The Credit Monster

King Offa of Mercia is credited with being the first British king to use the mint as a political tool. He gained control of the mint and started striking his own coins under tight regulations. This meant that each coin had a fixed amount of metal and was clearly identified as having come from his mint. Forgers and coin clippers were killed and raw gold, silver and copper had to be sold to the mint in order to be used as a means of exchange. Offa profited from this through something called seigniorage.

It’s a good starting point when thinking about credit money. Imagine you were a shylock in this age and you lent 100 sceat to a local farmer. He agreed to pay you 110 sceat after the harvest. Now, let’s assume he had 100 sceat of his own, but needed your 100 to cover his costs until he could sell his crop. The harvest comes in and he sells his crop at a profit so he can pay you the original 100 plus the vig. Now, the two of you have 210 sceat. In effect, your lending just created 10 sceat out of thin air.

That’s always a hard thing for people to accept, as the number of sceat King Offa was minting did not change. The number of sceat in circulation therefore did not change. Where did the extra money come from? In a hard money world, the amount of currency is fixed or close to it. Credit activities therefore can only work if someone is now short ten sceat in order for you and your farmer client to have acquired the ten sceat in your transaction.The only other option is they magically appeared somewhere or were counterfeited.

This was and is the inherent problem of hard money. When the amount of currency is fixed, the economy can only grow at the expense of someone else. The boom town that is producing pottery is getting rich at the expense of some other town. The money in the latter is moving to the former. At some point, the flow of money into the boom town runs dry and that town goes bust, its money then flowing out to some other boom town, maybe even the bust towns that it had exploited in the boom times.

This may work fine if overall human productivity never changes. In the feudal age, human productivity did not change much and growth was glacial. When human ingenuity is high and we have a shift in technology, then hard money becomes unworkable. There has to be a way to increase the amount of money in circulation to reflect the increase in capital stocks as a result of increased productivity. The solution was fiat money backed by the full faith and credit of the issuing authority.

In theory, this solves a huge problem in human development. It removes the penalty for innovation, by allowing the money supply to grow as human ingenuity increases human productivity. It also discourages hoarding and encourages investing. Hiding gold under the barn does no one much good. Investing the gold in new ideas and projects increases the stock of capital. A cheap way to make bricks means more public works projects can be constructed, thus increasing overall wealth.

The problem, as the libertarians and gold bugs will tell you, is that government always resorts to debasing the currency, by printing up more of it when they over extend. The Romans debased their currency to the point of worthlessness. Medieval monarchs did the same thing during times of war. In the 30 Years War, Ferdinand II paid his armies with debased currency and when it came time for them to pay their taxes, they paid with the worthless currency, thus transferring the problem back to its source.

Fast forward to our time and we are in a age of credit money. Cars are bought on credit. Homes are bought on credit. Business relies on lines of credit. Of course, global finance is all about credit, especially complex credit like derivatives. It is so complex, in fact, that no one really know how much credit is out in the world. Put another way, the supply of money appears to grow itself as needed or at least as needed by the people with the right to grow it. How did Puerto Rico rack up $50 Billion in debt? It’s a mystery, but it happened.

It is too bad that all of the economic historians were killed, as it would be interesting to compare our current age with the Free Banking Era, which lasted from 1837 to 1864 in the US. It was a period of panics and short recessions. The Civil War brought with it the National Banking Act in ’63 and then the Long Depression, which lasted from 1873 to 1879. This was a period somewhat analogous to our own in that national banks functioned like the Federal Reserve, operating as the bank of last resort.

It’s not a perfect analogy, but something worth considering when thinking about where we are now and where we may be heading. Wildcat lending and money creation eventually led to government intervention, which ultimately led to a collapse now known as The Great Depression. The outcome of the Great Depression was the national government once again taking control of the money supply and the velocity of money through bank and security regulations. Maybe that’s the end of this cycle too.

A half dozen years ago, James Rickards wrote a highly readable book on the history of money and currency wars. In it he offered up one possible outcome of the inevitable currency war that may have already started. He suggested that a global currency based on a basket of energy products could become the reserve currency of the world. That makes some sense as the world runs on oil, gas and coal, but that sounds a lot like hard money. Every country will be tempted to flood the markets with oil, gas and coal.

Another possibility is a global central bank that functions like the Fed, but with a mandate limited to maintaining a steady money supply and regulating global banking. This idea has been kicking around for a while and relies on the expanded use of special drawing rights. This fits in neatly with the overall push for global governance, independent of popularly elected governments. That’s a clever way of saying it will be the financial hub of the post-democratic world.

It’s hard to know. People in the 19th century knew the system was broken, but getting the political class to fix it was hopeless until the world collapsed. Even then it took the leveling of Europe and Asia by the US to get a new system in place. That suggests we are headed to some sort of cataclysmic denouement to the credit money system. A global collapse followed by a world war with nukes, drones and space weapons probably puts us back to using colored beads in a barter economy, but maybe it will be for the best.

91 thoughts on “The Credit Monster

  1. As I am now back north in your “fly over country” crossing from Colorado into Wyoming. As I came up the back roads of I’m amazed at the level of poverty which seems to dominate these small towns.

    Towns like Guffey, CO has wooden shacks with wood burning stoves. But just a few miles up the road in Breckenridge, the employees at the hotel where I stayed couldn’t afford to live in the same town (…the hotel manager explained the situation, so I got this first hand when I asked what the “affordable housing tax” on my bill was for). Yet in many of these obviously poor towns, I was surprised by the number of what looked like relatively new pickup trucks parked in their gravel driveways.

    And still these people proudly fly the American flag, seemingly oblivious to how badly the country and it’s government, is setting them up to fail in the long term. Few of these people have all their teeth (at least upon observation of many individuals who worked the Dairy Queens, gas stations and Dollar Stores) and I doubt many have health insurance and many (just guessing) on a food stamp program or some form of government assistance.

    How can this be in a country that is supposed to be so wealthy?

  2. A key benefit of a fixed hard currency supply is the difficulty in expanding it (introducing impurities into the hard currencies to mislead the masses as to actual content of material aside).

    A fixed amount of money, which is a portable representation of wealth, is not a problem because that fixed ounce of gold will buy more or less of a commodity based on demand and scarcity. It’s the commodity availability and demand that expands and contracts; that fixed amount of hard currency will buy more or less of a given commodity, rather than increased demand causing a shortage of currency, A relatively fixed/scarce material used as currency limits the ability of government to pay off debt through inflation of currency volume, which benefits government in the short run but penalizes consumers and savers by reducing the purchasing power of their fixed scrip (dollars) which they are forbidden to increase in the same manner as the government (printing press or keystroke creation of monetary units). Overall a fixed monetary supply is of benefit to the common citizen.

  3. There’s a guy who ran for President last time who has some excellent ideas. This guy invented Moprtage Backed Securities.

