The Real War - Updated

Yesterday I tied together a dynamite Tucker Carlson monologue with other reporting that was more technical in style. The part of the Tucker monologue that really grabbed me—mind you, it’s all great stuff—had to do with the financial strip mining of the American middle class by the ruling class elite:

But it [government printing too much money in 2021] isn't the whole story. It did not start with Zhou Baidan, to be fair. In the months after the 2008 financial crisis, the Federal Reserve assumed emergency powers to respond to the financial collapse. Now, if you're noticing a theme here--people in charge giving themselves emergency powers in the face of a crisis they created--you may be on to something.

In essence, what Tucker was talking about was the effect of the inflationary process that’s been going on for some time, but got to the pedal to the metal stage in 2008. What that involves is the ruling class inflating the living hell out of the dollar and then using inflated—devalued—dollars provided gratis by the Fed to buy stuff of real value. What kind of stuff? Well, think about this: Bill Gates is the biggest owner of farm land in the US. Do you know anyone, anyone at all, who can do without food? That’s real value. The ruling class sees what’s coming at the end of this process and they’re buying real assets and palming off devalued dollars on the rest of us. Another example, Blackrock is buying up residential real estate. That’s real value—you need a roof over your head, right?—and they’ll rent it back to you at a premium. Your standard of living will sink like a rock.

Here’s Tucker again:

I joined that to an analysis of the world monetary system by Zoltan Pozsar, a former United States Federal Reserve and US Treasury Department official who’s now a short term rate analyst at Credit Suisse. The excerpt below is slightly different from that in yesterday’s post. Note that Pozsar talks about “inside money” versus “outside money”. That will be important further down, and it will also be important for understanding what’s really going on with Russia and Ukraine. Oh, and China. And Europe and the US.

Here we go:

US commodity crisis to give rise to new world order, says Credit Suisse’s Zoltan Pozsar: Key takeaways

Credit Suisse short-term rate strategist Zoltan Pozsar, a former United States Federal Reserve and US Treasury Department official, in a report said the US is in a commodity crisis and this will give rise to a new world order that will weaken the US dollar and create higher inflation in the western world.

Here are the key takeaways from his note titled Bretton Woods III

— We are witnessing the birth of Bretton Woods III – a new world (monetary) order centered around commodity-based currencies in the East that will likely weaken the euro-dollar system and also contribute to inflationary forces in the West.

— A crisis of commodities is unfolding. Here commodities are collateral, and collateral is money, and this crisis is about the rising allure of outside money over inside money. Bretton Woods II was built on inside money, and its foundations crumbled a week ago when the G7 seized Russia’s FX reserves.

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— If you believe that the West can craft sanctions that maximise pain for Russia while minimising financial stability risks and price stability risks in the West, you could also believe in unicorns. When this crisis (and war) is over, the US dollar should be much weaker and, on the flipside, the renminbi much stronger, backed by a basket of commodities.

— From the Bretton Woods era (backed by gold bullion), to Bretton Woods II (backed by inside money, i.e. Treasuries with un-hedgeable confiscation risks), to Bretton Woods III (backed by outside money i.e. gold bullion and other commodities); After this war is over, “money” will never be the same again… …and Bitcoin (if it still exists then) will probably benefit from all this.

OK. Today Tom Luongo takes off from Pozsar’s memo, explaining the implications for the world we’ll be living in. It’s a fascinating read, but I’ll excerpt the parts that fit in with the above reflections:

The Ins and Outs of Whose Money is it Anyway?

Like Tucker, Luongo is focused on who’s benefiting at whose expense. But he sees this coming to an end.

There’s been a massive reaction to Credit Suisse analyst Zoltan Poszar’s note about the birth of a new Bretton Woods agreement.

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The people most freaked out about this note are the Keynesians who worship at the altar of what Poszar calls Inside Money — money that only exists inside the financial system, bonds, credit, dollars, euros, etc.

Austrians, like myself, have always understood that eventually Inside Money fails because it is ultimately nothing more than a Ponzi Scheme built on top of Outside Money — money that exists outside the financial system, like commodities and bitcoin.

Poszar makes his early case and then goes through the mechanics of what is happening in the financial plumbing of the world economy right now to prove the stresses are real and building quickly towards an implosion of Inside Money and an explosion of Outside Money.

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Today’s “Inside Money” standard, known colloquially as the Dollar Reserve standard, is actually what I like to call “Milton Friedman’s Nightmare.” It is nothing more than a system of competitively devalued and inflated debt-based scrips running around drinking each other’s milkshakes until everyone’s glass is empty.

FYI, there are a lot of empty glasses around the world right now and more are being created everyday as the financial system turned predatory after the Lehman Bros. collapse in 2008.

That’s an explicit link to what Tucker was talking about.

It was then that the Central Banks and governments turned fully against the people sucking up more and more outside money by inflating inside money egregiously to control more and more of the real wealth of the world.

There is only one problem with that, however. Eventually, you run out of property to squeeze out of people’s hands. The more you take, the less people are restrained by little things like laws.

Eventually two things happen. The first is what we’ve been seeing from Russia and China for the past twelve years — steady accumulation of gold and other hard assets, outside money, including the building of real manufacturing infrastructure as well as the financial infrastructure to house it.

