The Trade Defecit Myth

This post by gilliganscorner about "The Trade Deficit Fnord" was interesting.

Trade deficits and surpluses are an important issue that mainstream pro-State troll economists always get wrong.

In the context of fiat paper money, a trade surplus is bad for the country with a surplus. A trade deficit is good for the country with the deficit.

Suppose you have a trade surplus. You were a net exporter of goods and services. In return, you received a piece of paper that will lose value over time due to inflation. Essentially, some people in the country with a surplus worked for free.

Suppose you have a trade deficit. Here, there are two separate cases. Suppose you are a third world country. The governments' debts are denominated in dollars or euros, but its income is in its local currency. The country is forced to run a trade surplus later so it can repay its foreign debt. Massive debt burdens are a tool used to enslave people in third world countries. The political leaders eagerly agree to the loans, because most of the money winds up in their own pockets. During the next recesssion/depression, the massive loans are used as justification to steal people's wealth and savings.

Consider the case of the USA. All the US government's debt is in dollars, a currency the US government controls. Even though the US runs a trade deficit and budget deficit, insiders in the USA can always print new money to pay off their loans.

Consider the case of China, which has a huge trade surplus with the USA. China ships goods to the USA. The USA sends China a piece of paper. Who is getting a better deal, the USA or China?

Pro-State troll economists say "This arrangement is good for China. It provides full employment for workers in China." The following are logically equivalent:

1. China ships goods to the USA in exchange for a piece of paper, as occurs in the present.
2. China's government pays people to manufacture things, which China's government then burns.

To keep exchange rates stable, China prints new yuan (China's fiat money) and keeps a huge dollar reserve. When a business in China sells goods in the USA, it then trades its dollars with China's government for newly printed yuan. Effectively, the USA is exporting its inflation to China. Workers in China are subsidizing the profits of financial industry insiders in the USA.

The custom of keeping dollars as reserves originated in the Bretton-Woods agreement at the end of World War II. Only the US dollar would be gold-redeemable, but only by foreign central banks. Other countries would peg their currency to the US dollar. Besides, it's better to hold Treasury Bonds than physical gold, because Treasury debt earns interest and gold does not. That was defective reasoning, because the dollar-denominated price of gold skyrocketed after the dollar/gold default in 1971. In the present, Treasury debt yields far less than true inflation. Gold is guaranteed to outperform Treasury debt over the next few years. In the present, there is massive inflation to bail out insiders.

The Bretton-Woods agreement led to other countries treating the US dollar as if it were gold. This is invalid, because there is massive inflation of the US dollar. The profits of this scam accrue mostly to financial industry insiders in the USA, who get to print and spend brand new dollars before the rest of the world. The US uses its military might to force other countries to keep using the US dollar as reserves. There have been invasions of countries who were threatening to drop the US dollar. Weapons manufacturing is one industry that the US government has not outsourced to third world countries!

In the context of a gold standard in a real free market, trade surpluses and deficits *MUST* balance out over time. Suppose there were a gold standard, and the USA ran a consistent trade deficit. Then, the supply of gold in the USA would shrink. The money supply would shrink. Prices would decrease. At some point, it would make sense for people in other countries to come to the USA and purchase things with their gold.

When mainstream pro-State troll economists talk about trade deficits and surpluses, they are usually wrong. In the context of fiat money, the US benefits greatly from its trade deficit. People in countries that run a trade surplus are essentially working for free.

How is M2 Calculated?

Previously, someone asked me:

How are M0/M1/M2 calculated?

Banks are required to report their total balances to the State every day. More specifically, they are required to report this to Federal Reserve auditors every day.

Here is how the bank clearing system works. Consider Bank of America and Citigroup. Suppose Bank of America customers wrote $50M of checks cashed by Citigroup customers today, and Citigroup customers wrote $25M of checks cashed by Bank of America customers. Then, $25M must be transferred from Bank of America to Citigroup. Bank of America reports a transaction of "$25M to Citigroup" to the Federal Reserve. Citigroup reports a transaction of "$25M from Bank of America" to the Federal Reserve.

Suppose there was an error. Bank of America reports "$25M to Citigroup" and Citigroup reports "$25.1M from Bank of America". Then, the discrepancy of $100k must be investigated and audited.

