Shallow Thinking from Simon Black

Sometimes shallow, sometimes callous (this one is still stunning to read).

This time the subject is the Middle Ages, and Mr. Black’s ignorance on the topic.  Yes, yes, I know – not such a big deal in the grand scheme of things.  But, as regular readers know, a rather important topic for me.

He dreams of time travel:

Time travel is an almost universal fantasy. And if I could snap my fingers and turn the pages of time, I’d be seriously curious to check out the thousand-year period between the decline of the Western Roman Empire and the rise of the Renaissance.

Absent certain modern inconveniences, it would be an interesting time to visit.

Now, for the first fallacy:

They used to refer to this period as ‘the Dark Ages’ (though historians have since given up that moniker), a time when the entire European continent was practically at an intellectual standstill.

It is true that historians have stopped using the term.  If he knows this much, one would hope he also knows the reason why.  Alas, it is not to be.

There is a reason for giving up this moniker – the age wasn’t “dark.”  Mr. Black’s characterization of an entire continent “practically at an intellectual standstill” for 1,000 years (can you imagine) is drastically incorrect.  Consider the significant advancements in industrialization: all forms of mechanization, mills, advances in mining, the mechanical clock, irrigation practices, the development of the codex…and technically, movable type. 

Now another fallacy:

The Church became THE authority on everything– Science. Technology. Medicine. Education. And they kept the most vital information out of the hands of the people… instead simply telling everyone what to believe.

Interpreting facts and observations for yourself was heresy, and anyone who formed original thought and challenged the authority of church and state was burned at the stake.

Villard de Honnecourt was in every way a da Vinci 250 years before the famous da Vinci.  For all of his work in science and related fields, he wasn’t burned at the stake.

And the world was round as early as the thirteenth century, according to Brunetto Latini.  Latini was afforded a burial in a most holy place in the church.  This in contrast to the treatment of Galileo during the enlightening period of the renaissance, where he was denounced a heretic and lived under house arrest until his death in 1642.

Witch burning was almost unknown during this thousand year period – it only gained prominence at the end of the period and the beginning of the Renaissance.  The church was rather tolerant of science; women owned businesses and held office; yes, there was serfdom, but slavery was almost eliminated (and a serf, whatever he was, was no slave – and he had many rights to which we, today, would be jealous); many other examples of a liberal society – far more liberal than the Rome that preceded it or the Renaissance that followed – are in evidence.

The change seems to have begun in the late 13^th century and culminating in the mid- to-late- 14^th century – driven by several events: the Condemnation of 1277 (yes, church driven); a devastating famine in 1315 – 1317; the Hundred Years’ War began in 1337 (a war between the by now centralized kingdoms of England and France – and not involving the still relatively decentralized central and eastern European lands); and the Black Death, from 1347 – 1350.

Of course, this corresponds with the beginning of the end of the decentralized society of the Middle Ages, and a return to the centralizing influences of Roman law.  A very unfortunate occurrence.

I have no grandiose summary – after what Mr. Black has written about the nuclear bombing of Japan, his failures such as this one regarding the Middle Ages are minor. 

Hopefully he researches his international and investment advice better than he did this topic.

Simon Black: Japanese Suicide by Nuclear Bomb!

I have written once before about statements made by Simon Black in his daily missive, in this case when he proclaimed the banking industry in Georgia as safe and sound after a couple of days of examining the books.  Accomplished bank examiners would never make such a bold statement after such a short time, yet Black declared banks in Georgia all clear to his readers.

Today, though, is a bombshell.  It is stunning. He is writing of the suicide culture in Japan: “Suicide has long played a bizarre role in Japanese culture.”  He then lists a couple of examples.  One of the examples is so callous, obtuse, and crass – it beggars disbelief that a supposedly educated individual, one who claims to offer advice about complex international diversification in all of its forms, can consider making it without doing even an ounce of research. 

Because it would only take an ounce of research: the fundamental problem is that he is wrong.  And he is wrong about a big thing.

He describes the Japanese suicide culture as apparent in the victims of the nuclear bombings of Hiroshima and Nagasaki:

And of course, citizens in Hiroshima and Nagasaki simply went back into their homes and waited to become burnt toast despite ample warnings from the US military. (emphasis added)

Read that again, slowly, and let his statement sink in.  He describes the victims of a war crime as “burnt toast,” passively waiting to be incinerated despite ample warning of what was to come.

There were no ample warnings.  This is the stuff of Hollywood propaganda movies and Truman’s efforts at absolution.  It is a myth; a myth created to help bury state-sponsored terrorism and barbarity.  And Simon Black is shoving it in the face of the survivors and descendants of the atrocity.

I refer to a book by Gar Alperovitz, considered one of the pre-eminent researchers regarding the dropping of the bombs in Japan.  The book is entitled “The Decision to Use the Atomic Bomb.”  I have previously reviewed the book here.

In the index are 34 references under the term “warning Japanese about the bomb, issue of.”  None of these even come close to suggesting that warnings were given regarding the bombings, and certainly nothing about specific dates or specific cities.  In fact, these portray a clear picture of the opposite.

