Poison Money

BALTIMORE – We live in a world of sin and sorrow, infected by a fraudulent democracy, Facebook, and a corrupt money system. Wheezing, weak, and weary from the exertion of trying to appear “normal,” the economy staggers on.


David-Simonds-zombie-high-011Staggering on….

Image credit: David Sidmond


Last week, we gained some insight into the ailment. Something in the diagnosis has puzzled us for years: How is it possible for the most advanced economy in the history of the world to make such a mess of its most basic bodily functions – getting and spending?

By our calculations – backed by studies, hunches, and deep research – the typical American man (it is less true for women) earns less in real, disposable income per hour today than he did 30 years ago.

He goes to buy a car or a house, and he finds he must work longer to pay the bill than he would have in the last years of the Reagan administration. How is that possible? What kind of economic quackery do you need to stop capitalism from increasing the value of workers’ time?

What kind of policies and circumstances are required to stiffen its joints… clog up its innards… and rot its brain? Globalization? Financialization? Bad trade deals? Too much red tape? Too many cronies? Too many zombies?


nonsequitor_cartoon_comic_first-economistWe can identify at least one source of the quackery…


All of those things played a role. But our answer is simpler: poison money. The bigger the dose… the sicker it got. When you say you “have some money,” you usually believe that there is, somewhere, an electronic database in which it is recorded that you are the owner of some amount of currency.

You have $100,000 in your account, right?   Does it mean that there is a little cubbyhole somewhere, with your name on it, in which you will find a stack of 1,000 Ben Franklins? Nope. Not even close. No cubbyhole. No stack of money. No nothing.

Does it mean the bank is carefully guarding some 1s and 0s, digital information proving that it at least “stores” your money in its database? Nope again! What it means is there is a financial institution of uncertain integrity… with a complex electronic balance sheet of uncertain accuracy… listing alleged financial claims and contracts of uncertain quality…

…and that you are one of the many thousands of entries on the debit side… with a claim to a certain number of dollars… which the institution may or may not have, each of uncertain value.


willie-sutton-2When prolific American bank robber Willie Sutton was asked why he robbed banks, he reportedly said “Because that’s where the money is”. Not anymore, not really.

Photo credit: Allan Grant


Today, banks – and this could be said of the entire financial system – no longer have “money.” They have credits and debits. Your deposit is your bank’s liability and your asset.

But look at the balance sheet. You don’t know how many of the claims shown on the left are right… or whether, when the other creditors get finished with it, any of the assets shown on the right are left. All you know is that the system works. Until it doesn’t.


System Seizure

For many months, we have urged readers to prepare themselves for problems. One day, the accumulation of contradictions, misinformation, and plain old “trash” in the system will cause a seizure. You will go to the ATM, and it won’t work.

That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it. Of course, we don’t know for sure that that day will ever come. We are always in doubt, especially about our own forecasts.


temporarily-out-of-order-533x400And then, one morning…

Photo credit: sxc


Still, the potential problem seems likely enough… and grave enough… to justify some minimal precautions. You might cross the street blindfolded without getting run down, but it is still a good idea to look both ways. Usually, we look to the right… where we see the problems inherent in a credit-based money system.

The feds can create all the credit they want. But real people can’t pay an infinite amount of debt service. Like a junkyard dog reaching the limit of his chain, the credit cycle has a way of jerking people back to reality.


Real Money

But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves. It can be attacked by terrorists. It can be shut down by accident. Even a “bug” could bring it to its knees.

And then what? How will you get money? How will you spend it? How will you buy gasoline or food? Our advice: Keep some cash on hand. Make sure you own some gold, too – real gold, coins that you can hold in your hand and you can flip to your grandchildren.

“Hey kid,” you say with a knowing and superior air, “take a look at this. This is real money. You don’t have to plug it in.” By the way… Gold just had its best quarter in 30 years. Do buyers know something? Maybe.


Spot GoldDo the buyers know something? Maybe they do… – click to enlarge.


Chart by: BarChart.com


Chart and image captions by PT


The above article originally appeared as Our Favorite Way to Own Gold at the Diary of a Rogue Economist, written for Bonner & Partners. Bill Bonner founded Agora, Inc in 1978. It has since grown into one of the largest independent newsletter publishing companies in the world. He has also written three New York Times bestselling books, Financial Reckoning Day, Empire of Debt and Mobs, Messiahs and Markets.




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2 Responses to “Rotten to the Core”

  • woodsbp:

    “You will go to the ATM, and it won’t work.”

    Big deal? Nope. You just will have to be a lot more careful (as in disciplined) – you know like, with your cash purchases. Its an olde value that seems to have been forgotten.

    “That day, your life could take a big turn to the downside… depending on how widespread the problem is… the cause of it… and how you prepared for it.”

    Nope, again. Now if you were talking about the loss of electricity: that would indeed be a big downside. I encountered one recently: an entire shopping mall was shut down for 2 hours. Not even cash customers could be served – tills needed electricity! It was a shortage of electrons – not money!

    Money is not an economic ‘problem’. Its more likely widespread income poverty. Even Adam Smith recognized that a man needed a specific level of wage-income (in a productive, capitalist economy) in order to provide the necessaries for himself and to raise and sustain a family. A service, capitalist economy will have real difficulties in providing such wage-incomes. As we are discovering.

    Gold? Nice to look at, but a tad tricky to use as currency. 99.999% of population have no fungible gold – and would not really know how to use it. Nice try though.

  • wmbean:

    Money as the root of all evil, who would have thunk it? Actually, our present situation is not too far from “The Brave New world” in which technology is restrained so as to provide full employment and where individuals are programmed to spend their non working time and their incomes, saving is not permitted. I guess the FED and the financial sector forgot about the need for employment, even the most menial type.

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