Thursday, August 04, 2011

Pathological

The eyes of all were turned to the Reichsbank. The pressure exercised on it became more and more insistent and the increase of issues, from the central bank, appeared as a remedy.

The authorities therefore had not the courage to resist the pressure of those who demanded ever greater quantities of paper money, and to face boldly the crisis which would be, undeniably, the result of a stoppage of the issue of notes. They preferred to continue the convenient method of continually increasing the issues of notes, thus making the continuation of business possible, but at the same time prolonging the pathological state of the German economy.


-Costantino Bresciani-Turroni, The Economics of Inflation, 1931


More here (don't miss the last two paragraphs). For reappointing someone who should go down in history as one of Washington's most destructive and inept policymakers ever, Obama deserves stock market wipeouts and the heat he's getting on the economy -- along with the electoral consequences.

65 Comments:

Anonymous Anonymous said...

You know, you eventually gotta reach the point where you ask whether the Ron Pauls of the world are wrong in this case, and the Paul Krugman's are right. The inflation fears are perhaps irrational, and what is needed is more spending on infrastructure and what-not by the central gov't. not tighter monetary controls and budget cuts.

Maybe now is not the time....

8/05/2011 9:41 AM  
Anonymous KAIMU said...

ALOHA!!

Ah yes ... the all powerful, all seeing, gently omnipotent central bank monopoly! A marvel of expertise resides there ... Such a multi-decade track record of great success! Like a cancer patient that just had his leg amputated sitting up in the hospital bed proclaiming loudly his ordeal as "SUCCESS!" I guess still clinging to a fragile and fading hope is success in some low bar sort of way!

Well, during the debt ceiling debate debt was being issued at a rate of $238BIL, which on Tuesday caused the YTD "net debt", the amount of debt added to the PUBLIC DEBT to increase over $1TRIL. That is $1TRIL USD printed up in FED money in ten months time, yet we will debate forever the $2.4TRIL spending cuts over a ten year time period! I notice there is never a debate on "when" to pay off the debt! There is only debate on how to cover the "minimum due" like any other credit card junkie!

I never had HOPE than electing Obama as President would ever bring any CHANGE! I also never voted for the Republican hack either! Instead I "wasted" my vote on Ron Paul! I HOPE everyone here is happy they did not "waste" their vote!~

8/05/2011 7:09 PM  
Anonymous Anonymous said...

TCR: great call on gold in the past. How high does it go?

8/06/2011 5:36 PM  
Anonymous goldhorder said...

LOL... Ron Paul's ideas are the cause? What planet are you living on? What has stopped Washington from spending as much as it wants? The debt ceiling was raised. The budget was not cut. The budget is theoretically going to be cut by some mysterious "super congress" in the later half of the decade! Ron Paul's ideas have not been implemented at all. There is no balanced budget and there never will be. We have the same militarist/banker economy we have always had. He didn't agree with any of this. This is nothing but more of the same crap. Krugman is just wants more QEs. He wants more of the same crap that got us here. Ron Paul has no clout in Washington DC. He has no power. He can get about 20 percent of the vote in Idaho and Montana.

Gold will go up until the Fed raises interest rates above a quarter percent. LOL. The fed won't do that because it isn't 1980 anymore. We have no manufacturing base to pull us out of this mess. All we have left is our financial and military empire. So we will keep printing money and keep dropping bombs on poor brown skinned people's heads in the ME so we can control the oil flow and keep China in line and accepting the US dollar. It is all we have left.

8/07/2011 1:19 PM  
Anonymous Anonymous said...

Who said Ron Paul caused this? What the poster seems to be saying is that Ron Paul's call for drastic cuts in spending, ridding us of the fed and going back on the gold standard, will not get us out of this mess (high unemployment, high debt). His stress about interest rates and inflation, seem to be off mark.

Ever notice when someone points to a theory's flaws by pointing out that it doesn't work in practice, a defender always responds "it's never been tried." Whether it's communism, free marketism, or any other ism.

Well we were on the gold standard, we had unregulated markets, we had no gov't supported social programs, we had no environmental regs. and yet, the 19th century was not an economic paradise.

Seems to me right now is a time to spend on infrastructure, get demand up, get people back to work. We can start worrying about debt when the economy is once again strong, like we should have in the 1990s or mid 2000s.

