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Submitted by James Pach via The Diplomat,

In one of the deadliest acts of terror in China in recent memory, a group of ten knife-wielding assailants attacked passersby at the Kunming Railway Station in the southwest of the country on Saturday night, killing at least 29 and wounding another 130. Police also shot and killed four of the attackers and captured one more. The other five are on the run, according to reports. State broadcaster CCTV said two of the attackers were women, one of whom was killed by police and the other captured.

Local Kunming government officials say that evidence at the scene point to separatists from China’s restive Xinjiang region, in what is being called “an organized, premeditated violent terrorist attack.” China’s state media outlet Xinhua quotes domestic senior Chinese security official Meng Jianzhu as vowing to “severely punish” the attackers “according to law.” Those comments were later echoed by President Xi Jinping, who also heads China’s security commission. The Global Times reports that Xi has asked “law enforcement to crack down on violent terrorist activities in all forms.” It also notes that UN Secretary-General Ban Ki-moon expressed his hope that “those responsible will be brought to justice.”

The attack follows an incident in Tiananmen Square last October, in which a man drove an SUV carrying his wife and mother into a crowd and set it on fire. That attack killed five people and injured 40, and profoundly shocked the nation. Beijing said that the attack was the work of the East Turkestan Islamic Movement (ETIM). Speaking with The Diplomat last year, Uyghur American Association president Alim Seytoff rebuffed that claim, questioning whether the ETIM even existed. Uyghur rights groups in general have denied claims that Uyghur separatists are behind the recent violence.

Saturday’s attack comes ahead of the annual meeting of China’s parliament on Wednesday, a time when security is usually tightened. Chinese officials have had trouble containing violence in Xinjiang, where local Uyghurs chafe against the growing Han Chinese presence, religious repression and heavy-handed security. Until recently, however, incidents were largely confined to within Xinjiang itself. If the Kunming attack is linked to Xinjiang, it could represent an escalation in Beijing’s troubles with the region, with the violence now spreading to other parts of China. Kunming is in Yunnan province, which has not previously been associated with terror incidents.

Victims of the Kunming attack say the attackers, dressed in black, burst into the railway station and began slashing at people randomly. Photos show the blood-stained floor of the station strewn with luggage, and medical personnel treating the wounded. Some eyewitnesses said that the assailants were carrying multiple blades, while others reported the attackers stabbing their victims multiple times.

The regional government in Xinjiang announced last month that it would be doubling the police’s counterterrorism budget for 2014.

via Zero Hedge http://ift.tt/1hzuGkH Tyler Durden

Submitted by David Stockman, via his new blog Contra Corner

Memo to Obama: This Was Their Red Line!

In 1783 the Crimea was annexed by Catherine the Great, thereby satisfying the longstanding quest of the Russian Czars for a warm-water port. In fact, over the ages Sevastopol emerged as a great naval base at the strategic tip of the Crimean peninsula, where it became home to the mighty Black Sea Fleet of the Czars and then the commissars.

For the next 171 years Crimea was an integral part of Russia—a span that exceeds the 166 years that have elapsed since California was annexed by a similar thrust of “Manifest Destiny” on this continent, thereby providing, incidentally, the United States Navy with its own warm-water port in San Diego. While no foreign forces subsequently invaded the California coasts, it was most definitely not Ukrainian and Polish riffles, artillery and blood which famously annihilated The Charge Of The Light Brigade at the Crimean city of Balaclava in 1854; they were Russians defending the homeland.

And the portrait of the Russian ”hero” hanging in Putin’s office is that of Czar Nicholas I—whose brutal 30-year reign brought the Russian Empire to its historical zenith, and who was revered in Russian hagiography as the defender of Crimea, even as he lost the 1850s war to the Ottomans and Europeans. Besides that, there is no evidence that Putin does historical apologies, anyway.

In fact, its their Red Line. When the enfeebled Franklin Roosevelt made port in the Crimean city of Yalta in February 1945 he did know he was in Soviet Russia. Maneuvering to cement his control of the Kremlin in the intrigue-ridden struggle for succession after Stalin’s death a few years later, Nikita Khrushchev allegedly spent 15 minutes reviewing his “gift” of Crimea to his subalterns in Kiev in honor of the decision by their ancestors 300 years earlier to accept the inevitable and become a vassal of Russia.

