We, The Drowned

. . . The Lost and sometimes Found, for a few precious moments.

Presque Vu

The subtle gravity of levitation

Girl in Blue

 'When I know your soul, I will paint your eyes'

― Amedeo Modigliani

Serial Killers

 What doesn't kill you makes you something

Who’s moving on, who’s kidding who

All you need is love

Perhaps not love itself but the knowledge that love is there. 
Like new batteries in the flashlight in the emergency kit in the hall closet

2Little2Late

 Nothing is better than something

Lullabies for Little Criminals

A bullet must have passed through your heart when you were very young, causing you to bleed out slowly, over things and lovers and every white surface that you had ever come across.

Looking forward for the next miracle

 Old things are better than new things, because they've got stories in them

Queen of lilac, queen of blue

People are not of symmetrical importance in each others memories.

Still looking for an avalanche

Like any dealer he was watching for the card

That is so high and wild

He'll never need to deal another

One of these days

What was the last time you did something for the first time ?

Incredible confusions, Part 2

Of interest and the dangerous habit of suppressing it

By Detlev Schlichter 

The idea that the charging of interest is unethical and should be banned has a long tradition in the history of human civilisation. It seems to have played a role at some point in all the major religions, certainly in Christianity, Judaism and Islam, and it is today promoted most strongly by advocates of Islamic banking.

As an economist I cannot (and should not) comment on matters of religion. Religion and economics deal with completely different aspects of human existence. Religion is about ‘ultimate ends’ and ‘personal values’. Economics does not deal with ends but with means. Economics does not tell anybody what his or her values should be. Contrary to what is frequently claimed – usually by those who do not understand economics – economics does not tell you that you should strive for more material goods and more services at your disposal.

But it so happens that we live in a world in which most people have personal aims or goals that involve having at least a certain material wealth, and in which most people prefer the possession of more material goods to less material goods; and the science of economics – for economics is a science, and in fact an objective, wertfreie (value-free) science – can then explain why people have a better chance of achieving these (material) aims if they use such social institutions as the division of labor, private property, trade, money, and many others. Additionally, the science of economics can show how these social institutions work, demonstrate the laws and regularities inherent in them, and can develop rules for their most appropriate use. Economics is purely about the means of social cooperation for the attainment of material goals. It never concerns itself with ultimate ends.

If most of the population became Buddhist monks tomorrow and would lose any interest in accumulating material wealth, would happily withdraw into monasteries and dedicate themselves to meditation, none of the principles and laws of economics would have suddenly become less true or invalid. The law of comparative advantage as articulated by David Ricardo would be as true on that day as on any other. The laws of economics would still apply just as the laws of gravity would. Of course, the interest in economic studies would probably diminish rapidly but that is all. Or, not quite all: Society would also be rapidly impoverished in material terms – even to the point of mass starvation –, and this the economist can ascertain with certainty, although nothing can be said about any compensating gains in spiritual wealth, of course.

If you believe that your God demands that if you lend money you should not charge interest, than there is nothing that I, as an economist, can say to you – other than, maybe, give me a call whenever you have some extra cash. The point at which I can – and should – comment is when you were to claim in addition that the observance of this rule would lead to a more stable and better functioning economy, that the non-charging of interest would not diminish society’s wealth but even increase it, or that the resulting economic structure would at least conform better to some generally accepted notion of fairness. Here we have reached a point where debate has become possible, not because I, as an economist, have intruded onto the religious ground of values and ultimate ends but because the advocate of religion has intruded onto the economists’ ground of the study of the laws for wealth creation.

Read more at : http://detlevschlichter.com/2013/02/incredible-confusions-part-2-of-interest-and-the-dangerous-habit-of-suppressing-it/

Incredible confusions Part 1

‘Positive Money’ and the fallacy of the need for a state money producer

By Detlev Schlichter

I am usually inclined to encourage the inquiry of the fundamental aspects of money and banking. This is because I tend to believe that only by going back to first principles is it possible to cut through the thicket of widely accepted but deeply flawed theories that dominate the current debate in mainstream media, politics and the financial industry. From my own experience in financial markets I can appreciate how convenient and tempting it is in a business context, where quick and easy communication is of the essence, to adopt a certain, widely shared set of paradigms, regardless of how flimsy their theoretical foundations. Fund managers, traders and financial journalists live in the immediate present, preoccupied as they are with what makes headlines today, and they work in intensely collaborative enterprises. They have neither the time nor inclination to question the body of theories – often no longer even perceived as ‘theories’ but considered accepted common wisdom – that shapes the way they view and talk about the outside world. Thus, erroneous concepts and even outright fallacies often remain unquestioned and, by virtue of constant repetition, live comfortably in the bloodstream of policy debates, economic analysis, and financial market reportage.

