Free Learner

On printing money

"[T]his idea to increase the money supply by printing money is the Single Stupidest Idea (SSI) in the whole history of economics for the last 4,500 years, and the reason that no nation does it is because it shows a serious mental defect in that nation’s leaders, its universities, its news media, and the people themselves because it is truly, truly stupid because it is truly, truly catastrophically ruinous every time anyone has tried it."

                    --The Mogambo Guru

Monopoly money

The American dollar is monopoly money in two senses: first, because it's just a piece of paper, same as the Parker Brothers variety; and second, because the private banking cartel known as the Federal Reserve has a monopoly over our currency.  We aren't allowed to print our own local currencies and use those.  We have to use the one and only currency which is legally allowed, the Federal Reserve Note.

Kings and democratic governments both impose their monopoly currency on the populace by insisting that taxes be paid in it.  This, it turns out, is the secret to fiat currencies.  If you demand that taxes be paid in that currency, everyone will use it.  If you, furthermore, threaten jail time (or in some cases, death) for those using any other currency, that usually cements the deal.

There used to be another way.  During the European heyday known as the Middle Ages, when commerce and specialization were re-established after the Dark Ages, many local currencies were used.  Check out this fantastic article:

There used to be lots of different kinds of money. Local currencies, which helped regions reinvest in their own activities, and centralized currencies, for long distance transactions. Local currencies were earned into existence. A farmer would grow a bunch of grain, bring it to the grain store, and get receipts for how much grain he had deposited. The receipts could be used as money—even by people who didn’t need grain at that particular moment. Everyone knew what it was worth.

In other words, these local monies represented production.  Production is the only way to increase true wealth.  In the US in 2009, the majority of what we consider to be "wealth" is not wealth, it's just paper.  You say you have $10,000 in the bank?  Kudos, in 5 or 10 years that'll buy you a washing machine, if you're lucky.  You own shares in GE?  Well, keep your fingers crossed.  In bankruptcy proceedings you will get precisely $0 for your common stock, but hey, maybe they'll stick it out.  You have $50,000 in equity in your house?  Check on that again in 2 years, and good luck.  We are approaching the point where 401k's may be partly nationalized (for instance, by passing laws mandating that all 401k accounts purchase Treasuries); where Social Security payments will be denied to many; where life insurance policies may or may not be paid out.  There are no certainties now, in the world of paper "wealth".

I'm therefore getting rather medieval about what I consider "savings" or "investments".  I don't want any more 401k shares, thanks, or even that many Federal Reserve Notes.  Real wealth is... well, real.  It's sacks of wheat, bolts of flannel, tilled land, tools, silver coins, wool blankets, cast iron pots.  Those things are true, physical wealth.  (If you were rich in the Middle Ages, you stored your wealth for the future in the form of gold and precious stones, often in the form of jewelry.)  Any form of "wealth" which involves receiving a monthly or quarterly statement should be viewed as quite dubious over the next decade, and possibly non-existent if it's denominated in Federal Reserve Notes.  We're coming up on the worst global economic shut-down since the 14th century and hyperinflation.

Back to that article (boldface is mine):

Local currencies favored local transactions, and worked against the interests of large corporations working from far away. In order to secure their own position as well as that of their chartered monopolies [the first corporations], monarchs began to make local currencies illegal, and force locals to instead use “coin of the realm.” These centralized currencies worked the opposite way. They were not earned into existence, they were lent into existence by a central bank. This meant any money issued to a person or business had to be paid back to the central bank, with interest.

Paid back with interest-- and that interest money comes from... well, some other loan.  The interest on older loans is paid using money from new loans.  Continue until there is no one left who is willing or able to borrow more money, and the whole system collapses.  Debt-based money is the ultimate Ponzi scheme.

All Ponzi schemes come to an end, as did the Venetians' in the 14th century, and as will the American version of the past 96 years.  It is unfortunate for the rest of the world that they pegged themselves to our currency for so long, and still use it for international trade and as an ostensible store of wealth.  They've tied the US Ponzi dollar around their necks like a giant rock.

We can abandon the Ponzi Fed note any time we like: individually, by using barter or transacting in gold or silver, and by saving our wealth in some other form.  We could abandon Fed notes as a country, as well, whenever the Congress and the President make it so.  I don't hold out any hope of the government cutting out the banks and issuing a new currency, but it is possible in theory.

A last word from the same article (emphasis is in the original):

President Obama may be smarter than most of us, but he’s still attempting to rescue the very institutions that robbed us in the first place. He’s not a socialist, as conservatives may be arguing, but he is a corporatist. Using future tax dollars to fund government job programs is one thing. Using future tax dollars to give banks more money to lend out at interest is robbing from the poor to pay the rich to rob from the poor.

A little thing called "debt monetization"

So let me break down this term debt monetization.

Say you're the US government.  You plan to spend a lot more money, this fiscal year, than you're going to take in.  Like, maybe an extra couple trillion, maybe three.  You expect other people to lend this to you at extremely little interest.

Turns out, though, the economy sucks.  Like-- globally, the economy sucks.  The Chinese don't have that much fricking money to throw down the drain (since we all know the US government cannot ever pay this money back).

They haven't got the money, see?  But we need to take on debt to pay our bills.  So, what to do?

Turns out we have a helpful cabal of private banks (some of them foreign) who have the sole and unique ability to print US dollars out of thin air.  And this little cabal can decide, whenever they want, to print up enough money to provide the needed loans to the US government.  The cabal will fund the needed debts.  Since they're inventing money out of nowhere, people call it "monetization" of the debt.

The trouble is, oodles of brand new dollars floating into the world make the existing dollars worth less.  Today, for instance, the Fed announced they were going to invent $300 billion and use it to buy debt, i.e. Treasuries.  We all knew it was coming, but that doesn't change the fact that it's unprecedented for them to openly do this.  Here is today's stunning dollar chart:

This is the biggest plunge since the year 2000.  I've never seen anything like it.  The gold price went from 1 ounce = 885 dollars to 1 ounce = 940 dollars.  The gold didn't change in value, the dollar did.

In other news, global production is collapsing:

It is like someone flipped the switch off and world production came to a standstill. Production has fallen in every country from 9 to 43 percent. That certainly will catch the world’s attention. On February 1st we declared a depression and this is one of the reasons why. The global economy is headed to a shutdown and that should bring free trade and globalization to a halt.

...The result of banks not lending or issuing letters of credit has led to a global credit contraction. The lack of credit is forcing businesses everywhere to shut down.

It won’t be long before inventory is depleted. In fact, it should start to become evident in the second quarter. Supply has put a sign up – out of business. This absence of goods, although deflationary, will drive prices higher for remaining goods. Food prices are still rising as well. It would be a very good idea to buy what you can now.  [International Forecaster 3/19/09]

International trade is also collapsing, with exports from Asian producers plunging at breathtaking speeds.  As for US trade:

Over the past five months since the credit crunch intensified, real exports have plunged at a 49% annual rate, while real imports have fallen at a 30% pace.

The pace of the decline is unprecedented in modern times, economists say. "We doubt even during the Great Depression that trade collapsed with such ferocity," said David Greenlaw, an economist for Morgan Stanley.

Unemployment is rising faster than expected-- as an aside, this phrase "faster than expected" is becoming a joke.  It goes without saying that whatever disastrous thing it is you're talking about, it's "happening faster than expected."

And only a month after finally passing a budget, California is $8 billion more in the hole.  It's the legislators' fault, because they were using absurd Pollyanna economic figures.  In fact, they are still predicting an increase in personal income tax revenues next year.  Ha ha ha!!  They should do stand-up.