What would you think of a monetary system with NO borrowing, NO taxation and NO reserves? It is simplicity itself. When the government needs some dough to build a fighter jet or provide orthodontia to a retired race horse, they just print it up. All bonds will be retired, on schedule and as issued (except TIPS, we’ll have to do something about them) but no more will be sold. Taxes? A dusty anachronism. And since this is fiat money, not based on crappy Italian cars but rather on the forceful declarations of government, there is no need to keep gold or silver stocks as the US currently does. We will call this Infinity Money, an appealing brand name. Inflation? Oh hells yeah! Hyperinflation? Perhaps so but now in the computer age the handling of numbers forty digits long is no great chore and as in the Weimar Age, once the numeric string is too long and the tail end isn’t worth a single grape we just cut off a dozen or so zeroes from all accounts on a date certain, I’m thinking midnight every Friday so you can restart the melting of your valuables fresh on Monday. This solves many, many problems. For one, we are constantly told that the billionaires and krillionaires are maliciously keeping trillions in their vaults so they can lounge among the greenbacks and deprive Danish Lit majors of productive employment. No more. Anyone who hoards our un-earned money will see it evaporate like dry ice so high-risk, high-growth investments will be the only recourse. The consumer likewise will not keep his money in his pocket because his pocket (or more accurately, his card) now has an extra-dimensional rift within it that will empty out the value at the pace of a flushing toilet. Consumer spending spikes. Investment spikes. Savings? Well, there won’t be any actual savings but there will be investment in goods and services. It is said in Weimar Berlin that the streets were awash in cocaine and prostitutes of all descriptions. Now that is an enviably energetic economy!

If you don’t like that system, friend, you had best move and not from the country but from the planet. There is scarcely a nation on the earth in which you would voluntarily reside that doesn’t follow this prescription, minus the digit shortening, for more than half of its budgetary needs and the USA is out in front. Some advances have been made, surely. Instead of printing presses that need ink, power and skilled hands we have mouse clicks. Otherwise little has changed. On the example of Weimar we don’t even have total governmental control over our virtual printing presses. The Treasury creates money (far more than they are budgeted for, an ancient barbarism) but also does the Federal Reserve Bank and if you listen to Ron Paul, many other lesser institutions also have a real if obscure power to create, rather than make, money. Now, if you could print money (don’t try it) what would you do? Unless you are quite civic minded indeed you would print and print and print and spend and spend and spend without that busted-out notion that currency should reflect something real; that it should, in fact must, be worth more than the paper it is printed on or in our case the massless electrons that give it existence.

But you are wondering, if this is what is happening, where is the $100 gallon of milk? Where is the hyperinflation or indeed any particularly noteworthy inflation? Oh, it is about. As in Weimar, our printed dollars have not been doled out from dirigibles. They haven’t even been minted to fund the Stimuli, those funds are borrowed. Rather the expanded money supply has been injected into high-flying assets, some of which are absurdly complex and without basis. Mostly this is the case because these assets, like Mortgage Backed Securities of bad loans or Greek bond derivatives, are owned by institutions that are Too Big To Fail. Have you heard the defense of the Stimuli that, however they have failed in their projected benefits, if they had not been conducted things would be much, much worse? That is strongly related to our argument here. While the economy at large is moribund (and that is a unanimous diagnosis) corporate balance sheets are flush, equity prices are good especially these last weeks, and commodity prices quite strong. It is to these accounts the printed money has flown. Consumerism has been quarantined from these effects and that is much of the reason for the baroque structures of the Quantitative Easing schemes, now in their third iteration. But all wealth is consumption. Eventually investments must be booked, must be realized into greenbacks and the greenbacks spent on backrubs and Bentleys or cabbage and beer. Either way sequestration of these funds must end if their value is to be anything more than an entry in a ledger. Postponing this inevitable reckoning past his shift is the foremost concern of the central banker the world ’round and in all history with the notable exception of Paul Volcker. The defense against inflation alarmism in the shadow of known and feared monetary expansion is always the same: these bright boys fear inflation and know how to avoid it, therefore all is well. But more than inflation these bright boys fear the Reckoning. As for their knowledge and skill, the evidence is, um, mixed.

But the world has grown used to fiat money. The gauzy benefits of shimmering rivers of lucre have entranced us all and it must be admitted that steady currency inflation has produced pretty good lives for us up until lately. Strong currency is the bane of the exporter, a balm to the importer but above all it is absolutely necessary to the saver and prudent investor. There may be a way to re-introduce specie, that is commodity backed currency, and retain some of the flexibility the Big Brains claim we need. I don’t necessarily agree that this is the case but a bit of hybridizaton is politically in order if nothing else.