Self-evidently, during the long decades of the Cold War, the West did nothing to liberate the “captive nation” of the Ukraine—with or without the Crimean appendage bestowed upon it in 1954. Nor did it draw any red lines in the mid-1990?s when a financially desperate Ukraine rented back Sevastopol and the strategic redoubts of the Crimea to an equally pauperized Russia.

In short, in the era before we got our Pacific port in 1848 and in the 166-year interval since then, the security and safety of the American people have depended not one wit on the status of the Russian-speaking Crimea. Should the local population now choose fealty to the Grand Thief in Moscow over the ruffians and rabble who have seized Kiev, what’s to matter!  Worse still, how long can America survive the screeching sanctimony and mindless meddling of Susan Rice and Samantha Power? Mr. President, send them back to geography class; don’t draw any new Red Lines. This one has been morphing for centuries among the quarreling tribes, peoples, potentates, Patriarchs and pretenders of a small region that is none of our damn business.

via Zero Hedge http://ift.tt/1pS0kh2 Tyler Durden

The phone-calls are flying. On the heels of yesterday’s Obama-Putin “discussion”, today has seen Merkel drop him a line (with the resultant claim that Putin has accepted a “fact-finding mission” despite all evidence to the contrary); and then Merkel, Obama, and Cameron got on a party-line to discuss “sanctions”. In the face of this seriousness, we suspect, however, any of the calls to Putin all had a similar dialogue…

 

h/t @SooperMexican and @LibertyBlitz

 

Lots of “Calls” in the last 24 hours…

• *OBAMA CALLING MERKEL AND CAMERON TODAY ON UKRAINE: OFFICIALS
• *MERKEL CALLED ON PUTIN TO RESPECT UKRAINE TERRITORIAL INTEGRITY
• *NATO CALLS ON RUSSIA TO DE-ESCALATE TENSIONS, RASMUSSEN SAYS
• *ITALY CALLS ON KIEV TO MAKE EVERY EFFORT FOR PEACE, STABILITY
• *ITALY CALLS ON RUSSIA TO AVOID AGGRAVATING UKRAINE SITUATION
• *AKHMETOV CALLS FOR UKRAINE TERRITORIAL INTEGRITY TO BE ENSURED
• *UKRAINE’S PM CALLS FOR PEACEFUL RESOLUTION TO CRISIS
• *UKRAINE’S PM CALLS ON PUTIN TO REFRAIN FROM STARTING WAR
• *OBAMA CALLS HEADS OF FRANCE, CANADA, TO DISCUSS UKRAINE CRISIS
• *OBAMA CALLS ON RUSSIA TO DE-ESCALATE TENSIONS IN UKRAINE
• *UN SECRETARY GENERAL CALLS FOR IMMEDIATE UKRAINE CALM: NESIRKY
• *U.K.’S HAGUE CALLS FOR `DE-ESCALATION OF TENSIONS’ IN UKRAINE
• *TYMOSHENKO CALLS FOR ACCORD WITH EU TO BE SIGNED IN DAYS
• *KLITSCHKO CALLS FOR GENERAL MOBILIZATION IN UKRAINE
• *RUSSIA LAWMAKERS CALL ON PUTIN TO DEFEND CRIMEA POPULATION: RIA
• *CRIMEA’S PRIME MINISTER CALLS ON PUTIN TO ASSIST: INTERFAX
• *U.S. CALLS ON RUSSIA TO PULL BACK MILITARY FORCE IN REGION
• *MERKEL CALLS FOR RESTRAINT OVER CRIMEA
• *CAMERON CALLS PUTIN TO DISCUSS SITUATION IN UKRAINE

 

President Barack Obama discussed the Ukraine crisis with German Chancellor Angela Merkel in a phone call on Sunday and underscored:

“(The primary point) in all of his calls has been to underscore the complete illegitimacy of Russia’s intervention” in the Crimea region of Ukraine, the official told reporters in a conference call.

The official, who spoke on condition of anonymity, said Obama planned shortly to make the same point in conversations with the British prime minister and the Polish president.

via Zero Hedge http://ift.tt/1pRQz2y Tyler Durden

Via Monty Pelerin's World blog,

The plague of our time is Keynesian economics. It has destroyed the economics profession and enabled the political class to obtain powers never intended.