I don't know, maybe cutting gov't drastically will somehow revive the economy, put people back to work and and pay off the enormous debt. Or maybe Krugman is right, we need a huge stimulus to correct the immediate problems, which increases revenues (especially with tax increases) while addressing medicare/social security in the long term. Might be worth considering, maybe for a sec, even if going against your preferred dogma is scary.

8/07/2011 2:41 PM  
Anonymous Anonymous said...

p.s, Ron Paul has no clout, probably, but his fellow travelers (i.e, the Tea Party clearly have enormous clout).

8/07/2011 2:42 PM  
Anonymous Goldhorder said...

Lmao... Do you clowns work for the cia? Can you please tell me what has changed? What in reality has changed? The debt limit was increased. There are no budget cuts. The government has made no cuts. We are still dropping the same... If not more... Bombs on the heads of heathen brown skinned people in the ME. We are still in massive debt and increasing it. This is definetely NOT Ron Paul's advice. Can you intellectual midgets not at least recognize this reality?

8/07/2011 10:35 PM  
Anonymous Goldhorder said...

Ever notice when someone points to a theory's flaws by pointing out that it doesn't work in practice.....

Exactly. This is my argument. When did we balance the budget, shut down the foreign bases, and bring the troops home? When... In American history... Did Ron Paul's practice happen? Was I sleeping? I don't think so. You are dishonest. You are a liar.

8/07/2011 11:34 PM  
Anonymous KAIMU said...

ALOHA!!

The 19th century was when some truly monumental industrialization took place that we now take for granted. This industrialization was driven by some amazing discoveries that took place in free market capitalism. Some of those major discoveries were the railroad, autos, airplanes, telephones, electricity, crude oil, penicillin, x-ray just to name a few. All those discoveries advanced mankind by leaps and bounds and they all occurred under a gold standard.

Were there recessions and wars in the 19th century the same as we have now? YES ... that seems to be the nature of man! It does not matter what monetary system exists man will find a way to wage wars and ruin economies. With the advent and mastery of debt expansion by the US FED now our wars last far more longer than wars in the past.

What is of the utmost importance is a term few in America can experience in these days of US FED dominated monetary policy and that is "long term store of value". It has been some 97 years since the US FED took the reins of monetary policy in America and the purchasing power of a USD has been diminished to $0.04. The 97 years prior to 1913 the purchasing power of a USD was still $1, although fluctuating during wartime, like the Civil War. At the end of the US FED's 97 year reign the USD has been destroyed. Value has been decimated and we see the moral consequences of such a reign also take root, mainly via the political and monetary monopoly that now occupies Washington DC. Make no mistake this "occupying force" is more powerful than the US Military that now occupies Iraq and Afghanistan. The tool of choice for all this decimation has been "debt"!

8/08/2011 2:08 AM  
Anonymous Anonymous said...

Actually the budget was cut, and with no stimulus package there are and will be even less fed dollars provided to the states to cover costs of the social safety nets (among other things).

I like Paul and agree with him much of the time. I'm all for cutting the budget and letting rates rates rise when a bubble is bubbling, or when the economy is humming. I think Bernanke/Greenspan etc, were criminally idiotic to keep rates low during the 2000s. i also think Bush was an idiot to lower taxes even more in 2003/2004 (not sure Paul agrees with that one).

But now - in a situation with low interest rates, high unemployment, business sitting on loads of cash waiting for demand to return - now. Is it a good time to put thousands of more people out of work, lower demand for products so that industry will have even less of a reason to invest their cash? Then, on top of that, do more deregulation of the banks and wall st? And get rid of the fed?

Maybe consider for a second that now just might not be the time for that.

When was the world - virtually no regulation, gold backed money, etc. - like what Ron Paul is calling for? The 19th century was pretty close. Not sure that's where we want to go.

Anyway, again, while i agree with much of what Paul says, i don't think right now is the time to cut back on gov't spending, in fact it seems like this might be a good time to spend more, build and re-build infrastructure and make sure the social safety nets are well funded when they are most needed.