This goes a long way in explaining the undeserved survival of a number of persistent modern myths: deflation is the gravest economic danger we face; Japan has been crippled by deflation for years and would grow again if it only managed to create some inflation; lack of ‘aggregate demand’ explains recessions and must be countered with easy monetary policy; and money-printing, as long as it does not lead to higher inflation, is a free lunch, i.e. we can only expect good from it. None of these statements stand up to scrutiny. In fact, they are all utterly absurd. Yet, we can barely open a newspaper and not have this nonsense stare us in the face, if not quite as bluntly as stated above, than at least as the intellectual soil from which the analysis or commentary presented has sprung. Deep-rooted misconceptions can only be dismantled through dissection of their building blocs and a discussion of basic concepts.

The dangers of going back to basics

However, going back to basics and to first principles, analyzing critically the fundamental aspects of our financial system, is not free of danger. Here, too, lies a minefield of potentially grave intellectual error, and when things go wrong here, at the basic level, the results and policy recommendations derived from such analysis are bound to be nonsensical too, if not even more nonsensical than what the mainstream believes. In this and the following essays I am going to address some of the erroneous notions at the fundamental level of money and banking that seem to have gained currency in the public debate of late.

I get periodically confronted with these confusions through readers’ comments on my website. Some of the questions and suggestions expressed there reveal the same, or very similar, errors and misunderstandings, and these often seem to have their origin in other publications circulating elsewhere on the web. Among them are the following fallacies, in no particular order:

§  The idea that the charging of interest, or in particular the charging of interest on money, is a fundamental problem in our financial system.

§  The notion that there must be a systematic shortage of money in the economy because banks, through fractional-reserve banking, bring into circulation only amounts of money equivalent to the principal of the loans they create but not the necessary amount to pay the interest on these loans.

§  The notion that it is a problem that money-creation is tied to debt-creation (again, as a consequence of fractional-reserve banking) and that it would be possible and advantageous to have the state issue money directly (debt-free) rather than have the banks do it.

§  The idea that schemes are feasible that allow the painless shrinkage or even disappearance of the national debt.

 All these ideas are nonsensical, based on bad economics and fundamental logical flaws, and to the extent that they entail policy proposals, these policies, if enacted, would not only not give us a stable and more prosperous economy but would surely lead to new instabilities or even outright chaos.

None of these misconceptions originate, or even resonate, as far as I can tell, with the ‘mainstream’. The mainstream– the financial market professionals, the central bankers, financial regulators, and the media – remain resolutely uninterested in dealing with fundamental questions of money and banking for the reasons given above. Here, the discussion continues to centre on how the economy can be ‘stimulated’ more, what ‘unconventional’ policies the central banks may still have up their sleeves, and if the central banks need new targets or better central bankers. Icebergs or no icebergs, these deckchairs need re-arranging.

Read more at :

http://detlevschlichter.com/2013/01/incredible-confusions-part-1-positive-money-and-the-fallacy-of-the-need-for-a-state-money-producer/

This time is really, but really, different

These Fake Rallies Will End in Tears

By Detlev S Schlichter

Investors and speculators face some profound challenges today: How to deal with politicized markets, continuously “guided” by central bankers and regulators? To what extent do prices reflect support from policy, in particular super-easy monetary policy, and to what extent other, ‘fundamental’ factors? And how is all this market manipulation going to play out in the long run?

It is obvious that most markets would not be trading where they are trading today were it not for the longstanding combination of ultra-low policy rates and various programs of ‘quantitative easing’ around the world, some presently diminishing (US), others potentially increasing (Japan, eurozone). As major U.S. equity indices closed last week at another record high and overall market volatility remains low, some observers may say that the central banks have won. Their interventions have now established a nirvana in which asset markets seem to rise almost continuously but calmly, with carefully contained volatility and with their downside apparently fully insured by central bankers who are ready to ease again at any moment. Those who believe in Schumpeter’s model of “bureaucratic socialism”, a system that he expected ultimately to replace capitalism altogether, may rejoice: Increasingly the capitalist “jungle” gets replaced with a well-ordered, centrally managed system guided by the enlightened bureaucracy. Reading the minds of Yellen, Kuroda, Draghi and Carney is now the number one game in town. Investors, traders and economists seem to care about little else.

“The problem is that we’re not there [in a low volatility environment] because markets have decided this, but because central banks have told us…” Sir Michael Hintze, founder of hedge fund CQS, observed in conversation with the Financial Times (FT, June 14/15 2014) [1]. “The beauty of capital markets is that they are voting systems, people vote every day with their wallets. Now voting is finished. We’re being told what to do by central bankers – and you lose money if you don’t follow their lead.”