For eighty years the investing world has been plagued with an infestation of Gold Bugs. These fellows repeated much of what was said above, ad nauseum, as Franklin Roosevelt, needing Infinity Money to finance the New Deal, removed the hard connection between gold and greenbacks. The divorce  was finalized by Richard Nixon when he closed the “gold window” that redeemed dollars for doubloons permanently. In this history we have something for everyone. We can refudiate both Roosevelt (Boo!) and Nixon (BOO! HISS!) in one fell swoop by re-introducing gold as the foundation for our money. Of course we are far removed from the thirties and in monetary terms we might be even further removed from 1970. All accounts are larded with specious fiat money that we want to replace with more sound specie currency. Also there could actually be good reasons for retaining some of the powers of the central banker. It’s possible. The solution is no modern conceit. We turn the clock back even a bit further, past the Depression, past WWI and back to what was known as the Gilded Age, meaning there was a tacky veneer of leaf over genuine squalor, much like what we see outside our windows today. It was the madman William Jennings Bryan, creationist and even more alarmingly, a Prohibitionist, who may have given us our template. Famously Bryan was an enemy of the Gold Interests, the parents to the gold bugs. Sound dollars hurt his grain exporting farm constituents. But Bryan wasn’t nearly mad enough to endorse money with no more foundation than the latest government edict. Nor was he really out to remove gold from it’s pride of place. Rather the Silverite movement sought to have a one time, or at least restricted, issuing of silver backed currency to inflate away some of the crushing debts and vicious vigorish that was driving the country into the city in desperation. Bimetalism, was the term and, as we hope to do, it was a plan to return to historic monetary norms that had been driven out of whack by the well-connected interests of the day.

Bimetalism was the norm through most of civilized history. Judas was paid in silver. Pontius Pilate, in gold. The float between the two in seigniorage was the open struggle between the entrenched Haves and the numberless Have-Nots. Bryan, like all educated men, knew of this, studied it and when he made his Cross of Gold speach was well aware of the consequences. Or so he thought. Bimetalism was not implaced as Bryan was never elected. But aren’t there silver coins from that and every other era? Yes, but the silver did not act as specie. Silver coins were, like paper notes, representative of gold or fiat value, like Lincoln’s greenbacks. The dollar weakening Bryan wanted came providentially. The Klondike Gold Rush and new mining tech exploded the supply of gold  delivering Bryan’s results without Bryan who faded from the scene.

So you can have inflation WITH a gold standard? Yes you can. However it seems most unlikely that a serious, inflationary gold flood is in prospect. Little of the earth remains that has not been searched for gold and much, much more gold is in human hands than was the case a century ago. Absent efficient extra-terrestrial mining the gold supply will slowly increase, as it has done, indefinitely. Silver is another story. It’s production is, like other commodities, more based on the economic will to pull it from the ground or scavenge it from industrial processes. That is why silver was Bryan’s choice. No one at that time advocated simple fiat currency unless it was Karl Marx. Splitting the difference between our antagonistic philosophies, this is what I propose:

As with the Metric System, let us introduce the simplicity of Base 10 into our currency. Let bimetallic dollars replace the gasping greenback at a rate of one thousand dollars per ounce of gold and at one hundred dollars per ounce of silver. Followers of asset prices are aghast. Gold is at seventeen hundred right now and silver at thirty-three. Yes, that is so. What will happen on the date certain that this new regime is imposed is a crushing claw-back from the Glenn Beckites who have invested in dragon’s teeth, driving gold to ever new dollar highs, and a three-fold inflation of silver, providing Bryan’s debt destruction but in controlled fashion. So we have a good sock to the jaw of the hated rich that still is far short of a knockout, and we have some plumping for the downtrodden, burning off some of their debt while giving them a currency that is sound as a dollar. But we forget neither the central banker nor the vagueries of geology. For our bimetallic dollars ARE fully convertible to specie (though a waiting period, say ten days may be appropriate) but the Treasury will decide whether it is in silver or in gold. Mostly it will be in silver but truly, little exchange of notes for metal will actually happen. You still cannot eat silver, after all, nor gold. All wealth is realized in consumption so the notes converted to metal will necessarily be converted back to notes. What we have concocted here is a massive anchor that prevents wanton, indiscriminate printing or electronic creation of money. And if this also proves too restrictive? In the alternate I propose trimetalism; dollars backed by gold, silver and the poor man’s specie, copper which has value, today, supported in two basic pillars of modernity; the delivery of electricity and the production of bullets. A more sound foundation for money does not exist.

Tweet  Print This Post

Tags: money, The Emperor decrees // Add Comment »