Category Archives: Media

Remembering Tom Petty

I am very nearly without words today. It takes great effort to even think in words. Melodies and harmonies are all that are running through my head. I cried when we lost George Harrison. Despaired when Prince died too young. But those are just the wounds that spring to mind because they are contextual. Revived because of proximity.

Prince, Tom Petty, Steve Winwood, Jeff Lynne and others,While My Guitar Gently Weeps 

Tom Petty was more than a musician to me. Tom Petty described my soul to me, and he didn’t just do it once. He did it over and over again through the course of my life, the course of his career. I identified with his music in ways I simply cannot describe.


Tom Petty and the Heartbreakers –  Even the Losers

He died doing what he wanted to do, ending a tour in support of his latest album. He went quickly and without suffering. Most of us want to be that lucky when it comes our time to go.


Tom Petty and the Heartbreakers  – Breakdown

I could post tracks all day long, and I did post tracks all day long on the day I learned of his death. I read about it not too long after getting up that day, but his death wasn’t officially confirmed until later.

Petty’s final show was last week, performing three sold-out shows at the Hollywood Bowl to conclude their 40th anniversary tour, CBS News reports.  

He told Rolling Stone that he thought this would be the group’s last tour together.

“It’s very likely we’ll keep playing, but will we take on 50 shows in one tour? I don’t think so. I’d be lying if I didn’t say I was thinking this might be the last big one. We’re all on the backside of our sixties. I have a granddaughter now I’d like to see as much as I can. I don’t want to spend my life on the road. This tour will take me away for four months. With a little kid, that’s a lot of time.” – Tom Petty obituary in The Independent

It was the day after the horrific mass shooting in Las Vegas. One more mass shooting in a near-infinite string of tragedies that, quite frankly, I refuse to pay attention to anymore. If anyone cared we’d actually talk about gun control in a way that might be productive. But we can’t and we don’t and so, like September 11th being my dad’s birthday, I didn’t and won’t post about another mass shooting that won’t change anything. Jim has it right. We are Bang, Bang Crazy.


Tom Petty and the Heartbreakers – You Don’t Know How It Feels

So instead I will mourn the death of a man whose work I cherished above most others of his caliber. He lived a full life and died early. Not as early as many who had the kind of talent he had, but he also didn’t live as long as the rare few do. I’ll miss him. We all will miss him and the music he might have gone on to make.


Tom Petty and the Heartbreakers – Time to Move On

A Facebook friend and fellow fan challenged other fans to quick, give me your favorite Tom Petty lyrics. Rather than give her my favorite (which is Breakdown above) I posted the Lyrics that I went to the point of actually signing up to edit that day, Learning To Fly. I signed up so as to get the correct stanza structure for the song set down properly on Lyrically. Someone had just pasted content from another website (probably) and/or didn’t understand how poetry is written and why. But that is how much I thought this was the song to remember him by on that day.

Berkeley Breathed’s Bloom County, October 3rd, 2017

Well I started out
Down a dirty road
Started out
All alone

And the sun went down
As I crossed the hill
And the town lit up
The world got still

I’m learning to fly,
But I ain’t got wings
Coming down
Is the hardest thing

Well the good ol’ days
May not return
And the rocks might melt
And the sea may burn

I’m learning to fly
But I ain’t got wings
Coming down
Is the hardest thing

Well some say life
Will beat you down
and break your heart
Steal your crown

So I’ve started out
For God knows where
I guess I’ll know
When I get there

I’m learning to fly
Around the clouds
But what goes up
Must come down 


Tom Petty and the Heartbreakers – Learning to Fly

It has now been about two weeks since the day he died, but I’m back dating to the day because I really don’t care if anyone reads this or not. I finished watching the documentary Tom Petty And The Heartbreakers: Runnin’ Down A Dream a few days ago. Watching it brought back some memories that I really wanted to put down in this post.


Stevie Nicks – Stop Draggin’ My Heart Around (with Tom Petty & The Heartbreakers)

His album, Hard Promises came out the year I graduated. I remember going to the Hastings record store next to the Safeway I was courtesy clerking at in 1980 and buying that cassette (vinyl was and is the purview of music collectors with money. Something I’ve never had any of) and subsequently Damn the Torpedoes. I remember not being willing to buy the first album because of the cheesy cover art, which says a lot about the importance of graphic design. The title of You’re Gonna Get it I deemed too juvenile, like Fair Warning, Van Halen’s fourth album.

If you’re poor fighting is the norm. You fight to get everything, all the time. When your stepfather is abusive, conflict is a foregone conclusion. Using the phrases of the abuser you’re gonna get it is descend to their level. I always tried to be more than that, more than the abuser was in their petty little mind. So violence was to be avoided, not encouraged. If violence is inevitable you make sure you emerge the victor, you don’t worry about methods beyond their capacity to produce desired outcomes. Hit them from behind, above, with a blunt object and keep swinging until the target stops moving. Easier to do than thinking.

Tom Petty knew how to fight and proved it repeatedly. Proved it by filing for bankruptcy to get control of his music back, winning the first case against a record company, leading the way for others who had signed usurious record contracts to also get control of their music back. His lawsuit altered the face of the music business, leading the way towards the music industry of today which exists to serve artists and not the other way around.


Tom Petty and the Heartbreakers – Mary Jane’s Last Dance The hit that almost wasn’t. 

After completing his Southern Accents tour, he was one of the best-selling artists in music history. So what does he do next? He and the Heartbreakers agree to go on the road, touring with Bob Dylan as his backing band. Who else has progressed from headlining his own shows to being the backing band for another artist? Has anyone else ever done that? After a few more albums and more success, they joined Johnny Cash’s studio back up band.

“What they call country today is like bad rock groups with a fiddle” – Tom Petty


The Traveling Wilburys – The End of the Line

Roy Orbison. George Harrison. Now Tom Petty. We’re running out of Wilburys. 

If It Bleeds, It Leads. Same as It Ever Was

For the last year and a half the media have fawned all over His Electoral Highness Donald J. Trump. They can’t stop talking about him. They can’t be kept from giving him airtime to talk about himself. Aside from Trump himself, his biggest fans are the media who think that what this lame duck of a leader says means anything at all. Because of the media’s fawning, I have been forced to spend the last two years ignoring everything Donald Trump says with their generous gift of free airtime. I ignore everything he says because listening to him is what he wants us to do. I ignore him because attempting to make sense of what he says makes me feel ill. I ignore him because listening to him demonstrably makes you dumber; the media being a prime example of people made stupid by the sound of Donald Trump’s voice.

The media’s free gift of airtime helped give him the momentum to take the electoral college if not the popular vote; and now they ask, why is America so divided? If anyone should know the answer to this question it should be the media, but I wouldn’t look to them to give you a truthful answer. Division is what they want. It sells. Conflict and violence always lead the news. The division they are trying to illustrate here is largely a matter of perception. The division is almost entirely of the media’s making, their policy of going with taglines that hype the separation, the division, the conflict,

There’s nothing new about simmering hostility between a President and the press. As Richard Nixon once stated, “The President should treat the press just as fairly as the press treats him.” 

In March of 1974, the Nixon presidency was lurching toward destruction by Watergate, and there was an ongoing tension between the President and the CBS White House correspondent:

President Nixon: “Are you running for something?”Dan Rather: “No, sir, Mr. President, are you?”

Norm Ornstein, a resident scholar at the American Enterprise Institute, was then, and remains now, a student of our political system and our media:

“We would watch network news shows and we would sit there and we would have basically a common set of facts that would emerge from them,” he said. “As we’ve moved to the new media world, the more you’ve got this cacophony of voices, the more you cut through it by, basically, shock value. And that’s why people now are driven not by their own attachment to their own parties; they’re driven by a hatred for those on the other side.” 

CBS News, The great divide: Politics in the Age of Trump

Much like Nixon ushered in the end of the Republican party that elected him, Trump signals the ultimate end of Reaganism and Reaganomics. There will be no possibility of doubt remaining as to the bankruptcy of Reagan’s policies by the time Trump is drummed out of office; policies which have held sway since Reagan was president. The question the media should be asking is, will the Democrats find themselves and their new direction, or will they waste their resurgence as they did with the Carter years? Let me unpack these observations for you.

The eight years of Clinton were not liberal years. The most damning thing to be said about Clinton is that he was and is Republican lite, conservative-ish. He ended welfare in the US because the conservatives demanded that he do it. Because it was something that Reagan promised and compromising with Reagan Democrats was how Bill Clinton got into office. Over and over again he proved that he wasn’t liberal in any real sense of the word. He was a conservative from the old Southern wing of Democratic conservatives who just happened to have married well. Without Hillary’s influence I am convinced he would have been even harder on the poor, even more militaristic than he was. Weirdly, I doubt that would have kept Republicans from manufacturing a scandal in their attempts to remove him.

Barack Obama was pretty close to liberal but still enacted conservative policies because conservative policies were the only ones that the conservatives in the congress he was saddled with would vaguely go for. Obamacare was and is Romneycare. That is why Romney had such a hard time dissing the ACA, because it was his idea offered by a Democratic president and he knew it. Obama was the deporter-in-Chief because, again, that is what conservatives wanted him to do. He was tough on immigration because he hoped it would win points with the other side of the aisle. Only in his last two years did he realize that Republicans would never work with him and so he spent those years ruling by executive order. The Republicans didn’t refuse to work for him because he was black if we are to take them at their word. they didn’t refuse because he was liberal because his policies prove otherwise. They refused to work with him because he was a Democrat.

The sin that Bill Clinton, Hillary Clinton and Barack Obama are all guilty of is the sin of being members of the Democratic party. If they had been Republicans they would have been deemed typical centrists willing to make deals in order to get the government’s work done. It is deal making that the new conservatives hate. They are convinced that there is a true conservative ideology and all they have to do is adhere to it. Never mind that no two conservatives can agree on what conservatism is aside from prosperity gospel Jesus, a completely different kind of Jesus than that socialist hippy Jesus of the seventies. That is religion masquerading as ideology which is all conservatism has left to appeal to, the shadow of religion that Reagan rode to power on.

None of this has anything to do with real ideology beyond the ghost of Reagan that even Reaganite priests can’t quote because Reagan was more liberal than the country is now. The ghost of Reagan and his trickle-down Reaganomics is why the tax rates on the wealthiest people in the US remain low. Anyone making more than a million dollars a year should be taxed at the confiscatory rate of 99% just as the progressive tax rates did during the post-war era. During the times when the middle class grew and the poor were not quite so desperate. Back when Jesus was a socialist hippy. They should be taxed at this extreme rate because they don’t spend more when they have more, so it benefits society not one bit to allow them to keep their incredible wealth.

The subject of monetary policy is too lengthy to get into here, but in the end upper income tax rates were lowered because the increased wealth was supposed to generate more benefits for the rest of us, and the reality we live in has demonstrably proven that the opposite is true. Ergo, some form of income cap has to be reinstituted. Either a scale requiring all boats be raised when the wealthy get paid more, or confiscatory taxes on pay greater than the scale would dictate.

So here we are at the tail-end of the Reagan era, just waiting for the Reagan Democrats to bleep their last heartbeat on the heart monitor they are strapped to before we can get on with progress. It has to be those people because they are the only ones left watching TV, getting their news from TV and from radio. Those are the people who went out and voted for Trump. Those are the people who in their political ignorance voted Republican not realizing that Republicans and conservatives ran everything in the country aside from the presidency already. Politically ignorant people who don’t understand that the president’s job isn’t to fix the country, that is the job of the congress. A job the congress is supposed to achieve through legislation and funding and programs to keep the myriad systems this country depends on running.

Unfortunately for the rest of us, conservatives have swallowed the anarchist notion that government doesn’t work. Republicans have echoed this falsehood because their base believes it, never questioning why they want to elect people to do jobs that they believe don’t need to be done. So it falls to the Democrats to make proposals for government that will work. It falls to them to prove that the poor can get a fair shake in this new America, that the wealthy don’t always get their way. Falls to the Democrats to propose the kinds of changes that populists on both sides of the aisle wanted and would get behind, because the Republicans and conservatives are too scared of socialism to even go someplace where government just might work. If the Democrats can do this, it will be the end of the Republicans for at least a generation.

