It all seems so systematic, arranged, and orderly. Sixty seconds make a minute, 60 minutes make an hour, 24 hours make a day, and one day equals one complete rotation of the planet earth. Roughly every 30 days the moon orbits the earth – which is one month. Then every 12 months the earth orbits the sun – which is one year. So far so good…right?
Oldish German calendar.
Image via sciencesource.com
But here’s where the nice and neat order of it all breaks down. For if you try to measure one of earth’s orbits of the sun in days it’s not so divinely tidy. For it takes 365 days plus an inconvenient 6 hours to fully complete the cycle. Nonetheless, we don’t let these inconvenient 6 hours hamper our perfection.
We’re humans, after all. We innovate, invent, and make the world in our image. So when the numbers don’t jive, we do what must be done. We fudge them. We create an off balance account, we concoct a new theory, we contrive negative interest rate policy…and we invent a leap year.
This coming Monday is the day the books must be reckoned. Peering into our off balance account we find 24 accrued hours that must be tallied up and rectified. Consequently, we must have a day of correction for the disorder of the last four years. We must resynchronize the calendar year with the astronomical year. Moreover, we must reground our measuring system with its baseline – its reference point.
Did you really think we’d let you get away with that calendar-fudging, oh Julius? February 29? Seriously?
Photo credit: MGM/Turner Ent.
Without this resynchronization, what’s a year really measuring? Perhaps, the calendar wouldn’t get too off kilter for a decade or two. But in just 28-years the calendar would be off by an entire week. Not long after that, the calendar would be debased to nothing more than etched lines inside a cave dwellers grotto.
So goes the dollar – or any paper money – when it’s not backed by gold or some other commodity that can’t be created at will. For without a stable base to hold its supply in check, what’s a dollar anyway?
It’s abstract, indefinite, and arbitrary. It can be created out of thin air at the whims of the Federal Reserve. A pocket full of dollars one day and you can buy the things you want and need. On the next day these same dollars can revert to their intrinsic value…fire tinder or toilet paper.
Gold to paper currency conversion once limited the Federal Reserve’s money creation games. But that was before the U.S. severed the dollar’s relationship to gold and commenced the dollar reserve standard. Prior to 1971, a foreign bank could exchange $35 with the U.S. Treasury for an ounce of gold. After that, when foreign banks handed the U.S. Treasury $35, they received $35 in exchange.
Nixon announces that he will “temporarily” default on the convertibility of the dollar into gold. One cannot show this video often enough, because it is such an excellent example of a government official lying as soon as he opens his mouth, with every single sentence he utters. It also betrays a frightening degree of economic ignorance.
Unlike gold, which has no debt obligation or counterparty risk, dollars can expire worthless when their promissory obligation is defaulted on. Alternatively, they can be inflated to nothing when a desperate Federal Reserve moves to dropping suitcases of money from helicopters over major urban centers.
If this helicopter drop concept is new to you let me assure you that it is no joke. In fact, this is what former Federal Reserve Chairman, Ben S, Bernanke, said the Fed would do in a time of financial crisis. He laid it out very clearly in his November 21, 2002 speech, Deflation: Making Sure “It” Doesn’t Happen Here. Then as Federal Reserve Governor (now former Chairman), Bernanke had the following to say…
“The U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. Government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the price in dollars of those goods and services.”
Later in this same speech, Bernanke made reference to a “helicopter drop,” alluding to a central banker hovering in a helicopter – dropping suitcases full of money to individuals.
Prosperity through the printing press – a proven concept since John Law!
Cartoon by Gary Varvel
Day of Reckoning Imminent
Unfortunately, that day is approaching. For without the anchor of a gold standard, financial imbalances and debt creation will continue to grow to commanding heights. Inflation, resulting in an implied default, will likely be more politically expedient than an outright default.
In the meantime, even if the dollar isn’t worthless – yet – its incessant variability is an incessant problem. How does one save, invest, and accumulate wealth when the dollar’s monetary base is continuously inflated?
