Idaho's Weekly Journal of Local & National Commentary Week 2815


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by Free Market Duck

Recession 2008:
The blind leading the blind

(Oct 6, 2008)

 “If we don’t loosen up some money into the system, this sucker could go down,” – President Bush, White House Summit

Washington, DC – Whoa, girl friends, listen up, gather round, shut up, and pour yourselves another hot cup of Rocket Java.  Something’s wrong with our money, the U.S. Dollar.  Something about the definition of our paper money (and coinage for that matter) is not quite right; something is missing.

   What’s missing in the definition of our money, the U.S. Dollar?

   The U.S. Dollar is not “capital.”  The U.S. Dollar is not “liquidity.”  The U.S. Dollar is not a redeemable promissory note.  The U.S. Dollar is not backed by gold -- or our GDP, as some economists erroneously argue.  The U.S. Dollar is just a piece of paper with green ink and a picture of a dead president.  You know what:  the U.S. Dollar, by all definitions, is not money.  So what is it?  What’s missing?

   What’s missing is a clear definition for the Dollar.  Prior to going off the gold and silver standard, the U.S. Dollar was defined as X-grains of silver or Y-troy ounces of gold at a specific purity, say .995 pure.  Today, having gone off the gold standard, the Dollar is not defined, which means that what’s missing is:  the U.S. Dollar has no real stated value.  As soon as the U.S. Dollar was disconnected from gold or silver and from gold or silver certificates (redeemability as a promissory note), to being simply a piece of non-backed paper, it lost its meaning, it lost its definition, its value.

   How did this transformation of our money take place?

   The Keynesian economists, those who changed the definition of the U.S. Dollar from being a redeemable promissory note backed by gold to just a piece of paper, have offered up the erroneous excuse that the U.S. Dollar is backed by America’s Gross Domestic Product (GDP).

   But inferring that our GDP can act as backing for the U.S. Dollar is not a legitimate concept, so let’s examine this lame definition.

   First, a promissory note qua “money” is defined as a legal promise to redeem something, some type of collateral.  (Technically, paper money is a mercantile receipt for a stored good in a warehouse, or a bank.)  But neither the Federal Reserve, the U.S. Treasury, or the U.S. Government owns America’s GDP, its cars, houses, TVs, or any of your or your neighbors’ private property and, therefore, the Fed cannot print U.S. Dollars for collateral that it doesn’t own.  Let me say that again:  you cannot print promissory notes for items that you don’t own.  America’s GDP cannot serve as collateral for the U.S. Dollar.

   Second, attempting to define the U.S. Dollar as a legal piece of paper backed by our GDP (the sum of everybody’s private property valuation) is an oxymoronic concept.  It is a circular argument, since the concept of GDP – the supposed Dollar value of America’s commodities and services – already presumes the existence and, thus, a definition of the Dollar in order to calculate the GDP in the first place.  Think about it.  This is an illogical and circular argument.  One cannot define one term, the U.S. Dollar, with another term, GDP, the latter of which already includes the definition of the first term that one is trying to define in the first place, i.e., the U.S. Dollar.  To say that the value of the U.S. Dollar is defined as America’s GDP is a tautological argument because the definition of GDP already presumes (includes) the definition of what a Dollar is, the very thing you are trying to define.  Once again, the U.S. Dollar cannot be defined as “being backed by” our GDP.

   Third, even if America’s GDP could act as backing for the U.S. Dollar -- which it can’t, for all the above reasons -- the current U.S. GDP is $15 trillion and there are some $500 trillion in toxic derivatives floating around in the market today (thanks to the Fed Reserve central bankers and their Wall Street buddies).  That means the Federal Reserve has issued (or allowed to expand) U.S. Dollars to the tune of 33 times the level of our current U.S. GDP, that is, 33 times $15 trillion equals $500 trillion or $485 trillion more than our current GDP.  So the Big Question is:  for what purpose did the Federal Reserve issue (or allow) paper money and credit that is 33 times the level of our current GDP?  Better yet, if the GDP backs the U.S. Dollar, then what’s backing the extra $485 trillion floating around in the economy and how does that affect the Fed’s definition of the Dollar?  Why did the Federal Reserve issue (or allow Wall Street Bankers to create) $485 trillion MORE in U.S. Dollars if U.S. Dollars are supposedly backed by a $15 trillion GDP?