    The thing is they are a plan that’s been worked. We need to address “what comes next”. How do you replace the money supply from a debt based system? How do you tax income or what do you tax? This guy has a plan and while I’m not sure all of it works it’s damn interesting. It cuts taxes of most people, replaces the banking system and ends all US debt in five years. He’s not some crazy person he is the actual person that invented “Mortgage Backed Securities”. In his original version they had normal valuations for housing and he had extra fees accounted for any housing that couldn’t be paid for. You can say the non Judophile version. It worked great because it provided money for housing and a stable known quantity investment for large pension funds, insurance companies and big investors.

    If all the goods and services in the economy were backed or shadowed by an equivalent amount of currency we would have a situation were there would be debt but it would be owed to no one in particular. The cash would be a direct substitute for goods and services. Benjamin Franklin wrote about the currency in Pennsylvania that worked like this but based on land. It worked very well and provided prosperity for the whole community. Of course when the Bank of England found out about it the King made them stop causing the whole community to crash into a downward spiral. Possibly being one of the reasons for the revolution.

    Since the debt is compounding it can’t be sustained. They’ve already got this figured out. They’re going to Special Drawing Rights SDR’s. There will be a big financial crisis and SDR’s will come in to save the day. It will of course be the same rip off but on a bigger scale.

    We should go to a money system that’s based on total goods and services. It could be inflationary, or not, but not necessarily any more than what we have now. All debt these days (bonds) are essentially monetized or currency anyways. You just borrow money on the value of the bonds. So doing away with bonds would not necessarily cause a cash inflation spiral as the bonds are likely monetized (cash) as it is.

    For revenue instead of getting most from income taxes he would get revenue from settlements. Like every time you buy something or deposit a check in the bank, etc. The value of this is it massively raises the tax base so that the amount of each transaction is minuscule. I read, “For Good and Evil: The Impact of Taxes on the Course of Civilization” by Charles Adams a book on taxes and it talked a lot about raising the tax base in order to lower the percentage taken from each transaction and to spread out where revenues came from.

    Let’ look at the numbers he quotes.

    Payrolls total $15 trillion.
    Not much for filling a $4 trillion federal spending.

    The base for what he calls payments, (transactions), is 3,600 Trillion. Big difference. So using this big difference he would only take a tax rate of just 1/8 of a percent.

    He also would stop charging interest as the money is made and backed by the taxpayers. He would only give banks a service fee. (I don’t agree with this. I think a small interest paid to the Federal Gov. would be helpful providing the majority of it went to the treasury and bypassed the FED and banks.)

    He’s got some great ideas on lots of issues. He’ll never get any publicity from the media with his cut out the FED ideas but they’re worth thinking about. My biggest problem is just how, even with such small percentage of tax, he would keep corporations and the 1% from gaming it so they pay none.

    Another thing Smith wants to do is pay the debt off. He points out that all the debt pays interest so it gets bigger and bigger. There’s a not so evident twist to the debt. Here it is…as soon as the debt is issued it is financialized. It becomes money. It may be debt but in today’s world you can use this promise to pay to raise cash. Therefore the money supply is already inflated by the debt. Get it? Debt becomes cash through financialization.

    He says,”…Coupon stripping would not be inflationary
    because it would replace our existing supply of interest bearing
    money with non-interest-bearing money…”

    When he says coupon stripping he’s talking about the old time bonds. Here’s a picture.

    Each bond has coupons that when torn off at a certain date become money. He says we pay all the bonds off with non interest bearing CASH now instead of letting the debt inflate further. The bonds have become cash already so it’s not necessarily inflationary to turn them into cash.

    Here’s another quote,”…Ironically, we would have inflated the money supply less if we had issued new money to pay for the deficit each year rather than selling Treasury bonds. At least ordinary money does not accrue interest…”

    That being the case he says we should pay off all debt within five years.

    Here’s a link to his pay off the debt page.

    I think he’s somewhat right about turning debt into cash not being inflationary but not 100%. Some debt is parked and if they were forced to accept cash I have no doubt they would buy assets for cash causing some inflation. His point over all I believe is sound. That printing cash is less damaging to the economy than continuously expanding debt. Yes there is a limit to this. The damage is less when you have instant inflation than the delayed case of delayed debt. When you have instant feedback from printing cash you also can see the damage and correct it faster. The debt is hidden as it takes some money out of circulation while NOT extinguishing it. When debt is turned to cash it’s influence can’t be stopped as easy.

    I apologize for the length.

  4. One thing we should make clear is the complete stupidity of the present US monetary system, unless you’re the FED. ALL money created in the US is based on debt. If we pay off the debt then we would have…no money. It’s absurd. It’s my belief that the SDR is a scheme to cover up this absurdity by kicking it upstairs to the exact same absurd system but calling it something different. Of course the people who run these scams have it made. They can create money from thin air and for the privilege of doing so they charge us interest.

    In the States before the revolution they had a system in Pennsylvania where they issued currency based on the value of land. Worked well until the King of England found out(I think Ben Franklin told him when asked) and stopped it immediately. Not talked about but it caused an immediate recession and “maybe” had a little to do with starting the revolution.

    We should issue our own free money just like the FED did to banks when the housing crisis struck. They got at a minimum $16 trillion. Why can’t your average taxpayer get the same as the banks?

    My own pet idea is that money should be based on a basket of goods, land, minerals, whatever and also electricity. Energy. Money would be labeled in Kilo Watt hours and trade-able for exactly that much energy.

  5. I like the Hayek solution. Abolish legal tender laws while leaving everything else be. The currency competition will keep central banks honest, or at least keep them from inflating too much for fear of people refusing to trade with their currency.

    • Another plus: they couldn’t afford war loans from outside lenders.

      When people say, “the U.S. paid off 120% worth of GDP after WWII!”-
      I say, “who did they pay?”

  6. Alternative ending:
    Without the loan from the “Shylock” no crop is produced and 14.5 peasants starved.
    The end

    • Or the alternate ending, the money lenders are executed horribly and the king steps in to assist his people using the grain his taxes were paid in and giving it under his reciprocal feudal obligations to his peasants

      The crop goes fine and the king being wise collects only a tiny bit extra each year till paid back.

      people who actually perform useful services (food producers and the military) get paid and fiscal parasites are kept in check.

  7. Is this some new slant to discredit Libertarians again?
    It is amusing to see you struggle with even the most basic of libertarian concepts.

    • Not only that, I have woven coded messages denigrating libertarians into my posts.

  8. One of the fascinating things about Medieval Britain was their money system. The currency consisted of dozens of different kinds of coins minted at various times and places throughout history. Roman coins, Greek coins, what have you.

    Transactions, though, were calculated in Pounds and Shillings. The thing is there was no such thing as a Pound, it was an entirely theoretical unit of value. A agrees that B’s cow is worth 3 Pounds and then buys it with 1 Pound worth of flour and 2 Pounds worth of ancient Roman coins.

    A more recent example comes from the Brazilian financial crisis in the 90’s. They had runaway inflation in the cruzeiro. So they told everyone in the country to imagine a “unit of real value,” think of it as something like a dollar. Now do all bookkeeping and transactions in both units of real value and cruzerios. The value of the cruzerio continued to death spiral, but the value of the URV stayed steady.

