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Guest Post: Caution - Falling Currencies

Tyler Durden's picture




 

Submitted by Keith Weiner

Caution: Falling Currencies

In 1913, the US Congress authorized the creation of the Federal Reserve.  Its mandate was limited, but it grew over time to become the central planner of all things monetary.  In 1933, President Roosevelt outlawed the ownership of gold.  In 1944, the soon-to-be-victorious allied powers signed a treaty at Bretton Woods, agreeing to use the US dollar as if it were gold.  Their central banks would hold dollars and borrow dollars, and pyramid credit in their own currencies on top of the dollar.

The US dollar was redeemable by foreign central banks, and so this was effectively a scheme for various currencies to have a fixed exchange rate between each other and to gold.  It, at least, had the virtue of limiting credit expansion, as there was still this one tie to gold and hence to reality.

The problem with fixing the price of one thing relative to another is that whichever one is undervalued is hoarded and whichever is overvalued is dumped.  The US government set the price of gold too low, and so foreign central banks were increasingly demanding delivery of gold.

By the time President Nixon was in office, something had to be done.  In 1971, he defaulted on the gold obligations of the US government.  This had the effect of severing gold from the monetary system, plunging us into the worldwide regime of irredeemable paper money.  One consequence was that the exchange rates of the various paper currencies were allowed to “float” against one another.

This was the prescription of Milton Friedman, monetary quack.  He actually said:

“If internal prices were as flexible as exchange rates, it would make little economic difference whether adjustments were brought about by changes in exchange rates or equivalent changes in internal prices. But this condition is clearly not fulfilled. The exchange rate is potentially flexible in the absence of administrative action to freeze it. At least in the modern world, internal prices are highly inflexible.”

And that’s why we have volatile foreign exchange markets today, because Friedman and his followers wanted to compensate for labor law and other regulation that make certain prices ratchet only upwards, but never downwards.

This fraudulent, unworkable, and dishonest scheme of floating exchange rates certainly did not fix the problem of wage and other price inflexibility.  It did cause several others.

One side effect was to loot people’s savings and thereby teach them not to save, because the word ”floating” is disingenuous.  The paper currencies all sink.  There is no mechanism, nor desire on the part of the central bank, to increase the value of the currency.

The floating currency regime is a regime of sometimes-slower and sometimes-faster currency debasement.  Each government engages in a race to zero.  Sometimes one currency is sinking relative to the others, and sometimes others are sinking relative to it.  This is enormously destructive.

The never-ending process of currency devaluation has a follow-on effect: reduced investment.  This of course reduces growth.  This premise must be taken to its logical conclusion.

Savings, as such, is not possible using irredeemable paper.

When saving, the wage earner sets aside a portion of his wage; he consumes less than he produces.   His basic intent is to hoard this value until he retires and needs to exchange it for food and other goods when he can no longer work.  It is advantageous to lend to a productive enterprise to increase his quantity of money, but this is not essential to the concept.  The key is that he can carry value over time.  Gold and silver do this, but paper does not.

Fundamentally, paper currency is a loan to the government.  Unlike a productive enterprise, government is not borrowing to increase production.  Government does not produce anything; it consumes.  Government is borrowing to consume with neither the intent nor the means to ever repay.  And therefore the “loan” is counterfeit (http://keithweiner.posterous.com/inflation-an-expansion-of-counterfeit-c...).  It will not be repaid.

Gold and silver are positive values.  One can hoard them, as one can hoard any tangible commodity.  Paper currency is a negative value.  It is debt.  There is no way to “hoard” it, its value is always falling, and in the end it will default to zero.

The government’s paper scrip loses value gradually, and then suddenly.  We are in the gradual phase now.  This phase will end without much warning (other than permanent gold backwardation: http://keithweiner.posterous.com/61392399).

Savings, under irredeemable paper is perverted into speculation.  People are forced to crowd into one asset bubble after another.  Those who blindly follow always end up transferring wealth to those who lead.  People who bought houses between 2004 and 2008 in the USA still have not recovered.  At least those who deposited dollars into a bank account have not lost as much, yet.  When the markets finally become aware that the banking deposits are backed by mortgages on homes which are worth 25% to 50% less than their mortgage values, bank depositors will lose more.

Eventually, people will discover that they cannot save in terms of dollars (those who don’t figure it out will be rendered economically irrelevant as their wealth is removed from their hands).  Savings is a necessary prerequisite for investment.  Investment is necessary for companies to grow, to develop new technologies, products, and markets.  Growth is necessary to hire new workers.

As existing companies achieve higher productivity of labor, and do not need as many workers to perform the same work, they lay off unneeded people.  In a free market, the unemployed would quickly be hired by growing companies that expand and develop new businesses.  But today’s structurally high unemployment can be traced back to Friedman’s quack prescription (among other government interference).

Weakening the currency not only discourages savings, it also weakens businesses who have to keep the currency on their balance sheet and who have to import some of their inputs.