When a carpenter measures the length of a cabinet as being 3 feet, he’s certain that the length measured as 3 feet will always be 3 feet. No more. No less. To the contrary, when a shopkeeper prices a 24-ounce loaf of bread at $3.93, he’s not certain that the value of one loaf of bread will always be equal to $3.93. In fact, in 1971 – the year the dollar’s last tie with gold was severed – he would’ve valued three 20-ounce loaves of bread equal to $0.89.
Has the usefulness of a loaf of bread, on a per ounce basis, really changed 1006 percent? Has its quality somehow become 1006 percent better? Of course not. Rather, the baseline used to measure the value of a loaf of bread has been twisted and contorted like a politician’s spine. The quantity of dollars in existence has increased. Accordingly, the unit value of the dollar has decreased.
Indeed, prices of individual goods and services will fluctuate to account for natural changes in supply and demand. But when money is anchored to a stable reference point, like during the classical gold standard of the 19th century, overall prices will by and large be stable.
With respect to recording the passage of time, leap year’s necessary, vital, and appropriate, for preserving the calendar year’s conformity with its baseline. So, too, today’s money needs a stable base to derive its meaning and value from.
Without such a reference point, we’ll just continue to spin out of orbit. Money will continue to accrue more zeros at the end of everything it measures. Yet what good’s a $100 dollar bill if it only buys you what a $1 dollar bill did before?
So enjoy Monday’s imminent day of reckoning. The time was there all along…it just needed to be reconciled. Alas, we have a startling suspicion that reckoning the distortions of the dollar reserve standard will not be so amiable. Though it’s necessary, all the same.
Helicopter Ben: He sure earned his nickname. The bill for all the fun is yet to be presented in full, but presented it will be.
Illustration via forbes.com
Charts by: St. Louis Federal Reserve Research
Chart and image captions by PT
M N. Gordon is the editor and publisher of the Economic Prism.
It is that time of the year again – our semi-annual funding drive begins today. Give us a little hand in offsetting the costs of running this blog, as advertising revenue alone is insufficient. You can help us reach our modest funding goal by donating either via paypal or bitcoin. Those of you who have made a ton of money based on some of the things we have said in these pages (we actually made a few good calls lately!), please feel free to up your donations accordingly (we are sorry if you have followed one of our bad calls. This is of course your own fault). Other than that, we can only repeat that donations to this site are apt to secure many benefits. These range from sound sleep, to children including you in their songs, to the potential of obtaining privileges in the afterlife (the latter cannot be guaranteed, but it seems highly likely). As always, we are greatly honored by your readership and hope that our special mixture of entertainment and education is adding a little value to your life!
Bitcoin address: 1DRkVzUmkGaz9xAP81us86zzxh5VMEhNke
3 Responses to “Day of Reckoning Imminent”
Most read in the last 20 days:
- Ganging Up on Gold
So Far a Normal Correction In last week's update on the gold sector, we mentioned that there was a lot of negative sentiment detectable on an anecdotal basis. From a positioning perspective only the commitments of traders still appeared a bit stretched though, while from a technical perspective we felt that a pullback to the 200-day moving average in both gold and gold stocks shouldn't be regarded as anything but a normal - and in this case actually long overdue -...
- Gold Sector Correction – Where Do Things Stand?
Sentiment and Positioning When we last discussed the gold sector correction (which had only just begun at the time), we mentioned we would update sentiment and positioning data on occasion. For a while, not much changed in these indicators, but as one would expect, last week's sharp sell-off did in fact move the needle a bit. Gold - just as nice to look at as it always is, but slightly cheaper since last week. Photo via The Times Of India The commitments of...
- Australian property bubble on a scale like no other
Australian property bubble on a scale like no other Yesterday Citi produced a new index which pinned the Australian property bubble at 16 year highs: Bubble trouble. Whether we label them bubbles, the Australian economy has experienced a series of developments that potentially could have the economy lurching from boom to bust and back. In recent years these have included: the record run up in commodity prices and subsequent correction; the associated...
