The Most Valuable Currency is Trust (2)

<This is written by Jeffrey Wernick>

Thomas Jefferson is my favorite Founding Father. The principal author of the Declaration of Independence. So as I expand, Part 2, I want to cite Jefferson. I think the Founding Fathers are so interesting because the USA first presented to the most powerful monarchy at the time a formal list of grievances. And asserted that since those grievances were deemed by them to be legitimate yet ignored, that the colonies had no other option but to declare its independence. The last sentence of the Declaration of Independence reads as follows:

“And for the support of this Declaration, with a firm reliance on the protection of divine Providence, we mutually pledge to each other our Lives, our Fortunes and our sacred Honor."

After defeating the British, the colonies started with a blank slate. There were 13 independent colonies All with a healthy distrust of centralized power and authority. The Articles of Confederation were ratified in 1781 conveying very little authority to the Federal government nor the ability to claim resources through taxation.

Between the time of ratification of the Articles of Confederation in 1781 and the implementation of the Constitution in 1789, there were 10 Presidents of the Continental Congress during those 8 years. And the money printing produced a currency that was deemed so worthless, hence the expression “not worth a Continental.”

The Constitutional Convention produces a discussion and a final document as a consequence to that discussion addressing the issue of governance, centralized and decentralized, checks and balances. A concern about the inefficiency of decentralization but the abuses that were prone in centralized systems. And how dishonest money would was such a dangerous corrupting force.

Please consider the following from Jefferson.

"I am convinced that those societies (as the Indians) which live without government, enjoy in their general mass an infinitely greater degree of happiness than those who live under the European governments. Among the former, public opinion is in the place of law, and restrains morals as powerfully as laws ever did anywhere. Among the latter, under pretense of governing, they have divided their nations into two classes, wolves and sheep. I do not exaggerate... Experience declares that man is the only animal which devours his own kind; for I can apply no milder term to the governments of Europe, and to the general prey of the rich on the poor." --Thomas Jefferson to Edward Carrington, 1787. ME 6:58

Further. Again Jefferson.

“Mankind soon learn to make interested uses of every right and power which they possess, or may assume. The public money and public liberty, intended to have been deposited with three branches of magistracy, but found inadvertently to be in the hands of one only, will soon be discovered to be sources of wealth and dominion to those who hold them... They [the assembly] should look forward to a time, and that not a distant one, when a corruption in this, as in the country from which we derive our origin, will have seized the heads of government, and be spread by them through the body of the people; when they will purchase the voices of the people, and make them pay the price. Human nature is the same on every side of the Atlantic, and will be alike influenced by the same causes. The time to guard against corruption and tyranny, is before they shall have gotten hold of us. It is better to keep the wolf out of the fold, than to trust to drawing his teeth and talons after he shall have entered."

And,

"The sheep are happier of themselves than under the care of the wolves." --Thomas Jefferson: Notes on Virginia Q.XI, 1782. ME 2:129

My preference is to avoid being under the care of the wolves.

Economics and politics do not fall under natural science, but social sciences. Natural science relies upon what we can physically observe and measure. Things that are naturally occurring.

Social science studies interactions among people, human action and behaviors.

Adam Smith not only wrote The Wealth of Nations, but also Lectures on Jurisprudence and The Theory of Moral Sentiments. And Mises, On Human Action.

Economics has perverted itself from its roots as a moral science regarding wealth creation through voluntary exchange and human interaction into a quantitative exercise in resource allocation, as if economics has transformed itself into an engineering problem or a natural science, not a social science. A Newtonian world, a clockwork universe. Where we pretend we can measure and observe everything, precisely define and measure cause and effect, perform experiments and have perfect predictability. That we have successfully modeled the consequences of all human interactions and can control just by passing some laws and having the enlightened few use their discretion and proprietary models to eliminate the business cycle, preserve price stability and remove risk from our lives. As a result, economists basically have become noise, incoherent and without insight. The hubris of presumed omniscience.

Frederic Bastiat wrote:

“I cry out against money, just because everybody confounds it, as you did just now, with riches, and that this confusion is the cause of errors and calamities without number. I cry out against it because its function in society is not understood, and very difficult to explain. I cry out against it because it jumbles all ideas, causes the means to be taken for the end, the obstacle for the cause, the alpha for the omega; because its presence in the world, though in itself beneficial, has nevertheless introduced a fatal notion, a perversion of principles, a contradictory theory which in a multitude of forms, has impoverished mankind and deluged the earth with blood. I cry out against it, because I feel that I am incapable of contending against the error to which it has given birth, otherwise than by a long and fastidious dissertation to which no one would listen. Oh! if I could only find a patient and right-thinking listener!”

