Mish says it does, in Fiat
Money Produces Endless Sea of Wars, Debt, Social Inequality, Economic
Bubbles, Rampant Consumerism, Environmental Rape; Why Gold is the Answer.
(As for the other plagues he enumerates, and perhaps even for the endless sea
of wars, the real culprit is described in FOFOA's dilemma. More on this
Frisby also says it does, in the video that was the centerpiece of Mish's
Rockwell said so back in 2006 target="_blank" here:
But of all
the consequences of central banking and fiat money, war is the worst because
it exacts the biggest price from citizens and foreigners and everyone else
caught in the crossfire. That is why sound money — by which I mean the
gold standard — is a key to peace and freedom.
I really despise this kind of gold bug rhetoric because it damages the true
story of gold by destroying the credibility of the gold community in the eyes
of everyone else. This concept that fiat produces wars is almost axiomatic
within the gold community. It is used as a powerful argument for the return
to gold money. But what if this gold bug axiom is actually a
fallacy? What if it is simply wrong? How much effort has been wasted over the
years? How much credibility lost? Here is Randy Strauss (aka TownCrier) on
TownCrier (8/4/06; 13:14:41MT -
usagold.com msg#: 146358)
taking a HARDER look at fiat and war
Attractive as it would be to simply take Rockwell at his word regarding his
association between the making of fiat money and the making of war
(essentially saying that war could be abolished if fiat currency were
abolished), history begs us to identify that notion as a utopian falsehood.
Two handy examples from very close to home (in space and time) provide the
necessary instruction on this point.
1) We launched into the U.S. Civil War despite our being on a bi-metallic
(gold and silver) currency system.
2) We launched into World War I despite many of the participants being on a
Sure, paper greenbacks and confederate currency came along to prominence in
the Civil War, as did the abandonment of the gold standard and implementation
of fiat currency in WWI, but this development misses a most important point.
That point being, if the metallic monetary standard fails to prevent the
war in the first place, then all subsequent arguments about the nature of
money go out the window. Because once a nation deems itself engaged
in a struggle for its very survival, there is no power on Earth that can
compel such a nation to cling fast to its metallic currency standard if the
legislators deem that a fiat currency would be expedient to facilitate the
Here's the bottom line on it: In the very thick of it, the scale and scope of
a nation's participation in war is not limited by the extent of the metal or
paper fabric of a nation's currency, but rather by the extent of that
nation's real resources. Throughout the affair, the role of money (whether in
the form of gold currency or paper) is merely an accounting mechanism that
the nation uses in the economic mobilization of its resources and production.
And as it all shakes out, the wealth of a nation in PEACETIME is ALSO
determined in very much the same way -- upon the extent of its resources and
the efficiency of its production and mobilization of capital. And the role of
money is to help organize and lubricate the workings of the economy. To be
sure, any gold metal within a nation is counted among the nation's total
stock of resources, and very obviously, it need not (and ought not) any more
than any other physical resource be enmeshed (underutilized) in the physical
makeup of the nation's currency/banking system.
Given the structure of fractional reserve lending as the basis of our
monetary system, the cold hard truth is that use of metallic (gold) currency
propagates a nasty falsehood -- the coins are just a subset of the entire
money supply but it nevertheless causes ill-informed participants to wrongly
believe that the entire money supply is "as good as gold".
It is Another cold hard truth for some people to swallow, but in light of the
preceding paragraph, the use of a fiat (paper) currency system is a much more
honest means to represent the intangible "nothingness" -- the
appropriate embodiment of the network of accounting which is the actual basis
of a monetary system.
Clearly, the conclusion to be had from all of this is that a nation's
monetary/currency system does not represent the wealth of that nation. Money
is merely a utility to be used, to be borrowed and spent. Again, think of it
solely as a mobilizing lubricant within an economy -- it has value while in
use, but none otherwise. The wealth of a nation, and of its people, is not in
its artificial money, but rather in its various resources which can be
mobilized for both local and international deployment. It makes little sense
to "save" money, as money is an ethereal utility which can be
mismanaged and hyperinflated into dysfunction.
