Our Gold Bug friends over on Zero Hedge have been very active lately in promoting a few Theories regarding the underlying cause of the collapse of the current Fiat based monetary system, with one particular Aussie newsletter promoting the idea the whole problem stems back to the creation of the Nanny State by Otto von Bismark prior to WWI.
The problem with this theory is that it completely ignores all the PRIOR crashes of the monetary system going back at least as far as the Dutch Tulip Bubble, crashes including of course the Long Depression of the 1870s following the Civil War here in the FSofA. All these crashes predated Otto by decades at least, centuries in many cases. Remember ALSO that Europe was in an almost constant state of Warfare from1700 through 1900 and this was all happening under the “wonderful” Gold standard.
Now, let us take a closer look here at what the problems really are with using Gold as “sound money”, both in the past and progressing into the future following the final crash of the Almighty Dollar. (Parenthetical Note: Its interesting that the “Almighty” modifier is only used in two ways, either for God or for Money. Something to think about.)
The first argument you get is that unlike Paper or Digital Fiat money, Precious Metal coinage cannot be so easily debased. This is obviously untrue, since the Romans debased their coinage by alloying with other base metals, and this just is not very hard to do. Assuming we did start passing around Double Eagles here as currency, a counterfeiting industry would rapidly develop taking Gold Eagles, melting them down and then plating over Tungsten Slugs. Since the specific gravity of Tungsten is so close to that of Gold, you wouldn’t be able to tell the difference by Archimedes style testing, and every time you exchanged money you would have to have some very good equipment to test any coins you got in return for your transaction. I am talking REALLY good equipment, here, you would need some kind of induced magnetic field to pick up on small differences in the electromagnetic spin of Tungsten vs Gold to pick out the debased coinage. I’m not even sure that would work, since I don’t have a Periodic Table in front of me at the moment. Needless to say, this would make commerce quite difficult even if you could make a pocket Coin Assayer that would work well enough..
The next big argument for Sound Money in the form of Gold is that you can’t make Infinite amounts of it, the Supply is fairly stable. Really nowadays for Gold more the quantity is more stable than ever, since most of the easily mined up supplies have been harvested already, and in new mines cost of production is around $500/oz, according to Gold Bugs themselves. Remember that cost of production revolves around relatively Cheap Oil used to power the Heavy Equipment used at these mines, along with big smelters to melt out the gold and then skim it out of the pool of liquid metal you heat up. These mines aren’t generally seams of pure gold, its mixed together with other minerals so at the very least you have to crush it up and pan it out. Anyhow, as time goes by here, you can be pretty sure a whole lot of Gold will not come flooding the market as it did after the Conquistadores ripped off all the Aztec Gold in the New World.
The problem here is that since its fixed in supply, what happens when inevitably some industrious folks with squirrel-like tendencies start SAVING their Gold coins for their Retirement or for a Rainy Day? Said Gold coins will go OUT of circulation and fewer will be left circulating in the economy, slowing the economy to a crawl. A Gold Bug version of JMK’s Paradox of Thrift of course.
The Capitalist “solution” to this problem is to encourage Savers of Gold to recirculate it by “investing”, which is to say loaning it out to others at some rate of interest, so without Working at all you “make money with money”. The problem here is precisely what the Gold Bugs say is an advantage of Gold making it Sound Money, which is that you CANNOT make more of it. The overall Pile of Gold cannot significantly increase here to pay off all the Investors who loan out their Gold to keep the velocity of money moving here. You could only pay them off with other “Assets”, but what happens when those other Assets lose value? Everyone tries to divest themselves of those now losing value Assets in exchange for Gold, but there isn’t any more Gold than there was at the beginning of the whole process! Needless to say, SOMEBODY is going to get left holding the bag on a Worthless asset and NOT be able to get any Gold in return for it. Exactly the kind of deflationary collapse we have going on here now! It doesn’t matter whether you start with Fiat or Gold, the “Wealth” of the Civilization is really measured in other Assets which can become worthless or even Liabilities as circumstances change.