The essential attributes money must have are divisibility, portability, durability, recognizability and scarcity. Money was not created by the State. A committee did not originate money. A committee was not and is not needed to maintain money. A monopoly over money is a dangerous grant of power by the State. An honest money emerges by consensus, not force. Otherwise is violates nature. It is unnatural.

As early as the Book of Genesis in the Hebrew Bible, the first time money is mentioned is a purchase Abraham made with silver. Gold and silver have been the most common forms of money throughout history. At the origins of the USA, the dollar that circulated was the Spanish Milled Dollar. Defined in units of gold and silver. Fixed quantities of gold and silver. The dollar was divided into “pieces of eights”. For several centuries it was the most stable and least debased coin. It is also why the New York Stock Exchange traded in denominations of eighths.

And Adam Smith said the “All money is a matter of belief.” And as Exter said regarding fiat paper money, IOU nothings. Recently the former CEO from Credit Suisse stated that “...money is not worth anything anymore. That “negative interest rates are crazy”. Further, a recent BIS Report concluded that the unprecedented growth in central banks’ balance sheets have had an adverse impact regarding the functioning of capital markets. To put it more simply, financial markets are dysfunctional, no longer price risk appropriately and pervert the allocation of capital. Exacerbating inequality while, as a whole, making us poorer on an economic basis after considering the accumulation of what I refer to as odious debt.

In 1927, jurist Alexander Sack described odious debt as debt issued by the State to strengthen its power and repress the population. Hostile debts and profligate debts have been included in the definition of odious debt.

And that the debtor and creditors are aware of its odious purpose.

The Central Bank is quite aware, as are banks and Wall Street, that the spending is profligate and much has been spent on endless wars, hostile acts.

Few, if any believe we will grow our way of of the debt. Some believe we can both increase it and roll it over into perpetuity. I think few would actually being willing to attest to that under oath and subject to perjury charges. There are some though who are in the eternal free lunch school of economic theory where there is no limit to debt issuance by sovereign nations and that the market can absorb an infinite supply without any use of the Central Bank balance sheet.

I guess they would argue that independent of economic growth, there is no limit to debt that could be issued and that future taxes would never have to be raised in order to sustain the debt already outstanding plus the incurrence of additional debt.

It seems evident to me that if we are issuing debt today that will require tax increases in the future. If that spending is not of an investment nature like infrastructure projects or others whose revenues would offset the spending, like a capital budget, but used for current operations like wars, surveillance, transfer payments, entitlements. That seems clear to be a case of taxation without representation. Hostile debts. Profligate debts. And that those who did not have the opportunity to vote for the debt incurred should have no liability for its amortization or repayment.

Ben Franklin wrote: “The refusal of King George to allow the colonies to operate an honest money system, which freed the ordinary man from clutches of the money manipulators was probably the prime cause of the revolution.”

Howard Buffet, father of Warren Buffet, when he was a Congressman argued that “paper money systems have always wound up with collapse and economic chaos”.

James Madison warned us that “If Congress can employ money indefinitely, for the general welfare, and are the sole and supreme judges of the general welfare, they may take of religion into their own hands; they may appoint teachers in every state, county, and parish, and pay them out of the public treasury; they may take into their own hands the education of children, the establishing in like manner schools throughout the union; they may assume the provision of the poor....

...Were the power of Congress to be established in the latitude contended for, it would subvert the very foundations, and transmute the very nature of the limited government established by the people of America."

Alexis de Tocqueville described democratic socialism: “That power is absolute, minute, regular, provident, and mild. It would be like the authority of a parent, if, like that authority, its object was to prepare men for manhood; but it seeks on the contrary to keep them in perpetual childhood; it is well content that the people should rejoice, provided they think of nothing but rejoicing. "For their happiness such a government willingly labors, but it chooses to be the sole agent and the only arbiter of that happiness; it provides for their security, foresees and supplies their necessities, facilitates their pleasures, manages their principal concerns, directs their industry, regulates the descent of property, and subdivides their inheritances -- what remains, to spare them all the care of thinking and the trouble of living." "After having thus successively taken each member of the community in its powerful grasp, and fashioned them at will, the supreme power then extends its arm over the whole community. It covers the surface of society with a network of small complicated rules, minute and uniform, through which the most original minds and the most energetic characters cannot penetrate, to rise above the crowd. "The will of man is not shattered, but softened, bent, and guided -- men are seldom forced by it to act, but they are constantly restrained from acting.

Such a power does not destroy, but it prevents existence; it does not tyrannize, but it compresses, enervates, extinguishes, and stupefies a people, till [the] nation is reduced to be nothing better than a flock of timid and industrious animals, of which the government is the shepherd."

