Monday, August 1, 2016

"The US Has Become a ‘Parasitocracy’"

"The US Has Become a ‘Parasitocracy’"
by Bill Bonner

"So, let’s return to the discussion you can’t have with your congressman, your mailman, or your barmaid. It’s the important one. It concerns what the Fed is really up to…

Dread and denial: We have been connecting dots…bringing new readers into the conversation…and organizing our own thoughts. Already, you have met the zombies and the cronies…and you know that the government you learn about in school is not really the government you actually have. Instead, we are ruled by a group of insiders we call the ‘Deep State’, which pays little attention to the Constitution or the ‘will of the people’.

The term Deep State is not original to us. It was first coined to describe anti-democratic elements within the military, the intelligence services, the judiciary, and the mafia that controlled the real levers of power in Kemalist Turkey. But it is being used more and more elsewhere, as people come to realise what is really going on in their own countries. (Today, we offer a neologism that is more descriptive.)

Your first reaction to the Deep State is likely to be denial or dread. ‘It sounds impossible,’ you might say. ‘How come I haven’t heard of this?’ Or: ‘How can we put a stop to this conspiracy?’ Relax… There’s nothing underhanded about it; most of it takes place in plain sight. The reason you haven’t heard about the Deep State is another important dot we need to connect. To wit, there are facts. And there are myths, delusions, guesses, and opinions.

Parasitic elite: In pre-revolutionary France, for instance, privileged groups used their influence — and often brute force — to get assets that would provide them with income, or ‘rents’. They were called ‘rentiers’. And they lived off the productive economy like fat ticks on a dog’s back. In today’s France, there are plenty of rentiers, too…but they no longer wear powdered wigs. The New York Times passed on a report that French president Francois Hollande’s personal hairdresser has been paid more than $10,000 a month for the last four years — roughly the same as the salary of a minister in his government.

Everyone wants to get something for nothing. Everyone wants to be a rentier. And every society has them. But a rentier is a parasite. And the more of them you have, the weaker the economy becomes…until it eventually succumbs to revolution, depression, war, or hyperinflation. The Deep State is fundamentally a parasitic elite. Their main objective is to transfer wealth and power from the people who earn it to themselves. That is why we propose to call the Deep State, instead, the ‘Parasitocracy’.

Real money: One of the major breakthroughs of the Parasitocracy in modern times was the money system announced by President Nixon in August 1971. Interrupting the popular TV show Bonanza, Nixon made two major declarations. The first was that, henceforth, wages and prices would be controlled. This was such a bomb that it completely blew away interest in the second one: that henceforth, the world would have a new money system. President Nixon — aided and abetted by economist Milton Friedman — cut the dollar off from its natural limits. No longer tethered to gold, the gate was flung open…and the horse ran off. ‘Gold is part of the real world…limited by time,’ Gilder explained. Gold is real money. But this new money was different. It was ‘unmetered,’ says Gilder. And it was very popular with the feds, the Deep State, and the world improvers.

Every jackass politician and blowhard commentator had an opinion on wage and price controls. But no one knew what to make of the new dollar. The US would no longer honor its promise to its foreign creditors to convert their dollars for gold at the fixed price $35 an ounce. But was that a bad thing? Maybe a more flexible currency really would be good for the economy. Maybe we really shouldn’t let the French…who at the time were trying to convert their dollars for gold…to take away so much US treasure. Who knew?

Unlike the old money, the feds could control it…and decide who gets it. And they could use their cronies in the financial industry to distribute around the economy — as they wanted. Before 1971, the feds had their hands tied — by real money. They couldn’t create gold. And they couldn’t print too many of their gold-backed dollars.

They had promised to redeem foreign central banks every $35 they created with an ounce of gold. They didn’t have an infinite amount of gold. So they had to be careful. The system was self-correcting. If Americans spent too much money on foreign goods, too many dollars would travel abroad. This put our gold stock at risk if foreign governments decided they preferred US gold to US paper money. Gold was the base of the world monetary system, so a reduction in the gold stock was also a reduction in the money supply.

Money responds to the law of supply and demand like everything else. As the money supply fell, the price of money (interest rates) rose. Higher interest rates then reduced spending…bringing the economy back in balance.

In the pre-1971 economy, it was Main Street — productive US industry — that produced wealth and accumulated real dollars. After 1971, it was Wall Street that controlled access to the new counterfeit money…and made sure it captured much of it. The new system gave the feds the ‘flexibility’ they were looking for. But it completely changed the nature of our money…and our economy. Instead of rewarding the people who produced wealth, the new economy gave its hugs and kisses to the people who mongered debt and shuffled financial claims.

Real money is similarly indifferent to the wishes of tardy commuters, cash-short consumers, and manipulating Fed chiefs. Like the ancient Greek Moirai, the goddesses who measured out the thread of life, real money is beyond the control of man. The last of the three goddesses, Atropos, was known as ‘she who cannot be turned’. It was she who cut the thread when your time came to an end. Real money, like real time, cannot be jigged or jived. It can’t be stretched or compressed. It is what it is.

But that was then…pre-1971. This is now. Now, we have no more real money. Instead, the world has a gaggle of imposters — the dollar, the euro, the yen — all stage managed by benighted central bankers. The miracle of real modern money — which has been around only for a few thousand years — is that it could function across time and space. It allowed people to trade with others far away who they didn’t know, often crossing language, cultural and religious barriers. Money in hand, the deal was done. It made no difference what they thought or what happened to them later.

