The Implications Of A Failed Monetary System

Tyler Durden's picture

Santiago Capital has put together a concise and highly informative 10 minutes video, which explains in the amount of time that a traditional economics professor takes to prepare their coffee, virtually everything that is at risk, and fundamentally flawed, with the current monetary system. While this presentation will not be news to regular readers, we suggest it is watched with recent revelations elsewhere (certainly not here: this has been the default assumption here since day one), that it is flow, not stock that matters to price formation. Which means the exponential curve discussed below will only get ever steeper to asymptote, if the true purpose of the Fed is simply to ramp stocks come hell or high water, in its artificial pursuit of "price stability."

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Spitzer's picture

This is like the housing bubble in 2006...

When does the bond bubble blow ?

Peter Schiff was close in 2006. He figures we have 2 years or less

Pladizow's picture

"The abscence of gold as an intrinsic part of our monetary system today, makes our century, the one that has just passed, unique in several thousand years...." Robert Mundell, Accepting the Nobel Peace Prize in 1999.

"Anybody who believes exponential growth can go on forever in a finite world is either a madman or an economist." - Kenneth Boulding, 1910-1993.

markmotive's picture

There's no such thing as a free lunch. Especially a 30-year free lunch.

Folks, what you thought was free turned out to be destroying your standard of living. Yes, even the returns on your 401k are a sham on an inflation-adjusted basis.

iDealMeat's picture


Growth at 7% doubles every 10 years..   Simple math.

MunX's picture

It is amazing to me how many people in the bis don't know a thing about limits.

Seer's picture

But, but... they MAY know, it's just that they don't CARE.  I suspect the reason being is that they require others (majority) to NOT know in order for them to make their way (live off of others).

AldousHuxley's picture

what's up with the seashell Brett?


Are you proposing we move away from Bernanke bucks to seashells as medium of exchange?


gold will follow M2 but beware of special tax implications of this "collectible".  plus to get wealthy and not just keep up with inflation, you must double down on gold with leverage. Otherwise in the long run, you are just holding on to inflation.



lasvegaspersona's picture

To double down means paper gold. If you think there are 'problems with gold' just wait til you see the problems in store for paper gold.

engineertheeconomy's picture

the GLD will seperate from GOLD

GLD will go to ZERO

GOLD, well, see ZIMBABWE... for all practicall purposes GOLD has not even begun to go up in price YET

At the current prices, all Precious Metals are being subsidized heavily

blu's picture

Read the story. Interesting.


I think this probably has less to do with Mr. Heywood and a lot more to do with one hi-level ChiCom wanting to nuke the political aspirations of a different hi-level ChiCom. Because honestly, they would never investigate this if it would bring down one of their own, unless of course bringing down one of their own were the very point.

redpill's picture

Pretty sure Mr. Heywood doesn't care what the actual motive was :)

AgShaman's picture

They should exhume the body and do an autopsy...

Oh wait...nevermind

Zero Govt's picture

Pladizow  -  didn't junk you but both those statements are crapology

Money can be anything, including Gold or based on Gold, but also including notches on wood, Airmiles, credits at a whore house etc. 

Secondly growth (productivity) is infinite because it's based on knowledge, not a finite resource. There is no limit to our knowledge and therefore no limit to growth

Stop listening to academics and people that win Nobel Prizes ...they gave one to that Marxist President for 'Peace' ...enough said

iDealMeat's picture

Sure...  makes perfect sense..  Because I know various ways to get oil out of the ground I'll be infinitely productive in that endeavor...


I junked you..

Seer's picture

"Secondly growth (productivity) is infinite because it's based on knowledge, not a finite resource. There is no limit to our knowledge and therefore no limit to growth"

Ugh!  Show me anywhere in NATURE where this hypothesis holds, that "growth" is about "knowledge."

Just what IS "knowledge?"  I'm sure that you've heard of the term "intellectual trashcan" before.  I'd argue that "knowledge" without action is pretty much meaningless (or just plain philosophy).  Wisdom, on the other hand, is the application of "knowledge."  No matter, reality lies in APPLICATION of thought, not just thought itself.  And it's APPLICATION that is growth, not thought (well, not until we can do mental telepathy of such).

BTW - Didn't junk you.

The Alarmist's picture

So, you are or are not a subscriber to new growth theory?

sunaJ's picture

ZG - on your first point, you are correct, on your second, you are wrong:

"There is no limit to our knowledge and therefore no limit to growth"

There is a limit to our knowledge. Mathmatically explained as the overlapping sum of knowledge of all humans on the planet.  Its limits are expressed in the unintended consequences of drilling 5 miles below the surface of the ocean, or pumping chemicals and fresh water through boiling sand to get oil.  There IS a limit to human knowledge, and wisdom is gained when you realize we do not know as much as we think we know.



malek's picture

First draw the conclusion and then bend the facts accordingly?

