How to Rob a Country

There has been a lot of talk, maybe too much talk about banks and credit since the 2007 crash and burn of Ireland. However, there have been no answers to questions that were raised in the Dáil during the debate of the “Central Bank Bill” in 1942.

• Who issues, controls and owns the credit of this nation?
• Do or should the people own Credit Money?
• Does the Government have any control over the Central Bank?
• Does the Central Bank have any control over the Money Supply?  
• Should we have a Central bank and who should own it?

James Dillon raised some of these questions in the Dáil. He was expelled from Fine Gael in 1942, the year this bill was introduced.

To reduce the rubbish talked and written in the media, should it be mandatory for anyone commenting to understand that debate? Dail Debate 

Should they have an understanding of what happed in factual terms to the money supply in Ireland in the final stages of the property bubble? Centralbank stats 

The myth that the Irish borrowed German savings created the credit bubble is debunked by just looking at the expansion of the ECB money supply. Total ECB M3 expanded from €5.780 trillion in Jan. 2003 to €9.822 trillion in Feb. 2012. ECB Stats 

Growth of ECB Money Supply

Essentially the banks in the periphery counties expanded credit money causing the bubble. They may have looked for reserves in foreign countries but the overall effect is a global expansion in credit (money Supply). The figures are in official documents. Any commentator that implies that the debt was another’s savings and the bank is just an intermediary either hasn’t a clue or is purposely misleading the public.

From Dáil Debate, 17 July, 1942 Committee on Finance. - Central Bank Bill, 1942—Fifth Stage

I might quote one short paragraph, and apply it to these two Deputies, from this authority, on whom Deputy McGilligan places such reliance. It is from page 47 of Crowther's An Outline of Money:—
“Thus the bank does not ‘create’ money out of thin air; it transmutes other forms of wealth into money. Even the mediaeval alchemists never hoped to make gold out of nothing; their highest hope was to transform lead into gold. The banker's power is not even so great as this, for he cannot change a worthless substance into a valuable one. But he can [981] turn immobile wealth into the mobile (or ‘houid’) form of wealth known as money. He takes the immobile wealth as his asset and gives his I O U (which is money) in exchange. This is the very essence of the banker's business.” Minister for Finance, Mr. O Ceallaigh

Lets present a real example from the Irish Property Bubble.

A landowner has swamp land on the edge of a village not fit for grazing cattle. He presents plans to the local authority to build a hotel, pub, shops some houses and apartments. Four months later the plans are approved. Due to approval for this development from the local authority the swamp is sold for €1million. The new owners borrowed the money to buy this swamp, the bank “transmutes" the swamp into €1million by the bank creating a new account for the buyer and placing €1million credit money into it. It took a charge on the land and places it on its assets at a value of €1million. The buyer gives the seller the €1million and owes the bank that amount plus interest. The seller deposits the €1million in his account, which is a liability on the balance sheet of his bank. In short, the loan to the buyer created a deposit for the seller and the money supply expanded by €1million. In effect, the €1million is the value of the planning permission. If no development occurs and the planning lapses the bank now has a worthless swamp but the seller still has his €1million. The buyer still owes the bank the loan plus interest. This is what happened in many cases, the land values dropped but the deposits (liabilities) remained. In fact about €100Billion was created and given to about 100 developers who spent it on now unfeasible developments. The “alchemists” required no German savings. They just require an intangible banking licence.

From Dáil Debate, 17 July, 1942 Committee on Finance. - Central Bank Bill, 1942—Fifth Stage

Credit, it cannot be too often repeated, has many of the characteristics of dynamite. Prudently used it can discharge many valuable functions, recklessly employed it can destroy the whole fabric of the State.
Mr James Dillon

If you want an understanding of what happened in Ireland you can get a visual of the lead up to the crash in the Money Supply charts below. You will also need an understanding of the questiones posed by James Dillon in that Dáil Debate. Leaving the Euro and returning to the Punt under the same Central Bank model is not the answer. The banks had their chance and "destroy(ed) the whole fabric of the State". Its time for the people to take owership and control of their credit. 