Because of this difficult truth, "Your wealth is not what your money say
it is," as Another used to say. Instead, your wealth, properly measured,
is the tangibles you've accumulated, the store of resources you've saved. And
among the world of tangibles, gold is globally the most liquid -- the most
universally recognized, honored, and accepted.
In time of war, governments may (and history has shown they often do)
recognize and declare that gold is too valuable to be wasted underutilized
(undervalued) in the representational coinage of national currency.
Therefore, fiat currency is adopted, and gold is instead mobilized in its
fully-valued form -- a tangible resource uniquely and reliably suitable for
any and all international settlements.
system, in an attempt to be HONEST, chooses mere digits and PAPER as its
representational currency. And consequently, in an effort to act WISELY, we
unabashedly use this currency for immediate transactions, whereas we SAVE for
our livelihoods by acquiring GOLD.
Now that's an interesting concept. Fiat is actually more honest
than a gold standard. Perhaps I could write a few words about it. Oh, wait.
That's right, I already did.
--> target="_blank" The
Return to Honest Money
There's a promising trend developing today. More and more of the West's
intelligentsia are speaking openly and positively about a 'gold'
reference/standard/focus. Here is James Grant, publisher of Grant's Interest
Rate Observer on Bloomberg TV last week:
From the video:
Okay, but do you really think anybody is going to adopt [a gold standard],
James Grant: Carol, in Brooklyn we have a saying: This is not a
threat, this is not a promise, it's gonna happen. […] We have a credit card, and a gold standard would be our debit
card! That's what we need.
Carol Massar: I love that idea, that you say we need a debit card.
I love it too! But how about if the gold becomes Mises' "secondary
medium of exchange"? Meaning it floats against, and must be exchanged
for, the primary medium of exchange (fiat) before it can be spent. Then the
US debit card will debit from America's WEALTH which will float in VALUE
until that time at which it must be spent to fill the hole left by the trade
In essence, we'd be accounting for our gold, our ASSET backing our debit card
in its VALUE rather than its VOLUME. Doesn't this make more sense than
foolishly trying to control (fix) the value just so we can use volume as our
accounting method? Talk about shooting ourselves in the foot.
Notice that I called the US gold an ASSET. That's what it is, ever since
Nixon severed its link to fiat, just like Treasury bills. Assets are
Mises' "secondary media of exchange".
target="_blank" Mises: One must not confuse
secondary media of exchange with money-substitutes. Money-substitutes are in
the settlement of payments given away and received like money. But the
secondary media of exchange must first be exchanged against money or money-substitutes
if one wants to use them—in a roundabout way—for paying or for
increasing cash holdings.
employed as secondary media of exchange have, because of this employment, a
broader market and a higher price. The outcome of this is that they yield
lower interest than claims of the same kind which are not fit to serve as
secondary media of exchange. Government bonds and treasury bills which can be
used as secondary media of exchange can be floated on conditions more
favorable to the debtor than loans not suitable for this purpose.
Even Bernanke agrees:
So if gold is an ASSET
and not money, as even Bernanke states, why are we the only ones still
accounting for it by VOLUME rather than VALUE? When gold was money, and it
was fixed in value to the dollar, it made sense to account for gold in
VOLUME, because the value never (rarely) changed. But after 1971, that link
was severed and gold began to float. Today, as Bernanke says, gold is an
asset. Should it not be accounted for by VALUE now rather than VOLUME?
Quite amusingly, the US Treasury "updated" its gold reserves on the
same day as the EC target="_blank"B's MTM party. Here
is target="_blank"the June 30, 2011
Update. And here is target="_blank"the March
31, 2011 Update as I captured it target="_blank"for Reference
Point: Gold - Update #2.
