Money Mumbles

     If you haven’t been watching the open-market prices of gold and silver, I have two bits of advice for you:

1. Check them;
2. Don’t check them.

     Advice #1 is for those with sound constitutions. Advice #2 is for those who are prone to fret.

     The U.S. dollar may yet survive as a respected currency, but over a long baseline it’s not looking good. The experiment in planned inflation that’s been going on since 1913 has reaped a terrible reward. The gold-to-dollars and silver-to-dollars curves are beginning to go asymptotic. Given the availability of this data, I’ve begun to worry about mass disaffection from the dollar as a store of value. The more people notice the deterioration, the more people will notice. Then things get spicy.

     The dollar, like all fiat currencies, is sustained by faith: specifically, the faith of millions that dollars will continue to purchase what they need and want. undermined. Faith is a deposit of hope in the truth of a given proposition. Events can undermine faith. When faith in a currency is undermined, we have financial panics.

     With regard to financial panics, Robert Ringer quoted economist Gary North in How You Can Find Happiness During the Collapse of Western Civilization:

     When a majority of depositors become convinced that a majority of depositors have become convinced that a majority of depositors are going to try to get their money out simultaneously, a majority of depositors start trying to get their money out simultaneously.

     Why are all those depositors trying to get their money out simultaneously? Some have this reason: they can see that the purchasing power of their money is sliding ever more swiftly downward. Others have another: they see other depositors making mass withdrawals, and they suspect that those others know something they don’t. Those two motivations cause one another to accelerate. They bring about a panic.

     Underlying the panic is a loss of faith in the enduring ability of the dollar to store value.

     If a panic against the dollar is to occur in the near future, the availability of information that for many years was kept away from private citizens is the most likely trigger. The Internet has made that information freely available. More private citizens than ever before are making use of it.

     As always in an approaching-panic situation, being among the first to act will confer a large advantage. This site is about the promptest and most reliable provider of regular information about the money metals and their dollar values. I check it regularly. I’d advise you to do the same. (Don’t neglect copper!)

     Finally, for more of the whys and wherefores, review these pieces:

• The Nature of Money and Currency
• The Nature of Money and Currency Part 2
• The Nature of Money and Currency Part 3
• The Nature of Money and Currency Part 4

The AMEX Game

     If you’re watching for indications of an economic upheaval, there are signs aplenty. However, some of the “traditional” signs have become ambiguous, owing to changes in the ways in which the related goods are traded and their current prices are quoted. For example, I’ve long advocated keeping a close watch on the price of an ounce of gold. Sharp increases in that price once indicated that a wave of price increases would soon be flowing through other important commodities, in response to a previous governmental expansion of the supply of currency and credit (i.e., inflation). But the relationship is no longer a strong one owing to the rise in trade of gold futures. The price of a call contract on some quantity of gold has proved a destabilizing influence on the price of the delivered metal.

     Another indicator that proved reliable over the years was the interest rate lending institutions would charge on a fixed-rate mortgage. This, too, has weakened a bit, under pressure from the Federal Reserve and competition from certain government-operated mortgage lenders and mortgage-guarantee institutions. It’s still worth watching – mortgage interest rates have a large influence on other areas of investment and speculation – but it’s no longer a perfectly reliable signal of inflation about to take its toll.

     There’s one area that continues to be very much worth watching: what I call “the AMEX game.”

     Originally, the American Express company made the greater part of its revenues from “the float:” i.e., its ability to lend money – accrued out of payments made to AMEX on its credit cards – to other institutions for very short terms, typically overnight. Such loans are scheduled to be repaid just as AMEX will need the money to pay the vendors whose products and services the credit-card holders purchased. To profit at this practice requires certain other conditions to be in force:

• There must be a sufficiency of institutions interested in such short-term loans;
• The interest rates short-term borrowers are willing to pay must be above a certain level;
• Personnel skilled at negotiating those short-term loans must be willing to work at doing so;
• The amounts of money accruing to the would-be lender through credit-card payments must be substantial;
• The transaction costs of making and controlling the loans must be substantially less than the revenues in prospect.

     Because these conditions are not guaranteed to last – or exist in the first place – the AMEX game is not always a profitable one. At the dawn of consumer credit card usage, AMEX was alone in its market sector, and was able to capitalize on the conditions that existed. Shortly thereafter MasterCharge and Visa entered the fray, found the AMEX had a virtual monopoly over “the float,” and resorted to imposing fees on both users and vendors. Over time those fees declined sharply, many holders of Visa and MasterCards were offered zero-fee arrangements, and AMEX found that it had competition for “float” revenues. For a while, there was plenty of room for the three competitors. The joyous investment markets of the Eighties were hungry for funds with which to capitalize the many start-up businesses that responded to the Reagan tax cuts and the rise of the microcomputer.

     There’s still some “float” play going on today. I don’t think it’s quite as vibrant as it once was; if it were, I’d expect to hear a lot fewer complaints from vendors about credit-card transaction fees. But there are new players in the game that one should note when they appear. The most important of them are the smartphone vendors and phone-applications makers who support pay-by-phone technology.

     Apple was first to make a splash in this area. Other companies have followed suit...which they would not have done were the supporting conditions not in force. The business area is still populating, which suggests that the conditions remain in force as you read this.

     Borrowers copious enough and short-term interest rates high enough to make the AMEX game worth playing suggest that interest rates charged to consumers will soon be affected as well. This is consistent with the unprecedented federal deficit for fiscal year 2020: at this time, estimated to exceed $3 trillion.

     Regular Gentle Readers will already be aware that I’m constitutionally averse to debt. Yet in a regime of rising interest rates, the borrower has an advantage over the lender, for his obligation will be repaid with “cheaper dollars.” There is a terminus to this, of course. When the game collapses and the currency devalues to zero under the pressure of hyperinflation, you don’t want to be stuck holding a mountain of it. But there will always be “timers” who seek to make a quick killing, then “flee to quality” – i.e., tangible goods such as gold and silver – and get out before the crisis strikes.

     Watch for a flood of new players in the AMEX game. Should such a flood occur, it will be time for persons with substantial dollar-denominated savings to adopt measures of financial self-defense. Remember that you read it here first.

Concerning The CARES Act

     As I said yesterday, I’m of two minds about this “bailout” bill, which appears to provide relief for immediate financial obligations at the price of an inflationary surge. Most people don’t understand inflation – some very smart individuals, with well established records of achievement in their chosen fields, have insisted to my face that it’s “big business’s fault” – but that doesn’t keep it from following a law more reliable in operation than anything else in political economy.

     Some years ago, financial guru John Pugsley explored this subject from the perspective of financial self-defense: i.e., what one can do to protect oneself against inflation. His discourse on it remains both enlightening and compelling. It’s too long to reproduce here, but the key observation is compact and striking:

Money Is Not Wealth.
Goods And Services Are Wealth.

     The victims of Germany’s Weimar inflation could tell you.

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     Under the current “lockdown” conditions, goods and services are being produced and provided at a sharply reduced rate. This has brought about a temporary impoverishment of the nation. No amount of money, whether cash in hand or electronic bank balances, is relevant to that consequence. It can only be remedied by getting back to business: each of us to his particular post in the American productivity machine.

     That must happen fairly soon. The transition to “just in time” inventory practices has reduced our standing reserves to a level not seen since pre-money barter economies. Pretty soon we’ll have “spent our savings.” Then what?

     Not to put too fine a point on it, more money wouldn’t help.

     If President Trump understands this, it would mean that he backs the CARES Act because its distribution of funds would make possible the satisfaction of millions of formal requirements to pay: mortgages and rents, salaries, contractual obligations to pay, and so forth. The private citizen who’s currently without an income because of the shelter-in-place regime would not face the blow to his credit that would come from not being able to pay his bills. The small business owner who must rent a storefront, or meet a schedule of accounts payable, would be relieved of worry in the near term. But the supply of goods and services available would not magically increase...and the consequences for the further diminution of the dollar’s purchasing power would be foreordained.

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     Chess players know that it doesn’t matter how good your long-term strategy is if your tactical situation is fatal. Your Queenside pawn majority will never matter if you get checkmated before you can capitalize on it. From that perspective, the CARES Act makes sense as a “Band-Aid^® bill:” it would close a wound that must not be allowed to bleed further. But we must not look to further monetary “stimulus” for salvation. We must get back to work.

     President Trump has named Easter Sunday – April 12 – as the drop-dead-decision date for lifting the shelter regime. I hope that’s soon enough. Our supply lines are already under stress. There are things we can do without, surely, but that doesn’t include everything that’s currently not being produced. Ask the homeowner whose plumbing is leaking whether he can afford for America’s plumbers to remain unavailable for another two weeks. Ask the mother whose newborn needs diapers she doesn’t have on hand. Ask the retail store owner who, even if he were permitted to open his doors to customers, couldn’t get the goods to populate his shelves. I’m fairly certain I can predict their answers.