   The obvious answer is:  so the central bankers, politicians, and their Wall Street buddies could counterfeit (counterfeit the value of, i.e., inflate) our non-backed, non-defined U.S. Dollar and enrich themselves through all sorts of various monetary schemes by which they exchanged newly created Dollars (since they receive them first) for everybody else’s real goods and services:  e.g., million dollar salaries, bonuses, cars, yachts, multiple houses (mansions), private jets, vacations, etc.  Twenty-five percent of the richest Billionaires in last year’s Forbes’ Fortune 400 Club were Wall Street bankers and it took a minimum of $1 Billion to join the Club.

   The truth is that the U.S. Dollar is not backed by our GDP, neither in concept nor reality.  The entire concept is false and serves only as a ridiculous excuse by pseudo-academics in nearly all the Economics Departments of America (and abroad) to provide themselves with a job in their Fascist Business Model for the market.

   So, now we have answered our initial question regarding, “What’s missing in the definition of our money, the U.S. Dollar?”  The answer – and, therefore, the problem -- is, as it has been all along:  since the central bankers and Congress have stripped away all gold and silver backing, the U.S. Dollar has no real defined value.  It has no redeemable backing.  It is not “capital.”  It is not “liquidity.”

   The U.S. Dollar, in concept and reality, is not real money and has no logical definition as a true medium of economic exchange.  It is simply a piece of paper masquerading as money.  It is nothing but Pulp Fiction.

   Ideas are important.  Especially in economics.  Note that once you believe the concept that the U.S. Dollar does not have to be backed by a tangible commodity such as gold or silver, it is just a short corollary step to the same idea that subprime mortgages do not have to be backed by a tangible house, or at least the true value (not 150% of a false market value) of a house.  After that, it’s just another short conceptual step to claim that all kinds of commercial paper, Treasury Notes, Bonds, structured investment vehicles, hedge fund derivatives, credit default swaps (insurance on the non-backed toxic derivatives), and hundreds of other types of cleverly created Wall Street “investments” also do not have to be backed by anything tangible.

   In short, the mistaken idea of the Keynesian Econometricians that the U.S. Dollar does not have to be backed by gold has inexorably led to the same concept that no investment paper on Wall Street needs to be backed by anything tangible.  That’s how a $15 trillion GDP economy can balloon (hyper-inflate) into a $500 trillion (and climbing) economy full of toxic paper trash.

   The lack of a gold standard, a real definition for the U.S. Dollar and all other global currencies, has led to today’s financial market meltdown.  That’s why the 2008 Recession is global.

   Going off the gold standard has caused all the following Effects we recognize as Inflation, Recession, Depression, and Stagflation.  More specifically, these Effects inexorably led to further symptoms including price inflation, high unemployment, trade deficits and surpluses, a boom-bust business cycle, large gyrations of stock prices on every global stock exchange, the reluctance of banks to loan money and other commercial paper to each other because nobody knows how toxic everybody else’s inflated derivatives may be (including the holders themselves), and ad economic infinitum.

   Since the Dollar is not defined, neither are the toxic derivatives.  Non-backed paper can never be a substitute for gold.