Brave New World, Plato’s Republic, and Our Scientific Regime

The Promise of Progress

By Matthew J. Franck

For much of the Cold War, George Orwell’s novel 1984 eclipsed Aldous Huxley’s earlier work Brave New World. Orwell’s book, published in 1949, seemed to many readers the more apt dystopia for understanding the challenge of totalitarianism, since it could be said to capture the essential character of the regimes on the other side of the Iron Curtain. With the Cold War now long over, and with that era’s public preoccupation with space, military technology, and the physical sciences redirected toward the biological and behavioral sciences and their potential to reshape human beings and society, Huxley’s dark tale has seemed “relevant” again. This is a judgment that would not have surprised its author. Huxley’s latest biographer, Nicholas Murray, explains that when Orwell sent Huxley an early copy of 1984, Huxley wrote back to say “that he had enjoyed it but believed his book [Brave New World] was better prophecy,” with its portrait of a gentler but more effective totalitarianism than Orwell’s “boot smashing down on the face.”

Though Huxley clearly intended his 1932 book as a dystopia, Murray reports that the novel was “popular with American college students in the 1950s” for its portents of sexual liberation, and that the contemporary French novelist Michel Houellebecq, in the words of one of his characters, treats Brave New World as “exactly the sort of world we’re trying to create, the world we want to live in.” Murray himself, whose strong suit is Huxley’s personal life rather than his literary production, plays up the respects in which the novel is a “critique of modern consumerism.” To be sure, there are the planned obsolescence of consumer goods, the conditioned desire for empty recreations, and the replacement of God with the shade of Henry Ford. But this is superficial. A more penetrating view was taken by Rebecca West, who in a 1932 review of the book in the Daily Telegraph called it “the most serious religious work written for some years,” and remarked that in one pivotal scene Huxley had “rewritten in terms of our age the chapter called ‘The Grand Inquisitor’ in The Brothers Karamazov.” (West’s comparison was discussed at length in these pages in Caitrin Nicol’s essay “Brave New World at 75,” Spring 2007.)

But an even more telling comparison can be made — that Brave New World is a modern counterpart to the “city in speech” built by Socrates and his young interlocutors in Plato’s Republic. Whether Huxley saw the similarities himself is far from clear. In neither the “Foreword” added to the 1946 edition nor his lengthy 1958 essay Brave New World Revisited, which is published together with the novel in some editions, does he indicate any consciousness of a parallel. Nor do his Complete Essays (published 2000 – 2002) shed light on this. His biographer Murray mentions no such connection in Huxley’s mind either; nor does his earlier biographer Sybille Bedford. Yet it may not be necessary to confirm any precise authorial intention on Huxley’s part to imitate Plato. Whereas Huxley’s other novels are largely forgotten today by the general public, and his later visits to the themes of Brave New World are those of a crank whose imaginative gifts have deserted him, in writing his greatest work he seems to have been in the grip of an idea larger than himself. Plato’s Socrates tells us in the Apology that when he “went to the poets” to “ask them thoroughly what they meant” in their greatest poems, he found to his surprise that “almost everyone present, so to speak, would have spoken better than the poets did about the poetry that they themselves had made.” For as Socrates said (not without some biting irony) in Plato’s Ion, “all the good epic poets speak all their fine poems not from art but by being inspired and possessed, and it is the same for the good lyric poets.” Perhaps during the mere four months it took Huxley to write Brave New World, he was “possessed” in this way and remained forever unconscious of his debt to Plato.

The Structure of Huxley’s World State

From the first paragraph of the novel, we learn the motto of the World State of Huxley’s imagination: “Community, Identity, Stability.” This brings to mind Socrates’ question to Glaucon in The Republic: “Have we any greater evil for a city than what splits it and makes it many instead of one? Or a greater good than what binds it together and makes it one?” Socrates and Glaucon agree that “that city [is] best governed which is most like a single human being.” In the same vein, the individual in the World State is “just a cell in the social body.” As for stability, described by one of Huxley’s chief characters as “the primal and the ultimate need,” this is something Socrates cannot guarantee regarding his city in speech: he tells his young friends that their city is “so composed” as to be “hard to be moved,” but that “since for everything that has come into being there is decay,” even it will not “remain for all time.” At the end of Brave New World, we have no reason to believe that Huxley’s World Controllers have not conquered the problem of decay. They appear to have achieved a perfectly static perfect justice. But then, unlike the rulers in Socrates’ city — unlike Socrates himself — they have wholly mastered a science that is (in Socrates’ words) “sovereign of better and worse begettings.” For the need to conquer human nature by eugenics is only the most obvious matter where Plato and Huxley meet on common ground. (All quotations from the Republic in this essay are drawn from Allan Bloom’s translation.)

