This Blog Has Moved!

My blog has moved. Check out my new blog at

Your Ad Here

Wednesday, May 4, 2011

Corruption Bubble

Some people are wondering where the next bubble will be. The USA has a pretty severe corruption bubble. It's much easier to profit from stealing via the State, rather than actually producing something useful.

The Federal Reserve is still heavily inflating. The Fed Funds Rate is 0.25% while true inflation is 20%-30% or more.

This will lead to another bubble. Where will the next bubble be? Another bubble is guaranteed. You may not be sure until after it pops. Are current silver prices a bubble? Are they a sign of high inflation? You can't be sure.

The USA is definitely experiencing a corruption bubble. That's a key indication of the end of an empire. It's easier to make money via State abuse, rather than by producing something useful.

Instead of making a useful product, you file a patent lawsuit. Instead of making a better product, you get a bailout. Instead of improving efficiency, you lobby for laws that hurt smaller competitors.

Negative interest rates send a false signal. With negative interest rates, an investment that destroys capital can be profitable.

Suppose that corporate bond rates are 5%, while true inflation is 30%. Suppose a CEO is considering building a factory has an expected nominal return of 15%. Therefore, the CEO will borrow at 5% and build the factory, making a profit of 10% (15% - 5%). However, the factory project destroyed capital at a rate of 15%. (30% - 15%)

Negative real interest rates created the illusion that building the factory was a good idea. It's the "seen vs. unseen" fallacy. The CEO got a factory. The rest of society experienced inflation greater than the real value of the factory. Building the factory, the CEO claimed resources that would have been more efficiently allocated elsewhere.

Real interest rates are negative 20%, negative 30%, or even lower. This means that many corporate capital projects actually destroy value. Negative interest rates cause a capital-destroying project to be profitable.

Even worse, negative interest rates lead to bubbles and busts.

The USA is experiencing a severe corruption bubble. It's easier to make money lobbying the State for favors, than by producing something useful. Once corruption crosses a certain threshold, corruption squeezes out useful work.

Increasing corruption is a positive feedback cycle that leads to complete economic collapse. Insiders can't really fix they problem. Insiders are using the State to line their pockets. They won't give up their perks. There are fake reforms, like healthcare "reform" and financial "reform". Meaningful reform cannot occur, because insiders profiting from corruption will always block real reform.


Anonymous said...

steamroller says:

FSK - You are spot-on with this premise. And from my perspective as a business owner, why would any rational person with capital to risk in an entrepreneurial venture even consider to have it in the U.S.A.?
The attacks on the evil word 'profit' would never cease, and the Elite Statists would seek every means possible from "regulatory control" to environmental terrorism to steal your property, and give you a plastic award placque stating your recognition of civic responsibility
to turn your effort into total capitulation to The State. There it is!!! Capital to Capitulation!
Why not a friendly place elsewhwere instead of a hostile America?
And the cro-magnon minions and clones wonder why there is unemployment? You are a seer of truth, and a recognizer of corruption.

FSK said...

The USA is bad. Where else is better? It's a global collapse. I've heard some Latin American countries mentioned as most promising.

For personal reasons, I can't move right now. My only option is to stay here and fight.

One solution is to start a business with low physical capital. For example, blogging or a software business or independent filmmaker or public speaker. Then, your main asset is personal reputation, and not physical capital.

State thugs can seize your physical capital. They can't seize your reputation, unless they kidnap and torture you.

dionysusal said...

Try as they might, they cannot steal your *dreams*, FSK. :)

Anonymous said...

steamroller to FSK -
There are a few places I have checked out, but they have cultural and educational deficits.
Australia is English speaking and has a similar culture - like the U.S. was in 1970's.
Maldive Islands are very friendly and a well-kept secret. Earning an affluent living there is almost impossible, but comfort,peace and stability are worth the pace.
Liechtenstein would be my first choice. It is difficult to get employed in your specialty, but other computer jobs are within reach in one of their three prominent fields: Pharmaceuticals, Chocolate, Banking. You have to be able to demonstrate that you will not be a burden on the State since the State there, is a monarchy that has very limited regulation but high ethical and moral standards, and self determination and entrepreneurs are welcomed. German/Swiss/Austrian speech a plus.

stormville said...

Where is your evidence that the true inflation rate is 30%? Did I miss it?

FSK said...

Look at the price of gold and silver. That's a greater inflation rate than 30%.

This Blog Has Moved!

My blog has moved. Check out my new blog at