Cashing In: An Offhand Reflection

     Human desires are individual. We can sometimes make decent guesses about why Mr. X wants thing Y, but the ultimate reasons are usually shrouded against others’ penetration. No one knows anyone else intimately enough to be perfectly sure of his inferences about the source of another person’s desires.

     This morning, I find myself intrigued afresh by a question that’s occupied my thoughts on several other occasions: Why would anyone pursue great wealth? It requires intense, lifelong dedication and comes with a long list of drawbacks. Moreover, money itself is not a fulfillment. It merely makes it possible to purchase other things that might serve as fulfillments...assuming those things are for sale.

     Robert A. Heinlein discoursed on the subject briefly in Stranger in a Strange Land:

     “Big money isn’t hard to come by. All it costs is a lifetime of devotion. But no ballerina ever works harder. Captain, that’s not your style; you don’t want to make money, you simply want to spend money.”
     “Correct, sir! So I can’t see why you would want to take Mike’s wealth away from him.”
     “Because great wealth is a curse—unless you enjoy money-making for its own sake. Even then it has serious drawbacks.”
     “Oh, piffle! Jubal, you talk like a harem guard trying to sell a whole man on the advantages of being a eunuch.”
     “Possibly,” agreed Jubal. “The mind’s ability to rationalize its own shortcomings is unlimited; I am no exception. Since I, like yourself, sir, have no interest in money other than to spend it, it is impossible for me to get rich. Conversely, there has never been any danger that I would fail to scrounge the modest amount needed to feed my vices, since anyone with the savvy not to draw to a small pair can do that. But great wealth?....Captain, you don’t know what an Old Man of the Sea great wealth is. Its owner is beset on every side, like beggars in Bombay, each demanding that he invest or give away part of his wealth. He becomes suspicious—honest friendship is rarely offered him; those who could have been friends are too fastidious to be jostled by beggars, too proud to risk being mistaken for one.
     “Worse yet, his family is always in danger. Captain, have your daughters ever been threatened with kidnapping?”
     “What? Good Lord, no!”
     “If you possessed the wealth Mike had thrust on him, you would have those girls guarded night and day—still you would not rest, because you would never be sure of the guards. Look at the last hundred or so kidnappings and note how many involved a trusted employee . . . and how few victims escaped alive. Is there anything money can buy which is worth having your daughters’ necks in a noose?”
     Van Tromp looked thoughtful. “I’ll keep my mortgaged house, Jubal.”
     “Amen. I want to live my own life, sleep in my own bed—and not be bothered!”

     Anyone sharp enough to accrue great wealth is easily perceptive enough to spot all the drawbacks Jubal Harshaw enumerates above. Yet there are many who pursue it even so...and if we define great wealth as $50 million or more in 2019 dollars, thousands who eventually acquire it. We must infer that their incentives, whether for the fortune itself or for what they could do with it when they eventually “cash in,” are stronger than the disincentives we know.

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     A look at the late-stage careers of notably wealthy Americans doesn’t tell us anything coherent. A lot of them never stop working at the trades that made them wealthy. Perhaps those are the ones who view money as a success metric, or as a way of “keeping score” against their wealthy contemporaries. The others put themselves to a wide variety of other activities, whether commercial, political, charitable, or self-indulgent. The patterns among them, if any, are indistinct.

     Wealth makes a man important in the eyes of many. The reflection from those eyes can persuade the wealthy man that he really is important – that he has more to offer the world than mere purchasing power. From this we get persons such as Donald Trump and Tom Steyer. The former has proved his self-assessment to be correct; the latter...well, perhaps we shouldn’t go there.

     Wealth can also make a man feel an obligation to those with less...and of course, for every wealthy man there are many thousands who have less. That obligation can lead to immense eleemosynary projects. Some of them actually achieve some good. Some, such as Mark Zuckerberg’s huge donation to the public schools of Newark, New Jersey, do no good at all, or demonstrable harm.

     And for some, wealth is merely an avenue toward hedonistic self-indulgence. These might not strike all my Gentle Readers as pitiable, yet they are, for what is ultimately emptier than the endless gratification of “the belly and the phallus?”

     Taraka continued, "I feel that I will give you back your body one day soon. I grow tired of this sport, of this palace. I grow tired, and I think perhaps the day draws near when we should make war with Heaven. What say you to this. Binder? I told you I would keep my word."
     Siddhartha did not answer him.
     "My pleasures diminish by the day! Do you know why this is, Siddhartha? Can you tell me why strange feelings now come over me, dampening my strongest moments, weakening me and casting me down when I should be elated, when I should be filled with joy? Is this the curse of the Buddha?"
     "Yes," said Siddhartha.
     "Then lift your curse, Binder, and I will depart this very day. I will give you back this cloak of flesh. I long again for the cold, clean winds of the heights! Will you free me now?"
     "It is too late, oh chief of the Rakasha. You have brought this thing upon yourself."
     "What thing? How have you bound me this time?"
     "Do you recall how, when we strove upon the balcony, you mocked me? You told me that I, too, took pleasure in the ways of the pain which you work. You were correct, for all men have within them both that which is dark and that which is light. A man is a thing of many divisions, not a pure, clear flame such as you once were. His intellect often wars with his emotions, his will with his desires . . . his ideals are at odds with his environment, and if he follows them, he knows keenly the loss of that which was old—but if he does not follow them, he feels the pain of having forsaken a new and noble dream. Whatever he does represents both a gain and a loss, an arrival and a departure. Always he mourns that which is gone and fears some part of that which is new. Reason opposes tradition. Emotions oppose the restrictions his fellow men lay upon him. Always, from the friction of these things, there arises the thing you called the curse of man and mocked— guilt!
     "Know then, that as we existed together in the same body and I partook of your ways, not always unwillingly, the road we followed was not one upon which all the traffic moved in a single direction. As you twisted my will to your workings, so was your will twisted, in turn, by my revulsion at some of your deeds. You have learned the thing called guilt, and it will ever fall as a shadow across your meat and your drink. This is why your pleasure has been broken. This is why you seek now to flee. But it will do you no good. It will follow you across the world. It will rise with you into the realms of the cold, clean winds. It will pursue you wherever you go. This is the curse of the Buddha."
     Taraka covered his face with his hands. "So this is what it is like to weep," he said, after a time.
     Siddhartha did not reply.
     "Curse you, Siddhartha," he said. "You have bound me again, to an even more terrible prison than Hellwell."
     "You have bound yourself. It is you who broke our pact. I kept it."
     "Men suffer when they break pacts with demons," said Taraka, "but no Rakasha has ever suffered so before."
     Siddhartha did not reply.

---

     A very wealthy man is facing a terrible trial – a real one, in a court of law, for allegations of sex trafficking involving underage girls. That man has his own private jet airliner, a big one. He also owns a private island where most of the alleged offenses took place. He consorted for decades with other very wealthy, often very famous men. Some of them would accompany him on trips to his island; indeed, some went there many times. If it was as the allegations have represented it, it was a place dedicated to pure self-indulgence: in Zelazny’s phrase, “the belly and the phallus.”

     Why did he do it? Was the idea of such a place one of his incentives for pursuing great wealth? Once he had amassed his fortune, was it the only way he could imagine to go on? Or was it his way of thumbing his nose at the morals of the world, saying in effect that “I can do this despite your revulsion, and you can’t do anything about it?”

     Perhaps he’ll tell us. Perhaps we’ll learn something about the power of the darkness that can take hold of a man, even a man with everything to lose and very little, if anything, to gain. Or perhaps we’ll learn something about temptation and how it can have its way with one who has achieved his one and only aim, and having done so, has nothing else to pursue, and so is empty of purpose.

     It will be hard for him, no matter what his motives might have been or what conclusion his jury might reach. But the rest of us will likely learn something about great wealth and its perils. Let’s not let the lesson go to waste.

Quickies: Money, Good Intentions, And Naughty Players

This case, in which a college appears to have targeted a student for punishment specifically because he’s an outspoken conservative, drew the following comment among others:

     Conservatives MUST stop donating to colleges and universities, except maybe to the science departments. [Emphasis added by FWP]

     This obviously came from a good-hearted person with good intentions, who wouldn’t want the science departments, which are generally resistant to SJW subversion, to be penalized for sins they probably didn’t commit. However, the problem is stiffer, and the naughty types are naughtier, than the commenter’s exception allows for.

     Some years ago, I twitted a colleague who’d just bought a New York State lottery ticket. Specifically I told him that buying a ticket doesn’t materially increase his chances of winning. He defended his action by repeating the Vampire State’s Lottery Shibboleth: “The money goes to education.” An accountant friend reminded us that money is fungible -- that it can be reapportioned and redirected almost without limit. If lottery players fatten the state treasury by $X, the state can then redirect $X it would have spent on education to other uses, without decreasing education funding by a single dollar. (Let’s omit for the moment that the state has no business being involved in education at all.)

     The same is true for “higher” education: colleges and universities. I’m unsure that it’s actually possible to entail a donation so that it goes to a particular department or activity, but let’s stipulate that it’s possible. When you donate $X to the University of Podunk’s physics department, you are actually putting $X in the university's hands to do with as it pleases. The university’s budgeters, aware that $X has been donated directly to physics, can then redirect $X that it would have spent on physics to other departments and activities.