Keynesian economics provided the intellectual cover for the criminal class we politely call “government” to plunder its citizenry. In the beginning, clear-thinking, independent economists (not dependent on government largess) expressed objections to this “new economics.” There was little new in Keynes’ work and many errors that had been debunked decades before Keynes was even born. Bastiat’s parable of the “broken window” in 1850 is probably the best-known refutation, although similar arguments preceded Bastiat by a century or more.

In the 1930s leaders were desperate and willing to try anything. Keynes General Theory was published in 1936, during the middle of the greatest depression the world had ever experienced. Politicians, more so than economists, welcomed his ideas as a new approach.

The Austrian economists  represented by Mises and Hayek saw the fallacies in this new approach immediately. Some of the Chicago School (Knight, Simons, Viner) did also. Ludwig von Mises, never one to mince words, described Keynesian economics in the following manner:

What he really did was to write an apology for the prevailing policies of governments.

Mises likely was one of the few who saw the full ramifications of what Keynesian economics would provide for government. Most early criticisms were in terms of the economic unsoundness of the theory.

To contrast the blatant differences between proper economics and Keynesian prescriptions, the following two prescriptions were offered early in this century:

It was proper that one of these men should have won the Nobel Prize in economics. It just happened to be the wrong one.

In 1977 James M. Buchanan and Richard E. Wagner wrote “Democracy In Deficit — The Political Legacy of Lord Keynes” (available online). It was the first comprehensive attempt to apply public-choice theory to macroeconomic theory and policy. According to Robert D. Tollison:

The central purpose of the book was to examine the simple precepts of Keynesian economics through the lens of public-choice theory. The basic discovery was that Keynesian economics had a bias toward deficits in terms of political self-interest.

From Buchanan and Wagner came this judgment regarding Keynesian economics:

The message of Keynesianism might be summarized as: What is folly in the conduct of a private family may be prudence in the conduct of the affairs of a great nation. (p. 3)

This fundamental confusion was responsible for the political acceptance of Keynesian economics. Politicians saw the potential for themselves in this new doctrine which advocated central control of the economy and fiscal irresponsibility as a necessary and patriotic thing. Giving them this gift was like providing matches and gasoline to an arsonist. (“I don’t want to spend money, but I have to otherwise the economy will tank.”)

Once government took control of the economy, they needed economists to provide the analysis and justifications for their new policies. Many in the economics profession were procured in similar fashion used with prostitutes. Money and power were heady incentives for a profession that had rightly been consigned to a section in their own ivory tower.

Justifying what government wanted to do and was doing was the only requisite. But, in order to qualify, it became necessary to convert to Keynesianism. Other branches of economics condemned government policies, at least on economic grounds.

Economists more than most understand incentives. When the payoffs increase, some men in any profession find it easy to modify ethics and integrity.

Buchanan and Wagner knew the damage that Keynesian economics had already inflicted and knew its potential was much greater. Thirty-seven years ago they commented: 

What happened? Why does Camelot lay in ruin? Viet Nam and Watergate cannot explain everything forever. Intellectual error of monumental proportion has been made, and not exclusively by the ordinary politicians. Error also lies squarely with the economists. (p. 4)

They answered their own question:

The academic scribbler of the past who must bear substantial responsibility is Lord Keynes himself, whose ideas were uncritically accepted by American establishment economists. The mounting historical evidence of the effects of these ideas cannot continue to be ignored. Keynesian economics has turned the politicians loose, it has destroyed the effective constraint on politicians’ ordinary appetites. Armed with the Keynesian message, politicians can spend and spend without the apparent necessity to tax. “Democracy in deficit” is descriptive, both of our economic plight and of the subject matter for this book. (p.4)

Now, thirty-five plus years later, one may judge the merit in this book. Prescience, while not limited to them alone, was amazing.

One must also marvel at the continuation and acceleration of the ruinous policies. Whether Buchanan and Wagner imagined things could go on for so long and to such an extent is not known. However, to appreciate these changes, this graph from Zerohedge shows the effects of Keynesianism and what it has done to governments around the world:

The deterioration in fiscal discipline was astounding and in line what they predicted.

