6/7/2012 5:36 PM ET|
Tear up your paper money
Modern currency is nothing without trust that governments that use it will back it. And if the once-strong euro can break, what is safe?
So what is it about money that the leaders of the eurozone don't get?
Money has been around for a while, and it's not terribly complicated.
The key element is trust. That was true when money was a piece of metal that you could bite or bounce. Now that money is just a piece of paper, it's even truer. Today's money is nothing but trust.
That's why the euro crisis is so bizarre. The euro is, in theory, one of the world's great currencies. And yet, as this crisis has demonstrated, nobody actually stands behind it. There is no lender of last resort. There is no "full faith and credit." There's nobody on the other end of the promise.
And it's as if the leaders of the eurozone wanted to go out of their way to prove it. They've taken us up to the velvet curtain and then themselves, with a self-satisfied smile, pulled it aside to show us that there is no Great Oz.
And in the process they've done major, and perhaps irretrievable, damage to their own currency and to the very idea of money in our time. If you can't trust the euro, what paper can you trust?
As solid as the solidus?
The idea of money may never have been grasped more clearly than in the Byzantine Empire, the great Roman Empire of the East.
From the time Constantine the Great minted the first gold solidus in 312 until the final coin was minted by Basil II, the Bulgar Slayer, around 1020, the solidus was minted at a steady rate of 72 coins to a Roman pound of gold, or 4.48 grams of gold per coin. When coins came back to the imperial treasury -- all taxes had to be paid in solidi -- they were melted down and restruck. No wonder most Byzantine emperors were proud to put their own images on the solidus.
And it's clear that the Byzantine emperors understood the power that owning a trusted currency gave them in the world. One of the first acts of the empire after recovering from the chaos caused by the attacks of the Seljuk Turks in Asia Minor and the Normans in Italy in the 11th century was to reverse the debasement of the currency that had begun in 1042.
By 1080 the solidus was down to 10% gold, as embattled emperors melted down older coins, diluted the gold with silver and then attempted to pay their mercenaries with cheaper money. The empire's own troops, however, refused to accept the solidus, which had been the most respected coin and the medium of exchange from India to the Baltic, as payment. In 1092, once order was restored in the empire, Emperor Alexios I Komnenos replaced the debased coins with the hyperpyron, a new coin of 20.5-carat gold. The new coins contained 4.45 grams of gold.
That's a steady currency. A drop of 0.03 grams of gold per coin in roughly 800 years.
The euro is no hyperpyron
Contrast that to the euro.
The currency was created as if it would be a monument to stability. That's why there are no provisions in the treaties that created the euro for a country to leave the monetary union and go back to its own currency.
But the reality is that the euro is way more leveraged than the solidus, even at its worst. After all, even the debased solidus still contained 10% gold.
Start with the European Central Bank. The bank has official equity capital of just 6.5 billion euros, roughly $8.2 billion. That tiny bit of capital supports a balance sheet that now totals 3 trillion euros -- about $3.8 trillion.
How is this possible? It's possible because the European Central Bank is essentially owned by the national central banks of Europe. They have contributed the bank's capital in exchange for ownership stakes in the bank. Through that structure, the European Central Bank has a claim on these national central banks.
It you think of it structurally, each national central bank owns a share of the European Central Bank's balance sheet. All those Spanish, Greek and Italian government bonds, all those mortgage-backed assets, all those loans to French and German corporations that European banks have used as collateral for loans from the European Central Bank ultimately belong, for better or worse, to national central banks.
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Gold Smold.... Gold is useless unless you need it for industrial uses or can make jewerly that someone will buy/trade for..
Cigarettes, stable foods, water, guns, ammo, weapons, clothing and alchohol is what will be used as money in the not so near future. Why do you think the Social Security Administration just bought 170,000 rounds of ammo. Our governement is gearing up for battle with the population! They aint been telling us the truth about our economy...imagine that. It's all smoke and mirrors!
If we had stayed on the gold standard then our "paper" money would be based on something tangible. This collapse is by design, and the elite have been planning the NEW WORLD ORDER for decades.