     The university has been given $X more to fund whatever it likes. The physics department might not benefit by a single dollar. And the well-intentioned donor will never know.

     It's a fairly subtle point, and one that eludes many good-hearted people. We want to believe that we can do good without doing harm...but oftentimes it's not a straightforward matter at all.

Taintings

     Let’s discuss “dirty money.” What’s your definition of it?

     I’m sure my Gentle Readers have noticed the...well, I was about to say flood, but it’s really more of a trickle...of persons in the political elite “donating” money they once received from Harvey Weinstein to various charities. Have you stopped to ask why they’re doing so? And why, inversely, the ones who aren’t doing so have chosen that course?

     The money itself isn’t soiled in some physical sense. Indeed, it’s entirely “virtual,” as is most money in these United States, and therefore cannot be soiled. But it came from a man now regarded as a terrible sinner, possibly even a criminal. That makes it a token of an unsavory association – and you may rest assured that anyone who received a substantial donation from Harvey Weinstein is anxious to live that association down.

     But what about the money? Why does the money itself bear any odium? Isn’t money just a medium of exchange, through which we conduct our commercial relations? How is it possible that the money bears any of the weight of Weinstein’s sins? He didn’t come by it through those sins, but by financing the making of movies that made money for him.

     Sorry folks, but there’s no parallel to Judas’s thirty pieces of silver.

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     If you aren’t aware by now that I’m a Catholic, you haven’t been paying attention. At any rate, unless you’ve been living in a riverbank cave in Montenegro since birth, you’ll certainly know about Catholics’ use of holy water and the reverence we show to various relics. It’s one of the odder practices of our religion, and one that I’ve recently been pondering.

     Holy water and relics are deemed special because...why? There’s a ritual involved in the blessing of holy water that supposedly imbues it with God’s grace. How does that work, seeing that grace is defined as God’s benevolent love for His creatures? I shan’t argue that He would be unable to deposit some of that in a tangible medium such as holy water, but...why? Wouldn’t it be a shorter trip just to bestow it on those who need and ask for it? But this is mostly a digression.

     Relics, on the other hand, are physical objects believed to have some association with one or more of the saints, or in the case of bits of the True Cross, with Jesus of Nazareth, the Son of God and second Person of the Trinity. But why are they believed to have spiritual value? Why should fondling a relic do the holder any good? Isn’t it more about the communicant’s faith in God and devotion to His Commandments?

     Here the parallel, or antiparallel if you prefer, to Weinstein’s money is pretty close. The association with persons – or a Person –believed to have done great good imbues objects with some of that good...in our minds at least, but possibly nowhere else. The objects themselves can’t claim any credit for the deeds done by their previous owners. Not even in the case of a fragment of a saint’s bones.

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     There’s something to be said for the use of relics as objects through which to contemplate those who have demonstrated great goodness. There’s nothing to be said for deeming money to have been corrupted by those who’ve done evil deeds with it or for it. Money is an inherently good thing, and he who has earned it should always be proud to accept it. Hearken to Robert A. Heinlein on the subject:

     There arrived in the mail, from Mr. Secretary General Joseph Edgerton Douglas, a checkbook and papers; his brother Jubal took pains to explain what money was and how it was used. Mike failed to understand, even though Jubal showed him how to make out a check, gave him “money” in exchange for it, taught him to count it.
     Then suddenly, with grokking so blinding that he trembled, he understood money. These pretty pictures and bright medallions were not “money;” they were symbols for an idea which spread through these people, all through their world. But things were not money, any more than water shared was growing-closer. Money was an idea, as abstract as an Old One's thoughts — money was a great structured symbol for balancing and healing and growing closer.
     Mike was dazzled with the magnificent beauty of money.
     The flow and change and countermarching of symbols was beautiful in small, reminding him of games taught nestlings to encourage them to reason and grow, but it was the totality that dazzled him, an entire world reflected in one dynamic symbol structure. Mike then grokked that the Old Ones of this race were very old indeed to have composed such beauty; he wished humbly to be allowed to meet one.

     [From Stranger In A Strange Land]

     While money has been used to facilitate corruption, it is not in and of itself corrupt. It cannot be. However, they who have accepted it for their participation in a corrupt scheme are often at pains to separate themselves from it – not because the money itself is “dirty,” but because they are, and they seek to “hide the evidence.” When we contemplate the close association between Harvey Weinstein and the Clintons, for example, we immediately note the similarities between the two men. We can’t miss the miasma of venality that attaches to the Clintons themselves. It’s especially pungent in Hillary’s case: the “Secretary of State” who used her position to enrich herself by selling America’s uranium supply to Vladimir Putin.

     Some would make an exception for “drug money.” Yet here there be tygers. “Drug money” is money acquired through the sale of some illegal drug, right? But it was probably earned quite legitimately by the buyer, at least – and how shall we deal with the contradictions involved in changes in the laws? Would “drug money,” held to be tainted because it was earned by selling an illegal substance, lose that taint were the law to be changed to make such commerce legal?

     I know, I know: too strenuous a topic for a Monday morning. But it’s representative of the way my thoughts are trending, as I’ll be speaking to my pastor about relics and holy water later in the week.

Sturdy Wisdoms: The Worst Habit

     [Just yesterday, after a jaunt on which I spent far too much money on cheese – it’s one of my more difficult-to-resist vices – I received an email from Dystopic of The Declination. He drew my attention to his most recent essay, and mentioned that he’d come to an opinion about mortgage debt that differed greatly from his original one. He wrote that the change was because of the essay below, which first appeared at Eternity Road on December 13, 2006. In appreciation of his missive and the implied compliment...and yes, in recognition of the folly of spending so much on exotic cheeses that I was moved to inquire of the cheese shop proprietor whether financing might be available...I repost it here. -- FWP]

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     Your Curmudgeon is rather older than most wanderers of the World Wide Web, including most of those who hawk their opinions to a general audience. He received a different sort of upbringing from most, too. As his years lengthen, he finds himself ever more frequently revisiting the teachings of his youth and reviewing them for continuing soundness and applicability.

     Many of those lessons are still quite serviceable -- infinitely more so than the guff that's displaced them in more recent years. In part, that's due to an underlying shift in premises; half a century ago, no one would have dared to posit that right and wrong are relative, or that there can be no absolute moral standards, or that "good for you" and "bad for you" are anything but matters of opinion. Today one seldom hears anything else. If you don't believe it, either you don't have children or you haven't paid enough attention to what their "teachers" have been telling them.

     Accordingly, your Curmudgeon has decided to trot out, one by one, the sturdiest and most useful of the simple wisdoms with which his own parents and teachers equipped him. It is his opinion that their promulgation could do quite a lot to correct the faults of modern American society, and even more to quell the rising tide of dissatisfaction with life that afflicts so many of our teens and young adults.

     Of course, opinions will vary. Read on, and judge for yourself.

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     High among the homiletic primaries is this one: don't allow yourself to form bad habits. From the ordinary meanings of the words, this would seem self-evidently wise. For a "bad habit" is a behavior pattern that does harm to oneself. Of course, there's a heavy murk around that word "bad," whose variable interpretation has been the ingress for a lot of irrationality, but we'll get to that some other time.

     There are any number of habits on whose badness Americans would generally agree -- and not by thin majorities, either:

• Avoidance of exercise;
• Routinely bad nutrition and overeating;
• Impropriety of disclosure (i.e., the habit of revealing sensitive facts about oneself or one's family, friends, and acquaintances to persons who ought not to be told);
• Excessive television watching;
• Smoking;
• Drinking to excess;
• The use of recreational drugs.

     The above is, of course, a partial list. Other bad habits less dramatic in their effects would draw general concurrence as well. But there has been a sea change in American attitudes so complete, yet so quiet, that the very worst of all habits, by which millions of persons have utterly destroyed themselves and their kin beyond all hope of renewal, is almost never addressed. Indeed, when it's mentioned, most persons either refuse to acknowledge it or turn away to conceal their embarrassment.

     The habit of which your Curmudgeon speaks is living beyond your means.

     This venerable phrase has almost been effaced from our culture. Yet our nation's habit of living beyond its means is a regular news feature, reported through innumerable channels at least once per month. What else does the federal deficit signify? What else does the American trade deficit signify? What else does it mean when the dollar drops in value against the currencies of other lands? (It's been quite a long time since a physician last clapped your Curmudgeon on the shoulder and told him that he's "sound as a dollar," and not because your Curmudgeon is quick to take umbrage at insult.)

     What's bad in the large is just as bad in the small, yet nearly all of us do it, and very few of us will admit to it.

     Likely you, Gentle Reader, are nodding, perhaps a bit reluctantly, at the unwisdom of "living beyond your means." But you haven't seen your Curmudgeon's kicker yet:

If you've borrowed money, for any reason whatsoever, that you can't immediately pay back out of your own reserves, you're living beyond your means.