Without such transactions reported to the State, fraud would be easy. Bank of America could claim it had $1B more than it actually did. Without the Federal Reserve auditing deposits, banks could make up whatever number they wanted. Notice that such fraud is only possible with fiat money. With a gold standard, a bank cannot commit fraud because its customers would start demanding physical gold.

The Federal Reserve also audits bank balances to make sure they are not violating the "10x reserve ratio" requirement. As part of this auditing process, banks must report their balances to the Federal Reserve.

M3 was only slightly more work to collect than M2. The Federal Reserve stopped reporting M3 because they wanted to cover up how bad inflation actually is. Compared to M2, M3 includes balances over $100k and dollar balances in foreign banks. The Federal Reserve must still track dollar balances held by foreign governments. Otherwise, China could lie and claim it had $2T in dollar assets instead of $1T.

There's your answer. Banks are required to report all aggregate interbank transactions to the State. Banks are required to report their net assets to the State every day. This is a fraud prevention precaution. This also allows the Federal Reserve to calculate M2.

History of Central Banking in the USA

Wikipedia has a decent article on this subject. (I feel dirty linking to Wikipedia.)

The first US central bank was created in 1791, shortly after the Federal government was created. It was given a 20 year charter. It was a disaster and the charter was not renewed in 1811. Some people say this was the true cause of the War of 1812. The War of 1812 was retaliation for Congress not renewing the charter of the central bank.

The second US central bank was created in 1816. It was also given a 20 year charter. In 1836, Andrew Jackson vetoed the renewal law. Andrew Jackson then placed all Federal government deposits in state banks. Andrew Jackson fully repaid the national debt.

From 1836-1863, the banking industry was nearly completely unregulated at the Federal level. It was still regulated at the individual state level.

In 1863, the National Bank Act effectively nationalized the banking system. I liked this quote from Wikipedia:

all national banks were required to accept each other's currencies at par value

This was a legal tender law. If bank A was nearly insolvent, but bank B was sound, then bank B was forced to accept money from bank A at par. Sound banks were unable to protect themselves from insolvent competitors, by refusing to accept their paper.

Further, state regulation of the banking industry forced banks to operate under unsound fractional reserve principles. Competing alternatives, such as warehouse receipt banking or time deposit banking were essentially illegal.

In Santa Clara County v. Southern Pacific Railroad (1886), the US Supreme Court ruled that corporations were entitled to the same rights as humans, as a consequence of the 14th Amendment. This wasn't the main issue of the case. The Chief Justice made a remark to that effect during the trial, which was repeatedly cited later.

This was a prime example of the Supreme Court "legislating from the bench". Congress didn't explicitly pass a law saying that corporations had the same rights as humans, regarding property ownership and making contracts. It was implemented via a Supreme Court decision.

Now, every bank was incorporated using limited liability incorporation. This gave bank management and owners a free put option to declare bankruptcy and cheat their depositors and creditors. Limited liability incorporation, combined with State regulation of the banking industry, led to several severe banking crises.

This led to the creation of the Federal Reserve in 1913. Whenever a big "Reform industry X law!" is passed, the regulation is written by insiders and lobbyists from that industry. That's what happened when the Federal Reserve was created. A handful of insiders wrote the Federal Reserve regulation, and presented it to the general public as a law that would limit abuse of the financial industry.

Except for President Lincoln's Greenbacks, which were not gold-redeemable, the Federal Government didn't issue banknotes before 1913. The Federal Government only minted coins. Banknotes were printed by private banks. If a bank was insolvent, then all its paper became worthless. Regulation of the banking industry forced people and banks to accept banks' paper at parity with gold. In 1913, Federal Reserve Notes were issued indirectly by the Federal government. They were gold-redeemable until 1933, so people didn't complain that much as they were introduced. Anybody who objected to Federal Reserve Notes could redeem them for gold. People who took this sensible precaution were thwarted by President Roosevelt's default and gold confiscation in 1933.

In 1791 and 1816, the central bank was given only a 20 year charter that had to be explicitly renewed by Congress. The Federal Reserve was given an indefinite charter. Do you think the Federal Reserve could have gotten its charter renewed in 1933 during the Great Depression?

