Archimedes Money

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Man Bites Man! Archimedes Money Machine?
The famous lever of Archimedes we all heard of in grade school. Many being studious promptly
launched paper ‘spit-balls’ recognizing what bankers consider divine insight. Using money-
multiplier leverage they are able to pour into their tills massive amounts of interest on new created
wealth in the economy. Even in these years where the real economy is inching forward while
carrying the bags of debt those banks left saddled on our behind from their exploits in unwarranted
credit intermediation. Monetary regulatory policy is a significant lever on what banks do in the
GDP economy, but what they do without regulation in the shadow economy can impact hard.
As Mark Carney broke news of his appointment to Chair the Bank of England, the Financial
Stability Board he currently chairs reasonably cast a hard gaze on what its member banks do in the
shadows. The FSB report more than half of GDP is formulated there, and regulation needs to focus
on achieving some means of regulation in those lucrative shadows. They may not be able deal with
the rest of the shadow economy which in total they conclude exceeds the world GDP economy.
The FSB reports the size of the total shadow banking system had grown to $67 trillion in 2011 a
sum actually more than the total GDP ($62 Trn) of the top 20 countries in the study. The United
States had the largest shadow banking system with assets of $23 trillion in 2011, followed by the
Euro area with $22 trillion and, the United Kingdom at $9 trillion, says the FSB. The multi-trillion-
dollar activities of hedge funds and private equity companies investment funds, money market
funds and even balance sheet cash-rich firms (like GE and JNJ firms in Europe) lending
government bonds to their bankers in repurchase deals of “credit intermediation” which those banks
in turn use as security when expanding credit liquidity under the European Central Bank are
examples of shadow banking. Extending warranted credit is what we need banks to do.
Even the man credited with coining the term, former PIMCO investment executive Paul McCulley,
gave a catch-all definition, saying he understood shadow banking to mean "the whole alphabet soup
of levered up non-bank investment conduits, vehicles and structures." It includes those special
investment vehicles like unscrupulous CDS’s that he among many blame for the financial crisis.
In 2011, World Bank figures regulated markets created $80.86 Trn worth GDP. That is the amount
of economic activity we paid our taxes on. Shadow banking is off balance sheet. Also out of the
regulated GDP economy is the Systéme Dèbrouillard economy averaging some 34% of the world
economy, starting with 15% of the US economy and climbing quickly to 30% of most European
nations and 67% of the lesser developed GDP economies where Systéme Dèbrouillard runs the
nation. There is a lot of money created in shadowy business and banking out of the GDP economy.
Reserve banking is the smallest portion of the banking system that in 2010 had created 770 trillion
dollars, in mortgages, credit contracts and instruments, which is our worldwide real wealth, while
“δῶς µοι πᾶ στῶ καὶ τὰν γᾶν κινάσω (Give me the place to stand, and I shall move the earth.)”
- Archimedes of Syracuse (c. 287 BC – c. 212 BC
“Remember, that credit is money.” - Benjamin Franklin, Autobiography