     Yes, that includes home mortgages and car loans.

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     A century ago, "mortgage" was a dirty word. (Car loans were, of course, unknown.) In fact, the word means "death pledge." It denoted a promise to return the mortgaged property to the legal ownership of the mortgagee -- the lender -- upon the mortgagor's -- the borrower's -- death. Indeed, it still means exactly that.

     Mortgages in the Nineteenth Century were almost exclusively the province and the bane of farmers. Private housing in non-farm areas was very seldom mortgaged. The income tax, the rise of the lending industry, and the demographic and financial conditions that prevailed after our two World Wars were the impetus by which Americans were goosed into thinking that living in homes they do not own, that could be ripped out from under them at any moment, was perfectly all right.

     It's hard to get reliable statistics on the matter, but according to a financial professional of your Curmudgeon's acquaintance, no fewer than 75% of all private homes are mortgaged. The deeds to those homes are encumbered in such a fashion that the persons who "own" them could be stripped of them at any time. It would not surprise your Curmudgeon too greatly if those provisions were invoked to put force behind a Kelo-esque eminent domain proceeding; financiers and politicians have always traveled in the same circles.

     But even apart from the hazards involved in living in mortgaged housing, it's almost always unwise to undertake a mortgage for reasons of simple financial prudence:

• It's a long-term obligation, typically 15 years or more;
• The lender is legally privileged over the borrower -- that is, nearly all the options rest with the lender, nearly none with the borrower;
• The borrower's income, upon which he depends for his debt service, is almost never guaranteed;
• A default on a mortgage is regarded as the worst of financial sins, and in the worst case can ruin an individual's financial standing for the rest of his life;
• In the event of a default, the borrower seldom recovers any significant percentage of his notional equity in the mortgaged property.

     If a mortgage, which is secured by real property and carries tax advantages that are attached to no other form of debt, is unwise, then what need one say about chattel loans on cars and other movable property? What need one say about credit-card debt, which carries extremely high interest rates and has ruined millions of families in the past quarter century alone?

---

     Many a reader has been saying to himself "But how could I get the things I need without incurring these debts?" for several paragraphs now. Such questions arise from a perverse sense of "need" far more often than not. Americans are hooked on material self-indulgence; easy credit is the pusher that feeds our habit. Most of what we have, we do not need. We want it, and we certainly enjoy it, but those are far different things.

     "Need" is the gateway drug. "Need" is habitually "defined down" over time: from a house, to a car, to better clothes, to a better car, to a really nice house in a "suitable" neighborhood, to designer jeans and sneakers for the kids, to the latest iPods^®, to a PlayStation 3 ^® and all the "hot" games for it, to a Giant Economy Size bottle of Chivas Regal to dull the pain from having to pay for all that stuff.

     Man's needs are food, clothing, shelter, and heat. All else is discretionary. The truly prudent man does not incur debt to pay for discretionary items.

     Let it be admitted that most Americans, despite their debt anchors, manage to skirt the shoals of financial disaster. But an appalling number do not, and a significant fraction of those never quite recover from the wreck. Compound interest, which master financier Baron Philippe de Rothschild called "the eighth wonder of the world," is in fact the eighth horror of the world for those habituated to debt. Its ability to drain all the vitality from one's present and hope from one's future is unequalled by anything but cocaine and heroin.

     In what might be the supreme irony of ironies, innumerable Americans look for their salvation from their debts...to government. Not only is our government the most egregious abuser of credit in the history of the world, it has an unadmitted interest in encouraging debt to the widest possible extent. Widespread severe debt is the motivator for governmental abuse of the currency: inflation. Inflation in our fiat-currency system gifts Washington with billions of "free" dollars with which it can increase its power over the rest of us. But Americans with substantial savings will not tolerate inflation; Americans deeply mired in debt, seeing the chance to pay down their obligations with "cheap" money, will embrace it eagerly.

---

     If you're a young person who has yet to acquire any debts, don't! Live beneath your means; acquire savings. Only borrow when utterly forced to do so, and only as a capital investment in yourself: that is, for tools or an education. Be ruthless in assuring that every dollar you make arrives in your pocket with no debt-service strings attached.

     A young man with a white-collar salary, who restricts his consumption for just ten years and puts his unspent balance into conservative investments (i.e., steady 3% to 5% returns), can usually produce the entire purchase price of a house at the end of that period. He'll have no trouble affording the cash purchase of a used car. Does it mean that he'll live in a less opulent style than that enjoyed by his coevals? Yes. But it also means that the fangs of the debt habit and the shackles of compound interest will have no chance to snag him.

     An older man who has lived free from debt can be certain of mobility and security. He will have savings. No occupational reversal will have the power to dispossess him. Neither will misfortunes of nature render him helpless. He will have leverage in all negotiations that a man chained to debt and beholden to creditors would not possess. He will be as free as his individual efforts can possibly make him. When he passes from this world, he will be able to leave his progeny a substantial patrimony. More, he will have already shown them an invaluable example.

     A sturdy wisdom indeed.

Quickies: The Demons, Not The Lunatics, Are Running The Asylum.

     This left me absolutely speechless:

     Senate Democrats on Wednesday couldn't agree that federal debt is a national security problem, in a hearing aimed at assessing the long-term strategic implications of the government's $19 trillion debt.

     "A realistic discussion about it, and accepting expert opinion that this debt that we have is not actually right now a threat to our country, is I think a more realistic and honorable way of talking to the American people about it," Sen. Ed Markey, D-Mass., said during a Senate Foreign Relations Committee hearing on Wednesday.

     What’s that you say? Federal borrowing is crowding private enterprise out of the credit markets? The interest on the debt is squeezing the rest of the federal budget near to collapse? The dollar has weakened so greatly from federal borrowing that major countries are leaving the “dollar standard?” Sorry, Ed Markey can’t hear you. It might endanger his precious social programs.

     And on that note:

     Markey also insisted that Republicans drop their interest in changing entitlement programs as they try to mitigate the projected federal debt.

     Gee, with entitlements near 70% of all federal spending and accelerating toward the stratosphere, wherever shall we look for reductions? Markey has the answer to that, too:

     Markey suggested that nuclear weapons represent one of the top targets for such debt reduction. "There's a proposal to [spend] $1 trillion of new nuclear weapon systems in our country over the next 20 years," he said. "That's a crazy number from my perspective."

     But never fear, there are other Democrats who have the answer:

     "I don't want you to leave with the impression that the Democratic side of this committee is insensitive to the deficit. We're not," said Maryland Sen. Ben Cardin, the ranking Democrat on the panel. "I think Democrats are very concerned that there be adequate revenues in order to be able to make the investments that we think are important for the growth of our nation."

     Yes, I added the emphasis.

     Hide your cattle in the woods, Francois,
     The lord is looking your way.
     Hide your women and your goods, Francois,
     They're coming around to make you pay.

     [Tom Paxton, “When Princes Meet”]

     It’s impossible to believe that anyone that stupid could attain a seat in the United States Senate. They have to be evil...but they’ve both been there for quite a while, so what does that say about their constituents?

     “We are doomed.” – John Derbyshire

Carrots, Sticks, And Great Heaping Mounds Of Dollars

     Into what sort of investments does your IRA or 401(k) plan – I assume you have one or the other – put your contributions? Stocks? Mutual funds? Corporate bonds? Possibly a little goes into an interest-bearing money market fund? They’re all quite common in such plans. Most of the ones an investment advisor is likely to recommend are pretty good: that is, they won’t make you rich, but they’re unlikely to crash and burn and take all your money with them.

     But then, your investment advisor is a private party, probably the employee of a company that specializes in that sort of work. A private company or self-employed financial advisor must perform or go under. One that underperforms for two or three quarters is likely to get a serious talking-to by his management. One that underperforms for two or three years is likely to take up residence in a cardboard box. And by “underperform,” I don’t mean “lose money;” I mean “doesn’t keep up with market averages,” at the very least. The ones that advise so poorly that they actually lose their clients’ money are in much worse trouble than that.

     Now imagine that instead of that private advisor and his supervisors if he has any, your retirement savings were managed by a state government...or perhaps by the federal government itself.

     Changes the whole picture, doesn’t it?

---

     I’ve written before about an attempt to seize your retirement savings (and your pension plan, if you’re one of the fortunate few who still has one). It wasn’t a new idea then, and of course it isn’t now. The Ghilarducci proposal was too barefaced to pass muster. It was an outright proposal to steal from approximately half the population of the United States; it couldn’t possibly command enough support to pass Congress...though I have no doubt that were Congress to pass it, Obama would sign it, cackling with glee as he did so, and put it into effect upon the instant.

     But have a gander at this:

     President Obama’s regulators aren’t slowing down, alas. And on Wednesday they unveiled another part of their plan to push Americans out of private investment accounts and into government-run plans.

