The Collapse of Capitalism
And the Safety Net of Gold
Darryl Robert Schoon
Jan 21, 2009
For Ponzi schemes to succeed,
they must expand faster than the request for redemptions. If
they do not, they will collapse. This is what happened to Bernard
L Madoff Investment Services, the largest Ponzi scheme in history.
The same is about to happen to capitalism.
Although capitalism is not
a Ponzi scheme, credit-based economies, sic capitalism,
and Ponzi schemes share the same fatal flaw. Both must constantly
expand or they are in danger of collapse. Today, because capitalist
economies are no longer expanding, but contracting, their continued
contraction will lead to collapse.
PUNDITS PUNDIDIOTS & PREDICTIONS
Dr. Philip Tetlock, author
of Expert Political Judgment (Princeton University Press,
2005), has done remarkable work regarding the ability to accurately
predict future events. In a highly disciplined scientific study,
Dr. Tetlock had asked experts to predict future events and over
20 years analyzed their predictive accuracy and methodology of
Tetlock's study concluded that
experts are no better in predicting the future than anyone else;
in fact, the better known the expert, often the lower the ability
to accurately predict. Louis Menand's review of Tetlock's Expert
Political Judgment in The New Yorker perhaps says
...Tetlock claims that the
better known and more frequently quoted they [experts] are, the
less reliable their guesses about the future are likely to be.
The accuracy of an expert's predictions actually has an inverse
relationship to his or her self-confidence, renown, and, beyond
a certain point, depth of knowledge.
On March 2, 2007, Dr. Tetlock
spoke to the Positive Deviant Network by speaker phone as he
was unable to attend in person. Martha and I were in the audience
along with other members of the PDN.
The previous day we had distributed
my 148 page analysis of the US and global economy to the PDN.
In How To Survive The Crisis And Prosper In The Process, The
Time of the Vulture, I had predicted prices of US and global
real estate would fall 40 to 70 % and the stock market 70 to
90 %, plunging the US and perhaps the world into another Great
At the time in the early spring
of 2007, there was no evidence of an impending economic disaster.
The next day when the feedback came back from the PDN, it was
neither pleasant nor positive. Perhaps it was a variant of the
"shoot the messenger" syndrome, but there was loud
and vocal opposition to the dire economic predictions I had made.
Later that day, again by speaker
phone, when PDN members were given the opportunity to engage
in a dialogue with Dr. Tetlock, PDN member Dr. James Hardt, a
neuroscientist and researcher on the effect of brain waves on
human consciousness took the opportunity to say that he had read
my economic analysis and found it remarkable.
The comment by Dr. Hardt was
especially meaningful as Dr. Hardt had scored far higher than
all other PDN members in both knowledge-based and predictive
tests. The PDN experience underscored the fact that the truth
- when unpleasant and predicted - is rarely welcome in any venue.
The reason why pundits are
popular is not because they tell the truth. Pundits are popular
because they tell people what they want to hear, the truth notwithstanding.
The unpleasant truth is that the truth when unpleasant has never
In the past, I would have laid
the cause of America's ignorance of economic issues at the foot
of corporate and government interests who gain the most in today's
corrupt environment. But the truth is the present state
of ignorance and corruption could not have occurred without the
abiding and willing denial of the America people.
Americans themselves have chosen
denial, sound bites and slogans over substantive discourse and
understanding. While in the short term it has been easier to
do than the alternative, i.e. to think, in the long term it will
The bill for collective denial
and ignorance is coming due in America; and, when it is paid
- as it will be - America will never be the same. Nor, will the
THE LAST STAGE OF CAPITALISM AND PONZI
Like Ponzi schemes, capitalist
economies must constantly expand or they will collapse. This
is because capitalism is a system wherein credit-based money
has been substituted for real money, i.e. savings-based money
such as gold and silver; and credit-based money soon turns into
The end of such systems has
always been bankruptcy. When credit-based economies contract,
governments, businesses and families are no longer able to pay
the principal and compounding interest on their debt and economic
The current system began when
the Bank of England, England's central bank, started issuing
credit-based paper banknotes in place of gold and silver in 1694.