When a currency loses value, then all who hold it incur a loss.  It is not possible to employ workers and run a business in a country without holding significant amounts of its currency.  Currency debasement therefore imposes constant losses on enterprises that try to operate in such an environment.

Combined with the fact that imported supplies, ingredients, parts, software, and other inputs are constantly rising in cost in terms of the falling currency, and one can see another reason why Friedman’s assertion is false.  In many cases, especially modern products, the cost of the labor input into a product is a small percentage of total cost.

Save your lunch money in gold and silver, the best way to protect yourself against our mad regime.  If you want to speculate, make sure you risk only your beer money.

 

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Fri, 03/16/2012 - 11:36 | 2261887 LawsofPhysics
LawsofPhysics's picture

I'd argue that if you invest beer money in actual beer that you don't drink, you still have a very liquid asset of value for barter.

Fri, 03/16/2012 - 11:38 | 2261897 SilverTree
SilverTree's picture

OT

Daredevil aims to set world record jump with 23 mile free fall

http://www.mirror.co.uk/news/world-news/daredevil-felix-baumgartner-aims-to-skydive-763777

Fri, 03/16/2012 - 11:42 | 2261914 Pladizow
Pladizow's picture

"Suspicion towards a currency, once awaken, develops insomnia" - James Dines

Fri, 03/16/2012 - 11:48 | 2261941 SilverTree
SilverTree's picture

Putting a Silver round under your pillow helps.

I have three monster boxes under my bed and sleep like a baby.

Fri, 03/16/2012 - 11:50 | 2261964 Pladizow
Pladizow's picture

Address please!

Fri, 03/16/2012 - 11:57 | 2262006 SilverTree
SilverTree's picture

Why do you want to snuggle in bed with me and my 500 pound wife or are you joking about  taking what I have worked so hard for?

Fri, 03/16/2012 - 12:30 | 2262137 Pladizow
Pladizow's picture

Silver only, you and the heafer will have to look elsewhere for the 3-way!

Fri, 03/16/2012 - 13:03 | 2262283 Comay Mierda
Comay Mierda's picture

"The surest way to destroy a nation is to debauch its currency... Give me four years to teach the children and the seed I have sown will never be uprooted."

- Lenin

Fri, 03/16/2012 - 13:10 | 2262319 Ying-Yang
Ying-Yang's picture

Kudos Keith..... One of the best articles I have read on ZH, thank you! I will pass this on to many friends and relatives as the information is a basic understanding of where we have been and where we are heading, written in plain English!

Fri, 03/16/2012 - 15:01 | 2262852 falun bong
falun bong's picture

I keep wondering what happens when everybody debases at the same time, like now. Nobody gets new competitive wage or price advantage...but everyone gets Partial Global Jubilee (PGJ). That may not be so bad. With all currencies unhinged from gold now it's like a party where they keep putting more booze in the punchbowl...we can all get drunker and drunker!

Fri, 03/16/2012 - 12:05 | 2262048 SemperFord
SemperFord's picture

lucky you, I used to do the same thing and woke up one morning to find out it was "Vaporized" :(

Fri, 03/16/2012 - 11:56 | 2262002 Dr. Engali
Dr. Engali's picture

I sleep with a 9mm under my pillow and a AR at the side of my bed.

Fri, 03/16/2012 - 13:49 | 2262542 Silver Dreamer
Silver Dreamer's picture

/sarc

You must be a terrorist.  Even the NRA suggests your weapons be in a safe, separate from the ammunition, trigger locked, and unloaded.  Sheesh! 

/sarc off

I must admit though that my Sig sits next to me while I sleep, and it's only there to give me time to get to a long gun.

Fri, 03/16/2012 - 19:32 | 2263835 hairball48
hairball48's picture

I live alone. My .357 is by my head...loaded. The .12g pumpgun in my avatar is loaded up with 3" 00Buckshot rounds...with one in the chamber. Shitheads breaking my place won't be hearing that "rackin one in" sound like on TV.

Fri, 03/16/2012 - 19:41 | 2263856 akak
akak's picture

At close range, #1 buckshot will actually inflict more trauma on a human target. 

Just sayin'.

Fri, 03/16/2012 - 20:49 | 2264014 hairball48
hairball48's picture

I use 00 since I also occasionally use it for close range deer hunting in areas around here where rifles aren't allowed. 00 is easier to find in most of the stores around here too. Spendy too at $5.99-$6.99/box of 5 :(

Fri, 03/16/2012 - 20:57 | 2264021 akak
akak's picture

Good points hairball --- it is similar to what many people do around here, with bears frequently paying visits (with slugs often loaded as rounds #3 and #4).  My comment above was thinking strictly about home defense against (human) intruders.

Yeah, it is getting kind of spendy to do a lot of routine practice shooting with ammo being at such prices, isn't it?  I know the rifle range near me is MUCH less quiet than it used to be eight or ten years ago.

Fri, 03/16/2012 - 22:33 | 2264243 quasimodo
quasimodo's picture

Excellent choices both. I also keep the Centurion multi defense in house, as well as my favorite-Winchester supreme elite PDX. Both are always happy in the Remington tactical 12 ga.