     The Department of Labor says its so-called fiduciary rule will make financial advisers act in the best interests of clients. What Labor doesn’t say is that the rule carries such enormous potential legal liability and demands such a high standard of care that many advisers will shun non-affluent accounts. Middle-income investors may be forced to look elsewhere for financial advice even as Team Obama is enabling a raft of new government-run competitors for retirement savings. This is no coincidence.

     Labor’s new rule will start biting in January as the President is leaving office. Under the rule, financial firms advising workers moving money out of company 401(k) plans into Individual Retirement Accounts will have to follow the new higher standards. But Labor has already proposed waivers from the federal Erisa law so new state-run retirement plans don’t have the same regulatory burden as private employers do.

     This competitive advantage could be significant. Last month the board of California’s new “Secure Choice” retirement plan wrote to state legislators about their “exciting win” in Washington. They reported that employers enrolling workers in the new government-run plan “would have no liability or fiduciary duty for the plan.” Score! The California bureaucrats added that “we have been given the green light to auto-enroll workers into an Individual Retirement Account (IRA).”

     Into what sort of “investment” do you suppose the state of California, now many billions of dollars in the red, would put the money thus entrusted to its “management?” Given that its “advisors” would suffer no penalty for losing every last dollar? Given that the account “owners” would have no recourse regardless of developments? Remember also that state governments are thralls to Washington, kept docile and submissive to federal demands by threats to which a Fidelity or a Vanguard are not exposed.

     Scared yet? If not, check your pulse: you may have died but failed to notice.

---

     The total invested in pension plans, IRAs, and 401(k) plans, in current dollars, is about $19 trillion. The total federal debt is slightly more than that. The aggregate of all state and local governments’ debts is about $4 trillion. Moreover, those figures don’t account for the famous “unfunded liabilities” represented by Social Security, Medicare, Medicaid, and government pension programs.

     To say that America’s 88,000-plus governments are eager to find new sources of revenue is quite an understatement. There’s a reason most of the revenue from state lotteries doesn’t go anywhere near the educational institutions they supposedly fund. It’s the same reason the Supreme Court ruled against Suzette Kelo.

     The stick the Department of Labor’s new rule brandishes at private investment advisors in the form of enhanced legal liability will nudge them toward government-approved investments: state and local bonds and Treasury bills. The carrot it offers to the state governments will be eagerly snapped up. The consequence will be a diversion of a significant part of the flow of retirement funds toward loans to governments. The debtors can default on those loans without consequence, leaving the “investor” with no money and no recourse.

     The Soviet Union did that several times.

     A government bond is a certificate of guaranteed confiscation. – Franz Pick

---

     Gradualism has eroded the core out of the Constitutions’ provisions for limiting government. It’s also bled the purchasing power out of the dollar. Today it’s at work on the remnants of liberty: freedom of expression; freedom of association; freedom of religion; freedom of movement, both intranationally and internationally; the security of one’s person and possessions, real or movable, against arbitrary search and seizure. The one significant retardant to our descent toward complete, rightless subjugation is the cost of enforcement.

     I think those for whom totalitarianism is the end in view might have found the financing they’ll need. I think they might have found a technique for putting it over on us without alarming us into resistance until the seizure is complete and irrevocable. That technique would also leave the elderly completely dependent on the good will of the Omnipotent State.

     I’m already elderly; thus I fear both for myself and for the investment advisor who’s served me loyally and well for many years. What about you, Gentle Reader? Feeling a chill just yet?

Gold And Silver Buyers Beware

     This piece will remain at the top of the blog for a few days, to ensure that all visitors see it.

     On November 4, 2015, I ordered a large quantity of silver from Northwest Territorial Mint, a company based in Washington state. Their representative gave me a projected delivery date of January 8, 2016. I wired the payment to them later that day.

     By February 12, 2016 I was concerned and more. My silver had not arrived. Neither had I received word from the vendor about why it had not been shipped. In reply to my complaint, their representative wrote back as follows:

     Thank you for your inquiry. We are continuing to ship all orders in the order of payment clearance as quickly as possible. We do apologize for the extended delay and we do appreciate your patience!

     At this time you do qualify for a full refund if you choose to liquidate your order. The refunded amount would be at the higher price of either the price you paid or the current market rate at the time you contact us to lock in that market price. You also have the option to have your order refunded and immediately applied to a new order. This would enter you into the shipping queue a new but also allow you to take advantage of the lower market rates we have been seeing recently. If you choose one of these options please call us at 1-800-344-6468 and let the receptionist know you are looking for a refund, they will connect you to the correct department.

     If you choose to continue to wait for your order please be assured that we will ship it as quickly as possible. Based on the orders that are currently shipping, I would anticipate your order being filled within the next several weeks (approximately 5-7 weeks) or so. Please understand that this is an estimated time frame and shipment will be made at the earliest time possible.

     I elected to wait, as the product I’d ordered was unavailable from other vendors.

     Yesterday -- five months since the original order and payment for it – I called the vendor again. I was told that:

• The person who wrote the above reply to me “had left the company;”
• The company had filed for Chapter 11 bankruptcy;
• The owner had suffered a large judgment against him personally;
• No silver would be shipped and no refund would be made.

     Despite all that, as of yesterday morning Northwest Territorial Mint was still accepting orders.

     Read this article from the Federal Way Mirror for more details.

     Because of the steady deterioration of the dollar, an unprecedented number of Americans have begun to acquire gold and silver as protective assets. That’s attracted an unprecedented number of persons and firms into the precious-metals business. Some of those persons and firms are thieves. Unfortunately, they aren’t discovered or charged nearly as often as they should be. When they are discovered, they don’t get nearly as much publicity as they should get.

     It appears that Ross Hansen, the owner of Northwest Territorial Mint, has been running a pyramid scheme of an unusual kind. I’m out quite a lot of money for having been taken in by it. Let my experience serve as a warning to you.

Quickies: Governments And Gold Part 2

     We know from long and broad experience that governments hate gold. It functions as a barometer of governmental currency depreciation, which is useful all by itself. It has an excellent record as a store of value, which is why gold demand rises along with the inflation rate. However, among clever people it also serves as a medium of exchange: i.e., a true money.

     I noted a few days back that India, where unadorned gold circlets serve as an alternate, untraceable currency, is trying to put a clamp on the precious metal. Today we have a follow-up:

     One of the immediate effects of the 1% sales tax announced on February 29 was a massive outcry from India’s jewelers. Who launched a full-scale strike on March 2 to protest the levy.

     That work action has reportedly brought gold sales in the country to a standstill. With one professional in the Indian refining industry telling Platts on Tuesday that there is “no buying anywhere” across the nation.

     Why is there “no buying?” In part because of the reporting requirement that accompanies the new tax, but in at least equal part because there’s no selling. Those who have gold, seeing that the influx is to suffer, are holding on to what they have. In response, India’s many jewelers are straining to reach a compromise with the government, so that trading in gold will be reinvigorated:

     The Jewellery Federation director Ashok Minawalla told local press that India’s jewellers have offered to stop selling gold bullion directly to consumers. A practice that up until now has been common — with gold buyers often picking up gold bars from jewellers as investment holdings....

     This suggests that the decision from the jewelry federation could cut demand by up to 300 tonnes, or 9.65 million ounces, annually. A figure that would equate to 7.1 percent of total global demand from 2015.

     The jewelers aren’t offering to stop selling those handy gold circlets, though. Indeed, the story is accompanied by a picture of them. So the probability seems high that any reduction in the sale of gold bars will be offset, perhaps completely, by the production and sale of gold circlets.

     It’s highly unlikely that Indians who’ve become accustomed to using gold as an alternative currency will abandon the practice. It’s become too much a part of how the Indian economy operates, and too important to the day-to-day budgets of too many Indian households.

     Concerning gold and American uses thereof, note that 21 years elapsed between the creation of the inherently inflationary Federal Reserve system and Franklin D. Roosevelt’s seizure of Americans’ gold. The country had to grow accustomed to doing business in paper, as the statists of that era understood full well. Let’s watch how Indians react to this first attempt to impede that country’s gold market – and how the Indian government follows up on that reaction. It will be interesting at least.

Quickies: Governments And Gold

     Where there is government, there is repression, suppression, and oppression. Governments particularly hate privacy, especially financial privacy:

     Finance Minister Arun Jaitley presented the government’s gold plan as part of the annual federal budget. Saying that gold import taxes will remain unchanged this year – dashing hopes for a cut.

     In fact, Jaitley actually announced an increase in taxes on gold sales. Saying that the government will add a sales tax of 1 percent to all gold jewelry sold in India.

     Such a sales tax had been scrapped by the government four years ago. But is now being revived by officials with the stated aim of reducing gold consumption.

     And that wasn’t the end of increased taxation on bullion. With Minister Jaitley also saying he will raise taxes on imports of dore gold bars – to 8.75 percent, from a former 8 percent.

     The “underground” portion of India’s economy is very large. Its “currency” of choice has long been gold, usually in the form of “jewelry:” unadorned gold circlets. Such circlets are worn by Indian women, on the forearms. When such a woman approaches certain categories of merchants, she endeavors to display her circlets without explicitly drawing attention to them, to evoke some off-the-books bargaining. Many entirely private, untaxed transactions are struck through this mechanism. The Indian government has been aware of it for some time, which is why it strives to curb the practice through import and sales taxes on gold.

