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The Paradise Perspective: Commentary from a Free and Compassionate Alternate Reality Volume 1, Number 37 Money by Glen Allport Exclusive to STR October 22, 2007 "Paul
Robinson, one of [Barclays Bank's] strategists, said: 'We're dollar bears.
The dollar is coming up for an important few weeks. We expect it to get
quite a bit weaker.' The bank fears that the dollar could fall to as low
as $1.50 against the euro." --
Dollar's
weakness to intensify, experts warn, by Richard Blackden, London
Telegraph, "The
dollar may 'plunge' in 2008, prompting the --
Sakakibara
Says Dollar May Plunge, Forcing Response, by -
1 - Could
any prediction be more credible and certain today than the prediction of a
falling dollar? Not
that a falling dollar is anything new. When the Federal Reserve was
unconstitutionally created in 1913, one dollar was worth, by law,
one-twentieth of an ounce of gold (more precisely, the ratio was $20.67
per ounce). For the most part, the dollar had been defined
in terms of gold since the late 1700s Civil War era greenbacks
being the major exception and the U.S. Constitution still
requires that nothing "but gold and silver Coin [be made] a Tender in
Payment of Debts" in any State in the Union. Hmm.
Well, perhaps that's in an alternate
universe. Still, you can read Section 10 for yourself, here.
* For
large purchases and for savings, Americans used one-ounce $20
gold coins until the Fed had degraded the dollar so badly that in 1933
Earlier
this year when I wrote Destruction
by Paradigm: How the United States wrecked the worlds most robust
economy and impoverished its own people ( As
I write this sentence seven
months later, it takes $768.70
to buy an ounce of gold:
So
an ounce of gold now costs $116.50 more than in March, an increase of
about $16.64 per month. In the first 18 days of October alone, the jump
was over $20. Hey! Didn't $20 buy an entire ounce of gold not long ago?
(For the current gold price, check Kitco
or 321gold). Gold
has provided a return of almost 17.9% in seven months, or an annualized
return of over 30% on something real, of intrinsic value, and which
has been used as a store of value for 5,000 years. (Ignoring the collector
value, what would a 5,000-year-old, one-ounce gold coin be worth today?
Right: $768.70). For the most part, it isn't so much that gold is gaining
in value lately as that paper dollars are declining
in value. And it isn't only the dollar
that is being inflated away; here are charts for the gold
price in various currencies since 1971. Doing
the math, we see that one
dollar in 1933 was worth about what thirty-seven
of your dollars are worth today.
Assuming you have
thirty-seven dollars, of course. Increasing numbers of Americans don't.
Well, many Americans at least have equity in their homes. Oh,
wait.
That was last year. The
dollar's dramatic loss of value happened because one of the Fed's
functions perhaps its most important
function is to "stabilize
the dollar." Right? And not just the dollar alone: the Joint
Economic Committee says that "The
Federal Reserve stabilizes the financial system." But that
doesn't make any sense, does it? Maybe I'm thinking of the alternate
universe again. In
fact, your dollars fall in value because
we have the Federal Reserve: increasing the supply of money is the Fed's
major purpose. Why? So that
government and banks and defense contractors and various Anointed Others
can have use of ever-more of
that wonderful, sweet-smelling cash, that's why. The military-industrial
complex and ten thousand other corporations and government agencies and
special interest groups would have to get by without all that government
largess if new money wasn't being created constantly; taxpayers can (or
will) only pay so much in direct taxes. Inflating the money supply is
easier to get away with than raising taxes, but each added dollar degrades
the value of all existing dollars. "Counterfeiters-R-Us"
would be a more accurate name for the Fed, and certainly a more
entertaining one. They might as well provide us with SOMETHING in return
for wrecking the country. As
long as the United States dollar remains an undefined fiat currency, tied
to nothing real, it will continue to fall in value until it goes the way
of all fiat currency: to
zero. The fall can be faster
or slower, but eventually every fiat currency dies (although often a
dead currency is replaced with a new one of the same name). Prices go up as the value of the currency goes down. At some point it becomes cheaper to use
paper money in your woodstove directly than to use it to buy firewood.
Of
course, other than gold, most things aren't going up in price right now.