I will cite several of the more relevant items.

Simon Black on the “Fraud” of Fractional Reserve Banking

Today's letter from Simon Black is regarding fractional reserve banking.  He begins with an example of furniture storage:

Any run of the mill storage facility has a simple mission: store people’s stuff. Simple. If you bring them your bedroom set to store for a few months, they have to keep it safe and secure.

They certainly must treat it in accordance to the contract.

They’re not allowed to rent it out to someone else on the side.

They certainly can if the contract says they can.

If they do, this constitutes fraud, and it’s illegal.

Not if the contract said they could.

Yet this is exactly what banks do.

Not exactly.

I have written several times before about the contract.  The contract makes clear that there will be occasions where your assets are not available – including “a suspension of payments by another bank.”  Now why would payments from another bank be an issue if the bank was holding your funds?

Additionally, when you place your furniture in a warehouse, you pay a monthly fee for storage.  On top of this, the warehouse doesn’t pay you for the privilege of storing your furniture. Yet for most so-called demand deposit accounts a) with a minimum balance there is no monthly fee, and b) the depositor is paid interest.

How is this possible if the bank is storing the asset?  Blank-out.

Let’s assume you deposit $100 at the only bank in town. The bank will hold a $5 reserve, then make a $95 loan to someone else. That guy ends up depositing the funds right back in the bank. But there’s a problem here: the bank now has deposits worth $195, but only the original $100 in cash. They’ve effectively ‘created’ $95 that doesn’t exist.

This is true.  It is inflationary to the money supply.  The bank is betting that no more than $5 will be demanded at any one time.

Like our furniture example, this is also fraud.

From both a contractual sense and a business sense, there is no fraud.  When you deposit in the bank, it is clear both contractually and from a business standpoint that the bank is loaning out some portion of the funds.  Again – where is the storage fee?  How is the depositor earning interest?

As such, because of fractional reserve banking, the commercial banks have enormous influence in distorting the money supply. It’s not just the Fed. So doing away with central banks, or even going back to the gold standard, won’t really solve the problem.

To really attack the root cause, you’d have to eliminate all the vestigial institutions like the FDIC that underpin this fraud of fractional reserve banking… plus the concept of fractional reserve banking itself.

Simon Black is kind of in the neighborhood of the problem and the solution.  The banks influence doesn’t come from fractional reserve lending, but from the monopoly protected by a government backed cartel.  A free market would never create the system today, with the extreme levels of leverage made possible by this monopoly cartel.

To attack the root cause, eliminate government backing in all forms – the Fed, FDIC, etc.  Leave the Fed in place thereafter, if you like.  In this case, see if the world returns to some options for true depository institutions, where the depositor pays a fee for storage.  See how long deposits stay in the cartel banks without the government guarantee of FDIC insurance.

Eliminate the monopoly and the government protections that support it.  Quit talking about fractional reserves – competition will limit this practice, as will the threat of bank runs.

But as you’re probably aware, nobody is talking about this idea…

Besides Ron Paul….

The talk should focus on the monopoly and not the fractional reserves.  Economists of all stripes rail against monopoly power – except when it comes to the production of money and credit.  Attack this hypocrisy.  Fractional reserve lending will then solve itself.

Simon Black Banks in Georgia

Not the state, but the country that has made an enemy of its large neighbor to the north.

I’ve spent the last several days re-examining the local banking sector and diving into the numbers, and my analysis has led me to the conclusion that it’s one of the best capitalized banking systems in the world.

To give you an example, it’s common for banks here to hold in excess of 30% of their deposits in CASH. They don’t loan it out, they don’t invest in stupid government bonds or CDOs… they actually hang on to their customers’ funds.

I don’t know Simon Black.  I have never met him.  I wouldn’t know him if I sat next to him at an airport.

However, I don’t believe any outsider can examine a single bank, let alone a banking system, and conclude from a look at the numbers that it is safe.  I don’t believe anyone with significant experience in banking can go to another bank and make such a determination.  I don’t believe a highly accomplished bank auditor can do this.  But Simon Black has.

Just this morning, in fact, I negotiated a 1-year fixed deposit rate with a local banker on behalf of SMC subscribers for 10%… in US dollars.

This has flashing red lights written all over it.

1)      How will the bank earn enough on deposits to sustain such a payment? 

2)      How can the bank earn this amount while supposedly holding 30% of its customer deposits in reserve? This is over 14% on invested capital.

We have seen this story before: banks paying the highest rates for CDs are often the ones having the biggest liquidity crunch; banks offering deposits in an outside currency get squeezed when the exchange rate turns against it; the nation behind the bank backstops local currency deposits but not deposits made in other currencies.

As I said, I don’t know Simon Black.  I have enjoyed reading his free daily email, but this one causes me to consider that his recommendations should be taken with a grain – or more – of salt. 

Ten percent interest income on US Dollars in Georgia.  This won't end well for those who take Mr. Black's advice.