The Descent of Money

Bill Bonner [Reckoning on January 29, 2010 from Paris, France]

Science and technology have produced many wondrous breakthroughs. But there are some things it cannot improve. A kiss from natural lips is still the lover's choice. Baby formula proved no match for the real thing. Ersatz money is a flop too. That last item is not so much a fact as a prediction.

The first modern competition between gold and paper money ended like the pre-modern ones. Gold won. Herewith, a short summary:

A rogue, John Law, was the protagonist of the story. He killed Beau Wilson in a duel. Then, he went on the lam...first to Scotland...then to Amsterdam...and finally to Paris. Like Alan Greenspan or Ben Bernanke, he made himself useful to people in high places - in this case the Duke d'Orleans, who needed money. Law had a way to get it:

"I have discovered the secret of the philosophers' stone," he is said to have remarked, "it is to make gold out of paper."

We need to look no further. Law may have been good with figures; it was at philosophy that he failed. A thing cannot be both one thing and a different thing at the same time. It is either gold. Or it is paper. Rarity and durability give gold value - as money. Paper's most conspicuous properties are just the opposite - it is common...and has a tendency to curl up and blow away.

Law's new, easy money helped France to an economic recovery - or so it seemed. But in the end, the philosophical error caught up with him. Gold has real value. If you can create it at will, why not create more of it? It was just a matter of time before he had created too much. Soon, there was an angry mob outside Law's office on the Rue Quincampoix. People who held his paper gold had come to see it in a different light. Where once they cherished it as paper gold...now they despised it as nothing but paper.

Law's scheme increased France's money supply - including banknotes and shares in his Mississippi company - by 300%. Prices in Paris doubled between 1718 and 1720. Then, when the new money system began to give way, the Duke d'Orleans "cranked up the printing press." By 1721, Law's money was worthless. "Banque" was a dirty word in France for the next 200 years.

The current experiment with paper money began on the 15th of August 1971. Henceforth, said Richard Nixon, foreign countries that wished to exercise their right to trade US dollars for gold could drop dead. From that point forward, the dollar was worth only what someone would give you for it. Philosophers held their breath. But nothing happened. Many have died since, waiting for the dollar to succumb first. Still, the millstones of monetary history may grind slowly, but the more slowly they grind, the more fingers they pinch.

The new paper money standard allowed for a worldwide credit boom - just as in Paris following the establishment of Law's scheme. The US created dollars. Its citizens spent them. The dollars accumulated as reserves all over the world...and every central bank raced to keep up. Soon, the exporters were producing too much. The importers were consuming too much. And there was too much money and credit everywhere.

The Japanese economy was the first to blow up - in 1989. The tech sector on Wall Street was next to go - in 1999. Finally, in 2007, the planet-wide bubble popped. Suddenly, the whole world was Japan. And now, every nation in Christendom, to say nothing of the others, is following Law's example. All issue paper gold - in the form of bills, notes, and bonds - as if they were the Banque Royale. Europe is estimated to need $2.2 trillion in deficit funding this year. America will need at least a trillion more. If the depression deepens, maybe $2 trillion. How long can this go on? Where will it lead?

"There are no means of avoiding the final collapse of a boom brought about by credit expansion," wrote Ludwig von Mises. "The alternative is only whether the crisis should come sooner as a result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved."

On Tuesday, the S&P rating agency issued a warning. If Japan continues in the direction it is going, it will have Hell to pay. Japan leads the way into the future. And into a monetary minefield. Her current deficit - a record - is more than her tax revenue. And her public debt is nearly 7 times as great. Her feet grow larger.

No natural life survives the lifecycle. And no paper currency standard has ever survived a complete credit cycle. It is just a matter of time until we hear the explosion and see body parts flying.

Regards,

Bill Bonner,
for The Daily Reckoning

Joel's Note: Addison tells us they're putting the final touches on a collection of Bill's various reckonings from over the past decade, titled "Dice Have No Memory: Big Bets and Bad Faith from Paris to the Pampas." At this stage, we're looking at a March release. Keep a look out for it.

Where the Jobs Went

Whiskey & Gunpowder By Henry Daniels
December 8, 2010
Los Angeles, California, U.S.A.

As we head into the Holidays, with no signs that things are ever going to get better, some news was recently released that casts an interesting, and gloomy, light on why there are no jobs.

If there is one common theme I’ve heard from friends who still have jobs over the last two years, it’s that they are working harder than ever and making the same or less than they used to. Personally, I’m self-employed, and while I work 15 to 20 hour days, seven days a week, it hasn’t been in vain; the last two years have been my best ever.

Today, I heard a report on corporate profits and amazingly (or not) the quarter has been the most profitable in corporate history since they started keeping records on such things over 60 years ago.

The math is simple. If a corporation can get by with 50 to 65 percent fewer employees while holding production steady, they will make a lot more money. So what if people have to work two or three times harder than they did a few years ago? If they don’t like it, there are ten people standing in line to take their place.

This means there’s no incentive for corporations to hire. None. At least not until one of three watershed events occur.

The first watershed will be when the workers productivity starts to falter. The truth is that the only way work is getting done on time these days is because the workers are forced to take shortcuts to meet deadlines and quotas. It is already showing up in the quality of products, things are not made as well or last as long as they did just a few years ago. The failure rate is getting alarming on car parts, computer components, and customer service.

The second watershed event will be when the workers decide they are tired of being exploited, and if anyone else wants their job they’re welcome to it. We will see worker slowdowns similar to those popular in Europe. Suddenly, corporate profits will be jeopardized.