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GDP hit $63.05 trillion1
as monetary gold reserves were $1.9 trillion. That ratio of 1:400 will create
problems that will discount our real wealth into such a tiny reserve. Camels can and should fit
through such needles some would insist?
Well, here is the disconnect for all those gold standard monetary policy proponents. In 2011 the
world GDP hit $80.86 Trn (growing 28.25%) as gold reserves remained $1.9 Trn and base money
supply started to decline, and continued to do so going into 2012. Stock markets declined in 2011
and grew in 2012. GDP growth was just modest in 2011 but continued just so modestly in 2012.
What is a central banker to do? The real economy is not even close following monetary policy
restraints on inflation, or price stability. It is the Archimedes Money growth in the shadow
economy and ‘credit intermediation’ of shadow banking that is running strong, putting cash on
balance sheets. That may be stoking stock market investors but the real economy needs demand.
The shadow economies prefer using the major GDP economy fiat currencies as their exchange
medium. It keeps them rooted in our world. HSBC recently got fined 1.8 Bn as what becomes a
cost for their doing the business of ‘connecting’ the Mexican Drug Lords’ money to the regulated
economy through its Cayman Island ‘employee-less’ branch. Banks just love taking-in all those
cash deposits. Especially in sized courier valises they had made to fit their Mexican teller windows.
Our real economy is irrigated by the Phantastic Money of endogenous banking. It is what drives our
aspirations so they can root, growing into vibrant business with incomes flowing through our purses
on the production streams it enables. That is the "whatever floats your boats" of endogenous money
created in credit extended by banks. Credit extended in working capital is what we actually depend
on banks providing to float our business. In this real context the gold standard for reserve banking
is just a fatted calf of political debate, a straw-man. Gold is irrelevant as money supply control but
works fine as fetish. Drug lords are not such easy fools, they know money flow is what matters.
As always, these wise-guys like to spend their money in the regulated GDP economy where luxury
goods and homes can be bought secured by registered
deeds and legal contracts along with legal businesses in
which they can ‘save’ their illegally gained money. There
is a lot of such money in float to gauge by the findings of
one much publicized police bust of a drug lord’s home.
There was $22 Bn of specie currencies found in various
rooms like that pictured, but no monetary gold bars or
coins, only a few useless fetish gold guns on display.
With supposedly 27 known drug lords, that adds-up to a
range of $600 Bn in cash all in need of being laundered
into the GDP economy. These wise-guys are very
practical and certainly do not hire economists and financial advisors for managing their cash
receipts. They just need bank tellers instructed by very willing bank managers.
1
http://siteresources.worldbank.org/DATASTATISTICS/Resources/GDP.pdf

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Gold standard is another fantastical objective that consumes the air out of political debate even two
centuries late. Some wilfully ignore the rife lessons of gold standard contorts on the real wealth the
real economy creates. The real fact is that there has never been enough precious metal to
accommodate the working businesses and new ideas for business. We need to float or account for
the 2012 real wealth of some $900 Trn we now aspire to hold, in functioning business capital and
plant; and, real property. Warranted credit banks organize for our business we rely on. The gold
reservists will gasp that represents a 1:500 ratio to gold; a 25% dilution since 2010, over two years.
The Napoleonic Wars proved gold bank reserve was unnecessary crutch. This is what, Thomas
Tooke, began to understand and then point-out in his testimony to parliament as one of Britain’s
most respected bankers. "Unwarranted credit" was then (in 1810) and remains today the problem
two centuries later that wrings us such harm. Credit script of the banks had replaced coin as
industrial growth demanded credit, for new opportunites with the practice then hugely expanded to
finance the wars against Napoleon where gold was heavily discounted for basic commodities at
huge premiums to provision soldiers on frontlines, draining Threadneedle Street bullion.
Credit contracts with the Rothschild family as prominent bankers present in the major European
centres were resorted to secure credit agreements throughout the continent and provide more coin
needed for provisioning soldiers on the front, a market where a gold ring might buy you only half a
chicken sandwich. In that kind of real life pinch gold coin has repeatedly failed as it remains a
commodity. The fetish of gold just persists, failing reason. Barter is its crisis domain.
There is strong evidence that specie as Cartalist money is the literal modern cause of such barter
when the specie is found no longer credible, the government issuing is doubted. Economists have
gotten the relationship to barter in the economic system as something more ancient than coin, when
it is not. Historically we have relied on credit agreements to evolve our economic trade relations, so
says clay tablets and papyri. This archaeological record continues to expose more deeply though
known and dismissed when theories based in economics ‘history’ were initiated.
Cartalist money after all is what allows the state to tax the real economy enabling its support of our
social institutions on which we all rely, or destroy them. As example, the economy of the Roman
Empire was another Raubwirtschaft or plunder economy as so many based on looting existing
resources. Rather than producing anything new Roman law actually resisted and obstructed
development and innovation, really necessitating devaluing of its specie.
When credit liquidity and contracts get pinched gold was put to use scooping-up capital plant and
real estate wealth at severely discounted rates. This J. P. Morgan among many gold holding
opportunists well knew to use for their advantage over western miners and farmers time and again,
driving bubbles and rumour, even holding over President Roosevelt2
as hostage to JP’s takeover
scheme on Tennessee Coal, Iron and Railroad Company two decades after the Sherman Act, in the
midst of 1907 liquidity collapse. Morgan as other ‘robber barons’ used gold to squeeze competition
out scooping up assets distressed by creditors. Bank regulation became law following those events.
2
See Following the Yellow Brick Roads 15aug11