This system was transferred by private bankers to America in
1913 in the form of the Federal Reserve Bank, the US central
bank equivalent of the Bank of England.
The credit-based central bank
system then spread after WWII to the rest of the world. As the
credit-based system spread, so too did the resultant compounding
debt and now, the day of reckoning for everyone has arrived.
WHY IS EVERYONE SURPRISED?
When credit-based capitalist
economies contract, they are unable to pay and service previously
incurred debt. This is now happening in the US, the UK, the EU
and Japan. After economic contraction, corporate, individual
and government bankruptcy comes next. After sustained economic
contraction, systemic collapse occurs.
Alan Greenspan, the pundit's
pundit for much of the last three decades, presided over much
of the expansion of global credit during and after the 1980s,
an expansion that led to extraordinary and unsustainable levels
of global debt.
The truth is levels of US debt
have been untenable for much longer than we believe. Buckminster
Fuller stated that the US was actually bankrupt in the 1930s,
and that we have only postponed the realization of such and the
inevitable day of reckoning by various forms of ledger sheet
While Alan Greenspan reigned
as chief pundit for those who believed his economic prognostications
to be true, the man who really understood our credit-based economy
was Hyman Minsky, a little-known economist who, unlike Greenspan,
happened to be right.
Hyman Minsky's perhaps greatest
contribution to the current economic dialogue is his "financial
instability hypothesis", which postulates that when capitalist
systems mature, they became increasingly unstable.
Minsky's theory did not sit
well with those in government and Wall Street who presided over
increasingly mature capitalist markets. They instead much preferred
the more positive outlook of Alan Greenspan, "the thinking
man's Abby Joseph Cohen", who publicly saw only a "bit
of froth" as the greatest financial storm of the century,
the next Great Depression, was brewing.
IF ALAN GREENSPAN WAS A CARDIOLOGIST
ALL HIS PATIENTS WOULD BE DEAD
In Minsky's "financial
instability hypothesis", the ability to pay the principal
and interest on debt is the critical marker. There are three
types of "units" in Minksy's financial instability
model, each type/unit more unstable than the previous.
The first type, hedge financing
units, possess the ability to pay both principal and interest
payments from existing cash flow. This is the optimal mode. The
second type, speculative finance units, cannot repay principal
payments but can meet their existing obligations by" rolling
over" their debt.
The third type in Minsky's
model are Ponzi units which can only pay down debt by
selling assets or by borrowing. This is the most common form
of debt repayment today. This is because as per Minsky's model,
capitalist markets are now mature - perhaps overly mature and
somewhat incontinent and beginning to smell - and have thus made
the progression from hedge to speculative to Ponzi finance.
BERNARD MADOFF'S BROTHER SAM
In 1960, from the very beginning
when Bernard Madoff first began soliciting money, the end of
his scheme was destined. But because Bernard Madoff was unusually
bright and capable, his Ponzi scheme lasted far longer and was
far more successful than any such previous scam.
The same can be also said for
the Ponzi scheme of Bernie's brother, Sam, aka "Uncle Sam".
But unlike Bernie, Uncle Sam did not think up his scheme on his
own. He was acting as the agent of the original schemers in England
who realized that England's economy was no longer expanding as
it had previously in the 18th and 19th centuries.
So, in the early 20th century,
in 1913, the original schemers convinced Uncle Sam to run the
same scheme in America that had been so profitable to them in
England. The scheme was capitalism, def. commerce in combination
with capital markets founded on credit-based paper money issued
from a central bank.
The scheme was to profit by
indebting businesses, entrepreneurs, workers and savers and government
and, as bankers, the schemers would get rich off the hard work,
savings and productivity of others; and, in the US, their scheme
worked as well as it had in England.
