Guest Post: What Happens When All The Money Vanishes Into Thin Air?

Tyler Durden's picture

Submitted by Charles Hugh Smith from Of Two Minds

What Happens When All the Money Vanishes Into Thin Air?

Issuing debt and printing money do not create wealth. All they can create is a temporary illusion of wealth.

I could have written "if all the money vanishes," but that would be misleading, for all unbacked money will most certainly vanish into thin air. The only question is when, not if. Frequent contributor Harun I. explains why:

Those who fail to understand that the Status Quo is impossible to maintain will be shocked when the disintegration is undeniable. But the whole thing was perverse to begin with. Words like capitalism and meritocracy are thrown around to make people feel good when, in reality, we have never owned anything, not even ourselves.


How can we own ourselves when the very thing we use for subsistence can be cheapened or reduced to nearly nothing, not by market forces, but by central banks acting at the behest of governments? When a person does not control his labor, what is he?


I have been studying the monetary history of the world for the past few weeks. I can tell you that the second oldest profession is currency debasement. Nothing is new.


Of course, this should be no surprise, everything is cyclical. Humankind is like the trader looking for the Holy Grail. There is no perfect monetary system, there is only better and worse. And this one ranks among the worst. 


I wait patiently for people to come to the understanding that the only way for everyone to get their money would be to destroy its value completely, meaning that a loaf of bread would be a million dollars. If a small fraction of what has to be printed to keep the system afloat has caused the price spikes in energy and everything else, imagine what happens as the disintegration picks up speed.


As the exponential debt curve moves closer to the pure vertical, the rate at which debts come due will approach infinity. Of course, while this is the ultimate mathematical outcome, the reality is that the system will collapse before this point is reached. But don't think governments will throw in the towel. If history holds true the rise of a totalitarian government is just over the horizon.


Then there are those who get it right and wrong in the same breath. John Mauldin, in a KWN interview, thanked Europe for keeping the heat off the US. Mr. Mauldin apparently does not understand that our monetary policies are transferring what we do not want to the rest of the world, at least for a time, but not much more.


How many more food items be made smaller and sold at the same price? In effect this is a slow starvation of those at the margin. The 46 million American souls on food stamps will soon find their food stamps to be worthless.


Those who assert that a credit system cannot go hyper-inflationary may not have thought through the exponential effects on the relationship of the debt and productivity curves within the context of all money is debt and the only way to create money is for debt to be created. Eventually the debt curve accelerates away from the productivity curve, then the productivity curve collapses all together. Sovereign debt crises caused by governments stepping in to keep the debt system going is the last stage. Then comes the debt/currency collapse.


Even if the Fed stopped printing money, I fail to see the difference between too much money that is worth nothing, and no money at all. It's not going to matter to a starving man that a loaf of bread is $1 million and he is a dollar short, or if it's $1 and he is a dollar short.

Thank you, Harun. Many observers have addressed the key concept here, which boils down to this: paper money is an abstract representation of the real world.

This can be explained by a simple example. If there is $100 in the money supply, and $100 of goods and services to trade, then $1 will be exchanged for $1 of goods and services. If the money supply suddenly increases by $100, then the value of the existing $100 declines by half, as the money supply is now $200 and the supply of goods and services remains unchanged. Thus it now takes $2 to buy what $1 once bought in goods and services.

Holders of the currency have had half the value of their currency (what we call purchasing power) stolen by the central bank that issued the additional $100 in money supply.

Here is the primary point: issuing debt and printing money do not create wealth. All they can create is a temporary illusion of wealth.

(This is drawn from Chapter One of Resistance, Revolution, Liberation: A Model for Positive Change; you can read Chapter One for free.)

Here is another example. Let's say that a small group is stranded on a desert island that supports a handful of coconut palms. Each palm produces a limited number of coconuts each season. To facilitate trade, the group issues a currency that represents one coconut. (Lacking a printing press, they have to laboriously carve out a pattern on a rock to imprint a difficult-to-counterfeit stamp on the currency.)

This system works well, as the currency issued matches the number of coconuts harvested annually (for simplicity's sake, let's say that's 100). 100 pieces of currency are issued to match the 100 coconuts that exist in the real world. The currency (let's call it the quatloo) is an abstract representation of the goods available, i.e. the coconuts.