     Now if only we could get Americans to adopt this device...and keep the government blind to it.

More On NIRP And The War On Cash

     Articles addressing these threats have been multiplying. An increasing number of commentators are treating them as real possibilities rather than fever-dream nightmares.

     Here’s a thoughtful piece from Tyler Durden, which demonstrates en passant why one should not put too much faith in anyone’s forecasts:

     Back in August 2012, when negative interest rates were still merely viewed as sheer monetary lunacy instead of pervasive global monetary reality that has pushed over $6 trillion in global bonds into negative yield territory, the NY Fed mused hypothetically about negative rates and wrote "Be Careful What You Wish For" saying that "if rates go negative, the U.S. Treasury Department’s Bureau of Engraving and Printing will likely be called upon to print a lot more currency as individuals and small businesses substitute cash for at least some of their bank balances."

     Well, maybe not... especially if physical currency is gradually phased out in favor of some digital currency "equivalent" as so many "erudite economists" and corporate media have suggested recently, for the simple reason that in a world of negative rates, physical currency - just like physical gold - provides a convenient loophole to the financial repression of keeping one's savings in digital form in a bank where said savings are taxed at -0.1%, or -1% or -10% or more per year by a central bank and government both hoping to force consumers to spend instead of save.

     For now cash is still legal, and NIRP - while a reality for the banks - has yet to be fully passed on to depositors.

     The bigger problem is that in all countries that have launched NIRP, instead of forcing spending precisely the opposite has happened: as we showed last October, when Bank of America looked at savings patterns in European nations with NIRP, instead of facilitating spending, what has happened is precisely the opposite: "as the BIS have highlighted, ultra-low rates may perversely be driving a greater propensity for consumers to save as retirement income becomes more uncertain."

     Please read the whole thing. Once again, people’s responses to changes in economic and fiscal policies have baffled the “planners.” It’s a reminder that no one should be certain that he sees – or feels – all the incentives that apply to a given context.

     Now, Europe and Japan are not the United States. It’s quite possible that Americans’ response to the imposition of NIRP would be different. What seems assured is that we wouldn’t passively accept the new monetary regime without at all changing how we store and handle our wealth.

     This is highly relevant to the accelerating disaffiliation, among ordinary Americans, from the political system and the laws and policies promulgated by our political class.

---

     I’ve lost count of the number of times I’ve cited this supremely important observation from the late Benjamin M. Anderson:

     There is no need in human life so great as that men should trust one another and should trust their government, should believe in promises, and should keep promises in order that future promises may be believed in and in order that confident cooperation may be possible. Good faith -- personal, national, and international -- is the first prerequisite of decent living, of the steady going on of industry, of governmental financial strength, and of international peace.

     Among the seemingly irrefutable facts of our time is that trust is everywhere declining. Trust in large institutions – emphatically including governments – is at what might be an all-time low for the era of recorded human history. It behooves us to try to grasp why.

     When I wrote in 2009 that:

• Our military is being emasculated as we speak, with funding cuts to deprive it of men and machines, and legal entanglements to ensure that no soldier in the field can ever be certain that he won't be tried for murder by civilians, or worse, by foreigners.
• Our alliances are faltering as no one ever expected, as our chief executive kowtows to the worst men in the world and fails to uphold America's actions in its own interest.
• Our politicians are interested solely in getting elected and staying in office, and will do anything, sacrifice anyone, and betray any principle of right, to achieve those goals.
• Our economy is being bled to death by layer after layer of taxation, regulation, legal mandates, and outright nationalizations, nearly all intended to benefit some provincial interest some gaggle of politicians counts on for support.
• Our currency has been so debased that the other nations of the world, fooled over the decades into accepting mountains of it for their wares, are getting ready to write it off.
• Our schools have become cesspits of socialist indoctrination and multicultural propaganda, where a child saying grace over his lunch is subject to harassment as a bigot.
• Our cities and communities are weakening under the assaults of illegal immigration, eminent-domain attacks on property rights, forced injection of "refugees" who hate America and all it stands for, and the use of insane lawsuits to prevent development in the name of "saving the planet."
• Our churches -- the ones that still respect God and value freedom -- are steadily being muzzled by the moral and cultural relativists, the "inclusionists," and the Muslims.
• Our women are largely persuaded that killing an unborn baby constitutes a "woman's right" and a "safe medical procedure."
• Our arts have become unfathomably vile.
• Every right we have is under sustained, determined assault.
• Our people are losing faith in one another, in themselves, in their futures, and the futures of their children.

     Things were already pretty bad. Here we are, six and a half years further down history’s road. Would anyone care to claim that they’re better?

---

     Trust is the consequence of prior experiences: specifically, the fulfillment of promises, guarantees, and predictions. Smith, unless he’s a total moron, would not trust Jones on the basis of zero prior acquaintance. Few Smiths would trust Jones on a serious matter – that is, a matter pertinent to Smith’s well-being or security – unless Jones had already accumulated a record of good performance. And no Smith who belongs anywhere but a sanatorium would trust Jones had Jones accumulated a record of poor performance: inaccurate forecasts, failures, and betrayals.

     Poor performance is the hallmark of governments in our time. They exhibit all three kinds:

• Forecasts that turn out to be wildly wrong;
• Failures to perform as promised;
• Outright betrayals of trust.

     This is especially the case in economic and fiscal matters.

     From March 1933 onward, the federal government has done nothing but steal value from the dollar. Over the eighty-three years since then, a pound loaf of bread of good quality has gone from $0.10 retail to over $4.00 in most metropolitan areas. That’s not because of a shortage of wheat flour, ovens, or bakers.

     Now and then we’ve been told about policy changes to “strengthen” the dollar. Such “strengthenings” have always been strictly relative to the currencies of other nations. Governments cannot create value. They can only consume it.

     Trends in the financial markets are never infinite. (“Trees do not grow to the sky.” – Baron Philippe de Rothschild) They will always come to an end. However, trends in political motivations can be relied upon...and the motivation of governments is always to steal.

---

     Not one of the economic or fiscal developments of the last thirty years has conduced to greater prosperity for Americans. Not one points to a brighter future for our descendants. Perhaps worst of all, few of us believe that a “change of regime,” such as the one that will nominally occur on January 20, 2017, will improve matters. Our trust in the words, intentions, and deeds of politicians is gone.

     Yet, with personal attention to our circumstances and the exercise of prudent, well thought out efforts, many Americans have endeavored to secure their personal and familial situations against the dark tides they foresee. Many of those efforts went to securing our wealth and our ability to ride out a financial storm. Ann Barnhardt and others have exhorted us to back away from the existing financial system in all its manifestations. Some Americans have heeded that advice in its entirety; others only partway.

     Some, but not nearly a majority. The great majority of us are still exposed to political and financial predation. Some disbelieve the prognostications of calamity. Others feel they have no alternative but to remain in the system. Still others are betting that by dint of careful timing, they’ll be able to profit from whatever might develop.

     How would you, Gentle Reader, endeavor to protect your savings if they were made wholly electronic or promissory – that is, if they could not be converted into a tangible form? Given that the demand for physical gold and silver is already so high that delivery delays now average three months, what would you expect if, say a year from now, the $100 bill were entirely out of circulation and American banks had followed Europe and Japan into negative-interest-rate territory? Can you imagine being able to acquire the money metals at any price in non-material currency?

     More critically: Would you repose your trust in an entity that to continue in existence must feed upon the value you create, if it moved toward such a situation?

---

     Today, the esteemed Glenn Reynolds cites a Peggy Noonan column of considerable insight:

     There are the protected and the unprotected. The protected make public policy. The unprotected live in it. The unprotected are starting to push back, powerfully.

     The protected are the accomplished, the secure, the successful—those who have power or access to it. They are protected from much of the roughness of the world. More to the point, they are protected from the world they have created. Again, they make public policy and have for some time.

     I want to call them the elite to load the rhetorical dice, but let’s stick with the protected.

     They are figures in government, politics and media. They live in nice neighborhoods, safe ones. Their families function, their kids go to good schools, they’ve got some money. All of these things tend to isolate them, or provide buffers. Some of them—in Washington it is important officials in the executive branch or on the Hill; in Brussels, significant figures in the European Union—literally have their own security details.

     Because they are protected they feel they can do pretty much anything, impose any reality. They’re insulated from many of the effects of their own decisions.

     Noonan might be late to the party, but she’s correct nevertheless. The “protected” – the political elites and those “connected” who can shelter under their wings – might imagine that they can destroy cash, impose NIRP, and somehow not suffer along with the rest of us. After all, they’ve imposed so many shackles and depredations on us “unprotected” ones, and as Noonan indicates, have managed to evade the consequences. But destroying the money is a quite different kettle of fish.

     The destruction of our money will involve the final destruction of general trust, for as David Friedman has written, there are only three ways people can interact:

• Love,
• Trade,
• Force.

