Ground More Than 11% of Their Jets
  • Breast Implants are Deflating Along With the Economy
  • More Than 400 Meetings in Las Vegas Recently Cancelled
  • 2nd Home Market Declined 30%

Looking at these headlines through an archaic lens, last century’s worldview that growth is the Holy Grail, these stories seemed like bad news. But through a more modern, 21st century lens that values true sustainability, they herald a world slowing down toward a responsible level of human activity.

Think about it. Smaller houses mean less deforestation, less habitat converted to subdivisions, less concrete (production of which emits significant CO2), and less living space to heat or cool (again reducing CO2 emissions). Less coal use is also good news in the greenhouse gas department — as are grounded jets, no more Hummers and a switch to bicycles. Strangely we see no signs that politicians, pundits or journalists are thinking this deeply about the subjects.

I’m not the first to recognize this recession as an opportunity. Great minds like Gus Speth and David Korten are doing their best to turn this recession into a course correction. Korten’s Why This Crisis May Be Our Best Chance to Build a New Economy [3], and Speth’s Towards a New Economy and a New Politics [4] are good examples of this. Even Jay Leno got into the act, congratulating President George W. Bush in 2008 for doing more to fight climate change than Al Gore — by slowing the economy. Of course the impacts of economic growth reach far beyond the climate. Our increasing economic activity is causing habitat destruction, species extinction and pollution [5]; and it is liquidating critical resources like fertile soil.

I’m aware of no journalist who sought out Speth, Korten, Daly, Czech, Victor or Heinberg for an alternative view on Friday’s news. A story about ice melting would include comments from both real climate scientists and climate change deniers. But for this GDP story there was no discussion in the newsrooms about getting the other side — a quote about how terrific it is that gross domestic product may be settling toward a steady state. They assume GDP growth is good news and economic contraction is bad news — for everyone. It doesn’t even occur to them to question that assumption. Blind faith in the old worldview still has a tight grip on the reporters and editors. This needs to change.

I look forward to seeing the butterfly!

Dave Gardner is the filmmaker behind the documentary, GrowthBusters, which premieres in late October. The nonprofit film’s final fundraising campaign on Kickstarter [6] is in its last week. For more information about the film or to organize a screening, visit [7]. Dave can be reached at [8].

The Door is Closing

A recent  article by Stephen Leahy titled, Data Shows All of Earth’s Systems in Rapid Decline, sounds a dire warning. As the pace of ecosystem decline and species extinctions accelerates, the prospects of human survival on planet Earth grow ever dimmer.

What has money to do with all that? Everything!

As one of my favorite economists, Kenneth Boulding, has said, “Anyone who believes exponential growth can go on forever in a finite world is either a madman or an economist.” Unfortunately, it seems that they are the ones who are running the world. Those who control the creation of money have the power to control everything else. Thus, our political leaders are in thrall to the top level financial establishment and the orthodox economists who perpetuate the myth that the debt money system is giving us the best of all possible worlds. Of course, the rest of us, though ignorance and inattention, have also been deluded and complicit in their malfeasance.

Economists, by and large, still worship the “Growth God,” arguing that all of society’s ills can be solved by further increasing material production and consumption.

That is sheer folly.

Population, atmospheric carbon dioxide, and debt are three things that have long been growing exponentially. All of these are causes of the global mega-crisis, but the most fundamental of these, and the one most subject to human amelioration is debt.

As I’ve been describing it in my recent presentations (see, e.g., my slide show, Financial Planning in the Emerging Butterfly Economy), the global debt-money system, based as it is on lending money into circulation at compound interest, is the DRIVER of the mega-crisis. This, because it has inherent in it a debt-growth imperative. As interest on debts accrues with the passage of time, more debt must be created in order to keep the supply of money in circulation sufficient for older debts to be repaid (with interest). The always deficient supply of money in circulation puts continual pressure on companies and individuals to increase their production as they attempt to earn enough money to pay what they owe. Ultimately, it is impossible for all debts to be paid. Hence, throughout the modern era, we have seen overall debt growing much faster than GDP or any other measure of real economic output.

Total Debt for All Sectors--US Economy

Total Debt for All Sectors--US Economy

Time is running out on the “Caterpillar Economy.” Like the caterpillar, the global economy must eventually reach a maximum size, cease its destructive consumption and growth, and morph into something that is sustainable and ecologically benign–the “Butterfly Economy.”

We must either give up the practice of lending at interest (usury, riba) and embrace monetary and financial systems that enable the butterfly economy to emerge, or see the world descend into chaos as nature applies her own correctives upon the Earth and its inhabitants.

Yes, it IS possible.–t.h.g.