As this false economic theology known as Keynesianism runs its course, the following conclusions are probable:

• Regardless of whether this generation escapes or not, we have impoverished our children and grandchildren.
• Politicians now control most of the economy, including what passes for acceptable economics.
• No honest economist can work for government; nor would one want to.
• The tipping point for reversing this condition has long past.
• Politicians have no incentive to stop the process underway.
• Markets (and perhaps societies and governments) will eventually collapse, ending this terrible period of economic madness.

When this flawed paradigm is finally exhausted, the world may enter a better place in terms of economics and limited government. Without this shift, poverty and misery will grow along with wars used as political diversions.

One can only hope that the world avoids an Economic Dark Age when the collapse occurs.

via Zero Hedge http://ift.tt/1eSEy43 Tyler Durden

Chinese manufacturing PMI fell to an 8-month low holding barely above the crucial 50 level yesterday forcing Goldman to admit that "this signals further deceleration" in Chinese growth. All sub-indices showed signs of cyclical slowdown from January to February with perhaps the two most-critical ones – production and new orders – showing considerably larger falls than the headline index itself as we await this evening's HSBC print to confirm an average 'contraction'. China's Services PMI just printed at 55, up from 53.4, to a 3-month high led by a surge in the "expectations" sub-index.

China Services PMI rose to 3-month highs… as new orders rose but the "expectations" sub-index jumped the most as hope trumps any current weakness as input prices slumped to 10 month lows.

 

China Manufacturing PMI fell to 8-month lows

Ahead of this evening's HSBC-version (which printed 48.3 Flash) of Manufacturing data, Goldman's summary is oddly (honest) pessimistic on China's Manufacturing industry…

The latest PMI data is another piece of evidence of slowing activity growth since 4Q 2013. Data at the start of the year tends to be noisy in general, and unlike some other indicators taking the average of January and February PMI readings doesn't necessarily override the Chinese New Year distortions (this is because survey results can be affected by the timing of the survey which covers only a short period over several days within the month). However, the consistency of the signal is such that there is little doubt that growth has been weak and probably becoming weaker since the end of the year. We see risks to our 7.7% GDP forecast for 1Q tilted more towards the downside.

 

We believe the combination of a tight monetary policy stance, heightened anti-corruption and anti-pollution campaign, inventory destocking and slower than expected external demand contributed to the slowdown. While over the longer term measures such as anti-corruption measures can improve the efficiency of the economy, they can often put significant downward pressures on demand growth in the short term.

Of course, there's always hope when things get ugly…

The top leadership has shown clear willingness to maintain broad growth stability in the latest politburo meeting, though at the moment there is no information on detailed policy measures.

In other words, bad news is great news (or keep BTFATHing in US stocks because the PBOC will rescue any and all growth slowdowns) – or will they…

Bank of America has some more confidence that it will all be ok in the end…

We suggest investors not read too much into the PMI "slowdown" in February. Instead, markets should focus on yoy activity data for the combined January and February period to be released in the next two weeks. It's our high conviction call that the official PMI will rebound back to around 50.5 in March.

So blame seasonality (that happens every year!?) and a belief that a central planner who has abrogated currency weakness (to tame carry trader exploitation) and liquidty squeezes (to tame risk appetite in high-yield shadow bank vehicles) will 'stimulate' once again (and pump up the real estate bubble once again) to meet the "hope" that is priced into markets.

via Zero Hedge http://ift.tt/1dRvWuS Tyler Durden

By now it was only a formality, as the likelihood of the G-8 meeting taking place in Sochi in June, months after the Russian invasion of the Ukraine, was zero at best. So the fact that G-8, pardon, G-7 countries announced the halting of their preparation for a June vacation on the Black Sea should not surprise anyone.

Full G-7 statement:

We, the leaders of Canada, France, Germany, Italy, Japan, the United Kingdom and the United States and the President of the European Council and President of the European Commission, join together today to condemn the Russian Federation’s clear violation of the sovereignty and territorial integrity of Ukraine, in contravention of Russia’s obligations under the UN Charter and its 1997 basing agreement with Ukraine.  We call on Russia to address any ongoing security or human rights concerns that it has with Ukraine through direct negotiations, and/or via international observation or mediation under the auspices of the UN or the Organization for Security and Cooperation in Europe.  We stand ready to assist with these efforts.