The “solution” to this problem was the creation of Notes representing Gold and Fractional Reserve Banking, but of course there is nothing really to stop Banksters from creating far more notes on their reserve of Gold then they actually own, and then for one reason or another when Asset Values collapse and there are margin calls said banks are found insolvent and short of the Gold necessary to pay out on all the claims on their Gold. At this point the Bankster reneges on his Notes, absconds with the Gold in the safe and heads somewhere else to pull the same shtick over again. Welcome to the world of the Illuminati going back to the Medici Era. Fool everyone for a while by extending credit on a small pile of Gold until the Civilization stops expanding, then retract the credit, call in markers and make margin calls and take the physical assets of debtors and then reboot for another iteration, as long as expansion remains possible. THIS IS CAPITALISM as it has been practiced for 500 years! Live with it. It’s the TRUTH.
Anyhow, the failure of the current monetary system has very little to do with Otto von Bismark and his Welfare State and is fundamentally rooted in the impossibility of Infinite Growth in a Finite world and paying Interest out to savers of money when there simply is not any more money being created here to pay that interest with! What you really need is some form of money that has REAL intrinsic value, that you can create more of and that is durable and lasts about a human lifespan. I have a NEW idea for this!
Technology allows us nowadays to take raw food and package it up in ways that last a very long time, through techniques like Freeze-Drying and Vacuum Sealing. I would bet you could create a “coin” of say 500 calories in carbs and fats containing a balance of amino acids and vitamins such that 3-4 coins per day dissolved in Boiling Water would provide all the Nutrition you need for the day. Said “coin” would be Vaccuum sealed inside a plastic casing to keep out moisture, but if you ever get really hungry, you simply eat your money by slitting open the plastic, dropping it in boiling water and enjoying a nutritious meal!
Of course, you do have the problem here that Counterfeiters would pull the same stunt as Gold Coin counterfeiters, in that they could easily take a Food Coin and mix in non-nutritious ground up cellulose, reducing its actual calorie count so the same weight and size coin now only has 400 Calories instead of 500.
So in two paragraphs I have now nixed my own idea for Money which is fungible and lasts a long time, due to the old problem of counterfeiting which affects all monetary systems. Bad as counterfeiting is when “crooks” do it, when it really becomes a problem is when the people who are responsible for money creation in your society start doing it, namely the Banksters and your own Goobermint. This happens over and over again in all Civilizations as they reach the end of their Growth period and in order to retain the ILLUSION of Growth and their own POWER the Money Creators of the society start Counterfeiting as a substitute for real Wealth creation. This has been the problem in Amerika since we reached Local Peak Oil back in the 1970s and became a net Oil Importer. Ever since, Debt Money has been substituted to replace real Wealth harvested from the Earth in the form of Fossil Fuel Energy. By using our Military and Finance to control the rest of the World and direct resources here, we have been able for the last 30 years or so to keep the game going a while longer. Now the Jig is UP because GLOBALLY we have reached Peak Oil so you can no longer pull that wealth from one place and give it to another without starving SOMEBODY of the energy needed to run an Industrial Society. All the industrialized countries, including the Rookies like China and India and Brasil along with the Veterans like Germany and England and of course the FSofA are all competing for the same ever decreasing pie of easily accessible energy, and they all are going to suffer as a result while they go through the period of de-industrialization and power down necessary to come back into a Pay-as you-Go balance with available energy that can be harvested up here. Needless to say, the amount we can harvest up at this point in the absence of cheap fossil fuels is much lower than the amount needed to support the current population living on the face of the Earth, thus the inevitability of a Die Off.
It continues to astound me that the Chinese are following exactly the same model here and somehow think they will be able to continue to rev up industrial production with ever decreasing world wide supplies of Oil, and nobody with any money to buy whatever products they manage to make utilizing said oil, but of course the model does die hard here. In any event, even IF one of these countries was able to secure enough Oil to continue to run an industrial production model, they would be doing so at the expense of the other ones, which would leave no export market, so there is no way to keep earning money to buy more Oil, which means of course you have to STEAL it. The Chinese are a Day Late and a Yuan short in the game of STEALING Oil from others also, all the good theft has already been done here.