So each quarter, as the Eurosystem has its Mark to Market-valuation party,
the US Treasury has its Mark to Volume party. And actually, the Treasury
busybodies do it every month! But Treasury is only recording any tiny changes
in the VOLUME of the US gold, just like when it was money. The value hasn't
been changed in 40 freakin' years! And in fact, the volume hasn't changed
eith target="_blank"er! Here are
the monthly back reports going back 2.5 years. A special prize goes to anyone
who can spot a single change anywhere in these 30
monthly reports. Yet as crazy as this sounds (US gold still valued at
$42.2222/oz.), there is historical precedence for this antiquated system of
As I pointed out target="_blank" in Euro
Gold, target="_blank"the 1993
IMF guidelines for central bank MONETARY GOLD valuation states, "Monetary
gold transactions are valued at the market prices underlying the
transactions." (Section 444) In other words, mark them at the
initial purchase price. Yet the IMF does in fact distinguish between
"Monetary Gold" and "Gold held as a store of value"
believe it or not (see "Gold" in the index). And for "Gold
held as a store of value", as for all assets relevant to the Balance of
Payments (balancing trade imbalances), the IMF recommends continuous
revaluation to market prices:
of Stocks of Assets and Liabilities
107. In principle, all asset and liability stocks
country’s international investment position
measured at market prices. This concept
such stocks are continuously (regularly)
revalued—for example, by reference to actual market
financial assets such as shares and bonds or,
in the case
of direct investment, by reference to
202. Nonmonetary gold covers exports and imports of
all gold not
held as reserve assets (monetary gold) by
authorities. Nonmonetary gold is treated as any
commodity and, when feasible, is subdivided into
as a store of value and other (industrial) gold.
438. Monetary gold is gold owned by the authorities
others who are subject to the effective control of
authorities) and held as a reserve asset.10 Other gold
gold, possibly including commercial
for trading purposes by authorities who
monetary gold) owned by any entity is
this Manual as any other commodity. Transactions
gold occur only between monetary
and their counterparts in other economies or
monetary authorities and international
organizations. Like SDRs (see paragraph 440),
gold is a reserve asset for which there is no
So which is it? Is the US gold a monetary or a
non-monetary asset? Ben says it is not money. In fact, he was careful
to call it a FINANCIAL asset, which he also called US Treasuries. So if
that's his lexicon, I agree. But I do think that gold is probably the most
credible ASSET available today, primarily because it doesn't involve
an outstanding counterparty liability. In which case even the IMF appears to
recommend regular MTM revaluation.
You know, this happened once before. In 1997 the German Bundesbank was
valuing its gold under an even more conservative principle than the
US, called Niederstwertprinzip. The principle of Niederstwertprinzip means
you value your assets at the lower of two possible prices, the purchase price
or the market price, whichever is lower at revaluation time. In other words,
you record unrealized losses but never the gains. This is a highly prudent
and conservative method of valuing one's assets. They would value their
liabilities the opposite way, at the highest possible value. But in practice,
this was an overly conservative method of valuing an asset whose price had
appreciated over many decades.
And so, in line with modern best practices of accounting, the EMI (European
Monetary Institute), forerunner of the ECB, announced in April 1997 that the
Eurosystem would base its asset values on market valuation rather than the antiquated
German system of Niederstwertprinzip. What this meant for Germany was that it
had until launch day, January 1, 1999, to revalue its gold or else the
financial gain from revaluing its gold contribution to the ECB would be
formulaically distributed throughout the Eurosystem, rather than going
entirely to Germany.
In the run up to launch day, politicians all over Europe were struggling to
meet the Maastricht criteria of a budget deficit of no more than 3.0% of GDP,
and total public debt of no more than 60% of GDP, by the end of 1997. This
included Germany. And in 1997 Germany was also struggling with its highest
unemployment rate since the Great Depression, 12.2%. And so, without being
able to grow its GDP in 1997, this left only two options for getting the
budget deficit down from 4.0% in 1996 to 3.0% in 1997; either raising taxes
or cutting spending.
But that year, the political right successfully blocked all efforts to raise
taxes while the left blocked the proposed spending cuts. Is any of this sounding
familiar? It's what we call "between a rock and a hard place!"
So anyway, everyone wanting into the EMU had two targets to hit. 60% total
debt and 3.0% deficit. And in early 1997, after the Dutch and the Belgians
sold some gold to help hit their targets, it was ruled that the proceeds from
official gold SALES could not be used to offset budget deficits but could
be used to pay down the debt. This ruling left open an interesting technical
option for Germany.
