Congress is not like House of Cards with Kevin Spacey. People want to think it is. It’s really just a bunch of self-important dullards. I mean, there are smart people in Congress, don’t get me wrong. But they are mediocrities for the most part.     ~Jeff Deist (Mises.org)
Wrisley.com
 A curmudgeonly survey of monetary trends and other strange happenings.
LINKS  PAGE 
(Caveat Emptor)

News and opinion from all over the political universe. 

Much of it to be taken with several grains of salt.

January 25th, 2020

   Email:  Wrisley.com  
                                                   The week that was. . . .

                                    During the week of repetitive rambling before the U.S. Senate by the House managers of the presidential impeachment we got an earful about the sanctity of the United States Constitution.  Even to repeated references about what the Founders were thinking when they adopted certain elements of the document.  It was encouraging to learn how important the Constitution is, even to this day. 

                                    In practice, though, Congress is not much interested in the U.S. Constitution nor does it follow its mandates except to cherry pick pieces of it to bolster actions the elected body wishes to take. 

                                     Even though Democrat prosecutors are expert enough to know what framers were thinking  when they drew up the founding law they completely overlook constiutional details if they get in the way of lawmakers' plans for management the nation's affairs.  As we've mentioned in this space many times, abandoning the Constitutional directive on the regulation of the quality of money has been totally trashed.  Not amended or annulled, but trashed. 

                                     Although it's not likely,  perhaps the issue will arise in the political rhetoric before the November elections. 



      'THERE ARE TWO PURPOSES OF MONEY.' ~Ray Dalio
(There are actually THREE.)

    "Cash is trash," says billionaire Ray Dalio.  And he's not a fan of bitoin and other cryptocurrencies, either,  because they are not a form of money. 
   
     He's quite right about the historic definition of "money" includes  medium of exchange and store of value.  But he failed to mention a THIRD requirement....standard of measure.  These are the attributes authorities  had in mind when they established the money standard for the United States in 1792 based upon the directive of the U.S. Constitution of 1789. 

     MEDIUM OF EXCHANGE   means that money is widely accepted  as the  element  that expedites the exchange of goods and services for goods and services.  ie:  One exchanges his/her skill and energy in the workplace for the necessaries to sustain life...food, shelter, and so on.  Money was developed as the means of streamlining the exchange.  One works for money and later exchanges the money for housing, clothing and other needs.

     STORE OF  VALUE  means money  must  be  a  carrier of  value  over  time.  If a  paper dollar  is  tucked  away  in  an empty  sugar  jar  for  a  long  period  of  time  it  should  have  approximately  the  same  purchasing  power  upon  removal  from  the  jar  as  when  it was  put  there.    (This  is  not  possible  in  the  age of  inflation.)

       STANDARD  OF MEASURE  means  that the composition of  the  money  unit must be uniform, durable, and scarce enough  to reliably serve as a carrier of wealth.   The Founders settled on a dollar unit composed of 371.25 grains of silver.  Counterfeiting dollars carried the penalty of death. 

        Bitcoin doesn't meet the definition of money, says Mr. Dalio.  It certainly is not a popular medium of exchange, not is it of much use as a store of value measured as it is in fiat dollars.  Bitcoin is fiat currency measured in fiat currency.  As for meeting the standard of measure test, the cryptocurrencies fail at that, too.       

        There's a little buzz in the social background about returning to the money defined in the U.S. Constitution.  Modern economists are against it, generally, but having abandoned the definition of "the dollar" established by the Constitution the nation is now struggling in the quicksand of multi-trillion debt.  It should be noted that the Constitution has never been amended with respect to its definition of money. 


 Currency and Scarcity
    Our curiosity about the world's currency problems (not many nations think they have enough of it) has driven us into the history books to  see how our media of exchange hold up over long periods of time.  We increasingly stumble into the subject of gold and its ability to hold value for long periods of time versus present currencies, such as the Federal Reserve Note.  The FRN lost the last vestige of redeemability in the summer of 1971.  It, like most of the other currencies of the world, is technically an IOU which has no intrinsic value in itself but circulates as if it did. 

    We went back ninety years to examine the price of bread in terms of dollars and gold.  A pretty good loaf of bread could be bought in those days for a dime.  Therefore, one dollar would buy ten loaves of bread.  Today one dollar will pay for about 1/3rd of a loaf of pretty good bread.   Doesn't say much for the long term purchasing power of the dollar, does it?

     Ninety years ago a troy ounce of gold would be worth a bit more than 100  loaves.   One wold think that  improved efficiency in the baking business  over the years would bring the price of bread DOWN.   Well,  in terms of gold, it DID!    A troy ounce of gold will exchange today for enough  dollars  to  purchase  some  420 loaves. 

       Gold, although hated by most mainstream economists, has done a good job of conveying purchasing power across the span of almost a century.  The historic definition of "money" demanded that it be not only a reliable medium for exchanging goods and services, but also a store of value and a standard of measure.  Today's dollar is only a medium for exchange but no one can guess what its future value might be and even define the substance of "a dollar."  Everyone knows, however, that a troy ounce of gold will always be 480 grains of the precious metal.  Therefore, it is a predictable standard of measure


 Money attributes vs. function.
A concept rarely explained.