The necessity of eugenics is driven by another principle the two polities have in common: “one man, one art.” Each cell in the social body has its peculiar work to do. As Plato’s Socrates divides his city into three classes — the golden guardians, the silver auxiliaries, and the iron or bronze farmers and artisans — Huxley’s World State has the five classes of Alpha, Beta, Gamma, Delta, and Epsilon. Socrates recognizes that he cannot keep his classes differentiated — hence he cannot keep the city stable — without keeping a “careful ... watch” over the children born to the parents in each class, transferring up and down the social scale those children who are better fitted to be reared in another class than the one into which they were born. Ultimately, with respect to the gold class, Socrates opts for a concerted eugenics program that involves the destruction of marriage and the family and the concealment of every child’s peculiar parentage, with childrearing handed over to a common nursery.

But Huxley does Socrates one better. The World State has completely severed sexual intercourse from procreation. No more viviparous reproduction; instead, the Hatchery and Conditioning Centre has taken over the whole work of producing each generation of citizens. Babies are made there on the assembly line by strictly selected in vitro fertilization and gestation, and their conditioning for their role in life begun even before they are “decanted.” Special lines of “plus” and “minus” models of each class are manufactured, from “Alpha-Plus” to “Epsilon-Minus Semi-Moron.” Descending to even more particularity, they are prepared for their precise adult jobs by doses of chemicals, exposure to heat and cold and other stimuli, and — after decanting — by early-childhood conditioning to like or dislike objects like books and flowers or experiences like darkness or sunshine. But will not the State need many workers identically made to do certain low-class jobs requiring mass manpower? That is solved in part by Bokanovsky’s Process, a method akin to in vitro cloning that can produce as many as ninety-six copies of a single embryo.

In Plato’s city, the sexes are generally equal in their participation in public life and work — but not quite. As Glaucon says to Socrates, they will assign “everything in common” to both sexes, “except that we use the females as weaker and the males as stronger.” Soon thereafter they agree that while there is no art “practiced by human beings in which the class of men doesn’t excel that of women,” yet because there is “no practice relevant to the government of a city that is peculiar to woman,” and “the natures are scattered alike among both” sexes, the women must be educated as the men are and assigned the same duties. Socrates blithely leads Glaucon to neglect even the possibility that there is an art of mothering, and to agree to the joint exercise of the sexes, naked, in their gymnastic training. Conditioning over time, they say, will accustom the male and female guardians to this immodesty. Somehow love of the city will be all they think of when they see what would normally be other objects of their affection.

So also in Huxley’s book, the sexes are in almost entire equality with one another. If with the banishment of viviparous reproduction the word “mother” is now an obscenity, why not? And yet, the equality is not quite complete — we never hear of a female World Controller or other high official. But the bad joke of Socrates’ naked unisex gymnastics is retold in Huxley’s early conditioning of both sexes to treat intercourse as play. Children at the Conditioning Centre, “naked in the warm June sunshine,” engage in “ordinary erotic play.” No need to restrain the natural sexual urges and channel them for eugenic purposes, as Socrates had to do. With reproduction cordoned off from sex — with every woman who is not hormonally engineered to be a sterile “freemartin” always going about equipped with her “Malthusian belt” of contraceptives, and strategically located Abortion Centres ready in case of accident — a wholly indiscriminate recreational sexuality can be unleashed, indeed encouraged, in both sexes.

Paramount for maintaining the basic structure of both Huxley’s World State and Plato’s city are their educational regimes. Socrates has his “noble lie” — a false tale about the creation of the city and its people that, if believed to be true, would guarantee citizens’ loyalty to the city and at the same time contentedness about their fixed place in it — all shored up by a strict censorship of poetry to inculcate the most politically unifying opinions. Similarly, the World State has its regime of “hypnopædia” (sleep teaching), in which nocturnal repetitions of moral maxims drone into the ears of the children until their conditioned responses to virtually every social situation are automatic. Like Socrates’ citizens who are schooled that they are “brothers and born of the earth” but fashioned by “the god” with the different metals in their natures, Huxley’s are taught over and over that “every one belongs to every one else,” that “all men are physico-chemically equal,” yet steadily conditioned to be unthinkingly content with their own station in life: “I’m really awfully glad I’m a Beta.... Oh no, I don’t want to play with Delta children.”