Afterwards we can argue about gold backed dollars, and enormous gov't cuts (and i'd probably be more with the Paulites than not on most issues).

oh, penicillian, was "discovered" in 1928, and i wouldn't exactly say inventions were due to a gold standard, as they didn't exactly stopped once the holy GS ended....but why get in the way of a good rant, carry on.

8/08/2011 9:53 AM  
Anonymous goldhorder said...

"Actually the budget was cut"

No the budget was not cut. The budget was increased less than it would have been. Only in Washington DC is that called a budget cut. Reality. I know it is a difficult concept but it matters. Supposedly sometime in the future we are going to make cuts. LMAO. All they did was kick the can down the road....again.

8/08/2011 11:47 AM  
Blogger Chris Bray said...

"Actually the budget was cut..."

Prove this claim. Identify the specific cuts by program or government department, dollar figure, and effective date.

8/08/2011 7:44 PM  
Anonymous goldhorder said...

http://research.stlouisfed.org/fred2/series/FYFSD?cid=5

http://research.stlouisfed.org/fred2/series/FYGFD?cid=5

Considering these charts...if deficit spending increases economic activity...shouldn't our economy be booming like never before!!! What has gone wrong? Jeez...if it wasn't for those darned tea partiers maybe we could do so "real" deficit spending. LMAO

8/09/2011 12:52 PM  
Anonymous Anonymous said...

You want specific cuts? Ok, here's one remember they're in nominal dollars.

http://www.epa.gov/planandbudget/budget.html

gold, wow, questioning orthodoxy really rubs you the wrong way, huh? Relax there fella. You know, I could also ask, if the Paulites are correct, where's the hyper inflation?

Actually, Krugman said when the stimilus was announced that it would NOT be enough to get us out of the recession, he also said, despite the handwringing by the WSJ editorial set, the stimilus would not trigger high interest rates or inflation. It seems he called it.

Now, if you don't believe inflation is as low as CPI says (and you may be right), then run the numbers on the 2010 budget and the 2011 budget (post April cuts) correct for the high inflation (i.e., use real numbers) and see if it was cut. Or just use the CPI numbers and see what you get.


Seems to me, the bond market isn't too concerned about the US debt, after S&P's announcement the yield curve rate dropped. The stock market, on the other hand seems very edgy. Could it be they're concerned that demand will go down, unemployment will go up and the gov't will not attempt to increase demand and lower employment by enacting a large stimilus package?

Maybe, i don't know, but it seems a good question to consider right now. However, since it goes against the Austrian axioms it can't be true, no need to examine the evidence, truth is self evident and all that. Right? Of course.

8/09/2011 4:35 PM  
Anonymous Ned Wixell said...

Show no mercy Anonymous.

Per the printing office:

http://www.gpoaccess.gov/usbudget/fy12/index.html

2010 Budget: 3.55 Tril
2011 Budget: 3.82 Tril
2012 Budget: 3.73 Tril

Mathematical tradition suggests that 3.73 < 3.82.

And 10-year T's are trading at 107.

107.

Haircut policy changed two weeks ago and the market can't get enough of its gubment bonds, literally. A few big funds start puking and somehow the economy all Obama's fault for simply preserving Treasury's right to supply them. Right.

For years I was a regular reader of this blog, but every time I come back it's more of the same obsession with the coming inflation disaster, even as PCE deflation has been the problem in front of everyone's face for three straight years. As though the price appreciation of globally traded commodities is something only Austrians could explain via the Evil Central Bankers narrative. A sad, slow unhinging.

8/09/2011 8:25 PM  
Blogger Chris Bray said...

Anonymous, the EPA top-line budget number by fiscal year is the best you can do? My goodness, the EPA's budget fell a bit between 2007 and 2008 -- clearly this implicates the Tea Party's position in the debt limit debate.

8/09/2011 10:31 PM  
Anonymous Ned Wixell said...

So somebody requests specifics on a Web 2.0 comment thread, and Anonymous gives one. Then they ridicule the example as "That's the best you can do?"

Then the total figures are shown; the total US budget has decreased from 2011 to 2012. And so this is simply ignored.

This is what it's like arguing with Austrians. Evasions, straw men, nitpicking and general complaining. Overall selective argumentation, as though it is everyone else's duty to constantly show them the data despite their having no respect for it.