Since Germany would only be revaluing its gold reserves and not
selling them, it could virtually erase the budget deficit it was facing in
1997 rather than running into an embarrassing breach of the Maastricht
criteria in the critical year. For the politicians, the formulation of this
revaluation plan was a godsend. And it was completely within their
constitutional power to implement. The only necessity was changing a law
governing the Bundesbank a little earlier than
necessary, yet a law that would have to be changed before launch day anyway.
You see, unlike in the US where the gold is owned by the government, not the
Fed, in Germany the gold is actually owned by its central bank.
But the Bundesbank (Germany's CB), with its legendary reputation for fierce
independence from politicians, did not want to be viewed publicly as having
assisted these politicians to resolve a fiscal challenge (their problem)
through a change in monetary policy (the Bundesbank's solemn responsibility).
So when, on May 14, 1997, this plan was leaked to the press, the problems
began. It was in the shadow of this uncomfortable leak that German Finance
Minister Theo Waigel offered the following plea:
reserves represent the success of the German national economy over the last
50 years. It is a savings which we have amassed from
abroad. It was indisputably proper that the Bundesbank valued gold and
foreign reserves with extreme caution over the last 50 years. … The new
valuation will proceed with all necessary caution. The financial
respectability of the Bundesbank will be guaranteed. Precautions against
currency risks and the volume of the gold reserves will remain untouched. Not
one ounce will be sold. It follows that not one ounce will finance the
budget… It is both proper and inexpensive to use this 'ancestral credit'
to wipe out our historic liabilities.
Unfortunately for the politicians, this public statement came across as pure
desperation. The government denied that it was panicking and claimed the gold
revaluation was simply one small part of a much
broader plan to fix the budget problem. But, in fact, the gold revaluation
would have made up for the entire budget shortfall all on its own! And having
this debate go public threatened to undermine the credibility of the new ECB
right out of the gate because the ECB's credibility rested on 50 years of
Bundesbank credibility as a currency manager and defender.
The Bundesbank Governing Council, flexing its legendary independence,
ultimately blocked the effort to use the necessary gold revaluation to bail
the politicians out of their fiscal crisis. On May 28, 1997, following its
Council meeting, the Bundesbank issued a press release agreeing to the
revaluation of the gold before launch day, but rejecting immediate
revaluation for the 1997 fiscal year, calling it "an infringement of the
The politicians fought back in the court of public opinion, but this conflict
between politicians in charge of fiscal operations and a central bank in
charge of only monetary operations hung a cloud of doubt over the timely
launch of the euro. This endangered the exchange rate stability the
politicians were counting on leading up to euro launch day. And this
connundrum left the political push for EMU in an awkward position.
You can read the whole st target="_blank"ory here,
but in the end, facing the damage that the public confrontation had done to
the international credibility of German finances and to the reputation of the
Bundesbank, the German Finance Minister (equivalent of the US Treasury
Secretary) and the President of the Bundesbank (equivalent of the Fed
Chairman) agreed to a compromise. The agreement was that the gold would be
revalued in 1997 but that the distribution of any gains would not take place
until 1998. The government would not be able to use the gains to offset
budget deficits during the crucial year. The politicians would still have to
fix the budget.
The agreement was reached in June of 1997 and the German gold was revalued.
The Bundesbank's working capital was automatically increased and a portion of
the proceeds went into a currency volatility fund (like Treasury's ESF) to
deal with any repercussions of the revaluation. The distribution to the
government's Fund for Redemption of Historic Liabilities would not take place
until 1998. That was the deal. And ironically, even without the help of these
funds, by the end of 1997 Germany met the Maastricht criteria with a deficit to GDP ratio of 2.9%.
Now I don't know if there are any lessons in this story that are particularly
relevant to President Obama and his current, very public (and credibility
damaging) budget confrontation. There are many obvious parallels as well as
some clear differences. And one of the most glaring differences is that the
US gold is not owned or controlled by the US central bank like the German
gold, but it is instead in the custody of the US Treasury, which is part of
the Executive Branch of which Obama is the chief executive.