But then a wise-guy (i.e. the "central banker" on the island) realizes that if he prints another 100 quatloos, he and his buddies can buy up all the coconuts and fish without having created any real goods in the real world: the abstraction is used to con people out of their real coconuts.

The residents quickly catch on, and the "price" of coconuts rises to 2 quatloos. The wise-guy is addicted to the scam, and so he prints 1,000 quatloos, and then issues quatloos in denominations of 1 million.

Soon enough, each coconut costs 1 million quatloos.

Creating debt and paper money does not create real goods and services or real wealth.

As Harun observed, we have been promised trillions of dollars that can supposedly be traded for trillions of dollars in real goods and services, and buyers of bonds have been promised trillions of dollars of the same artificial exchange of paper for real goods.

Just as on the desert island, the growth of actual goods in the real world lags the growth of money, i.e. abstract representations of real goods.

The U.S. Central State (Federal government) has borrowed and squandered $6 trillion over the past four years, and the actual production of goods and services has not risen at all when adjusted for inflation. The central bank (the Federal Reserve) has expanded its balance sheet by $2 trillion, and yet all the assets it have tried to force higher are actually lower when measured in real goods such as gold, oil, wheat, etc.

It's easy to expand the money supply and difficult to expand the actual production of real goods in the real world. Expanding the money supply and issuing debt that lacks collateral is just like printing quatloos on the desert island: you can print a million quatloos but that doesn't create a single additional coconut.

If you print enough quatloos, then people will no longer accept them in exchange for coconuts. You will actually need a real coconut to exchange for fish.

This is why Greek towns are reportedly reverting to barter, the exchange of real goods for other real goods. We can anticipate that silver and gold will soon enter the barter as means of exchange that can't be counterfeited or printed by wise-guys (central bankers).

We can also anticipate the issuance of letters of credit, a practice that stretches back to the trading fairs of Medieval Europe, as described by Fernand Braudel in his three-volume history of early capitalism, The Structures of Everyday Life (Volume 1), The Wheels of Commerce (Volume 2) and The Perspective of the World (Volume 3).

Since gold was in insufficient supply, letters of credit were issued and accepted on a basis of trust. At the end of the great fairs, the letters were exchanged and payment of balances due made in gold or silver. Thus 99 coconuts could be traded for 100 dried fish via letters of credit and the balance due in gold or silver was the value of 1 dried fish--a mere 1% of the total value of goods exchanged.

This is what happens when abstract representations, i.e. "money," vanish into thin air. Alternative systems of exchanging goods and services arise: actual goods are exchanged via barter, tangible concentrations of value that cannot be counterfeited such as gold and silver are used as a means of exchange, letters of credit or equivalent are traded and settled with tangible goods or gold/silver, and eventually, a means of exchange ("money") that is backed by tangible goods in the real world that can be trusted to actually represent the value being traded might enter the market.

That which is phantom will vanish into thin air, while the real goods and services remain to be traded in the real world.

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Pladizow's picture

Money: The Greatest Hoax on Earth - Merril Jenkins

From whence it came!

Alea Iactaest's picture

"Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money"
-- Daniel Webster

Pladizow's picture

"Paper is poverty, it is the ghost of money and not money itself." - Thomas Jefferson

AlaricBalth's picture

Ask Jon Corzine about vanishing money. He seems to know quite a bit about the subject.

DoChenRollingBearing's picture

How come he is not in jail yet?  How come we STILL do not know where the money is (JPM, maybe)?  He is still out there bundling for Obama.

"Justice" in America.  These kinds of crime are yet another example of why the decline of moral behavior is driving gold out of the USA (an example I put in a reply on another thread).

The Big Ching-aso's picture



When money vanishes into thick air that means my wife farted.

Bicycle Repairman's picture

The money won't actually disappear.  You'll still have paper in your hand and digits in your bank account.  Except for the government store, they won't buy anything.  And the shelves at the government store will be empty.

Badabing's picture

Had Chinese food the other night. How I love that General Tso chicken or cat cant tell and don’t care it tastes good. What does bother me is how the fuck much soy sauce packs to use! One pack used to be enough BUT NO they had to put one third or so in a pack and I used too much and ruined my dinner.