    Eventually the government declared the “Real” to be the new currency, had everyone convert their cruzerios over, and then started using the central bank to inflate away its debt, but at a normal rate. Typical government power grab.

    But anyway, imagine a system where the government never reified the URV. People could continue to negotiate deals in its terms, continue to settle up using whatever currency was available. Just like the Britons of old.

    Of course they would still have the problem of only having access to the inflating currency, and they needed the dollar peg to get everyone on board for how much the Real was supposed to be worth in terms of economic utility.

    Tying this all together. Imagine a new URV, let’s call it a Util. It is worth one unit of economic utility, whatever the masses happen to think that is. All transactions can be tracked and logged, with the utility of the good or service logged in utils, and the currency (probably bitcoin or something like it), transacted to satisfy the utility.

  9. It sure seems like Montesquieu’s proposition that the geographic size of an area strongly influenced its form of government, extends to other components of the system of nation states and their activities like fiat.

    I’ll use myself as an example, because I don’t see anything difficult with “hard money” on the truly local level, (and increasingly local-local-local is the viable and sustainable alternative to the leviathan on many levels, of for no other reason it is so far removed from provincialism).

    So I fabricate something in my little metal working shop from raw materials, or harvest berries from bushes I bartered for locally, as little starter plants, with other things I produced.
    I’ve created things, real tangible products from the most basic beginnings possible for me to produce here. All from my labor and thinking/creativity, using my hard earned resources like land, tools, buildings, time, labor.

    So, I also live totally debt free. I do not owe a penny to anything or anybody.
    I even bought my property with cash, I saved up from working as a welder, my wife also, between the fruits of our labors and sacrificing many comforts and luxuries for down the road chosen goals, we where able to save $56,500 dollars in three years, at that point we sold everything not essential to pay off the debt of $34,000 between us. Then we looked for a property we could afford with our saved fiat.
    What we ended up with is an incredible resource, our land and home, totally owned by us, that we then used as a base to create more types of wealth like mentioned above.
    We also invested with fiat cash, in the components for an off grid solar/wind energy system, which we designed and built our selves.

    Ok, so here is this collection of assets, which not only now cost us nothing to own, but we used the inherent wealth of potential in these assets to create more wealth.

    We live a total cash or barter economic lifestyle.

    Our major assets are a 1800 sq Ft home, a 20x30ft workshop with a full metal fab/welding/machine shop. 3, 80’s model pickup trucks and a 71 beetle bug, all in perfect mechanical condition because we bought under $500 used and invested cash in refurbishing them headlights to tail lights.
    We unitize our land to raise about 75% of our food, barter for maybe another 10%, sometimes more or less depending on a few variables, including the food from hunting on our land.
    None of this is under debt. It was all paid for or bartered for, on the barrel head. Because of these “investments”, our monthly bills including all taxes and insurance is a bit more than $450 a month, (Food, clothing, luxuries, medical, not included in this figure. We bought into a doctors cash only co-operative for medical, $150 month, plus really decent visit fee’s).

    So the idea of telling all this, is we create more wealth from wealth we totally own and control, that we acquired from creating wealth on our personal scale to begin with.
    We feel richer, we have more in ways that in our previous life of fiat only we did not have. We even think differently, we have a sense of serenity and security we did not have before.
    Money, talking greenbacks, it isn’t near as important as it used to be.
    It is difficult to catalogue all the plus’s, and remember the negatives we no longer deal with.

    I can not find where in this I “take” wealth from anybody to make my wealth. The barter component always seems to be a win win between recipients in the exchange, that just buying with fiat doesn’t provide. The on the barrel head purchasing component is always one of careful consideration of the utmost wise investment, i.e. does this spending get us an investment, in lasting quality or benefit that enhances something.

    Sure I deny, big corporations like the electric company, insurance companies, big food, big medical, the state etc a “market share” of my wealth creation.

    But that is denial, it isn’t is taking.
    Am I missing something in this equation?
    Sincere question here.

  10. There seems to be enough expert opinion here to entirely and perfectly reform the world’s banking system.

    • That is a wonderful thing to say Fred_Z.
      Your more right than you could imagine I think.
      Imagine if that was possible?
      Be something else.

  11. The trading of goods and bartering is entirely missed in this article. You can create and transfer wealth through barter. The creation of currency to create a medium of wealth transfer was a civilization advance. But the the growth of is not limited to the amount of currency, it includes things of value.

    • barter economies are pretty small scale. not really applicable to today’s economy.

      • Yes, but isn’t that the crux of the whole problem to begin Karl?
        The leviathan is too big, not the barter economy too small.

    • Invite you to see my comment below Hans.
      What do you think?
      I think what you and I are saying is far more viable then common convention and wisdom lets on to.

      In some ways I think many of us as a society are so far removed for so long in time and experience, provincialism and bartering, components of agrarian living, are inconceivable, because they have to be lived to fully grok the complexities and benefits.
      That is what I am actually experiencing daily, I’m living proof, with the fruits to show for it. Regardless of what convention or theory says.
      I can see both perspectives because I live with a foot in each of those worlds.
      As time goes by I desire more to leave the fiat world in entirety. Probably, realistically it is not possible. But there are good balances, taking the best of both worlds. And that isn’t so bad.

  12. When TSHTF, is there even a remote possibility of a jubilee?

    Also, what about a system like Bitcoin replacing the current? Any chance or impossible since it doesn’t allow manipulating and skimming and leaves out politics?

    • It will be more messy than that, but a repudiation of debts (default with a lack of collateral to claim, along with a depreciation of the terms of repayment–the Dollar) is a jubilee of sorts, just not evenly applied or orderly in nature.

    • For every debtor there’s a creditor (or several.) We err when we think it’s only the Fat Cats who will lose out when their bonds crater (or are repudiated.) In fact, it’s everyone who will lose (although the pain will not be spread evenly, of course.) Even if you don’t count on Social Security in the future, or a pension or an insurance payout, what if your parents do? Will you let them starve? Many people will face a completely new set of problems, just as large or larger than now, when this entire system falls.

  13. I’ll never believe the nonsense that hard money or gold standard failed because of any inherent fallacies. Even the greatest money printer himself, Alan Greenspan, acknowledged that it basically worked pretty well.

    There was a guy who started the private money Liberty Dollar, but was shutdown by the corrupt government scum who accused him of counterfeiting. He had an actual currency backed by silver. But the government does not like competition when it comes to thievery.

    Whether hard money or not, it is always an issue when the government seizes control of the money creation system. I’m certainly worse off than 15 years ago.

    “What is Constitutional Money?” with Edwin Vieira — Ron Paul Money Lecture Series, Pt 2/3

  14. Fiat currency and credit accommodate and fuel economic expansion. They can also accommodate sloth, when the money supply expansion and credit extended do not go towards productive increases in the broader economy and productivity.