Irish Money Supply Million Euro

 Irish M1 Money (Currency & Demand Deposits)

The US BOND MARKET

It is over a year since we posted this blog http://vimtrading.blogspot.com/2010/05/our-most-important-post-ever.html and the US 10 year yield has just gone below 3% again.
It has also been well cover in the media that Gross of Pimco has gone short. Maybe he was short back then and tried to pump his position by saying rates were going over 4%?

I think Gross will be right but even with all his insider information his timing has been way off. We called back then for a “flight to quality” and yields dropped to under 2.4% on the 10 year bond.

As I called before, the action on the Greek bonds was a precursor to what would happen in Ireland and it did. Back then Brian Lenihan was saying that the bond market was responding positively to their actions but it was just the calm before the storm that stole the remains of Irish self rule. The action in Europe is a precursor to what will happen in the US.

CNBC are shouting that Pimco has been wrong in their call to short the US Bond. All that is wrong is their timing. That may also make sense so when their short position come right they can say they took a lot of heat in the position and replay the CNBC clips to prove it.

So, without looking at any fundamentals of the US Economy and looking just at the chart of the 10 year bond yield.
The 30 year down trend in interest rates ended in December 2008.
Then there was the first wave up to 4%. Gross calls for rates to go above 4%. Vim Trading calls for “one more flight to quality” or out of the frying pan and into the fire by those managing the pensions of the US Middle Class.
Rates make a higher low in the last quarter of 2010 (wave2).
Rates moved up to 3.7% in Feb 2011 and have since dropped back to 3% as it has come out that Pimco are short and the media is making sure we all hear how wrong they are.
Wave 3 of 3 will begin in the coming weeks. Over the coming months we will have the waterfall decline in US long term bonds as we had in Greek and Irish Bonds.
Those short took half a percent of heat and will make a killing.

Markets take time to pan out and now the time is near for the US 10 Year Bond. This is where the masses will really get ripped and say goodbye to what is left of their hard earned, poorly invested pensions.

No point crying when the milk is spilled, but of course they will.

http://twitpic.com/1kbg6d

ECB MONEY SUPPLY & IRISH HOUSE PRICES

http://www.ecb.int/pub/mb/html/index.en.html

http://www.statusireland.com/statistics/property-house-price-statistics-for-ireland/3/Irish-House-Prices-Since-1996.html

You don’t need to understand how a semiconductor works to use a computer. Likewise, you don’t need to fully understand how the credit system works to realise that our economic woes have something to do with these numbers.

Lets analysis these figures;
· Over the past 10 years the money supply has expanded by between 90% and 136%
· Since November 2007 the rate of expansion has decreased (but was still growing)
· M0 shows a growth rate of 1% in the past 4 months. M1 & M2 has decreased and M3 is flat.
· House prices grew at the same rate as M1until they peaked in the last quarter of 2006. They are up less than 10% over the decade.
· HICP was steady at 2% most of the past 10 years http://sdw.ecb.europa.eu/quickview.do?SERIES_KEY=122.ICP.M.U2.N.000000.4.ANR

Some Questions;
· How does the amount of money increase?
· Where does it come from?
· How does more money in the system affect me?
· Is it good or bad for me if there is a reduction in the amount of money in the system?
· If the ECB has an inflation target of less than 2% why did they allow the money supply to expand by over 4 times that? Can they not control this through interest rates and capital requirements? Did they not know it may be causing bubbles in Irish and Spanish property?

The above money supply data resembles a 4 carriage train going up a steep hill slowing as it peaked. Is it about to go down the other side? Here is what Steve Keen, the economist that I think best understands the flow of money says;

“The initial borrowing by the shadow banking sector from the banks creates both money and debt;
The money onlent by the shadow banking sector to other sectors of the economy creates debt to the shadow banking sector, but not money
I frequently get the argument that debt within the financial sector can be netted out to zero, but I think this ignores those two factors above: the creation of additional debt-backed money by the initial loan, and the creation of further debt to the financial sector—most of which has been used to fund asset bubbles rather than productive investment.” Steve Keen http://www.debtdeflation.com/blogs/

Our most important post EVER

Just to elaborate more on our twit from May 2nd on the 10 year bond http://twitpic.com/1kbg6d. When many commentators, including Pimco’s head Bill Gross, were calling for rates going above 4% we suspected that there would be one more “flight to quality” as thing once again got “more bad”. Again, the reasons why this happened are obvious now after the event.