As they grow up, the children of the World State “learn to take dying as a matter of course,” undergoing “death conditioning” from an early age on field trips to the Hospital for the Dying, where men and women of sixty go to end lives that have been productive and pleasurable to the very end — sixty apparently being the upper limit at which all the powers of work and play can go on undimmed. Socrates too insists that his city’s young charges must “be told things that will make them fear death least,” so that “a decent man” will believe that for his fallen comrade “being dead is not a terrible thing.” But Socrates’ aim is to inculcate courage among warriors, a virtue of which there is no need in the World State, the scene of universal peace. Where there are no enemies, there is no need of soldiers, hence no need of physical courage in the face of violent death. Death comes peacefully, by prearrangement at a fixed age, in the World State. But the mystery of death is still frightening in itself, and so a kind of moral courage is still required, in the form (as Socrates puts it) of an “opinion produced by law through education about what — and what sort of thing — is terrible.”

The Mastery of Eros

The ideal society needs more than political organization and proper education toward love of the state; it also requires that citizens’ private pleasures be rightly directed. Socrates defines moderation as “a certain kind of order and mastery of certain kinds of pleasures and desires.” Later in the Republic, he argues that there are three kinds of pleasures, corresponding to “three primary classes of human beings ...: wisdom-loving, victory-loving, gain-loving.” This describes a clear hierarchy of pleasures and of people. In Brave New World, this hierarchy is flattened (with the possible exception of the World Controllers, about whom more anon). All the World State’s citizens appear to be gain-loving, seekers of the lowest pleasures. They play Obstacle Golf (their sports are as close as they come to being victory-loving); they go to full-sensory movie theaters, the “feelies” (in Huxley’s day the “talkies” were still new); they flit about in their helicopters from one empty entertainment to another. In the case of Alphas, for whom this endless round of pleasures might begin to pall, it is especially important that they conform to “their duty to be infantile, even against their inclination,” that they be adults at work and children at play. Perverse though it may be, this too is a certain kind of mastery of desire.

 Read more at:

http://www.thenewatlantis.com/publications/brave-new-world-platos-republic-and-our-scientific-regime

Who Killed the Enlightenment?

The Untold Story

by Brendan O'Neill

There were three terrible things about 9/11.

The first was the apocalyptic barbarism, the destruction of 3,000 innocent lives. The second was the pummeling of the New York City skyline, the greatest thing yet conceived by human minds and constructed by human hands, as outrageous as if a few thousand years ago someone had blown up the pyramids.

And the third was the way this atrocity allowed Western progressives to externalize the threat to our values. To treat the withering of the Western Enlightenment as something brought about by bearded foreigners who seem to have been time-warped from the 7th century.

That third terrible thing about that terrible day might prove to be 9/11’s most toxic legacy. For not only did those plane-weaponizing madmen end lives and take down metal, glass, and concrete structures—they also helped to warp politics itself, inciting onetime critical thinkers to ditch the thought in favor of simplistically reciting that they, like an exotic virus, are destroying our values.

With 9/11, Westerners of a liberal, democratic bent seemed finally to find an answer to that most troubling question: “Who killed the Enlightenment?”

It was Islamists. Outsiders. Extremists under the spell of faraway death cults. If we in the actual West bear any bit of responsibility, apparently it’s only insofar as we have “appeased Islamism”—that is, facilitated them, the destroyers of liberal values. Sadly—tragically—this is the wrong answer to the question of who killed the Enlightenment, and we’ll pay a high price for answering incorrectly.

Any Real Difference Between Keynesianism And Counterfeiting?

The Piranha Of Portugal: Greatest Counterfeiter Of All Time

By Bryan Taylor

The new US $100 bill is out, as you may have seen this holiday season. Our dear old Uncle Ben is a technological wonder with a dozen different anti-counterfeiting devices on it. Since there are more $100 bills circulating outside of the United States than inside, the U.S. Government has to insure that counterfeiters are unable to replicate the government’s most treasured export. This raises the question, who was the greatest counterfeiter of all time?

Government Counterfeiting

Although governments have done more to destroy their own currencies than all the counterfeiters in the history of mankind put together, the government is not the correct answer. Governments have debased their own currency for millennia. Historical examples of government-induced debasement include:

§     The Roman Empire replacing its silver Denarii with billon Antonininii;

§     The Khans of China creating the first paper inflation in the 1300s;

§     The United States making its first currency, the Continental Dollar, worthless;

§     Germany hyperinflating out of its debts by creating trillions of marks;

§     Or the US Federal Reserve blowing up its balance sheet.

In holding governments accountable, we are also not talking about one government counterfeiting the currency of another government as the

§     Barbarians did of the Roman gold Aureus

§     British did of Continental Dollars and French Assignats during the 1700s

§     Germans did of British Pounds during World War II in Operation Bernhard

§     United States did of Japan’s Occupation currency of the Philippines

§     North Koreans did of US Dollars, making them one of their principle exports.