What I don’t understand is how the media can’t see this happening? Why do they see fractiousness and faction rather than seeing what is really going on? The politically informed vs. the politically ignorant that gave us the current administration? Why can’t they see that they are Donald Trump’s biggest fans? Perhaps they can’t see it because they too are caught in a previous age. The age of the gate keeper and the top-down adminstrator. The feudal society of corporate America, what is fast becoming a corporate globalism. The history of dictators and their five year plans that never worked out. They are soon to be as irrelevant as the Reagan Democrats who will be cashing their last Social Security checks soon. Checking out as movers and shakers and left behind as the world starts dancing to a different beat.

The media and Reagan Democrats will be as baffled by the next election as they were by the last one, because they think the narrative is one they set, and not one that we the people decide.

The Fourth Estate

Another question from Robert Reich. I find his posts truly useful for stimulating thought on particularly thorny issues.

According to a new study by the Pew Research Center, 40 percent of Trump voters got their news about the election from Fox News (in distant second place was CNN at 8 percent, and the rest mainly from social media).
Clinton voters got 18 percent of their political news from CNN, 9 percent from MSNBC, 5 percent from the New York Times, and only 3 percent from Fox (the rest from an assortment of networks, local news, radio, and social media).
Fox News – especially Trump surrogate Sean Hannity – delivered a steady stream of pro-Trump infomercials. If America still has the “fairness rule” that used to require media to be truly fair and balanced, Fox would be out of business.
What do you think?

I think we need to destroy political machines wherever they are, whatever they are. Political machines are a barrier to democracy because they supplant the will of the people for their agendas, which the leadership of the machine thinks is important.

News reporting should simply be held to a truthful/useful standard (which FOX would also fail) because any other standard introduces a bias that is unnecessary. There are not just two sides to political arguments and this is true across the board.  It is long past time we started dismantling the machines that have grown up around the framework that was established with the constitution; machines that no longer serve the purpose they were established for.  Machines like party primaries. Party-favoriting rules in legislatures. Party-backed campaigns.

There are new ways and new machines that we need to build so that we can introduce the vast majority of the US population to actual governmental involvement. The old machines are only going to get in the way.

Journalism needs to be governed by a professional organization empowered to police their ranks in much the same way that the AMA licenses Doctors, the AIA governs the practice of Architecture. State bars govern the practice of law. This has been my opinion for a very, very long time. There is no organization which can establish truth standards in reporting that organizations can be held to if they want to qualify as legitimate news outlets, and there really needs to be.  This has never been clearer in history than it is right now.

How journalists go about governing themselves is a question I’d like to see journalists discuss. What will work? What won’t work? What kind of standards would they be able to establish and enforce? Should be an interesting discussion.

Can’t Do a Western Top Ten Either

David Gerrold requested a quick list of Westerns the other day. I immediately fired off a quick list of ten films that fit the bill in random order;

Silverado, Two Mules for Sister Sarah, The Outlaw Josey Wales, True Grit, The Sons of Katie Elder, Unforgiven, McClintock, Dances With Wolves, Tombstone (with Kurt Russell), The Cowboys, Young Guns, 3:10 to Yuma which was the last western I watched.

But as you can see, I can’t count.

Not only can I not count, but I left off at least a dozen films that I know are better than the ones I put on it. I know that, because I read back through the hundreds of posts and kicked myself for not putting them on the list.

For starters, I’ve been doing a Netflix Clint Eastwood retrospective. Not exhaustive, just felt like I wanted to see some of his films I enjoyed back in the 70’s and 80’s and hadn’t seen since. The son wanted to watch Dirty Harry, so we’ve made our way through all five of them and now we’re about to start the spaghetti westerns. His middle work, the westerns that followed Sergio Leone’s films, those I’m just going to add to the home library, which is why I kicked myself for not including Pale Rider or High Plains Drifter, just to name the next two films I’m planning on buying.

But that’s just to name what is going on in my head right now.

I completely forgot I watched The Hateful Eight quite recently, and that is damn annoying because it was such an excellent tribute to the vanishing art of super 70 wide screen films. It was good too. Not as good as 3:10 to Yuma which I own and did remember. Not even as good as Django Unchained, Quentin Tarantino’s previous film.  I’ve seen all of Quentin Tarantino’s work, it is all worth watching if just for the experience. There is a reverence for the art of filmmaking in his films that you can’t find anywhere else.

I also forgot The Revenant along with the 60’s original Man in the Wilderness (h/t to Jim Wright) both based on the true story of Hugh Glass, and if you don’t know that name, you have some really interesting reading to do over the next few hours.

But again, that is just scratching the surface. Reading back through the other comments reminded me of Little Big Man which I haven’t see recently but remember fondly. Butch Cassidy and the Sundance Kid, a mainstay of my childhood that held up well the last time I watched it. Many mentions of Shane. I hate to admit to the cardinal sin of never having watched Shane, but I guess I can always atone for it by watching it soon. So I will.

I just barely scratched the surface of the impact that John Wayne had on my young life. I literally didn’t even have to think to name three films of his that I rated top ten. I could have done all ten as John Wayne films and still had some left over. I remembered True Grit because I saw the remake recently. Really can’t watch the John Wayne version without watching the unofficial sequel Rooster Cogburn. Really can’t watch McClintock without watching its unofficial sequel Big JakeThe Man Who Shot Liberty Valance had the most mentions, but I think The Shootist is the most memorable of all his films because he was already dying of cancer when he made it.

High Noon had the most mentions of any film (rough count) but truthfully I didn’t find it that memorable. I mean, I’ve seen it. I don’t recall anything about it. I don’t think I’m a Gary Cooper fan, to tell you the truth. I remember more about the movie tribute to the TV series Maverick than I do about that film. Both the series and the film are worth watching just for the experience, but then I grew up watching The Rockford Files so go figure.

For the many people who recommended Magnificent Seven (or the more recent remake that is on my list to see) I suggest you watch the original. No, not the 60’s American film which was so popular they made a sequel and a series. No, I’m talking about Seven Samurai by Akira Kurosawa.  I’ve seen three or four of his films and I have not been disappointed by any of them. Fair warning, be prepared to read subtitles.

Finally I suggest Cowboys & Aliens because, why not? You have cowboys and they are fighting aliens. What could you possibly hate about this film? Just joking, save your criticism, I’m well aware of its failings having seen it four or five times. It is one of the Wife’s favorite films, and it really is quite good once you’ve seen it a few times.  This from the guy whose favorite episode of recent Doctor who featured Cowboys & Aliens, just different ones. Episode title A Town Called Mercy. Give it a try.

Weirdest film I’ve run across in reply to David Gerrold’s hive mind query? Well, weirdest film that could be called a western anyway? Zachariah. Just watch the trailer. If you can that is. I couldn’t, but I’m going to try to watch the film.

So as you can see, I can’t do just ten, and I’ll be kicking myself for forgetting something that just has to be part of this list the minute I hit the publish button.  Such is my life. 

Journalism? General Education, That is the Problem

A comment on Robert Reich’s status went a bit long;

Trump is a manifestation of poor education in the US exacting its price on the US and the world.  The chickens have come home to roost. The wide-spread, wrong-headed notion that a strong leader is the way to get the change you want in a complex system, has manifested in the personages of Trump and Sanders, the demagogic “outsiders” who are believed by the uninformed to be capable of effecting change on a system by themselves.
While Sanders elected alone would fail just as Obama failed to live up to the dreams of the people who voted for him in 2008, Trump is quite capable of wrecking the system all by himself if he is elected. 
It is much easier to destroy than it is to create. 
At this point in this one election all that is left is to hope for is that the Democrats can pull out a win.  It would be nice to think that they could gain a sweeping victory that would bring in enough progressives to alter the system in a positive way.  Hand the Republicans such a crushing defeat that they are forced to re-invent themselves into a opposition party that doesn’t deny science and embrace religion as its starting point.  The Bernie or busters are going to make that possibility as remote as they can, unfortunately.
The Bernie or busters are not interested in reforming the system any more than the Tea Party Trump supporters are.  They want to re-invent it, which is just one step more than simply destroying it.  They tell themselves they’ll be happy with a Trump presidency because at least the status quo will end.  Both the Trump supporters and the Bernie or busters don’t really understand the kind of misery bringing down the US system will create.  I’m becoming afraid we might just find out how deep that well of misery is.
The fix for this is so much more than just reporting.  Just being able to predict what the population will go for in an election. That is not even scratching the surface of the problem. First you have to educate the voting public on just how blind this faith in a strong leader is.  The journalists who inform us on politics cannot be held responsible for the failure of the education system in the US to actually educate the population to the dangers of dictatorship.  As college educated people they of course discarded the idea that the average American would fall prey to a demagogue like Trump.  It’s obvious he’s lying and has no clue what he’s talking about.  Why would anyone take this orange hate-monkey seriously?
…Unless of course you believe that a strong leader is what we need, in spite of the obvious fact that a system as complex as the US government cannot possibly be run by one person. Then all bets are off and the people who want a guy who pretends to have all the answers have control of the mechanisms of statecraft through the selection of the next head of state.
We’ve been so busy propping up dictators in other countries that we’ve forgotten we might be subject to one ourselves.  That fate is now just the flip of a coin away. 

The Strange World of TV News

Robert Reich is the highlight of my Facebook experience.  I look for his posts in my feed to inform me about what is really going on politically from a left-sided vantage point.  He rarely fails to get my political brain turning over. Sunday he posted this status;

I’ve just come from ABC’s “This Week,” where Newt Gingrich, Matthew Dowd, Donna Brazile, and I went from talking about “American Pharoah”’s Triple Crown win to the Republican and Democratic primaries. In other words, it was all about horse races. The media seems to have no other way to address American politics than to ask who’s ahead and who’s behind, rather than what the candidates stand for and what America needs.

Seven months until the first primaries, and 17 until Election Day, we have plenty of time for a national debate about the nation’s real challenges. Yet every Republican candidate is repeating the same platitudes (strengthen the military, lower taxes, and promote religious values) the GOP has been spewing for 35 years. Scott Walker leads the pack in Iowa, but on the basis of, what? Fighting unions, defunding Planned Parenthood, making it harder for students and low-income people to vote, blocking abortions after 20 weeks even in cases of rape or incest, and threatening a constitutional amendment allowing states to decide on same-sex marriage. Oh, and he rides a Harley. He’s a brainless knee-jerk conservative whom the media is celebrating because he happens to be up in Iowa, whose Republican caucuses haven’t predicted anything in years.

Hillary Clinton and Bernie Sanders are discussing real issues. She wants to create a path to citizenship for undocumented immigrants and expand Obama’s executive order on immigration, roll back Republican state laws designed to suppress the votes of the poor, automatically register citizens to vote when they turn 18, demilitarize the police, and get rid of mandatory prison sentences. Bernie Sanders wants to bust up the biggest Wall Street banks, make higher education free, and strengthen safety nets. But as long as the media remains fixated on the political horse race, America isn’t going to be debating any of this. Horse-race reportage allows the Republicans to get away with their racism, homophobia, anti-worker economics, and total dearth of ideas, while burying the important initiatives Democrats are proposing.

So what’s the answer?

TV news? It’s come a long way from the days when I used to watch it with my parents every night. We never missed the 10 o’clock news. Dan Rather.  David Brinkley. The giant himself, Walter Cronkite.  Most people watched television news at least on a daily basis, especially if you didn’t take time to read a daily paper.  You couldn’t consider yourself well informed without reading at least one paper a day.

Today the newspaper industry has either moved online, or fallen by the wayside.  TV news, the baseline for an informed society through most of my life, has become a pre-digested wasteland of oatmeal reporting on one end of the spectrum, and a haven for the craziest of right-wing political views on the other. You could still watch the nightly news if you wanted to, but why bother?  Most of the events that will be reported on during that half-hour broadcast are old news by the time the TV reports on them.

But I am a news junkie, have been one all my life.  I don’t feel like I’ve finished my day unless I’ve had a dose of the day’s events summarized for me.  So I need news, and a steady stream of it works best. Since I spend large sections of my day with a laptop, that’s generally not a problem.  Still, I like my news to sometimes be delivered in a video format. I am constantly two-screening as the saying goes; writing or gaming on one screen, watching something on another one.

