All That Glitters

Off the keyboard of Surly

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Doomstead Diner Forum pages often feature discussion about the merits of gold and other precious metals. It is hard to not be attracted to its utility as a way of preserving value, in age where the Masters of the Universe have debased the world’s currencies beyond recognition. So who wouldn’t be attracted to gold? Bastion of value in an age of fiat plunderers, object of desire for both princes and beautiful women, even James Bond was bedazzled. I confess my own confusion on this subject. In the effort to lift the veil from my eyes, I have done some internet investigation, and remain as bollixed as when I began.

 

IN “Manufacturing Money,” RE asserts with the surety of an Old Testament prophet that “you CANNOT MAKE SOMETHING FROM NOTHING.” Bold, and in caps, at that. To set up his essay, he cites a quote from Steve from Virginia:

‘Money printing’ is inaccurate and false: central banks cannot create new money, they are balance sheet constrained. They cannot lend without collateral. They cannot lend above the ‘face price’ of the collateral, which is almost always another loan. What central banks do is shuffle the custody of loans between agents, moving up or down the yield curve in the process.

 

Perhaps I am mistaken, and may well be, but it seems that the global game of Three Card Monte that the central bankers are playing is “rehypothicating” capital such that the collateral appears viable? Or in other words, creating the appearance of something from nothing? All of which serves to keep the giant balloon of debt at least partially inflated. You might consider it “hologram capital–” visible to an observer from a fixed position, but as insubstantial as a hologram when you try to touch it.

 

The various computations attempting to cite the amount of debt tend to run out of zeroes, and quickly reach numbers that beggar understanding. It is hard enough to wrap the mind around the concept of a billion anything; the idea of quintillions of anything enters the realms of mystery, and is not meaningful in any practical way. With so much money in play, how does a peasant lock away some value?

 

In a word, gold, or precious metals. At least to some of our friends here.

 

Disclosure: I hold no PMs. I confess personally to being baffled by the precious metals argument. If your bet is that the rule of law will continue pretty much along the lines of what we know now, and that FSA agents won’t kick your door down to confiscate your boodle, then PMs are probably a good idea. But what if the grid goes down, the phones stop working, and the rule of law devolves to that which you can enforce personally? It seems to me that, in a TEOTWATKI situation, the best hedge against privation would be to be long potatoes. The value of PMs as a hedge against inflation seems to be directly to related to one’s ability to protect them from somebody who, say, had a store of lead. The other words, come TEOTWATKI, how would you protect it? Mad Max-style wandering warlords might well be less eager to make off with your cellar of potatoes, say, than your cache of gold.

Apparently the United States was on a gold standard for most of his existence. And led to a true gold standard in 1900 with the passage of the Gold Standard Act. That standard apparently came to an end in 1933 when FDR outlawed private gold ownership except for the purposes of jewelry. The Bretton Woods agreement created a system of fixed exchange rates where governments could sell their gold to the US treasury of the price of $35 an ounce. That avatar of Satan, Richard Nixon, decoupled the dollar from gold in 1971. Gone was any link between the major world currencies and precious metals and since that time the gold standard has fallen away.

 

So we are left with fiat.. Fiat money is defined as money that is intrinsically useless; used only as a medium of exchange. And as all of us of experience, a medium of exchange that becomes less and less valuable with the passing of time and inflation. A gold standard, on the other hand, keeps a government from printing too much money and keeps the supply of money relatively stable. Absent a gold standard, we have seen the Federal Reserve enact policies which have stretched the growth of the money supply past recognition or rescue.

 

A gold standard has fans here:

Quote from: Mark N on July 04, 2012, 09:49:25 PM <http://www.doomsteaddiner.net/forum/index.php?topic=545.msg4306#msg4306>

If I thought that ANY economic model was good idea, I would say a gold standard would be fine. I feel however the agricultural revolution was a tragic mistake; exponential population growth followed leading to constant war and ecological destruction. So I can only get behind a system that uses no more than we need and never more than mother earth can yield sustainably. All other roads lead to hell despite any medium of exchange.

I do feel Ron Paul is one of the only honest politicians and liberty a sweet dream. Humanity however has entered the valley of the shadow and liberty is just a dream; 7 billion people living the American dream would kill the planet in no time flat.

 

Uh… all that glitters, etc.

 

Since the teaching of history has apparently been made a Class 1 misdemeanor in most states, we tend to forget the “free silver” debates of the last century and the depredations of the Gilded Age.

 

In 1896, the “Cross of Gold” speech was delivered by William Jennings Bryant at the Democratic National Convention in 1896. Bryan supported bimetallism or “free silver”, which he believed would bring the nation prosperity. He decried the gold standard, concluding the speech, “you shall not crucify mankind upon a cross of gold”.

http://historymatters.gmu.edu/d/5354/

Democrats wanted easier money, the plutocrats wanted “sound money.” As always, the plutocrats won. As Dems were disaffected with Pres. Cleveland’s stance v. gold, they made Bryan their candidate, largely as a result of this impassioned speech. Bryan lost the election to McKinley. The US adopted the gold standard in 1900.