    Some eighty-five years ago the late economist Elgin Groseclose explained to a bewildered nation the difference between the ATTRIBUTES of money compared to money's FUNCTION.  He used the common fruit of the peach tree as an illustration.

     "A peach has the attributes of form, color, fragrance, and taste, but none of these is its FUNCTION - which elementally and metaphysically is that of a carrier of seed."
   
    Dr. Groseclose neatly observes that the natural function of a peach is to drop to the ground and assist its seed to sink into the ground and eventually sprout, hopefully becoming a peach tree.
Humans long ago discovered the attributes of the peach included delicious edibility.  Consequently, most people rarely think of the  function of the peach and think of it only as a tasty fruit.

    So, what's the tie-in with MONEY? Groseclose points out that the essential  function of money is a carrier of value. Most economists, however, lump a variety of financial abstractions under the label of "money."  Federal Reserve notes, for instance, are generallyj considered U.S. money but are still shown in the U.S. Code as "redeemable in lawful money."  Obviously, if a Federal Reserve Note is redeemable in lawful money it can not simultaneously BE lawful money.  (Which raises the question "What is a Dollar?"

    Note:  Groseclose served as Treasurer General of Iran in World War 2 so successfully his methods were adopted throughout the Middle East War Theater.



The FRN “Tafelgeschäfte” 

December 24, 2019 - Frankfurt, Germany.
   Shoppers lining up for a Christmas eve sale? 


+;L HGFVDCRWE2Q2S    DE4GYUJKIL'|    No.  They were lined up at a gold and silver outlet to swap euros for precious metals.  Up until the end of the year Germans could buy up to €10,000 worth of precious metals anonymously. On January 1st, that number was reduced to €2,000. "To thwart money laundering" officials said.
    
In Germany, anonymous transactions such as these are known as Tafelgeschäfte”. Generally speaking, the German concept of “Tafelgeschäfte” can refers to any over-the-counter transaction for an investment or security that a customer can receive in physical form. This could include bearer bonds or an equity security with attached dividend coupons, as well as physical precious metals bars and coins. In these literally “over the counter” or across the counter transactions, customers do not need an account to perform the transaction, and customer identity remains anonymous, e.g. in the case of gold, the customer pays cash, and the dealer or bank hands over gold bars or coins.    WAR ON GOLD

     
This not front page news, of course.  It's just another episode on a major government's currency wars.


     
     We can't escape the fact that if money is plentiful enough it is not valuable enough.
If it is valuable enough to do its job as the primary  medium of exchange it is never plentiful enough.

   That's it in a nutshell. If a central bank floods an economic system with a surplus of purchasing media (currency) the value of dollars already circulating is forced lower resulting in higher prices. (Price inflation.)  The U.S. central bank is the Federal Reserve System and its goal is to maintain price inflation at about 2 percent per year.  It is mostly forgotten that no period of money inflating in all of history has not ended. This one must end, too...probably painfully. 

    It is also forgotten that the U.S. Constitution mandates the substance of money. The provision has never been anulled or amended, yet the instruction from the Founders has been totally abandoned. 

    Is it possible to return to the money system mandated by the Contitution? Certainly. But not until there's a groundswell demanding monetary reform. This may not happen for another generation, but one day we-the-people must decide whether the founding charter is totally trashed or re-adopted as the law of the land.

     We enter the new decade in hopes voters will embrace the issue and demand politicians will start living up to their solemn pledge to uphold the tenets of the nation's Founding Document. They could start by debating the definition of the dollar. We use it to measure our daily economic transactions but cannot explain its substance.


Our hope for this new decade  -
Reduction of debt-based budgets.
    Thorsten Polleit has accurately pointed out the swindle of workers and savers.  When consumers and government run up trillions of dollars worth of debt for "normal operations" you know something is seriously askew. 

   What's to be done?

   Mr. Pelleit suggests: "One of the biggest challenges of our time is to reform our money. The solution is to open up the market in money."

  
He's right. Here are his arguments in favor of doing something about our fiat currency. INFLATION SCAM.

   Computers  don't know about that $2,000 stash you keep in an old sugar bowl in the cupboard. 

   We were taken aback by the report that a lot of cash has gone into hiding and the banking system can't account for it.  The value of U.S. dollars in circulation last year was $1.7 trillion.  About $1.3 trillion of it is in $100 Federal Reserve notes of which about $900 billion is kept overseas.  Some $400 billion in $100 notes circulate, or are in hiding, in the United States. 
    
    Why would anyone hoard paper currency?  It reflects distrust of the present monetary system.

    There's risk involved, of course.  In addition to the theft or other loss of cash there is the remote possibity of the government one day will replace its present form of fiat currency with a "gold backed" digital money.  One could be required to turn in present holdings of paper currency in exchange for digital credit of the same value.  Recall the currency switch some years ago in Israel from the Israeli pound to the shekel.  The problem for hoarders was that they would be forced to account for large amounts of cash or retain the currency and see it become worthless after a certain date. 

    No one knows what tack monetary reform might take, but a growing number suspect something quite dramatic will happen  to our monetary system. They recall the call-in of the public's gold in 1933,  the removal of silver coin from circulation in 1965, and the abandonment of gold backing for U.S. dollars in foreign trade in 1971. 

     In the meantime, central banks around the world are trying to figure out why so much of their paper currencies have gone into hiding.