Dr. Fekete Talks About Bond Markets

History runs in cycles. There are many cycles which overlap each other or run in harmony with each other. Humans have very limited options due to two main forces: the limits imposed on us by Mother Nature and the limitations of the human mind due to the way we evolved as a species. Nature’s cycles are much more dangerous, in the long run, than human cycles. For she operates on an life creation/life extinction cycle. Humans deal with this by alternately defying her mode of operation and usurping it. Life is full of contradictions and paradoxes, none deeper and more difficult to understand than this: as we struggle against Nature, we endanger ourselves, instead of conquering Nature, we replace Nature and try to annihilate ourselves.
This takes me to the business of economics: it is a microcosm for this process. It is full of the deepest psychological forces that engages our minds and the creations we make out of nothingness are very troublesome for us since we struggle in vain to control these things. I try to express all of this through mythological tales because this is the oldest tool humans used to describe the mental processes of our relationship with ‘wealth’ and ‘power’.


Perhaps this annoys people because the idea that we don’t control these mental/psychological/magical forces is scary for humans. But the lesson here: since we are genetically incapable of controlling these forces, we must put up mental barriers that discourage us from trying to manipulate these forces. There have been many attempts at this business of restrictions. One of the older and more successful such restrictions has been gold. Using gold as a restrictor has a downside: it is captive to the discovery of gold or the theft of gold via warfare. So it isn’t a peaceful solution to the problem, ‘How do we restrict credit creation?’


Another ancient method of restrictions was for the kings or lords or rulers to create guilds and trade fairs, or to grant control of a market in exchange for financial support of the ruler via fees, licenses, etc. Too much restrictions leads to economic stagnation and the systematic enslavement of the bulk of the population which, in turn, either weakens the State so it is prey to outside looters or internal revolutions and civil wars. Most history is about the struggle to find a clever balance where trade and economics ‘grow’ while not becoming fatal credit bubbles.


One thing is absolutely certain: the systematic looting of the lower working classes is a harbinger of economic collapse. When the working class is reduced to penury and hounded into being in debt more than a year’s wages, they lose economic power and an entire sector of a civilization vanishes as the working class no longer can participate in markets. Then, the destruction spreads to the middle class that needs the financial flows from the working class, to survive. Eventually, there is a huge spread between the elites and the rest of a civilization and it falls, often, very rapidly.


The ruling elites, if they wish to survive, must keep the working class capitalized. The minute they set into motion, a system whereby the working class no longer saves but instead, accumulates debts, we are on the downside of a civilization’s growth cycle. Below is a very long article by Dr. Fekete. He is a very intelligent man who is rejected by the bulk of economists in academia. He is an interesting person because he is not a hysteric like, say, Denninger, nor is he in lockstep with, say, the gold-buying community. He is, like myself, very interested in the the dynamics of the process of money creation and how interest rates operate over long arcs of history. His latest musings are important to try to grasp. I strongly suggest, reading his entire article.

Continued>>>
http://emsnews.wordpress.com/2009/06/20/dr-fekete-talks-about-bond-markets/#more-4218

of people who are able to detect repeating cycles in history. It's too easy to cherry pick events that prove their case, while ignoring the many, many "anomalies".