As the economy expanded and
the nation became increasingly indebted, bankers became increasingly
wealthy. It is no coincidence that the "financial services
sector, sic the paradigm of parasites" recently comprised
the largest share of both the UK and US economies, economies
which correspondingly had the lowest rate of savings in the world.
It is also no coincidence that
as the indebtedness of each nation grew the share of economic
activity and the exorbitant salaries and bonuses of bankers grew
as well. Unfortunately for the host and parasite in capitalist
economies, there is a limit to how much a parasite can safely
take from the host before the host dies, a limit only discovered
after the process has gone too far.
In December 2008, the end came
for Bernie's Bernard L Madoff Investment Services. In 2009, the
same will happen to his brother, Sam who is now using Ponzi finance
to pay for US borrowing. In 2009 or some time shortly thereafter,
the credit-based paper money scheme of bankers, sic capitalism,
will bring down what but a few decades ago was the most powerful
economy in the world, the United States of America. Uncle Sam,
just like his brother Bernie, is toast.
"Look, they're circling
"But we're not in the circle."
"Thought you would be?"
When wagon trains would come
under attack, the wagon masters would "circle the wagons"
for protection. Such is happening today as capitalism itself
is now under attack.
What Americans are finding
out, however, is that only the bankers are currently inside the
circle - bankers are now the only ones being protected, the very
ones responsible for the crisis in the first place. Observers
and especially Americans might believe that something is wrong
with this picture.
What they do not understand
is that the picture is a perfect reflection of the power dynamic
underlying capitalism. Bankers could not have accomplished their
nefarious ends had they not first secured the full cooperation
and protection of government.
This they did in England when
they promised King William they would extend all the credit he
wanted to wage his wars. This was replicated in the US when private
bankers staged a midnight coup by passage of the Federal Reserve
Act in 1913 which illegally transferred the right to issue money
from government into the hands of private bankers.
This is the reason the US government
has first protected the bankers, not the public, in this crisis.
Bankers give government the unlimited credit that governments
overspend, thereby indebting the nation and future generations
into perpetuity. The US government bailout of bankers, TARP,
is "owe-back" time.
The rest is history, or is
about to become so. When people have their eyes shut and their
minds closed, they will not see nor understand what is happening
to them. Trust me on this, although many will not understand
what is about to happen, it will not prevent it from happening.
What we are about to experience
is an economic tragedy in personal terms that will exceed anything
in recent memory. Even the Great Depression of the 1930s will
not equal what is now about to be; and those who thought their
adherence to a belief system about God was faith are now about
to find out the difference.
IGNORANCE DENIAL CONSEQUENCES
Uncle Sam is now engaged in
the same activity that caused Bernie's investors so much trouble,
the use of Ponzi finance to pay bills. It is estimated that the
US deficit may increase this year by two trillion dollars. As
recently as 1980, the total US debt after 200 years was only
$980 billion dollars.
Now, 28 years later, US indebtedness
will probably exceed $12 trillion, a very, very large sum - unless
of course it is not going to be paid back. The truth is all countries
are now running deficits and all major economies have determined
that extraordinary levels of fiscal stimulus are needed to avert
a global deflationary collapse.
Where is all the money going
to come from? While some economic answers are difficult to come
by, the answer to that question is very simple. The currencies
of all countries are now fiat, meaning they are but paper coupons
printed at will by their governments.
The answer is: Governments
will print the money they need.
It is said that Fed Chairman
Ben Bernanke studied the Great Depression and concluded the road
not taken was the correct answer to what would have prevented
the Great Depression, that infinite liquidity could have prevented
the deflationary collapse if made available in time.
Ben Bernanke's answer closely
resembles that which would be given by a focus group of New York
heroin addicts, that only an unlimited and immediate supply of
heroin would offset the irreparable pain and harm that would
otherwise result if nothing is done.