There also were other provisions that made the Federal Reserve politically untouchable. The 14 year terms for the Board of Governors made the Federal Reserve not subject to the control of the President or Congress.

Theoretically, Congress could reform/repeal the Federal Reserve with a majority vote and the signature of the President. The Federal Reserve is politically untouchable. Most Congressmen do not understand the corrupt nature of the US monetary system (except for Ron Paul and maybe a few others). The financial industry receives *MASSIVE* State subsidies. Some of this money is spent on lobbying to prevent reform. Some of this money was used to purchase or control mainstream media corporations, making it impossible for them to do a critical analysis of the Federal Reserve.

There's another important point. In 1811 and 1836, the bad guys lost. The State still existed, and the bad guys merely tried again later. In 1886 and 1913, the bad guys won, and the free market in the USA was severely eroded. If the bad guys attempt to erode individual freedom and fail, then they merely try again later. The State, which is the primary source of the bad guys' power, still exists, even if an attempt to erode individual freedom fails.

People are allowed limited illusions of freedom, because this makes them more productive workers/slaves.

In the present, reform of the banking system is practically impossible. There are too many people who benefit from the current corrupt system. Complete collapse is more likely than reform.

Steroids and Plastic Surgery

In a true free market, as private organizations, professional sports leagues have a right to ban the use of steroids and performance-enhancing drugs. If a professional sports league does not ban performance enhancing drugs, that is the functional equivalent of the league requiring every player to take performance enhancing drugs.

I disagree with State laws banning possession and use of performance enhancing drugs. In a true free market, private sports leagues can and should ban their players from taking performance enhancing drugs. This ban can be enforced by the free market, and should not be enforced by the State.

There are many valid reasons to ban performance enhancing drugs.

1. Performance enhancing drugs have proven negative side effects.
2. Fans consider athletes who use performance enhancing drugs to be cheating.
3. If the league does not ban performance enhancing drugs, that is the functional equivalent of requiring players to take performance enhancing drugs. Then, players would have a valid fraud complaint against the league. Players who do take performance enhancing drugs could blame the league for contributing to their later illness. Players who don't take performance enhancing drugs could blame the league for adversely impacting their career.
4. If the league does not ban performance enhancing drugs, then someone might form a competing league that does ban them, and attract more fans. (I wonder how many fans a "steroids allowed and encouraged" league would attract. When you consider that professional cycling has been nearly ruined by doping scandals, my guess is "not very well".)
   

If you ask most people, "Should professional sports leagues ban performance enhancing drugs?", the answer is "YES!"

What about professional actors/comedians/journalists/politicians? Nearly all of them have had some type of plastic surgery.

If it's wrong for a professional athlete to use performance enhancing drugs, then it should also be wrong for professional actors/comedians/journalists/politicians to have plastic surgery.

Many plastic surgery procedures have negative side effects. Silicone implants were proven to be harmful. Botox is literally poison.

Effectively, plastic surgery has become mandatory for an entertainment career. You'll almost never see a mainstream media personality decried for plastic surgery, unless it's in the "too much and obviously bad" category.

Consider a professional athlete who is discovered or suspected of using performance enhancing drugs. They are roundly decried as cheaters. Consider Bonds, A-Rod, Clemens, etc., all of which were publicly shamed for having used steroids.

How come there's no media outcry for people who have had plastic surgery? Isn't having plastic surgery cheating as much as using performance enhancing drugs?

Shaming athletes who use performance enhancing drugs serves the needs of the bad guys. The fnord is "The State ban on certain drugs is legitimate."

Mainstream media personalities are practically required to have plastic surgery. This also serves the needs of the bad guys. The fnord is "The average person should be insecure about their appearance. The people on TV and in movies are better looking and smarter than you are."

Mainstream media personalities are statistical outliers genetically. Their characteristics are further exaggerated by plastic surgery. This makes the average person very insecure about their appearance.

I'd never noticed that contradiction before. Professional athletes who use performance enhancing drugs are decried as cheaters. Mainstream media personalities are not decried for using plastic surgery. This effectively makes plastic surgery mandatory. The same logic that leads to "Professional athletes should not use performance enhancing drugs!" also leads to "Mainstream media personalities should not have plastic surgery."

What Does "Rule of Law" Mean?