    Between other priorities in our immigration policy, the expansion of the economy through EBT cards and monster pension payments that tend to just sit in a virtual pile somewhere, and the broad extension of credit to things that have no real future value (cars and worthless college degrees), we encourage slothful economic behavior with our credit and money expansion policies.

    When the debts are called in and marked-to-market, their will be no market or real collateral for much of the debt, and the deflationary result will be catastrophic. The frantic printing of money, as the only short term economic prescription, will crush the value of the currency.

    Gold, at this point in time, stands aside all of this as a relatively fixed and extremely tangible asset, something left after the dust settles (if you are still around to hold it and it hasn’t been physically stolen from you). The lesson of Weimar Germany is that gold, silver, real estate, and holdings in companies that can survive the bad times are the places in which to hold your assets. Perversely, holding leveraged tangible high-quality real assets with fixed low interest rates, along with only the borrower’s ability to call in (prepay) the debt, not the lender, is a great strategy, as long as one does not overextend oneself.

    Finally, what Trump, a beneficiary of the easy credit system, is doing, is trying to bend our economy away from emphasizing the most slothful tendencies. More blue collar jobs, more care in immigration policy, more discipline in banking and credit (e.g. a reconsideration of the Glass-Steagel repeal), more equity in foreign trade policy. I wish him well in his endeavors. Changing the trajectory of the status quo is always hard.

    • Monetary expansion most occurred via Uncle Sam, and so industries largely paid for by Uncle experienced a massive influx of money demand, so tens of millions of people pursued education, credentials and licensing in the fields of medical services, higher ed, welfare-state administration, and the Military industrial complex. This is why Americans pay so much for all these things, because supply is warped by such artificial (non-organic) demand. When that demand cannot be sustained, all those people (capital) will be trapped in unproductive, unemployable silos. It’s going to be UGLY.

  15. Mr. Z-man: this is a great short essay- but it misses something about the “vig”. the whole usury thing (the vig) is the exact point of the sin. Aristotle wrote about it long before the Catholic church made it a deadly sin for a thousand years. The real gotchas come with compound interest. oy vey. babylonian woes indeed.

    • Forgot to to mention: productivity was around during the feudal period: lots of wonderful cathedrals, in many small towns. think of the time and effort and “money” it took to build those monuments to our faith. The myths of the middle ages are too many. Where are all the cathedrals today? hmm. Brussels? City of London? Wall Street?

      • some of those cathedrals took over 100 years to complete. which is not really being very productive…

        • They were very good ways to encourage skilled labor and served as a jobs program while giving society something of lasting benefit . Good for mind, body and soul.

          The WPA and CCC under Roosevelt did something similar for the US and it was of tremendous benefit to us. Still is.

          No matter what any Libertarian-Autistic types think every functioning human society has economic regulation and welfare of some kind. Any society above cavemen has some kind of make work or government projects

          In fact the more efficient the private sector gets the , the bigger the State will get since in order for people to participate in society they need a means to have money or wealth.

          Again using Marx here, if people have no trade or means of production, they cannot participate and become a liability.

          They can be ignored in which case they’ll be weaponized

          Imagine if all US poor went under the banner of ISIS for some reason . The current state would not last long

          They can become client of one one or more group of elites (Church, Party, whatever)

          Sold into slavery or just killed.

          I’ve never seen the latter happen historically since it would depopulate a culture but with robots in an option, so long as the poor or a friend of the poor doesn’t decide to use a bio-weapon in which case its back to colored beads

      • Are you asking, “Where are the monuments constructed under the mythology of today?”
        Lincoln Memorial
        Jefferson Memorial
        Washington Memorial
        Every public school curriculum
        90% of every university campus
        The Taj Mahal buildings that house banks, insurance companies and (increasingly) hospitals.
        Wall Street, NASDAQ, ICE, LSE, etc., etc.

        What amazes me so is that few people realize these and more are simply temples to mass-minded mythology. They are all metaphorical bamboo “cargo planes” of the cult to which we all belong.

  16. “There has to be a way to increase the amount of money in circulation to reflect the increase in capital stocks as a result of increased productivity. The solution was fiat money backed by the full faith and credit of the issuing authority.”

    To be succinct, the problem of our time is that the issuing authority with which we have vested full faith and credit (i.e., the US Treasury) is also the legal authority and the taxing authority. The full faith and credit in the issuing authority is backed by force of arms, not by risk analysis performed by rational investors attempting to maximize some utility function. Assuming you are an American, YOU are the collateral to cover the US Treasury’s obligations, as are your progeny.

    • Serious question: So we can look forward to the reintroduction of debt slavery during the collapse, then_?

      I guess the answer depends upon the relative power of the bondholders (Cloud/Wall St.) vs. the debtors (plebs/Dirt People) once the process is underway. No wonder the Cloud folk are terrified of Trump. They know the Great Haircut is coming_!

      No wonder the Cloud hates the 2nd Amendment with a puzzling passion.

      • Al, if you are an American you are living in debt slavery NOW. All in, many Americans are paying 50% or more of their income to taxes. America is an open air debtors’ prison. Don’t believe, me? Stop paying your taxes and watch how fast the IRS yanks your passport.

        The collapse represents the end of debt slavery. This will be a good thing for productive people.

        • I don’t know if men have ever lived in the absence of some kind of slave/master relationships. To me, the goal is to maximize happiness (properly understood, which is the rub, since vice is not happiness and we’re drowning in vice now.)

          I want order, safety and a degree of self-direction, the priority of which depends on how much of each I’m offered by the environment (which is largely whatever my neighbors consent to.) I used to rail at taxes. I now rail at debt (which is the fraud of unpayable promises.)

          I suppose in the end, I rail at lies and hypocrisy. There sure is a lot of both nowadays.

        • The collapse represents the Cloud Collectors calling in their bust out, seizing all, not a Jubilee. That’s my prediction.

  17. Fiat money works divinely in an ideal world with virtuous politicians and honest citizens. We do not live in such a world. The end will be catastrophic. Then, we will begin again.

    • The catastrophe is not the end, the catastrophe is that this has not ended. Without predicting that cream will rise to the top, and acknowledging that shit too floats, the list of benefits that the end of popular democracy and fiat money would bring about have by this time become incalculable.

  18. The current system went off the rails in 1981. Pivotal events (IMO) were:
    1. Removing any commodity standard (like a 12″ ruler) from US money in 1964 (silver) and 1971 (gold, for foreign settlement.)
    2. The end of a secular bear market in bonds in 1981.
    3. The initiation of a bull market in social mood in 1982.
    4. The social mood rally morphed into a once-in-300-years mania around 1995.
    Since 1981, every dollar borrowed became two dollars: one cascaded (with monetary velocity) through the GDP economy, and another became a receivable, an ASSET, in the debt market. Every time interest rates fell, the capital value of existing bonds rose, so bondholders simply couldn’t get enough of them. Congress learned that it was no longer necessary to tax in order to spend. “Tax cuts and MOAR SPENDING for ALL!!!!!” became the trend. Bond vigilantes died or went Rip Van Winkle (or comatose.) A veritable OCEAN of IOU’s was filled in the greatest credit-money inflation in history, but because the “new money” went into “assets” and not food/clothing/rent, etc., it was deemed entirely salutary.