That is what we hear, isn't it:
"inflation is low"
and "inflation is under control" and so on. And you can believe that, because you actually hear it on television. Although oil
did hit $90/barrel
today. Well, that probably
won't affect the price of anything. Except
trucking and other freight (for everything you buy) and driving and flying
and plastics and fertilizer and food and, well, maybe a few other things.
Nothing to worry about. Besides, you can be sure that hedonic and other adjustments
to the CPI will take care of it all. Well, most
of it, anyway. Remember: inflation
remains low!
Chart
from http://www.shadowstats.com/
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2 - There
are other views on the topic of future inflation: Here is Gary North
explaining why deflation
might be in our future, and how that might affect your precious metals
investments. Or not: North points out that "Prices fell in relation
to gold coins. So, gold did well in deflations." Either
way with inflation (as in today's
Chart
from Kitco.com
(note that chart ends in 1998;
today's gold price would literally be off the chart) Since
most dollars today are electronic entries denominating debt (e.g., your
mortgage), and since people and organizations are having increasing
trouble paying that debt, and
since the financial system has created a nightmare funhouse of leveraged
debt instruments and other exotic
forms of investment that nobody truly understands or can value
accurately, the possibility that trillions of dollars will simply vanish forever (perhaps with a soft popping sound and a whiff of
smoke) cannot be dismissed. Declining
number of dollars = deflating money supply = deflation, so perhaps Dr.
North is correct. No one knows, really, so be sure to invest accordingly.
Good luck. On
the other hand, the staggering
list of obligations the United States has set up for itself, including
Social Security (which last week began welcoming
Baby Boomer retirees), Medicare (a problem five times bigger than Social Security, according to David Walker,
head of the General Accounting Office) and a world-wide empire with
military bases in over a hundred nations, ensure that the pressure to inflate our debts away will only intensify. The flipside of how easy
it is for electronic blips to disappear is that they can be created just
as easily; you, personally, may not be getting any of these shiny new
dollar-blips injected into your account, but that doesn't mean our
benevolent leaders won't be creating them out of thin air and depositing
them somewhere. After that
happens, the blips will make their way into the wider world as they are
spent by Homeland Security or Medicare or whomever, and presto: inflation. So
what do you think: inflation or deflation? Or, somehow, both? That last choice sounds all-too-likely, and it might be the
worst possible outcome: higher prices for food and clothing and fuel and
other things we need for daily life, plus lower prices for the assets
(houses, stocks, bonds) that Americans and their pensions and 401(k)s
are most heavily invested in. Add that to high unemployment and a
police state imposed to quell dissent and anger at the power elite who
have created this mess, and you have well, exactly what we seem headed
for. I
could be wrong. No one, including me, knows what is coming for certain. In
some ways One
thing is certain: The
dollar is losing value very quickly. It may soon lose something else: reserve
currency status. So says The
Economist, which adds, "And
that would hurt: the privilege of being able to print the world's reserve
currency, a privilege which is now at risk, allows America to borrow
cheaply, and thus to spend much more than it earns, on far better terms
than are available to others. Imagine you could write cheques that were
accepted as payment but never cashed. That is what it amounts to." Even
against other fiat currencies (which are also
being inflated away), the dollar is losing value rapidly, and has been
barring the inevitable ups and downs of the market for a very long
time:
http://mwhodges.home.att.net/exchange_rate.htm -
3 - It
is critically important that more people understand the reasons for our
unfolding monetary disaster. The single corrupt foundation for the crisis
is this: coercive government. The
out-of-control The
Federal
Reserve may be the ultimate corporatist institution.
[Link is to a 41 minute video about the Fed by the Ludwig von Mises
Institute]. In
the absence of coercive government, we would have competing banks, some of
which might be corrupt but none of which would have a government-enforced
monopoly and other coercively-protected powers that make the Fed so
dangerous. Without the What
a scam! The
Fed has been used to transfer trillions yes, by now, trillions of dollars from ordinary Americans to the power elite,
to corporations, to harmful (if often well-meant) government programs, to
a military empire, to foreign dictators (including Saddam Hussein,
Ferdinand Marcos, the Shan of Iran, and many others), and to special
interests of every kind. It boggles the mind to think what we might have
done with all that wealth had it been left in the hands of the people
themselves. -
4 - There
is no inherent reason for economics to be so problematic. There is no need
for money to degrade in value, year after year prior to the Federal
Reserve, it didn't: a
dollar bought significantly more
in 1900 than it did a century earlier. There
are other ways to handle
exchanges in the marketplace than with money. In particular, before there
was money, there was barter. Barter is the direct exchange of goods and
services. I have milk from my cows; you have eggs from your chickens.