PAYGO was made statutory in 2010 before the Tea Party takeover last November. The bill was sponsored overwhelmingly by Democrats and signed enthusiastically by Obama.

Now the Tea Party wants to take credit for deficit reduction?

This is classic True Believer behavior consistent with the megalomaniacal cult of inflationist libertarianism that has driven Tea Party activists for decades, by any other name. But those of us who are actually responsible for managing capital and risk for sake of our firms' fiscal health in the 21st century don't have any more room to tolerate "heterodox" views like this for sake of lively argument. An functioning industrialized economy is not simply a bunch of cranks getting together to celebrate the price of cosmetic metals.

The only thing the Tea Party can take credit for now is making sure the economy continues to deflate while wealth redistribution accelerates to capital gains under a well-known tax preference. This, even as most of the self-sustaining Austrians we know (as opposed to just the latrine flies on comment threads) are protected by their governments via LLCs and other structures that already allow them to avoid more taxes than the typical salaried employee.

The title of this post is "Pathological" and it certainly fits, though maybe not the way it was intended.

It may take another 10 years or so -- perhaps when Medicare enrollment hits its peak -- but at some point in my lifetime there will no longer be an ideological market for this nonsense anymore. The younger educated cohorts, at least those who remain interested in solvency and productivity, simply won't have time for it. They will have their college degrees and the Google like anyone else, but most importantly they won't be encumbered by the intense ideological commitment that our generations have demonstrated over the years.

What should be getting clearer is not necessarily that the Austrian ideology is becoming extinct, but that it is just a kind of science fiction lifestyle for the petty heirs of last century's production, times 10 or 20 for all their lowbrow friends and enablers in the fan community.

8/10/2011 12:01 PM  
Anonymous Goldhorder said...

Ummmm... Did any of you "smart" guys actually look at the links? Hey Ned... first off... What part of deficit spending do you not understand!!! Lmao are you really this dumb? We can't even come close to paying for that. The argument was about not raising the debt ceiling. We did so we got another massive spending bill. Plus...Why didn't you take that back another 5 years? Didn't want to show that gigantic jump did you? Not an honest man are you? You cut it off there on purpose. Anon. Question orthodoxy?????????? When has massive spending not been SOP? The only politician in DC offering anything different is Ron Paul. Look at the charts I linked to. By your beliefs... Why isn't the economy booming? You've gotten just what you... And that hack Krugman have asked for. Look at the charts. Deficit spending is off the charts the last few years.

8/10/2011 10:08 PM  
Anonymous goldhorder said...

Btw... Ned... What deficit reduction? There is no deficit reduction. The second highest budget is US history is not deficit reduction. Supposedly... A "super congress" at some time in the future is going to make some important decisions about the budget. Maybe this is what you are wetting your pants about. Sleep well ned. Congress isn't up to. They will kick the can down the road until we are at 50 percent unemployment and the other 50 are employed by the government. Lol

8/10/2011 10:19 PM  
Anonymous goldhorder said...

Btw... Ned... What deficit reduction? There is no deficit reduction. The second highest budget is US history is not deficit reduction. Supposedly... A "super congress" at some time in the future is going to make some important decisions about the budget. Maybe this is what you are wetting your pants about. Sleep well ned. Congress isn't up to. They will kick the can down the road until we are at 50 percent unemployment and the other 50 are employed by the government. Lol

8/10/2011 10:26 PM  
Anonymous Ned Wixell said...

Goldhorder keep "LMAO" because it's clear you can't make any sense of what's going on, either in the world or on this thread. LMAO!

1) What is going back 5 years supposed to prove? That the Tea Party was as useless then as it is now in reducing deficits? LMAO!

2) Did somebody make a claim that deficits are not large? I sure didn't. Somebody (not me) rather made the claim that the budget has not been cut. The budget was indeed cut. "Did you read the links?" Indeed you didn't: LMAO!

3) No the "progressives" did not get everything they wanted. Krugman's whole schtick since the Recovery Act passage was that it didn't add up to a Keynesian remedy, and wouldn't create a recovery. Why don't you know this? Because like most of your kind, you prefer the company of straw men. LMAO!

