Monday, February 1, 2010

Rats, Lice and Currency

Rats desert a sinking ship; lice flee a cooling corpse. It is no different with currency. As soon as it begins to sink, value heads for the nearest exit. There is, however, one difference. Rats occupied the ship, the lice were at home on the body, but value hasn’t inhered to our currency for decades. The truth is that our worthless fiat currency was one of the greatest scams ever to be foisted on the world.

It all started in another decade mired in another war. The time was the 70s, and the war was Vietnam. For the first time in the twentieth century, the United States found itself saddled with a trade deficit.

At that time, we were a signatory to the Bretton Woods Agreements which obligated us to keep our currency pegged to gold, i.e., every dollar represented real value. The problem was that we’d printed so much money just to keep up with the cost of losing the war in Vietnam that we only had enough gold to cover twenty percent our the currency in issue.

The solution to that problem was simplicity itself. Nixon simply unpegged the dollar from the value of gold. The liberated paper now represented whatever we could scam the world into thinking it was worth.

Without the albatross of gold handing around its neck, both the dollar and the Dow Jones soared while assets bubbled.

One plus side of a worthless currency is that it is much easier to go into debt. And go into debt we did. Between 1987 and 2005, public and private debt went from $10 trillion to $43 trillion.

Of course there’s the danger that some damn fool will look at the Dow and realize that it’s being denominated in worthless dollars. Once upon a time, the Dow was sitting at 12,200. However, had it been denominated in Euros, it would have dropped to 7300. This simply wouldn’t do.

These days, Obama, Geithner and Bernanke are like tap dancers frantically tapping away in a burning theater, smiles frozen on their faces as they try to convince the audience that the smoke is really fresh air.

To them, reality is whatever they want it to be.

This allows our oligarchs to game the system, which they tout as the actions of a free market. The freedom so cherished by free market ideologues is the freedom to manipulate the free market so it favors their interests.

They find the roller coaster ride that is our economy stimulating. The slow climb up followed by the stomach-churning plunge downward invigorates them. And they expect us to enjoy the ride as much as they do. What they forget is that while they are safely strapped in their seats, we’re clinging to the outside of the car, and a lot of us fall off as the car speeds down towards the bottom.

Oligarchs never do.

3 comments:

Suzan said...

Thank you, friend.

I wish you were on NPR.

Everyday.

S

This allows our oligarchs to game the system, which they tout as the actions of a free market. The freedom so cherished by free market ideologues is the freedom to manipulate the free market so it favors their interests.
______________________

Ivan Hentschel said...

A "this-is-not-a-benefit" that the electronic age has given the average man is that money is always an illusion, never where you thought it was, and not ever there for very long. Transactions and shuffles take place in the blink of an eye (if your eyes are really fast)and controlling, preventing or avoiding fiduciary skullduggery is next to impossible.

Banks have no money,only records of electronic transfers. Your check never clears the bank, it just clears a transfer point.

Wealth exists only on paper and can be claimed, disclaimed, applied or usurped anywhere at anytime without ever having really been there in the first place.

Welcome to the world's monopoly board. That guy in the black silk hat is Bernanke and the guy who ought to be in jail is Geithner.

Case Wagenvoord said...

Suzan,
Good to hear from you again.

Ivan,
Really! He has clothes on! Ignore the little kid who keeps yelling that he's naked.