Let's End the Money Racket (XI)
Money-Generating "Assets" and Their Real Counterpart
Last time we examined the banking industry as an important source of lending and discussed the important role that it would play in the balancing of real savings and real investment in a real economy with real money. It was, in one regard, a rather puerile approach to the reality with which we are currently faced. It continues to serve, however, as a goal toward which our nation should be striving. Those who call for a return to the basic principles on which our nation was founded, but fail to take into account our nation’s corrupt money supply are misinformed at best, and disingenuous or thieves at worse.
The aforementioned goal envisioned responsible lending of two principal sorts: one, working capital used to balance cost and expenditure flows subject to relentless market shocks brought about by real world events; and two, long term real investment that replaces and grows the real capital necessary to insure a prosperous work force. We noted that only those who can create more real goods and services than what they borrow as measured by real money should be in the business of borrowing. We also noted that others should have the freedom to do otherwise. Then too, it should not be the American citizen’s responsibility to salvage his neighbor’s self-inflicted ruin. Freely granted alms are the most that such neighbors deserve. Bad fortune is one thing, market tom-foolery is another.
If this latter describes your own behavior, then you are welcome to feel badly, and it is not entirely your fault. For, you have been badly misled into believing that what you have been doing is right. It is, however, not an excuse for a failure to correct your bad behavior when given the opportunity. That opportunity is now!
Now let’s step back into the corrupt real world in which we currently live and examine the salubrious effect that the introduction of real money would have on bringing an end to our nation’s Chief Contributor to governmental and financial corruption.
To begin, let us note the current debt structure of the United States of America and the financial instruments that prop it up. It is an America very different from the one previously described.
In 2023 the American nation was in debt to the tune of USD 71.5 trillion. Nearly 40 percent of this debt was owed by the US Government. Neither of these two figures include the unfunded liabilities of the US Government that amount today to well over an additional USD 50 trillion depending on the method of calculation. These unfunded liabilities are promised monetary payments for which no funds have been set aside to pay them. In other words, there is no pool of real or nominal wealth (we will return to this distinction in a moment) that has been invested in interest or dividend bearing securities that would yield a real or even nominal return sufficient to realize these promises. The absence of this funding and investment means increased taxes on future generations — either this, or continued inflation, an ever more imperiled US dollar, and continued relentless financial corruption as the American nation continues to live beyond its means.1
Some ask why we should even be concerned about future generations when our own is already in such peril? This is not an idle question, because many of our fellow citizens have already thrown in the towel. If you already believe, for example, that your taxes are too high, then put yourself in the shoes of your children. Have you even ever thought it your civic responsibility to bear and raise a new generation of Americans to keep, at minimum, the American ideal alive?
Is the motto of the so-called Democrat Party not, “We won’t go back”! I find this mantra extremely disturbing, but it is one the so-called “Progressives” of America claim. More soft money and taxes can only bring tragedy — a “go back” that even most of their rank and file do not want.
No, nominal money-generating and real wealth-generating assets are not the same. Wealth generating assets are those that produce real wealth with a real future rate of return — more real goods and services than what were consumed during the investment. These latter take the form of stock shares representing ownership in a firm, corporate bonds that fund new projects based on new technology or the expansion of old, and government bonds (federal, State, and local) that pool purchasing power to pay for the resources set aside for the building of infrastructure that can facilitate real economic growth, and that can later be taxed to cover the interest and pay back the principal on what was borrowed.
Money-generating “assets” are not assets at all. They are debt instruments used to transfer wealth from one group of people to another. Their sole function is to enrich and/or empower the few at the expense of the many. Only in a world of statutory counterfeit or, since 1971 in the United States and across the globe, a world of fiat currency, are these “assets” able to survive for any length of time.
When a democratic government issues such debt instruments it is usually political in nature: to satisfy the plaint of a carefully targeted political minority or to enrich a specific donor class. When they are issued by the private sector, it is usually for the purpose of enrichment of the issuer and his closest friends. In both cases society at large pays the tab, for when the money supply grows faster than the growth of real goods and services, prices rise, and those who receive the new money last are always those who bare the burden.2 Can I repeat this mantra often enough?