- Prepare for the Unthinkable
Red Ink Growth and profits mask a variety of problems. They hide business inefficiencies and the money suck of corporate adminis-trivia. They also conceal unproductive staff. The final career leap But most of all growth and profits obscure the extreme value subtracting forces of bloated management teams. During good times it is unclear what these smug fellows do. During bad times it is lucidly clear that most of them ain’t worth a darn. When the...
- A Looming Banking Crisis – Is a Perfect Storm About to Hit?
Andy Duncan Interviews Claudio Grass Andy Duncan of FinLingo.com has interviewed our friend Claudio Grass, managing director of Global Gold in Switzerland. Below is a transcript excerpting the main parts of the first section of the interview on the problems in the European banking system and what measures might be taken if push were to come to shove. Andy Duncan of FinLingo.com (left) and Claudio Grass of Global Gold (right) Andy Duncan: How do you see the...
- Pope Francis: Traitor to Western Civilization
Disqualified There has been no greater advocate of mass Muslim migration into Europe than the purported head of the Catholic Church, Pope Francis. At a recent conference, he urged that “asylum seekers” be accepted, “through the acts of mercy that promote their integration into the European context and beyond.”* Before we let Antonius continue with his refreshingly politically incorrect disquisition, we want to remind readers of two previous articles that have...
- US Stock Market - a Spanking May be on its Way
Iffy Looking Charts The stock market has held up quite well this year in the face of numerous developments that are usually regarded as negative (from declining earnings, to the Brexit, to a US presidential election that leaves a lot to be desired, to put it mildly). Of course, the market is never driven by the news – it is exactly the other way around. It is the market that actually writes the news. It may finally be time for a spanking though. Time for some old-fashioned...
- Doomed to Failure
Larded Up and Larded Over We’ve been waiting for the U.S. economy to reach escape velocity for the last six years. What we mean is we’ve been waiting for the economy to finally become self-stimulating and no longer require monetary or fiscal stimulus to keep it from stalling out. Unfortunately, this may not be possible the way things are going. As Milton Jones once revealed: “A month before he died, my grandfather covered his back in lard. After that, he went...
- Meet Your New Stimulus Allocation Czar
March Towards Midnight The march towards midnight is both stirring and foreboding. Like a death row inmate sitting down to savor his last meal, a grim excitement greets the reality of impending doom. Thoughts of imminent mortality haunt each bite. Tic-toc, tic-toc... As far as the economy’s concerned, there’s no stopping its march towards midnight. The witching hour’s rapidly approaching. We intend to savor each moment and make the best of...
- Are the Deep State’s Drones Coming for You?
What’s Aleppo? Look out kid Don’t matter what you did Walk on your tip toes Don’t try "No Doz" Better stay away from those That carry around a fire hose Keep a clean nose Watch the plain clothes You don’t need a weather man To know which way the wind blows – “Subterranean Homesick Blues,” Bob Dylan The entrance to Baghdad's “Green Zone”. Photo credit: Karim Kadim / AP DELRAY BEACH, Florida – Biggest foreign policy blunder...
- Interview with Doug Casey
Natalie Vein of BFI speaks with Doug Casey Our friend Natalie Vein recently had the opportunity to conduct an extensive interview with Doug Casey for BFI, the parent company of Global Gold. Based on his decades-long experience in investing and his many travels, he shares his views on the state of the world economy, his outlook on critical political developments in the US and in Europe, as well as his investment insights and his approach to gold, as part of a viable strategy for...
- Donald is Right – The System is Rigged
Scams and Flimflams BALTIMORE – For weeks, the top news headlines have been about politics. And politics has been all about the Republican Party candidate for president of the United States, Donald Trump. Two very different elections... The Establishment, the media, and most right-thinking people look around and sniff the air. Something stinks. And the smell, they say, is coming from that skunk, Trump. Meanwhile, Hillary, all greased up with expensive...