Part of what led to this scheme to revalue Germany's gold at a key point in budget negotiations was that Germany's
Niederstwertprinzip valuation policy left its gold beneath the level that 11
out of its 13 EU partners valued theirs:
Click image to enlarge:
that the book value of Germany's gold in 1996 was only 27% of its market
value at that time. Only Sweden had a lower valuation at 15%. So where would
the US fit into this chart?
1996 the US was even lower than Sweden at 12%, but today our gold sits idly
by at 2.6% of its market value.
Now even though a few of you went to excellent elementary schools, I'm sure
that some of you have forgotten how the American budget process actually
works. I know for a fact that some really smart people think Congress makes
the budget. Here's a very brief refresher courtesy of Wikipedia:
United States federal budget is prepared by the Office of Management and
Budget (Executive Branch), and then submitted by the President to Congress
for consideration. Invariably, Congress makes many and substantial changes.
Nearly all American states are required to have balanced budgets, but the
federal government is allowed to run deficits. The Office of Management and
Budget (OMB) is a Cabinet-level office, and is the largest office within the
Executive Office of the President of the United States (EOP).
It should be fairly obvious since I'm quoting Wikipedia that I am no expert
in the US budgetary process, but even I can see that there are a few options
that have never been explored or considered. And these are options for
employing America's historical wealth, hidden in gold all these years, in
defense of the credibility of her modern finances and the reputation of her
currency. Instead of constantly trashing the currency and destroying
credibility, it seems to me that there may be a few options and opportunities
for Obama to step out and go down as one of the great statesmen in American
history (but don't hold your breath).
I have brought target="_blank" up similar
ideas in the past, so I'm not going to waste time repeating myself here.
Instead, I thought why not come up with a fresh idea that would really shake
things up? Why not figure out something that Obama could do right now, on
national TV, that would definitely make it into the history books, something
that would finally earn him that peace prize? So here's what I came up
with (with a big hat tip to Costata for his help):
First Obama makes a speech about credit cards versus debit cards with Jim
Grant operating the teleprompter.
Then Obama hands Congress a new one page budget that reads simply:
Projected income: X
Spend it anyway you want.
Then Obama announces that he has instructed Treasury to audit the gold and
then act as market maker to determine the US$ price required to balance the
USG balance sheet and thereafter to maintain a free market in gold. He goes
on to say that all taxes and any remaining restrictions on gold ownership
will be removed to ensure the efficiency of this important new balancing
Obama explains that through this process Congress will get a clean balance
sheet and the American people will have an independent benchmark on the value
of the US dollar every day. In effect, he will have hit the reset button and
given the USA a fresh start.
From here he returns to his opening remarks about debit cards versus credit
cards. He explains that for the last 40 years America has been maxing out one
credit card after another, building the most powerful nation the planet has
ever seen… on credit. But now that credit card will have competition
from the new US debit card. We'll let our debit card compete with our credit
card. If the world wants our gold more than our debt, they will pay the price
that balances our books.
And as they bid up the price of gold, the balance in our debit account will
grow, it won't shrink, because it is funded with a financial asset (as Ben
Bernanke called it), a secondary medium of exchange (as Mises called it) that
from here on out will be accounted for in VALUE not VOLUME. We still have
more gold than any other single nation in the world, he'll remind the
audience. And if they want it, they'll pay the price that balances our trade
with the outside world.
At some price the gold will reverse our international trade deficit, and then
our debt will become the better bargain. You can forget credit ratings. We'll
have competition between our debt and our equity, our credit card and our
debit card. Global trade will finally balance in physical goods and services
because the price and flow of physical gold will make it so. The simplest
answer ever. One for the history books.
Turning to Gold for the Answers
The more our mainstream intelligentsia turn to gold for answers, the more
they look to the gold community for direction. And what they find there is
all this nonsense about returning to one of the gold standards of yesteryear.
Is that really where we are headed?
