Today's lesson that you should have derived from your elementary and middle-school math is served....

Let's recap first.

GDP = C + I + G + (x - i), where "C" is consumption, "I" is investment, "G" is government spending and (x - i) is net exports.

GDP must be bought with something, and that "something" must either be money or credit.  Since each "unit" of money or credit "turns over" in the economy some number of times in a year, and the unit of time in GDP is a year, we have:

GDP = ((M + C) * V), where "M" = money (earned output from personal production), "C" = credit (a promise to produce tomorrow) and "V" = Velocity (number of times the "M" or "C" turns over.)

Now let's look at "M", or "money."  We think of "money" as cash, but in fact "M" is a subset of something larger, otherwise known as "wealth", or "W".  Wealth is that which you've previously earned and retain.  "M" is that which you can immediately dispose of and is a subset of "W".

There are two forms of "C", or credit.  "C" either comes into existence because you sequester some of your "W", or it comes into existence without such a sequester.

When you take a loan backed by collateral you are making liquid current wealth.  In doing so you post as reserve something you hold as wealth.  This is not inflationary for that reason -- you withdraw from the market the potential use of that wealth during the time the loan is outstanding by posting it as security.

But when you have unsecured credit outstanding that is pure monetary inflation because you posted exactly nothing against it other than your word you will pay, and that has no wealth  value (it is "on the come" that you will earn wealth tomorrow.)

All this should be clear by now if you've been following these discussions for a while.

Now let's talk about what happens when GDP declines.

The common rubric from the Keynesians is to "print more money!" and "spend in deficit!", which is the emission of unbacked credit into the system.

This is in fact exactly mathematically backward.

Remember that GDP = (( M + C ) * V)

Therefore, if GDP declines since "M" is a subset of earned wealth it cannot decline.  You therefore have exactly two things you can do -- you can reduce "V" (which can only be indirectly controlled -- for example you could raise bank reserve requirements) or you can withdraw "C".

If you don't then the people have the effect of inflation, as their wages do not go up (if anything they go down during a recession!) but since GDP declines and the equation must balance there are more units of "C" or "M" required to buy each unit of GDP!

That's destruction of your purchasing power and it is exactly what must, mathematically, happen if the government engages in "pump priming" and other similar stupidity!

It's exactly backward folks!

Worse, history proves I'm right.  In 1920-21 we had an extremely sharp deflationary recession.  Rather than "prime the pump" The Fed (which existed at the time) raised interest rates, thereby constricting "C" and the government balanced the budget, thereby removing the excess "C" emission it was involved in.

What happened?  The economy cleared the excess capacity and employment recovered within 18 months, with the posting of the largest y/o/y industrial production gain ever in the history of the nation.

The Keynesians are wrong, Obama is wrong, Romney is wrong, Johnson is wrong, Bernanke is wrong, Krugman is wrong and the basic mathematics that everyone agrees upon, if you bother to look at them, prove it.

Mathematics just are.  The fundamentals of mathematics present truth, whether you wish to admit to them or not.  Pi = 3.141592654.... no matter what you may declare.  2 + 2 = 4, irrespective of what you declare.  And GDP = (( M + C ) * V), and must, because every unit of GDP must be bought with something, and all of those "somethings" are either a unit of money or credit.

These people therefore are not "wrong", they're either incompetent or intentionally screwing you.

Pick one.

More to the point, no candidate or politician who takes a position contrary to this mathematical fact is fit to hold office as he has announced his prior intention to steal from you.

Flash off the rumor mill, unconfirmed -- it appears the Greek banks were just cut off by the ECB.

If this is true then this is the latest "Gun up the nose" game by the Germans and ECB, and is almost-certain, in this political climate, to blow up their face (and quite possibly with shooting involved on the part of the Greeks too.)

This instantly hit the Euro and US stock market, which had been having a reasonably decent day.

If true and confirmed then Greece has been effectively orphaned.  This appears to be a facial attempt to stick a tourniquet on Greece's neck, as with elections due next month cutting off Greek banks now will basically guarantee they all detonate.