One possibility would be hyper-inflation and a mad dash to convert euros to some other currency that would feed the hyper-inflation - not a good scenario.
Another may be a "move" of the operations base to another country with a more solid currency, with only the euro-country operation left subject to the hyper-inflation - maybe a little better for the stockholders.
Did this situation exist with international corporations in Argentina or Brazil? If so, what was the outcome?
Cash money is the only means of exchange that leaves no paper trail and doesn't require two forms of ID. The government hates this.
Hence, all the pithy articles about how unsanitary and inconvenient a dollar bill is. Don't drink the Kool-Aid.
Still, I can't help thinking about the humor of the situation if the government actually bought into the hard money lunacy of the gold bugs and then just confiscated all the gold.. it wouldn't be a good thing, nor would I advocate anything so stupid as going back on the gold standard, but it's funny to think about..
Is the author and his minions willing to tear all their own money up first? better yet just give it away?
Hey Jim go try and buy a new car or a big mac using gold dust.....
why do you guys continually print this garbage anyways? The gov't will take your gold. then what?
Blame barak Obama? It wont be him that does it. It will be one of the group that got us here in the first place.......The Republican party of lizards. The oath is to take everybody down who isnt with them.
Its like you people are seeking Immortality through the accumulation of wealth.
The incredibly naive and misguided notion of "it could never happen here" will ensure it most certainly will. The vast majority will never see it coming, much less prepare. Now would be a really, really good time to divest oneself of dollar-denominated equities, and buy hard commodities, food storage staples, and precious metals. It's not the end of the world per se, but it will seem like it to those who don't take steps now.
I agree with your premise that most, if not all, the discussion is in regards to the liability side (National Debt) and the cash flow (taxes vs spend) deficits.
If you just focus on the US Gov’t balance sheet, then what are the total assets of US Gov’t.
I ask this question to set up a follow-up discussion.
* Why does the sovereign nation of USA have to borrow from anyone to spend ? (hint: it doesn’t)
* We have a system where a cartel of banks is more credit worthy than the US ?
Other than the fact that the system was set up by said cartel to ensure a perpetual flow of cash (interest on debt), there is no justification for the US Gov’t to borrow from anyone to spend.
– The simple equation for the deficit is DEFICIT = FISCAL (spend) – TAXES (received).
– The National “Debt” is simply the ACCRUALS of DEFICITS.
Since the FRA 1913 creation of the FED, the banking cartel in collusion with congress set in law the mandate for the US Treasury (UST) to sell bonds to account for deficit spending. Given there is absolutely no reason that the USA borrow to spend ( in fact the spending occurs unabated before Bonds are sold).
Given the premise that the US Gov’t does not need to borrow to spend, the game needs to end with a new structure moving forward.
* We the People, need to demand that the current monetary/fiscal systems be changed to stop the institutional crime and corruption.
1) End the borrow to spend doctrine — US Gov’t spends “money” into existence. All new spend is in US Dollars (FRNs collected and destroyed over time)
2) Set up an account at the UST to track the accumulated deficits “TAXES DUE” e.g. Accounts Receivable, increases with deficit spend, decreases with taxes received.
3) Repeal the FRA 1913, End the FED as there will no longer be a need for a CB to perform monetary policy. FED operations, clearing, research, economy monitor and statistics functions can be absorbed into the UST.
4) Repeal the 16th amendment, end the income tax — replace with a consumption tax (e.g. fairtax.org) — This will eliminate the “Franken-tax” with perverse incentives which is loaded with special interest deductions, credits and loopholes. IRS can be downsized enormously and reduce the special interest lobby influence. A consumption tax would put in place a dynamically adjustable tax flow that tracks the variability of the GDP with a counter or pro cyclical feature to moderate the inflation/deflation forces. The tax flow would be working systematically 24×7 reflecting market dynamics which is far superior to the few inherently flawed humans that are trying to do this today (FOMC).