 

IN an article appearing in the March Harper’s, Thomas Frank observes some very telling points about the wave of historical revisionism sweeping the land, particularly on the part of Teahadis, who wish to rewrite history to assert that FDR’s New Deal, and by extension most of the 20th century, was a mistake: “What we remember most vividly about [Hoover’s Treasury Secretary] Andrew Mellon is a remark attributed to him by Herbert Hoover, in the third volume of the ex-president’s memoirs. Once the Depression got rolling in 1929, Hoover recalls, his economic team divided into two factions: First was the “leave it alone liquidationists” headed by Secretary of the Treasury Mellon, who felt that government must keep its hands off and let the slump liquidate itself. Mr. Mellon had only one formula:

 

“Liquidate labor, liquidate stocks, liquidate the farmers, liquidate real estate.”

 

Mellon insisted that, when the people get a snootful of inflation, the only way to get it out of their blood is to let it collapse. He held that even a panic was not altogether a bad thing. He said: “It will purge the rottenness out of the system. High costs of living and high living will come down. People will work harder, live a more moral life. Values will be adjusted, and enterprising people will pick up the wrecks from less competent people.”

He often used the expression, “There is a mighty lot of real estate lying around the United States which does not know who owns it,” referring to excessive mortgages.

Let us be clear about Mellon’s position. He was suggesting that the government do nothing to halt unemployment, foreclosures, stock-market disasters, or the ongoing collapse of the nation’s agriculture. Let the Depression do its thing, argued Mellon. Let it bring ruination willy-nilly, scrubbing the landscape clean of debt, immorality, and European-style hedonism. And also let us be clear about Mellon’s economic position: having amassed enormous fortunes in banking, coal, steel and oil, he was immune to financial consequence. Frank again: “For a person of less exalted station to pine so openly for an economic apocalypse would have been almost unthinkable. Mellon’s were strictly the sentiments of someone who would never himself be liquidated.”

 

These sound like the positions of the Republican House majority and their candidate for POTUS. It seems pretty clear that, in the event of currency destruction either through hyperinflation or hyper-deflation, anyone sitting on a pile of PMs would emerge from the resulting wreckage financially OK. Whether they could keep them remains another story. And what the landscape might look like after one emerges from one’s bunker, or vault, is a third.

 

Nowadays, Mr. Paul and all of the other Austrians who prowl the earth at night talk about the “unsustainable debt,” and austerity being the answer. As if the taxpayers who had billions transferred to the TBTF banks are somehow responsible for the disease for which austerity is the medicine. In their pronunciamentos you can hear the ghost of Andrew Mellon rasping, looking for fresh blood. People from Athens to Andalusia are less than enthralled with the prospects of having to liquidate themselves and the meager savings amassed over a lifetime of labor to pay for the banksters’ bonuses. Unlike us here, they rouse themselves from their torpor and get out in the streets.

 

Why common people in the FSA can be so enthusiastic about the prospects of their impending ruin is amazing, a triumph of the existing system of state control of propaganda. Rather than insisting on a pension of their own, workers today are convinced to attack their neighbors’… it continues to amaze me.

 

So it’s pretty clear to me that a gold standard = austerity for the 99 per cent.

 

Yet my friend Golden Oxen asserts thus:

“Surly, The greatest creation of wealth and a strong majority middle class happened in the USA from it’s inception to the severance of the dollar from all links to gold in 1970.

It all happened while we were on some sort of gold silver bi metal standard. Most prospered and inflation was low to non existent.”

So who knows which path would be better for peasants like me?

In the same article, Frank describes an exchange between Grover Norquist and a Spanish newspaper in which Norquist averred that the reason the political equation in America was changing was that people who remembered the Depression were dying off. “The age cohort that is most Democratic and most pro-statist,” declared Norquist, “are those people who turned twenty-one years of age between 1932 and 1952—Great Depression, New Deal, World War II, Social Security, the draft—all that stuff. That age cohort is now between the ages of seventy and ninety years old, and every year 2 million of them die.” The commonly held views of that group, he continued, were “very un-‘American.’ Very unusual for America.”

 

As appalling as it seems to me, perhaps an entire generation of fresh scrubbed libertarians fresh off the bus, dressed in identical blue blazers and chinos, recruited to distribute free hot dogs for the “Lift The Ban” pro-mining types at public hearings (geared to gin up support for lifting Virginia’s ban on uranium mining), represent a new cohort in a fact-free electorate untroubled by mere historical detail. Maybe the New Deal and its various reforms—a boring and predictable financial establishment, a home, a secure retirement, a middle class life—were an exception to the dog-eat-dog rules of American history, instead of the middle-class norm they once seemed to represent. That they are today under such withering attack by a new generation of fully-propagandized “average people,” themselves caught up in a orgy of anxiety and hard-times righteousness–and able to ignore the 60 year low on tax receipts from corporations and the most wealthy– is perhaps the surpassing irony of the age.

 

We are become Alan Greenspan’s “precariat.”

George Santayana once said, in a quote often butchered but here restored to proper context, “Progress, far from consisting in change, depends on retentiveness. When change is absolute there remains no being to improve and no direction is set for possible improvement: and when experience is not retained, as among savages, infancy is perpetual. Those who cannot remember the past are condemned to repeat it.”

 

We retain nothing. But I am holding on to my potatoes.

 

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