Prehistoric problems with fiat
currency By The Mogambo Guru
As I was reading the first paragraph of
the Weekly Watch in Doug Noland's Credit Bubble Bulletin, I
was struck by how many year-to-date stock market
sector losses there are, which are also (since
this is just the early part of February) the
losses of one freaking month! One month! Yikes!
As my boss so recently said to me in
reviewing my job performance, "Let's take a look
at the damage shall we?" He had this strange,
twisted smile on his face as he said it, which was
(it turned out) a Very Bad Sign (VBS) of what was
to come, which seems so obvious in retrospect.
But I was already attuned to the fact that
something was amiss, as we were in his office, the
doors were closed, his secretary was
taking everything all down in
her little pad, and Carl from Rabid Dog Security
Service was standing by the door, looking more
menacing than usual.
So, similarly, I say,
"Let's take a look, shall we?", as a way of being
ominous. The losses are; down 8.2%, down 9.3%,
down 7.1%, down 7.6%, 8.3%, 7.5%, 14.9%, 14.6%,
14.3%, 11.4%, 12.1%, 7.6%, 6.1%, and 0.7%, down,
down, down! Whew! These are staggering, staggering
The only two things that were up
year-to-date were the Dow Transport index (up
3.1%) and HUI gold index (up 8.4%).
from news.bbc.co.uk we get January's results from
representatives of the largest stock markets
around the world as being down 22.7%, down 21.4%,
down 16.1%, down 16%, 12.3%, 8.9%, and 6% down,
down, down! 50 out of 52 stock markets in the
world were down, so that $5.2 trillion was lost in
I think I know why, and the
evidence is contained in many places. The first
place is in my clinical record, which chronicles
my incessant fixation and fear about inflation in
prices that always follows inflation in the money
supply, usually thanks to a fiat currency, or
banking excesses, or (as we disastrously have now)
both at once.
Even though most Earthlings
do not like to be told how stupid they are, it is
a good thing that they are stupid, because if
"homo dumbo" truly, truly comprehended the sheer
horrifying enormity of what is going to happen
because of all of this incomprehensible debt and
leverage financed by the Federal Reserve, they
would crap in their pants in sheer terror and it
would stink like hell.
Another place to
look for evidence is anywhere you look in the
whole history of the freaking world, even
dip-squat little prehistoric places out in the
middle of nowhere, where the primitive people used
mastodon crap for money, which was stupid because
there was mastodon crap everywhere, and so the
money supply was unlimited, so inflation destroyed
them all, too, but who can almost be excused for
adopting such a stupid money and economic system
because they had tiny little brains, and whose
entire language system apparently consisted of
about 30 words, five of them being various nuances
of "mastodon crap".
In short, Every
Freaking Time (EFT) in that selfsame history of
the world that a moron country tried to make an
economy out of a fiat currency or mastodon crap
(which differ only in the kind of wallet you have
to carry around), they failed catastrophically as
the inflation in prices from such a huge inflation
in the money supply destroyed them all, and there
were lots and lots of angry, angry people all
along the way.
And the other EFT thing is
that every freaking time that the banks were
allowed to vastly multiply the money supply to
abet the scams of lying financial sharpies and/or
the government (as eerily redundant as the terms
are), the country also failed catastrophically
from inflation in prices, and there were lots and
lots of angry, angry people all along the way.
In case you were wondering, the only
economies that did NOT fail for
monetary/inflationary reasons were those that used
gold and silver as money, which meant that the
money supply was always a relative constant. And
that is why the Founding Fathers put it into the
damned Constitution of the United States of
America that only gold and silver can be money.
And while we are talking about it, the
Constitution didn't say anything about allowing a
central bank to be given total control over the
money and economy!
To prove it, I present
Jim Cook of InvestmentRarities.com, who, in his
essay, "Sweeping Towards Destruction", quotes
George Washington warning in a letter, "Paper
money will ... ruin commerce, oppress the honest
and open the door to every species of fraud and
And history shows that sound
money worked like a charm, too, as we learn from
the essay, "Dishonest Scales" by Larry Beane
writing at LewRockwell.com. He writes that, "From
1790-1913, the United States dollar was constant.
It was tied to gold and/or silver. A dollar bought
pretty much the same thing for Thomas Jefferson as
it did for Teddy Roosevelt. A careful look at
inflation rates from 1790-1913 shows some minor
fluctuation, but for the most part, a 1913 dollar
was the same as an 1850 dollar, and was the same
as a 1790 dollar." Now that's money!
see you nodding off, as my predictable "gold is
money" tirade is old stuff to some of you, but
this is not about gold, but about how people are
losing money, lots of money.
And it is
made absolutely terrifying when you learn that all
of the money that has been lost is, amazingly,
borrowed and is still owed! Ha ha ha! This is the
downside of having an economic system where debt
creates money! Ha ha ha!
In other words,
the asset you bought with the borrowed money may
be gone, but the debt remains until defaulted
upon, which kind of rhymes, so you know it must be
true, especially if it was sung by somebody famous
and it had a really killer guitar solo, too, in
the middle, going waaahhh aaaa wahhhhh! Waaahhh
And not only that, but the
humongous clot of money and debt was originally
used, not to expand production of goods and
services demanded by the free market and thus
raising the general standard of living, but to
expand the size of governments, their programs and
the sheer number of people whose incomes depend on
it, until total government spending is now, even
nominally, half of GDP! Ha ha ha! We're so
At this point I will
pause in my lecture, as I seem to be gagging up
blood at the sheer horror of such a thing, and I
feel a cold, clammy chill sweep over me, sort of
like when I ate those 10-cent tacos and got sick
as a dog. I knew I shouldn't eat them, as they
smelled kind of bad and tasted weird … But damn!
They were only 10 cents apiece! A dime! Think of
the money I saved!
It was, in retrospect,
the best dollar I ever spent on food, as I was not
hungry again for a week, and I lost a lot of
weight from throwing up and squirting into the
toilet all the time.
So I ended up with a
better mass/height ratio and saved even more money
by not eating, since nothing would stay down for
the first few days!
But this is not about
me and how I no longer buy food from guys I
happened to meet in the parking lot of an adult
bookstore, regardless of the cost/benefit ratio,
but about all the losses in all the stock markets,
and how I say it is because of inflation that is
killing us all.
Finally back on track, Mr
Noland points to the CRB Commodity Index,
which looks like it has risen to about 370 from
about 230 in mid-2003! Prices are 61% higher than
they were five years ago! That's 10% a year
inflation! I was right! Inflation is killing us!
And if that ain't a "case closed" on the
failure of the Federal Reserve's stated mission to
maintain stability of prices/value of the dollar,
then, as they say, grits ain't groceries!
Richard Daughty is general
partner and COO for Smith Consultant Group,
serving the financial and medical communities, and
the editor of The Mogambo Guru economic newsletter
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