So here we have the End Game of the Age of Oil, with about 4-5 Major Players all engaged in manipulating finance and military assets to try to keep themselves floating on an industrial level. You have the FSofA of course with the Big Military, the Chinese with the Big Population and current account balance of tons of worthless toilet paper, the Krauts trying to control all of Europe through Finance, the Ruskies who still have a decent military machine AND Oil on Home Soil and of course the diffuse Mooslims serving as a Wild Card in this whole operation since they still live on top of quite a bit of the remaining easily accessible Oil and are pretty pissed off that they got left OUT of enjoying the benefits of that Oil except for the Mooslim Illuminati in the form of the House of Saud. Who will come out ON TOP of this mess as it spins down? That is the question Illuminati ask themselves, because they want to take their Gold Bars and run to the best place to keep their Heads safely attached to their Bodies.
As it appears to me right now, NOBODY is going to come out “On Top” once the props of CB printing and competitive devaluations go into “blowback” or “unintended consequences” mode. The economies of China and the FSofA reciprocally depend on the other, and once either one fails, the other one does also. Japan is a demographic nightmare and Germany is sitting right next to Striking Frogs and will never collect anything on their loans to the PIIGS or Eastern Europe. The Ruskies are currently involved in depopulating their own country through Alcohol Poisoning and the Mooslims are still living in the Seventh Century. Not a single one of these places is a World Beater, they are ALL LOSERS and they will all also be in even worse shape once the monetary system fails. The only thing ANY of them would be “On Top” of here is a pile of smoldering rubble anyhow, so the whole scenario is Lose-Lose all around.
The bottom line here is that there is no place on Earth for the Illuminati to go this time and reboot the system again. Capitalism is FINISHED as the means to enslave the world through economic sleight of hand, conjuring up money out of nothing by the Illuminati with their TBTF Banks, the subsidiary Federal Reserve Bank they OWN and then rewarding the creators of that money with piles more of it as the Earth was raped for resources. Those of you here who believe that Capitalism was EVER anything more than a Ponzi designed to perpetuate the power of the Illuminati simply are a few cans short of a Six Pack and believe the HYPE you were sold in school without spending adequate time and mental energy on studying how the whole game was REALLY played through history. I will give most of you here the benefit of the doubt and not assume you are just plain stupid, rather I think most of you were just played for fools and bought the education you were sold. I never cease to be astounded at how incredibly IGNORANT people who call themselves “Capitalists” are of the history of Money and how it has been used here for the last 5 centuries. Pick up Carroll Quigley’s “Tragedy & Hope: A History of the World in Our Time” and EDUCATE yourself a bit! The information is all out there to read up on. The most likely scenario is the Illuminati go ALL IN on the War Machine and try to rule the world by Force and Fascism as Capitalism fails, but this scenario is so dependent on Fossil Fuels to run a Global Military machine it will collapse under its own weight in short order. Thus you get the devolution of the One to the Many. In this scenario, again, the best place to be is in Zones with good water, food and energy resources and low populations. Pick your Hole and Bunker up NOW, while you still have time. The Clock is Ticking, and the Window is closing fast.
RE
MuckAbout says:
RE, you gotta love someone who stuffs your whole head into a hole you never explored before.
I have an examined life and am proud of every minute of it. Right from the U.S.Navy in the 50′s to now, in semi-retirement.
I worked as a senior technician thru Senior engineer (no paper) and Senior Scientist (getting the advanced degrees at the advanced age of 43) sucking on the Federal tit all the way and knowing exactly what I was doing. I switched tits every 18-24 months to selectively pick contracts (with a dozen or more corporations and Universities) that were #1. most interesting, #2. paid the best money and #3. were in the neatest places to work. Like Kwajalein, in the Marshall Islands, Mt. Haleakala on Maui, Holy Loch in Scotland and many, many more. My wife considered it a 40 year paid vacation and we had a blast.
I have an asteroid named after me too. 7361 Endres out there between Earth and Mars. I helped NASA out in a way they didn’t think off so that was the pay off (no extra money).
