Money for Nothing

It's now almost two months since we had the unusual situation that gold futures in the US were trading substantially above gold spot in London. As predicted, we now know that traders took advantage of this. They loaded up on physical gold in London which they flew to the US for delivery into the futures market. By simultaneously buying spot in London and selling futures in the US, the traders were effectively making money for nothing. All they had to do was to arrange for transportation.

Since traders were making guaranteed money on this arbitrage, others must have lost money without any kind of compensation or hope of future gains. Whatever the traders made in guaranteed profits were necessarily covered by others, which begs the question, who were prepared to take the loss?

One possibility is that foreign central banks deemed hostile or undemocratic in the West have been using the US futures market to circumvent restrictions in London. Instead of buying gold directly from London they've paid a premium for US futures to ensure delivery. Knowing full well that the US futures market cannot default on delivery without loosing credibility as a global gold trading hub, foreign central banks have forced the US-London gold cartel into shipping gold from London to the US for ultimate delivery into foreign hands.

If this is indeed what's going on, then we should soon see numbers coming out of the US futures market indicating that the gold flown out of London ended up as delivery to foreigners. With more than 500 tonnes of gold shipped to the US in a single month, this game cannot continue for long before something blows up.

By Jonathunder - Own work, CC BY-SA 3.0, Link

My Tao - The Madness of Sancho Panza

Sancho Panza was employed as Don Quixote squire in the famous novel about this self proclaimed knight and his trusted servant. While much has been said about Don Quixote's delusions, little has been noted about the peculiar madness of Sancho Panza.

The odd thing about Sancho is that he's quite aware of his master's madness, yet nevertheless fully prepared to trust him and invest his time in his service. When Don Quixote eventually dies and all their adventures come to nothing, Sancho has no regrets. His only sorrow is the loss of his master.

While it is true that Don Quixote provided many memorable moments for Sancho, and that the two men developed a close friendship during their adventures, this was not in the end what motivated Sancho to carry on for as long as he did. The true motivating factor was the promise of a great reward. Sancho was to be given an island to rule for himself once Don Quixote's many imagined enemies were finally defeated.

Sancho Panza carried on in the firm belief that a great reward was just around the corner, despite the evident madness of his master. Nothing made any sense. There were no dragons, no distressed maidens, no giants and no armies of infidels, only windmills, prostitutes, foundries and goat herders. Yet, out of all this, a great reward would nevertheless materialize?

While it's easy to dismiss Sancho as an easily fooled simpleton, truth is that he's no moron. He's down to earth and well aware of what's going on. He has no need of a master, yet he invests his time and energy into a madman's projects because the promise of a great reward is too much to give up for something as trivial as reality. To Sancho, reality is subordinate to hope, and this particular madness is much more common than we like to admit.

We all engage in some kind of wishful thinking from time to time, and a great number of us are willing to stake our financial future on nothing but hope and hot air. The promise of a comfortable pension at some future date keeps most of us going and paying into various pension schemes, even when we know that it's all an illusion. The wind turbines going up all over Norway are paid for by the sweat and labor of honest Norwegians. The promise of a prosperous and green future is clearly delusional, but most Norwegians continue to pay into this madness with the same sort of enthusiasm that Sancho had for Don Quixote.

We all know that politicians are full of hot air and delusional beyond repair, yet the great majority of us prefer to trust them with our money, convinced that we will reap much more than we pay in. Most everyone is suffering from the same madness that Sancho Panza suffered in his life, and when the welfare state collapses in a not too distant future, most people will have no regrets beyond a nostalgic longing back to the days when the illusion was still alive.

By Gustave Doré - originally uploaded on nds.wikipedia by Bruker:G.Meiners at 14:22, 28. July 2005. Filename was Don Quijote and Sancho Panza.jpg., Public Domain, Link

My Tao - Anti-Capitalists

Driven by feelings rather than rational and independent thinking, we invariably end up as somebody else's useful idiot. Almost everybody is a tax donkey, paying much more to the system than we'll ever get back. Many are debt slaves as well, spending a lifetime paying for a modest dwelling. Entire lives are wasted in the service of strangers.

However, nowhere are the unthinking idiots more numerous and exposed to the will of others than in politics. The Green Party in Norway has for instance managed to align itself with some of the most exploitative corporations in Europe. That's pretty rich coming from a party that always prided itself on being anti-capitalist.

Eager for the latest and greatest in green technology, the Green party pushed for a deal where publicly managed pension funds were forced to invest in wind turbines to be deployed along the coast of Norway.