HELICOPTER BEN IS AFFECTIONATELY
NEEDLE BEN TO THE CREDIT JUNKIES ON WALL STREET
THE EXPIRATION DATE WRITTEN
IN INVISIBLE INK
ON PAPER MONEY WILL BE DETERMINED BY
THE SPEED OF THE PRINTING PRESSES
When will the yen go to zero?
When will the dollar disintegrate?
When will the pound become worthless?
When will the time be too late?
Listen to the speed of the
As money is made overnight
The faster the presses are running
The closer the time will be for flight
But no one can tell the hour
When money will lose its worth
For the future is still too cloudy
And tomorrow's yet to be birthed.
But the day is coming so trust
Don't trust the money they print
Whether a dollar a euro or peso
It ain't comin' out of a mint
It's printed with ink on some
But it used to be silver or gold
When money was more than a promise
Not a fraud that we've been sold
THE PRINTING PRESSES ARE RUNNING
This process has already begun.
M1, the measure of "narrow money aggregates", the amount
of cash and coins in circulation and in overnight deposits has
been rising in the past six months.
M-3, the broadest measure of
monetary aggregates is no longer made public by the US government.
But M-3 will explode upwards as governments seek to provide even
more credit to deflating markets, a fact the US government does
not want known.
M-1, NARROW MONEY AGGREGATES
13 WEEK RATE-OF-CHANGE. US FEDERAL RESERVE
Week ending June 9, 2008 -
Week ending July 28, 2008 + 2.9 %
Week ending Aug 25, 2008 + 6.2 %
Week ending Sept 29, 2008 + 8.8 %
Week ending Oct 27, 2008 +14.8 %
Week ending Nov 24, 2008 +22.6 %
Week ending Dec 29, 2008 +32.2 %
Ben Bernanke's antidote to
a US deflationary depression may well result in hyperinflation.
Hyperinflation will spell the end of the US currency because
hyperinflation removes all remaining vestiges of confidence in
Confidence is the essential
ingredient in the global con game called capitalism now being
run by bankers and their unwitting co-conspirators in government,
a game that is now about to end.
In the near future, paper money
will become increasingly worthless as all governments increase
the printing of their respective currencies hoping to prevent
deflationary forces from progressing. Governments will be helpless
to do so but this will only cause more money to be printed in
the futile hope of containing that which cannot be contained.
No experiment with paper money
has every worked. The primary intent has always been to spend
what does not exist. This underlying intent will in the end destroy
whatever paper money has built in the interim.
Were it not for the safety
concerns about the ink used in the printing of paper money, in
the future the best use for paper money would be as toilet paper
- of course, the quality of the paper would have to be much improved
in order to gain wider acceptance.
FREEDOM VERSUS FRAUD
A CRASH COURSE IN THE AUSTRIAN SCHOOL OF ECONOMICS
Bernard Madoff's fraud lasted
48 years and took in $50 billion. However, the monetary fraud
perpetrated by bankers in collusion with government has lasted
far longer and has taken in far more than Bernie's home-grown
Ponzi scheme - and the pain and losses will be commensurately
greater as well.
Ludwig von Mises, Carl
Menger, Eugen von Böhm-Bawerk, and Friedrich Hayek are the
best known proponents of the Austrian School of Economics. Like
Hyman Minsky, they are not as well known as John Maynard Keynes,
Milton Friedman and Alan Greenspan. The reason being is that
they served the truth whereas Keynes, Friedman and Greenspan
Austrian School economists
advocate the strict enforcement of voluntary contractual agreements
between economic agents, the smallest possible imposition of
coercive (especially government-imposed) commercial transactions
and the maximum openness to individual choice (including free
choice as to the voluntary means of exchange).
What most do not understand
is that today's markets are not free. Believing they are free
and being told it is so is not the same as being so. Government
intervention occurs no less in today's capitalist markets than
it did in yesterday's communist markets. The only difference
being method and subtlety.