5) End the TBTF doctrine, ending US Gov’t backstops and/or bailouts. Allow a competitive free market to operate and return business risk back to each individual business. The owners and investors will retain the risk maintaining a more strict risk management process. Allow failure to be resolved by the market and bankruptcy processes for ALL businesses. This would reduce the special interest lobby influence.
6) Phase out and End all Gov’t subsidies, end the “pick winner and loser” doctrine to restore competitive free market dynamics.
Our current system has put us on a path of continued destruction (wealth transfer to the top) of the middle and lower class, pushing the upper middle and higher income thresholds higher. The income/wealth gap widens with the top 1% (top .1%) continuing to suck wealth from the 99%-ers. A significant structural change must be made to reverse the trend and restore America back to We the People.
People need to demand structural and fundamental changes and return to Constitutionally sound processes. The rest of the political wrangling over budgets, social policy, defense and security is a distraction and perpetuates the tangled mess of tax code, legislative process and usurping of our Constitutional rights and liberty.
Beware the man who says throw away your money, where is his?
anyone recall "10 minutes into the future"?
Living strictly on an electronic credit basis allows the govt to know exactly how much you have, no stashes, no emergency funds, and when the govt decides they want all of what you have it will be able to take it.
when you outlaw money only Obama will have it.
I can t last too long spending more money then I take in...
These Governments ran out of smoke and mirrors
how can I put this so even I understand it .
money is used for trade.
when people want something they use it to get what they want.
but what happens when people get more than they need (the rich)?
they start to put it away in other banks of the world so not to pay taxes on it .
meanwhile the lower class still spend because they need things in life to live .
but the people getting richer on the lower class keep stalking it up .
as the lower class can't afford much because they are being taxed way beyond what they earn the economy suffers because the little spenders( the rich) are not giving anything back to the economy.
well look out when their money is not worth the paper it is printed on.
WHATS THAT YOU SAY ?
AHHHH YESSSS they are ok because they can go to their reserves in other parts of the world and use it there.
DOES ANYONE FEEL LIKE THE GOV. IS TAKING ADVANTAGE OF THE LOWER AND MIDDLE CLASS ?
Money represents value. Value depends upon perception of value. Money massively facilitates the exchange of value. Money helps store the obligation to return value. Money is an IOU. It means what we agree that it means.
When people abuse their representation of stored or traded value then trust is lost. Without trust most everyone demands safety first. This leads to less economic activity. This starts the downward spiral. This is what was meant by: "We have nothing to fear but fear itself". However, This is the price that society pays for trusting the untrustworthy authorities and their cronie's ponzi schemes. At one point "paper" was traded at over 30 times what physically "backed" it in the recent financial crisis. Until the bluff was called the "paper" was really worth what was paid for it (at least to those who sold it).
Apparently it is like a big card game. Sometimes a mediocre hand wins by bluffing. Sometimes a good hand looses by folding. The system is out on a limb. It depends upon the cooperation of the majority of the people to work hard and save(delay payment) in order for said system to continue. If the majority of the people loose faith and demand immediate gratification (payment in material goods and services) then the debt will never be repaid and the system will fail.
Lots of people never live to retire and collect social security. That is why social security can pay them that do. The same is true of other things in life. Lots of people die having given more then they took from society. That balances out the few that took much more then they gave. It may not be fair but that is how it works. If we all loose faith in this unfair system then it will collapse and much fewer people will be able to be supported. That would lead to massive chaos, death and destruction. As bad and extremely unfair as "the system" is, it is still far better then that inevitable alternative.
A wise man once told me that life is not fair. It is more or less fair. That means that sometimes it is more than fair and other times it is less than fair. It is human nature to remember the times and ways that are less than fair to us more often then to remember and appreciate the times and ways that life is more than fair to us.
The biggest mistake this country ever made was going off the gold standard. However, the mistake was made and it’s one of those genie in the bottle things, meaning we can never go back to a gold standard without causing a monumental upheaval.
Had we as a country remained on the gold standard, the countries of the rest of the world would have been forced to remain with gold as well.
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