There is conceivably no limit to how much much new (and significant) knowledge can be discovered. There might be a limit how much information humans can make use of, even with all the help by IT etc., but to state we are getting close to that only displays your ignorance.

tarsubil's picture

There's a limit to knowledge because there is a limit to oil production? What if there are other places to get energy like that great big ball of fire in the sky?

FrankDrakman's picture

There is a limit to our knowledge

Rushing off to work, so no time to google for quotations, but the guy running the US Patent around 1900 thought they'd have to close it soon as "everything that can be invented, has been invented" (approx.). 

Acet's picture

Actually the value of knowledge is in what it allows us to do, and in any human endeavour knowledge suffers from diminishing returns. For example there are theoretically an infinite number of ways of extracting oil (i.e. knowledge) and yet as the complexity of those ways increases, the cost (measured as energy spent) of actually implement them increases exponencially (and eventually overcomes the energy that can be obtained from the oil extracted).

Or in Mathematical terms, a infinite sum of values can still add up to a finite result. For example:

- Assume knowledge is represented by n, which is between 0 and infinity

- Assume that the return on said knowledge is 1/2n

In that situation, the total return on all possible knowledge (from 0 to infinity) adds up to 1.

Infinite knowledge, finite returns.


Withdrawn Sanction's picture

Whether or not knowledge is an infinite resource, the problem overlooked by the exponential curve advocates, like Prof Bartlett is they are assuming a fixed function and then linearly (albeit in exponential fashion) extrapolating it.

Trouble is, functions are not fixed.  150 years ago, for example, most homes were heated with wood, a renewable but depleting resource.  Then we moved on to coal, then oil, and nat gas.  Yes, any one curve will reach a point where it no longer makes sense (vertical) but we move on if the vested interests don't interfere and new knowledge is applied.

It's the same thing in the monetary sphere.  Sure, the base has gone vertical and it will collapse under the weight of its own contradictions, but we'll move on...if the vested interests don't interfere and we choose a sound monetary system.

In this connection, yes, it is true that technically we could use anything (seashells, cigarettes, barrels of oil, electrons) as money.  The key w/the monetary system, however, hinges on who has to be trusted w/its operation?  In other words, how easily is the "standard" manipulated? If it's easy, it's not sound, and by that measure, our current standard is unsound.

The virtue of a gold coin/real bills standard on the other hand is its built in regulator.  Its soundness rests in the ability of ordinary people to control the effusion of credit.  If credit is too liberal, depositors seek redemption forcing banks to curtail credit and raise rates.  As rates move higher the better returns begin attracting gold back to the system and so there's an in-built regulator that harnesses everyone's self-interest in a positive way. This is obviously abbreviated, but is it perfect?  Hardly, but then what product of the mind of man is?  A precious metal standard does however have the virtue of long history of soundness when its principles are adhered to, and vengeance when they are not.  (We are currently experiencing a vengeful period...)

earleflorida's picture

Nobel Economic Award Prize,... c.1969 *{Rockefeller/ Rothschild [[[ RR ?]] Muppets!!!}     **[1971 ?]

Important: basically a incestuous pool of groupthink ***[eg. Kennedy/ Johnson,...McNamara via the "Culprit"?]


cranky-old-geezer's picture



Money can be anything ...

Yes in theory, but takes a really sheepish society to accept something with no intrinsic value as money. 

Intrinsic value is the key.   Throughout history societies have naturally selected one or more commodities with universally recognized value as money.

The key is "naturally selected".   What a society selects naturally, of their own free will, without being coerced one way or another by some law. 

Societies have naturally selected gold as money as far back in history as you care to look.  

A paper currency that isn't redeemable for anything is not something a society would naturally select as money, so laws have to be enacted forcing the society to accept it as money, along with requiring every government controlled business to accept the currency.

But a society is vulnerable to long-term conditioning.   The "greenback" dollar was redeemable for gold (or silver) for decades, plenty long enough to get Americans conditioned to those "greenbacks", then gold & silver redeemability was withdrawn, but by then Americans were so conditioned to "greenbacks" they paid little or no attention.

Wana make people beleive a worthless paper currency has value?   Simply make them use it a while, say 20 - 30 years, and they're "hooked", they'll never question it.

It's just like voting.  Voting used to have some value, and people got accustomed to it.  Then they started rigging elections and voting was meaningless.  But people were conditioned to voting, still beleiving it's worthwhile.

The reason governments and central banks can make worthless paper currencies work is the people are sheep, doing whatever government says, never questioning.

And Americans are so sheepish today, long term conditioning isn't needed anymore. The Fed could issue a new currency tomorrow, different color, red, yellow, blue, whatever, and 99% of Americans would accept the new currency without question. 

...the same 99% that bitches about the 1%. 