The manipulation of the gold
price, intervention in foreign exchange markets, the raising
and lowering of interest rates, the use of tax incentives to
promote/distort economic activity are all signs of government
intervention. Compared to communism, capitalist markets indeed
appear free. Compared to free markets, capitalism is a rigged
GOLD MODERN ECONOMICS AND THE TRUTH
We are now approaching the
end-game, the resolution of past economic sins that cannot be
banished by government intervention. Indeed, it is government
intervention at the direction of bankers that caused today's
problems. More of the same will only result in more of the same.
The bankers' scam could not
have happened had not King William allowed England's bankers
to replace England's gold and silver coins with paper bank notes
in 1694. Capitalism's resultant empire known first as imperialism
and later as globalization lasted 315 years. It is now about
As paper currencies increasingly
lose value, the price of gold and silver will rise. As those
in government know all too well, gold and silver move inversely
to the value of paper assets in fiat systems.
Economics is not rocket science
and neither is fraud. But "modern economics" is a misnomer,
modern economics is a monetary fraud clothed in the guise of
free markets. If you truly want to be free, this is something
you might want to think about - that is, if you want to think.
PROFESSOR FEKETE AND THE AUSTRIANS
Professor Fekete was responsible
for bringing the major figures of the Austrian School of Economics
to my attention. When this era is over, when the excessive debt
created by excessive credit has swept away the hubris of Keynes
and Friedman, the Austrians will have been vindicated by history.
The theories of the Austrian
School were dismissed in the universities that taught that gold
and the gold standard were relics of a bygone era, relics which
had no relevance to the financially sophisticated markets of
Recent events have proved the
universities wrong and the Austrian School of Economics right.
I am forever indebted to Professor Fekete for his introduction
to these theories, theories which clearly explain the events
I still remember the article
in which Professor Antal Fekete pointed that that bank access
to cheap credit would not prevent systemic deflationary collapse
in these times. That such a policy would result in bankers borrowing
freely at the trough of government credit but the credit would
not be passed on. Instead, it would be used by banks to invest
in bonds and other "safer" financial assets.
This is exactly what is happening
today and I can do no more than to suggest that those seriously
interested in this crisis to further acquaint themselves with
Professor Fekete's writings, and if possible, to attend his upcoming
lectures March 27-29 in Szombathely, Hungary. I will also be
giving a talk. For information, contact GSUL@t-online.hu.
Lies will seek you out, but
the truth must be sought.
Faith, gold and silver will
be priceless in the days ahead.
Darryl Robert Schoon
About Darryl Robert
I majored in political science with a focus on East Asia (B.A.
University of California at Davis, 1966). My in-depth study of
economics did not occur until much later.
In the 1990s,
I became curious about the Great Depression and in the course
of my study, I realized that most of my preconceptions about money
and the economy were just that - preconceptions. I, like most
others, did not really understand the nature of money and the
economy. Now, I have some insights and answers about these critical
In October 2005,
Marshall Thurber, a close friend from law school convened The
Positive Deviant Network (the PDN), a group of individuals whom
Marshall believed to be "out-of-the-box" thinkers and
I was asked to join. The PDN became a major catalyst in my writings
on economic issues.
When I discovered
others in the PDN shared my concerns about the US economy, I began
writing down my thoughts. In March 2007 I presented my findings
to the Positive Deviant Network in the form of an in-depth 148-page
analysis, "How to Survive the Crisis
and Prosper In The Process."
to my presentation, though controversial, generated a significant
amount of interest; and in May 2007, "How To Survive The
Crisis And Prosper In The Process" was made available at
www.survivethecrisis.com and I began writing
articles on economic issues.
in the book and my writings has been gratifying. During its first
two months, www.survivethecrisis.com was accessed by over 10,000
viewers from 93 countries. Clearly, we had struck a chord and
www.drschoon.com, has been created to
address this interest.