Perhaps we can work something out: milk for eggs, eggs for milk. Barter
is still a sensible and obvious market activity, but the limitations are
clear: What if you don't need any milk? What if I have my own chickens in
addition to cows: I don't need eggs, so how will you pay me for milk? What
if you want something (a car, say) made by people in another state or
nation: will they take your eggs in trade? Maybe not. And how will you
save for the future, considering the shelf-life of chicken eggs? -
5 - The
answer to such conundrums is money. Money is a medium of exchange: an intermediary that allows you to pay me for
milk even if I don't want any eggs. We can thus trade whether or not our
personal goods or services are a match for what the other wants at the
moment. Money is also a store of
value: with money, you can sell your eggs (or labor or whatnot) and
keep the profits on hand for later use, or pass them on to your heirs. It
is money's role as a store of value that inflation
weakens and eventually destroys which, at the extreme, also destroys the money's ability to act as a medium of exchange.
When a currency is sufficiently worthless, people
refuse to accept it in trade. That has very serious consequences. Destroying
money's ability to store value and to act as a medium of exchange is a
disaster because money is much more
than a convenience. Money is an important method of information transfer, for one thing. For example, when something
becomes scarce in the marketplace, the price rises, signaling the need for
more production and providing incentive
for someone to do the work needed to produce the scarce item or service.
Interference with the value of money (as with inflating the money supply)
sends bad information throughout the market, which in turn causes people
to respond to false signals instead of to actual conditions. Even
more critically, the invention of money opened up the division of labor dramatically and was thus among the keys to
creating the modern world. The practical reality is that I cannot invent,
design, and build my own iPod, television, automobile, internet, solar
cells, or most of the other things I need and want. I could grow and hunt my own food, spin cloth (if I could find some
thread and the necessary machinery) and make my own clothing (after making
my own scissors, needles, and sewing machine), and build my own furniture
(and the tools to do so), but even that
is impractical and would be very time-consuming. In
short, the division of labor is what allows for modern life. In turn,
money is what allows for the division of labor, at least beyond the most
basic levels. Money is thus a critical element in the maintenance of
civilization, and when governments or banks are allowed to degrade and
ultimately destroy the integrity and value of money, a danger is created
that exceeds even the dangers of outright war. For
that matter, destroying a nation's money is one of the most powerful ways
to create the conditions
leading to war. -
6 - Money
itself can be almost anything, including feathers or sea
shells. Still, as you'd expect, some things work better as money than
do others. Well-chosen forms of money hold their value over time; they
resist rust and fire and rot and other forms of physical destruction; they
do not melt when wet or otherwise change easily into something of lesser
value. It helps if the material used as money has intrinsic value of its
own, as do gold and silver both of which are useful in jewelry,
industry, medicine, and in increasing numbers of high-tech products and
processes. Well-chosen
forms of money are also relatively scarce and their supplies cannot be
easily increased without significant cost or effort. If a supply of money
CAN be increased without much cost or effort, that money will be
counterfeited by either the state or by other groups or individuals
and each new money unit brought into circulation reduces the value of all
existing units. Artificially double the number of dollars in circulation
and you have twice the dollars chasing the same number of houses, cars,
carrots, accountants, and so on. Goods and services do not magically
increase in availability just because the number of dollars has increased,
and the market quickly and unavoidably adjusts to the new situation with a
general rise in prices. Prices are raised until demand diminishes to what
the market can handle. Because
an increase in dollars (or other monetary units) for one individual
represents immediate, increased prosperity for that person, this general
inflation of the money supply is easily misunderstood, especially at the
start of an inflationary period. "More money whoopee!" It
is only later in the inflationary cycle that the upbeat (and false) sense
of prosperity turns to unease,
and then to fear, and then
if the cycle is allowed
to go far enough into outright
terror. -
7 - A
nation that destroys its own currency is a nation headed for a nightmare. In
today's Zimbabwe,
as in So:
You had a half-million dollars
in 1980 (under your mattress because you don't trust the banks),
representing years of hard work; that money is now worth a single U.S. dollar, which has also
degraded in value. Your savings are thus worth perhaps one one-millionth of their original value. Even with bank interest,
you'd have a staggering loss. The
present rate of inflation in Of
course, Among
the ways we are "special" is that our former wealth and power
(and our continuing military might) have allowed us to squander more
wealth than most nations ever see, without this disaster becoming
immediately obvious to most citizens. Americans have racked up the largest
national debt, the largest budget deficits, the largest trade deficit, and
the largest set of unpayable future obligations of any nation in history.