Expect the incipient bank runs to resume en-masse within hours if not minutes.

Time to critical mass is now measured in days if not hours, and if acceleration occurs the weekend is the perfect time for Greek authorities to drop the hammer in the form of a bank holiday and capital controls as they will have no choice irrespective of the critical damage that will result from them doing so.

More as I'm able to learn and/or confirm it.

Update: Just repeated on CNBC - ECB stopping monetary policy operations with "some" Greek banks.  Hmmm.... what's "some" gents?

More updates: Flying tweets from all sides on this and on a rumored withdraw limit.  Who knows what the truth is -- or if this was a trial balloon.  Note that the time to drop a hammer like this that is "least disruptive" is when banks are CLOSED -- like, for example, the weekend.

But remember folks, Nobody committed any crimes (according to Gary Johnson, Obama and, I suspect, Mitt(ens) Romney.)

Last week, in response to an Overstock.com motion to unseal certain documents, the banks’ lawyers, apparently accidentally, filed an unredacted version of Overstock’s motion as an exhibit in their declaration of opposition to that motion. In doing so, they inadvertently entered into the public record a sort of greatest-hits selection of the very material they’ve been fighting for years to keep sealed.

For the un-initiated in this issue, Overstock went after virtually everyone in the big banking world, particularly Goldman, when their stock was shorted into the dirt.  Their allegation was that the firm (and others) were counterfeiting their shares by selling short shares they never owned and couldn't locate for a borrow.  In effect they were representing more shares in the market than existed, which is exactly identical to counterfeiting them in terms of economic impact, exactly as if you ran off some extra $100 bills on your office copier.

But what shows up here?  Hubris and utter contempt for the law.

“**** the compliance area – procedures, schmecedures,” chirps Peter Melz, former president of Merrill Lynch Professional Clearing Corp. (a.k.a. Merrill Pro), when a subordinate worries about the company failing to comply with the rules governing short sales.

Uh huh.

And against this backdrop we're supposed to expect that these very same banksters give a damn about the effective counterfeiting of United States currency that takes place when they emit unbacked credit, especially when the latter isn't considered an offense (but ought to be) while the former is and they thumb their noses at the regulations?

I repeat:

None -- absolutely none -- of the contenders in our Presidential contest will talk about this.  Yet this issue -- the counterfeiting of financial assets, some unlawfully and some "legal", are how they fleece you, the common man, intentionally disadvantaging you as an individual and enriching themselves.

I will not support and in fact will and do actively oppose and will attempt to insure the defeat of any and all political candidates for a federal office who refuse to address this issue head on and deal with it, irrespective of party affiliation.  I take this position because as a Libertarian I have signed the Libertarian oath which states:

I do not believe in the initiation of force to achieve political or social goals.

That includes fraud, and counterfeiting in all of its forms, whether recognized as felonious or not, is fraud.

Period.

We will not find solutions to our economic mess until we face what has been done and what is being done today, honestly examining the procedures and actions of these individuals and firms, stopping the abuses and holding the malefactors to account.

It's falling apart for the prosecution here folks...

WFTV has learned that the medical examiner found two injuries on Martin’s body: The fatal gunshot wound and broken skin on his knuckles.

When you compare Trayvon’s non-fatal injury with Zimmerman's bloody head wounds, the autopsy evidence is better for the defense, Sheaffer said.

“It goes along with Zimmerman's story that he acted in self-defense, because he was getting beaten up by Trayvon Martin,” Sheaffer said.

The injury to Martin’s knuckle also fits with Zimmerman's story that before he shot and killed Martin, Martin had broken his nose and knocked him to the ground, slamming his head on the sidewalk.

And Zimmerman had 2 black eyes, a broken nose, and wounds to the back of his head.

The medical evidence isn't looking good from the standpoint of the prosecution.  We now have medical confirmation that is consistent with Martin being the individual who inflicted the injuries on Zimmerman.

Stop pretending folks, and start preparing.

Karolos Papoulias, the Greek president, warned party leaders that their   continued failure to agree was risking “fatal consequences”. Citing a secret   government document, he said Greeks were already pulling £80 million a day   out of the country’s banks. Almost €1 billion (£795 million) has been   withdrawn since the last elections on May 6.

