How is it possible for the most advanced economy in history to make such a mess of its most basic functions – getting and spending? By our calculations, the typical American man (less so for women) earns less in real, disposable income per hour than he did 30 years ago. How is that possible? What economic quackery do you need to stop capitalism from increasing the value of workers’ time? Globalisation? Financialisation? Too much red tape? Too many cronies? Too many zombies? All of those played a role. But our answer is simpler: poison money. The bigger the dose, the sicker the system got.
When you say you “have some money”, you usually believe 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. Does it mean there is a 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.
Does it mean the bank is guarding some 1s and 0s, digital data proving that it at least “stores” your money? Nope again! What it means is there is a financial institution of uncertain integrity, with an 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.
Today, banks 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 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. For months, we have urged readers to prepare 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 cash machine, and it won’t work. Of course, we don’t know for sure that the day will ever come. Still, the potential problem seems grave enough to justify some precautions. 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.
But there are other potential problems coming from the left. An electronic, credit-based money system is fragile. It can be hacked by thieves or shut down by accident. Even a “bug” could bring it to its knees. Then what? How will you get money? How will you buy petrol 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.
Category: Economics