No-one seems to have bothered to do the math on this decision. But the expected productive output of the wind turbines will never generate a meaningful profit. There will therefore be a dramatic pension shortfall due to this decision in the not too distant future.

Adding insult to injury, the wind turbines will litter the coastline, making it not only less attractive to look at, but also a lot more dangerous for the millions of birds that fly up and down this coastline as part of their annual migration. There will be many thousand dead birds every year because of this "green" technology. We may even see the extinction of endangered species that are currently just barely surviving.

The Green Party has managed to become the enemy of the people and bird-life, and many are starting to notice. Anti-capitalists are out in force, protesting the wanton destruction of wildlife instigated by the Green Party. But the Green Party refuses to bend to the populists. They use riot police to force protesters aside so that heavy equipment required for the construction of wind turbines can get to the peeks of mountains and hills.

Members of the Green Party have become the fascist lackeys of big capital that they always accused everybody else of being, and it's unlikely to end well for the greens. They will not remain in power for long, and their politicians may at some point face charges of treason for the damage they caused to pension funds and natural bird habitats, all in the service of foreign corporate interests.

Looking at this from afar, I'm glad I got my savings under direct control and miles away from any pension plan, public or private. I'm also glad I'm not paying any taxes. I'm not funding this in any way. The destruction is on others to finance, not me.

The situation is thick with irony. The anti-capitalists have no trouble painting the Green Party as nothing but a fraud, and the very personification of what they've been claiming to detest. Yet, the situation is much more subtle than the anti-capitalists make it out to be. The greens didn't end up in the current situation due to some deep seated evil on their part, but due to their refusal to think. They got trapped by foreign interests because they fell for the claim that wind turbines is the future of green energy. Without the will to do even the most basic independent research and thinking, they became the useful idiots of large corporations.

But anti-capitalists are no more philosophical in their approach to politics than the greens. They too are a bunch of gullible romantics, ripe for the plucking. If they gain popularity, we're sure to see them too trapped by a bunch of smooth talking salesmen equipped with glossy brochures of some utopia or other.

The word anti-capitalist is evidence of the unthinking nature of these people. It's a word full of emotions, but void of meaning. What exactly is an anti-capitalist? No-one can give us a coherent answer. The greens claimed to be anti-capitalist. But look at them now. It was not a philosophy of any value to them. Nor is it useful to anyone else besides those intent on turning anti-capitalists into their own minions.

Anti-capitalists are wide open for manipulation. They can just as well be turned into libertarians as communists. All that's required is to present a romantic vision that will appeal to them. Communists will emphasize equality and the importance of having the right type of people in control. Libertarians will emphasize the value of local government as opposed to centrally directed power.

There's a host of anti-capitalists out there, all ripe for the plucking. A properly crafted tale of decentralized power and the virtues of local self government will likely do the trick. It would be a first step in bringing these people over to the idea of liberty and self ownership. We might as well use these people for our own ends towards a more liberal world order, because if we don't someone else is sure to do so.

When talking to anti-capitalists, we need to ignore the nonsensical nature of their chosen label. Words are not important. Ideas are what counts, and the ideas of local government and voluntary social interaction are appealing to most people. Encourage them therefore to think of anti-capitalism as a philosophy founded on these ideas. They will gladly soak this up to fill the vacuum inherent in their own philosophy. With a bit of luck, anti-capitalism will end up being indistinguishable from traditional libertarian philosophy.

By Linuxerist, Froztbyte, Arcy - Own work, Public Domain, Link

My Tao - Astonishing Disregard for Data

Every now and again, I'm reminded of how few people bother to check basic facts before they open their mouth. Most recently, it was a comment on a Facebook post about wind turbines that got me. An intelligent, well mannered friend of mine, claimed that wind turbines neither make any noise, nor kill any birds. However, the most basic of research proves that this is a lie. There's no lack of videos on YouTube documenting the fact that wind turbines kill birds, and the noise that these turbines make can be verified by simply going up close to one.

A bit of additional research gives us all the numbers required to make our own calculations. We quickly find that the tip of a typical wind turbine blade moves at a speed ranging from 100 to 300 km/h. The calculations involved are trivial, so anyone can do them themselves.

Unsurprisingly, wind blades sweeping through the air at speeds up to 300 km/h kill birds and bats. A quick search gives us the answer to how many such animals die on average per turbine, namely 5 birds and 12 bats every year.

When we combine this with the fact that it takes about 3000 wind turbines to replace one conventional power plant, we get an annual kill rate of 36000 bats and 15000 birds for each power plant replaced by wind power. Adding to this, that there are thousands of conventional power plants in the world, we get an annual kill rate in the 10s of millions if we were to replace them all with wind.