    It all depended on continuously rolling over all those IOUs at lower rates, so it ran until either social mood turned down or rates hit zero. Social mood kept rising/high, so the latter became the limit. During the last 35 years, industries first in line for all that “new credit money” grew like mad. Everything that congress showered with money is now overgrown: medical services, higher ed, the old standby (military industrial complex) and everything to do with the asset markets (FIRE economy) now are like acres and acres of greenhouses in Fargo ND growing roses in February. Almost all of those jobs and everything downstream of them will whither and die when the credit-bubble fuel for the greenhouse generators runs out.

    The basic reason this happened is because economists bastardized Say’s Law in order to rationalize the mania. Say’s Law says that in order to enter the market (buy), you must first PRODUCE. Modern economists claim this means that demand creates its own supply. The two statements are not remotely the same, but the latter excuses credit creation from nowhere, claiming it is beneficial, when in fact all it does is twist the structure of production into fun-house mirror caricatures of reality.

    If the secular bull market in bonds ended last year, then the denouement of this long, long collective stupidity has begun. Think of the Present Value (PV) of all those promised future cash flows: Social Security, Medicare, Public Pensions, Private Pensions, Welfare Payments, Medicaid, and add them up. Most of that PV will simply evaporate when the IOU’s on which they depend collapse in value. Few Americans realize the degree to which they’re counting on that PV, so many say “good, let it all crash.” They grossly underestimate the degree to which everyone is on this USS Poseidon, and forget that they too will suffer when it goes Poseidon Adventure.

          • FOFOA looks like a goldbug site to me.
            FWIW, the “problem” with “money” is people discuss it using conflicting definitions and conflicting premises.

            Gold is not money now. It’s a commodity whose price is expressed as $/oz and changes in that ratio matter to tax calculations. Money is the only “thing” where rising value vis-a-vis products in the marketplace is not a capital gain. It happens so rarely that no one cares about it, but given that we face a credit collapse of unprecedented size, the possibility that “money” rises greatly in purchasing power is important. After all, that $20 in your wallet buys a lot more gasoline today than it did when gas was near $4/gal. What if the same thing that happened to gasoline (oil) happens to stocks, bonds, Beanie Babies, cars, houses, and……GOLD? That’s what happened in 1930-32 during the last major deflation, and while gold didn’t decline in dollar value, that was because gold then was DEFINED in relationship to the dollar. That is no longer the case. In a deflation, he who wins is the person who retains access to his money. So the person with an IOU that remains “good as gold” can benefit. The goal will be to exchange that IOU at full value when prices for Real Things (including land, gold, secured interests in successful firms, etc.) are low, before the con artists running the political system can figure out how to cheat the savers.

            Today’s Present Value of the vast array of promised future cash flows is vast indeed. The evaporation of those promises and the destruction of all that PV (whether people think of it that way or not) seems likely to be the Big Event of our Lives.

          • Then you haven’t understood what you read at FOFOA site, if anything. A gold bug is most certainly the opposite of FOFOA. from a recent post of his:

            “The present world gold market negates the true value of gold
            by removing the “real demand” that “gold settlement” creates!
            Break the mechanics of this market and you will find that
            gold is the most valuable currency in today’s currency arena.
            Many investors, today think that the answer to this dilemma
            is for traders to take delivery and cause a short squeeze.
            My friend, in this arena, taking delivery means settling in cash!
            No, this market will not be destroyed by anyone but itself.

            …just as ten people can’t physically possess the same ounce
            of gold, nine of them are going to court to make the others
            perform what physics will not allow!

            …1. the current gold price is mostly a paper contract fabrication
            2. it’s easily controlled as long as the “current price setting
            system” is functioning 3. this gold price everyone uses, could fall
            through the floor if the contract system comes into question
            4. physical gold prices could skyrocket in the future as no one
            accepts the credibility of any contract for derivative gold.
            Effectively destroying the paper equity of gold banking.
            Most of the people in the gold industry do not want to hear this.
            For them, a break-up of the London gold market would destroy
            their financial partners and spike the physical gold price
            into uncontrolled levels.

            …It seems every Gold bug sees only half the trade
            and has great faith that contract law will favor a short squeeze.
            Yet, none of them see where it’s the longs that will be dumping
            and forcing the discount!”

  19. “The problem, as the libertarians and gold bugs will tell you, is that government always resorts to debasing the currency, by printing up more of it when they over extend.”

    Anyone who has been paying attention will tell you that. Career politicians just can’t stop themselves. Those votes won’t buy themselves.

  20. none of this accumulated national debt is ever going to be paid off. and that is fine with me, as I didn’t lend it and I don’t care if it gets paid back. now soros and bezoros may care about these debts, and may be affected by the collapse of the financial system, but fukk them anyhow.

  21. As far as I recall from commentaries I’ve read by Lawrence White and George Selgin (I really ought to refresh on my econ), the “wildcat” free banking era of the United States was marked by restrictions on branch banking and by capital requirements for holding a certain percentage in state bonds, many of which were de facto junk.

    The global central bank almost made it in 1944 — there was the Keynesian proposal for the International Clearing Union. I’m thankful it didn’t come to pass, personally.

  22. Yes, the unpleasant reality of “money”. Hard money has always had the problem of its actual existence. While new gold and silver mines could increase present amounts, the usual alternative was to invade another group of people and steal what they had. The actual substance that becomes “legal tender” is not as important as the need to tax the excess out of circulation. If you want to maintain the integrity of your economic system, you cannot have too much or too little of something. Too much, inflation. Too little, no economic growth. The key is to determine how much does your society need to maintain your goals. And this is tricky.

    There have been a number of sci-fi writers that have dealt with alternative forms of money. What would be the ideal monetary unit? It can’t be ubiquitous or it loses its value. But, it can’t be too scarce. Water has been postulated. There actually is a finite amount on the planet so it can’t be created at will. Personally, I think energy would be a useful source of value. Thanks to the First Law of Thermodynamics, energy can neither be created or destroyed, so it is finite in nature. However, it can be changed from biological forms of energy to useable mechanical energy. And we constantly have to come up with mechanical energy to maintain and drive our civilizations. How would energy be taxed?

  23. When you talk of money, ie. the level of the money supply, you need to think in terms of verlosity (money changing hands) rather than a fixed sum.

    A circlating flow like a water feature, hence the reason its called currency.

    • You have to consider both. You also have to consider *who* can control supply and velocity and *whom* is paying for it.

      The reason I started the post with King Offa is he was the first British king to use money as a political tool. He probably learned it from Charlemagne, but it may have happened simultaneously. You cannot understand money outside of politics.