Money made it possible to accumulate wealth (capital), too. A crop of tomatoes or lettuce might be worthless in a few days. But with money, the farmer could hold the real value of his past work far into the future. Using money, he could also invest the fruits of his labour in new and more fruitful projects.
The only real wealth is knowledge, says Gilder. And the only real growth is learning. Anything else is a fraud. ‘Today’s money,’ says economist George Gilder, ‘tries to cheat time. And you can’t do that.’ It may not cheat time, but it cheats far easier marks — consumers, investors, and entrepreneurs. It took us a moment to understand what Gilder meant. Then we realized he’s right. Time is the ultimate limitation…the ultimate truth…the ultimate fact. Who knew? And now…45 years later…we are just finding out…

Time the taskmaster: You’ll recall. There are facts and there are myths. The facts are true no matter what you think. Everything else is opinion, conjecture, or claptrap. Elizabeth, your editor’s wife, has a different relationship with time than he does. He sees it as a taskmaster…strict and unyielding. The sun rises. It sets. If you goof off during the daylight hours, the opportunity will be gone forever. That part of your life will evaporate, like the morning dew, never to be seen again.

Elizabeth takes it personally. If she is running late, she expects time to slow down and wait for her. She thinks the sun ought to linger a little longer before saying goodnight…giving her time to finish her email before starting dinner. She is annoyed when it doesn’t.

Elizabeth treats time like a movie she is watching on her computer. When the telephone rings in the middle of it, she wants to put time on hold, until she is ready for it to resume…or even push a button to make time back up, so she can relive particularly interesting segments. ‘The party starts at seven; it’s already quarter after; we’re late,’ we say grumpily, after waiting in the car. ‘Well, maybe you could drive a little faster so we could get there on time.’

Alas, time does not cooperate. Time is a ‘fact’, not a myth. It does not back up. No matter how much you wish it would slow down…or what you think about it…time moves on.

Gaming the system: True facts are those that would still be true no matter what you think. You send a pale boy out to the beach; he’ll get sunburned. Water boils at 212 degrees Fahrenheit at sea level, even if we are in a hurry for our morning eggs. But apart from these ‘true facts,’ everything else is subject to myth and imagination.

The myth of our constitutional republic, for instance, is so attractive that most people refuse to look beyond it. Not only that, but most of the people who really matter to politics — the trendsetters, the rich, the opinion mongers, and the hacks and hustlers who make the system work — are paid NOT to look behind the screen.

But the real world is not like the movies. And Washington is not what most people imagine. It is more like what you would expect than what you would hope for. We know there are always people who figure out how to game ‘the system’. Even in the most absolute monarchy, the king is powerless without a legion of insiders, courtiers, counsellors, ambassadors, hangers on, chisellers, and other assorted cronies. These people collude to use the police power of government to their own advantage.

$300 trillion in debt: We feel so lucky. It is not every generation that gets to witness so many grotesque things at once. Stocks are at an all-time high. Bond yields are at an all-time low. And never have so many people owed so much, to so few. Dear readers may accuse us of ‘belaboring the subject.’ Or of ‘beating a dead horse.’ But in today’s Diary, we’re going to lay on the whip again. This horse isn’t dead at all. He’s got the bit in his teeth…and is running wild…

Stick with us here… According to our friend Richard Duncan’s latest estimate, world debt has climbed to $300 trillion. That’s up from roughly $200 trillion before the 2008 financial crisis. In the world’s five major economies, it has doubled since 2002. Now, the whole shebang depends on debt. All of this debt is calibrated in ‘money,’ which is the most extraordinary thing of all. The key to understanding today’s economy is to realize that money isn’t wealth, and today’s dollar isn’t even money.

Real limits: Normally, money is just a way of keeping track of wealth. It’s like a clock. A clock isn’t the same as time; it just measures it. The Parasitocracy — led by central banks — pretends that adding more money to the system will make people richer. That’s why they have lowered interest rates to zero and below: to make it easy for people to borrow money. But adding money is a scam. It’s like slowing down the clock to make the day seem longer.

‘There are real limits…real laws…that cannot be modified,’ said economist and author George Gilder in Las Vegas over the weekend. ‘The most important is time.’ At least, the old, pre-1971 dollar was real money; it was anchored in the reality of time. It takes time to build real wealth. You have to work. Save. Invest. And most important, learn. And it takes time to dig gold out of the ground, too. And gold — like digital currency bitcoin — becomes harder and harder to get as time goes on. The easy surface deposits are mined first. Then, if you want more gold, you have to go farther and farther…deeper and deeper…at ever greater expense in resources and time.

Rigged system: The new money substitute, which we’ve lived with for 45 years, is a fraud. A dollar in 1971 is worth about 17 cents today. In other words, it has lost roughly 80% of its buying power. Had you been counting on it to preserve the value of your work from the previous decade, it robbed you of everything from 1960 to 1968.

The phony dollar has misled an entire generation into spending money it didn’t really have…doubling or tripling its debt-to-earnings ratio…and shifting more and more of its real wealth to the least productive people — the Parasitocracy.

In 1971, the financial services industry was just 1.25% of GDP. Today, it’s more than three times that much. In terms of real output, finance is still tiny. But that’s now where the money is!

Here’s an item from Monday’s paper: "The biggest six banks in America raised their CEO pay by 7.6% last year — about three times faster than GDP growth. The ‘Big Six’ executives now earn an average of $13.1 million a year. JPMorgan Chase boss Jamie Dimon is in the lead with a $27.6 million pay package. The richest 1% of the population, meanwhile, has increased its share of national wealth from 25% to 40%. And the richest one-tenth of 1% has done even better — going from 10% of national income in 1971 to 20% today."

Lucky? Not really. The system was rigged with the new money."

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