On the several occasions that I’ve checked into a hotel in Vancouver the clerk giggled when I gave my name. That’s because Captain James Cook (1728-1777) discovered Vancouver Island (as well as Hawaii and New Zealand). A statue of Captain Cook exists in downtown Vancouver and most everybody in British Columbia knows of James Cook.
When you Google James Cook quotes, the captain’s picture appears along with a half dozen of his quotes about the sea. Also mistakenly credited to this seafarer are more than 100 quotes by me, a lesser known James Cook. As I reread my quotes, I thought that any visitor to this site would be surprised by these sayings and quickly brand the good captain as a reactionary, but eventually decide this could not be coming from the famous explorer.
One of my quotes from years ago struck a chord with me. “Money could never have originated as paper.” This thought isn’t original, it’s merely a derivative of the Austrian School economist Ludwig von Mises, who said gold and silver evolved as money first and paper could only be money following these precious metals. In America, this process went through stages. First we had gold and silver coinage. Then we had gold and silver backed certificates which were similar to warehouse receipts. You could redeem your $20 bill (gold certificate) for $20 of actual gold. Redemption ended with Roosevelt in 1932 and for the world during the Nixon years.
So we’ve had fiat paper money for close to one hundred years. It’s worked quite well. As a nation, we’ve prospered. The only worry about paper money is that there becomes too much of it. No brake exists on the creation of paper money. It enables the government to spend far more than they accrue through taxation. The beauty of the gold standard was that it prohibited runaway spending and unbridled money creation to pay the government’s bills.
Now we appear to have lost control of the growth in money and credit. A central bank can print money endlessly. Japan leads the world in this type of monetary excess. Their central bank owns 10%-20% of the stocks in their stock market and 75% of the exchange traded funds. They could conceivably print enough to control all the public companies in Japan. This monetary insanity has now spread throughout the world. It’s Keynesian economics gone wild. The U.S. is attempting to follow the Keynesian formula of withdrawing purchasing media during the boom. This has never been attempted before and if the Austrian School economists are right, stock and bond markets will crash and we will be back to printing money again.
The outcome of the world’s current monetary explosion (that cannot be terminated without a recession) is the destruction of paper money. That’s where the world is heading – towards runaway inflation. Thus, it is a time to own tangible assets. Ultimately everything of paper will be decimated. For a hundred years we printed our way out of every economic contraction. That option now appears to be fraught with danger. The fact that so few see any problem should fortify the contrarians. Hedging against this dire outcome seems imperative.