The US Dollar, America’s No.1 Export

Another day of piddly trading, with piddly losses for both stocks and gold. So let’s turn back to our thoughts.

First, we looked at money. We saw that the US now operates on a type of money better suited to the Paleolithic Age. A credit-backed money system has never worked in the modern world…and none has ever survived a full credit cycle. The credits expand until the debt is far too heavy. Then, when interest rates rise, the cost of carrying the debt goes up until the system falls apart.

Second, we considered the plight of the average person. In 1950 the typical working man was able to support a family. Today he can barely support himself because the costs of his main expenses have gone way up. He has to work about twice as long to pay for a new car and a new house.

Health care is worse. In 1950 the cost per person per year was about $100. According to the government’s numbers, prices today are about 10 times higher. So health care should cost about $1,000.

Not even close. It’s $9,000.

In 1950 the typical father earned about $60 a week. For a family of four, he had to work fewer than seven weeks to cover the year’s health care expenses.

Today how much does he earn? We’ve used the figure $30,000 a year. But it is more complicated than that. A man with a full-time job actually earns, on average, $47,000. But fewer men have full-time jobs. Many are self-employed.

Many are on disability or have simply dropped out of the labor pool. Simply taking the median hourly wage – $18 – and multiplying by the average number of hours worked – 33 – brings us to $30,000.

Yet a family of four consumes about $36,000 worth of health care spending alone. You do the math later! But now let us connect the dots. How did the feds’ funny money system affect the average family’s wealth?

We can begin by wondering what would have happened if the US had kept its pre-1971 money system. Then the amount of credit was limited. National accounts were settled in gold. Whatever the feds may tell you, when push comes to shove, it is gold we trust.

In 1971 France had accumulated more dollars than it wanted. Its clever chief economist, Jacques Rueff, urged the French to take their dollars forthwith to the US Treasury and demand gold. But after August 15, it was too late. The gold window had slammed shut. France had to keep its dollars and hope for the best.

Since US dollars were now the cornerstone of the international monetary system, they were in demand. The US dollar itself became America’s No. 1 export, with the highest margins of any export item ever produced.

Say’s Law, however, tells us that ‘products are paid for with products’ – you have to produce things in order to be able to buy things. That is normally true. But not when you’re printing up the world’s reserve currency. Then you have the exorbitant privilege of needing only to produce ‘money’.

The factories that would normally have fabricated the products needed to buy other products from other people in other places decamped to other places themselves.

Between 1978 and 2010, the Bureau of Labor Statistics tells us the that the US lost 78% of its workers in the garment industry, 69% of those in ‘primary metals’, 67% of those in the textile industry and 26% of those in ‘transportation equipment.’

To look at it another way, the accumulated trade deficit since 1971 is roughly $8 trillion. That’s how out of balance the products-for-products exchange has been.

The foreigners produce the products; Americans produce only money. Imagine that the labor component of the products is 50%. That means US workers have lost out on $4 trillion worth of income.

Share that out among the entire male workforce and each one would be $80,000 richer. More importantly, had it not been for the wholesale loss of American manufacturing, Americans would now have more jobs and higher wages.

Credit-based money is easy money. And easy money easily becomes more debt. Debt impoverishes. It doesn’t make people richer.

Then why do we have this credit-based money?

Because governments are essentially a way for the insiders (who control the police power of the state) to take power and money from the outsiders.

Bullion-based money is a natural limitation on the ability of the elite to rob the rest of the population. It’s relatively harder to fiddle with gold and silver coins than it is to mess with paper money or other forms of credit backed by paper money.

There is only so much gold and silver. Either you have it or you don’t. And when the French come to the Treasury, dollars in hand, you have to turn it over, or you are in default.

From the get-go, governments took control of the currency. Episodically, they used it as another way of diverting wealth from the outsiders to the insiders. You can see the results by looking again at what it did to a working man’s salary.

Food, fuel, automobile, heath care, housing – by our calculations the typical working man today would need about twice as much income as he now earns to be even with the 1950 standard.

Where did this extra income go? Some of it went to China and other competitors. Some went to the zombies. And some just vanished…

Into the thin air from which the feds’ new money cometh.

More to come…


Bill Bonner
for Markets and Money

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From the Archives…

Has the Chinese Economy Hit the Great Wall?
26-07-13 – Bill Bonner

Crisis, Capital Controls, and Accidents of Birth
25-07-13 – Doug Casey

Australia’s Mysterious Natural Gas Shortage
24-07-13 ­– Nick Hubble

Bernanke’s QE Train Wreck That’s Heading Our Way
23-07-13 – Vern Gowdie

The Misallocated Savings of the Chinese Banking System
22-07-13 – Dan Denning

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 Money.

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