The third watershed event will be when corporations no longer have anyone left to sell to. In other words, if the number of unemployed keeps rising, at some point there will no longer be anyone left to buy things until they get employed again. At this point corporate survival will dictate the need to hire people if only to continue selling their products.

Last week, we talked about how one of our first indications of where things are going would be the Black Friday and Cyber Monday’s sales figures. By all accounts, sales this year were basically flat compared to last year. This argues quite forcibly that status quo is where we are stuck for a while.

My guess is we won’t see new jobs for at least a year, maybe two. There will be no trickle down job creation. It’s going to take something more visceral to stimulate job creation.

We’ve become a nation fixated on short-term quotas while we ignore the long-term consequences of such actions. I’ve never held that to be a way to run anything: not your life, not your personal finances, not corporate policy.

Regards,
Henry Daniels

~~~~~~~~~~~~~~~~External Advertisement~~~~~~~~~~~~~~~~

There’s a brilliant documentary entitled “The Fall of America and the Western World.” It not only predicted this mess we’re in, it offers real-world solutions that will enable you to survive the grim future we face.

This hard-hitting, thought-provoking documentary features nine hours of uncensored conversations with Joseph Farah, Naomi Wolf, Doug Casey, Dr. Paul Craig Roberts, professor Mark Crispin Miller, Alex Jones, David Icke, Mickey Z, David McAlvany, Doug McIntyre, G. Edward Griffin and Ken Klein. If you listen to them and follow their advice, you’ll be prepared for whatever lies ahead….

~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~~



First, a correction…

Remember this letter from last time?


“I think you guys are becoming the most left-leaning rag on the net. Get a life or get out if you dislike America. These are some of the [most] leftist-leaning articles I have ever read. Are you guys commies or just deep-seeded socialists?”

Seems we got the guy all wrong. He followed up with an email to express his shock at how I used his letter.


“I thought I clearly stated in the subject line that I was referring to Samantha Buker’s anti-Christian article. If I didn’t, then my mistake. I did like your comments after Black’s article.”

There was truly no indication in the email that the comments were directed at Sam, who sits mere feet away from the Whiskey Bar. The editors at The Daily Reckoning snapped her article before I could. So I wasn’t expecting any heat from it.

Anyway, I promised the reader I’d clear up the confusion.

Now, about those taxes…


“I’m as opposed to the high-end tax cuts today as I’ve been for years. In the long run, we simply can’t afford them.”


— Barack Hussein Obama, 2010


“Gimme yo’ damn money, rich boy!”


— Barack Hussein Obama, 2012

Barack is trying to be polite about it right now, but make no mistake: He fully believes that the more money one makes, the more one should be forking over to people in nice suits who have no idea how to make an honest buck…

And he warns that come 2012, somebody is going to be upping their government tithes… or else…

From The Associated Press:


“‘If we don't get my option through the Senate right now and we do nothing, then on Jan. 1 of this 2011, the average family is going to see their taxes go up about $3,000,’ [Obama] warned.

“‘At any given juncture, there are going to be times where my preferred option, what I'm absolutely positive is right, I can't get done,’ the U.S. president said, stabbing his finger for emphasis.

“‘And so then my question is does it make sense for me to tack a little bit this way or tack a little bit that way because I'm keeping my eye on the long term and the long fight.’”

I got your long fight right here, Barack…

Tax Revolt: The Rebellion Against an Overbearing, Bloated, Arrogant, and Abusive Government




A powerful rallying cry to all Americans to continue to fight against ever-increasing taxes…

By exploring the crippling effects of taxes on our economy and the lives of each individual citizen and drawing from the stories of other revolts, Phil Valentine will anger and incite readers to action, giving them the motivation and know-how to spread the word and activate a powerful new revolution.

At the Whiskey Bar, we’ve never met a tax cut we didn’t like. In the spirit of tax revolt, we’re offering a discount on this book if you order it by clicking here.

It’s normally $24.95, but if you enter in the discount code TAX2011, then you’ll get $5 off. So be sure to order your copy right now.

Regards,
Gary Gibson
Managing Editor, Whiskey & Gunpowder

P.S.: As always, after you get the book, be sure to drop me a line about it: gary@whiskeyandgunpowder.com. We’re moving the Bar into the corner of this very nice bookstore, and there will be a lot of reading to do and a lot to discuss.

CORPORATE COMMUNISM

"What is happening with Wall Street being bailed out by the BUSH REPUBLICAN Administration is "CORPORATE COMMUNISM". This is a term I made up to describe the DICTATORSHIP of BIG MONEY in the U.S.A. This is a REVERSION TO FEUDALISM.

These Wall Street executives need to be put in prison. They cannot be rewarded for behaving irresponsibly. They have done to us what Islamic terrorists could not do. The Republican Administration let them do this. If you have any question about this all you have to do is read "Worse Than Watergate" by none other than former Richard Nixon Counsel John Dean! They have done to us what Islamic terrorists could not do. The American people now have to PAY for THESE CORPORATE SCUMBAG-COMMUNISTS. This is PROOF that there is NO SUCH THING AS A FUNCTIONING FREE-MARKET ECONOMY.It is also PROOF that there is not too much government like republicans claim because if they were correct and followed their own advice they would not have NATIONALIZED AIG,Fannie Mae and Freddie Mac. Also had there been enough or sufficient regulation then this would not have been allowed to occur."

William H. Stewart,MBA,Finance- The George Washington University,Cum Laude 1979