Investment Rarities Incorporated
History |  Q & A  |  Endorsements  |  Portfolios  | Flatware | Gold Coins  |  Silver Coins  |  Contact |  Home

Products

Jim Cook

 

RUNAWAY SOCIAL SYMPATHY

Every once in a while I switch the TV channel from Fox to CNBC to see what the liberals are saying.  After listening awhile I get a deep sense of hopelessness and foreboding for our country.  The most important thing for the left is giving money to people.  They are happy to see the growth of food stamps, disability payments, housing subsidies, free healthcare and all the other welfare benefits.  They utterly fail to see the damage it is doing to the recipients.  Whole cities that once flourished have deteriorated into rotting eyesores populated with shambling hulks of chemically dependent drones.  These people are no longer employable.  They have become incompetent and helpless and the liberals can’t see that it’s their doing.

..Read More »

The Best of Jim Cook Archive

 
Best of Bill Buckler
March 10, 2010
archive print

“The long-run consequences of some economic policies may become evident in a few months. Others may not become evident for years. Still others may not become evident for decades. But in every case, these long-run consequences are contained in the policy as surely as the hen was in the egg.”

Henry Hazlitt - Economics In One Lesson - Copyright 1946

Long before the advent of the US Federal Reserve in 1913, the argument was being made that the way to overcome the natural fact that most economic goods do not grow on trees is to create more money. By the mid 1930s, Keynes had given economic respectability to the policies which governments all over the world had been using to “fight” the great depression of the 1930s by sanctioning the “theory” that scarcity could be overcome with the issuance of more credit (or debt). By the mid 1930s, the US Dollar was no longer redeemable domestically because Americans were legally forbidden to own Gold.

For Americans, the US Dollar has been a fiat money since the end of 1933. The “long-run consequences” began to show up after 1960, the last time that the US government ran a genuine annual budget surplus. They showed up in starker relief in March 1985 when the US became a net international DEBTOR nation for the first time since the days before the Fed was established and the US was still a “developing nation”. They showed up terminally a decade ago at the start of what is now known as the “lost decade”.

Each of these consequences was a debt crisis. Each one was overcome by creating more debt. Each “segment” of the economy participated. In the 1970s, the government led and was followed by an explosion of consumer debt with the advent of the “credit card”. In the 1980s, the government sector went berserk as annual deficits exploded. In the 1990s, it was the “private” sector which was doing most of the borrowing. And at the culmination of the whole sorry episode between 2000 and the start of the GFC in mid-2007, all sectors were again borrowing. In a way, the 2000s were a replay of the 1970s but the level of borrowing was VASTLY higher. Bill Gross asked the question - “can you get out of a debt crisis by piling on another layer of debt”. Throughout this period, the answer was a resounding YES!

Today - The Egg Is Finally Hatching:

In every age and location where history is recorded (and even where it is not recorded because of the lack of the written word), human beings always discovered two fundamental means of living together in harmony. They always evolved a language, even if it is only a spoken and not a written language. And they always evolved a medium of exchange or a money, even if it was never “formalized” as such. To exist at all in a political context, human beings must have a method of exchanging both ideas and the fruits of their ideas which take the form of economic goods.

Sadly, both these indispensable attributes of any even semi-civilized society can and have been used to destroy the foundation of the edifice that they support. In the case of language, valid definitions are the bodyguard of knowledge on any level. In the case of money, voluntary acceptance of what is being used as the medium of exchange is the bodyguard of trade on any level.

To “define” money as - “legal tender for all debts, public and private” - is to destroy its utility as a medium of exchange. The process of destruction has often taken decades, indeed it has sometimes taken centuries, but, to once again quote Mr. Hazlitt: “these long-run consequences are contained in the policy as surely as the hen was in the egg”.

When something can be created without limit by being borrowed into existence at the whim of the issuer, it is not a medium of EXCHANGE. When all economic transactions must be completed using a piece of paper (or plastic) given monopoly legal tender status by the issuer, it is not a medium of EXCHANGE.  When, to quote the issuer, this legal tender “receives no backing by anything” or “in another sense, ...is backed by all the goods and services in the economy”, it is not a medium of EXCHANGE.

All of these fatal flaws are inherent in the modern concept or “definition” of money. They have imposed an ever increasing drag on economic exchange ever since they were codified by governments a lifetime ago. Yes, it has taken decades for the egg to finally “hatch”, but the hen is surely emerging today. The surest evidence of that is the onset of the “sovereign debt crisis” which has burst into the open this year.

An Idea Whose Time Is UP:

On the face of it, Bill Gross’ question about getting out of a debt crisis by piling on another layer of debt is in itself yet another example of the idea that anything can be used as “money” as long as the government has breathed on it and given it life.
The idea that a government can go broke has been scoffed at for many decades. How is it possible for a government to go broke when they can create the means of payment themselves? By this reasoning, all the US Treasury has to do is to take a piece of paper and affix the magic “$US 12,519,423,725,485.39 (the Treasury’s funded debt as of March 3). Presto, the debt is “repaid” in full.

This is preposterous. It is as preposterous as the US government giving its Treasury permission to borrow more every time an arbitrarily arrived at figure is reached in the amount they have already borrowed. It is as preposterous as the fact that for 50 years, not one “penny” of the amount the government has borrowed has ever been repaid. But as preposterous as all that undoubtedly is, the most preposterous notion of all is the idea that a promise to pay can function as a medium of exchange. It cannot. It can certainly function as a conduit through which the REAL WEALTH of the citizenry is funneled into the hands of those who would rule them. It can also function as a means of indenturing unborn generations to pay for the excesses of those now living. But it cannot serve the vital purpose of a MONEY.

The idea that it can is an idea whose time is (almost) UP. Governments cannot formally go bankrupt, but the ideas upon which they have built their financial systems CAN. Watching the GFC and governments’ reaction to it is, in fact, watching the process of an IDEA, not a government, going broke.

 


Ó 2009 – The Privateer

http://www.the-privateer.com

capt@the-privateer.com

(reproduced with permission)

SUBSCRIPTIONS:

Delivery via email

Trial: 5 issues (once only)

Six-Month: 12 issues

Annual: 25 issues

Two-Year: 50 issues

Subscribe at www.the-privateer.com/sub.html