Always fun to practice on watermelons or other items that explode.

Fri, 03/16/2012 - 11:40 | 2261910 MsCreant
MsCreant's picture

Beer has an expiration date.

Fri, 03/16/2012 - 11:48 | 2261947 t_kAyk
t_kAyk's picture

Whiskey doesn't   ;)

Fri, 03/16/2012 - 12:03 | 2262039 dark pools of soros
dark pools of soros's picture

can we see the S&P priced in scotch?

Fri, 03/16/2012 - 13:23 | 2262382 Manthong
Manthong's picture

You need a graph that is adjusted to the price of the scotch of your choice starting in 1971 constant scotch dollars..

 

Fri, 03/16/2012 - 19:58 | 2263893 WmMcK
WmMcK's picture

Long Johnny Walker, Gold, of course

Fri, 03/16/2012 - 13:51 | 2262554 Silver Dreamer
Silver Dreamer's picture

I stockpile whiskey even though I do not drink much of it.  It's not stored under my bed, but it certainly helps me sleep more soundly.

Fri, 03/16/2012 - 11:49 | 2261955 Long-John-Silver
Long-John-Silver's picture

That's why you invest in the equipment to make Beer. While you are investing in Beer making equipment you also purchase an alcohol still. Both produce liquid currency that are invaluable in a barter (Black Market) system.

Fri, 03/16/2012 - 15:47 | 2263073 BeerBrewer09
BeerBrewer09's picture

+1

adding to the brewhouse all the time.

Fri, 03/16/2012 - 11:49 | 2261956 V in PA
V in PA's picture

For taste but not effect

Fri, 03/16/2012 - 11:52 | 2261974 MsCreant
MsCreant's picture

Did not know that.

Fri, 03/16/2012 - 11:57 | 2262005 DOT
DOT's picture

Grain+Hops+Water+Yeast

Looks like a hedge on water and bread. Make that "Bread and Water"

Fri, 03/16/2012 - 13:45 | 2262520 narnia
narnia's picture

so do humans if they don't drink water or eat / sungaze.

Fri, 03/16/2012 - 11:46 | 2261932 Al Huxley
Al Huxley's picture

Why would I risk my beer money?  That seems like an extraordinarily dangerous thing to do.

Fri, 03/16/2012 - 11:50 | 2261958 AbelCatalyst
AbelCatalyst's picture

no worries - the US President is on ESPN right now picking b-ball teams for the NCAA tourney... keep drinking your liquid assets everything will be fine... amazing how much this guy knows about each team and how little he knows about economics - comforting!! When will the adults come home and lead this country out of the darkness??

Fri, 03/16/2012 - 12:45 | 2262205 Conrad Murray
Conrad Murray's picture

Someone should remake Surfin' Bird into Usurupin' Turd. BA BA BA BA BA BA BA O-BA-MAO MAO MAO MA MAO O-BA-MAO MAO MAO MA MAO

Fri, 03/16/2012 - 13:03 | 2262282 Zymurguy
Zymurguy's picture

can only give you one up-tick, sorry... your post deserves +1000

Fri, 03/16/2012 - 13:12 | 2262332 blunderdog
blunderdog's picture

His picks sucked in '09.

Fri, 03/16/2012 - 12:09 | 2262069 Red Raspberry
Red Raspberry's picture

Beer is a barbaric relic I covet.

Fri, 03/16/2012 - 12:38 | 2262181 GovtMediaLiars
GovtMediaLiars's picture

Liquor keeps better ;)

Fri, 03/16/2012 - 14:02 | 2262592 Silver Dreamer
Silver Dreamer's picture

Keeps better?! It gets better the longer you keep it.  That's the case for whiskey at least.  8-)

Fri, 03/16/2012 - 12:47 | 2262213 Silver Bug
Silver Bug's picture

Save your hard earned money in a hard earned currency. Gold and Silver.

 

http://jamesturkblog.blogspot.com/

Fri, 03/16/2012 - 11:42 | 2261890 sIewie the pi-rat
sIewie the pi-rat's picture

one thing i will not do is put my beer money at risk ...urp!

Fri, 03/16/2012 - 11:57 | 2261920 MsCreant
MsCreant's picture

Do clones sleep alone?

(Benatar 1979) 

 

Fri, 03/16/2012 - 12:27 | 2262128 slewie the pi-rat
slewie the pi-rat's picture

i don't think yours would, msC!

Fri, 03/16/2012 - 16:17 | 2263223 John Wilmot
John Wilmot's picture

lol

Fri, 03/16/2012 - 11:41 | 2261911 Comay Mierda
Comay Mierda's picture

TPTB plan:
step 1) weaken currencies, guide the flock of sheep into equities
step 2) stock market crashes when the sheep realize that solvency cannot be cured with liquidity, no matter how much fiat bullshit is printed
step 3) sheep buy PMs
step 4) govt's declare PM ownership a terrorist activity, throw the sheep into fema camps
any questions?