We are selling our assets to foreigners (in cash, in sales of real estate
and businesses, and in other ways) at a record pace to continue consuming
at our present level. What
could possibly go wrong?
http://mwhodges.home.att.net/reserves.htm Conclusion: Money
is a critical tool for the division of labor and for civilization itself. The
These
criminal actions by former presidents have never been corrected, nor has
anyone (other than the American public) been made to pay for them. The
destruction of money is a threat to both love and freedom; the death of a
currency means poverty, hardship, and emotional pain for all but the most
fortunate. Violence and even war are common side effects, as are political
repression (including, in many cases, detention camps for dissenters and
scapegoats) and other epic violations of human rights. What
to do? The
most important action we can take on a social level is to spread the
truth: that What
is the best way to educate Americans on the nature of the cancer eating
away at their freedoms and prosperity? There is only one spokesperson for
this truth who is actually getting enough national
(and even worldwide) exposure to make a difference: Dr.
Ron Paul and his presidential
campaign. No one but Paul is telling the American public the truth
about the Federal Reserve, and about most other crimes the As
a voluntaryist and abolitionist as someone who agrees with Thoreau
that "That
government is best which governs not at all" I believe we
will only make our way to a healthy, voluntary society by first reclaiming our heritage of freedom and human rights within the
flawed framework of our system of coercive government. We must learn anew
to walk before we can run; we will need to reacquaint ourselves with the
nature of freedom before we understand it well enough to move past the
tyranny most Americans now see as "normal." History gives little
support to the hope that a social-economic collapse, combined with
blossoming tyranny and human rights horrors, will lead to a society with
more love and freedom. I
do not know if Paul's campaign will have enough impact, quickly enough, to
help guide this country to a gentler road through our coming travails, but
the possibility exists. I support Dr. Paul both with dollars and with
activism, and I urge you to consider doing the same. DISCLAIMER:
Please take everything you read about investments here and elsewhere,
if you have any sense at all with a grain of salt. I am not a
financial advisor and am only conveying my own opinions and pointing the
reader to data I have encountered elsewhere. It is worth remembering that
there are potential dangers and pitfalls for every
investment class. Do your own research and come to your own conclusions.
For actual investment advice, I use the Outstanding
Investments newsletter (about $100/yr) which, despite its modest
price, has done amazingly well for years; their website claims that
"unbiased and meticulous industry watchdog Mark Hulbert just recently
ranked our service, Outstanding Investments, as the #1 Performing
Investment Letter of the Last FIVE YEARS." The returns from their
recommended portfolio make that quite believable. I also recommend regular
visits to 321gold.com, PrudentBear.com,
Agora Financial (the people
behind Outstanding Investments) and other "alternative" sources
of news and commentary, as well as to more mainstream sources of
information. If you are not familiar with basic economics, you can get
started learning the basics here
and here. To repeat the
most important point: Every
investment class has its dangers; do your own research and come to your
own conclusions. -
- Notes - - *
Section 10 also authorizes the issue of "Letters of Marque and
Reprisal," which could have been used to go after the 9/11 terrorists
instead of launching wars against ** Another important factor in Hitler's rise to power was widespread emotional damage from cruel childrearing practices; see the writings of Alice Miller for details. Glen Allport is the author of The Paradise Paradigm: On Creating A World of Compassion, Freedom, and Prosperity and maintains paradise-paradigm.net. This is one in a series of columns on the human condition.
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