     Without a trustworthy medium of exchange, trade will be impossible, and the “unprotected” surely won’t feed, clothe, and house the “protected” out of love. Perhaps what would ultimately come of that would be better than what we endure today. But it wouldn’t be guaranteed to get here quickly.

     It’s time for all Americans to look to their defenses: to their larders, to their savings, to their armaments, and to the reliability of their relatives, friends, and neighbors. As Tyler Durden notes in the article cited in the opening segment, you don’t want to be the last to panic:

     And then this from "Demand For Big Bills Soars As Japan Stuffs Safes With 10,000-Yen Notes":

     “Demand for 10,000-yen bills is steadily rising in Japan, even as the nation’s population falls and the use of credit cards and other forms of electronic payment increases,” Bloomberg writes. “While more cash might sound like a good thing, some economists are concerned that it shows Japanese households are squirreling away money at home instead of investing it or putting it into bank accounts -- where it can make its way back into the financial system and be put to productive use.”

     One safe maker who spoke to Bloomberg said safe shipments have doubled over the last six months. While part of the demand for safes is likely attributable to the country's new "My Number" initiative, "the negative-rate policy is likely to intensify the preference of Japanese households to keep cash at home,” Hideo Kumano, an economist at Dai-ichi Life Research Institute said. “Overall, the trend of more cash at home reflects concern about the outlook for economy among households. This isn’t a good thing.”

     No it isn't, and not because of concern about the outlook for the Japanese economy: that had no chance long before Abe and Kuroda came on the scene, mostly as a result of Japan's demographic spiral of doomed.

     "It isn't a good thing" because it confirms that the global run on physical cash - as much as the bankers of the world would like to keep it under wraps - has begun, and as the chart above shows, in a fractionally-reserved world in which there are $10 in savers' claims for every $1 in physical currency, it quite literally pays to panic first, as the 9 out of 10 people who panic after the first one, will be stuck with nothing.

     Verbum sat sapienti.

The War On Cash: A Further Look At The Dynamic

     At the 1987 California State Libertarian Party convention, legendary Austrian economist Murray Rothbard was asked for his opinion of the then-current discussions about making all paper currency digitally readable and writable. Dr. Rothbard immediately zeroed in on the underlying intention: the effective elimination of cash.

     Say what? But isn’t paper currency “cash?” It’s what we use in routine, day-to-day transactions, without the need for an intermediating financial institution to perform the transfer. How would it cease to be “cash” if it merely became possible to write a readable transaction trail onto it?

     Dr. Rothbard noted that one fundamental property of cash is its anonymity. A medium of exchange that carries a record with it is the reverse of anonymous: it can be made to testify to where it’s been and for what it was used. Once all currency was so equipped, the federal government could mandate that all new “cash registers” be equipped with the technology to write and read the embedded record. Then as now, the rationale was “to impede criminals,” especially drug dealers.

     Furthermore, such currency would have a built-in invalidation period. When the embedded record was full, such that no additional transactions could be recorded on it, the holder would be required to exchange it for a fresh note at an authorized facility. Thus, the government’s control of all financial transactions would be ironclad, impossible to escape.

     That was 1987, Gentle Reader. Before the civilian-accessible Internet. Mobile phones were analog only; cell phones were still being developed. The “PDA” was a pathetically limited item, no more than a digital notepad. And the writing was already on the wall.

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     Just as governments strive to do everything in secret, they strive with equal fervor to eliminate the privacy of their subjects.

     Privacy – alternately, anonymity – is what makes it possible for Smith and Jones to transact without the State knowing about it. It makes it possible for Smith to keep all knowledge of his liquid assets to himself. Cash of the traditional, impossible-to-trace sort facilitates the export of one’s wealth to a place far from the State’s reach. That’s why the federal government has imposed export controls on American currency. God help you if you’re discovered trying to leave the U.S. with a large amount of cash; you’ll be treated more roughly than any suspected terrorist.

     Today’s First World countries are heavily festooned with monitoring devices: cameras, microphones, cell-phone-tracking systems, taps on Internet backbone traffic, and so forth. Micro-seismic detectors listen to the rumble in our streets. Satellites equipped with optics of phenomenal resolution watch us from orbit. Everywhere we go, we’re identified, traced, and followed by the all-seeing eyes of the Omnipotent State. Only in our hand-to-hand dealings in the most cloistered of locales do we enjoy any privacy at all. Is it any wonder that those who worship power are so determined to deny all possibility of financial privacy to us who want only to be left alone?

     “But criminals!” You’ve heard the cry. It’s almost as constant as “For the children,” and even more specious. Consider the current foofaurauw over the cell phone the FBI has demanded that Apple unlock. Why? Because it might provide a lead to a possible third party to the mass shooting in San Bernardino a couple of months ago. The precedental power of compliance by Apple is difficult to overstate.

     We have here another case of that most vicious of legal canards, "compelling government interest." This time, it appears not to be sufficient. Too many people are aware of the range of their activities that would subsequently be monitorable...and far too many people have a compelling interest of their own in keeping a substantial part of their affairs entirely private.

     That desire for a private space in which individuals can transact without fear of prying government eyes is strong enough to reinvent cash, should the valueless cash foisted upon us by the Federal Reserve System be shorn of its anonymity.

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     The reinvention of cash will require both determination and trust. As any new cash won’t be “legal tender,” which the seller is required by law to accept “for all debts, public and private,” any new cash will be required to have some of the properties of a commodity money:

1. Valued for their intrinsic properties;
2. Easily recognizable;
3. Difficult or impossible to counterfeit;
4. Durable under use;
5. Relatively stable in quantity;
6. Divisible into very small quantities without degradation.

     The traditional money metals – gold, silver, and copper – possess all those qualities. For hand-to-hand transactions between strangers, all of them would be highly desirable at the very least. Should the transactors know and trust one another, qualities 1, 2, and 3 would remain absolutely required, while the others would be of less importance.

     It’s unlikely that a single “standard cash” would arise swiftly after the Fed’s destruction of the privacy of its notes. More likely, there would be many “local cashes,” perhaps a few “regional cashes,” for a long time afterward. There would also be a great deal of barter, unmediated by cash of any sort. Some items that would start out as common barter would be “promoted” to the status of a cash: ammunition in the most common calibers has frequently been mentioned in this connection.

     The one thing of which we can be sure is the dynamic: the desire of millions of Americans for a zone of privacy in which they can transact without notice by the State.

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     Americans’ most important protection against the State is the State’s own nature: its predictability and the stupidity of its adherents. A slice of an underappreciated novel from one of the greatest of contemporary storytellers has much point:

     Rammaden, the safecracker, had told an amusing story about two thieves who had broken into a supermarket one Friday night when they knew a snowstorm had kept the Wells Fargo truck from arriving and taking the heavy end-of-the-week receipts to the bank. The safe was a barrel box. They tried to drill out the combination dial with no success. They had tried to peel it but had been totally unable to bend back a corner and get a start. Finally they had blown it. That was a total success. They blew that barrel wide open, so wide open in fact that all the money inside had been totally destroyed. What was left had looked like the shredded money you sometimes see in those novelty pens.

     “The point is,” Rammaden had said in his dry and wheezing voice, “those two thieves didn’t beat the safe. The whole game is beating the safe. You don’t beat the safe unless you can take away what was in it in usable condition, you get my point? They overloaded it with soup. They killed the money. They were assholes and the safe beat them.”

     [Stephen King, Firestarter]

     Should our political masters “kill the money” in the currently anticipated non-explosive way, they’ll have pitted themselves and their monolithic coercive skills against the ingenuity and determination of millions of Americans determined to preserve what remains of their privacy. One lumbering Goliath will face off against millions of small, quick, inventive Davids, each with a sling of his own choosing.

     Which way would you bet, Gentle Reader?

Quickies: If You Shoot At The King...

     ...be sure you kill him:

     On Monday the European Central Bank President emphatically disclosed that he is strongly considering phasing out the 500 euro note.

     Yesterday, former US Treasury Secretary Larry Summers published an op-ed in the Washington Post about getting rid of the $100 bill.

     Prominent economists and banks have joined the refrain and called for an end to cash in recent months.

     The reasoning is almost always the same: cash is something that only criminals, terrorists, and tax cheats use.

     In his op-ed, Summers refers to a new Harvard research paper entitled: “Making it Harder for the Bad Guys: The Case for Eliminating High Denomination Notes”.

     That title pretty much sums up the conventional thinking. And the paper goes on to propose abolishing, among others, 500 euro and $100 bills.

     The authors claim that “without being able to use high denomination notes, those engaged in illicit activities – the ‘bad guys’ of our title – would face higher costs and greater risks of detection. Eliminating high denomination notes would disrupt their ‘business models’.”