Sometimes an Elliott Wave count can give you much more market insight without ever looking or listening to news. This is why we also recommend that client avoid news when making trading decisions if they are unable to distinguish between what is important from the noise.

If you had listened to the biggest bond trader in the world you would be down 20% since the yield was at 4%. Our Elliott Wave count was that the first major wave up began in Jan. ’09 and ended in April. We expected a wave Two, ABC correction to take place and last for a few months as indicated in the above twitpic. Our target levels were between 2.75% and 3.25 % (basic Fibonacci retracement levels). It now looks like we could get to below the 3% even though this looked like an unlikely event only a few weeks ago.

We then go into the most impulsive wave and this is where the meltdown will occur. First the media will say a rise in rate is due to the economy become “less bad” and there is again a demand for risky assets. However the real reason will be that investor realised they jumped out of the frying pan and into the fire. Nobody will want the long end of the US curve and what happened in Greece is just a precursor to how quick and impulsive wave 3 can be.

Heaven knows what interventions Governments will try so it may be difficult to make money on this demise. Of course if you own this product at these yields get the hell out. However, most are held by institutions in our hard earned pension funds. This is where “Joe Public” really gets ripped asunder.

Rates on T-bill MAY remain low as the second last flight to quality. It won’t take much of this bond money to drive the price of gold and silver into the mania bubble phase we discussed here http://vimtrading.blogspot.com/2009/06/compare-gold-in-1970s-to-2000s.html and here http://twitpic.com/1oy34q.

It’s not a pretty picture but now is the time to batten down the hatches and stop listening to all those “experts” and “economists”.

When Credit is Flowing

Here we will try to show the facts that the Global Financial Crisis was due to monetary and credit expansion gone mad and dispel the idea that it is the savings of other nations that has caused it. In our previous blog “Get Credit Flowing” http://vimtrading.blogspot.com/2010/04/get-credit-flowing.html we claimed that LOANS CREATE DEPOSITS WHICH CREATE LOANS WHICH CREATE DEPOSITS. Figure one shows just how much this expansion has happened. Whether we look at just the paper money in circulation or broad credit the expansion has been between 6.8% P.A. and 8.8% P.A. Exactly how this happens is not as important as to what the consequences are. We got to keep in mind that the ECB has a target for inflation of under 3% and this inflation figure (CPI in Ireland & HICP in Euro Zone) is what is used to calculated wage and pension increases and now decreases.

Figure 1. Euro Money Supply in Billions of Euro

Figures from www.ecb.int/pub/mb/html/index.en.html
M0: Currency in circulation
M1: Currency in circulation + overnight deposits M2: M1 + Deposits with an agreed maturity up to 2 years + Deposits redeemable at a period of notice up to 3 months M3: M2 + Repurchase agreements + Money market fund (MMF) shares/units + Debt securities up to 2 years

To keep this as simple as possible we will look at M0 which is all the Euro currency in circulation. From the beginning of the Euro in 1999 there was €343.8 billion in circulation and 11 years later there was €806.2 billion which is an increase of €462.4 billion or 8% per annum. If it had increased by just 3% PA the total amount would be €475.9 billion.

So we will say wages increased by 3% PA in line with CPI or a total compound increase of 38% over 11 years but the amount of Money in circulation increased over 3 times faster. Some may argue that we need more money in circulation because the euro zone has expanded and has a larger population. This may be true but the population has only expanded by 13 percent. The per capita increase of currency in circulation has been 108%. So for ever €100 you were earning in 1999 you should be getting €208 just to be keeping up with per capita currency printing. This does not include that one has 11 years more experience under their belt.

By just looking at figure 1. and reflecting on ones own situation it is easy to see that something just doesn’t add up. For most the thought may be “the amount of money per capita has gone up by 108% but I am not getting my share.” Also, if I’m not getting it, who is? We have answered some of the question one may have in previous blogs.