Governments have consistently destroyed their own currency and those of other countries without ever being held accountable for their “crime” the way a counterfeiter is punished. No, we are not talking about governments; we are talking about individual counterfeiters.

It is one thing for the government to expand the money supply in order to stimulate the economy and help the unemployed. It is quite another for counterfeiters to do the same – albeit on a much smaller scale – to benefit themselves. Counterfeiters provide competition to the government, and though government officials are applauded when they inflate the economy, counterfeiters are condemned to prison when caught.

A Classy Counterfeiter

Our vote for the greatest counterfeiter of all time goes to Artur Alves dos Reis whose story was recounted by Murray Teigh Bloom in The Man Who Stole Portugal. Reis was both smart and classy, and his criminal operation reflected these qualities. To my knowledge, Reis put together the most audacious counterfeiting scheme in history. He conceived his master plan while he was in jail in Oporto for embezzling the funds of a company he had taken over. Some criminals sit in jail and try to avoid repeating their misfortunes. Others, like Reis or Tony de Angelis, think-up bigger, more foolproof schemes. While he was sitting in his cell, Reis put together his master plan that would make him the richest, and possibly the most influential man in Portugal in only one year.

Counterfeiting is a very complex operation. To be successful, (i.e. not get caught), be able to spend your money, and not receive free room and board from the government, you have to do three things successfully. First, you have to create counterfeit currency that can’t be detected. Second, you need a way of laundering the money and converting it into real assets so you can enjoy the fruits of your ill-begotten labors. Third, you must make sure that you avoid the triple curse of detection, arrest and conviction. Let’s see what Reis’s solution was to this age-old problem.

Step One: Create an Undetectable Banknote

First, create a counterfeit that can’t be detected. During the 1920s, the Banco do Portugal had the exclusive right to print currency in Portugal. The bank used foreign printing companies with superior anti-counterfeiting technology to protect their banknotes. The English company, Waterlow & Sons, printed the 500 and 1000 Escudo notes (equal to about $25 and $50 in 1923) for the Banco do Portugal. So why not get Waterlow & Sons to print the notes for Reis as well?

Reis was a natural-born forger. He forged his diploma as an engineer from Oxford as a “joke,” but this helped land him a job as a government railroad inspector in Angola at the age of twenty-two. In 1924, he forged $100,000 worth of checks and used the money to take over control of Ambaca, the Royal Trans-African railway Company of Angola. He then used the money in the company’s treasury to cover his own checks. He was arrested in July 1924 for embezzlement, but was released two months later when a court decided his was a civil and not a criminal case.

It was during the two months he was the guest of the Oporto police that he conceived his infamous counterfeiting scheme. The key was to find someone with a respected name who could help him convince Waterlow & Sons to print banknotes secretly for Reis. He found three men of questionable repute, but with connections to help Reis: Jose Bandeira, Gustav Adolf Hennies and Karel Marang.

Bandeira got his brother, the Portuguese Minister to the Netherlands, to give Marang a letter introducing him as a respected Dutch citizen who had a power-of-attorney for Alves Reis to negotiate the printing of the banknotes. Marang went to Waterlow & Sons in London, and presented his letter of introduction as the “Consul General of Persia” on forged Banco do Portugal stationary to Sir William Waterlow.

Marang spun the story Reis had instructed him to give. A private syndicate was being formed to save the colony of Angola from its current dire financial condition with a $5,000,000 investment. In return for the loan, the syndicate would be allowed to print and circulate banknotes in Angola. Waterlow & Sons would print the banknotes for the syndicate, and once the notes reached Angola, the banknotes would be supercharged with the word ANGOLA so they wouldn’t be confused with notes from the mother country. The whole affair had to be kept secret lest Angola fall into further financial difficulties due to ill-placed rumors of pending economic ruin.

Sir William knew that supercharging notes was normal practice for Portugal’s colonies, and that the Banco Ultramarino had the exclusive right to print banknotes for the Portuguese colonies. This was an opportunity for Waterlow & Sons to get this business away from Bradbury, Wilkinson & Co., the current printer of banknotes for the Banco Ultramarino in Angola.

Marang asked Waterlow to print the 500 Escudo note with Vasco da Gama on it. The deal was signed on January 6, 1925, and for the printing cost of $7,200, Reis and his conspirators would receive $5,000,000 in banknotes, a 70,000 percent return on their investment. Bandeira picked up the first group of notes from Waterlow & Sons on February 10, and by March 20, they had 100 million Escudos ($5,000,000) in Portuguese banknotes. Bandeira used his orange diplomatic card to transport the bills in luggage marked the “Legation of Portugal” across the borders without detection. After the first step had been successfully completed, they placed an order for an additional 190 million Escudos in banknotes ($9,500,000). Of course, the banknotes never made it to Angola.