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And what bigger subversion of the rule, “thou shalt not steal” could there be than a debt-based Ponzi scheme of inside money being used to suck up legal claims to most of the world’s valuable resources while actively suppressing the value of the competing outside money to defend people’s claims to it?

We hear talk all the time about how “corrupt” other countries are—Russia, China, Ukraine. The implication is that, while the US may not be perfect, we don’t have a systemic level of corruption. What Pozsar is basically saying—and Luongo is very explicit about it—is: Get real! Just because our rulers who are strip mining the middle class, went to the best schools, speak correctly, dress in the best clothes and live in style, don’t commit armed robbery, etc., that doesn’t mean that our system isn’t corrupt from top to bottom. Putin sees that, too. He made a point not long ago about referencing the way the US embraces a “rules based order”—the rulers of the US make the rules and change them for their own benefit.

This is what Poszar is implying when he says we’re moving away from inside money to outside money. Inside money is created through rules and laws, not markets. Outside money is created through labor, time and human ingenuity. It is tokenized human capital.

This is the real implication of Poszar’s note that we are approaching a new Bretton-Woods where outside money will replace inside money as the reserve asset of the financial system.

The West has stupidly picked a fight with the one country, Russia, that has the commodities needed to run the world and bring about this return to an outside money based system.  

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[Inside money] works because everyone still believes (wrongly) that the rules of civilization are mostly equitable and it’s possible to defend your property through its institutions.

Individual commodity markets can be subject to the vicissitudes of living — boom/bust cycles, weather, etc.. But when the entire commodity complex is under stress like it is now, that’s a ‘no-confidence’ vote against the inside money system.

That’s what we witnessed breaking last week with the London Metals Exchange shutting down futures trading in nickel.

Now let’s think through what we now know about this situation which has come to light since it first occurred and Poszar wrote his little note. We found out that the LME was shut down because one Chinese tycoon was caught massively short and his counter-party was one of the most systemically-important banks in the world, JP Morgan Chase.

Moreover, the LME didn’t reopen because he didn’t want to cover his short, but double down. And now the LME is trying to reverse all the trades that occurred on Wednesday.

Rules for thee and not for me. Oh look, someone thought all that inside money was actually worth something to claim outside money in the real world. How quaint.

I’m sure this situation will eventually work itself out. But, let’s be clear here, the LME is now effectively done as an exchange.   Just like Black-Faced Hitler destroyed the concept of private savings in Canada a few weeks back because some truckers made him look like the little bitch that he is, the LME undermined global confidence in it as a way to coordinate supply and demand for important commodities through price and time.

It is also just like the US State and Treasury departments making a mockery of the concept of foreign exchange reserves and the value of anyone’s savings held in something other than their deplorable, little hands?

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Poszar gave us the clues with his note.  The Petrodollar is the M0 of global trade.  Paper Gold is the M0 of the financial markets on which the current asset pricing system is based. Inside money is deflating, outside money inflating.

Wall St. realized the petrodollar was dead ages ago and that the move for them now was to get ahead of the game and into the other outside money worth considering, bitcoin. Of course, they want to recreate the old paper gold trade with bitcoin to keep their inside money games going. But, I don’t think that’s going to be enough to save them.

The FOMC is staring at an existential choice this week. How much do we raise rates in the US knowing the deflationary shock it will have on asset prices, especially since the ECB just signaled it’s getting on the tightening bandwagon?

Because if the Fed is aggressively hawkish on Wednesday that is your signal that Congress’ new spending blackmail will not be funded with cheap inside money anymore. The cost will be higher than the US can afford and stay solvent. If they aren’t then they caved and it’s time accelerate personal plans of de-dollarization to defend what property you have left.

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Biden going it alone against Russia on banning imports of Russian oil is a move to destroy the U.S. energy markets and our economy.  It is pure scorched earth policy.  

Zhou’s play of blaming Putin isn’t going to wash. The signals are clear: from economists to comedians, everyone knows the jig is up.

Now Biden et.al. are looking for ways to freeze Russia’s gold so they can’t spend it.  What these congenital morons do not realize is Russia isn’t going to SPEND ITS GOLD, it’s going to ACCUMULATE EVEN MORE OF IT. 

Freeze it all you want guys, you won’t be in power in eight months. Right now Wall St. and the Fed have to step in and demand a change at the top of the US government to oust these insane Davos vandals or the US is toast along with the smoking hole that Europe is already.

There you have it. The Real War. Putin is not our enemy—not the enemy of the America we want to preserve and make great again. If you want a glimpse of the Real Enemy—and I never thought I’d be saying this—you can get a pretty good view by reading Bluto Barr’s memoirs:

The William Barr Code

The former attorney general’s memoir is one deep state revelation after another.

Mind you, I won’t be reading them—there’s only so much I can take. When I read this,

Barr does reveal that in 2016 his choice for the Republican nomination was Jeb Bush, a “thoughtful and soundly conservative” contrast to Donald Trump, whom he regarded as “a political opportunist who had no real political convictions.” After confirming that collusion charges against Trump were false, and charting his considerable achievements, Barr wants Trump to butt out.

I knew I could never, ever, read any more.