 

We also call on all parties concerned to behave with the greatest extent of self-restraint and responsibility, and to decrease the tensions.

 

We note that Russia’s actions in Ukraine also contravene the principles and values on which the G-7 and the G-8 operate.  As such, we have decided for the time being to suspend our participation in activities associated with the preparation of the scheduled G-8 Summit in Sochi in June, until the environment comes back where the G-8 is able to have meaningful discussion.

 

We are united in supporting Ukraine’s sovereignty and territorial integrity, and its right to choose its own future.  We commit ourselves to support Ukraine in its efforts to restore unity, stability, and political and economic health to the country.  To that end, we will support Ukraine’s work with the International Monetary Fund to negotiate a new program and to implement needed reforms.  IMF support will be critical in unlocking additional assistance from the World Bank, other international financial institutions, the EU, and bilateral sources.

Harsh as this treatment may be for local Sochi caterers, we don’t expect Putin to lose much sleep over this. That said we are closing our 3X ETF long position in Russian caterers and replacing it with a matched exposure in Brussels. We expect much more action out of Europe in the coming months.

via Zero Hedge http://ift.tt/1i5qjRk Tyler Durden

Submitted by Detlev Schlichter via DetlevSchlichter.com,

The Bitcoin phenomenon has now reached the mainstream media where it met with a reception that ranged from sceptical to outright hostile. The recent volatility in the price of bitcoins and the issues surrounding Bitcoin-exchange Mt. Gox have led to additional negative publicity. In my view, Bitcoin as a monetary concept is potentially a work of genius, and even if Bitcoin were to fail in its present incarnation – a scenario that I cannot exclude but that I consider exceedingly unlikely – the concept itself is too powerful to be ignored or even suppressed in the long run. While scepticism towards anything so fundamentally new is maybe understandable, most of the tirades against Bitcoin as a form of money are ill-conceived, terribly confused, and frequently factually wrong. Central bankers of the world, be afraid, be very afraid!

Finding perspective

Any proper analysis has to distinguish clearly between the following layers of the Bitcoin phenomenon: 1) the concept itself, that is, the idea of a hard crypto-currency (digital currency) with no issuing authority behind it, 2) the core technology behind Bitcoin, in particular its specific algorithm and the ‘mining process’ by which bitcoins get created and by which the system is maintained, and 3) the support-infrastructure that makes up the wider Bitcoin economy. This includes the various service providers, such as organised exchanges of bitcoins and fiat currency (Mt. Gox, Bitstamp, Coinbase, and many others), bitcoin ‘wallet’ providers, payment services, etc, etc.

Before we look at recent events and recent newspaper attacks on Bitcoin, we should be clear about a few things upfront: If 1) does not hold, that is, if the underlying theoretical concept of an inelastic, nation-less, apolitical, and international medium of exchange is baseless, or, as some propose, structurally inferior to established state-fiat money, then the whole thing has no future. It would then not matter how clever the algorithm is or how smart the use of cryptographic technology. If you do not believe in 1) – and evidently many economists don’t (wrongly, in my view) – then you can forget about Bitcoin and ignore it.

If 2) does not hold, that is, if there is a terminal flaw in the specific Bitcoin algorithm, this would not by itself repudiate 1). It is then to be expected that a superior crypto-currency will sooner or later take Bitcoin’s place. That is all. The basic idea would survive.

If there are issues with 3), that is, if there are glitches and failures in the new and rapidly growing infra-structure around Bitcoin, then this does neither repudiate 1), the crypto-currency concept itself, nor 2), the core Bitcoin technology, but may simply be down to specific failures by some of the service providers, and may reflect to-be-expected growing pains of a new industry. As much as I feel for those losing money/bitcoin in the Mt Gox debacle (and I could have been one of them), it is probably to be expected that a new technology will be subject to setbacks. There will probably be more losses and bankruptcies along the way. This is capitalism at work, folks. But reading the commentary in the papers it appears that, all those Sunday speeches in praise of innovation and creativity notwithstanding, people can really deal only with ‘markets’ that have already been neatly regulated into stagnation or are carefully ‘managed’ by the central bank.

Those who are lamenting the new – and yet tiny – currency’s volatility and occasional hic-ups are either naïve or malicious. Do they expect a new currency to spring up fully formed, liquid, stable, with a fully developed infrastructure overnight?