  24. Being no economic expert (can barely balance my own housekeeping) isn’t the whole point of credit is that the debts are not called in all at the same time? Equally the system works because people want to postpone such calling in until they need it in possibly years ahead? If there are invisible-but-unclaimed sceats then it is just a promise, nothing more and providing promises keep being made, then everyone is happy(ish)

  25. King Offa of Mercia is credited with being the first British king to use the mint as a political tool.

    Although he is more famous for keeping a lesbian by his side to keep the Welsh at bay.

  26. “A global collapse followed by a world war with nukes, drones and space weapons probably puts us back to using colored beads in a barter economy, but maybe it will be for the best.”

    Your concluding sentence reminded me of my favorite talk radio show – Armstrong & Getty, 650 KSTE Sacramento. They began calling their 6 o’clock hour “the dour hour” because they kept slipping into apocalyptic discussions as they awoke to some new horror. One of the hosts would inevitably break the tension by exclaiming, “Good Mornin’!” in a cheezy, over-enthusiastic 70’s radio dj voice to highlight how their far they were straying from traditional media dogma.

    A few years ago they began calling their listeners “FAGs” (“Friends of Armstrong and Getty”). It’s pretty great….kinda like Zman, they go where logic and the evidence takes them. One is clearly wise to the JQ but is smart enough to know how to keep his job.

  27. I get the “kill all the libertarians” argument you made a few days ago. I even expressed agreement with it. But that doesn’t mean some ideas that are considered libertarian don’t have merit. Hard money has merit. And your arguments against are like a pastiche of Keynesian tripe, probably none of which was true on further investigation. The so-called Long Depression, for one (a time of unparalleled changes and improvements in living standards, even to this day; prices decline naturally in a period of increasing productivity and “fixed” money, and is viewed in hindsight as a sign of a Long Depression). Hard money is not “fixed” like you say. The flaws that brought on the sporadic (and they were sporadic) panics were not due to hard money constraints.

    A Bitcoin-like blockchain that supported true anonymity would be an interesting idea. But otherwise, there is no substitute for specie (or simply cold, hard cash, which is also “fixed” relative to the amount of computer money), especially when the next downturn hits.

    • Relatively fixed money supplies backed by specie are inherently deflationary during times of great economic growth. This would leave the farmers and small business owners holding loans (that they took to take advantage of the growing economy) that they could never pay back in deflated currency. Waves of foreclosures and bank failures would follow. This was understood even circa 1900, hence the Cross of Gold speech and the push for coining more, higher denominated silver coins.

      So economic theory predicts deflation and depression as an outcome of rapid growth in a hard money economy. Contemporary observers acknowledged that this was the case. Empirical evidence supports the same conclusion. I’m always trying to learn new things, so please point me to the paper or textbook that supports your theory because everything I know says Zman is right in this case.

      • So how is deflation bad? I’ll never understand why if I pay less for something over time that is a bad thing. The 19th century was a 100 years of progress for the average man partially thanks to the money system imperfect though it may have been in some ways.

        • Deflation is bad for people who are debtors and for short terms speculative consumption.

          Debtors end up owing more and consumers put off larger purchases while waiting for lower prices.

          The things is though, the former is best dealt with by discouraging lending as immoral and the later by realizing that serious deflation is really a non problem as it doesn’t happen enough to worry about

          Now as to the root of the real problem, its actually a variation of the classic Marxist Crisis theory regrading surplus production, In order to keep the economy moving we must produce but efficiency means we produce more than we can consume.

          During the Post WW2 era the US basically had a trade and production monopoly and could export all its surplus. This lead to high growth

          In the 80’s Japan was in the same situation than Korea, than China and so on

          Now Global companies are shopping for cheaper labor everywhere and that arbitrage is making it harder for anyone in the developed world go get by

          Arbitrage automation and female entry into the work force has reduced US wages as percentage GDP by half which is drastically reduced fertility

          The only way to deal with this is to break the efficiency trap . The 60’s notion was a much lower work week, 20 hours or less and probably mandated inefficiency but the wealthy won’t allow it or cooperate

          Optionally the State can get even bigger (current US at all levels its about 40% GDP according to Cato) and break the unemployment cycle with make work and handouts

          Either for these will work after a fashion if immigration is heavily limited and we go economic nationalist

          While they are better than the parasites and globalist lenders own the economy , they are both especially the later sub-optimal,

          Long term either the population shrinks or immigration is used and society becomes unstable and populated by 3rd world people or there is a war and collapse. I’m not a gambling man but I’d bet on the latter,.

  28. Scott Adams has been flogging the idea of the “confusopoly” for awhile now, that many things (like the credit industry, derivatives, and of course healthcare) aren’t necessarily complex by design, but to ward off not only laymen, but any kind of oversight by someone who might realize the level of theft involved. Maybe it’s true.

    The thing that really puts me off of Keynes is Paul Krugman, and his sort of smarmy, snarky personality combined with his own sort of messianic self-regard. His blog (and his book) are called “The Conscience of a Liberal.” He’s celebrating himself for his virtuousness before he even gets to the acknowledgements page in his book, for God’s sake.

    I guess the alt-right types like Vox Day also have their own solution to our problems; maybe a mixed economy based on trading bitcoin for fedoras, Heinlein paperback, and vapor pens.

  29. Lending represents a placeholder. The 10 sceat was indeed created, however due to speculation of a crop coming in. Think of it as a bet, a bookie mark (sorry if I used wrong bookie terms, I don’t bet like that).
    Now the 10 sceat credit will create a need to find hard money and some prospected wil fill it and credit wil be destroyed as hard money or other assets come in to replace it. That in turn allows more money to be borrowed and growth happens.
    If the harvest didn’t come in then the Shylock is forced to grab some of the farmers assets and likely take a loss himself. So money will be destroyed and then a signal will go to a speculator that less gold is needed and less mining will occur…. Call it a business downturn.
    Credit and hard money are both very good inventions and help,the market. There is really no difference between now and then for such matters.
    However now that there is large control on money and credit creation the bulk of the profits are grifted by market makers, big traders and companies with SDRs; people and entities close to the creation and fractionation of money… We have a very monopolized money and banking system in bed with government. That’s the Keynesian problem and doom of an economy, central control.

  30. “This was and is the inherent problem of hard money. When the amount of currency is fixed, the economy can only grow at the expense of someone else. The boom town that is producing pottery is getting rich at the expense of some other town. The money in the latter is moving to the former. At some point, the flow of money into the boom town runs dry and that town goes bust, its money then flowing out to some other boom town, maybe even the bust towns that it had exploited in the boom times.”

    I’d argue this isn’t strictly true, because currency is itself a good, and its relative value is adjusted based on its supply and demand just as any other good. So if we say a town has, sum total, 200 sceats of available currency, and let’s suppose a bale of hay is going for 1 sceat at the start. If the town spends or hoards or loses 100 sceats, and supposing it’s not spent on things that would effect the value of the hay (IE by buying hay or a substitute good from another town), what happens to the price of hay? It goes down. Maybe not by exactly half, because it isn’t as if the average villager knows how much currency is exactly available, and maybe not immediately, because these things take time, but the end result will be that the value of the currency will inflate, and prices for hay (and everything else) will deflate.