Fri, 03/16/2012 - 11:43 | 2261923 SilverTree
SilverTree's picture

Why not just skip to step 4?

Fri, 03/16/2012 - 14:03 | 2262596 Silver Dreamer
Silver Dreamer's picture

You shear sheep before you slaughter them?

Fri, 03/16/2012 - 11:46 | 2261935 EBR MOD 0
EBR MOD 0's picture

NO questions on my part, have you got a plan?

Fri, 03/16/2012 - 11:52 | 2261981 Comay Mierda
Comay Mierda's picture

gold, guns, food, getaway plan

Fri, 03/16/2012 - 12:54 | 2262241 merizobeach
merizobeach's picture

Solid principles.  I might revise the order to say GTFO first, then build your castle (with farm).

Fri, 03/16/2012 - 14:05 | 2262604 Silver Dreamer
Silver Dreamer's picture

I highly recommend the same.  Planning to "bug out" is a very poor plan.  Bugging out should be a last resort and one you never want to take.  Move now while you still have the resources available.

Fri, 03/16/2012 - 18:23 | 2263647 Jivus Heed
Jivus Heed's picture

Putting together my escape plan now trying to get out of dodge to move somewhere where we can be a bit more self-sustainable. Right now trying to get property without a mortgage, trying to avoid the banks.  Question is, do we go into debt to do this seeing as how these debts might be wiped out by any coming financial crisis? Or try and get all this done with cash and try and hoarde some gold and silver coins? Looking to cash out my IRA, put some down on a property to own outright so I don't have a mortgage hanging over my head, and use the rest to buy gold/silver coins. Or should I go in debt up to my eyeballs like everyone else and hope hyperinflation inflates these obligations away?

Fri, 03/16/2012 - 20:51 | 2264018 Errol
Errol's picture

Due to global wage arbitrage, don't count on wages keeping pace with inflation this time around!

Fri, 03/16/2012 - 13:06 | 2262296 Zymurguy
Zymurguy's picture

Invest in brass, lead and blued steel.  Stock up on food and make a plan to get outta dodge... you'll be an incredibly weathy and powerful man on the other side of this shit storm coming our way.

Fri, 03/16/2012 - 13:28 | 2262414 gaoptimize
gaoptimize's picture

I looked at your photo and thought you wrote "Invest in bras,  ..."

Sat, 03/17/2012 - 03:24 | 2264501 Deo vindice
Deo vindice's picture

 NO questions on my part, have you got a plan?

Everyone has a plan. Some people just have chosen to have a 'no plan' plan.

Fri, 03/16/2012 - 11:48 | 2261945 SoundMoney45
SoundMoney45's picture

Step 3) The sheep have no money so they are solely dependent on TPTB for food.

Fri, 03/16/2012 - 12:09 | 2262054 DosZap
DosZap's picture

*

Fri, 03/16/2012 - 14:00 | 2262584 Winston Churchill
Winston Churchill's picture

5)Soyalent green.

Fri, 03/16/2012 - 11:41 | 2261912 Conrad Murray
Conrad Murray's picture

Eventually, people will discover that they cannot save in terms of dollars (those who don’t figure it out will be rendered economically irrelevant

That is a very polite way of putting it. A definite contender for understatement of the year.

Fri, 03/16/2012 - 11:45 | 2261930 SilverTree
SilverTree's picture

Kinda like those old 8-tracks.

Fri, 03/16/2012 - 14:07 | 2262615 Silver Dreamer
Silver Dreamer's picture

As a kid I listened to Meat Loaf's Bat Out of Hell on 8-track too many times to count.  It must have been thousands of times.

Fri, 03/16/2012 - 11:44 | 2261924 EBR MOD 0
EBR MOD 0's picture

When gas goes to $10 a gallon, having beer money may be irrelevant, as the cost to get beer maybe unattainable. Any beer, liquor, food, bullets, Au, Ag, cigars, meds, all are stores of value and will be needed (provided these were store up), sooner than we want to think, IMHO.

Fri, 03/16/2012 - 11:52 | 2261983 V in PA
V in PA's picture

I have never been anywhere in America where access to beer was more than a bike ride away.

Fri, 03/16/2012 - 11:58 | 2262011 MsCreant
MsCreant's picture

If distribution slows down or halts entirely, then NO BEER FOR CYCLISTS!

Fri, 03/16/2012 - 12:00 | 2262020 Conrad Murray
Conrad Murray's picture

You can be fairly certain, however, that beer didn't get to the store on a bike.

Fri, 03/16/2012 - 12:36 | 2262170 V in PA
V in PA's picture

I live in a small town of less than 8000, and there are four micro brews within biking distance. Not to mention all the basement brews within walking distance.

Fri, 03/16/2012 - 14:08 | 2262629 Silver Dreamer
Silver Dreamer's picture

And how did the ingredients for that beer get delivered?

Fri, 03/16/2012 - 14:18 | 2262663 francis_sawyer
francis_sawyer's picture

If you ride a bike or drink beer... You're a terrorist!