Indeed, when you can create purchasing power out of nothing, there is no check on how many of these instruments can be issued that is not the suffering of the many whose real wealth you have stolen during the process of transfer.
On the open market money-generating “assets” (debt) and wealth-generating assets are treated the same — just another source of return (interest or dividends) on a marketable claim of another’s “assets”. Capital gains taxes that treat the trade of these two forms of “investment” as equivalent are thoroughly corrupt. The elimination of statutory counterfeit and fiat currency would eliminate, in part, this false equivalency, as the ability to make payment on these instruments becomes increasingly more expensive and money-generating “assets” are driven out of existence, because there is nothing left to support them.
Fear not that the real economy will fail, because these money-generating “assets” suddenly disappear. First of all, they will not disappear over night. Secondly, there will be no financial implosion, because the number of dollars already in the system will remain the same. There will be no monetary contraction as banks fail to issue new loans as old ones retire. This said, many of those who deal in these phony assets will feel the pain as the economy shifts gears. The so-called carry trades will likely be effected most. Is it not about time?
Yes, the interest on the outstanding debt will become more expensive because the borrower will carry the burden of incremental deflation, but our nation’s overall debt burden will necessarily diminish, because the so-called money-generating assets of the US government and its corrupt financial cronies will now have to compete with the wealth-generating assets of those on whom the US government depends for its tax revenue. Our money supply will become stable, and only those who truly bring value to the market place will find it easily available. Those who depend on soft-money for their livelihood will finally have to earn a living. The money-racket — the casino gambling of “high”-finance — will subside, for there will be nothing to prop it up. We will examine this issue more carefully next time around.
In liberty,
Roddy A. Stegemann, First Hill, Seattle 98104
Author of Mount Cambitas - The Story of Real Money and “A Call for the Restoration of Monetary Order” (Parts I and II)
Our incoming 47th is well-positioned to become a highly successful, short-term president with potential long-term structural ramifications. Unfortunately, being the greatest short-term president is not likely to do very much for America’s promised long term greatness. If the 45th does not address the Chief Facilitator of long term government and financial corruption — namely, our nation’s phony money supply — little or anything that the 47th does will have a very lasting effect. Already he has endorsed an increase in the US Government’s debt ceiling, and he has yet even to enter office. America’s long term future does not bode well.
For those who take an interest in the developing world let it be clear that America’s exportation of inflation is what has driven the formation of the BRIC (Brazil, Russia, India, and China) countries and others to reject the US dollar.
Up until CoVID our dollars were sold and traded overseas for real goods and services as our international trade deficit increased at home. Whereas foreign others experienced the price rises associated with our excess demand for overseas production, we experienced lower or stable consumer prices at home while the supply of overseas real goods and services increased. This said, our asset prices continued to rise, as foreign others spent their accumulated dollars on the purchase of American wealth-generating assets.
The Arab Spring that swept across the developing world between 2010 and 2012 and the Occupy Wall Street movement that garnered national attention in 2011 were not coincidental. As real over consumption and the cost of housing and other real assets increased at home, global food prices and other essential goods and services increased overseas.
Our 45th and soon to become 47th President would address such issues by imposing trade tariffs on incoming foreign real imports. Certainly this will help restore investment in the United States by deterring American firms from seeking cheaper labor overseas. What it will not do is lower prices at home, as our penchant to consume more than we produce will not fade until the lending into existence of global purchasing power comes to an end — either peaceably and wisely as outlined in this series, or by major economic havoc and destruction as promised, if we continue down the current path. The magic formula “Drill, baby drill” is a short-term solution that will at best stop prices from rising any further. It is unlikely to have the promised effect of cutting anything in half, but the price of gas. Then, are too many other factors — principally, soft money — that will prevent the prices of all other real goods and services from falling.