“The extension of political instability will lead to fatal consequences. The   absence of government is a serious risk to the financial security of the   Greek people and our national existence,” the president was reported as   saying.

Mr Papoulias said he had been warned by the central bank and finance ministry   that the country faced “the risk of a collapse of the banking system if   withdrawals of deposits from banks continue due to the insecurity of the   citizens generated by the political situation”.

Fatal consequences my ass.

Well, not for Greece anyway.

But let's put a couple of things to bed, ok?

First, one of the common chestnuts is that if Greece leaves the Euro, it will then devalue the Drachma (true) and this will result in a more-competitive environment for their goods and services on the world stage (true.)

What's not mentioned is how that happens. 

Let's say your salary is €2,000 monthly before Greece exits.  Your new salary is D2,000 ("Drachmas"; I don't happen to have a symbol for it handy.)  The drachma is then allowed to float against the Euro after being issued at 1:1 conversion and it falls by 40% almost immediately.

Your new salary is still 2,000 units of currency, the price of what you produce remains as it was in units of currency, but both your salary and the price of the things you make have gone down in external units.

In other words while I, as an American, now can visit your nation while spending many fewer dollars, you cannot buy American products without spending many more Drachmas.

Is this good or bad?  That depends on your point of view.  If you were formerly unable to be employed as demand for your production at the Euro-denominated wage was insufficient and now it's sufficient, a job is better than no job, right? 

But the idea that there's no cost to this is false.  The cost is that your inflated wage, which was unsupportable, along with the inflated benefits the government was providing but couldn't afford, both contract to what can be afforded.

The difference is that you now have a floating exchange rate and thus others, outside, can afford to buy your goods and services while on "holiday" and similar, and thus you have a job.  But do not mistake this for the idea that you got a free lunch -- you most-certainly did not, and that which you import will go up dramatically in price.  Your standard of living will go down, as it must, since your income will now inexorable (and correctly) be matched to what the market will pay for your goods and services.

This is the adjustment that must take place.  It must take place in Greece.  It must take place in France.  It must take place in Spain.  And it must take place in The United States.

It is not what anyone wants to talk about, but it doesn't matter if we want to talk about it or not.  The fact of the matter is that government cannot provide services that it cannot fund with current taxes.  No government can over the intermediate and longer term.  Blowing serial financial bubbles to hide this fact is economic suicide and will inevitably lead to either collapse of the inflationary bubble or collapse of the government and currency.  It cannot be otherwise as leveraging debt upon more debt is a Ponzi Scheme and is entirely reliant on someone coming along to "bid up" asset prices on a continual basis.  When the next buyer fails to appear -- and he always eventually does -- the scheme collapses.

The real problem is that the banking system in Europe is massively leveraged and is still counting all these sovereign credits as "money good", carries no reserves (or effectively no reserves) against them and has embedded and hidden losses in the hundreds of billions of Euros.  There are various estimates on the "damage" from Greece sticking their bonds in the paper shredder and sending the pieces to the ECB as their answer, but the most-credible I've seen are somewhere around €400 billion.  This is for Greece alone; the problem is that Greece is not alone, and if they do this (and they should) what prevents Italy, Ireland and Spain from doing likewise?

Further, the German public will shortly come to realize that they are effectively subsidizing almost every other nation in the Eurozone right about the time the first of those losses are realized and their banks are assessed to cover them.  That's the point where Merkel loses her ability to govern as the fact that she has serially and intentionally deceived her people will be laid bare on the table (disgusting though laying her bare would be.)

The most-likely outcome of that revelation?  Germany returns to the Mark to cut off what would otherwise be ruinous capital calls from the ECB.

This game is pretty much over folks.  Oh sure, there will be those who will argue otherwise, and markets will alternate between cheers and jeers for a bit.  But for someone to expect a different outcome at this point one must show how Greece can be persuaded to make their internal adjustment by means other than tearing up those bonds and accepting that their government must stop deficit spending -- one way or another.

I just don't see it.