I watched MSNBC daily for more than a year (probably more like three years) I started watching back when Dylan Ratigan was brought on.  The TV would be on and tuned to MSNBC from mid-afternoon through most of the evening shows, pretty much every weekday.  During that time I felt more informed, but spent large segments of my day trapped watching repetitive news items.  As the hosts of the afternoon and evening programming changed, with Ratigan famously flaming out (a moment I’m glad I got to see live) Cenk Uygur being added and then hastily removed, the inclusion of Al Sharpton’s hour-long program (which inexplicably remains on MSNBC despite his lack of journalistic competence) Chris Matthews’ maddening insistence on reporting politics as if it was a horse race (echoing Reich’s comments) rather than something real, I found my interests waning.

For the last few months I’ve moved away from watching any television news and getting my news almost exclusively from the internet.  The news programming on television feels disconnected from the reality of living in the US today; All In with Chris Hayes & The Rachel Maddow Show being the few exceptions to this observation (and a shout out to MHP on weekend mornings for being worth getting up for) but not worth the time to record and watch daily.

The only TV news I still reliably take the time to watch is faux news (as opposed to FOX news which is fake but treated as real) The Daily Show and The Nightly Show (which replaced The Colbert Report earlier this year) studies have shown not only that most younger people get their TV news from these shows, but that people who watch these shows are more informed than people who watch real TV news.  Which is a sad state of affairs if you think that TV news is important and relevant.

The solution to this problem is to move with the times.  As other commenters noted on the status, television news is a largely dying industry.  They influence smaller and smaller segments of the population.  The Young Turks gets more eyeballs than television news, and other internet sites do even better than they do at communicating news through text articles; the way humans have consumed news since the invention of the printing press.

When you look at the problem from a modern perspective, people are more connected than they have been in decades to the events around them.  This fact doesn’t reliably translate into actual influence of events, doesn’t sway the actions of the political leaders, probably because of the corrupting influence of money in politics.  The solution is to target the sources of corruption and get them closed off through legislative action in the states. It can be done, but it won’t be a short process.

The End of Liberty Dollars?

Years ago, I set up a Google alert for “Liberty Dollar” (and NORFED. Norfed was the name of the company that started Liberty Dollar Silver) because I wanted to keep track of what was being said about the currency in the mainstream media. Not a lot, until recently.

A week ago today, I got a note from Bernard Von Nothaus, founder of the Liberty Dollar, stating that he had been convicted of various crimes relating to the creation and running of the silver barter currency, and was appealing the conviction.

Dear Liberty Dollar Supporters,

I sincerely regret to inform you that I was found guilty on all four counts regarding the Liberty Dollar in less than an hour on Friday, March 18. The only explanation is that a strong, anti-liberty person took control of a weak-willed jury and pushed the verdict through in record time in spite of well worded Jury Instructions. A government forfeiture hearing immediately followed the conviction. PLEASE NOTE: Your property is at risk so please continue to read these emails and take action so the government does not steal your property. An appeal is planned but that will take years. More news to follow. An unofficial, but most interesting account of the trial is available via Heather’s blog at:
http://www.liberty4free.com/Liberty%20D … 0Trial.htm
God help you and our country as American descends into a hellish hyperinflationary future without the benefits of the Liberty Dollar.
I am very sorry our efforts to return America to value failed.

Thank you so much for your support.

Bernard von NotHaus
Monetary Architect

Ever since then I’ve gotten a slew of articles. Got notice for one in Mother Jones referring to Bernard as a Pot Priest. I think that was the funniest I’ve seen. The scariest I’ve seen was this one.

U.S. Attorney calls currency minting ‘terrorism’

Here’s a novel of an expansion of the federal government’s use of the word “terrorism,” from the triumphant statement of a North Carolina U.S. Attorney, Anne Tompkins, who just won a conviction against a man who minted his own currency:

Attempts to undermine the legitimate currency of this country are simply a unique form of domestic terrorism,” U.S. Attorney Tompkins said in announcing the verdict.

“While these forms of anti-government activities do not involve violence, they are every bit as insidious and represent a clear and present danger to the economic stability of this country,” she added. “We are determined to meet these threats through infiltration, disruption and dismantling of organizations which seek to challenge the legitimacy of our democratic form of government.

The convict, Bernard Von NotHaus, who runs the National Organization for the Repeal of the Federal Reserve and Internal Revenue Code, and now faces 15 years in prison.

Minting barterable rounds, rather than commemorative rounds, is a terrorist act? Oh really? What do you call a US currency that contravenes all US law relating to the value of our currency? If you doubt the veracity of this claim, simply reference the wiki on the subject. The constitution specifies that “gold and silver” are “legal tender”. Where is the amendment changing this law? How is bartering with gold and silver not in the realm of constitutional behavior, but using a visa card funded with digital federal money based on nothing is Constitutional?

I get it, the guys with guns say it’s so, so it is. It’s a lot like tax law. Still, I’d really like an explanation beyond the “because I said so” that bad parents offer up as an excuse to their children.

I stopped participating in the LD community when the Feds declared the practice illegal. I traded a good number of rounds for goods and services over the years prior to that. Any merchant that came to me and wanted deposit-able federal dollars (the banks refused to take gold and silver and insisted on fake money. Riddle me that one) I gladly traded them paper for silver. To this day, I search my change for the increasingly rare pre-80’s piece of federal money that has silver content in it, so that I can set it aside to get its real value assayed. I’d still take real silver and gold over fake paper, anyday.

…and I wonder at governments that accuse honest businessmen of fraud, while conducting a fraud on their own.


If you had Liberty Dollars in the warehouse, your property is about to be forfeited. Here’s the skinny;

URGENT ACTION: Bad News for your Property!

Dear Liberty Dollar Supporters:

Thank you, thank you, thank you for the 100s of replies. The two most common words re my conviction were “sorry” and “sad.” I wholeheartedly agree and am sorry I can’t reply to every email. URGENT we have no time to lose to protect your property from gov theft!

Please do NOT let the government steal your property!!!

I have just learned that the government will aggressively defend against any claims once the judge decides on April 4th whether or not the property in whole or in part is subject to forfeiture. This means that the government may steal your property i.e. the silver that backs the paper or digital Liberty Dollar Warehouse Receipts ‘without just compensation’ i.e. fair market value! Please stand up for your Fifth Amendment!

URGENT ACTION IS REQUIRED IMMEDIATELY!!!

Unless you are identified as an “interested party” on the official record prior to the April 4th Forfeiture Hearing on Monday morning, you may not have standing with the court to redeem your Liberty Dollar warehouse receipts or the gov process may be so encumbered that the government prevails and steals your property.

You do not have to identify the total value of your paper or digital Warehouse Receipts that you are holding to qualify as an “Interested Party.” So, even if you are holding just one $1 Liberty Dollar silver certificate, you are qualified as an “Interested Party” and encouraged to register – IMMEDIATELY.

Registering is easy, fast and free: Simply email the statement below to Assistant US Attorney Thomas R. Ascik <thomas.ascik@usdoj.gov>, the government attorney who is trying to steal your property. And send a CC to me <Bernard@LibertyDollar.org> and I will send all the emails to the attorney who will represent you after you sign an attorney/client agreement. Your CC to me is very important! Please do NOT forget to CC me so you will be on the list to have your property or its fair market value returned to you.

EMAIL THE STATEMENT BELOW to Thomas Ascik with a CC to me. Be sure to include your name and address:

I hereby certify that I am the bearer of Liberty Dollar warehouse receipt(s) and an interested party in any forfeiture action regarding my property. I demand the return of my property or its fair market value in a timely manner and to be informed with sufficient time to reply to any and all actions until my property is returned.
INCLUDE YOUR NAME AND ADDRESS

Please note that you will need to sign an attorney/client agreement and agree to pay a contingency fee prior to any legal services. NO FEE is required at this time.

But that may not be enough! If you are holding a serious amount of paper or digital Warehouse Receipts, I strongly encourage you to attend this Forfeiture Hearing on April 4, 2011 at the Federal Courthouse, 200 W Broad St. in Statesville, NC. I know the time is short, the distance is great and the cost is dear; but that is the best suggestion I can make at this time for anyone with a serious amount of paper or digital Warehouse Receipts. If you do appear, you will be called as a witness and officially recognized as an interested party in the court record.
NOTICE: There is a small chance that the Hearing may be continued (postponed) so please email me for the latest info for the Hearing.

Please do NOT let the government steal your property!! At the very least, email Thomas Ascik and send a CC to me to protect your silver. Stand up for your property and continue to be a part of the Liberty Dollar effort by demanding the gov return your silver or its fair market value.

Now Anybody can be a “Unique Terrorist” Please read this open letter to America calling for your cry out about my conviction.

Click HERE for a list of recent articles regarding the BVNH conviction.
Please get your article published and contribute to this public outcry or encourage someone to do so.


The US government has gone after all the alternate currencies that I ever heard of, and they’ve been successful in shutting them all down. The only remaining e-Metal investment firm that I know of is Goldmoney.com, and they wisely got themselves associated with British banking interests as soon they saw that the US government was taking an interest in e-Metal alternative currencies.

Liberty Dollars isn’t the only group working out asset return strategies with the government. e-Gold is also in that process; a process that is now entering it’s third year. So don’t hold your breath on getting your money back, let alone soon.

http://blog.wired.com/27bstroke6/2008/07/e-gold-founder.html
http://blog.e-gold.com/2008/07/a-new-beginning.html
http://mashable.com/2008/07/21/e-gold/
http://e-gold-exchange-news.blogspot.com/

DownsizeDC Manifesto

Why I bother spending time and energy supporting DownsizeDC:

Invest your time and money to change minds directly, and you will gain the world. The votes may even follow. But be under no illusions, the votes will merely follow, they will never lead. Electoral success will be the last thing that happens in the process of change, not the first. Grasp this fact, or you will groan forever in futile effort and constant despair.

This is our manifesto

read more | digg story

Something I’ve pointed out to many people over the years.

To change minds you have to convince others to modify their philosophy. Philosophy dictates how you see your world, and the philosophy of the average American is Altruism, which is the same philosophy that Marx derived Socialism from. Most Americans are susceptible to socialist promises (like government run single payer health care) because they come clothed in Altruist ideals; but they are socialist all the same, mandatory group solutions to individual problems.

If we hope to regain our freedom, if we hope to avoid being drug deeper into a socialist nightmare, we have to convince others that their philosophy is flawed, that their views need to be revised. Like the recent events in Britain; the British government has decided to no longer talk about a “war on terror.”

So I threw in my two cents when I wrote my congresscritters about not being afraid and ending the War on Terror on our side of the pond:


Immediately following the attacks on 9/11 I was ready to take the fight to the Saudis, ready to volunteer to fight, because it was quickly apparent that Saudis formed the majority of the terrorists who attacked our country.

The President, in his folly, decided to declare war on a tactic, instead of declaring war on a government or a people. In that instant, the chance for a meaningful end to the events of 9/11 was taken from us.

A war on a tactic cannot be won, Just as a war on a substance or market (drugs) can’t be won. Anyone, including members of our own government, can employ this tactic; thusly creating a never ending stream of enemies we must fight in order to engage in a war on terror.

Fifty or 100 years makes no difference, it is a war without end from the perspective of victory; and we will bankrupt or ourselves long before we reach the 50 year mark.

End the War on Terror (End the Drug War while you’re at it) before it ends us.


Will it change any minds? I doubt it. But it’s much more likely to change minds than doing nothing at all, or wasting a vote on a mainstream candidate.

Declining Dollar is only the First Symptom

While this story is a year old already, Why the global financial system is about to collapse remains scarily accurate in its analysis of the problems faced by fiat money systems around the world.

The global financial system is about to collapse because the US dollar is about to collapse.

The US dollar is about to collapse because of a simple economic fact that no one has the power to change or conceal.

The fact is that the spontaneous remonetization of the precious metals is a Nash equilibrium.

read more | digg story

Confused? Keep reading.