   The entire world has mistakenly adopted the concept that paper money does not have to be a receipt for a tangible commodity, such as gold.  One cannot disregard the laws of Cause and Effect.  The Cause of our economic problems -- the lack of a defined Dollar, i.e., paper backed by gold, and, thus, the lack of any meaningful measuring stick by which businessmen and everybody else can logically measure, forecast, and calculate the future prices for commodities and services according to subjective evaluations of supply and demand in a free market economy, have been completely wrecked, subverted, and totally screwed up by the central bankers of every nation who have stripped the world of a 100% (non-fractional reserve) gold standard.

   In a wild-ass attempt to transform economics into the science of physics by erroneously applying differential calculus to human actions, the Keynesian Econometricians with their “targeted inflation” of non-defined paper money and credit have bankrupted both the science of economics and the U.S. and global economies.

   Because our Treasury Secretary Hank Paulson and Federal Reserve Chief Ben Bernanke and all of their Keynesian Econometricians have defaulted on the basic concept of “What is the definition of money, the U.S. Dollar,” they are erroneously trying to “save” the nation and the global economy by exactly the wrong method:  namely, printing up and injecting more non-backed, irredeemable, non-defined money into the market.  They erroneously think that the reason banks refuse to lend to each other is because there is a shortage of money, or “capital,” or “liquidity.”  Nothing could be further from the truth.  Once again, the reason banks are refusing to lend to each other and to businesses and individuals is because there is too much non-defined money, too much non-defined “capital,” too much non-defined “liquidity” in the market.

   Injecting more non-defined paper and credit into the market – as every central bank and government in the world is now doing – is exactly the WRONG action to take and will create Super Hyper-Inflation of everybody’s currency until finally, the entire global monetary system must come crashing down.

   Once again, the U.S. Dollar is not “capital.”  The U.S. Dollar is not “liquidity.”  The U.S. Dollar is not a redeemable promissory note.  The U.S. Dollar is not backed by gold -- or our GDP, as some economists erroneously argue.  The U.S. Dollar is just a piece of paper with green ink and a picture of a dead president.  The U.S. Dollar, by all definitions, is not money.

   What’s missing is that the U.S. Dollar has no real value.  As soon as the U.S. Dollar was redefined from being a redeemable gold or silver certificate, to being simply a piece of paper, it lost its meaning, its definition, its value.  And so have all the toxic derivatives floating around in today’s markets.

   Finally, since we know The Cause, the solution is very simple:  (1)  Create a new U.S. Dollar that is backed 100% by American’s 216 million ounces of gold, (2)  Allow the new gold-backed U.S. Dollar to float alongside the current Federal Reserve Note until everybody finally dumps the non-backed Federal Reserve Note – give it a week or two, seriously a year or two, (3) Eliminate the private Federal Reserve central bank, and (4) Congress should do their job of re-setting the value of the new U.S. gold Dollar to whatever the free market says it is and delegate the minting and printing of gold and silver coins and gold and silver certificates to the Bureau of Engraving and Printing in the Treasury Department.  All U.S. paper money should be 100% backed and redeemable.  Period.

   As a postscript, please note that none of our current market and financial crises – or Congressional deficits, earmarks, and outrageous future entitlements that America will never be able to pay -- could have happened if the U.S. had been on a free market gold standard with a defined tangible value for the U.S. Dollar.

   Granting the uncontrolled expenditure of trillions of non-defined Dollars to the discretion of the Secretary of the Treasury and the private Federal Reserve is criminal.  Allowing these two institutions the authority to increase America’s national debt by purchasing the toxic trash of Wall Street is not only NOT the answer to our financial meltdown, it sets an extremely dangerous political precedent vis a vis erasing checks and balances between our branches of government.  In fact, the recent authority granted to the Treasury and Fed Reserve under the $700 Billion Wall Street Bailout Law is essentially a coup d’etat of the U.S. Constitution and Bill of Rights, with a concomitant erosion of every individual’s social and economic freedoms.

   Time for all nations to get back to a real monetary system, gold and silver, and dump all their non-backed, non-defined Pulp Fiction.  It’s not nice to try and fool Mother Nature. – FM Duck

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