     This is an exceedingly frightening prospect. Moreover, if the proponents had the brains God gave a flea, they’d be the most frightened of all:

• Cash – physical items that serve as a medium of exchange – is the medium of the “underground economy,” which supports roughly 30% of all economic activity in the First World and probably a larger fraction in the “developing countries.”
• Banknotes – here in the U.S., Federal Reserve Notes – are cash but not money. They’re merely currency: a proxy for real money, which must have value independent of any diktat by the State.
• The disappearance of banknotes, whether partial or complete, would accelerate the reinvention of real money: an item valued for its intrinsic properties, not merely because others are compelled to accept it.
• The point of eliminating cash isn’t to squelch “criminal activity,” but to eliminate financial privacy and to enable the imposition of negative interest rate policies, such as Japan and several European countries already suffer.
• The banking system, which is founded on fractional reserve policy, would collapse as people reinvented real money and sought alternatives to the banks.

     Nothing is quite as stupidly shortsighted as a greedy statist – and no policy is greedier or more statist than one that says “you can only have your money if, when, and as we say so.”

     Buy gold, silver, and copper while you can. Don’t wait for the axe to fall.

Quickies: Substance On Money

     It isn’t often that a politician makes a statement about an important matter that possesses actual substance...which is why I admire Ted Cruz:

     Over the century behind us, the Federal Reserve system has done more damage to the United States than all the ordnance of all our enemies combined since the formation of the Republic. More, it’s done that damage under a false rationale about “stabilizing the economy” while in fact it assists Washington in draining away the earnings, wealth, and security of ordinary Americans. I’m grateful that at least one presidential aspirant understands this.

Quickies: The New Button

     Confession: While I’m a capitalist, I’m not a terribly good capitalist. I’m prone to giving my written work away, mainly because I find it flattering just to have a readership. However, over the years I’ve received a lot of email to the effect that I should mend my ways. Recently a few readers have noted that now that I’m retired, I should be looking for ways to augment to my income. While such counsel doesn’t have the impact of “the still, small voice,” when it’s sustained over time it can have an effect.

     So I’ve added a “Support Liberty’s Torch” button. It’s the usual sort of PayPal mechanism you’d see at a site such as this. I’ve put it below the blogroll so it won’t be too conspicuous, though I’m sure that those who scroll down that far into the site will recognize it at once. If the Spirit should move you to do so, please feel free to use it.

     Mind you, I’ll keep writing whether or not I receive any donations. This is for you, Gentle Reader. If you’d like to feel more a part of the work that’s posted here, this is your way to do so. Several longtime readers, both here and at Eternity Road, have asked for that opportunity, and as it’s entirely voluntary, I’ve decided there’s no harm in it.

     And now it’s back to the salt mine. Thank you for being a reader of Liberty's Torch.

Betting On Longshots: An Investing Approach For The Prudent And Humble

     Everybody knows what a longshot investment is, right? A proposition with a poor probability of paying off, but which would pay off big if it were to pay off at all, right? So betting on longshots is the opposite of “playing the odds,” at least as traditionally understood, right? It’s just a way to go broke dreaming of riches you’ll never collect, right? Right?

     Wrong. At least, not always and everywhere right. And I shall tell you why.

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     He who plays the odds – i.e, who places his bets on the most likely result of some process – is grist for the mill of the odds-makers. His bets are the stabilizing ballast for the field, for two reasons:

1. There will always be more of his sort of bet than any other sort, and often more than all the others taken together.
2. His bets are, on average, the largest ones made on the process.

     Thus, the play-the-odds bettors are the ones most important in determining the odds, and thus the payoffs, for all the possible outcomes. For any process with a strong element of chance involved, the total payoffs the process will offer will sum to no more than the total of all the bets.

     It is thus a natural consequence that the play-the-odds bettor will, on average, lose money.

     These observations are germane to many different betting scenarios, including the decision to commit money to the equities markets. In those markets, the odds-makers are the financial gurus, with emphasis on the popular ones. No one watches those commentators more closely than the short-term pseudo-investor we call the speculator.

     Speculation differs from investment in that it largely disregards the fundamentals of the equities involved. That is, it bears little or no relation to what the involved companies are doing while the speculators’ bets mature. It’s almost entirely based on the speculator’s anticipation of what other investors and speculators are likely to do, and the effect that aggregate behavior will have on the prices of the relevant equities. To be a successful speculator, therefore, requires more knowledge about the behavior of investors and speculators than about the activities of publicly traded corporations.

     Needless to say, a successful speculator is about as likely to share his knowledge of such matters as I am to convert to Scientology. His is that rare sort of knowledge whose value diminishes as it’s shared.

     Some years ago, when the markets were hot, hot, hot and seemingly everyone in America was eager to “get in on the action,” financial gurus were thick on the ground, vending their advice to anyone who’d listen. Many Americans learned the hard way that under such circumstances, becoming part of the herd that follows such advice is a great way to walk right off a cliff. The great speculators know it. They knew it then, too.

     Which is why respecting the value of longshots is so important to the man who can’t fly.

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     In the investment market, a longshot is deemed such not because its odds of paying off are absolutely, objectively low, but because market behavior has a time-horizon associated with it: i.e., the time interval between one’s investment and an acceptable positive return. That horizon varies from investor to investor, but each of us has one. For example, I wouldn’t bet on an equity whose payoff date is likely to arrive fifty years in the future; given my age, such a payoff would have no value to me. I want a payoff within my usable lifespan: probably no more than ten years from the present day. But I’m a long-range investor; a speculator’s time-horizon will be much, much nearer: typically within two months or less.

     That difference in time-horizons distinguishes the “speculator’s longshot” from an equity for the investor with “staying power.” Many an equity is a “speculator’s longshot,” in that it has little chance of paying off acceptably within a speculator’s time-horizon – and speculators are uniquely sensitive to transaction and opportunity costs, which set a greatest lower bound beneath acceptable returns. But among such equities are some that will appeal to the long-range investor, who’s willing to wait longer than the speculator for a return.

     Therein lies the psychological difference between investors and speculators. It also hints at how to “bet the longshots” in a fashion that has a good chance of reaping strong positive gains.

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     If you’re new to equities investment, two preparatory steps are mandatory:

• Decide how much you can risk comfortably; i.e, without endangering your ability to meet your responsibilities acceptably. We’ll call this amount $P.
• Decide on your personal time-horizon, which we’ll call T years. T should be no less than three, and probably no more than ten.

     Once those steps are behind you, you can think rationally about investing. The next steps are:

1. Select a small group of publicly traded companies. Make them ones about which you have a reasonable prospect of learning a great deal.
2. Study the hell out of each company – its fundamentals, its behavior over the past T years, and any announced plans. Disregard with prejudice any that speculators have targeted over that interval.
3. Determine whether the popular financial gurus consider any of your selected stocks worthy of discussion: if they do, pass it by; if they don’t, it might be worthy of a bet.
4. Decide for yourself whether any of those equities offer the prospect of adequate returns over the next T years.
5. Do not share your knowledge or decisions with anyone, including your spouse or Significant Other. (No, don’t share it with me, either.)

     Once you’ve assembled a small – no more than ten – group of equities that you believe will pay off within T years, you’re ready to partition your $P among them. This is a matter of “feel” rather than analytical rigor. Some people will prefer to bet slightly more heavily on the stocks with potentially larger payoffs; others will simply divide $P by the number of stocks under discussion, allocating evenly to all. In either case, you can be assured that you’ve created a portfolio that short-termers and speculators would dismiss, which is the single most important consideration.

     Now comes the hardest part: Lock ‘em up. Keep your eyes on your selections, but your hands off them, until one or more stocks delivers the desired return. When one does, sell it and put the money in the bank. When T years have elapsed, liquidate everything you still hold. If you want to “play again,” that’s the time to do so.

     What I’ve outlined is similar to the “value” approach to investing, albeit more explicitly herd-averse. It’s how you bet on what others would consider longshots. It doesn’t guarantee success, but it limits your exposure and armors you against the anxiety that short-termers and speculators feel during significant market fluctuations. More, it exploits a bit of knowledge that short-termers don’t use:

     Time is the most powerful force in finance. Get it on your side.

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     Of course, the most important element of the above investing strategy is the avoidance of a short-term mentality. It’s that mentality that leads to classifying many stocks as longshots.

     Douglas Casey, whose intelligence and expertise I respect, adopts a different approach in his Crisis Investing For the Rest of the ‘90s. Casey suggests picking ten stocks, each of which has at least a 1-in-10 chance of at least a tenfold return on investment over the course of a typical business cycle (2.5 to 5 years). While Casey’s approach has considerable merit, very few of us have enough access to knowledge about even one company to predict a tenfold increase in its value with 10% confidence. If you do, may God bless and keep you...and your stock selections, too.

     Note that Casey and others of sound judgment are equally adamant about not following the herd over the cliff. The herd is the speculator’s lunch. A speculator plays off the predictability of the herd, which flows from the popularity of the popular financial gurus. He times his moves to buy and sell before it gets fully into motion. Don’t be one of his appetizers.

     Finally, you might be asking “why this subject today?” Given the fluctuations in the market these past few days, what else would you think is on most people’s minds? The presidential campaign? Get serious!