Fri, 03/16/2012 - 14:34 | 2262738 viahj
viahj's picture

importing and trucking those hops and malted barleys will drive the price up as well

moonshine will be king once again

Fri, 03/16/2012 - 11:45 | 2261926 bugs_
bugs_'s picture

monetary quack!

making fun of keynesians is getting old and we will now go after monetarists

Fri, 03/16/2012 - 11:46 | 2261937 mayhem_korner
mayhem_korner's picture

When a currency loses value, then all who hold it incur a loss. 

 

It's also a motivation for companies to buy back (treasury) stock, as we've seen a whole lot of lately.

Fri, 03/16/2012 - 17:12 | 2263395 akak
akak's picture

Expect the day to come when saving in ANY form, even in fiat terms, is officially condemned as "inimical to the health of the economy", and is declared "an act of financial terrorism".

Fri, 03/16/2012 - 11:47 | 2261943 JPM Hater001
JPM Hater001's picture

Brilliant.  I am going to go hug something...I mean...

Fri, 03/16/2012 - 11:52 | 2261978 Seize Mars
Seize Mars's picture

I love this article. So succinct. Very wise, very insightful, but written so anyone can understand.

Nice!

Fri, 03/16/2012 - 11:57 | 2262004 Oh regional Indian
Oh regional Indian's picture

A taut and brilliant piece. Well said.

ori

Fri, 03/16/2012 - 11:59 | 2262017 hangemhigh77
hangemhigh77's picture

Money is old hat.  I'm saving old tires.  They stack really well and you can use them for things.  Better than the shit paper these prick bankers print.

Fri, 03/16/2012 - 12:50 | 2262225 MsCreant
MsCreant's picture

Stack them, put in soil, grow potatoes. Excellent method. Harvest potatoes, eat well, make vodka (see booze discussion above). Potatoes, when not processed, are an excellent source of vitamins.

Fri, 03/16/2012 - 14:01 | 2262574 Manthong
Manthong's picture

Also useful for bankster and politician necklacing.

In effigacy, of course.

 

http://en.wikipedia.org/wiki/Necklacing

Fri, 03/16/2012 - 14:29 | 2262716 MsCreant
MsCreant's picture

Effigy ash for the compost. Good idea!

Fri, 03/16/2012 - 12:02 | 2262028 Azannoth
Azannoth's picture

To begin saving you 1st need to Repent!(default on) the Debt!

Fri, 03/16/2012 - 13:39 | 2262483 Stock Tips Inve...
Stock Tips Investment's picture

Exactly! the problem is debt. Until this issue is resolved, the government continuedprinting money, money, money to cover the expenses have been covered with our hugedebt. And we know that printing more money is devaluing the currency. Who will stopthis?

Fri, 03/16/2012 - 12:14 | 2262089 Savvy
Savvy's picture

Yesterday at work this fellow comes in complaining about the price of gas. I said it isn't gas going up it's the dollar going down. He looked at me like I grew two heads. So I explained. In 1964 20 cents of silver would buy you a gallon of gas. In 2012 20 cents of silver will buy you a gallon of gas. Twas like a light went on behind his eyes. lol

Fri, 03/16/2012 - 12:34 | 2262168 Melin
Melin's picture

Seeing that light in someone's eyes is rare and wonderful.

Fri, 03/16/2012 - 12:42 | 2262198 Greenlight
Greenlight's picture

I never saw 20 cent gasoline in 1964 but I did see it quite often around 30 cents.  So a silver quarter and a nickel got you a gallon. Today that's worth $5.90 and way more than a gallon.

Fri, 03/16/2012 - 12:49 | 2262220 SheepDog-One
SheepDog-One's picture

The price of gas here today is $5.20 a gallon....I dont see what point youre making.

Fri, 03/16/2012 - 13:10 | 2262323 Zymurguy
Zymurguy's picture

Yeah, It's close enough.  I've also heard some similar comparison to an ounce of gold and it's ability to purchase a finely tailored suit in the '30's... can do the same (and get you a weenie wash) today.

Sat, 03/17/2012 - 03:31 | 2264506 Deo vindice
Deo vindice's picture

An ounce of gold, huh? That's some nice suit.

For us regular-types.

Fri, 03/16/2012 - 12:20 | 2262110 johnjkiii
johnjkiii's picture

Look y'all, governments cheat. Do any of you think that the gold standard was perfect? If so, you're severly lacking in your history lessons. We tried dual standards too. Silver & gold. Think they worked? Think again. If we made peanut shells the standard, it would come out the same way. Everyone wants a system where they can save their money and clutch-in for the rest of their lives. If any of you find that, please let us know.

Fri, 03/16/2012 - 13:43 | 2262510 Seize Mars
Seize Mars's picture

What you have correctly identified is the fact that governments are untrustworthy. As for concluding that money itself is false, or doesn't exist, or whatever the fuck you are saying, you lost it.

Here is the proper conclusion: you don't need a government producing money. Money can be whatever two people say it is. We can define one dollar as 1/35 of an ounce of gold. Fine. Use the "dollar" as a convenient unit of measure. However when we settle our transaction, we settle in the correct weight of gold. Or silver. Or anything that you and I agree on.