…and then you find the blog is gone. Never fear, that’s what archives are for:


Why the global financial system is about to collapse

May 19, 2006
The global financial system is about to collapse because the US dollar is about to collapse.
The US dollar is about to collapse because of a simple economic fact that no one has the power to change or conceal.
The fact is that the spontaneous remonetization of the precious metals is a Nash equilibrium.
What this means in English is that an ideal financial strategy for everyone on Earth is to buy as much gold and silver as they can, as soon as possible.
To oversimplify wildly, the reason to buy gold and silver is just that everyone else should buy gold and silver, too. There are two reasons to do it as soon as possible.
One is that anyone with an investment account can move money into gold and silver with a few mouse clicks. They trade on the US markets as the stock symbols GLD and SLV.
Two is that once this information becomes widely understood, US and probably global financial markets will be closed.
There is no way to know when this will happen. It could be tomorrow. It could be a year from now. It could be longer. Since the only way this kind of a financial panic meme can spread is through the Internet, history tells us nothing.
And the good news is that if governments manage the situation well, it does not have to be a global economic and political disaster. Quite the opposite, in fact.
Remonetization of precious metals is the next step in the slow, difficult reconstruction of the peaceful and prosperous liberal world that World War I destroyed. The lights are not going out. They are coming back on. The return to classical liberalism, which some call globalization, has barely started. It has already rescued hundreds of millions of people in liberalizing countries like China and India from lives of poverty and depression. Its only opposite is nationalism, which is a recipe for war and misery. It is not perfect, but nothing is, and it must continue.
These are obviously provocative assertions. I explain them below. My hope is that you will evaluate them by thinking for yourself, rather than trusting me or any other authority.

Overview

The first rule of investing is that it’s never a good idea to buy anything just because everyone else is buying it. When the price of an asset is the result of herd behavior, not fundamental value, it’s called a “bubble,” and bubbles always pop.
This rule is absolutely right – except in one case.
In English, a bubble that doesn’t pop is called “money.” Money is always fundamentally overvalued. Its purchasing power is independent of its direct physical usefulness to anyone. This is obvious for paper money, but true even for gold and silver.
For example, premodern monetary systems did not value gold above silver because gold has a higher specific gravity, because it’s harder to oxidize, because it’s yellow, etc. They valued gold higher because there is more silver than gold on earth, a fact that makes no difference to any direct user of silver or gold.
(I should note that there are some rare historical cases of fundamentally valued currency, such as tobacco in colonial Virginia. I prefer to define this as a kind of barter on steroids, but most writers disagree. And some assets that have never been used as currency, such as diamonds, fit my definition of money. All of this is just words, but words matter.)
The most important fact about money was described by economist Carl Menger in 1892: money is a consequence of its own history. Not every asset can serve as money, but not every asset that can serve as money will be used as money. As economists put it, money is “path-dependent” – it is a stable result of events that may be completely accidental.
We can call the transition from fundamental to monetary value “monetization.” Menger and other early economists analyzed monetization in a primitive barter economy. They showed that money is a market phenomenon – that it can develop spontaneously without any official seal of approval.
It’s not widely appreciated that the same monetization process Menger described can also occur in a modern financial market.
Of course, modern economies already have money, so the right word is “remonetization.” Instead of replacing barter with exchange, remonetization replaces official currency or bonds with the new monetary commodity or commodities.
The closest relative of remonetization is hyperinflation. But traditional hyperinflation is a relatively slow process. Remonetization, like any bank or currency run, is a panic. With modern financial networks to move money and the Internet to move dangerous ideas, a remonetization event can be almost instantaneous.
Remonetization has two prerequisites. One is a free public market in one or more monetizable commodities – such as gold and silver. The other is an unstable and mismanaged official currency – such as the US dollar.
In theory, reversing either of these factors could prevent remonetization. In practice this is probably impossible.
Before a remonetization event, the austerity measures necessary to fix the dollar are politically unlikely. Afterward they would be too late. And any preemptive deliberalization of the gold and silver markets would have to come with a remarkably convincing excuse to avoid triggering what it sought to prevent, especially since the US no longer dominates the global financial system.
The best way for the US and other countries to deal with this situation is to accept remonetization and manage it wisely. This will cause a lot of short-term pain for many people. But it will rebalance the global economy, and should lead to a new period of sustainable prosperity.
All this is yet another stack of unsubstantiated assertions. Rather than quoting dead white economists or filling the water with inky clouds of mathematics, let’s work through the situation step by step and see if we agree.

An illustration

Let’s start by comparing two hypothetical cases.
In case A, a million Americans decide right now to move all their savings into Dell stock, buying at the current market price no matter how high.
In case B, a million Americans decide right now to move all their savings into gold, buying at the current market price no matter how high.
In both cases, let’s say each of these test investors has an average of $10,000 in savings. So we are moving $10 billion.
Neither gold nor Dell can instantly absorb $10 billion without considerable short-term increases in price. Because it would require us to predict precisely how other investors would react, we have no way to precisely compute the effects. But we can describe them in general terms.
In case A, the conventional wisdom is right. Our test investors should expect to lose a lot of money.
This is because Dell has a stable equilibrium price which is set by the market’s estimate of the future earning power (price-to-earnings ratio) of this fine corporation. Because it is not the result of any new information about Dell’s business, the short-term surge should not affect this long-term equilibrium.
Since there will almost certainly be a short-term price spike, many of the test investors will be buying at prices well above the stable equilibrium. In fact, the more investors we add to the test, the more each one should expect to lose. Doh!
But there is no way to apply this analysis to case B.
Precious metals have no price-to-earnings ratio. With gold formally demonetized (that is, with no formal link between gold prices and currencies such as the dollar, as there was until 1971), there is no stable way to price it. There is no obvious equilibrium to which the gold price must converge.
It is true that gold has industrial uses. It can be priced on the basis of industrial supply and demand. The conventional wisdom is that it is.
Thus we can say that gold, for example, is overvalued if gold miners are selling more gold than jewelry makers and other industrial users want to buy. At present (with gold near $700), they probably are. So if you follow this reasoning, the right investing decision is not to buy gold, but to sell it short.
But this just assumes that there is no investment demand for gold. On the basis of this assumption, it shows that gold is a bad investment. Therefore there should be no demand for it.
The popularity of this logic is remarkable. However, it is a safe bet that most people who own gold do not follow it.
(In fact, most of the gold demand from the jewelry industry is actually investment demand. Women in many traditional Asian cultures, especially in India, store their savings as gold jewelry, which they buy by weight. It is difficult to guess what the price of gold would be if no one at all held it as an investment. But $100 an ounce is probably too high.)
Therefore, when our case B investors put $10 billion into gold, that money has to be used to bid gold away from its current owners, many of whom already believe that the price of gold in dollars should be much higher than it is now.
So the result of case B is that the gold price will, as in case A, rise immediately. But it has no reason to fall back.
In fact, quite the opposite. Because the gold price is largely determined by investment demand, any increase in price is evidence of increasing investment demand. Mining production, noninvestment jewelry demand, and industrial use are relatively stable. Investment demand is a consequence of investors’ opinion about the future price of gold – which is, as we’ve just noted, largely determined by investment demand.
This is not a circularity. It is a feedback loop. Austrian economists might call it a Misesian regression spiral.
Of course, the same mechanism can drive the gold price down as well as up. When savings flow out of gold, the price must drop. The reputation of gold as a volatile investment is by no means undeserved. There is a trading range within which the price of gold can fluctuate arbitrarily. The range is limited at the bottom by the industrial gold price when investment demand is zero. It’s limited at the top by… well, we’ll see in a moment.
It generally takes a significant external change to affect the long-term direction of a big feedback loop like the gold market. Thus, it is rational for the market to actually treat the price spike caused by case B as a signal that the feedback loop is accelerating, and buy more.
So the case B investors are more likely than not to profit on their trades. Obviously the trades must happen in some sequence, and the earliest will do the best. But all have a good reason to participate, even the last, because their purchase will signal other investors who are not in the case B group to enter the market after them.
Suppose you believe this. It’s all well and good. But what does it really prove? Couldn’t gold still be just another bubble?
And why should gold be a better investment because it has no earnings to price it by? This makes zero sense.
To answer these sensible objections, we need a few more tools.

Nash equilibrium analysis

The Nash equilibrium is one of the simplest and oldest concepts in game theory. (Nash is John Nash of A Beautiful Mind fame.)
In game theory jargon, a “game” is any activity in which players can win or lose – such as, of course, financial markets. And a “strategy” is just the player’s process for making decisions.
A strategy for any game is a “Nash equilibrium” if, when every player in the game follows the same strategy, no player can get better results by switching to a different strategy.
If you think about it for a moment, it should be fairly obvious that any market will tend to stabilize at a Nash equilibrium.
For example, pricing stocks and bonds by their expected future return (the standard Wall Street strategy of value investing) is a Nash equilibrium. No market is infallible, and it’s possible that one can make money by intentionally mispricing securities. But this is only possible because other players make mistakes.
(Nash equilibrium analysis of financial markets is not some great new idea. It is standard economics. The only reason you are reading a Nash equilibrium analysis of the interaction between precious metals and official currency now on the Web, not 30 years ago in the New York Times, is that the Times gets its economics from real economists, not random bloggers, and the profession of economics today is deeply tied to the institutions that manage the global economy. Real economists do not, as a rule, spend time thinking up clever new reasons why the global financial system will inevitably collapse. They’re too busy trying to prevent it from doing so.)
What Nash equilibrium analysis tells us is that the “case B” approach is interesting, but inadequate. To look for Nash equilibria in the precious metals markets, we need to look at strategies which everyone in the economy can follow.
Let’s focus for a moment on everyone’s favorite, gold. One obvious strategy – let’s call it strategy G – is to treat only gold as savings, and to value any other good either in terms of its direct personal value to you, or how much gold it is worth.
For example, if you followed strategy G, you would not think of the dollar as worthless. You would think of it as worth 45 milligrams, because that’s how much gold you can trade one for.
What would happen if everyone in the world woke up tomorrow morning, got a cup of coffee, and decided to follow strategy G?
They would probably notice that at 45mg per dollar, the broad US money supply M3, at about $10 trillion, is worth about 450,000 metric tons of gold; that all the gold mined in human history is about 150,000 tons; and that official US gold reserves are 8136 tons.
They would therefore conclude that, if everyone else is following strategy G, it will be difficult for everyone to obtain 45mg of gold in exchange for each dollar they own.
Fortunately, there is no need to follow the experiment further. Of course it’s not realistic that everyone in the world would switch to strategy G on the same day.
The important question is just whether strategy G is stable. In other words, is it a realistic possibility that everyone in the world could price all their savings in gold? Could all rights to dollars, euros, etc, just be converted to gold and resolved? Or would there be some pressure to revert to paper currency?
If gold atoms were the size of poppyseeds, divisibility would pose an obstacle. But measuring arbitrary small weights of gold is not a difficult technical problem.
It’s true that there are serious inefficiencies in circulating actual coins made of precious metals. Spend too much time reading financial history and you’ll be deluged with frightening facts about agio, gold points, clipped and worn coin, and so forth. Perhaps the worst problem is just that since metal coins have all these problems, there is a strong incentive to replace them with paper notes which are redeemable for actual metal on demand. Unfortunately, the note issuer then finds it very easy to print more notes than it holds metal.
These problems are all solved by the Internet. In a modern gold standard or other precious-metal monetary system, there is no reason for “money” to consist of anything but secure electronic claims to precise weights of allocated precious metals. The metal itself should stay in independently audited vaults.
This mechanism is already being used by new “digital gold currencies” such as e-gold and GoldMoney. These have only accumulated about 10 tons of gold, because they are not well-connected to existing financial networks. But the gold and silver ETFs, GLD and SLV (GLD has 350 tons of gold, more than the Bank of England; SLV has 2000 tons of silver) are similar if more primitive. Converting them to support direct payment would be a small matter of programming.
I don’t intend to get into any open-ended theological disputes on economics. But I do have to mention the 19th-century Banking School doctrine, inherited by both Keynesians and monetarists, that an expanding economy depends on an expandable currency. Please excuse me while I rant.
Gilded Age financiers did succeed in embedding this principle in the institutional DNA of the West. But it has no rational explanation. At least, if it does, I have never heard it. Of course the status quo need justify itself to no one, and it is possible that if monetary expansionism felt institutionally threatened it could present a more coherent narrative.
But to me the idea seems to rest on the understandable, but essentially numerological, connection between X% new money and X% growth, and on the indisputable fact that turning off the money printer tends to result in a recession. Since today’s economists (except of course the Austrian School) have abandoned the the apparently unfashionable concept of causality in favor of the reassuringly autistic positivism of pure statistical correlation, it has escaped their attention that when you stop shooting heroin, you feel awful.
It is also bruited about that without money-printing to dissuade savers from just hoarding cash, no one will lend or take any entrepreneurial risks. Someone should tell this to the Dutch, who ran a 100% hard-money economy for 150 years and were the most prosperous nation in Europe. Perhaps if Lord Keynes had sent wooden sailing ships on three-year trading voyages to Indonesia, he would have rethought his views on lending, interest and risk. In general, stable periods of hard money have been among the most prosperous in human history, and even Friedman and Schwartz admit it. When the value of your money grows with no risk or financial overhead, it may actually be a good thing.
So, absent of course any errors in the above polemic, strategy G is in fact a Nash equilibrium. A direct gold standard in which private citizens own allocated gold would be a viable foundation for a new global financial system. There are no market forces that would tend to destabilize it.
Or are there? Actually, it turns out that we’ve skipped a step in our little analysis.