I've heard "Rule of Law" both referred to in a pro-State troll context and in a real free market context. There's "Good Rule of Law" and "Evil Rule of Law".

"Good Rule of Law" refers to principles of natural law or common law. This covers things like

1. the Non-Aggression Principle
2. You may do whatever you want as long as you don't injure someone else.
3. Individuals have a right to own property.
4. Individuals have a right to make and enforce contracts.
5. Individuals own their own labor.
6. Nobody should have a monopoly of anything, including violence/police/defense/justice.
   

When a pro-State troll refers to "Rule of Law", he's referring to "The rules of the current corrupt system must be respected!" or "The bad guys should be allowed to keep what they already stole!" I already wrote a post on the Rule of Law Scam.

Pro-State trolls are usually citing "Evil Rule of Law". When a pro-State troll refers to "Rule of Law", he means:

1. Pay taxes without resisting!
2. A debt contract with a bank is a valid contract!
3. People who lose their homes due to the Compound Interest Paradox should be forcibly evicted! People must be evicted for not paying their mortgage!
4. People must be evicted from their homes for not paying property taxes! If a State agent declares "Eminent domain!", then the victim must be forcibly evicted from their land!
   
5. Respect the State ban on marijuana!
6. Respect the State ban on owning guns!
   
7. Respect the State ban on manufacturing incandescent light bulbs!
8. Don't work as a doctor/lawyer/accountant/etc. without a State license!
9. Respect the ban on using gold and silver as money!
10. Intellectual property is a valid form of property!
    

When "Rule of Law" refers to "natural/common law", then it makes sense. When "Rule of Law" refers to a corrupt system, then "Rule of Law" is pro-State trolling.

One reason that the USA is more successful economically than other countries is that its legal system approximates "natural law" better than other countries. Regrettably, the USA is moving towards "Corrupt Rule of Law" more than towards "natural law".

Whenever you refer to "Rule of Law", make sure whether you mean "Good Rule of Law" or "Evil Rule of Law".

The trend is towards increased corruption/pillaging/looting. Such a trend can only occur so much before there's a severe correction.

Is it Stupid to own an IRA or 401(k) Retirement Account?

I'm relatively confident in my analysis that the current economic system will collapse in approximately 20 years, via an agorist revolution. I'm not absolutely certain, but the momentum for an agorist revolution is definitely there. Compared to a year ago, I'm noticing quite a few other people writing intelligently about agorism.

All the evidence I see points to an increasing probability of total economic collapse. More and more people are gaining awareness of the massive scam.

Given that information, and given that I'm more than 20 years away from retirement, is there any point to owning an IRA or 401(k) plan? When the economic system completely collapses, my State paper investments will be worthless. This includes shares of GLD and SLV, because I don't have the right to convert them to physical metal. Those ETFs lend out their metal to short sellers, and there will be defaults during a time of hyperinflation.

Whenever you switch jobs, you may rollover your 401(k) plan to an IRA. For my former jobs, I rolled over my 401(k) account to an IRA. This way, I don't have to keep a different statement for each former job.

If the State is going to collapse before I retire, then the present value of all my State-licensed investments is zero.

That isn't totally true. For example, I can use my stock portfolio as collateral to buy a house via a mortgage. When the State collapses, I should be able to keep ownership of my house and get full allodial title, because nobody else will have a stronger ownership claim than me. When the dollar collapses in hyperinflation, I should be able to repay my mortgage with devalued dollars. However, that doesn't mean I should buy a house and maximize my leverage. I shouldn't refinance every time my home equity rises. Eventually, there will be another bubble and bust, and I don't want to lose my house/savings during the next recession/depression. If I pay off my mortgage (or make minimum payments on a fixed-rate mortgage), I'm much more likely to be able to keep it during the next recession/depression.

It's tempting to maximize leverage on my house and use the profits to buy gold and silver. As long as inflation is much more than the interest on my mortgage, that's a profitable trade. The flaw is that you'll can get wiped out during the next recession/depression. The long-term trend for the FRN-denominated price of gold is, of course, increasing. In a 2-3 year period, a decline of 50%+ is still possible, during a deflationary recession/depression. Of course, you could just deposit your gold in an agorist bank, declare bankruptcy, default on your mortgage, and then keep your gold! Then, use the gold to rent/buy another house from another agorist!