This "research" took me less than an hour, yet my passionate friend were too busy for this, despite taking a positive stand in favor of wind.

If this had been a one off example, I would have dismissed it as something unusual. A moment of thoughtless passion perhaps. But I have vegan friends who are just as passionately in favor of wind turbines. And I've wasted much time talking climate politics with supposedly well informed and clever individuals.

It turns out that the norm is to ignore data, even when data is plentiful and easy to process. Instead of multiplying two numbers together to get an answer, people go with "expert opinion". Highly educated or low educated, they all reach for authority rather than a calculator.

Being of the opposite inclination, I find this refusal to do independent thinking astonishing. The first thing I do when confronted with an idea is to check its validity. Only if my calculations and quick "research" fail to throw cold water on an idea am I prepared to go along with it. Yet, the norm is to do no independent fact checking, and simply go with whatever feels right.

From this, I can only draw the conclusion that most of us are doomed. At best, we'll get through life without being stripped of our possessions and liberties. At worst, we'll end up slaughtered in some mindless war. Willfully ignorant, we'll let ourselves become useful idiots for the establishment who know no limit to their greed and lust for power.

By shizhao - https://www.flickr.com/photos/shizhao/10266736665/, CC BY-SA 2.0, Link

My Tao - False Alternatives

One of the most deceptive forms of propaganda is the employment of false alternatives. A range of alternatives are presented and thoroughly analysed, making it seem like we are confronted with profound logical thinking. Then a completely reasonable conclusion is presented on basis of the in depth analysis. For those who didn't pay careful attention, the conclusion seems self evident, and the propagandist can proceed with the full support of its audience.

However, on closer analysis, something important was left out. There's an alternative line of reasoning, conveniently ignored by the propagandist, that leads to a very different conclusion.

There are for instance a whole host of economists who will argue at length for the impossibility of a sudden collapse in the dollar. They will site all sorts of reasons why the dollar cannot be replaced. There's simply no alternative. However, such analysis always ignore or belittle the alternative to our current dollar standard, namely a return to a gold standard.

Similarly in politics, there are all sorts of arguments related to the way we lead our lives. Pros and cons related to just about anything imaginable are endlessly debated, be it the exact details of various school activities, or the correct way to wear a face mask. In all of this, freedom is rarely mentioned as an option.

To be successful in life, we have to look through this kind of propaganda, because the best solutions are frequently those never mentioned, or those greatly belittled and passed off as naïve or irresponsible.

By Albrecht Dürer - AGDdr3EHmNGyA at Google Cultural Institute, zoom level maximum, Public Domain, Link

Why Rome Fell

When we talk about the fall of Rome, we mean the western part of the empire. The eastern part, commonly referred to as Byzantium, lasted for another 1000 years after Rome fell, and can be used as a reference when we try to find out what caused the western part to fall into decay.

The cultural, legal and economic differences between Rome and Byzantium were relatively minimal when the original empire was divided into two parts, roughly 200 years before the fall of Rome. The biggest difference was that Romans spoke Latin while Byzantines spoke Greek. For the rest, things were more or less the same. There was a budding new religion called Christianity in both regions. Both regions used slaves. Both had bread and circus for the masses. To cite any of these factors at the reason for Rome's fall is therefore suspect. Why would something that existed in both regions be a determining factor in the fall of Rome when Byzantium managed to flourish for another 1000 years?

Using this line of reasoning we can further rule out a number of other factors. Both regions were large with exposed borders. Both regions had to deal with invaders. Both regions suffered the occasional bad harvests and disease. None of this can have been a determining factor in the fall of Rome. Nor could the use of mercenary troupes be the reason, despite the fact that Rome eventually fell to a group of mercenaries. Proof of this lies in the fact that Byzantium was saved from a serious political crisis in the 6th century by the same type of mercenaries that sacked and eventually took over control of Rome in the 5th century.

The big difference between Rome and Byzantium was that the mercenaries were paid in full by the Byzantine emperor, while the Roman emperor defaulted on his debt to his mercenaries a century earlier. The fall of Rome was a bankruptcy of the state. Unable to pay its soldiers, the soldiers took over control in much the same way creditors take over a business that is unable to pay its debt. The fall of Rome was not so much a fall as it was a transfer of control. The western part of what had once been a single great empire fell into the hands of various factions similar to the way an over extended business ends up sold off in parts to whomever is willing and able to take control.

While Byzantium had leadership willing and able to do the right thing, Roman leaders were constantly stuck in a Status Quo. The Romans looked for quick fixes like monetary debasement and credit where the Byzantines raised taxes, cut costs and remained on a gold standard.