So, do I consider myself, now collecting SS, to be part of the FSA? No I don’t. I earned every bit of everything I ever had, including several years building a home (myself), getting my fixed expenses down to $50 a month and going back to school on my own savings. If SS was cut off tomorrow, I’d laugh at the bastards and keep right on as I am today. In fact, the day Congress passes a law that binds themselves and all federal employees to the same laws that they make me observe, I will send that measly check right back to them to burn or smoke or whatever the hell they want to do with it.
That’s what I plan to do up to the time the FSA takes the last of what I have managed to set aside for my family from the fingers of my cold dead hands.
I thank you RE for giving me some interesting new things to analyze and think about.
Like or Dislike:
0 
0
19th October 2010 at 8:30 pm
printmemoney says:
the real problem is that the control of the money supply comes from the federal reserve….which is owned by the largest banks of the country
of course there will be a collapse, but after a collapse and a serious reversion to the mean, there will once again be growth and sound money….it’ll start with the barter of hard assets
this of course assumes we don’t kill ourselves
take those trips you always wanted to go on, unless you want to oregon trail it….
Like or Dislike:
0 
0
19th October 2010 at 9:00 pm
Reverse Engineer says:
Sounds like you caught the train at the right time to ride it in style MA. As to the future here, the time has clearly arrived to get off the train, which of course is easier said than done for most folks.
In any event, I’m glad to give you some new perspectives on the world.
RE
Like or Dislike:
0 
0
19th October 2010 at 9:04 pm
LLPOH says:
RE – Capitalism can stand alone as a system with or without money/banks. It has as its base foundation private ownership. It relies on trade of goods, which is facilitated by money, but does not necessarily rely on money, although global trade needs a monetary system. It promotes competition and rewards the efficient and offers potential reward for assuming risk. The means of turning a profit is by out-competing your economic adversary. It can and does drive efficiency of manufacture/farming/mining. The fact that corrupt banks/governments have stuffed the monetary system does not diminish capitalism as a viable system.
Expansion is not necessary for capitalism, but it certainly helps. Profit is certainly one of the goals, and the potential for profit drives competition.
Implying that persons who do not agree with you are IGNORANT is insulting and is the lowest form of argument. You made some points that I agree with, especially re gold as a medium of exchange. Even some of your points re the current monetary system were not too over the top. I, overriding my initial hesitation, read the article more or less in full. It is too bad that you cannot overcome your sense of overwhelming superiority and so cannot resist taking a swipe at anyone who disagrees with you by implying they are ignorant dickheads who need to educate themselves. It is just typical left wing horseshit to declare people are ignoramuses when they disagree with your position.
I can assure you that there are many readers of this site who are your equal, or superior, with regard to intellect, education and experience (your Columbia education, years as a chemist,truck driver and teacher are singularly unimpressive and look like a pair of twos compared to some of the full houses floating around this site), so what say you get off your fucking high horse and let the argument stand on its own merits. People will make up their own minds.
Like or Dislike:
0 
0
19th October 2010 at 9:30 pm
MuckAbout says:
I need new perspectives and thank you and yeah, I have to agree. I was a kid living through the last Fourth Turning (late 30′s, WWII etc.). I was timed (no fault of my own ) just right to be too young for Korea and too old (and valuable elsewhere) to be cannon fodder for Vietnam (Although I was threatened by the USN for involuntary activation – didn’t work!).
I’m a member of the Silent Generation that has enjoyed the very best of the past 60 years and made the most of it.
I must admit I look forward to seeing what happens in the next 10-15 years (I should live so long) but that may backfire on me as my children, grandchildren and great grandchildren go down the tubes as thing collapse. Time will tell and I nudge and push my offspring in the right direction when I’m given the opportunity.
Keep up the good work, RE, and I’ll try to do the same.