RafterManFMJ's picture

What gives them the right? Dunno, maybe that dude in black body armor with those cool weapons? And you paid for all that tactical gear, and the armored car that brought him to your door. This is what the white folks call 'irony.'

defencev's picture

The author really proved over time that he understands nothing. In the world where supply exceeds demand creating money out of the thin air make sense. And Japan is a living proof of it. All these arguments about real and surreal would make sense for scarce products. And, indeed, we see that the price of oil is going up. But the price of flat screen TV's is going down because of obvious oversupply. The author is an idiot : pure and simple. Another his thesis that we need to patiently wait until paper money lose any value is equally idiotic: we can wait a very long time.

   People who want to do barter with Gold as exchange media should not wait. They should be able to do it right now. Yesterday, I made an argument in favor of abolishing capital gain taxes on Precious metals (without this measure Gold and Silver cannot be used as money in this country). In fact, the existence of such a tax contradicts US constitution which recognizes the rights of States to issue Gold and Silver money. I suggested that Ron Paul should ask GOP nominee to pledge the abolishing of this tax.

The reaction: I was ridiculed by local Marxists. The only thing Ron Paul can actually accomplish is to push the abolishion of this tax. Beyond that: yes, he implicitly can help reelect Obama if he runs as a third party candidate.

SHRAGS's picture


The author really proved over time that he understands nothing. In the world where supply exceeds demand creating money out of the thin air make sense. And Japan is a living proof of it. All these arguments about real and surreal would make sense for scarce products. 

Things you need are in short supply, things you want aren't. You can't eat a flat screen TV. 

Real Money Wins's picture

The Money has already disappeared!!!!


It's just that they all refuse to admit it! Damn little ones and zeros are so hard to keep track of!

Ancona's picture

Because he's too connected to get arrested.

AlaricBalth's picture

I think I got junked by Jon Corzine. What an honor!!!

Harbanger's picture

He was a Democrat helping poor people.  The MSM gives him a pass.

knightowl77's picture

Because he bundled more than $500,000.00 to the Obumster's campaign this year....

Darth..Putter's picture

When the appearance of a systems functioning is more important than the functioning of the system, is when the "jig is up".

mick_richfield's picture


the decline of moral behavior is driving gold out of the USA

That's backwards.  It is the lack of gold that is driving moral behavior out of America.

If the government can force us to accept fiat 'money' then they have become our rulers, and can dispense with any pretense of representation.

When silver was our money, they needed to get our agreement.  Now they don't.


StychoKiller's picture

"Whenever destroyers appear among men, they start by destroying money, for money is men's protection and the base of a moral existence.  Destroyers seize gold and leave to its owners a counterfeit pile of paper.  This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it.  Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims.  Watch for the day when it bounces, marked, 'Account overdrawn.'

"When you have made evil the means of survival, do not expect men to remain good.  Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral.  Do not expect them to produce, when production is punished and looting rewarded.  Do not ask, 'Who is destroying the world?  You are."

-- "Atlas Shrugged"

Benjamin Glutton's picture

But I still have checks!


Digital money coming to a planet near you.

francis_sawyer's picture

Debt money IS "thin air"... It just goes back to where it's created from (after some Zionist does some usury tricks with it)...

Muddy1's picture

"We can anticipate that silver and gold will soon enter the barter as means of exchange that can't be counterfeited or printed by wise-guys."

You are naive if you really think gold and silver can't be counterfitted.  The Chineese are doing a great job of it with old silver coins like the Morgan silver dollar.

donsluck's picture

As long as it's silver, who cares what it looks like?

disabledvet's picture

Haven't seen you in a while. "if only greed was too."

Buck Johnson's picture

It's already happening and soon it will be crazy.

SheepDog-One's picture

When the fake money vanishes, the banksters wont need to explain anything at all. Theyll have the most hated creature on the planet to point to and pin all the blame on, the dreaded white republican Romney who will be ushered in thru another fake rigged election to take the heat.

Harbanger's picture

“But don't think governments will throw in the towel. If history holds true the rise of a totalitarian government is just over the horizon.”