The greatest risk in the scheme was having banknotes with duplicate numbers discovered, but this was the lesser of two evils. If Reis and Marang had requested banknotes outside the numerical range of the 500 Escudo notes, the spurious notes would have been quickly discovered. The lower risk lay in duplicating the existing serial numbers, and hoping the counterfeiters were able to successfully release all the banknotes before the law of large numbers caught up with them.

Step Two: Laundering Money with Your Own Bank

Step One of the plan was complete, now for Step Two: laundering the money. A small-scale counterfeiter can pass bills through petty criminals, but the notes Reis and friends had were equal to almost 1% of Portugal’s GDP. This was the equivalent of over $150 billion if the same amount had been released in the United States today. Even if Reis hired every petty criminal in Lisbon and Oporto, he wouldn’t be able to unload a fraction of the banknotes.

Reis was going first class with his counterfeiting scheme, and he decided the only way to launder the money was to have his own bank. Reis used his newly printed banknotes to encourage corrupt Portuguese officials and politicians to grant him his bank charter, and on June 15, 1925, the Banco Angola e Metropole’s application was approved by the government. Of course, the bank would have multiple branches in Lisbon and Oporto to speed up the distribution of their treasure.

Want to exchange foreign currency? The Banco Angola e Metropole provides the best rates. Want to borrow money for a business or mortgage? The Banco Angola e Metropole will be happy to extend you the loan in cash. Want high interest rates on your deposits? Go to the Banco Angola e Metropole? In the meantime, Reis, his wife, and their compatriots spent their money freely, buying jewelry, cars, real estate, and sending money abroad.

Reis flooded Portugal with his freshly minted banknotes, and the economy of Portugal was booming. And as Reis would rationalize, how was this any different from what a real government did? Was there really any difference between Keynesianism and counterfeiting?

Step Three: Avoid Detection (For a While)

Step Three and the most important of all was how to avoid detection, arrest and imprisonment. For this, Reis had a brilliant solution. Since they were counterfeiting Banco do Portugal banknotes, only the Bank could initiate proceedings to prosecute them. But what if – just what if – Reis controlled the shares in the Banco do Portugal? The bank had already exceeded its statutory banknote limit many times over and the directors of the Banco do Portugal had never been prosecuted, so why should they prosecute Reis? Or as Reis put it, “How can they arrest us when they’re us and we’re them?”

Like most European countries, Portugal had suffered inflation after World War I. Prices had increased 48% per annum between 1919 and 1924, and the Escudo had depreciated by 87% against the Pound Sterling. Although the Banco do Portugal was only supposed to issue banknotes thrice its capital, it had, in fact, issued banknotes a hundred times its capital. Reis’s monetary manipulations were minor by comparison. The chart below shows the depreciation of the Portuguese Escudo against the U.S. Dollar after World War I.

Read more at:

http://www.testosteronepit.com/home/2014/1/8/the-piranha-of-portugal-greatest-counterfeiter-of-all-time-o.html

A Quick Guide To What's Fake: Everything That's Officially Sanctioned

Neofeudal financialization and unproductive State/corporate vested interests have bled the middle class dry 

by Charles Hugh-Smith

Let's cut to the chase and generalize "what's fake": everything that is officially sanctioned: narratives, policies, statistics, you name it--all fake-- massaged, packaged, gamed or manipulated to serve the interests of the ruling Elites.

Anything that might introduce a shadow of skepticism or doubt about the sustainability, fairness and transparency of the status quo (i.e. anything authentic and genuine) is recast or repackaged into a fake that can be substituted for the authentic when everyone's gaze is distracted by the latest fad/media sensation/scandal.

ObamaCare: fake, a simulacrum of insurance and healthcare.

The National Security State: fake, a cover for global Empire.

The Patriot Act: Orwellian cover for state-corporate fascism.

Student loans: parasitic, exploitive loan-sharking enforced by the Central State for often worthless "higher education."

And so on.

Yesterday I explored the peculiar dynamic that motivates us to accept forgeries, fakes and illusions as authentic: What's Real? What's Fake?. If the fake enables our fantasy (of free money, of owning an authentic canvas by a famous artist, that rising wealth inequality is just a side-effect of freewheeling capitalism, etc. etc. etc.), then we want to believe it so badly that we overlook all the evidence of chicanery, forgery, illusion and fakery.

Consider our willingness to accept the conventional narrative about why the Great American Middle Class has been in decline since 1973: rising energy costs, globalization, and the declining purchasing power of the U.S. dollar.