The Dutch National Bank in its most recent report stated that “Shares, bonds and other securities are not without risk, and prices can go down. But a bar of gold retains its value, even in times of crisis. That is why central banks, including DNB, have traditionally held considerable amounts of gold. Gold is the perfect piggy bank – it's the anchor of trust for the financial system. If the system collapses, the gold stock can serve as a basis to build it up again. Gold bolsters confidence in the stability of the central bank's balance sheet and creates a sense of security”. An acknowledgment that the current financial system has no anchor of trust since very few of the liabilities are backed by gold. Which, to reinforce the statement, they represent IOU Nothings. No anchor of trust. Ponzi finance. We Work. Adam Neumann are amateurs compared to Jamie Dimon, Ben Bernanke, Jay Powell and other members of the Dishonest Money Cartel. Architects of Debasement and Debauchery.

Recently we witnessed a breakdown in the fed funds markets and repo markets which provoked the Fed to provide substantial liquidity. More than 90% of excess reserves are held in only 5 banks. And their living wills require a minimum holding of reserves. Possibly the explanation that they did not lend out their excess reserves is because they are actually not excess reserves but required to fulfill their obligations under the living will. And that there might be a systemic liquidity crunch in the financial system. Possibly because of the issuance of so many Treasuries issued to finance the odious debt and fiscal deficits.

We are living in a low interest rate trap. Counterintuitively and perversely, this trap is not only exacerbating wealth inequality but adversely and negatively impacting economic growth. Reducing incentives to invest in productivity growth. Industries will become more monopolistic over time. As markets get less contestable and the dominant, monopolistic firms no longer face any intense competition they will evolve into lazy monopolists.

The transmission mechanism of the near zero interest rate trap and its consequences of exacerbating the dysfunction of the financial system, concentration in market structure, misallocation of capital, fragile corporate capital structures, stock buybacks, low productivity growth, cartelization and monopolization of many sectors in the economy, poor incentives to invest and the damage to not only current economic growth but, even more importantly, future economic growth is an important topic that needs to be addressed more thoroughly which I will do in a follow up essay.

An inflationary monetary policy regime suffers from the ramifications of the Cantillon Effect. A regressive tax. Those who can create the most leverage at the lowest cost and quickest, win. Everyone else loses.

Economic growth is a result of human creativity, the freedom and liberty we have to organize ourselves, on a voluntary basis, to innovate, use our mind, our imagination, our skills and talents in serving ourselves through serving others. Liberty, not power. Exchange, not aggression.

In my opinion, the current global regime is unsustainable. Fiat paper money will fail, as it always has. And for the same reason it always has. Unfortunately so many have a perception that anything that happened prior to their birth is ancient history and not worth knowing. They lack perspective. They lack wisdom.

Money being debased is a consequence of debasement and abuse of trust. The intermediation of trust through supposed trusted third parties. It is only force, legal tender rules that keep fiat paper money in circulation.

And most either have tunnel vision or believe this time will be different. That there is no limit to indebtedness. No limit to the growth of central banks’ balance sheets. That somehow increased market concentration, further concentration of economic and political power, little investment and low to non existent productivity growth will make us wealthy.

Or maybe, we will get better socialists managing the allocation of resources than Maduro, Castro, Chavez. That we pursue the path to serfdom.

I bet on the trust revolution. On bitcoin. Immutability. Decentralization. Trustless. Scarce. Easy to divide. Easy to transfer. No need for intermediary. The ledger does not lie. No one can debase it. No controlling authority. I believe we are in the beginning of forming a new social consensus. It will be a global one. Independent of geography. Independent of religion. Independent of nationality. Independent of culture. Independent of ethnicity. Independent of gender, however gender is defined.

Denationalized money, tokens, circulate through social consensus and trust. Voluntary. Organic. Emergent. Market process. And as a consequence of economic activity.

Fiat paper money exists only through the monopolistic force of the State. Legal tender laws. The subsidization of financialization where the production of money is delinked from economic activity and its production and transmission is non neutral and perversely transfers wealth even in the absence of wealth creation. Even during wealth destruction. Without social consensus. Without consent. Odious money. Odious debt. In violation of natural law.

I will sell everything else before I sell my bitcoin. If you believe in freedom. Liberty. Personal sovereignty. And a society predicated upon trust. Where individuals are empowered. Where liars and cheaters no longer prevail. Where we value cooperation. Transparency. Then buy bitcoin. Mine bitcoin. Hold bitcoin. It is permissionless. And it is yours. And you retain some sense of privacy.

Fiat paper money is dishonest, corrupt, deceitful and managed by a cartel. Distrust and power are its currency. The use of fiat requires permission. It is subject to confiscation. You surrender all privacy. It enslaves. Not liberates. So if you are a liar and a cheater. And corruption and malfeasance is your game. Fiat paper money is your currency.