Gary North didn't think so in 2003. In one of my favorite articles by h target="_blank"im, The Myth of the Gold
Standard, North calls "the ideal of the gold standard" "one of the
movement's least understood and most futile political causes." He goes on to explain
how proponents of the gold standard unwittingly "defend big
government in the name of limited government. And, just like almost
everything else in the conservative movement, it eventually backfires. It
backfires for the same reason the other conservative programs backfire
whenever inaugurated: it calls on the State to limit the State."
"The next time you hear someone waxing eloquent — and, in all
likelihood, incoherent — about the marvels of the gold standard, ask
him this: 'Why don't you trust the free market?' This question is intended to
elicit what I like to call a jude awakening.
"Be prepared for a blank stare, followed by 'Huh?'"
"A gold standard is a promise made by a self-licensed professional
counterfeiter that he will always stand ready to redeem his pieces of paper
and official digits in exchange for gold at a fixed ratio. As
the mid-1950's comedian George Gobel used to say, 'Suuuuuuure he will.'"
Do you see the difference here? It's the difference between what I'm talking
about and what Mish and others are talking about. Mish wants the government
to affix the price of gold (fix, control, read: government price control) to
its currency preventing gold from floating. They don't trust
the free market. They want government control. They are unwittingly asking
for big government. I on the other hand want the market to choose the price
of gold from day to day, the price that is necessary to resolve the global
trade imbalances and set us back on a sustainable course.
gold standard became universal in the nineteenth century. Because the public
had the right of redemption for a century, 1815 to 1914, the price level
remained relatively stable for a century. This right of gold redemption was
invariably suspended during major wars, but it was restored a few years after the war ended…
"The nineteenth century was the first stage of an international sting
operation. As in the case of every con game, the con man must create a sense
of trust on the part of his mark. Whether it is a Ponzi scheme or a more
traditional scam, if the targeted sucker distrusts the con artist, he won't
surrender his money. For the con game to work, the con man must create an
illusion of reliability. In short, he must present himself, economically
speaking, as if he were 'as good as gold.'
"The era of limited government led to enormous economic expansion. It
also led to the mass production of high-tech weapons. Governments had to get
their hands on these weapons in order to defeat other governments. There were
few Third World nations in 1885 that could afford fifteen minutes of ammo for
a Maxim machine gun. The big governments, in the words of nineteenth-century
New York City politician George Washington Plunkett, 'seen their
opportunities and took them.' The age of modern empires began in earnest.
"The bigger the world's economy got, the bigger the national governments
got. The bigger the national governments got, the more they jostled with each
other for supremacy. By 1914, they were ready for mass destruction on an
"World War I began with the suspension of gold payments by the
commercial banks. This was the violation of contract — a lie from the
beginning — that fractionally reserved banks would redeem bank notes
and accounts at any time for gold coins. As soon as the governments all
retroactively validated this violation of contract by commercial banks, they
used their central banks to extract the gold from the commercial banks. They
have yet to give it back…
"There are conservatives who still present this 2,700 year-old con job
of State-issued honest money as a philosophy of limited government. Whenever
I hear this assertion, I always hear the faint sound of a piano playing Scott
Joplin's "The Entertainer." My mind becomes clouded by an image of
Paul Newman and Robert Redford, arm in arm, walking away with my gold. Fade
So… does fiat produce an endless sea of wars? Perhaps it
is gold standards that produce wars! After all, as both Randy Strauss and
Gary North pointed out, we were on a bi-metallic standard at the beginning of
the Civil War, and a gold standard at the beginning of WWI, a gold exchange
standard at the beginning of WWII, and I'll add the French Revolution into
the mix as well. And don't forget Jim Rickards' words from my p target="_blank"ost Greece is the
is taken much more seriously by the Europeans. I mean you go all the way back
to the Counter-Reformation in the late 16th century which was extremely
bloody. And then the Thirty Years' War which was devastating. And then the
Seven Years' War and the Napoleonic Wars, the Franco-Prussian War, World War
One, World War Two... this is one catastrophe after another! And Europe
literally destroyed itself and exhausted itself in fighting all these wars.
And finally after WWII they said enough! We're going to pursue unification.
It's the only way to keep from fighting each other.