Levitating collectibles

The problem is that the exact same analysis works just as well for any standardized and widely available asset.
For example, let’s try it with condoms. Our benchmark of all value will be the standard white latex condom. We can have a “strategy C” in which everyone measures the worth of all their assets in terms of the number of condoms they exchange for. Cash payments will be made in secure electronic claims to allocated boxes of condoms, held in high-security condom vaults in the condom district of Zurich. And so on.
This is obviously ridiculous. But why? Why does the same analysis seem to make sense for gold, but no sense for condoms?
It’s because we’ve ignored one factor: new production.
Let’s step back for a moment and look at why people “invest” in gold in the first place. Obviously they expect its price to go up – in other words, they are speculating. But as we’ve seen, in the absence of investment the gold price would be determined only by industrial supply and demand, a fairly stable market. So why does the investment get started in the first place? Does it just somehow generate itself?
What’s happening is that the word “investment” is concealing two separate motivations for buying gold.
One is speculation – a word that has negative associations in English, but is really just the normal entrepreneurial process that stabilizes any market by pushing it toward equilibrium.
The other is saving. We can define saving as the intertemporal transfer of wealth. A person saves when she owns valuable goods now, but wishes to enjoy their value later.
The saver has to decide what good to hold for whatever time she is saving across. Of course, the duration of saving may be, and generally is, unknown.
And of course, every saver has no choice but to be a speculator. The saver always wants to maximize her savings’ value, as defined by the goods she actually intends to consume when she uses the savings. For example, if our saver is an American retiree living in Argentina, and intends to spend her savings on local products, her strategy will be to maximize the number of Argentine pesos she can trade her savings for.
Here are five points to understand about saving.
One is that since people will always want to shift value across time, there will always be saving. The level of pure entrepreneurial speculation in the world can vary arbitrarily. But saving is a human absolute.
Two is that savers need not be concerned at all with the direct personal utility of a medium of saving. Our example saver has little use for a big hunk of gold. Her plan is to exchange it for tango lessons and huge, delicious steaks.
Three is that from the saver’s perspective, there is no artificial line between “money” and “non-money.” Anything she can buy now and sell later can be used as a medium of saving. She may have to make two trades to spend her savings – for example, if our saver’s medium of saving is a house, she has to trade the house for pesos, then the pesos for goods. If she saves directly in pesos, she only has to make one trade. And clearly trading costs, as in the case of a house, may be nontrivial. But she just factors this into her model of investment performance. There is no categorical distinction.
Four is that if any asset happens to work well as a medium of saving, it may attract a flow of savings that will distort the “natural” market valuation of that asset.
Five is that since there will always be saving, there will always be at least one asset whose price it distorts.
Let’s see what happens when that asset is condoms. Suppose everyone in the world does adopt strategy C, just as in our earlier example they adopted strategy G. What will happen?
Just as we predicted with gold, there will be massive condom buying. Since condom manufacturers were not expecting their product to be used as a store of wealth, demand will vastly exceed supply. The price of condoms will skyrocket.
Strategy C looks like a self-fulfilling prophecy. Condoms will indeed become an costly and prized asset. And the first savers whose condom trades executed will see the purchasing power of their condom portfolios soar. This is a true condom boom.
Let’s call this effect – the increase in price of an good because of its use as a medium of saving – “levitation.”
Sadly, condom levitation is unsustainable. The price surge will stimulate manufacturers to action. Since there is no condom cartel – anyone can open a factory and start making condoms – the manufacturers have no hope of maintaining the levitated condom price. They will produce as many condoms as they can, as fast as possible, to cash in on the levitation premium.
Levitation, in other words, triggers inventory growth. Let’s call the inventory growth of a levitated good “debasement.” In a free condom market, debasement will counteract levitation completely. It will return the price of a condom to its cost of production (including risk-adjusted capital cost, aka profit). In the long run, there is no reason why anyone who wants condoms cannot have as many as he or she wants at production cost.
Of course, condom holders will realize quickly that their condoms are being debased. They will pull their savings out, probably well before debasement returns the price of a condom to the cost of producing one.
We can call the decrease in price of an asset due to the flow of savings out of it “delevitation.” In our example, debasement causes delevitation, but it is not the only possible cause – savings can move between assets for any number of reasons. If savers sell their condoms to buy Google stock, the effect on the condom price is exactly the same.
Because condom debasement is inevitable, and will inevitably trigger delevitation, savers have a strong incentive to abandon strategy C. This means it is not a Nash equilibrium.
The whole sad story will end in a condom glut and a condom bust. The episode will be remembered as a condom bubble. In fact, if we replace condoms with tulips, this exact sequence of events happened in Holland in 1637.
So why won’t it happen with gold?
The obvious difference is that gold is an element. Absent significant transmutation or extraterrestrial trade, the number of gold atoms on Earth is fixed. All humans can do is move them around for our own convenience – in other words, collect them. So we can call gold a “collectible.”
Because it cannot be produced, the price of a collectible is arbitrary. It is just a consequence of the prices that people who want to own it assign to it. Obviously, the collectible will end up in the hands of those who value it highest.
Since the global bullion inventory is 150,000 tons, and 2500 tons are mined every year, it is easy to do a little division and calculate a current “debasement rate” of 1.66% for gold.
But this is wrong. Gold mining is not debasement in the same sense as condom production, which does not deplete any fixed supply of potential condoms. In fact, it only takes a mild idealization of reality to eliminate gold mining entirely.
Gold is mined from specific deposits, whose extent and extraction cost geologists can estimate in advance. In financial terms, gold “in the ground” can be modeled as a call option. Ownership of X ounces of unmined gold which will cost $Y per ounce to extract is equivalent to a right to buy X ounces of bullion at $Y per ounce.
Since this ownership right can be bought and sold, just as the ownership of bullion can, why bother to actually dig the gold up? In theory, it is just as valuable sitting where it is.
In the form of stock in mining companies which own the extraction rights, unmined gold competes with bullion for savings. Because a rising gold price makes previously uneconomic deposits profitable to mine – like options becoming “in the money” – the total value of all gold on earth does increase at a faster rate than the gold price. But the effect is not extreme. 2006 USGS figures show 30,000 tons of global gold reserves. This number would certainly increase with a much higher gold price – USGS reports 90,000 tons of currently uneconomic “reserve base” – but the gold inventory increase would be nowhere near proportional to the increase in price.
In practice, modeling unmined gold as options is too simple. Gold discovery and mining is a complex and political business. The important point is that rises in the gold price, even dramatic rises, propagate freely into the price of unmined gold and do not generate substantial surges of new gold. For example, the price of gold has more than doubled since 2001, but world gold production peaked in that year.
The result is that gold can still levitate stably. Even if new savings flow into gold stops entirely, debasement will be mild. The cyclic response typical of noncollectible commodities such as sugar (or condoms), or theoretical collectibles whose sources are not in practice scarce (such as aluminum) is unlikely.
Of course, if savings flow out of gold for their own reasons, it can trigger a self-reinforcing panic. Delevitation is not to be confused with debasement. Again, it is important to remember that debasement is not the only cause of delevitation.
What we have still not explained is why gold, which is clearly already levitated, should spontaneously tend to levitate more, rather than either staying in the same place or delevitating. Just because gold can levitate doesn’t mean it will. (And note that we still haven’t looked at silver at all.)

Money in the real world

In case it’s not obvious, what we’ve just done is to put together a logical explanation of money, using gold as an example, and using only made-up terms like “collectible” and “levitation” to avoid the trap of defining money in terms of itself.
Now let’s apply this theory to the money we use today – dollars, euros, and so on.
Today’s official money is an “artificial collectible.” Money production is limited by legal violence, not natural rarity. If in our condom example, the condom market was patrolled by a global condom mafia which got medieval with any unauthorized condom producers, it would resemble the market for official currency. No one can print Icelandic kronor in the Ukraine, Australian dollars in Pakistan, or Mexican pesos in Algeria.
It may be distasteful to hardcore libertarians, but this method of controlling the money supply is effective. There is minimal unlicensed production of new money – also known as counterfeiting.
It should also be clear from our discussion of gold that there is nothing, in principle, wrong with artificial paper money. The whole point of money is that its “real value” is irrelevant. In principle, an artificial money supply can be much more stable than a naturally restricted resource such as gold.
In practice, unfortunately, it has not worked out that way.
Artificial money is a political product. Its problems are political problems. It does no one any good to separate economic theory from political reality.
Governments have always had a bad habit of debasing their own monetary systems. Historically, every monetary system in which money creation was a state prerogative has seen debasement. Of course, no one in government is unaware that debasement causes problems, or that it does not create any real value. But it often trades off short-term solutions for long-term problems. The result is an addictive cycle that’s hard to escape.
Most governments have figured out that it’s a bad idea to just print new money and spend it. Adding new money directly to the government budget spreads it widely across the economy and drives rapid increases in consumer prices. Since government always rests on popular consent, all governments (democratic or not) are concerned with their own popularity. High consumer prices are rarely popular.
There is an English word that used to mean “debasement,” whose meaning somehow changed, during a generally unpleasant period in history, to mean “increase in consumer prices,” and has since come to mean “increase in consumer prices as measured, through a process whose opacity makes chocolate look transparent, by a nonpartisan agency whose objectivity is above any conceivable question, so of course we won’t waste our time questioning it.” The word begins with “i” and ends with “n.” Because of its interesting political history, I prefer to avoid it.
It should be clear that what determines the value of money, for a completely artificial collectible with no industrial utility, is the levitation rate: the ratio of savings demand to monetary inventory. Increasing the monetary inventory has a predictable effect on this calculation. Consumer price increases are a symptom; debasement is the problem.
Debasement is always objectively equivalent to taxation. There is no objective difference between confiscating 10% of existing dollar inventory and giving it to X, and printing 11% of existing dollar inventory and giving it to X. The only subjective difference is the inertial psychological attachment to today’s dollar prices, and this can easily be reset by renaming and redenominating the currency. Redenomination is generally used to remove embarrassing zeroes – for example, Turkey recently replaced each million old lira with one new lira – but there is no obstacle in principle to a 10% redenomination.
The advantage of debasement over confiscation is entirely in the public relations department. Debasement is the closest thing to the philosopher’s stone of government, an invisible tax. In the 20th century, governments made impressive progress toward this old dream. It is no accident that their size and power grew so dramatically as well. If we imagine John F. Kennedy having to raise taxes to fund the space program, or George W. Bush doing the same to occupy Iraq, we imagine a different world.
The immediate political problem with debasement is that it shows up in rising consumer prices, as whoever has received the new money spends it. If we think of all markets as auction markets, like EBay, it should be clear how this happens.
There is no perfect solution for the problem. But there are quite a few imperfect ones.
The simplest is just the increase in productivity due to new technology, which would otherwise tend to make prices fall. For example, Moore’s Law tells us that the cost of a transistor halves every two years. If all consumer products were made entirely from transistors, Moore’s Law would support some pretty tasty debasement. Sometimes productivity improves quality rather than lowering price, but (even before the notorious “hedonics”) price indexers have always tried to capture this gain.
When productivity counteracts debasement, what’s happening is that progress that normally would have been improving peoples’ lives is being confiscated by the government. Since no one ever sees how cheap everything would have been without debasement, they tend not to whine about it so much.
Another approach is to use debasement for corporate welfare, by subsidizing low interest rates (“easy money”) or bailing out the financial industry when risks go bad (“injecting liquidity”). If this is done properly, it can actually lower consumer prices by decreasing production costs. Prices only start to rise when booming producer industries start to bid up the costs of the commodities and labor they need to produce. Economists of the Austrian School consider this corporatist approach to finance responsible for the business cycle, and I believe them.
This essay, though it’s probably too long, is nowhere near long enough to explain all the games that today’s governments and government-managed financial systems play with debasement. Here are three points worth noting for the moment.
One is that a conservative estimate of today’s dollar debasement rate, as measured by the Fed’s M3 number, is 10%. European numbers are similar. Chinese debasement is more like 20%.
Two is that most debasement today takes the form of insured credit expansion: debt that is guaranteed explicitly or implicitly by the government. Any loan which will be repaid unless the US financial system collapses is as solid as the dollar by definition. This is obviously true of sovereign debt, such as Treasury bonds, but implicit guarantees now cover many forms of private risk. By assuming responsibility for defusing financial crises and assuring continued prosperity, the Fed has converted vast reams of otherwise dubious paper into the effective equivalent of dollars. Because it is hard to even define this guarantee, accurately measuring debasement is impossible.
Three is that debasement creates dependency. For example, when debasement is used to subsidize interest rates, businesses and homeowners become dependent on cheap, easily rolled-over loans. When the debasement rate is 10% and interest rates are 7%, the negative debasement-adjusted interest rate is a debt factory. It is easy for borrowers to make decisions that assume these rates will continue. If they end, the typical result is a recession. These kinds of dependencies make it very hard for politically sensitive authorities to end debasement, or even significantly reduce it.

