Ignoring the Effects of 40 Years of Money Printing

Here’s some great news for all of our pot-smoking Markets and Money readers! A recently-concluded study by researchers at the University of Alabama at Birmingham determined that one marijuana joint per week for 49 years does no harm to lungs!

But even though five decades of pot-smoking causes no meaningful lung damage; it can cause plenty of damage to one’s potato chip budget. What’s more, a large percentage of the folks participating in this study could no longer recall what a lung was. “It’s that marijuana-inhaling thing, right?” one participant responded when pressed to describe a lung’s purpose.


The important take-away here is that 50 years of cannabis inhalation is not necessarily healthy, just because a five-decade pothead is still able to draw smoke through a bong. For the sake of metaphor, we’ll call 50 years of pot-smoking a “bad habit.” Like most long-term bad habits, the consequences unfold unevenly and sporadically. And often the consequences unfold so slowly that you barely notice them at all.

The US Treasury has been printing paper dollars, backed by nothing but paper and ink, for more than 40 years. That’s a bad habit. And yet, the greenback is still with us and it is still the reserve currency. So it looks like this particular bad habit has produced no harm. And that is absolutely true, provided you don’t mind paying $4.33 for the same Big Mac that cost 50 cents in 1971.

That’s right, the price of a Big Mac has soared 866% since the year President Nixon severed the dollar’s convertibility into gold. Your California editor ate a Big Mac yesterday and it was very good, but not 866% better than the Big Mac he used to eat after his Little League games in 1971.

“We live in a technological golden age,” asserts Jim Grant, editor of Grant’s Interest Rate Observer, “but in a monetary and fiscal Dark Age…Science and technology may hurtle forward, but money and banking race backward.”

The proof of Grant’s assertion: A 1971-vintage dollar has lost an astonishing 88.5% of its value. That’s a bad habit. Revoking Constitutional rights is also a bad habit. So is fanning class warfare. So is militarizing local police departments. So is expanding the role of government in the private sector. So is manipulating interest rates in the name of “monetary policy.”

Incredibly, all of these bad habits are unfolding at the same time. Right now. Right before our eyes. And yet, our national “lung function” feels entirely normal. So does our eyesight and our hearing and every other vital sign. We feel completely healthy…even as we are becoming terminally ill.

But these bad habits – these incremental changes for the worse – produce their bad consequences so slowly that almost no one will notice them…until it is too late to prevent them. No one knows, of course, the exact date that “too late” might arrive. But according to the research of Peter Turchin, the US is drawing near to an ominous timeframe.

Specifically, Turchin says the United States is approaching a period of violent upheaval. He bases his prediction on a field of study called, “cliodynamics,” which identifies significant behavioural patterns in a nation’s history. US behaviour, according to Turchin, operates on a 50-year pattern.

Turchin did not pull the 50-year number out of the air. He compiled copious historical data about major violent incidents in US history between 1780 and 2010 and concluded that a cycle of violence repeats itself every 50 years in America.

“Circa 1870, the North fought the South in the Civil War,” livescience.com explains. “Half a century later, around 1920, worker unrest, racial tensions and anti-Communist sentiment caused another nationwide upsurge of violence. Then, 50 years later, the Vietnam War and Civil Rights Movement triggered a third peak in violent political, social and racial conflict.

“Why 50-year cycles?” livescience.com asks. “After a period of sustained violence, [Turchin explains], citizens begin to ‘yearn for the return of stability and an end to fighting.’…The prevailing social mood swings toward stifling the violence at all costs, and those who directly experienced the civil violence maintain the peace for about a human generation – 20 or 30 years. But the stability doesn’t last. Eventually, ‘the conflict-scarred generation dies off or retires, and a new cohort arises.’…As a result, periods of intense conflict tend to recur with a period of roughly two generations (40-60 years).”

“My model suggests,” says Turchin, “that the next [peak in violence] will be worse than the one in 1970 because demographic variables such as wages, standards of living and a number of measures of intra-elite confrontation are all much worse this time…After the last eight years or so, notice how the discourse in our political class has become fragmented. It’s really unprecedented for the last 100 years. So basically by all measures, there are social pressures for instability that are much worse than 50 years ago.”

But there’s a silver lining to all this: After the next worse-then- ever peak in civil upheaval, we are supposed to get a 50-year break until the next one. For some folks, that’ll mean 50 years of hassle-free pot-smoking.


Eric Fry
for Markets and Money

From the Archives…

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03-08-2012 – Nick Hubble

China’s Economy – How the Devil is in the Detail
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The Greatest Interest Rate Fix featuring… Mario Draghi and Friends
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What the Credit Boom Left Behind
31-07-2012 – Greg Canavan

The Australian Economy: A Case Study in Weirdness
30-07-2012 – Greg Canavan

Eric J. Fry
Eric J. Fry has been a specialist in international equities since the early 1980s. He was a professional portfolio manager for more than 10 years, specializing in international investment strategies and short- selling. Mr. Fry launched the sometimes-abrasive, mostly entertaining and always insightful Rude Awakening.
Eric J. Fry

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“The US Treasury has been printing paper dollars, backed by nothing
but paper and ink, for more than 40 years. ” quote from your article above ‘ ignoring the effects 40 years of money printing’.

Comment : on the other hand isn’t the worlds largest military etc etc a TYPE of economic asset? Think about it! This worlds protector type of role must account for something in the economic equation it always did in the past ie “gunboat diplomacy”. Forcing Japan to trade in the 1800s was it? etc etc. Countless bankable examples.

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