Let me repeat: you do not want or need a government telling you what money is or what its buying power is. You also do not need a bank. It's the same logic. Credit creation is not money. Money (real money) is a form of "stored capital," and capital is just anything used to produce something of value.

So capital is a manufacturing machine. Produce goods, trade, and take your new goods and trade them for some gold. The gold will hold its value until you are ready to buy a new manufacturing machine, or an additional one.

Now do you get it?

Credit isn't capital. Credit isn't money. Governments, and their friends, banks, create credit. You don't need it. They lie about its price and lasting value.

Fri, 03/16/2012 - 14:15 | 2262652 Silver Dreamer
Silver Dreamer's picture

Simply +1'ing your post isn't good enough.  Thank you!

Fri, 03/16/2012 - 14:18 | 2262664 newworldorder
newworldorder's picture

A clear and lucid post for all to understand.

Most will not understand it as ther brain is focused on non economic events. All but the depression generation are used to someone else taking care of the hard financial stuff. Things have always worked out and the government has taken care of it. Its the American way now - till it isn't.

Fri, 03/16/2012 - 14:34 | 2262745 jimmyjames
jimmyjames's picture

Credit creation is not money. Money (real money) is a form of "stored capital," and capital is just anything used to produce something of value.

*********

Credit is not real money and neither is a dollar-but they act like money-you can make purchases of goods and service with both ie: medium of exchange-

Credit drives GDP-real-estate for example-

Just ask the sub-primers who had no money and purchased 500K homes-right beside the person who was able to pay cash-

When the sub-primers could no longer make payments and crashed and burned and the sub-prime homes lost 50% of value-the people who paid cash-lost 250K of their personal money supply-

Fri, 03/16/2012 - 17:25 | 2263443 akak
akak's picture

.

Credit is not real money and neither is a dollar-but they act like money-you can make purchases of goods and service with both ie: medium of exchange-

The confused deflationary nitwit adds his two cents once again!

The fundamental difference between the two, dullard, is that a transaction made with real money is concluded, whereas a "credit transaction" is NOT finalized, but merely represents a promise to conclude the transaction at a later date. 

Trying to conflate and equate credit with money, in all its aspects, is like declaring a shopping list as functionally and nutritionally equivalent to a bag of groceries.

 

Fri, 03/16/2012 - 19:00 | 2263770 jimmyjames
jimmyjames's picture

The fundamental difference between the two, dullard, is that a transaction made with real money is concluded, whereas a "credit transaction" is NOT finalized, but merely represents a promise to conclude the transaction at a later date. 

Trying to conflate and equate credit with money, in all its aspects, is like declaring a shopping list as functionally and nutritionally equivalent to a bag of groceries.

**********

LOL again-the nitwit missed a piece of the loop-as always-

True the credit transaction is not finalized until it is paid-but-

That credit "purchased" a so called "asset" (your missing piece)

If the asset is worth and can be sold for what the outstanding debt is worth-then its a wash-

However-and read this 3 times at least-

If the asset cannot be sold for the value of the outstanding debt-then a "loss of money" has occurred and that loss is a "decrease" in "someones" money supply-

The lender of that debt-

Why is this so fucken complicated for you?

Fri, 03/16/2012 - 20:02 | 2263895 akak
akak's picture

Wow

Cluelessness cubed.

You have exceeded your stupidity quota for the week, so I cannot respond to you further.

But I wish you good luck in stuffing all those dollar bills in your mattress, waiting for all of them to magically APPRECIATE in value.  He who laughs last, holds gold and silver.

Fri, 03/16/2012 - 20:23 | 2263959 jimmyjames
jimmyjames's picture

I cannot respond to you further.

But I wish you good luck in stuffing all those dollar bills in your mattress, waiting for all of them to magically APPRECIATE in value.  He who laughs last, holds gold and silver.

*************

Backed you into another corner and away you slink-

You cannot respond-because you have nothing to respond with-if you did-you could easily debunk the simple money loop i explained-

If the truth were known-i bet i could shame you oz for oz of gold and silver-

You see--your too stupid to understand that it is deflation that makes money (gold) the asset to hold--not inflation-

Deluded one who is in the right investment for all the wrong reasons-

Fri, 03/16/2012 - 21:07 | 2264048 akak
akak's picture

.

You cannot respond-because you have nothing to respond with

Oh yes I do: Monetary history.

It tears every deflationary flat-earther a new asshole every time.

That is why you flee from it, and refuse to ever acknowledge it.  All you have in support of your feeble deflationary thesis is your neo-Keynesian, implicitly pro-Establishment, pro-bankster arguments.  You are nothing but an ignorant and disingenuous pro-status-quo hack and propagandist, and despite having your arguments torn to shreds time and again by me and others you keep slinking back as if nothing was ever said, like the malignant troll that you are.

Fri, 03/16/2012 - 21:08 | 2264061 jimmyjames
jimmyjames's picture

Nothin again huh?