    I do think there are practical concerns that come into play that prevent hard currencies from being desirable (IE, that you can’t really divide past the lowest denomination of the currency, and that price stability is generally desirable). But I think it’s important we understand that trade in a hard currency system is not zero sum. Wealth creation is not dependent upon further mining and minting efforts.

  31. I think you are right that it is very likely that we are headed for a “cataclysmic denouement to the credit money system.”

    Our money enters the economy thru banks, who create the money in the form loans, which, by double-entry bookkeeping, are simultaneously logged as an asset of the bank (loan) and a liability of the bank (deposit).

    The textbook explanation of banking – that banks wait for deposits and then lend out 90% of their deposit base – is simply false. It is the reverse: banks create deposits, and find reserves later. Most people are shocked to learn that banks create deposit-money (by issuing credit) and are typically skeptical upon hearing it. Fortunately, the Bank of England has helpfully published a paper that explains the whole system:

    Since our money originates as debt, the debt burden, increasing with interest accrual, will always outstrip the money supply available to re-pay it. A bust phase with mass defaults and insolvencies is inevitable.

    Historically, the use of compound interest as a way of calculating financial liability has been disastrous for not only borrowers, but, at times in history, for entire civilizations that have faced economic collapse due to the build-up of unsustainable debt burdens due to the “magic of compound interest.” Based on personal experience from a few years in banking, most consumers have no idea how compound interest works.

    The challenge is to reform the system so that money is not created as debt. The UK group that goes by the name “Positive Money” has published their solution, which I think deserves consideration:

    I think you are also right that the change of the system will coincide with war. Historically, great monetary changes have only occurred after systemic economic collapses, or large global conflicts.

    • Impossible, since money is debt.
      Money is credit (is debt).
      This is neither a good nor a bad thing, it just is.

  32. One quibble. There were no sceats created “out of thin air”, they were paid by those who bought the crop – they would have paid 210 sceats for the harvest. Originally 200 sceats paid for the initial seed, wages, etc. so 10 sceats moved across some line. They didn’t appear out of thin air but came from elsewhere.
    Consider if I “borrow” 50 litres of olive oil to prune my olive tree orchard, and it produces 60 litres. 10 from “thin air”?
    Also silver is being mined and turned into more sceats, which changes the silver and money supply. More than 10 sceats are likely to be minted. The number minted DID CHANGE, and probably at a nonuniform rate. Even if there was a fixed supply of minted sceats, other coins or measured amounts of gold and silver would be mined and added to the money supply. But money is a store and measure.
    Normally if the suppy of money is fixed, there will be an equilibrium and DEFLATION – a single coin will buy more because there is more to buy – quantity – v.s. the money supply.

    • That was my point. The “new money” comes from somewhere. It is the problem of hard money. You end up with a shrinking supply of money when you need a growing supply and vice versa. It’s simply not a store of value that works when the pace of human innovation is expanding beyond the glacial.

      That said, credit money comes with defects that no one seems to have considered and therefore no one knows how to address. The ease with which central governments can reach their natural debt ceiling is one example. The asset bubbles appears to be another. Think about how much depends on the equity markets never having an extended bear market. Pension funds are the most obvious example.

      • In a hard-money system, the shylock’s money represents product in the marketplace. He loans the money and retains an IOU. The farmer produced. More product went to market. As more product shows up in the market, Total available product/money causes the purchasing value of each unit of money to RISE. They buyers of that product exchange money for it, and from that money the shylock is repaid with interest, retiring the IOU. The way this works is that as the quantity of the product rises, each unit of money buys more of it (AKA the price/unit goes down, AKA mild monetary deflation.) No new money is created. Only additional product in the marketplace. This is how a hard-money system behaves like a substitute barter system (only lacking barter’s matching problem.) The quantity of money doesn’t matter one bit. Only its market value vis-a-vis products. This is the fundamental mistake of Modern Monetary Theory.

        • But the combination of fixed liabilities (loans), time, and monetary deflation has important distributional consequences. The problem with deflation is that it wreaks havoc on debtors. Caught between a fixed liability and a declining price level, debtors are unable to service their debt.

          To use a historical example – Congress de-monetized silver in 1873, at the behest of the bondholder class. The next 25 years of the gold standard were a period of deflation. Each season, Midwestern farmers would take out a loan to fund their farming equipment, supplies, and livestock (and pledging those items, and the future crops, as collateral). But due to deflation, by harvest season, the price level had declined, and thus the proceeds from their crops were not enough to pay back the principal and interest of the loan. For awhile, their creditors would simply roll over or extend their loans. But eventually, the creditors foreclosed on the collateral. The combination of fixing a liability in time, then experiencing price deflation, meant that the debt was un-serviceable. The creditors understood this dynamic, the debtors did not. The resultant dispossession of the farmers from their land, as creditors foreclosed, led to the populist movement of the 1880s, which really got off the ground in the 1890s with the Greenback Party, but ended up being steered into the “free coinage of silver” movement, which itself failed with the defeat of William Jennings Bryan in the 1896 Presidential Election.

          Now one common rejoinder to the above is: too bad for the farmers, but they should have better understood the dynamics of price deflation, and managed their liabilities accordingly. But most people don’t understand the intricacies of the money supply, nor should they be expected to. The only effective way for a borrower to solve this problem is to include a deflation index provision in their loan contract, i.e. the loan balance decreases along with the decrease in the price index for whatever commodities are being dealt in. But almost no borrowers will be sophisticated enough to negotiate this in.

          • I don’t like historical examples for the obvious reason that people using them assume away variables they have no record of. Physics levels of causality fail in every single examination of marketplace events (my favorite example is “proof” that raising the minimum wage doesn’t hurt employment by examining a period where other factors are offsetting rising wage pressures.)

            People think the American Revolution was caused by colonists’ rage at hardships and impositions from the King, yet American colonists’ living standards were higher than their cousins in the UK and the Crown repealed every objectionable law before 1776. What “caused” the AR then? (Answer is “social mood” but that’s a book-length discussion.)

            If a hard money system existed, there would be no open-ended long term debt contracts and interest rates (the time-value of money) would likely be extremely low. But these are not the only considerations for how such things are “set” in the market. Animal Spirits (social mood) governs (unless you think the FOMC is solely responsible for setting the time value of money for the WORLD’s economy, which I think is not credible.)

            History is a tapestry of booms and busts, and of one fad after another. All I know is that granting a monopoly over creating monetary demand SANS market-determined production is simply a way to institutionalize parasitism.

            Only a fool thinks that five people playing Monopoly(tm) who all agree to let the player acting as banker create additional $500 bills by writing 500 on strips of legal pad and using them in the game itself are not simply choosing, ahead of time, who will win the game.