Due to property taxes, I don't get full allodial title to my house. I merely have a perpetual transferable lease. However, if the State collapses in 20 years, then I won't have to pay property taxes after that. Therefore, the present value of future property taxes is a finite burden. I'll probably get full allodial title after the collapse. During times of hyperinflation, property tax rates probably won't rise at the true inflation rate. That makes a house/land a reasonable investment for an agorist. I'll accept that I have to pay property taxes until an agorist police agency is strong enough to defend me from State enforcers collecting property taxes; by that time, the State has been defeated.

Gold or silver is the ideal investment for an agorist. You get immediate full allodial title. If you have agorist trading partners, you can use gold/silver as money without reporting the transaction to the bad guys. The primary risk of gold and silver ownership is "Where is a safe place to store it?"

It is legally difficult to invest in physical gold or silver in an IRA. The best alternative is GLD or SLV. In a SHTF scenario, GLD and SLV will be worth zero. You can buy gold and silver in an IRA, provided you choose a State-licensed custodian. In a SHTF scenario, there is no guarantee that the State-licensed IRA custodian will honor his promise to safeguard my gold. If I keep gold and silver in a State-licensed IRA, and there's another State seizure of gold (like Roosevelt in 1933), then I lose my IRA.

The whole point of having an IRA is tax-deferred compound interest. If you're a buy-and-hold physical metal investor, then you already have tax-deferred gains (really compensation for inflation). If I have agorist trading partners, I can trade my gold or silver for goods without any taxes at all!

It seems stupid to hire an IRA custodian to invest in gold or silver. If I take physical delivery of the metal, I have the same tax advantages as leaving it in an IRA. Plus, if the metal is in an IRA, I'm always at risk of seizure by the State.

I'm seriously considering "FSK should withdraw all the money from his IRAs, pay the tax penalty, and buy physical gold and silver. FSK should sell off all his stocks and buy physical gold and silver." I haven't done this for several reasons:

1. My parents would freakout if I did this.
2. I have no safe place to store the metal. It's too risky to keep that much metal in one place. An agorist banking system is needed. When I have agorist trading partners, I might ask them to store some physical metal for me. (I'll either paying a storage fee or on a time-deposit banking basis. I could lend someone gold, understanding they will sell it and invest the proceeds in their own business. In that case, I don't have a "demand deposit", but I shouldn't be charged a storage fee either.)
   
3. I'm not 100% certain that the State will collapse within 20 years. I might as well keep my State-licensed investments as a hedge.
4. Now may be a sub-optimal time to sell my State paper investments. Over a 10+ year period, gold should outperform the stock market. That may not be true in the next year or two.
5. It's more convenient for me to keep my State-licensed paper investments. I'll keep my current investments, but all future investments will go to gold or silver.
6. I'll need slave points until the State has completely collapsed. I'll probably have a combination of State-reported income and agorist income. For example, blog advertising revenue is reported to the State for taxation. I'm planning to continue that, even if I start agorist businesses. If I have a combination of on-the-books income and agorist income, then my tax returns won't look suspicious to a State bureaucrat. Agorist income should be invested completely in physical gold or silver, via an agorist gold/silver/FRN barter network.

Given that the State is likely to collapse in the next 20 years, it's probably in my best interests to cash in my State-licensed paper investments and convert to physical gold and silver. It's worth it even if I pay the tax penalty, because a 60% loss is better than an 100% loss. However, I'm not actually doing this (yet). I'm seriously considering it as a possibility.

Stress Test Fnord

There's been a lot of hype about the banking industry "Stress Test". Each large bank is required to prove that they have sufficient reserves to withstand another severe deflationary recession/depression. Banks that don't qualify must sell assets or raise more capital.

This is merely one big fnord designed to distract attention from the real issue, which is the immoral nature of fiat debt-based money.

Insiders are pretending to severely scrutinize the banking industry, to insure that there is no repeat of the recent recession/depression. Via the Compound Interest Paradox, the rules of the monetary system guarantee an occasional severe economic crisis.

The whole "Stress Test" process is designed to provide the illusion of sound regulation of the financial industry, and cover up the fact that the USA has a completely corrupt monetary system.