Recent events surrounding Mt Gox and stories of raids by hackers would, in my opinion, only pose a meaningful long-term challenge for Bitcoin if it could be shown that they were linked to irreparable flaws in the core Bitcoin technology itself. There were indeed some allegations that this was the case but so far they do not sound very convincing. At present it still seems reasonable to me to assume that most of Bitcoin’s recent problems are problems in layer 3) – supporting infrastructure – and that none of this has so far undermined confidence in layer 2), the core Bitcoin technology. If that is indeed the case, it is also reasonable to assume that these issues can be overcome. In fact, the stronger the concept, layer 1), the more compelling the long-term advantages and benefits of a fully decentralized, no-authority, nationless global and inelastic digital currency are, the more likely it is that any weaknesses in the present infrastructure will quickly get ironed out. One does not have to be a cryptographer to believe this. One simply has to understand how human ingenuity, rational self-interest, and competition combine to make superior decentralized systems work. Everybody who understands the power of markets, human creativity, and voluntary cooperation should have confidence in the future of digital money.

None of what happened recently – the struggle at Mt. Gox, raids by hackers, market volatility – has undermined in the slightest layer 1), the core concept. However, it is precisely the concept itself that gets many fiat money advocates all exited and agitated. In their attempts to discredit the Bitcoin concept, some writers do not shy away from even the most ludicrous and factually absurd statements. One particular example is Mark T. Williams, a finance professor at Boston University’s School of Management who has recently attacked Bitcoin in the Financial Times and in this article on Business Insider.

Money and the state: Fact and fiction

Apart from all the scare-mongering in William’s article – such as his likening Bitcoin to an alien or zombie attack on our established financial system, stressing its volatility and instability – the author makes the truly bizarre claim that history shows the importance of a close link between currency and sovereignty. Good money, according to Williams, is state-controlled money. Here are some of his statements.

“Every sovereignty uses currency.”

 

“Trust and faith that a sovereign is firmly standing behind its currency is critical.”

 

“Sovereigns understand that without consistent economic growth and stability, the standard of living for its citizens will fall, and discontentment will grow. Nation-state treasuries print currency but the vital role of currency management– needed to spur economic growth — is reserved for central bankers.”

Williams reveals a striking lack of historical perspective here. Money-printing, central banking and any form of what Williams calls “currency management” are very recent phenomena, certainly on the scale that they are practiced today. Professor Williams seems to not have heard of Zimbabwe, or of any of the other, 30-odd hyperinflations that occurred over the past 100 years, all of which, of course, in state-managed fiat money systems.

Williams stresses what a long standing concept central banking is, citing the Swedish central bank that was founded in 1668, and the Bank of England, 1694. Yet, human society has made use of indirect exchange – of trading with the help of money – for more than 2,500 years. And through most of history – up to very recently – money was gold and silver, and the supply of money thus practically outside the control of the sovereign.

The early central banks were also very different animals from what their modern namesakes have become in recent years. Their degrees of freedom were strictly limited by a gold or silver standard. In fact, the idea that they would “manage” the currency to “spur” economic growth would have sounded positively ridiculous to most central bankers in history.

Additionally, by starting their own central banks, the sovereigns did not put “trust and faith” behind their currencies – after all, their currencies were nothing but units of gold and silver, and those enjoyed the public’s trust and faith on their own merit, thank you very much – the sovereigns rather had their own self-interest at heart, a possibility that does not even seem to cross William’s mind: The Bank of England was founded specifically to lend money to the Crown against the issuance of IOUs, meaning the Bank of England was founded to monetize state-debt. The Bank of England, from its earliest days, was repeatedly given the legal privilege – given, of course, by its sovereign – to ignore (default on) its promise to repay in gold and still remain a going concern, and this occurred precisely whenever the state needed extra money, usually to finance a war.