Henry Ford stated “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” This system can only work with continuous expansion. By allowing write off of debts the above figures would contract. While it looks bad for Governments to bail out the main culprits they know the alternative of a total collapse would lead to revolution. In simple it is a pyramid scheme and the majority of us are on the bottom leg. Because not enough of the money has fallen to the bottom we can’t sustain the scheme and government will try to “get credit flowing”. Bailout may work this time, but in the end it will go the way of all pyramid schemes.

GET CREDIT FLOWING

It has been three years since the Celtic Tiger party topped out. Since, we have the same discussion and blame game with the same commentators who are offering nothing new and are not highlighting the real cause and effect. The public are getting tired and sadly with all this coverage are feeling more confused.

We will go back to the analogy of a big party that many use to describe the Celtic Tiger. We went on a massive CREDIT bender and in mid 2007 the party stopped. When we woke up with this killer hangover to the shame of the thing we got up to during this party we were left with many options. To name a few, we could take the pain with the knowledge that we would come out the other side stronger and wiser. We could take the easier option and go for “the hair of the dog” which had often eased the pain before. Of course there are also loads of quack solutions to ease a hangover but what is important to remember is that is was doing the dog at the party that caused the problem.

It is widely discussed that Credit was the drug of choice at this party however what is not widely understood is that this was a synthetic credit. Economist would have you believe that this credit was money borrowed from the saving of thrifty Germans. This is only mildly true as their saving may have been the base for this credit. In the fractional reserve, central bank controlled fiat money system that exists LOANS CREATE DEPOSITS WHICH CREATE LOANS WHICH CREATE DEPOSITS and so on until the credit expanded faster that the wages that are used to pay back the principle and the loan. In a world where language is used to confuse rather than enlighten this is loosely called INFLATION. In a nutshell investment banking is a licence to print money. Again money and credits are interchangeable term that experts have difficulty in drawing the line between.

This system is CREDITISM. Like Capitalism and Socialism this ideology works well on paper. If you have a steady growth of this credit, say up to 3% P.A. it can go on for ever and a little morning after stimulus cure will work ok for the minor excesses. However since the introduction of the Euro there has been over 8% monetary and credit expansion P.A. which came to an abrupt halt and now Governments and Central Bankers are trying to get this party started.

See ECB Monthly Reports www.ecb.int/pub/mb/html/index.en.html

Diagnoses and Cures
Governments and the financial industry know the illness is self inflicted creditism but are disclosing it as free market capitalism gone mad due to lack of regulation and enforcement. Their cure is stimulus of synthetic credit and more regulation which is seen to be vigorously enforced. Many main stream economists also mistake Creditism for Capitalism. The difference being, Capitalism requires savings and a natural outcome of a society being more productive is a reduced price of goods. Creditism also allows for productive gains however due to an increase supply of credit it takes more and more money to acquire goods.

If we were to take the cure for excesses and poor investments in Capitalism and apply them to Creditism you would get a total wipe-out of deposits and a total inability for those indebted to pay down their debts. The idea of just protecting deposits is not a Capitalist solution. As was highlighted earlier, many if not all deposits are created from loans. For example if a dump site in Dublin was sold for €450 million, the buyer puts up €50 million of their savings and borrows €400 million. This €400 million loan is created by increasing the broad money supply (it is not the saving of thrifty Germans). The seller of the site now gets their €450 million which they put in their deposit account known as M1. The broad money supply increases by €400 million as does the amount of money on deposit. Should the seller not also lose out if this system breakdown? This is the bulk of deposits while the saving from earnings that is used as a case against this radial cure is just pittance. As the debts are wrote down or wrote off there would be a dramatic reduction in the money supply. Some of the outcomes of using a Capitalist cure for Creditism problem in the Euro Zone would be a strengthening of this currency against other pairs that chooses a stimulus route (why? because less Euro will exist). Also bonds rates would go up and countries as well as corporations would find it difficult to roll over debt and issue new debt at reasonable rates. All goods and services including public services wages would collapse. Ideologies would quickly move from the centre to the extremes. The happy medium that we have experiences since WWII would be over. Knowing this the wise Politicians that we call thick are going to do all in their power to “GET CREDIT FLOWING”. In Ireland changing government is pointless as other main parties’ ideology is also in the spectrum between Corporatism and Creditism. The rest are in extremes that have already proved themselves as utter failure.

