OUR MONEY IS WORTHLESS
Yeah?! What?! Hunh?! Well, read on.
Throughout history, money had been coinage, plus a hoard or two held by nations or rulers - - or by bankers like the Rothschilds, who once financed Emperor Napoleon in raising an army. US money was coinage of silver and gold - - real money, baby - - and a national hoard, plus (in the 1800s especially) private hoards at private banks, against which paper was issued.
Paper money issued against the hard money hoard? Temptation!
Yes, here's where all the world's present money problems started! At first, a bank might issue "bank notes" of maybe two pieces of paper per unit of metal in its vault. Hmm. Then ten (and the world didn't end), then 20 and so on. “Runs” on these private banks to turn in paper for solid stuff and to recover deposits busted many banks and families because the claims might outdistance the hoard by 100 to one. The ratio of hoard to paper was so outlandishly small that the paper was essentially worthless. Sound familiar on a national scale in the US and world today? It should, because ALL hard stuff has long been removed from behind US paper money. It is essentially worthless (compared to a gold coin or silver dollar at the other extreme).
Central banks
The US as late as the early 1900s used Morgan for its central bank, which bailed the Government out of one depression by a loan of - - get this - - less than $10 million. (Money was money in those days!)
Around 1915, the US set up the Federal Reserve when private bankers met at Jekyll Island in Georgia. But the Fed consists of private bankers. It is not a branch of the Government, as most believe.
At the time, the US had its famed gold hoard at Ft. Knox, and plenty of western silver. As late as the 1950s, Nevada used silver dollars routinely - - but dang it, these were heavy to carry around, as riders with saddlebags in the 1800s could attest. Stagecoaches had the legendary “box” which bandits would raid, trains the larger trunks.
Post-WWI, the German Weimar Republic had no assets, owed reparations, so issued paper money by the ton. At one point, it took a wheelbarrow full of such marks to buy a bottle of milk or loaf of bread. The point is, you gotta have hard assets somewhere if you are going to issue paper - - and you gotta have a stable nation and responsible financial people in government and banking. Confidence is the key thing in issuing paper money, whether that paper is connected to hard stuff or just floating in space as ours is, on "faith" and "confidence."
Electronic money
Most of the incredible sums of "money" sloshing around in the world today are electronic, not hard stuff, and not piles and bundles of paper money, although those piles exist.
All of the problems of over-issuance of money, and matters of faith and confidence, apply to electronic money as well as to paper money - - although that has yet to be tested. It's being tested now, and I guarantee that all the basic principles apply, and all the basic problems will arise as the gross mishandling continues to surface.
As for "confidence," what we've had is more like a "confidence game."
All metal removed
In the 1960s when the US started paperingthe world with printed greenbacks, savvy Europeans turned in paper for our gold - - leading to our shutting down the gold door lest our hoard completely vanish, and leading in time to removing any metal whatsoever from behind our paper.
Read ’em and weep - - you can’t turn in your paper money today for anything in the way of real money. It’s only a sort of Government scrip, like invasion money useful at the PX until dollars arrive for exchange.
In the 1960s, our coins changed from silver to zinc. Even our pennies lost their copper. “Money metal” was just too scarce, and a drag on the "economy" because expansion required floods of "money."
We wanted unlimited money - - or as nearly that as possible - - which is what we have today, with the result of massive built-in inflation which has only partially surfaced so far, but will be much greater.
(A note on coinage metal. The money metal in a coin even in Rome wasn't the value, but instead the stamping on the metal that the nation was behind that little round disk. Gold coins caused hoarding and the removal of that money from circulation. Bronze was cheap - - a type of debasing right there; and it was further debased by scraping and diminishing the size and weight.)
With today’s computers and decades of experience, the Federal Reserve keeps the “money supply” up, and furthermore, growing. This evens out dips and peaks, and prevents any deep depressions, although permitting mild recessions. Money from thin air is created by telling banks they may lend more against their assets - - a higher ratio - - and borrow more, and at lower interest rates. And as all of us also know, the Fed can also “tighten” money.
One can see at once how marvelous it is to never be out of “money”
And what a temptation it is to punch buttons, stimulate the economy, sway voters, and other handy things.
Debt-money
Our “money” is no longer money, but debt-money. Today it all comes from a debt-hole or debt-well.
In all this, we have to remember that a nation creating “debt-money” must have assets somewhere. But do we? Our resources are depleted and we run in the red in our budgets and trade, plus our consumers are heavily in debt for ordinary living, exclusive of asset-backed mortgages.
Borrowing for permanent things vs. borrowing for expendables
Borrowing was once the last thing governments (or citizens) would do - - and it was done for permanent things that far outlasted the repayment of the bonds; for example, courthouses, sewer systems, roads, bridges, homes and the like.