While these trends have certainly undermined middle-class wealth and income, there are five other more politically combustible dynamics at work:

1. The divergence of State/corporate vested interests and the interests of the middle class

2. The emergence of financialization as the key driver of profits and political power

3. The neofeudal “colonization” of the “home market” by ascendant financial Elites

4. The increasing burden of indirect “taxes” as productive enterprises and people involuntarily subsidize unproductive, parasitic, corrupt, but politically dominant vested interests

5. The emergence of crony capitalism as the lowest-risk, highest-profit business model in the U.S. economy

The non-fake narratives are considerably different from the status quo ones. Please consider two: The Neofeudal Colonization of Home Markets and the Happy Marriage of the Parasitic Central State and Crony Capitalist Cartels.

The Neofeudal Colonization of Home Markets

The use of credit to garner outsized profits and political power is well-established in Neoliberal Capitalism.  In what we might call the Neoliberal Colonial Model (NCM) of financialization, credit-poor developing world economies are suddenly offered unlimited credit at very low or even negative interest rates. It is “an offer that’s too good to refuse” and the resultant explosion of private credit feeds what appears to be a “virtuous cycle” of rampant consumption and rapidly rising assets such as equities, land and housing.

Essential to the appeal of this colonialist model is the broad-based access to credit: everyone and his sister can suddenly afford to speculate in housing, stocks, commodities, etc., and to live a consumption-based lifestyle that was once the exclusive preserve of the upper class and State Elites (in developing nations, this is often the same group of people).

In the 19^th century colonialist model, the immensely profitable consumables being marketed by global cartels were sugar (rum), tea, coffee, and tobacco—all highly addictive, and all complementary:   tea goes with sugar, and so on.  (For more, please refer to Sidney Mintz’s landmark study, Sweetness and Power: The Place of Sugar in Modern History).

In the Neoliberal Colonial Model, the addictive substance is credit and the speculative consumerist fever it fosters.

In the financialization model, the opportunities to exploit “home markets" were even better than those found abroad, for the simple reason that the U.S. government itself stood ready to guarantee there would be no messy expropriations of capital or repudiation of debt by local authorities who decided to throw off the yokes of credit colonization.

….

Read more at :

http://charleshughsmith.blogspot.gr/2013/12/a-quick-guide-to-whats-fake-everything_16.html

What's Real? What's Fake?

The unemployment rate is obviously fake, but we want to believe the fake is real for a variety of reasons.

by Charles Hugh-Smith

We like to think we know the difference between what's real and what's fake. When we're fooled by a fake Rolex watch purchased for $20 on some humid Asian street corner, we shrug it off: it's no big deal because the fake isn't harming anyone.

And when it's difficult to discern the fake from the legitimate, as in fine art paintings and financial policy, we rely on experts to differentiate between the two.

But what if the "experts" are as clueless as the rest of us? What if they've been corrupted by easy money to authenticate the fake as legitimate? Consider ObamaCare, an extraordinarily complex policy that "experts" assure us is a phenomenal advancement that is "working well."

But what if ObamaCare is a fake? What if it is really not insurance at all, but a giant skimming machine designed to enrich and solidify the power of the state-cartel that operates the sickcare system?

"Experts" (PhDs and Federal Reserve economists) assure us our financial system is the core engine of "growth" in our economy. But what if this assertion is simply a useful illusion, and the reality is that the U.S. financial system is a giant skimming operation that harvests immense profits off the real economy to the benefit of the few, the financial cartels and their lapdogs in the Central State?

"Experts" in the Federal government assure us the unemployment rate is 7%. But if we include the 91.5 million people of working age who could be working (and would be working in a work-fare economy), then the real unemployment rate is double the official rate: 14% or even higher.

Is the unemployment rate real or fake? It is obviously fake, but we want to believe the fake is real for a variety of reasons.

The 1974 Orson Welles documentary (recommended by correspondent K.K.)  F For Fake helps elucidate this peculiar dynamic of human nature.

The master art forger who plays a central role in F For Fake noted (self-servingly, but amusingly so) that his addition of a few fake Modigliani paintings into the world's collections did no damage to Modigliani (long since deceased) or the collectors, who benefited from the opportunity buy a Modigliani masterpiece.

We want to believe the fake unemployment rate of 7% rather than the real rate of 14+% because the officially sanctioned forgery feeds our belief that our bloated, corrupt Empire of Debt is sustainable, fair and working well. To accept that we've been bamboozled, ripped off, taken advantage of and ultimately cheated out of an authentic economy and life by swindlers is too painful.

Read more at:

http://charleshughsmith.blogspot.gr/2013/12/whats-real-whats-fake.html