Debasement and investment

We haven’t even seen the most pernicious effect of debasement.
Debasement violates the whole point of money: storage of value. As such, it gives savers an incentive to find other assets to store their savings in.
In other words, debasement drives real investment. In a debasing monetary system, savers recognize that holding money is a loser. They look for other assets to buy.
The consensus among Americans today is that monetary savings instruments like passbook accounts, money market funds, or CDs are lame. The real returns are in stocks and housing.
When we debasement-adjust for M3, we see the reasons for this. Real non-monetary assets like stocks and housing are the only investments that have a chance of preserving wealth. Purely monetary savings are just losing value.
The financial and real estate industries, of course, love this. But that doesn’t mean it’s good for the rest of us.
The problem is that stocks and housing are more like condoms than they are like gold. When official currency is not a good store of store value, savings look for another outlet. Stocks and housing become slightly monetized. But the free market, though it cannot create new official currency or new gold, can create new stocks and new housing.
The result is a wave of bubbles with an unfortunate resemblance to our condom example. When stocks are extremely overvalued, as they were in 2000, one sign is a wave of dubious IPOs. When housing is overvalued, we see a rash of new condos. All this is just our old friend, debasement.
This debasement pressure answers one question we asked earlier: why should gold tend to levitate, rather than delevitate? Why is the feedback loop biased in the upward direction?
The answer is just that the same force is acting on gold as on stocks and housing. The market is searching for a new money. It will tend to increase the price of any asset that can store savings.
The difference between precious metals and stocks or housing is just our original thesis. Stocks and housing do not succeed as money. Holding all savings as stocks or housing is not a Nash equilibrium strategy (though for housing in some neighborhoods it comes close, because various restrictions have given buildings in older city centers near-collectible status). Holding savings as precious metals, as we’ve seen, is.
Presumably the market will eventually discover this. In fact, it brings us to our most interesting question: why hasn’t it already? Why are precious metals still considered an unusual, fringe investment?

The politics of money

What I’m essentially claiming is that there’s no such thing as a precious-metals bubble.
This assertion may surprise people who remember 1980, when gold touched $850 and silver $50. In the ’90s gold bottomed at $250 and silver at $3.50. These numbers are even more extreme when we factor in debasement. Doesn’t this look like a bubble?
It does, and it obviously represents a cycle of levitation and delevitation. The only sense in which there is no such thing as a precious-metals bubble is the one in which a “bubble” is sure to pop, like our condom bubble. Remember, markets are perfectly free to store all human savings in a single precious metal, or (if they find some other store of value which seems to work better, such as an artificial collectible) to store no savings at all in any of them.
What happened in 1980 is that the Fed, under the great Paul Volcker, successfully defended the dollar (and other national currencies, which are and were all backed by the dollar) against exactly the same event I’m predicting now: a currency crisis with self-accelerating flight to precious metals.
Volcker faced an existential threat, and he used every weapon at his disposal. The most obvious, and the one he is best remembered for, was ending almost all debasement and letting the market set interest rates. Short-term rates went well above 20%, considerably exceeding the official value of the I-word, and certainly into positive debasement-adjusted territory.
But for another example, one action the Fed took was to just tell banks, on the basis of no legal authority at all, to stop lending to anyone who was buying gold or silver.
This illustrates the tenor of the times. Finance in 1980 was a tame little pussycat. Hedge funds barely existed. Today, the Fed would never do this, not because banks would disobey – banks are still pussycats – but because today’s global financial market is a huge, snarling wolf-dog, and displays of fear are unwise.
Markets do not, in general, think. Most investors, even pros who control large pools of money, have a very weak understanding of economics. As I’ve already mentioned, the version of economics taught in universities has been heavily influenced by political developments over the last century. And your average financial journalist understands finance about the way a cat understands astrophysics. The business section is not exactly where anyone who plans to be the next Bob Woodward wants to end up. This has an obvious effect on retail investor psychology.
The result is that historically, the market has had no particular way to distinguish a managed delevitation from an inevitable bubble. Because of Volcker’s victory, and the defeat of millions of investors who bet on a dollar collapse, the financial world spent the next twenty years assuming that there was some kind of fundamental cap on the gold price, despite the lack of any logical chain of reasoning that would predict any such thing.
Even now, there is no shortage of pro-gold writers who predict gold at $1000, $2000 or $3000 an ounce, as though they had some formula, like the P/E ratio for stocks, that computed a stable equilibrium at this level. Of course, they do not. They are only expressing their intuitive feeling that gold is very, very cheap right now, and tempering it with the desire to be taken seriously.
In fact, precious metal prices will only stabilize when they either defeat artificial currency completely, or are completely defeated by it – either by some new financial technology which permanently precludes debasement, or by a forcible end to the free trade of precious metals.
Central banks – and through them, governments – always want to minimize the levitation of any collectible that could displace their artificial currencies. Obviously this includes precious metals. And obviously, owners of precious metals want to maximize their levitation.
The result is a giant tug-of-war on a global, historic scale. It is no accident that until the 20th century, the nature of money was one of the most controversial political issues in the United States. It is a matter of historical fact that the pro-banking forces won in 1913, and took the question off the political table. There is no reason to assume this victory will be permanent. But there is also no reason to assume it can’t be.
So, to come up with an educated guess as to the winner, we need to take an objective look at the artillery on each side.

Government’s weapons against gold

The dollar’s most obvious weapon is just that gold, although it is to some extent money, is not currency. No one accepts gold in exchange for goods and services. The digital gold currencies could change this, but if they do it will be far in the future.
The obvious impact is that to save in gold, you have to pay round-trip conversion costs, including your own time in managing the conversion. “Insulation” is a good name for this phenomenon, because it makes it hard for money to flow back and forth between gold and the dollar. Another form of insulation is capital-gains tax, which under US law is particularly harsh on gold.
A less obvious form of insulation is that there is no real loan market for gold. (Actually, there is a gold lease market, but it is not for ordinary schmoes – more on this later.) So if you know you want to hold your gold for a substantial period of time, there is no way to earn a direct return by lending it out. Of course, you have an expected return in dollars which should average out at the dollar debasement rate, but there is no reason in theory that you couldn’t earn gold interest as well. But, in reality, you can’t.
A less passive weapon is the large gold reserves that central banks hold. Central banks have somewhere between 10,000 and 30,000 tons of gold. They use this to manage gold prices.
Or at least, presumably manage gold prices. If you go out on the Internet today and research gold, you will find a lot of writers who accuse central banks of managing gold prices. The facts that these writers present are very plausible. But their tone implies that central bankers are committing some kind of heinous crime, an imputation I find unlikely. I’m sure the legal department signs off on everything. The fact is that managing gold prices has been a core element of central bankers’ jobs since the Bank of England was founded in 1694, that they have no legal obligation to disclose their actions, that keeping gold prices stable and low is very much in their professional interest, and that therefore the burden of proof should rest on anyone who insists that central banks do not manage gold prices.
Of course, the tools of the trade have changed a bit since 1694.
At first, banks just issued more gold-redeemable notes than they held gold. Obviously the fundamental value of a gold banknote is whatever weight of actual gold it commands. If you have one million ounces of gold and you issue two million notes, the fundamental value of each note is half an ounce, whatever you print on it. But if authorities are obliging, banks can manage the exchange rate between notes and gold, by “selling” gold for notes freely at the face value. As long as not too many people took them up on this offer, banks could create free money that traded at no discount to gold. A modern, electronic financial market would detect this scam and vaporize it instantly, but in the days of paper ledgers it worked just fine as long as the ratio was not pushed too high.
In other words, once a bank issues more banknotes than it has gold, a banknote becomes its own artificial currency. There is no objective difference between a redemption policy and a currency peg, like the mechanism China uses to control exchange rates between the dollar and the yuan. Even in the days of the “classical gold standard,” these fractional notes were the norm.
After World War I, the world went on a “gold exchange standard” which restricted redemption in various ways, enabling further banknote expansion. After World War II, only the US redeemed in gold and only to other central banks, giving us still more banknote expansion. In the late ’60s, the French became fatigued with exchanging their excellent wine for slips of green paper, and actually took the US up on its redemption policy. In 1971 Nixon “closed the gold window” and the redemption era was over.
Since then, central banks have had two general strategies for managing gold. The simplest is “bombing” the gold price by just selling the stuff. This creates a perfect economic illusion of debasement – in fact, it is exactly what an alchemist would do if she discovered a secret new process for manufacturing gold. Intellectually the market can tell the difference, but markets, as we’ve noted, are not intellectual.
Or not very intellectual. But Western central banks are political institutions and have to report their reserves. A downward trend would be disconcerting and too easy to game.
So someone came up with the idea of leasing gold. In a lease transaction, the central bank lends the gold to a Wall Street bank, which sells it into the gold market and invests the proceeds as it sees fit. This works as a “carry trade,” because central bank rates for leasing gold are very low, and the Wall Street bank can earn a higher return on the cash. Of course the Wall Street bank has to pay the loan back in gold at some point, but the central bank is always happy to roll it over.
The neat trick is that, even though the central bank’s gold has been sold to make jewelry or coins, and it has had the same negative impact on the gold market that any sale of gold does, central banks typically do not report how much of their gold they have leased out. In other words, they count actual gold and gold IOUs as the same thing. Hello, Enron!
The cover story is that gold leasing lets central banks “earn a return” on a “dead asset.” No ordinary person could possibly believe this; you would have to be a financial journalist. First, turning a profit is the last thing on central bankers’ minds; it is not even clear what return means for an entity that can print its own money. Second, this story chimes oddly with central banks’ official motivation for keeping this prehistoric asset rather than selling it all in one giant auction, which is that gold is a money of last resort in a crisis. As, of course, it is. But leased gold will not magically reappear in a crisis.
Some analysts estimate that since the 1980s, central banks have lost more than half of their gold through leasing. Portugal released this figure, perhaps accidentally, in 2001; it had lost 70% of its gold.
Leasing is not the only way central banks use their gold to influence financial markets. For example, they can also write call options, and so on. The power to print money and use it to buy arbitrary financial assets, at any valuation the bank deems appropriate, also doesn’t hurt.
But even these “gold derivatives” are probably not the most significant impact of governments on the gold market. The main weapon of governments against gold is simply gold mining.
As we’ve noted, gold mining is a generally uneconomic process. If rights to underground gold were politically secure, exploration and measuring of gold deposits would be sufficient to value them financially.
Political risk varies, of course, by country. But since there is really no country where these rights are totally secure, or at at least as secure as a vault in Zurich, digging up gold makes sense.
What doesn’t make sense is selling it.
Investors buy gold-mining stocks as a way to buy gold. In general, gold investors value gold above the quoted market price – if they didn’t, they’d sell it. It is unclear at what price your average “goldbug” would give in and exchange her gold for dollars, but for many it must be well over $1000 an ounce.
So a mining company would almost certainly increase their value to its owners by not selling gold at all, and just holding it on the balance sheet. Of course, some gold sales go to paying mining costs, but even this could be eliminated. When companies discover a new gold deposit, they could finance its extraction by issuing shares. This business model would optimize mining as a mechanism for converting dollars into gold. Since miners do not practice it, we can infer that their motivations are political.
The result is a continuous stream of gold entering the market at the current spot price, whatever that price may be. Again, this serves as a simulation of debasement, and confuses markets into treating gold as an unlevitated commodity, which would have an equilibrium price as determined by industrial supply and demand.
And government’s last weapon against gold is the physical power to just confiscate it, as the US did in 1933. What circumstances would make this politically realistic? But we’re starting to get into gold’s weapons against government.

