We Don't Need Your Stinking Principles
“Nobody can predict how long governments can get away with fake growth, fake money, fake financial stability, fake jobs, fake inflation numbers and fake income growth.
Our feeling is that confidence, especially when it is unjustified, is quite a thin veneer. When confidence is lost, that loss can be severe, sudden and simultaneous across a number of markets and sectors.” - Paul Singer
I noticed the following financial cartoon was making its rounds over the weekend. Particularly this section. In case you can't see the image, the quote that stood out was this one:
“You have two cows. You sell one and buy a bull. Your herd multiplies, and the economy grows. You sell them and retire on the income.”
"You have two cows. You sell three of them to your publicly listed company, using letters of credit opened by your brother in law at the bank, then execute a debt/equity swap with an associated general offer so that you get all four cows back, with a tax exemption for five cows. The milk rights of the six cows are transferred via intermediary to a Cayman Island company secretly owned by a majority share holder who sells the rights to all seven cows back to your listed company.
The annual report says the company owns eight cows, with an option on one more. You sell one cow to buy a new President of the United States, leaving you with nine cows. No balance sheet provided with the release. The public buys your bull."
There is truth in comedy.
It goes on to basically contrast stereotypical characteristics of major cultures and economies. It was an attempt to contrast traditional capitalism. The American section, in reality, is essentially the rest of the world. And then differentiate modern finance across various multicultural nuances.
The humor leverages cultural distinctions that do not exist. For many decades, the largest banks in the world planted seeds in the fallow soil left over from world crisis. International banking was established first. It was the period extending from the creation of the current U.S. Central Bank, through both world wars.
During that time, domestic banks were hobbled by gold, politics, and the aftermath of World War II, limited by Bretton Woods.
They hadn't yet gone too far off the island of economic principles. Go one step further to question the underlying unit of measure. Over time, it all trickles down on the viability of the underlying currency.
a fundamental truth or proposition that serves as the foundation for a system of belief or behavior or for a chain of reasoning.
a fundamental source or basis of something.
a fundamental quality or attribute determining the nature of something; an essence.
Legal tender, Fiat, unbacked Federal Reserve notes, is based on a lie. A false principle, central to each successive layer of untruth. Simple economic principles, laid out by Bill Buckler, publisher and editor of the now defunct newsletter, “The Privateer".
You don’t get any if there ain’t none.
Don’t eat the seed corn. After food, shelter, and clothing, the most important economic good is TIME! All productive work begins between the ears. You don't get any if there ain't none.
Fiat is wealth illusion - conjured from nothing. The more they conjure to line their pockets, the less value there can be. It distorts real wealth, replaces the brain of individual productivity and replaces it with bureaucracy and institutions.
And the seed corn rots away into nothingness. The actual details are more painful. Exponentially more painful. More severe. But we can't be bothered with all of this.
Too much to do. Too many fish to save from drowning. What is not funny is the consequence of extreme risk. Complexity on the back of extreme fragility is a recipe for disaster. We can't know the full the extent of the aftermath.
Abrupt change and gradual change. Change is the constant denominator. We can know that in a true financial collapse, everything shuts down for an extended period of time.
Systems that are run on constant flow of credit cannot be re-inflated. They break permanently. Without credit, many businesses go bankrupt, right along with the financial players.
The sad, sobering reality is that we will all suffer lonely consequences. As individuals, we will feel the force of responsibility. And many will view the opportunity in retrospect.
They will have wished they had taken preemptive measures.
Sadly, as an example of the almost completely oblivious culture and society, an old story that illustrates how we got here with all of this. The following tale captures the demise perfectly...
How to Catch Wild Pigs
In the midst of his story he looked at the professor and asked a strange question. He asked, 'Do you know how to catch wild pigs?'
"You catch wild pigs by finding a suitable place in the woods and putting corn on the ground. The pigs find it and begin to come every day to eat the free corn. When they are used to coming every day, you put a fence down one side of the place where they are used to coming. When they get used to the fence, they begin to eat the corn again and you put up another side of the fence.
They get used to that and start to eat, again you continue until you have all four sides of the fence up with a gate in the last side. And when the pigs, which are used to the free corn, start to come through the gate to eat, you slam the gate on them and catch the whole herd.
Suddenly the wild pigs have lost their freedom. They run around and around inside the fence, but they are caught. Soon they go back to eating the free corn. They are so used to it; that they have forgotten how to forage in the woods for themselves, so they accept their captivity.