Now, political unification has had modest success. Military and foreign
policy unification has really had no success at all. But the crown jewel of
European unification is their monetary system, the euro and the European
How many of those wars were produced by easy (fiat) money? Perh target="_blank"aps this one? But of course this is not my
Gold standards don't cause wars any more than fiat causes wars. If any flaw
in our monetary plane has a causal relationship with war in the physical
plane, it is not the ease or hardness of the chosen money. It is the
proclivity of our systems, whatever side is running them at the time, to fail
to acknowledge and address the needs of two distinct grou target="_blank"ps, the debtors
and the savers. Money is naturally bipolar for this very need. So how
strange is it that no one has ever noticed?
FOFOA's dilemma applies to both fiat and gold standards. Here it is:
dilemma: When a single medium is used as both store of value and medium of
exchange it leads to a conflict between debtors and savers. FOFOA's dilemma
holds true for both gold and fiat, the solution being Freegold, which
incidentally also resolves Triffin's dilemma.
Herein lies your causal relationship with Mish's list of plagues foisted
upon the human race: Endless Sea of Wars, Debt, Social Inequality, Economic
Bubbles, Rampant Consumerism, Environmental Rape. Perhaps a better subtitle
would be: Why Freegold is the Answer.
Mish ends his short piece with this: "All fiat currencies including
the US dollar are doomed. The only debate is the path it takes to get
there." I guess this calls into question Mish's definition of
doomed. If, by "doomed", he means the present purchasing power of
the dollar is doomed, well then that's a bingo. But if by doomed he means we
won't be using dollars as the medium of exchange in the future, guess again.
You can read about this concept at great length in my p target="_blank"ost The
Return to Honest Money, but for now I'll end this post with a few
relevant comments from FOA:
We must not
confuse a currency's "total demise" or "falling out of
use" with a "loss of identity". In our time there have been
few major moneys that went away. Today, we have a whole world of national
fiats "in use" and "not demised" that still carry their
nations identity. They lose value at an incredible rate, are mismanaged to
the highest degree, are laughed at and despised. But, still they are "in
use" as they function for their governments and economies. Usually, they
function along side whatever major reserve currency is in vogue. Today, the
dollar, tomorrow the Euro. Make no mistake, the entire internal US sector can
and will function as it's currency runs a price inflation just like these
third world countries. We will adapt as they have by dropping our living
standard accordingly and adopting the Euro as our second money. Also:
The prestige that we have the largest military force in the world does not
help our money problem. We talk as if we will let any country die that does
not use our money or support our currency. I point out that the British also
made such comments and it didn't stop their downfall. Nor the Russians. Also:
I point out that many, many other countries also have the same "enormous
resources; physical, financial, and spiritual" that we have. But the
degrading of our economic trading unit, the dollar places the good use of
these attributes in peril. Besides, the issue beyond these items is our
current lifestyle. We buy far more than we sell, a trade deficit. Collectively,
net / net, using our own attributes and requiring the use of other nation's
as well. Not unlike Black Blade's Kalifornians sucking up their neighbors
energy supplies (smile). We cannot place your issues up as example of our
worth to other nations unless we crash our lifestyle to a level that will
allow their export! Something our currency management policy will confront
with dollar printing to avert. Also:
NO, "this country will not turn over and simply give in" as you
state. But, we will give up on our currency! Come now, let's take reason in
grasp. Our American society's worth is not it's currency system. Around the
world and over decades other fine people states have adopted dollars as their
second money, only to see their society and economy improve. Even though we
see only their failing first tier money. What changes is the recognition of
what we do produce for ourselves and what we require from others to maintain
our current standard of living. In the US this function will be a reverse
example from these others. We will come to know just how "above"
our capabilities we have been living. Receiving free support by way of an
over-valued dollar that we spent without the pain of work.
happen! Plan on Americans using inflating dollars as their local
transactional currency and Euros as their second currency.
Of course I
own dollars and will likely keep using them right thru any super inflation. I
never expect the dollar to disappear.
this is all happening while Western style "Hard Money Socialists"
are defending their stance by saying the Euro is just another fiat. Ha!
That's FOA for ya!
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