4) Indeed it is only in your hysterical fantasy universe that "Keynesians" ever believed the Recovery Act as passed was expected to make America a blooming garden again. What the Act did do, despite its heroic title, is prevent an all-at-once shock to states' budgets. That's what it did, it halted a cascade and bought some time to plan. And now that it's mostly spent, have you still not "read the links?" THERE HAS BEEN NO HYPERINFLATION AND THE MARKET IS DESPERATE TO LEND MORE TO THE FEDERAL GOVERNMENT. It's right in your face, but you prefer to argue fantasy scenarios. lol and LMAO!

5) "We did so we got another massive spending bill." What the heck are you talking about? There has been no massive spending bill attached to the Budget Control Act of 2011. Are you just talking about the budget? Consult your undergraduate micro textbook: PAYGO sets the cost rate to zero so you don't need to fantasize about how deficits are to be reduced. It's done with revenues. You think there's "no way" to pay it down? Only as long as your Tea Mob associates ensure ongoing revenue losses due to persistent macroeconomic deflation. But I know, Goldhorder you are strategically prepared because you are the absentee owner of a lot of women's jewelry. LMAO! lol

6) How can I both "wet my pants" and "sleep well" at the same time. I must be pretty fucked up! ROFLMAO!

7) Who said anything about the Supercommittee? It will likely deadlock, trigger the scheduled cuts, and ensure the deficit-enabling 2003 tax cuts expire. It's a wash as far as I'm concerned. Perhaps a wash of urine due to bedwetting? LMAO your hero is "Ron Paul." lol

8) Bonus LMAO

lol "Goldhorder" I think you've been missing a letter "a" for quite some time maybe S&P can spare one for you now that your innumerate ideologue heroes in Congress have proven their ability

lol/LMAO

8/11/2011 1:10 PM  
Blogger Chris Bray said...

There's no "arguing with Austrians" going on in my request for "anonymous" to identify specific budget cuts *caused by the debt limit action*, showing that one caused the other.

"3.73 < 3.82."

Goodness, that's a massive cut -- nine billion dollars from a budget of close to four trillion dollars. Steep cuts like that will take us right back to the dark ages. I have to go breathe into a paper bag.

8/11/2011 10:52 PM  
Blogger Chris Bray said...

I just googled "EPA budget cuts," and the cuts that "anonymous" referenced pre-date the debt limit debate:

http://www.bloomberg.com/news/2011-04-12/epa-budget-cut-will-restrict-enforcement-of-clean-air-rules-activists-say.html

This is what I mean. Stop shouting about Austrians and teabaggers and answer questions about evidence with evidence.

8/11/2011 11:52 PM  
Anonymous Ned Wixell said...

Chris, so you have nothing but to keep nitpicking about an EPA report.

It's you that made the claim that the budget wasn't cut, and you who refuse to accept the evidence. When you are faced with the evidence, you say it's just not impressive enough to count. I cannot imagine having to work alongside such pessimistic petty complainers for one minute.

On the whole, nobody is really shouting about Austrians and teabaggers, just continuing to learn and see what a drag they are. No help to anyone, not even themselves. Sad.

8/12/2011 10:58 AM  
Blogger Chris Bray said...

"Anonymous" claimed that the federal budget was cut *deeply*: "I don't know, maybe cutting gov't drastically will somehow revive the economy..."

You are willfully dense.

8/12/2011 11:52 AM  
Anonymous Anonymous said...

Just to clarify, i did not claim the federal budget had been "deeply" cut.

Apparently this was the offensive sentence. "I don't know, maybe cutting gov't drastically will somehow revive the economy, put people back to work and and pay off the enormous debt."

If read in context with the rest of that post it's pretty clear i was discussing the Paul ideas, or at least how i (and apparently you) understand them.

But you knew that didn't you? If not, now you do.

You asked for an example of a budget cut. I provided one (which only seemed to enrage you).

Maybe now you can answer some questions of mine.

During a time of low unemployment, low demand, and low interest rates, explain how cutting the federal budget, and laying off gov't employees right now will help the economy in the immediate future.

My understanding of the Austrian creed is that the way the fed has been handling monetary policy for the last few years, and the way the Pres/Cong has, especially recently, been handling fiscal policy we should have high (even hyper) inflation right now and very high long term interest rates. Yet, why does the 10 yr treasury remain low, (last i checked it was under 2.2) why isn't there high inflation right now? Why don't the data and the theory match? Are the data wrong, or maybe the theory?

