Sunday, May 12, 2019

Thought Correctness ....

In recent posts, you may have noticed there is no shortage of commentary regarding the Dollar System's activation of it's self-destruct sequence. Economic sanctions of many types, trade tariffs, dark money debasement and abandonment of international rule of law by the issuing "authority" do not bode well for continued world-wide acceptance and preference in the U$D.

The issuers seem confident that the stick can be used as effectively as the carrot. But one does not abandon the carrot when wielding heavy the stick. Instead one sweetens the rewards of loyalty among the systemically connected. Thus we see Dollar System banks (wherever they are domiciled) incentivizing the "correct" thinking in our global financial derivatives (thoughts of value) complex.

Perhaps this is why our US FED primary dealers have been shifting their derivative positions from interest rate based to FX based positions, to insure dollar exchange value more directly. No one is pointing to it, but just review the OCC reports between 2008 and 2018. Total derivatives have actually shrunk by a few trillion (as reported). But the shift away from Interest Rate and into FX forwards, swaps and exotics is quite remarkable.

As we know, our modern digital (and paper) currencies are mere "thoughts of value" which exist in the "conceptual realm" - a realm which transfers conceptual value in the financial plane to material value in the physical plane. As we have discussed many times before, our derivative world governs our material world (derivative tails wagging underlying asset dogs). But there is a balance between the two planes that must be maintained in order for both to co-exist.

As we have noted in prior posts, things such as "rule of law" and "depth of usage" help to govern that balance. Our currency denominated financial derivatives support the conceptual realm which governs our financial plane of existence. Oddly, it is a circular construct which controls the marketplace for the very currency values which transfer to the material world.

Financial derivatives reward correct thinking and punish incorrect thinking about thoughts of value, and this allows our money to function in the material world. The reward and punishment elements in this process are the very currencies which credibility the system ultimately serves to protect.

Incorrect thinking about the direction interest rates are headed over the next five years are punished by the loss of vast sums. Correct thinking brings equally rewarding gains. Incorrect thinking about the value of certain currencies is punished, just as correct thinking is rewarded by the loss or gain of, again, derivative currency units.

This crux of our derivative "thoughts of value" system can be summed up merely as "confidence".

Like faith, confidence is a human emotion which exists in that conceptual realm where fiat currencies "free" markets, and other conceptual derivatives exist. It is truly the one critical element that ties the financial plane to the physical plane. Without confidence in the ability of our markets, our currencies and our derivatives to function, they will not. Rule of law or depth of usage can increase confidence when applicable, but neither can save the currencies once true loss of confidence occurs. If a nation holding dollars believes those dollars will lose their function (thus their value) the currencies are doomed.

But of course you've been told this by your FED Chairman and your Treasury Secretary (and their systemic counterparts in other nations) several times before. Please understand the importance of this one true statement among the mountain of lies. The dollar system has effective ways to reward its believers, users and benefactors for having confidence in its almighty power. And it uses itself equally effectively to punish its doubters.

It will take a great financial calamity, I suspect, to escape this confidence game played by the dollar system. The alternative is a never ending parasitic relationship between issuer and user ... where the issuer plays the carrot against the stick quite effectively. It's called "kicking the can" in some circles. Expect a slow stagflation that inexorably shifts material wealth from the user (debtor) class to the issuer (lender) class. Much like the last 50 years or so.

Indeed the families prefer a world where the 1% have more wealth than the bottom 99% combined, and all is peachy. But in the material world, as we approach that tilting of the scales, the world is not so peachy as hoped, and confidence in that scheme also wanes.

You see, if the "correct" people lose confidence, all will follow.

One last thing. In a world where conceptual value is tied to material value by something more powerful than confidence, the sequence of events over the past half century that bring us to today would never have transpired. That something is gold. And the correct people know this.