Let's face it, the 99% are dumb sheep.

malek's picture

Ding, ding, ding - we have a winner!

narnia's picture

Time is finite. 

When the cost of everything you need & virtually anything you want deflates to almost free, productivity hits a very hard ceiling.  It can grow at a very fast rate from nothing to everything, but it cannot keep an infinite growth rate.

This monetary system is not about providing the necessary currency to keep our biological economy from maturing.  It's an entirely different set of goals & limitations.

narapoiddyslexia's picture

Zero Govt-

There is a limit to the growth Ben Bernake needs for his system to survive. He characterizes it as "growth" but what he actually means is "increase in consumption of physical goods," and even with 100% recycling this is doomed.

Therefore growth as we currently manifest it is doomed, as are we if we do not cease growth.

Max Fischer's picture



The absense of gold in our monetary system is what enabled the US to fight the Revolutionary War and gave us our independence. Fiat money was the seed of our liberty; our nation was FOUNDED on and FUNDED by paper money (Continentals) not backed by anything other than faith. Had we been anchored to the rigidity of the gold supply, we would never have been able to fund the war.

All the doomer libertardians dragging their knuckles through this forum owe their very freedom to paper money. *LOL*

Max Fischer, Civis Mundi

Dapper Dan's picture

From you know where,

During the American Revolution, the colonies became independent states; freed from British monetary regulations, they issued paper money to pay for military expenses. The Continental Congress also issued paper money during the Revolution, known as Continental currency, to fund the war effort. Both state and Continental currency depreciated rapidly, becoming practically worthless by the end of the war.

Try again!

Don’t borrow money at interest.

This lesson was so ingrained that 2 of the west's major religions banned it for centuries. The other significant major western religion has it as an affirmative commandment to use usury against members outside the ethnic clan.

The wisdom here is in both cases is that people of ordinary intelligence cannot understand compound interest. They just can't. They're incapable of it. Therefore, it is consistent with public policy that it should be banned.



Spastica Rex's picture

You say there are no easy answers?! Well, I say you're not trying hard enough!

Nah, +1 for you.

hadriansnightmare's picture

And the speculators fleeced the soldiers who had to sell them at 10 cents on the dollar just to get home-  your a kook-

FlyPaper's picture

Max: I disagree with your assertion.    The absence of gold sent us begging France for funds (Mr. Adams, Mr. Franklin).   The wealth of the American colonies was drained by a tax called INFLATION to pay for the war, and in effect conscripted the savings of everyone that held the paper money.  The paper money didn't pay for anything.

Same exact thing  G "dub-yuh" Bush and his post-cessor did.  Create money, pay for it with a tax called inflation.  This is how we fought and will pay for our Middle-eastern mal-adventures.  This is also the same way WWII was paid for.

Good grief...  :+(

piceridu's picture

Throughout history, how many galleons and ships sunk trying to get need funding to war fronts?...they didn't transport phoney-paper-fiat was gold, silver and gun powder you imbecile.

lasvegaspersona's picture


have you read FOFOA?

His take is that fiat will always be with us because we love it. We need to borrow without the constrictions of gold backed money. The problem is with saving that same fiat as our store of value...failure 100% of the time. monetary system confined by the use of gold as the store of value. It is a solution that satisfies the saver and the debtor in all of us.

DoChenRollingBearing's picture

+ 1

Well stated.  If I could + 2, I would have for mentioning FOFOA.  We need fiat.

DaveyJones's picture

fofoa is one of the best out there

NidStyles's picture

I find your knowledge or rather lack of normal and still disturbing.

Lednbrass's picture

Yes of course, that currency worked fabulously well and the Continental Congress was able to purchase all manner of supplies for its armies with them. That "not worth a Continental" was a common expression was due to its stunning success as a trusted form of exchange, and the European powers backing the rebels freely accepted wheelbarrows full of them for gunpowder and other materials.

Congrats on pushing the envelope of absolutely jaw dropping ignorance yet again.

been there done that's picture

I noticed that Tyler posted this at 16:51 and there were comments on it at 16:52 and it is 10 minutes long, so my math tells me that people comment before they even hear, see or read this stuff??????

Too fast to comment bitches.....

Sockeye's picture

Are you saying someone is front running the comments section?

prains's picture

ZH readers can fold space and time, you just need the spice

Paul Atreides's picture

Spice for sale!

Acceptable forms of payment: Gold or Silver

*Harkonnens need not apply

AgShaman's picture

Someday I'll watch that movie sober....then maybe it will be clear

IToldYouSo's picture

nah, HFR (high frequency readers)

SilverIsKing's picture

ZHers are the smartest people in the world.

Zero Govt's picture

Yes we're speed readers too

..but memories of Goldfish (it's official, Tyler said so . . . i think!)

francis_sawyer's picture

I knew WTC7 was gonna fall before it even happened...