Gold’s weapons against government

Gold’s main weapon is one we alluded to already: a sudden, self-reinforcing, and complete collapse of the dollar and all other artificial currencies (except maybe the Swiss franc). It’s time to look at exactly how this would work.
In a nutshell, the problem with the dollar is that it’s brittle. It’s hard to imagine a Volcker-style, contractionary defense of the dollar today. When Volcker did his thing, the US was a net creditor nation with a balance-of-payments surplus. Its financial system was relatively small and stable. And it had much more control over the economic policies of its trading partners – the political relationship between the US and China is very different from the old US/Japanese tension.
Fed policy since the crash of 1987 has been to insure against risk by stabilizing crises with liquidity injections – that is, hefty dollops of new money. It’s no secret that the financial industry has responded by taking on more and more risk. This vicious cycle of “moral hazard” is a policy that’s hard to change. For today’s Fed, short-term rates of 5% are dangerously high. 25% is not a serious option.
Any fractional-reserve banking and monetary system, like the US’s, is destabilized by any outflow of dollars. For the Fed, what is really frightening is not a high gold price, but a rapid increase in the gold price. Momentum in gold is the logical precursor to a self-sustaining gold panic.
In a self-sustaining panic, flight to gold destabilizes the banking system and the bond market, causing waves of bankruptcy across the financial industry. The Fed’s cure for bankruptcy is more liquidity – but monetary expansion only increases the incentive to buy gold. In the endgame, money flows out of the dollar as fast as the Fed can pump it in. This is the collapse scenario that leads to remonetization.
One of the reasons the gold price has been rising lately is that central banks’ ability to inject gold into the market, whether by leasing or outright sales, has become quite limited. The US needs congressional approval to sell gold. European banks used to be enthusiastic sellers and leasers, but are not unconcerned about the longevity of the dollar, and agreed in the 1999 and 2004 Washington Agreements to restrict their gold disbursements.
And one problem with gold leasing is that a gold lease has to leave someone with the obligation to return that gold. If the gold is sold for dollars, the seller is short gold, and loses a dollar every time the gold price goes up a dollar. Central banks are not known for refusing to roll over gold leases, and their rates are very low (under 0.20% these days). But public companies have to report these losses on their balance sheets. In the ’90s, when the gold price seemed to be under control, borrowing gold for a carry trade seemed like a good idea. The gold price is unstable and going up these days, and new leases are the last thing on most people’s mind.
Of course, the US government can play the other side of the ball and – at the very least – limit purchases of gold. But this, as we’ve seen, means showing fear. Dogs have nothing on hedge funds when it comes to smelling fear. And it’s an illusion to think that the US and its allies own the global financial system.
If the US imposed exchange controls on gold, the instant result would be a replacement of dollars with gold as a global reserve currency by China, Russia, and the Arab oil bloc. It is hard to imagine, for example, Dubai, closing its gold market. The result would be an international exchange rate between gold and dollars, and a black market in the US. Economists understand this very well, and I can assure you that no one wants to go there.
One significant mistake which makes a collapse much more likely was licensing the gold ETFs. It is easy to underestimate the value of mere insulation in protecting the dollar.
In 1980, to buy gold, you had to go to a coin dealer and pay as much as 10% in round-trip transaction costs – and then, of course, you had to store the stuff. If we imagine an ordinary corporate stock which you had to buy at a “stock dealer” in the same way as 1980 gold, it’s easy to see how few investors it would attract. Similarly, bullion was off the reservation for almost all money managers. Sure, eccentric oilmen, Bond villains and South American dictators could hold bullion in Zurich. But how many South American dictators can there be in the world?
In retrospect, remonetization of gold in 1980 had no chance at all. What the goldbugs of 1980 failed to see was that physical currency of any kind, paper or gold, was a relic. Gold could not compete with dollars because there was no way to hold or move it electronically. The only electronic market for gold was the futures market. And since most futures market trades do not exchange actual metal, but are settled for cash, futures trading in gold did not perform the critical market function of shifting physical gold from people who valued it less to those who wanted it more. Retail investors certainly did go to their coin stores and buy Krugerrands, but the Fed could move faster and harder.
It’s interesting to note that this kind of insulation, in the form of small overheads in shipping and redeeming gold, also played a large part in managing fractional-reserve gold currencies in the 19th century. If, as I think, it was also crucial in the Fed’s 1980 victory, why do we have gold ETFs?
The gold ETFs (GLD and IAU) let anyone move any amount of money into or out of gold at minimal cost. Investors who value everything in gold can use the gold ETFs to treat the dollar the way our retiree in Argentina treated the peso. They can work and spend in dollars, and save in gold.
So why would a financial system that has spent the last century insulating itself against gold turn around and plug the dollar directly into the stuff?
The answer is just that the Fed didn’t approve the gold ETFs. The SEC did. And yes, if the Trilateral Commission was still in charge, this never would have happened. But in reality, the US government is not a single big conspiracy, but an enormous jumble of individually gigantic agencies, each of which has its own internal culture and is utterly convinced that its own goals are identical to the public good.
To the SEC, free markets are always a good thing, and the idea that the dollar could owe its life to suppressing them is not one that comes naturally. Even at the Fed, I’m sure almost no one worries about gold, and those who do don’t run their mouths off about it. The Fed certainly does communicate with the SEC, but there is a process for these things. Washington certainly has its secrets, and one man’s secret is another man’s conspiracy, but there is no such thing as an interagency secret.
If the US federal government was a perfectly executed and utterly malevolent conspiracy to dominate the world, let’s face it. The world wouldn’t stand a chance.
In reality, it’s neither. So a lot of things happen in the world that Washington doesn’t want to see happen, and that it could easily prevent. Anticipating surprises is not its strength.
The real surprise is not just the ETFs. It’s the combination of the ETFs and the Internet.
In the end, gold is a democracy. The gold price is not set by the LBMA or the Comex. It’s set by the opinions of all the people who have savings. If you could buy an ounce of gold for $1, pretty much everyone would buy all they could. If you could sell an ounce of gold for a villa in Portofino, pretty much everyone would sell all they could. Somewhere in between is the current price of gold, and all that sets it is public opinion. Of course, peoples’ opinions are weighted by the size of their savings, but that’s the free market for you.
The dollar is a democracy, too. I’m indebted to Dallas Fed President Richard Fisher for the phrase “faith-based currency.” As we’ve seen, all money, natural or artificial, is faith-based. Gold is only different because no one can print it. The price of gold will never fall to zero because gold is good for capping teeth and plating plumbing fixtures. The price of dollars will never fall to zero because a dollar is made from fine rag pulp with quality recyclable fibers. But everything else is faith.
What can change this faith? And how fast can it change?
Right now, our assumption is that the answers are “very little” and “very slowly.” But this may no longer be true.
I don’t think it’s an accident that the 20th century was the golden age of both artificial currency and broadcast news. When licensed airwaves and monopoly newspapers were the only ways for for people to update their knowledge of the world, paper money could sleep well at night.
For example, let’s try a thought experiment.
Suppose the New York Times is taken over, tomorrow, by goldbugs. Let’s say all of its editors, reporters, and columnists read this essay, find it plausible, and decide to really speak some “truth to power.”
From tomorrow on, the Times puts all its weight into reminding its readers of the undeniably true and objective facts that the dollar is a faith-based currency; that new dollars are being created at about 10% a year; that the current US financial system was designed a hundred years ago, in the age of Morgan, Hearst and Rockefeller, to create a steady flow of new dollars for both federal spending and corporate welfare; that the global financial system is now completely dependent on money creation, and could not survive in anything like its present form with a static money supply; that remonetization of precious metals is a Nash equilibrium; and that if remonetization happens, the first people who move their money into gold will profit the most.
How many weeks do you think it’ll take before the Gray Lady’s pulp supply starts to turn a little green?
Of course we’ll never know, because this will never happen. For the last century, the first commandment of the mainstream media has been responsible journalism. Promoting financial panics is not exactly responsible journalism.
I’m afraid anonymous bloggers have no such inhibitions. More on this in a little bit.

The silver factor

You’ll notice that I mentioned silver at the start of this essay, but I haven’t touched it since.
One question about remonetization that’s essentially impossible to answer is, assuming remonetization of metals, which metals exactly will become monetized.
Over time, the Mengerian process of standardization will tend to reduce the number of monetized commodities, possibly to one. Standardization favors the leader, and it is an unstable game: since losers by definition delevitate, it makes sense to flee them as soon as possible. Since gold, just for historical reasons, is the leader, it may be the only survivor.
On the other hand, on a modern electronic market, it’s not clear how important Mengerian standardization is. According to Menger’s model, money standardizes because it is inconvenient to be constantly converting value between multiple moneys. But it’s a lot easier with computers. And one effect that tends to counteract Mengerian standardization is the obvious desire to diversify one’s savings.
What’s interesting right now is that monetization seems to be affecting a wide range of nonferrous metals – not just those traditionally considered “precious.” This makes sense, because the only reason precious metals are precious is that they are rare enough that it’s easy to store and handle significant levels of collectible value. Since warehouse costs for base metals such as copper, lead, or zinc are not high, there is no reason why electronic claims to these metals cannot be monetized.
An alternative would be the equal monetization of all precious metals. The conventional precious metals are gold, silver, and the platinum-group metals: platinum, palladium, rhodium, iridium, ruthenium, and osmium. Perhaps, for example, an equal percentage of the global inventory of gold and osmium would have the same monetary value. If so, it’s time to stock up on osmium.
But a good guess is that if a new monetary system levitates one metal, it will be gold. If it levitates two, it will be gold and silver. It’s not the physical properties of these metals, but their historical and cultural associations, that make them more likely to displace the others.
Silver is interesting because it was demonetized before gold, and has (except for the 1980 episode) been priced mostly as an industrial metal in the modern era. However, because silver was a monetary metal for most of human history, central banks built up vast stockpiles. After World War II, banks felt the need to keep their gold but not their silver, and they sold the latter to industrial users, generally at very congenial prices. The silver market has seen net dissaving, mostly from these government hoards, for most of the last 60 years and all of the last 20.
The result is that most of the world’s silver, certainly in the tens of billions of ounces, has been consumed in nonrecoverable industrial uses such as photography and electronics. Estimates for the global supply of silver bullion vary widely, but are generally under 1 billion ounces. Since the ratio of silver to gold price by weight is about 50 to 1 at the moment, by value there is perhaps 200 times as much monetary gold as monetary silver in the world.
The silver market has become very comfortable with net dissaving, and any serious reversal of this trend seems likely to cause an ugly increase in the price. The recent (April 28) opening of a silver ETF, SLV, makes such an increase likely; in fact, the silver price doubled while the ETF was going through the approval process. Since its approval the ETF has been sucking down about 3 million ounces of silver a day, which is clearly unsustainable.
So there are three factors favoring the parallel remonetization of gold and silver. One is the traditional monetary relationship between the two metals. Two is the fact that since central banks hold very little silver, it’s hard for them to manage the price. Three is that since no one really has much silver at all, any flow back into the ETF will cause some serious levitation.
One Nash equilibrium strategy for gold and silver – we could call it strategy GS – is to value the extractable quantity of silver and the extractable quantity of gold on earth equally. This seems to be the strategy that people followed before the age of artificial currencies.
Obviously if silver is remonetized, silver stockpiles will have to increase, and the process may be chaotic. However, balancing the two diversifies against fluctuations in either, and natural fluctuations – for example, as a result of mining exploration or technology discoveries – are inevitable in any metallic monetary system. So a parallel standard may actually stick around.