Fri, 03/16/2012 - 21:11 | 2264066 akak
akak's picture

On the contrary, once again troll, since you seem to have a reading comprehension problem: I have several thousand years of monetary history.

And you have .....Ben Bernanke?

Sorry, not even a remotely fair match.

Thanks for playing.

Fri, 03/16/2012 - 16:31 | 2263277 GernB
GernB's picture

Credit does not have to work any differently from money. It can be whatever two people deem it to be. If you want to lend me money it is just another type of transaction, in which you determine if you have the economic reasources to make the loan and I decide if your terms are acceptible. We might even bring a third party into the equation, someone who I trust to find productive means to put my excess money to work. They may take it and give it to someone who needs money. Lets call that a 'bank'

Where we go wrong is in thinking it is governments job to make sure I am protected. That it is no longer my responsibility to make sure the bank I put my money in is sound, it is governments responsibility. Once you entrust government to protect you're security you have given them a lot of power. Power to regulate banks and with it the power to determine how much leverage banks have and use that as political and economic power.

Fri, 03/16/2012 - 16:31 | 2263249 John Wilmot
John Wilmot's picture

The classical gold standard sans central banking was perfect.

The classical gold standard w/ central banking was pretty good.

The fake "gold-exchange standard" of the interward period was bullshit.

The gold-exchange standard redux that they called Bretton Woods was even worse bullshit.

And the post-Bretton Woods fiat dollar reserve system is the worst bullshit ever devised.

...so far.

You can identify the phases of increasing bullshit on this historical gold price chart.

http://www.kitco.com/scripts/hist_charts/yearly_graphs.plx

Pre-Fed is pre-bullshit; post-fed to WWII is getting worse; post-1971 is HOLY FUCKING JUMPING SHITBALLS! Note that the chart ends in 1998. That expontial increase in bullshit-level tripled again in the last 14 years. Bullshit is approaching escape velocity.

Fri, 03/16/2012 - 12:37 | 2262179 ebworthen
ebworthen's picture

Friedman:  "At least in the modern world, internal prices are highly inflexible."

Really Milton?  So, if I don't go out to dinner because I'm paying so much for gas it means prices are highly inflexible and that my dollar hasn't been debased?

I want gas stations that give me a prepaid debit card with a 10% discount for paying in GOLD.

I like the GOLD backwardation presentation, thanks.

 

Fri, 03/16/2012 - 12:43 | 2262199 Quinvarius
Quinvarius's picture

Are you saying inflating away every consumer's savings does not make them spend more because they have no wealth left to spend?  Are you saying the devaluation and gold confiscation that FDR did in the thirties actually caused the great depression?

I really find these things hard to believe.  I am sure that no one having savings to invest or spend is a good thing for the economy.  That is what they say on TV. 

Fri, 03/16/2012 - 13:14 | 2262344 blunderdog
blunderdog's picture

If velocity is high enough, $1 will pay off the Federal debt.

That's why bankers have to do so much cocaine.  It helps them stay focused on the money as it moves at greater and greater speeds.

Fri, 03/16/2012 - 13:29 | 2262426 Quinvarius
Quinvarius's picture

Thanks for debunking that whole velocity equals inflation thing.  There is velocity.  And there is how fast people are trying to completely get rid of their money.

Fri, 03/16/2012 - 14:58 | 2262834 jimmyjames
jimmyjames's picture

There is velocity.  And there is how fast people are trying to completely get rid of their money.

************

Where is the velocity and can you show any evidence of people trying to get rid of their money?

It seems to me that money is a problem/in short supply to the people-SNAP/unemployment/falling wages/falling asset values etc.

 

Fri, 03/16/2012 - 19:53 | 2263884 akak
akak's picture

I like all the red arrows you consistently accumulate here.

Fri, 03/16/2012 - 20:01 | 2263899 jimmyjames
jimmyjames's picture

I like all the red arrows you consistently accumulate here.

*********

Typical juvenile brain at work-you want a "group think" site so you can spew your childish one liners and get green arrows- lmao-

Fri, 03/16/2012 - 20:07 | 2263916 akak
akak's picture

"Group think", or justified criticism of a weak and confused mind?

Fri, 03/16/2012 - 20:13 | 2263930 jimmyjames
jimmyjames's picture

"Group think", or justified criticism of a weak and confused mind?

*********

Ok smarty-show me the rising velocity-

Gotcha--didn't I

Of course you'll come back with your bullshit Keynesian theory's and no data-

 

Fri, 03/16/2012 - 20:42 | 2263995 akak
akak's picture

HA!

YOU are the one who buys into all the pro-Establishment, pro-central-bankster propaganda regarding a putative fiat currency deflation, not I!  You are the one on the side of Bernanke here, buddy.

Monetary history proves you wrong, with 100% consistency --- that is why you deflationary flat-earthers NEVER acknowledge it or try to use it to buttress your laughable arguments, because you cannot, as it overwhelmingly refutes you.