It’s been the plan all along. A debt induced crash to usher in a totalitarian government. The Bankers and Big Govt. Central planners win. Then again, (The best laid schemes of mice and men / Often go awry.)

SheepDog-One's picture

And the horizon is likely far nearer than most people think. Then the Banksters and Central Planners 'win' Trent Reznor says 'You can have it all, my empire of dirt'....yea whatever.

Alea Iactaest's picture

An' lea'e us nought but grief an' pain,
For promised joy.


Continuing the Robert Burns theme...

disabledvet's picture

It's not the banksters but the banks. I do agree "the people running them don't know how make money." that used to be an insult btw.

LFMayor's picture

what happens?  To quote an old Scorps tune:  The Riot of Our Time.

centerline's picture

Most at the margins don't have much to barter except lead.  And I wouldn't really call it bartering either.

mclant004's picture

Any ideas on other metals that will maintain wealth? copper? lead? hafnium? zinc? iridium?

i like to spread my bets!

mayhem_korner's picture



Try Pb in Cu casing.  Comes in lots of denominations - .22, .306, etc.

Jena's picture

Just do your best to not owe (or appear to owe) the IRS $50K or more.  There is an effort to pass a bill that would give the IRS the right to revoke an "American’s travel rights and even remove the right to own a firearm."

AmCockerSpaniel's picture

It's much harder to tax a barter transaction than a cash one.

Vince Clortho's picture

yet they always seem to come up with a way.

Gene Parmesan's picture

Aaaand... it's gone.

Christoph830's picture

FYI:  Whitney Tilson on Fast Money defending his NFLX stake right now...hilarious

mvsjcl's picture

And about to get "Face"d.

insanelysane's picture

Should be basic reading in DC and in colleges, high schools, and middle schools.

SheepDog-One's picture

'When all the fake money vanishes' then everyone will see what it was all REALLY about, the central banksters own everything, doesnt matter the cash value, THEY. OWN. EVERYTHING.

After all, they know theres only about $300 million worth of actual LEGAL currency....thats right according to the Federal Reserve Act of 1913 the only LEGAL tender is 'United States Notes' not these fake 'Federal Reserve Notes' and there are only about $300 million worth of those around.

Its all a scam people, a huge illusion, bottom line.

blu's picture

Possession is nine-tenths of the law. Meaning them as has, keeps. The bankers hold a lot of paper on real things but they'll have to raise a private army to enforce that claim once the money evaporates leaving just the goods behind.

I know, raising an army is easier when you have lots of money during a down economy. And, with things like the NDAA on the books they can probaby expect the US Army to turn out and take things for them on some terrorist pretext. But I'm not real worried about that, I think the US Army will be having a hard enough time defending the borders and be too busy to kick people out of foreclosed homes just so the banker class and take them back. Maybe expensive homes full of "terrorists" will get a visit from the local SWAT team, but they won't show up to seize my little shack.

walküre's picture

When your money is worthless, the mercenaries aren't working for you. How many guns are distributed among private citizens? There's your army and each and every so called "soldier" knows what is out there. Russian "soldiers" deflected in large numbers and sold their army's goods to the highest bidders.

centerline's picture

To think that getting what we have is the goal is definately not on target.  We can pushed around as needed at will.  The prize is resources.  Oil, gas, water, food, etc.  Armed forces would be used to keep rioting masses from getting too far out of hand.  The majority of the non-rioting public can be choked off to a large degree by supply chain controls.  Few are truly ready, able and in the place to really just ride the storm out.  

Shizzmoney's picture

I simply do not know where the money is, or why the accounts have not been reconciled to date. I do not know which accounts are unreconciled or whether the unreconciled accounts were or were not subject to the segregation rules. Moreover, there were an extraordinary number of transactions during MF Global’s last few days, and I do not know, for example, whether there were operational errors at MF Global or elsewhere, or whether banks and counterparties have held onto funds that should rightfully have been returned to MF Global.

- Jon Corzine


SheepDog-One's picture

Right, why do they need to explain anything at all? Vast amounts of money vanish daily thru things like MF Global, or stock plunges, and they dont have to explain a damn thing and no one does anything about it anyway. They do whatever the fuck they feel like.