BALTIMORE – On Friday, when we left you, we were carrying out exploratory surgery on the Frankenstein-like modern money system.
Here is where the going gets tough. So many ugly organs… so much revolting internal plumbing…
But let us cut to the heart… pull it out… and have a closer look.
At the heart of any economy is money.
Money is the measuring stick. It tells us what things are worth… how much we can afford to invest… what is worth doing and what is not.
Money – especially the rate of interest it earns – tells us when to expand and when to contract. It tells us when to work harder and when to ease off. It tells us which direction to go.
Money is not just something you use when you need to buy a pack of cigarettes. Money provides the key information that a free economy needs. Without honest money, we all might as well be a member of Congress or a Fed governor – hopelessly lost and misinformed.
Well, in fact, we are.
In 1971, Nixon ended the direct convertibility of the U.S. dollar to gold. The post-1971 dollar looked for all the world like the pre-1971 dollar. But it was an imposter. A fraud. It no longer represented real wealth or real savings.
Instead, it was a counterfeit dollar… based not on wealth that had been created and stored… but on credit, which depended on future production for its value.
This was the government’s money… or more precisely, the money of the “Parasitocracy.” (For more on how America became a Parasitocracy, read Thursday’s Diary here.)
It was a little like the difference between a house that you own and one that you have mortgaged 100% of its value.
They look the same. They provide the same service – you can live in either one… You have to paint the shutters of the one just as you do the other.
But when push comes to shove, they are very different. And push comes to shove in a credit crisis. Then you can live happily in the one you own. It is your asset. The other, as you will quickly discover, is a liability.
We have charged the Parasitocracy with using the new dollar to rob the rest of us of our real money and our real independence.
How much money has been stolen?
It is hard to say… maybe $50 trillion since the system was set up.
If we look at the center of the Parasitocracy, Washington, D.C., we see that their houses are worth more than twice the houses of the rest of us – with an average over $500,000.
Their salaries are higher, too – with household incomes twice the national average.
And on Wall Street – another important node of the Parasitocracy – the gap is even wider.
Over the weekend, we listened to a talk by author and economist George Gilder at Freedom Fest in Las Vegas.
He is a genius. We regretted having made fun of him back in 1999.
Back then he had been carried aloft by excessive enthusiasm for the dot-com revolution. His head in the cosmosphere, he seemed a bit moonstruck.
But now his feet are back on the ground. And he has done us a great service, helping us to connect even more dots.
“Money is not wealth,” he said. “It just measures wealth.”
Or as Steve Forbes (we met him there, too!) put it, money is supposed to be like a clock, reliably counting out the hours and minutes and seconds of the day.
But the Fed pretends that money is real wealth. By trying to inject more money into the economy (by making it easier and cheaper to borrow)… it is as though it was slowing the clock to make the day seem longer!
“After 1970,” writes Gilder in his new book, The Scandal of Money, “the financial industry nearly tripled its share of the U.S. economy, and private credit nearly tripled its share of advanced-country GDP.”
The feds’ new faux dollar distorted the entire system. The inflation of credit drove up asset prices… and greatly rewarded the people who traded in them.
It also rewarded the people who owned them – the rich. The top 10% of wage earners took 33% of national income in 1971. By 2010, they were taking nearly 50 cents on every dollar.
Meanwhile, the median wage for an American man of working age has dropped 27%. For the man without any college education, the loss is catastrophic: He has lost nearly half his real income.
“A failure of capitalism,” say the Nobel-winning economists, the policy wonks, the best-selling authors, and former Treasury secretaries.
But this post-1971 system wasn’t capitalism. It was central planning and cronyism.
And its measuring stick – the dollar – was no longer real money. It was phony.
BY CHRIS LOWE, EDITOR AT LARGE
As the paper money system flounders… real money has enjoyed huge gains.
The price of gold is up 25% so far this year.
But the price of silver has seen an even bigger surge.
As you can see from today’s chart, silver is up 44% in 2016.
That’s almost twice gold’s gain.
A Secret Plan to Weaken the Dollar
At a high-level meeting in China, the world’s economic superpowers developed a secret plan to make China even stronger… and it all revolves around weakening the U.S. dollar.
Where Have All the Government Bonds Gone?
It may sound counterintuitive, but ever since the 2008 financial crisis, there has been a persistent shortage of high-quality government bonds. And that could mean low bond yields for a long time to come.
Libertarian Charles Koch: I Won’t Vote for Trump or Clinton
Charles Koch, the CEO of Koch Industries, used to be a major Republican donor. But now that’s changed. Koch doesn’t want a Clinton president. But he’s not ready to vote Trump either [VIDEO].
Up first today, readers weigh in on Thursday’s Diary – America Has Become a “Parasitocracy”…
You can call the system what you want. It’s not working. The rich get richer and pay less to the slaves… I mean workers.
– John T.
I’ve always found it ironic and bemusing that Nixon decided to announce that the U.S. dollar would not be backed during [TV show] Bonanza.
As I understand it, the development and prominence of Virginia City was due to the discovery of gold and silver in the region. One of the saloons in the show was even called the Silver Dollar.
Excuse my ignorance (I’m from Australia), but I doubt Virginia City is as prominent now as it was prior to 1971!
– Nick C.
Meanwhile, Diary readers’ thoughts continue to turn to politics – both in the U.S. and Britain.
I realize that when it comes to votes, they have not mattered for quite a while. But as I look at the upcoming U.S. presidential election, it seems to me that a slap in the face to the deep state is in order.
Not sure how good a president “The Donald” would make. But my sense is that a lot of his off-the-wall remarks will eventually be toned down. What I cannot accept is a person who we all know is in bed with the Deep State [aka the “Parasitocracy”] and will do their every bidding. We either turn this country back to the people or we can forget it.
I love your stuff because it makes me think. Also, it is refreshing in a world so full of BS. Keep up the good work.
– Hipolito C.
I can’t believe I have to correct my hero, the brilliant Bill. But [former United Kingdom Independence Party leader] Nigel Farage, our fearless and erudite Brexit advocate, did NOT spearhead the often misguided Leave campaign.
After his 20-year (sometimes almost solo) fight, he was not in the official Leave group, which was lassoed by another elite who regarded him as a too abrasive and controversial figure. Good job Boris Johnson weighed in.
Thanks for everything else though, Bill – for your wonderful insights, style, skill, touching family insights, marrying Elizabeth, and being the first to cast the scales from my eyes so many years ago!
– Maurice L.