Today, we borrow wildly and incur long-term permanent debt for items bought outside our borders like oil that is burned up immediately, clothing that lasts only a year, electronic gear lasting three to five years and cars that have little market value after five years although they may keep on running.
In the past, nations had natural resources - - "hard stuff" like diamonds and other precious stones in the ground, iron ore, copper ore, gold, silver (and later, oil). For example, King Solomon's mines backed Israel's coinage and status as a powerful and wealthy nation. In more modern times, nations got colonies in order to increase their natural resource base and stream of tribute. Rome of course had colonies. (It also had a slave population said to be greater in number than its free population, which was a type of internal resource.) The Congo was Belgium’s resource base. South Africa was looted by Europeans.
The US once had immense natural resources. As late as all during WWII, we exported oil. We had the Mesabi iron ore which made possible our incredible production of armaments including ships, for ourselves and our Allies in WWII. We had silver. We had gold. Too, we had great growth of population, education, skilled labor, industrial capability selling to the world, creating capital. Today, our oil is gone, and we import so much that our nation is threatened by possible shut-offs of oil, and by the colossal financial drain. In all other resources we are down. In manufacturing, we import and import. Our giant industrial corporations are internationally-owned conglomerates which, along with world financial institutions, constitute a supra-government overriding all global nations.
Our weaponry
But holding up our image of might is our weaponry, so superior that it gives others confidence in us or fear of us, as the case may be.
A phony asset - - the "full faith and credit" of the US people
A vast phony "asset" of the US has been its ability to charge to the people’s debt - - against the full faith and credit of the people of the United States - - any sum it wishes. Despite the obvious madness, the sheer size of the US has impressed creditors beyond what their natural wisdom might tell them.
No real creditworthiness
To borrow, one is supposed to have collateral. And one is supposed to have intent to repay, and the ability to repay.
The nation hasn't the collateral, and the people have neither the intention nor the ability to pay off the many trillions in debt presently growing astronomically. And of course, they never applied for it - - it was done by others and charged to their name. Talk about identity theft!
Now confidence from lenders is about exhausted.
But do we want responsibility? We seem to want the debt-life, unlimited money, and a tax-free society.
A lot like the Prodigal
We've been a lot like the Prodigal - - wasting our assets, living the high life.
But that's only the first part of the Prodigal story. The second part is the wake-up call. We're entering that phase. Some say it will be rough, others say we'll manage to squeak through. Well, we'll see.
No public screaming
Why don’t our people scream as politicians charge now nearly $1 trillion a year to their account?
Yeah, why don't they?
Why doesn't the hollowed-out dollar utterly fold?
It's falling. The euro has doubled from 80 cents to $1.60 in two years. But foreign nations hold huge "dollar reserves" - - trillions. To let the buck really collapse, would be for them to take a big hit.
They have to convert those dollars to US corporation stocks (see economyincrisis. org), and even US real estate, or to gold (quadrupled in past three years), as they are doing. Too, there are things the foreign central banks can do to "prop up" the dollar and thus their own assets, but all these measures are temporary.
The dollar has pent-up built-in inflation from over-issuance and lack of any backing. Prop as one might, it can't be held up except temporarily.
Euro destined to replace buck as world reserve currency
This is already in progress. It could go fast, or slow, or through one or another "basket" of currencies already seen in some places and for some international settlements.
Settling oil accounts?
The major tipping point in the dollar's future is in oil settlements, presently still made in dollars.
Some mixtures of euro and dollar, yen and dollar are settling some international accounts as the dollar weakens. It's said that even some oil sellers in the Mideast are accepting such combinations. There's much talk of "baskets" of currencies being agreed-upon to replace the dollar-only oil settlements. It's coming.
In the meantime, oil has shot from $11 to well over $100 as the Mideast says, "Hey, the buck is shot - - so give us 10 or 15 times as many of them as you gave us before, for a barrel of our oil."
Watch too for many international currencies to "unpeg" from the US dollar, and maybe (for a softer slide for the dollar) pegging to one or another of the "baskets" of currencies including euro, yen, pound, dollar being discussed.
Major inflation is inevitable as foreigners want more and more dollars than in previous years, for the same amounts of goods. Oil is only a starter.
The buck is essentially worthless, propped up only by sagging confidence and exchangeability seen in the buying up of so many US corporations (see www. economyincrisis.org). We're selling off the ship for firewood to keep the engine turning, as David Niven broke up the ship in Eighty Days Around The World.
Trouble's ahead. Let's hope (and pray) that it isn't disaster.
© 2008 Karl Roebling. All rights reserved.
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