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Gold standard reserve enters the political debate today as a straw-man, like all straw-men awaiting
Guy Fawkes Day to create smoke on the water obscuring real objectives. Gold is irrelevant to that
repair of credit liquidity raised to feed on the promise of cash streaming through our valiant
business plans. What matters is the creation of warranted credit being extended to float our business
ideas that money flows through. Examine the accumulation of wealth through the entire economy.
The current ratio of 500:1 of wealth to gold exists in a world economy modestly growing forward
where credit instruments are made to support that wealth. The real problem comes when those
credit instruments are unwarranted become devalued and thrown into distress liquidation.
The TARP bailout was Federal Reserve indiscriminately accepting credit contracts instituted by
banks (other banks were refusing to accept), to enable credit flow be maintained to the valiant
business plans emerging in our real economy. The banks actually shrank the credit market instead
of maintaining liquidity, the central issue on TARP Congress agreed was needed. The banks reeled
back from 80 and 40 multiples to which they had expanded credit instruments into 2008, back to
within a more normal 30 or 25 range when deposit insured institutions were prudent. Basel III is
still down the road as that has recently been extended in time again.
The recession required the credit economy system to absorb massive amounts of flawed credit
intermediation instruments banks had extended. The liability from forcing liquidation on the newly
made flawed credit holder reduces the value of the underlying assets reducing cash flow to the
banks and debt-holders. Banks just expand their marginal rates on good credit holders rather than
absorb their losses. The shortage of cash flow has to be absorbed by the creation of new wealth in
society coming from other new viable and functioning businesses that could sustain new cash
flowing through society. That has only succeeded when new demand enters into the economy.
Society as a whole benefits from credit provided through bonds and working capital banks extend
to float viable business creation. Then, we suffer the pinching of money floats to business in
working-out default of unwarranted credit such as banks had indiscriminately created much like
children launching paper spit-balls. Bankers will argue they must be competitive in creating credit
liquidity as their rationale. But beware of their spit-balls. One way or another we pay for them.
They got bailed of the liability created in the Saving & Loans fiasco in the early 80’s and again in
the midst of the tech-bubble. The TARP bailout was just bigger, as they had grown the range and
and risk of their credit intermediation, under deregulation, extending unwarranted credit to
unworthy business debtors to extract their balloon of fees imperilling others by selling that risk
down the market, just as had heedless mortgage brokers before them.
Shadow banking has not been subject to reserves requirement for its credit intermediation
instruments but has repeatedly dumped those assets it has devalued back on the regulated FDIC
banking system of GDP. Drug lords do that too, taking gains out of the GDP economy but
unloading on the rest of the economy what it has degraded leaving us to spend our social capital to
remediate their damage. Gold is misplaced in both of these segments that work in our real
economy. The problem remains making them pay for their degradations of value in the real
economy on the GDP taxation side of the equations. The FSB seeks controls on those shadows.

“
By 1971 the contortions forced by gold linked currency exchange rates established by the Bretton
Woods agreement had repeatedly damaged all economies and was finally abandoned to allow
nations to restart stalling business climates. Archimedes’ inventions can be used for good or ill-
mannered schemes. Gold is just a commodity, can be a good dead weight that may be misplaced to
shrinking credit liquidity we need for growing our economy through valiant business plans wrapped
around worthy innovation and ideas. Be careful what you ask for, as always. Beware the spit-balls.
Our reasons for having any equity in our portfolios are clear, concise and consistent. The equities
we hold are “likeables” tending to gain 67% of the time. We do not make stock prices but can
reasonably respond to stock price tendencies, by our knowing the price of risk, the downside, and
buying and holding accordingly. That is new fundamentals from theory we have put into policy
obtaining 26.53% IRR average over 12 years.
Know What You Have. Have What You Know
Our view is risk averse obtaining capital safety, liquidity and high gains. Of course we require a fee
for doing that. Mail us for our help because it is proven we can help.
Hans Goetze,
Architypes Inc and StockTakers Limited
Head Office
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Calgary, AB
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Toronto, ON
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