Like or Dislike:
0 
0
19th October 2010 at 9:40 pm
LLPOH says:
Muck – It is the future generations which are in strife. I am not sure what the right direction is, except I still stand by old style values re education and hard work. Thee are no guarantees. The younger generations will have to resist the Free Shit Army and incompetent politicians at every turn
Like or Dislike:
0 
0
19th October 2010 at 9:47 pm
Smokey says:
RE—I don’t believe the economies of China and the USA are inextricably linked, and that when one fails the other must likewise fail. I fully expect the economy of the USA to fail in a big way within the next ten years, but I see China replacing the USA as the leading world economic superpower and retaining that posture for several decades. Just my .02 worth.
Like or Dislike:
0 
0
19th October 2010 at 9:55 pm
LLPOH says:
Smokey – I am not sure whether the US economy will fail all at once, or as a result of a slow downward trickle, similar to what occurred in Japan. Either way, in ten years things I can’t imagine things will be good. I think it is inevitable that China, and even India, will match or replace the US’s economic power in coming decades. China is even now flexing its muscle – withholding sales of rare earths to the US for the economic pressure the US is trying to apply. The asshat Krugman said that the US were idiots to allow rare earth mining to cease in the US. In this he was absolutely correct. It will take some time to restart the mining of rare earths (a misnomer – they aren’t especially rare, but are mined in China owing to cost of labor and are currently mined almost nowhere else.). China doesn’t understand fair play when they get you down – they are quite happy to put the boots in.
Like or Dislike:
0 
0
19th October 2010 at 10:28 pm
Smokey says:
LLPOH——Yeah, the thing about the Chinese is that they have NEVER played fair. They tax the shit out of our goods. They have a 25% tax on autoparts, a 25% tariff on automobiles, they allow piracy of video games and movies. They stopped issuing import licenses for American chicken while at the same time filing a complaint about USA rules regarding importing Chinese chicken products. The Chinese put a 25% tariff on American mining equipment a few years ago, to protect their own factories. The Chinese have ALWAYS played chess while we played checkers. The Chinese can do without all those American products. They don’t need to buy shit from America, nothing. Chinese equities are backed by China’s drive to be the Number One economy in the world. The USD is backed by a fucking printing press operated by pathological liars / thieves hell- bent on devaluing the currency at all costs. —-The Chinese government is setting us up and WILL pull the plug, and my guess is within 6-8 years they quit buying our paper. The Chinese know very well that Bernanke is intentionally devaluing the fucking shit out of their holdings of USD’s. They are not about to indefinitely put up with that shit. They are despicable, but they sure as hell aren’t stupid. They will take their massive USD reserves and spend what they can quietly globally on real estate, precious metals, oil, ag products. Once they have divested / unloaded as much of our money as they can, they will call VERY PUBLICLY for a new world reserve currency, and backed in part by gold on terms that are most favorable to them (Chinese). And then, let me tell you something Daddy Rabbit, it is Game Fucking Over for the USA.—-This shit WILL happen in the next few (5-10) years, and will unfold much like what I just outlined.
Like or Dislike:
0 
0
19th October 2010 at 11:04 pm
LLPOH says:
Smokey – A friend of mine used to make a proprietary brand of metal processing equipment. He sold two of his machines to a big company in China. A year or so later, he visited the Chinese plant to see what else they might need. His words to me were, “Fuck me dead, the two machines I sold them had cloned themselves into about 40″. The bastards stole his proprietary ideas without qualm or hesitation. Another associate of mine owns a smallish casting company. He visited an enormous casting plant in China. He said the machines were shooting molten zinc out of cracks in the tools and equipment all over the plant and on anyone who came near. He said employees in the plant were killed on an almost daily basis. The fuckers would take the bodies out the back door and dump them for the relatives to collect. They would open the front door and bring in one of the many hundreds seeking work to replace him. They had workers running an acid bath/degreaser hand washing the parts. They had no gloves or boots. Their skin was totally bleached white. He asked about it. He was told the boots and safety gear were worth more than the employees.
China does not play the game as we know it. They are totally ruthless. RE’s (imaginary?) Pigmen are angels compared to the Chinese.