But go ahead and believe if you want to in your cockeyed neo-Keynesian theories about how an unsustainably overspending and exponentially overindebted government is going to see its fiat currency RISE in value, in the face of hundreds if not thousands of years of evidence to the contrary.  Statist academics of all persuasions have NEVER let reality get in the way of a good theory!

Fri, 03/16/2012 - 21:06 | 2264058 jimmyjames
jimmyjames's picture

Ya got nothin huh?

didn't think you did-

Fri, 03/16/2012 - 21:15 | 2264074 akak
akak's picture

So by your reckoning, several thousand years of monetary history, which records not ONE fiat currency deflation, but which records HUNDREDS of fiat currency collapses due to overspending, overindebted issuing governments, is "nothing"?

What a complete and total dipshit you truly are.  You fully deserve the devastating financial fate you have set yourself up for.

Fri, 03/16/2012 - 12:49 | 2262219 Death and Gravity
Death and Gravity's picture

"Eventually, people will discover that they cannot save in terms of dollars (those who don’t figure it out will be rendered economically irrelevant as their wealth is removed from their hands)."

Yes. But not politically irrelevant, as those who become disposessed at the hands of the Fed's playing with the money supply, will be snapped up by opportunistic politicians.

Fri, 03/16/2012 - 13:13 | 2262340 oldman
oldman's picture

Tyler,

Please file this in the 'Children's Section' as I might need it later     om

Fri, 03/16/2012 - 13:26 | 2262403 RollinsArline3
RollinsArline3's picture

my roomate's mom makes $83/hr on the computer. She has been fired from work for 9 months but last month her pay check was $18339 just working on the computer for a few hours. Read more on this web site .....  http://bit.ly/FPPP3j

Fri, 03/16/2012 - 13:47 | 2262534 MsCreant
MsCreant's picture

Many of the guys here would be happy to work your roomate's mom and yours too! Arline is pimping out her friend's mom.

Sell it faster, harder, your currency is failing... Damn this is a rough e-con-omy.

Fri, 03/16/2012 - 19:18 | 2263812 oberonsbane
oberonsbane's picture

Bullshit alert

Fri, 03/16/2012 - 22:35 | 2264253 in4mayshun
in4mayshun's picture

What your room mate is NOT telling you is that after those "few hours on the computer," a group of guys comes over and runs a train on her.

Fri, 03/16/2012 - 14:26 | 2262700 Seal
Seal's picture

 

 

“The combat and instability would continue because its real source was the political contract struck between democracy and capital back in 1913, the implicit decision that democratic politics could not be trusted to act responsibly in the national interest. Therefore, the authority and responsibilities of elected politicians were permanently curtailed. Put another way, the elected government was allowed to be permanently irresponsible – free to indulge its own follies and protected from the accountability by the higher authority, the non-elected central bank. The creation of the Federal Reserve represented a great retreat from democratic possibilities. The maturing of self-government as forever stunted.” Pg. 534, Secrets of the Temple – How the Federal Reserve Runs the Country, William Greider, Simon and Schuster, 1987

 

 

 

 

Fri, 03/16/2012 - 15:47 | 2263071 GernB
GernB's picture

If you want to know wny day trading has become such a craze consider what alternatives someone with a little money has. Put it in a money market account at the local bank. They'll loose money against 2% inflation. Treasuries? OK, now you're keeping up with inflation, but not by much. Most people want to grow thier money. The stock market waas flat last year, and people like myself with a longer view are not buying that this rally will continue on through 2014, regardless of what CNBC may say. When you can't make any real money off of any kind of investment then you start asking yourself whether it's actually possible to make money betting on stock market trends.

Fri, 03/16/2012 - 19:15 | 2263806 oberonsbane
oberonsbane's picture

THE SKY IS FALLING MUTHAFUCKAS! The best thing to do is to dig a big hole in the ground, build a bunker, grab all your valuables and take them to you hole in the ground and sit there with them. That way you'll be safe and no one will bother you. Sit there till the end of your days and enjoy life.

Fri, 03/16/2012 - 21:01 | 2264043 hairball48
hairball48's picture

 "The US government set the price of gold too low, and so foreign central banks were increasingly demanding delivery of gold."

I don't agree with that statement.

Foreign Central Banks began redeeming dollars for gold because the US was beginning to run huge deficits to pay for "guns and butter". Foreign banks decided dollar debasement was coming(debt monetization).

DeGaulle essentially called Nixon's bluff and demanded gold for dollars. The administration was afraid more Central Banks would follow suit and drain Fort Knox....so he closed the gold window.

I remember it happening. I was in the Med with the USN in August 1971 :)

 

 

Fri, 03/16/2012 - 21:48 | 2264141 malek
malek's picture

The writer needs to have his head examined.

Floating exchange rates are one of the roots of all evil?

Why not go further and declare differing tax rates between countries as evil too, or anything differing - and thereby demand a world government!
Or more straight forward just declare competition illegal and get over with total socialism.

Sat, 03/17/2012 - 02:16 | 2264465 underdog
underdog's picture

boxes of silver under the bed?  what about hundreds of 12 ga 00 buckshot? 

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