The key is to understand that the problem is not the use of credit but the reckless expansion of monetary and credit supply. Now that this has blown up we need to see why there is a massive effort to “GET CREDIT FLOWING”. With this knowledge the debate can move to what are really the best solutions to the problem and how best to prevent it from happening again.

Why Choose Vim Trading?

What is so special about your product?
There are five elements to the Vim Trading “Steps to Success” training programme.
1. Understanding the psychology of markets and your emotions (how to deal with them)
2. Money and risk management (simple but most important)
3. Investment strategies, we cover developing, testing and implement strategies.
4. The skill set; to physically trade from your office or home you require a certain skill set. The practical nature of this programme give you the skill set required.
5. Learning how to analyze charts and identify the most probable future direction of the trend. (this is where most people focus for success, it is important but the least important of the above elements)
For a fraction of the cost of other products we run our course over a three month period so clients can build on their skills between sessions. We will take clients with no experience or knowledge of the markets and within three months give them the knowledge and skills to develop and implement a success investment plan.

Others programmes just offer some of the above elements. For example some programmes can charge over €2,000 for loads of information and some poor technology all of which can be acquired for free if you are smart. Others provide one day and half day workshops on some of the skills and strategies but this is information overload and does not allow time for clients to practice the skills.

What can I take away from the course?
Clients will acquire knowledge, skills and wisdom in the above areas as well as some new perspectives about markets and finance.

What turn around on profits will I make?
If you understand what is said above to come out with this question is a bit silly.
As you may not make a profit at all.
Your success will depend mainly on you implementing a sound, realistic plan with SMART objectives. Then there are an infinite number of factors that can impact (positively and negatively) on your P&L. So while it may seem like a smart question it would be stupid for us to put a figure on the answer as you may lose money or you may become the next Warren Buffet.

What you will have is a clear understand of this fact by the end of the programme so if you get bluffed by someone offering you a magic bullet formula you were not listening in class!!!!!!

Do I need software for the course?
FREE software is provided with your trading account. We will guide clients to what we believe are good sources of free information and resources.


How much time is involved studying at home?
Simple, what you put in is what you get out. The course is run over 10 sessions and not a weekend so clients can build the knowledge and skills as well as learn from the emotions that they experienced trading. The reality is that some people won’t go near it from one week to the next but we recommend doing 2 hours of planned, specific work between sessions. Some clients spend much more time studying and they get more from the contact time as they can ask smart questions and will understand the answers.

Is there an after care service?
Yes there is a mentoring service but this is expensive. One is much better off going away and putting the knowledge and skills into practice with small amounts of money. Then, when you have experienced the real investment world join us for a group get together to explore our experiences. We find the people looking for after care are those that just don’t put the work in during the course and have more money than cop-on. They are a prefect target for a sales guy who comes along offering them a magic bullet solution.

How long will it take before I will be trading on real markets?
We hope clients set up a real micro trading account with €100 straight away and then you are trading real money in the markets. By the end of the course you should have developed an investment plan.

Do I have to set up my own account with a stockbroker?
All clients will set up a demo and/or a real account with the same brokers so we all have the same technology. We will look at a number of different ways to invest but each client’s choice of brokerage beside the demo or micro account should be based on their due diligence. While we cover the steps one takes in choosing technology, brokers and investment vehicles we do not make specific recommendations.

Investing seems like hard work, would I not be better off putting my money on deposit or letting a professional manage my investments?
For many they are better off giving their hard earned savings to an investment manager or putting it on deposit. However, don’t expect to make a great return or even a positive return on your investment. See our blog on the best investment of the past decade.http://vimtrading.blogspot.com/2009/12/stocks-bonds-property-cash-or-gold.html

Even if you choose not to invest yourself, you will be a lot wiser about markets and investing by taken part in training with a company whose only vested interest is giving you an impartial education on the financial world. We give clients the skills and knowledge to “form their own opinion”. Our programmes are based on our understanding of what these requirements are and our knowledge and experience on how adults’ learn best.

If you have any other question please leave a comment or email info@vimtrading.com

http://www.vimtrading.com/