Like or Dislike:
0 
0
19th October 2010 at 11:18 pm
Smokey says:
LLPOH- —That is so consistent with my understanding of China. They respect an American patent or proprietary USA product about as far as they can piss. America is a tool to them. I have a nephew who recently started his first job, after graduating Annapolis and then doing his 5 1/2 years in the Navy. Anyway, his job consists of traveling overseas to procure equipment / supplies for the large company that hired him. He said that he was shocked when he went to a couple of factories in China last Spring at how half-ass their production processes and general operations were. Poor equipment, shoddy operations overall, etc. It dovetails exactly with what you just said.—–But I am surprised at the body dumping you mentioned. The Chinese people just apparently have much less regard for life than we do here.
Like or Dislike:
0 
0
19th October 2010 at 11:33 pm
LLPOH says:
Smokey – the fellow with the casting company runs a state of the art factory. One employee runs something like 20 casting machines at a time. He largely makes niche products. He indicated the plant he visited had thousands of machines, one person per machine. Each machine made about 50% scrap. So one of his employees made the same as 40 Chinese, or something in that magnitude. He said on a cost basis, if he ever came under direct attack, he was still screwed, as the cost of compliance on safety issues/EPA/etc. plus wages/SS/ medical insurances/etc. for one employee was greater than the Chinese costs for their 40, who had none of the on costs plus huge wage advantages. He is only protected by being a niche player. One day the Chinese will also want the niche markets. What then, you may well ask, will happen to the balance of manufacturing, not only in the US but in all western nations?
Like or Dislike:
0 
0
19th October 2010 at 11:44 pm
Smokey says:
Maybe your buddy will make enough $ to be out of the picture before China makes their move. My guess is that it will be several years before China moves into many niche markets, simply because they are so unskilled in general and would probably need to refine their operations in a large way before taking over in many of the niche areas. But make no mistake, that day is coming. China has the money and as time rolls on, they will increasingly do whatever they please. In fact, I think it will come to the point that if China has the option of achieving their economic goals legitimately versus fucking over a trade partner, they will opt for the latter. The dynamic is shaping up extremely ugly for trade over the next few decades. Because China doesn’t give a shit about safety and compliance shit, they can sell cheap. Look at the fucking junk and recalled Chinese products that we send back because they are safety hazards. You think they give a shit? I think your friend is so correct, no fucking way he could compete if he got directly into a pissing match with China. China has been stacking the deck for years. The hell of it is, now they’ll take all that wealth they have been accumulating by fucking trading partners, and they’ll use that enormous financial advantage to further stack the deck. And, as far as they’re concerned, any countries that don’t like it can eat shit. The Chinks will be calling the shots for decades.
Like or Dislike:
0 
0
19th October 2010 at 12:25 am
LLPOH says:
Smokey – what can I say? You are so right. I can list evermore examples, but they all make the same point. They are currently gathering low-hanging fruit, but one day they will simply take the whole tree. A great many western people are aware of the internal problems that their countries have – FSA, poor leadership, aging population, extraordinary debt, etc. – but, reasonably few understand the onslaught we are about to face from the Asian nations. They are going to take everything, by shear weight of numbers and by not playing a “fair” game. Western nations largely play by the rules. China only recognizes win or lose – rules do not play a part in its decisions.
Like or Dislike:
0 
0
19th October 2010 at 12:43 am
MuckAbout says:
Smoke—- They only value what is in short supply. That does not include rank and file workers. There are so many millions and millions of destitute ag-types living hand to mouth (or dying of starvation) out in the hinterlands and North and West China that the supply of bodies is essentially limitless.
It’s very much the way the USA was back at the start of the industrial revolution. A ten year old kid being worked to death in a sweat shop, foundry, mill or whatever was the best choice out there for him to take.
China’s the same way – a study in opposites – between the Southeast industrial centers and the North and West boonies. The neat part for them is that the poor peasants (and that’s what they are) will walk a thousand miles and more just for the chance at working in that casting plant.
Some die? Who cares, the tidal wave of bodies just keeps flowing in.
I think it would be very constructive for us to start playing chess as well.
Like or Dislike:
0 
0
19th October 2010 at 10:54 am