A plan for structured remonetization

Who knows with these Internet things. I have no idea of how many people will read this essay. But I have never liked people who complain and don’t offer constructive solutions.
And since it is, in theory, possible that this link will spread virally and actually cause a remonetization event, I think it would be irresponsible of me not to include a few simple suggestions for how to handle it right.
First, the financial markets should be closed. This is obviously not a permanent solution. But why operate without anesthetic?
Second, the US federal government should be restructured as if it were a bankrupt company, distributing the US gold reserve of 8139 tons among holders of US liabilities, including both dollars and debt, and both explicit liabilities such as Treasury notes and implicit ones such as Social Security.
The result will be a new financial system in which the legal currency is directly allocated gold without any fractional pyramiding. The new government should be fiscally stable as a long-term operating concern. It will have to be, because it will be unable to print money.
Some federal programs will probably have to be cut. At a minimum, the practice of defining national security as global security is probably unsustainable. The US should retain a small strategic and conventional force which can deter terrorist and other attacks by proportional response, and secure its borders. It should adopt Switzerland’s foreign policy and modify it as circumstances demand.
All federally guaranteed liabilities of the United States should be valued equally at their price or estimated price before the crisis. For example, Federal Reserve Notes and FDIC insured bank deposits should have equal value and seniority, Treasury bonds should be valued at their current discounted price, and so on.
Both the Federal Reserve and the entire banking system should be treated as part of the US government, because they both are. Any institution that is not allowed to fail is effectively part of the government. Shares of stock in banks and other lenders engaged in mismatched-maturity (fractional-reserve) banking should become US liabilities at the current dollar price. Loans held by banks should be redenominated in gold according to the calculated exchange rate (see below) and sold at auction.
The entire US gold reserve should be converted to an electronic account system in which individuals and companies hold directly allocated gold and can redeem, deposit, and make payments. The system should also support accounting for silver and all other precious metals. Ownership of the gold should be distributed equally among holders of US liabilities, not discriminating between domestic and foreign creditors. This calculation will generate a final exchange rate between dollars and gold.
In some cases, as in Social Security, the US may hold its own liabilities, and it may maintain a small fiscal reserve. However, because of the inevitable temptation to create more virtual than physical gold, the US gold system should be broken into interoperable parts and privatized as soon as is practical.
The new US currency should be the gold milligram. Stock markets should be repriced in milligrams according to the dollar exchange rate, and reopened as soon as possible.
Property rights of existing gold holders (such as, of course, myself) should be respected. However, some gold confiscation is inevitable. Since the concept of capital gains on gold becomes meaningless with a gold currency, all holders of gold or silver who are US persons should pay an immediate 28% tax on their entire stash, in lieu of the existing rate on bullion gains. 28% is large enough to be significant and small enough that it won’t stimulate excessive evasion. Similarly, mineral rights should be preserved, but a similar royalty should be applied.
There, that’s my plan. I think it’s a good one. But I would, wouldn’t I?
By switching the currency completely to gold and converting US debt as well as US dollars, the plan provides one last blast of monetary expansion while precluding any further debasement, except of course as the result of new discoveries and technical advances in gold mining. Of course, people who hold dollars or dollar bonds will get jacked. But because of the volume of dollar claims, which must be handled fairly and equally, there is no way around this. And people who hold dollars or dollar bonds have been getting jacked for years, which is why they’ve been so eager to move them into stocks or housing.
I don’t think there is a realistic way to only partially revalue the dollar, maintaining some kind of artificial currency, sovereign debt, and fractional-reserve banking system. I think any attempt to switch to gold that does not go all the way in one step is likely to collapse itself and cause further chaos. But of course, I’m sure others will disagree.
And of course, there is no way to remonetize to precious metals without either providing enormous profits to present holders of said metals (such as, again, myself), or installing a new police state that would treat gold as if it was cocaine. The reason I recommend buying gold ETFs, rather than burying Krugerrands in the backyard, is that I don’t think the kind of grassroots political support for state power and central planning that allowed the confiscation of gold in 1933 exists these days. I hope I’m not wrong about this.

So you say you want a revolution

I’ve tried to maintain some small shred of objectivity here. But I admit it; I would like to see a remonetization. I think our current system of government needs a serious reboot.
I respect and understand people who disagree with me on this, or who think it’s a bad idea to work for change outside the normal political process. From my perspective, the influence of the political process over the actual operations of government is small. It does not strike me as increasing.
One interesting fact about US history in the postwar era is that since the 1930s there has been no effective force in American politics focused on resisting the growth of the US federal government. The last antifederalist Democrat was John Nance Garner. The last antifederalist Republican was Robert Taft.
In general it is always difficult for an antifederalist party to exist. It tends to get taken over by interests ambitious to use the power of state to some political advantage. But since federal institutions have grown continuously since the country was founded, and since an omnipotent national government is so obviously contrary to the intent of the founders, who set down their plans in documents that still exist and that anyone can read, reactions against the size and power of the state have been frequent, including the original Democratic-Republicans, the Democrats of Jackson and Van Buren, Grover Cleveland’s hard-money Democrats, and Harding’s “return to normalcy” Republicans.
In contrast, since World War II, the political dialogue in the US has pitted voters who think Washington should guarantee global security against those who believe it should insure general public prosperity. Of course, Republicans can reliably raise support by appealing to those who oppose welfare and central planning, and Democrats are happy to accept the votes of anyone who is unhappy with the Pentagon and its imaginative projects. But in practice, as the Bush Administration has shown, the path of least resistance is to expand both sides of government.
Not all the political rhetoric in the US today is positive. There is a lot of fear and loathing between “red-state” and “blue-state” factions.
It’s very easy for red-staters to think that because blue-staters believe the US should not guarantee global security, that they do not believe in global security, but think that everyone can just be nice. In some cases, this may be true.
It’s very easy for blue-staters to think that because red-staters do not believe the US should provide general public prosperity, that they do not believe in general public prosperity, but only in their own prosperity. In some cases, this also may be true.
But I have trouble believing that these stereotypes are broadly accurate. They seem too politically useful for that.
It’s hard to avoid noting that this structure of opinion looks like a very effective strategy of divide and conquer. I am not suggesting that anyone had a meeting and came up with this strategy, any more than anyone has a meeting and decides what the price of gold should be today. The market tends to discover effective strategies and stick with them, and political power is no less a market than any other kind of human action.
Perhaps you are happy with the growth of the US government. Perhaps you feel it is not large and powerful enough, that it needs to be larger and more powerful. In that case, preserving its power to print money is clearly necessary, and you should oppose anything that would threaten it. You should under no circumstances buy gold. In fact, if you have a few dollars to spare, you should probably short it. If the world agrees with you, gold will probably go down.
Please excuse the snarky tone. In fact, I respect people who hold this perspective. It’s a fact that the US government has done a lot of good things in the world. It’s a fact that all, or at least almost all, the people who make up this organization have nothing but the best of intentions.
US foreign intervention has done away with all kinds of vicious thugs, from Adolf Hitler to Pablo Escobar to Slobo Milosevic. In many cases, these thugs were not replaced by new, equally vicious thugs. In other cases, due to US money and influence, the thugs never got past the Tony Soprano stage. Today’s US military is the most principled and effective force the world has ever seen. US foreign aid has also provided famine relief, medical care and vital emergency services around the globe.
US domestic programs have controlled pollution, bought medical care for sick people, persecuted white supremacists almost entirely out of existence, paid for a lot of good scientific research, improved the living standards of the elderly, etc.
Perhaps none of these things would have happened if the US did not have the power to tax by debasement. Perhaps many similar good things will not happen in the future if it loses this power. And perhaps all the harmful actions the US government takes – always, in general, with the best intentions – will continue.
But since most Americans seem to see their government as a supersized charity, which may waste a lot of money on the opposing party’s imprudent schemes, but is otherwise out there doing the right thing, there are only two conclusions we can draw.
One is that if the US government lost its power to tax by silent debasement, Americans would vote to fund these valuable programs by ordinary taxation, or better yet support them directly and voluntarily as normal charities. (There is no reason military intervention cannot be run as a charity. For example, some have proposed exactly this to end the genocide in Darfur.)
Two is that Americans are a bunch of damned hypocrites. I hope it’s obvious which one I believe.

What you can do

If you disagree with my economic analysis, or if you’re not sure but you think this “remonetization” thing sounds like a really bad idea, nothing. You’re probably a reasonable person. Most reasonable people will probably agree with you. I wouldn’t worry at all.
If you have any amount of savings, I do recommend holding a little gold. All kinds of things can happen in this world. Even if gold goes down, I think it’s always good insurance.
If you do buy the economics and the politics, you can take two steps.
One is to buy a prudent amount of gold and/or silver.
Two is to email this link to anyone you know who might find it interesting, especially to people who are active politically, work in the financial industry, or just have a lot of money.
Either of these steps will help. But if you’re doing both, you might want to do step one first. I mean, you never know.
You can also post this essay yourself, anywhere you want. It’s in the public domain.
Obviously “John Law” is not my real name. Freedom of economic speech does not seem to be a judicial priority at the moment. Maybe I’m just being paranoid, but I feel like I can write more freely with a pseudonym.
The best way to ask questions is to comment on this blog. But you can also write me at wal.nhoj@yahoo.com.

Further reading

An excellent primer on US monetary history in the 20th century, from the same general Austrian School perspective I follow, is Richard Ebeling’s “Monetary Central Planning and the State”:

http://www.fff.org/toc/monetarypolicytoc.asp

Wikipedia has a good rundown of Nash equilibria:

http://en.wikipedia.org/wiki/Nash_equilibrium

The best writers on gold anywhere on the Internet, in my opinion, are Bob Landis and Reginald Howe at Golden Sextant. All their essays are worth reading. Here’s a fun piece about the real John Law:

http://www.goldensextant.com/GreenspanLaw.html

For an Austrian perspective on how a fractional-reserve banking system works, and how the Gilded Age saddled us with this strange creature, Murray Rothbard’s “Mystery of Banking” rocks. Murray is not actually from Austria, but he does have a funny accent:

http://www.mises.org/mysteryofbanking/mysteryofbanking.pdf

A comprehensive history of money and banking from the Greco-Roman era till now, with an emphasis on legal principles, is Jesus Huerta de Soto’s “Money, Bank Credit, and Economic Cycles”:

http://www.mises.org/books/desoto.pdf

Ted Butler is a crazy man. You should know this. I’m a little crazy myself, obviously, so I don’t say it lightly. But if you want to know what a crazy man thinks about silver, listen to Ted:

http://www.investmentrarities.com/tb-archives.html

The Silver Users Association didn’t get what it wanted, but its opinion is still interesting:

http://www.sec.gov/rules/sro/amex/amex2005072/pamiller021306.pdf

If you too want to blog anonymously, I recommend the wonderful tool I use, the EFF’s Tor. Send them a Krugerrand for me:

http://tor.eff.org

An invaluable resource for tracking dollar credit expansion is Doug Noland’s Credit Bubble Bulletin. Doug capitalizes his nouns just like James Frey, but all his stories are actually true:

http://www.prudentbear.com/creditbubblebulletin.asp

If you’re wondering what this thing called “the State” is and why all these people seem to hate it so much, Murray lays it down:

http://www.mises.org/easaran/chap3.asp

Here’s what Alan Greenspan thought about gold in 1966. Or has he changed his mind? Maybe he’ll let us know in his new book.

http://www.321gold.com/fed/greenspan/1966.html

And Carl Menger said it first:

http://www.mises.org/web/2692


I don’t know who John Law is (or was) but he made some interesting points. If someone does know, I’d love to give him credit for his work, or point to where his work currently resides. Drop me a line and let me know.

Bush advising Hillary Clinton

Don’t believe Hillary has already been selected as our next President? How about this little tidbit:

President Bush is quietly providing back-channel advice to Hillary Rodham Clinton, urging her to modulate her rhetoric so she can effectively prosecute the war in Iraq if elected president.

read more | digg story

Don’t know why they bother to qualify it with an if; the mainstream media have clearly already picked their favorite.

…and since the electronic voting machines currently in use can be programmed to spit out whatever winner the vote counters prefer (and there is conveniently no paper trail to verify the accuracy of the vote) I begin to wonder who will even notice that the fix is in?