Bitcoin is cryptographic gold

“Gold is money and nothing else.” This is what John Pierpont Morgan said back in 1913. At the time, not only was he a powerful and influential banker, his home country, the United States of America, had become one of the richest and most dynamic countries in the world, yet it had no central bank. The history of the 19^th century US – even if told by historians such as Milton Friedman and Anna Schwarz who were no gold-bugs but sympathetic to central banking – illustrates that monetary systems based on a hard monetary commodity (in this case gold), the supply of which is outside government control, is no hindrance to vibrant economic growth and rising prosperity. Furthermore, economic theory can show that hard and inelastic money is not only no hindrance to growth but that it is indeed the superior foundation of a market economy. This is precisely what I try to show with Paper Money Collapse. I do not think that this was even a very contentious notion through most of the history of economics. Good money is inelastic, outside of political control, international (“nationless”, as Williams puts it), and thus the perfect basis for international cooperation across borders.

Money was gold and that meant money was not a tool of politics but an essential constraint on the power of the state.

As Democritus said “Gold is the sovereign of all sovereigns”.

It is clear that on a conceptual level, Bitcoin has much more in common with a gold and silver as monetary assets than with state fiat money. The supply of gold, silver and Bitcoin, is not under the control of any issuing authority. It is money of no authority – and this is precisely why such assets were chosen as money for thousands of years. Gold, silver and Bitcoin do not require trust and faith in a powerful and privileged institution, such as a central bank bureaucracy  (here is the awestruck Williams not seeing a problem: “These financial stewards have immense power and responsibility.”) Under a gold standard you have to trust Mother Nature and the spontaneous market order that employs gold as money. Under Bitcoin you have to trust the algorithm and the spontaneous market order that employs bitcoins as money (if the public so chooses). Under the fiat money system you have to trust Ben Bernanke, Janet Yellen, and their hordes of economics PhDs and statisticians.

Hey, give me the algorithm any day!

Money of no authority

But Professor Williams does seem unable to even grasp the possibility of money without an issuing and controlling central authority: “Under the Bitcoin model, those who create the software protocol and mine virtual currencies would become the new central bankers, controlling a monetary base.” This is simply nonsense. It is factually incorrect. Bitcoin – just like a proper gold standard – does not allow for discretionary manipulation of the monetary base. There was no ‘monetary policy’ under a gold standard, and there is no ‘monetary policy’ in the Bitcoin economy. That is precisely the strength of these concepts, and this is why they will ultimately succeed, and replace fiat money.

Williams would, of course, be correct if he stated that sovereigns had always tried to control money and manipulate it for their own ends. And that history is a legacy of failure.

The first paper money systems date back to 11^th century China. All of those ended in inflation and currency disaster. Only the Ming Dynasty survived an experiment with paper money – by voluntarily ending it and returning to hard commodity money.

The first experiments with full paper money systems in the West date back to the 17^th century, and all of those failed, too. The outcome – through all of history – has always been the same: either the paper money system collapsed in hyperinflation, or, before that happened, the system was returned to hard commodity money. We presently live with the most ambitious experiment with unconstrained fiat money ever, as the entire world is now on a paper standard – or, as James Grant put it, a PhD-standard – and money production has been made entirely flexible everywhere. This, however does not reflect a “longstanding bond between sovereign and its currency”, as Williams believes, but is a very recent phenomenon, dating precisely to the 15^th of August 1971, when President Nixon closed the gold window, ended Bretton Woods, and defaulted on the obligation to exchange dollars for gold at a fixed price.

The new system – or non-system – has brought us persistent inflation and budget deficits, ever more bizarre asset bubbles, bloated and unstable banking systems, rising mountains of debt that will never be repaid, stagnating real incomes and rising income disparities. This system is now in its endgame.

But maybe Williams is right with one thing: “If not controlled and tightly regulated, Bitcoin — a decentralized, untraceable, highly volatile and nationless currency — has the potential to undermine this longstanding bond between sovereign and its currency.”

Three cheers to that.

via Zero Hedge http://ift.tt/1hV9AeZ Tyler Durden

With all eyes dismally fixed on Eastern Europe and the esclating tensions between the world’s most powerful nations, we thought perhaps a little levity was appropriate. “Way To Blue” trawls the social media stratosphere of intellect and calculates a “desire to win” index that summarizes who we, the lowly members of the public, would most like to win the celebrated Academy Awards. It appears, in an odd coincidence to real-life, the debt-serfs of the world would most like to see “12 Years A Slave” win for Best Film.

 

via Zero Hedge http://ift.tt/1hyWLZs Tyler Durden