By Geuiwogbil at the English Wikipedia, CC BY-SA 3.0, Link

My Tao - Decline and Collapse

When it comes to the nature of decline and collapse, there's a lot of wisdom in this quote by Mike Campbell in the 1926 novel “The Sun Also Rises” by Ernest Hemingway:

“How did you go bankrupt?” Bill asked.
“Two ways,” Mike said. “Gradually and then suddenly.”

This is how bankruptcies go. They sneak up on us. Then they trap us. Making this all the more painful, there's no lack of warning signs at the start of the decline when actions can be taken to avert the final collapse. In retrospect, the collapse is seen as an inevitable consequence of bad decisions. We are not only left with a lost fortune, we are stuck with the blame as well.

What's interesting in this is that it's not only personal bankruptcies that behave in this way. It occurs in other contexts as well. All levels of social organization decline and collapse in this manner, be it corporations, nations or empires. It even happens in the extinction of species. The number of dinosaur species declined over million of years before they went extinct. A slow decline in numbers and diversity is a common precursor to extinction.

It should also be noted that collapse is only inevitable after a certain level of corruption has set in. If some corrective measure or change of path is adopted early on, collapse can be averted. However, this requires that something decisive is done, or in the case of dinosaurs, something decisive happens. The onset of corruption has to be rooted out before it becomes fatal. There has to be consolidation. That which cannot be supported over time has to go. Only that which can be sustained can be allowed to continue.

When I sold my house in Norway, I did so because of the unsustainable path I had embarked on in an attempt to keep it. I borrowed regularly with the house as security in order to pay for taxes and other costs associated with its upkeep. This looked deceptively sustainable because house prices were rising faster than the debt on my house. On paper, I was getting richer despite the increasing debt burden. It was tempting to continue the game, and do nothing. However, I realized in time that this was unsustainable. At some point, my debt would grow faster than house prices, and I might easily loose everything should there for some reason be a crack in the housing market.

I did the right thing. I sold the house and used the proceeds to pay down debt on my wife's apartment, put some cash savings in the bank, and buy gold. My timing could hardly have been better. I got out at the very top of a housing bubble. But the shock and dread that I felt during the realization of my precarious position, and the subsequent decisive action to sell the house, left me shell shocked. The abyss was frighteningly close by. I could smell the stench of disaster, something I don't want to experience ever again.

As an example of a business that took decisive actions too late, we have Norske Skog, which I was stupid enough to invest in during its decline. Had I known then what I know now, I would have recognized the hopeless position that the company was in. I would not have put a cent of my savings into it. However, willfully ignorant of the dire troubles the company was in, I kept putting money into it till the very end. The decline lasted ten years before the final collapse, which lasted for less than a week. Creditors lost their patience with the company and demanded it bankrupt, and that was the end of my investing adventures into this particular company. There was nothing left for me after ten years of patience and steady contribution.

But it should have been clear from the start that the company was doomed. It had gone on a wild spending binge in order to create "shareholder value". It took on debt in order to appear better and stronger than it was. This had the short term effect of sending its share price sky high, but the long term effect of bankruptcy. As it happens, this is exactly the sort of logic that the CEOs of many large US corporations are currently engaging in. Stock buy-backs send share prices up through debt backed spending. The long term effect will be that of Norske Skog. There will be a decade or two of decline before a final collapse. Anyone invested in US stocks is hereby warned.

Adding to the risk in US stocks is the fact that the US government itself is on an unsustainable path, and a fate similar to that which befell Rome some 1500 years ago is at hand. The US is as over-stretched, both financially and militarily as was Rome during its decline. There's also the same arrogance and refusal to deal with the situation. The US is as doomed as Rome once was. While its descent into irrelevance may take hundreds of years, there's at this point no avoiding a final collapse. The decay and corruption in Washington D.C. is simply too far gone. The federation will disintegrate, and new nations will form, as happened with Rome.

The lesson in all of this is that decline and collapse is inescapable once an unsustainable path has been chosen and remained upon for more than a short period. No amount of energy and determination will save a system that is too far gone to be saved, and we can recognize the symptoms from miles away if we bother to look. The decay can last for decades and even centuries if the system is large enough. In empires, there is a loss of population, a decay in moral fabric, and debasement of money. In companies, there's a constant need for emergency actions. In personal finance, there's the rapid rise of debt, relative to assets. Key to survival and success is the early recognition of this. Personal spending must be kept at a sustainable level, and as much distance as possible should be kept from external systems that are on a path to oblivion. Never save in anything directly related to doomed systems.

By Canaletto - Web Gallery of Art:   Image  Info about artwork, Public Domain, Link