"What's your solution?" asked a Daily Reckoning reader. "Or isn't there one? If
the world's population is going to implode, will that be through mass
starvation/dehydration? Or will we run out of beer and all end up killing each
other? Or will a terrorist bomb wipe us all out first? Will technology save the
day? Isn't the whole thing survival of the fittest? Is survival of the fittest
really the best way of describing it for the human race? Or is it more 'luck'
... Is there a solution, or do we just sit back and watch the world fall
apart?"
Since The Daily Reckoning people did not laugh at that question, although it
deserved it, neither will I, but I want to. The answer, sans laughing, is that,
like the "combination" menu at an old-time Chinese restaurant, it is some from
Column A and some from Column B, although instead of you chowing down on some
delicious Chinese grub and making goo-goo eyes at the pretty
little China-doll waitress, various poisons are crammed down your throat and
almost everybody dies, and it costs all your money.
And the reason I say this with such conviction is that not once in 3,000 years
of governments spending more than they had, even using a fiat currency that can
be created at will in unlimited quantities, not once has it not ended badly.
Very badly.
And the worst of all is when a government creates too much fiat money, like
now, and now all that money that has been created around the world has to be
spent on something, driving up the price, and the people who sold that
something made a profit, and then they will spend the money on something else,
driving up the price of that, too.
Around and around the money goes, and pretty soon the price of everything is so
high that people can't afford to buy stuff, such as gasoline and food, and then
they get all aggravated and panicky, and they will come over to my house asking
me to lend them some money, piteously crying out "You're my brother! Help me!"
and "You're our son! Help us!" and as I am slamming and locking the door in
their faces, I yell out, "Me no speakee English! Go away!"
Experience has shown that they are not going to be satisfied with that
response, nor with the explanation of why prices are so high, which I was going
to give them in the form of Thomas Donlan's editorial commentary in this week's
Barron's. He writes, "Bernanke told a credulous audience last week that higher
oil prices were driving up the risk of inflation. This is exactly backward:
inflation has already happened. Price increases for oil and other goods are
occurring now to reconcile the prices of things with the depreciated value of
paper money."
Then he gets to the interesting part when he says, "The fundamental problem,
however, is not paper money. It's not the long absence of a gold standard. Here
and everywhere, the inflation problem is an absence of moral commitment to
maintaining the value of money," and that all we need are "monetary authorities
and political masters who read the markets and take action to maintain a
constant value of money." Hmmmm!
Naturally intrigued, I tried this out by posing a similar situation to my wife,
and asked, "Why do we need joint ownership of stuff? Let's put it all in my
name and you can trust me!"
I will not describe her insulting response, but I will say that this reminds me
of a past conversation with Junior Mogambo Ranger (JMR) Phil S when I took that
very stance. Phil, on the other hand, would have none of it, and easily
countered my argument with the fact that to trust politicians and bankers to
"do the right thing" and not buy votes, or make as much profit, by creating too
much money, is too much to ask, as the entire history of mankind attests, with
sad story after sad, miserable story of national suffering and pandemic
bankruptcy at the hands of politicians and bankers doing exactly that!
And that is why the Founding Fathers, while writing the constitution, scratched
out the part where it said "Bankers and politicians will please refrain from
destroying a fiat money by over-issuance", and instead revised it to read that
it was, instead, illegal to "make anything but gold and silver coin a tender in
payment of debts", and for the sole reason is that it is impossible to increase
the money by printing gold!
Byron W King at Whiskey and Gunpowder surprisingly says that even adhering to
the constitutional requirement of gold and silver as money to achieve a stable
money supply may be old-fashioned, as "Oil is now serving as the source of
global monetary discipline that gold used to perform. Oil supplies are severely
constrained. Dollar supplies aren't. In the era of Bretton Woods, the global
monetary system followed the golden rule: 'He who has the gold makes the
rules.' But today, the 'rule of crude' dominates."
So you want to know who is buying and stockpiling oil? Easy: "That's why
today's oil buyers, like the late French president Charles de Gaulle, are so
eager to exchange their dollars for a tangible asset. De Gaulle shipped
France's dollar reserves across the Atlantic in exchange for gold bars from the
vaults of Fort Knox. Today oil traders are shipping their excess dollars to the
New York Mercantile Exchange in exchange for barrels of oil. The motives are
identical. Only the underlying monetary asset has changed."
How interesting: Trying to preserve buying power with advanced purchases of
oil! Sort of like buying gold and silver, but messier. Stick with silver and
gold. You'll be glad you did, as your motives are the same as everybody else's,
and nothing will preserve your buying power like precious metals! Whee!
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 - an avocational exercise to heap disrespect on those
who desperately deserve it.
(Republished with permission from
The Daily Reckoning. Copyright 2008, The Daily Reckoning.)
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