          • Only disagreement: King George made war on the slave trade, so the slave trade made war on him.

            (Most slaves in Canada were owned by First Nations, allowed by treaty til 1831.)

          • “were not enough to pay back the principal and interest of the loan. For awhile, their creditors would simply roll over or extend their loans. But eventually, the creditors foreclosed on the collateral. ”

            What do you think will happen when this 35 year trend of rolling over debts slams into rising rates?

            What’s coming is a vast accounting-resolution of whose claim on underlying real capital survives to the bottom line. In the end, a lot of debts really rest on collateral, and when all the unpayable promises are crossed out, SOMEONE will end up with the collateral.

            It’s a nice club, but you and I AIN’T IN IT.

          • I strongly suspect that all human history (past, present and future) is a tapestry of the slave plantation, where almost everyone is a slave, just some have better conditions than others. Philosophical thought for my day: Since we get such a short time in this life, I keep reminding myself that my Path will be traveled in happiness if I’m happy with what I’ve got, while an oligarch whose appetite can never be sated will pass his Path in misery.

            I just hope I don’t end up living under a bridge, or that my sons are forced to move their families back in with me. (Love them dearly, but to live with them? Yikes!)

      • Please engage my links below to see how money is truly credit. Gold standards do and will fail. The solution, as identified by Jacques Rueff in the 1930’s: (“The situation I am going to analyze was neither brought about nor specifically wanted by the United States. It was the outcome of an unbelievable collective mistake which, when people become aware of it, will be viewed by history as an object of astonishment and scandal.”) is to separate monetary functions. Its the reason the Euro was developed (starting in 1962).
        And, regarding the Euro, no one in the mainstream notices or mentions this but it is the FIRST currency EVER in man’s history to break the link between gold and the state. This was for a purpose.
        Gold’s eventual role will be as a SOV only, no more credit gld aka XAU, etc etc. FIAT is fine because it expands and contracts as needed by humans. Gold, off to the side in it’s own “savers” circuit will be the global focal point for saving(s) and will price currencies the world over. No more triffin dilemma, no more exhorbitant privledge, no more reserve currency.
        These ideas, are generally known as the gold trail, freegold. It is simple, deep, and confusing all at once.

        • err..Jaques might not have said that till his book on the late 60’s early 70’s called The monetary Sin of the West (the sin is what I’m talking about- giving the US the exorbitant privilege via the genoa conference in 1922)

          • Last comment re: this stufff:

            So the reason this system has gone on for almost 40 years is that the rest of the world has supported us and our global monetary system. They supported it/us by buying our debt when private money abandoned us. In other words, any time since 1975 when the dollar would go down, foreign public (read central banks) provided a floor until private interest picked up and came back to support the dollar. Europe started this in the 70’s because there was no alternative to the dollar and they needed more time for the Euro to come online. They ended their support around 2000 but then China woke and effectively took over supporting the system($) since then. We believe that foreign public money is done supporting the system (our unending debt flow, which I might add, is STRUCTURAL to the US government.) and so we simply wait for the next big crash to see if when private money abandons a declining dollar, will foreign public support return? We say no way (for many many reasons )and so then the system will die and freegold happens.
            It’s only when, not if.

            And again, pay attention to the Euro, what asset is on line 1? why Physical gold of course! You will find that no where else on this planet and it was done for a reason, the reason being the eventual end of this reserve currency mistake.

          • The world took our IOU’s (and our manufacturing industries & jobs) and shipped us stuff they made, to line Wal-Mart’s shelves and disguise the greatest credit bubble in history by keeping CPI-class prices static (even as quality collapsed.)

            Ours is a social mood mania for the ages. The Western world went FULL WOODSTOCK, peace and free love for all, let’s tear off our clothes and run around like lunatics with idiotic smiles on our faces. We EXPORTED this mania to the world during a 35 year bull market for IOU’s (which is synonymous with a bull market for trust, that turned into a mania for trust.)

            All the monetary, market and public policy events of the last 35 years (including the formation of the European Union) were nothing but symptoms of this MANIC trust. They will ALL be dismantled as that trend eventually has its Poseidon Adventure period.

        • Please understand that any monetary system that breaks the link between access to money and prior production will spin out of control sooner or later.

          Expanding or contracting the money supply is only semantically different from expanding or contracting the purchasing power of money, but it sure sounds great to Chicago School monetarists. In reality, this is just another case of central planning, only this time it’s in the fulcrum of economic exchange so the problems of central planning are vastly magnified. There is no way to know what the proper amount of increase or decrease should be, because the entire premise rests on the fantasy Hayek called the “pretense of knowledge.”

          I truly tire of people who think they can square the circle of “who knows enough to plan?” Mises irrefutably destroyed the possibility of a socialist “economy” in the absence of market prices, doing so almost 100 years ago, yet we still see endless attempts to suggest that something as pervasively important as the purchasing power of money across a billion heterogeneous goods/services can be DECIDED by a committee.

          You can’t break the bond between PRODUCT (prior production sold in the market at a price above combined costs) and money. You CAN, however, institutionalize counterfeiting, granting it as a monopoly to one social entity or another.

          • I said nothing regarding any access to money. Not sure what you are going on about here.

            The euro severed the link between the printer and Gold.
            This is a first in human history and most people, as evidenced by your post, simply don’t stop and think about that.
            Every other system has/had an attachment to gold and the state controlled the printer. Not so with the Euro, and that will come in handy in the future.

          • Nixon’s Treasury head, John (?)Connelly.
            Actually, LBJ broke the link, taking silver out of dimes, and with a currency act.

          • Good point about the euro, btw.
            Created the same year Glass-Steagall was wiped out, and commodities were, ahem, ‘modernized’.

      • ZMan, I strongly encourage you to look into the work of Antal Fekete. He is one of the few contemporary economists who has made Real Bills Doctrine his area of expertise. Real Bills are how commodities are financed to market, without affecting the supply of hard currency. Effectively, Real Bills leverage hard currency in a way that does not distort currency or credit markets. Real Bills were also used to finance international trade, at least until 1914, when the real bills clearinghouses were essentially wiped out thanks to World War 1. What replaced them was the central banking system– and without Real Bills to help properly manage the hard currency system, central banks were required to adopt an increasingly “elastic” currency, a slippery slope leading of course to where we are now.

        What Real Bills couldn’t do was finance capital equipment or corporations, so as the 19th century wore on, they became an increasingly smaller part of the picture. Also, there was tremendous confusion and dislocations in the global currency markets in the second half of the 19th century, as Europe eliminated silver from their currency systems at the same time that a gigantic ocean of silver was flowing out of Nevada silver mines. Presumably, with the hard currencies in turmoil, Real Bills became somewhat less effective at the job they were designed to do, further eroding their utility, although by no fault of their own. But the baby got thrown out with the bathwater in 1914 (or the bathwater got thrown out with the baby, depending on one’s conspiracy-mindedness).

        Again, strongly encourage you to look up Antal Fekete’s work. It is criminally underappreciated.

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