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Iceland economics – same as the old boss

animal-farm1Meet the new boss; same as the old boss. In Animal Farm, George Orwell writes of the barnyard overthrowing the wicked farmer and the evolution to a new boss – with no fundamental change in the structure of users and usees.

That comes to mind as I trip over a Chicago-School economist reviewing and recommending modifications to the new banking system in Iceland:
Iceland may have cure to bad banking
Unsurprisingly, mainstream media, a wholly owned subsidiary of the world’s central bankers, publishes the delightful-sounding obfuscations of a credentialed preacher for their cause.

Iceland, you may recall, suffered through an extreme boom-bust cycle – which is the signature achievement of all central banks. They print paper payment promises in prodigious quantities, then pounce on assets when their fiat economy fails. Repeat as needed until all but the inner circle are broke, destitute and dependent.

What really made Iceland’s fall stand out was that finding themselves at the bottom of the bust part of a cycle, the people didn’t let the bankers get away with it. Bankers went to prison. Assets went back to the people. Some of them, anyway.

It is a small country of 330,000 people. A hard place to hide if you raped the populace. So as a shining example of what should happen to the criminal banking enterprise, some bankers lost their stolen wealth, their elite lifestyle and, for a bit, their liberty.

As Iceland works to chart a new course for money and banking, the Reuters shill condescendingly allows as they are heading the right direction with a central authority making up money out of thin air, if only they would follow the fine example of the world’s central bankers with the full system … a renamed version of the one that so spectacularly failed the people of Iceland already.

While they don’t want you to understand it, economics is incredibly simple and straightforward. J.M. Keynes made up a wonderful voodoo system of phrases and words to make its ministers, priests and wizards appear to have important, useful, specialized knowledge. Nothing could be further from the truth.

Aboriginally, people specialize along two lines: guys do guy stuff while girls do girl stuff. Preparing food, feeding babies, making tools, hunting, gathering and all other aspects of life are done by all adults without further specialization.

Along comes somebody who makes a better spear. Other hunters trade bits of their kill with the spear-making expert because his tools make them so much more productive that hunters can give him a cut AND get more for themselves.

Then a great fisherman appears with fish to trade for red meat, produce or fruit.

Agriculture develops with some clearly demonstrating a competitive advantage therein over others.
sand grains
The limiting factor in pure barter economies is finding ways to trade durable for fresh, low-value for high and rare for plentiful. Money, or a medium of exchange always evolves. Shells, rocks, sticks, baubles, cigarettes, coins, Ramen and a myriad other things have served.

sand beachPretty rocks will work fine as long as their quantity is limited. If anyone can scoop up handfuls of them, or even if a handful of individuals have near unlimited supply, the rarity disappears and with it the value of each.

Where there is very little sand, the grains could serve as a medium of exchange. Where there is near infinite supply, nobody will trade anything of value for something they could effortlessly have at any time.

truck delivers applesTrading an apple for an orange is something any little kid processing oranges can understand. There is no risk of either commodity spoiling at lunchtime when both children are ready to eat what the other has. But what of the specialist with an orchard full of apples or oranges? Neither farmer will consider himself significantly better off trading a truckload of one perishable fruit for a truckload of another.

tailored suitHow about the guy whose specialty takes a week per item rather than hundreds of thousands of items per week. The tailor is unlikely to welcome trading a fine dress suit for an apple or orange. Even if he loves oranges, he is also unlikely to desire trading his suit for a pile of them all the way to the ceiling.

House BuildingThe problem is even more dramatic for the specialist whose product takes a year to create. There is no amount of little things no matter how much he likes them, that he can afford to trade for many months or even weeks of labor.

This is where money comes in. Producers agree to work, invest and create in exchange for a non-perishable commodity that is finite and rare enough they are confident it will hold its value until they later exchange it for other things they want.

silver dollarsIt doesn’t matter whether it is intricately shaped clay, colored beads or precious metal. As long as people they enjoy trading with value it similarly, it can serve as money. For thousands of years, gold and silver have served this purpose.

villainStoring large amounts is risky. This triggers the appearance of specialists who securely warehouse money for others. Carrying enough to complete larger transactions is inconvenient. Enter the exchange of warehouse receipts … and specialists in printing warehouse receipts. It is the printer who faces the temptation to create more warehouse receipts than there is money to honor each.

tar-feathersThe problem with that is they never know when to quit and almost always get caught. People instinctively know what to do with them when they finally understand what has been done.

That is where the current batch of warehouse receipt printers is outstanding. They not only pay the ministers to artfully run the scheme, their real masterpiece is the mythology promulgated by the wizards and high priests that their dilution of value

This has been so successful that they have run it for over 200 years without the masses catching on. They sucked 98% of the value out of the USofA dollar since taking it away from the government of the people. They did much worse to other currencies, collapsing many completely to come back selling nearly identical replacements to the devastated people.

There can be little doubt that the final throes of The Federal Reserve Note are nearby. With breathtaking chutzpah, they have coordinated a grand finale with so many fireworks going off simultaneously that the collapse of the biggest fiat currency bubble in history will escape the attention of the people who would otherwise recognize the theft, the thieves and the justice needing delivery.

While you are struggling for survival in a whirlwind of war, grid breakdown, police state, scarcity, predation and disease, please keep somewhere in the back of your mind that if you get a shot at the warehousemen who brought this on, take it.