Celebrating 45 Years of Phony Money

Celebrating 45 Years of Phony Money

After our trip to Las Vegas, we spent one night in Baltimore and then got on another airplane.

Standing in line, unpacking bags, getting zapped by X-ray machines — it has all become so routine we almost forget how absurd it is.

While armies of TSA agents pat down grandmothers and Girl Scouts, ex-soldiers take aim at the police…nutcases run down tourists with delivery trucks…and a fellow with a grudge against gays nearly wipes out an entire nightclub.

$300 trillion in debt

We feel so lucky. It is not every generation that gets to witness so many grotesque things at once.

Stocks are at an all-time high. Bond yields are at an all-time low. And never have so many people owed so much, to so few.

Dear readers may accuse us of ‘belabouring the subject.’ Or of ‘beating a dead horse.’ But in today’s Diary, we’re going to lay on the whip again.

This horse isn’t dead at all. He’s got the bit in his teeth…and is running wild…

Stick with us here…

According to our friend Richard Duncan’s latest estimate, world debt has climbed to $300 trillion. That’s up from roughly $200 trillion before the 2008 financial crisis. In the world’s five major economies, it has doubled since 2002.

Now, the whole shebang depends on debt.

All of this debt is calibrated in ‘money,’ which is the most extraordinary thing of all.

The key to understanding today’s economy is to realise that money isn’t wealth, and today’s dollar isn’t even money.

Real limits

Normally, money is just a way of keeping track of wealth. It’s like a clock. A clock isn’t the same as time; it just measures it.

The Parasitocracy — led by central banks — pretends that adding more money to the system will make people richer. That’s why they have lowered interest rates to zero and below: to make it easy for people to borrow money.

But adding money is a scam. It’s like slowing down the clock to make the day seem longer.

There are real limits…real laws…that cannot be modified,’ said economist and author George Gilder in Las Vegas over the weekend. ‘The most important is time.

At least, the old, pre-1971 dollar was real money; it was anchored in the reality of time.

It takes time to build real wealth. You have to work. Save. Invest. And most important, learn. And it takes time to dig gold out of the ground, too.

And gold — like digital currency bitcoin — becomes harder and harder to get as time goes on.

The easy surface deposits are mined first. Then, if you want more gold, you have to go farther and farther…deeper and deeper…at ever greater expense in resources and time.

The only real wealth is knowledge, says Gilder. And the only real growth is learning.

Anything else is a fraud.

Real money

In 1971, President Nixon — aided and abetted by economist Milton Friedman — cut the dollar off from its natural limits.

No longer tethered to gold, the gate was flung open…and the horse ran off.

Gold is part of the real world…limited by time,’ Gilder explained. Gold is real money.

But this new money was different. It was ‘unmetered,’ says Gilder. And it was very popular with the feds, the Deep State, and the world improvers.

Unlike the old money, the feds could control it…and decide who gets it. And they could use their cronies in the financial industry to distribute around the economy — as they wanted.

Before 1971, the feds had their hands tied — by real money. They couldn’t create gold. And they couldn’t print too many of their gold-backed dollars.

They had promised to redeem foreign central banks every $35 they created with an ounce of gold. They didn’t have an infinite amount of gold. So they had to be careful.

The system was self-correcting. If Americans spent too much money on foreign goods, too many dollars would travel abroad. This put our gold stock at risk if foreign governments decided they preferred US gold to US paper money.

Gold was the base of the world monetary system, so a reduction in the gold stock was also a reduction in the money supply.

Money responds to the law of supply and demand like everything else. As the money supply fell, the price of money (interest rates) rose. Higher interest rates then reduced spending…bringing the economy back in balance.

In the pre-1971 economy, it was Main Street — productive US industry — that produced wealth and accumulated real dollars. After 1971, it was Wall Street that controlled access to the new counterfeit money…and made sure it captured much of it.

The new system gave the feds the ‘flexibility’ they were looking for. But it completely changed the nature of our money…and our economy.

Instead of rewarding the people who produced wealth, the new economy gave its hugs and kisses to the people who mongered debt and shuffled financial claims.

More to come…

Regards,

Bill Bonner,
For Markets and Money, Australia

Bill Bonner

Bill Bonner

Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America's most respected authorities.

Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and MoneyDice Have No Memory: Big Bets & Bad Economics from Paris to the Pampas, the newest book from Bill Bonner, is the definitive compendium of Bill's daily reckonings from more than a decade: 1999-2010. 

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