Like i said, i generally agree "printing money" and running deficits can and will cause inflation, but maybe not always. Maybe, just maybe, there are times it is necessary to use the tools of fiscal and monetary policy to get an economy moving.

Or is there always one answer in every situation? Drastic budget cuts, gold standard and tax cuts? If you answer yes to this, thank you, we're done. Never discuss anything with a true believer, it's pointless.

8/12/2011 3:53 PM  
Blogger Chris Bray said...

You've invented a discussion that isn't happening: "the Austrian creed...a true believer..."

Show evidence that I've expressed support for Austrian economics, or am a true believer in any particular ideology.

Again, I asked you for evidence of budget cuts; you showed one mild cut from much earlier in the year.

You and "Ned Wixell" keep ranting about Austrians. It's like talking to a spambot.

8/12/2011 3:58 PM  
Blogger Chris Bray said...

Just found these numbers:

"The plan cuts $22 billion in 2012 and $42 billion in 2013."

From a four trillion dollar budget. It's like saying Bill Gates is in crisis 'cause he dropped a five dollar bill. The "cuts" are symbolic. The federal government is massive; it will go on being massive. The discussion is about nothing.

8/12/2011 7:03 PM  
Anonymous Anonymous said...

Chris, see the very first comment on this thread. It's my understanding that that was the discussion. Krugman's Keynesian approach vs. Paul's Austrian approach.

How's your saturday? pleasant? Good. carry on.

8/12/2011 7:06 PM  
Anonymous Anonymous said...

Chris, ok we agree on something, the budget was cut.

Paul thinks it wasn't cut enough, we need more cuts, gov't layoffs, defunding of entitlements right now, as that's the only way to save the economy. If we don't cut we'll have hyperinflation and impossibly high interest rates. The way out of the current economic mess is immediate drastic cuts to gov't spending.

Krugman thinks the budget shouldn't be cut, but rather should be increased. He feels we need a real stimulus package; build some infrastructure etc. he continues to insist that inflation is not an immediate risk, nor are inflated interest rates, the problem is unemployment, a slowed economy caused by a "liquidity trap." They way out is short term huge increase in gov't spending.

Who has a better understanding of what's going on? Maybe neither...

8/12/2011 7:17 PM  
Anonymous Anonymous said...

Agree with a previous poster to CR about gold, interested in hearing more on it if possible.

8/12/2011 11:05 PM  
Blogger ibrahim said...

In my opinion, coin money, not cure. Countries should follow the right policies.Yemek Tarifleri Thanks.

8/14/2011 12:03 PM  
Anonymous Anonymous said...

Fleckenstein made an important distinction in Ask Fleck recently re when on gold standard.....there will be "panics" that can be overcome in a relatively short time rather than "bubbles", such as the current credit bubble, that took years to develop and will likewise take years to overcome while at the same time risking loss of confidence in paper money and in turn the form of government.

8/14/2011 1:32 PM  
Blogger Chris Bray said...

The Wall Street Journal, Oct. 19, 2011:

Maybe it's a sign of the tumultuous times, but the federal government recently wrapped up its biggest spending year, and its second biggest annual budget deficit, and almost nobody noticed. Is it rude to mention this?

The Congressional Budget Office recently finished tallying the revenue and spending figures for fiscal 2011, which ended September 30, and no wonder no one in Washington is crowing. The political class might have its political pretense blown. This is said to be a new age of fiscal austerity, yet the government had its best year ever, spending a cool $3.6 trillion. That beat the $3.52 trillion posted in 2009, when the feds famously began their attempt to spend America back to prosperity.

What happened to all of those horrifying spending cuts? Good question. CBO says that overall outlays rose 4.2% from 2010 (1.8% adjusted for timing shifts), when spending fell slightly from 2009. Defense spending rose only 1.2% on a calendar-adjusted basis, and Medicaid only 0.9%, but Medicare spending rose 3.9% and interest payments by 16.7%.

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gold, wow, questioning orthodoxy really rubs you the wrong way, huh? Relax there fella. You know, I could also ask, if the Paulites are correct, where's the hyper inflation?
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