9 comments:

  1. If families preferred a world where the 1% have more wealth than the bottom 99% combined, then they prefer at least 80% of their wealth being invested/stuck in speculative assets. If they were too greedy or don't understand financial flow, keeping 90% of their wealth stationary, they would cause the economic deflation which would eventually causes diminishing returns on whatever they park their wealth.

    If the "correct" people lose confidence, being their wealth is speculative or derivative of hard assets, they have nowhere to go since they own 99% of speculative or paper hard assets.

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  2. I would question the 80% figure, more like 40. True wealth holds many items in the physical plane: castles, art, Bugattis, villas, jets, antiques, gold, vineyards and proven businesses.

    It is new wealth which depends more heavily on speculative assets, overvalued real estate, cryptos and the like.

    The correct people have had many years to turn their currency betting chips into physical assets. They can afford to lose confidence in the dollar, because their assets are never sold, they are bequeathed to their heirs. Such is the nature of "generational wealth".

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  3. Along with "confidence", there are the closely related words "confidence man", more often referred to as "con-artist": along with "rule of Law" there is "special status" before or even over the law. "Correct thinking" can indeed "make a mint", but also destroy the planet, if say the "correct thinking" that makes war profitable, or cleverly designs yet another generation of nuclear or beyond weapons, devolves into global nuclear or beyond war.

    Too, it is essential to take "necessity" into appropriate account. And Herodotus's dictum: "Accidents rule men, not men accidents." Shit happens. "Correct thinking" is a retrospective value judgement of various dimensions, easily deranged say by hubris and pretense or narrow focus.

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  4. In the context of this post, "correct thinking" is the thinking that is rewarded to keep the dollar system functioning. "Incorrect thinking" will be costly in "dollar terms". Too much "incorrect thinking" could be hazardous to the system. Egads, it could even destroy the reward and punishment system (FX market) of modern currencies. If it does that (or more likely, just as it begins to) war is in fact very likely, almost inevitable.

    Some very smart people see gold as a way out of this inevitability, but accidents (or wildcards) are always a factor. Thank you for your comment.

    -R

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  5. Will, Malaysian PM lays out brake & spur mechanism.

    https://malaysia.txos.cc/2019/05/30/%E9%A9%AC%E6%9D%A5%E8%A5%BF%E4%BA%9A%E6%80%BB%E7%90%86%E9%A9%AC%E5%93%88%E8%92%82%E5%B0%94%E6%8F%90%E5%87%BA%E4%BA%86%E5%9F%BA%E4%BA%8E%E9%BB%84%E9%87%91%E7%9A%84%E6%96%B0%E5%8C%BA%E5%9F%9F%E8%B4%A7/

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  6. Yes ... and more and more we see certain currencies being proposed for use in "trade settlement" - seperate from common currencies in use locally (as with Russia's intention to bypass SWIFT with crypto platform network).

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  7. Perusing the various investor forums and the zeitgeist seems to be crowdfunding real estate and get this...storing wealth in bonds. LOL!

    It's incredible to see the mass psychology evolve as the equity market has done nothing for 18 months. Gold is on nobody's radar. These peeps are going to get slaughtered.

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    Replies
    1. Lately in the realm of thoughts Grumps ... anything goes.

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  8. Currencies are trading in a false paradigm, it is the coordinated collusion of the major central banks that have allowed this charade to exist. It is important to understand that wealth is contained within a rather closed system.system of fiat money by laws and rules that discourage freedom of movement into tangible assets. This has sheltered currencies from a storm of volatility

    The failure or major repricing of any of the world's four major reserve currencies will destroy the myth that major currencies are immune to the same fate that has haunted so many currencies throughout history. Simply put, when the nations granting them have proven unable to control their budgets their currency is crushed under the weight of debt. The article below explores why investors should get ready for a rude awakening caused by major changes in currency values.

    http://brucewilds.blogspot.com/2017/03/currencies-are-trading-in-false-paradigm.html

    ReplyDelete