WHAT IS MONEY?

 

Money used to be gold.  It had mass; it had a color; it had an atomic number; it had physical characteristics that were immutable.  If you stored it somewhere that's where it was.  When you owned it, you had it in your possession and you knew where that was and what it looked like and what you could buy with it and how you could transact with it.  All these characteristics were governed by the laws of physical reality.

Money now has no form or mass: it has use in the physical world but it does not exist in the physical world.

Money is now only an idea.  And no idea has any objective reality.  Not even mathematics.  Every idea is subject to contradictions, (politely - or eruditely -called paradoxes).  Xeno's paradoxes show the contradictions between the idea of space and time and the actuality of space and time.  Russel's paradox shows that even the logic of basic mathematics breaks down under close scrutiny.

Money now has only the properties that the Enforcing Institution that issues it decides it should have.  And those properties constantly change.  And they are enforced differently for different participants.

For example money is issued for free to Banks.  But not to the clients of banks.  Money can be lent out or borrowed but the rules of who has to pay back loans is vastly different for an institution or individual that is considered too big to fail and for an institution or individual that isn't.  

In fact the rules of who is taxed and how they are taxed and and who can transact and how they can transact are vastly different for different members of thre same society and these rules are constantly changing.

Since money is only an idea, you can not even store\own your own money.  You must have it stored in theory in an institution that plays by different money rules than you do.  When it comes time to access your money it may or may not be accessible depending on the shifting rules of the instituions that store it for you.  The same for when you invest it.  And how you invest it.

In other words money as an idea is subject to all the contradictions (or paradoxes) that all ideas are subject to.

And that is an enromous benefit for the the Institutions that issue and control money and those closest to these institutions and an enormous detriment to everyone else.

The truth is this experiment with taking money out of the pbysical world and making only and idea that is subject to the whims of those that control its issuance is only about forty years old.  For all of human history until just a few years ago money existed in the physical world, and was subject to the laws that governed physical reality: some of which are unchanging and immutable.

And so far money as an idea is not going that well.  It's all ending up in a few hands nearest the issuing institutions.

Everyone else's money is being slowly confiscated through inflation, which is just the process by which more and more money is issued to fewer and fewer participants, so everything in the real world costs more and more for everyone else.

If that makes you uncomforatble perhaps you should consider storing part of your wealth in real things that exist in the real world and are subject to the laws that govern physical reality.

US AND GLOBAL DEBT AT RECORD HISTORIC LEVELS IN NOMINAL TERMS AND AS A PERCENT OF GDP

 

House price to income ratio in the U.S. 2022 House price to income ratio in the U.S. 2022 | Statista

CORPORATE DEBT AS PERCENT OF GDP

HARD ASSETS AND THE US DOLLAR

It is difficult for those who don't follow the international financial markets in minute detail to really understand the immense value of enjoying a reserve currency status as does the United States Dollar.

This status is predicated on the military might of the US Armerd forces (as contract enforcement of last resort), the depth of the US financial markets (that which makes the contracts denominated in dollars most desirable) and the stability of the US political and legal systems (that which makes enforcement of contracts most likely).

It is very difficult to say which of these is most important, but it is safe to say that all three support systems  are paramount.

There are currently two very sophisticated and well informed financial points of view on this.  

One points out that the euro-dollar market at four times the US domestic dollar market is so vast that no matter what happens the US dollar reserve position is impregnable.

The other points out that despite the enormous dollar pool formed over the last 50 years, most of that is in dollar denominated debt and it is no longer clear what happens when that debt defaults.  Going forwards much of the commodity contracts being forged between China, Russia, Saudi Arabia, and other commodity producers in South America and Africa snd Asia are already cutting the dollar out because they see the dollar as an increasingly unstable currency that has been weaponized by an unstable US political system.

This issue of what happens to the dollar is certainly the most important factor in what happens to global financial markets going fowards.  And the most important factor in determing what happens to the stability of the wealth of any and every investor.

What is happening right now in the US with the debt ceiling is a case in point.  The idea that defaulting on the US debt is now a viable political tactic shows how inecredibly vulnerable the US dollar has become as the US politcal system implodes.  No matter how this resolves, the entire financial world is on notice the the US is unstable.

What that means over time is that paper assets denominated in US dollars will become increasingly unstable and Hard Assets that are denominated across the world in every conceivbale currency because they have Intrinsic Value will become commensurately valuable.

And if there is a default, the fact that it is likely to be resolved after a brief  period of chaos will in no way detract from the argument of those who are currently working hard to undermine the dollar dominance.

Take that into account.  Protect yourself.

HARD ASSETS AND FUTURE VALUE

 

Future value is a tool generally used in financial planning in relation to compound interest.  There are all sorts of adages about the wisdom of compound interest as a tool for wealth building  In contrast, the famous knock on gold, for example, is that it does not bear interest.   In fact, many traditionalists point out that Hard Assets do not bear interest.

Or do they?

The adages about compound interest and its virtue were all formulated in another era - the era of Hard Money: where money itself was a Hard Asset.  Money was gold and silver - which had an intrinsic value defined over centuries.  So compounding interest on that Hard; Read stable: Asset was a no-brainer.  Anyone can see the benefit.

But now Money is an imaginary asset. It has no intrinsic value and can fluctuates wildly in short periods of time.  The more you print, the less it's worth.  And during periods when printing is necessarily out of control because the need to service debt is essentially infinite - money can lose value against Real Things at an alarming rate. 

So how much  value does your compound interest have when attached to a rapidly depreciating unit of currency?

If you can calculate the Rate at which a Currency is Depreciating - that, in fact, becomes the rate at which a Stable Hard Asset compounds.

What is a stable Hard Asset: Anything that exists in the Real World and has accrued value steadily over centruries.  Gold, Historical Gold coins and medallions, Old Master Art, Maps, Historical Artifacts and documents, Books, etc etc etc

These things have a market value that becomes established over centuries.  You can research prices and with a lilttle hard work determine value over time.  It is not an exact science - but the social sciences are never exact.   

But one thing you can determine is their Implied Compounding in a particular currency by taking the rate at which that currency is depreciating and applying as an interest rate to the value of the Hard Asset.

So in a fiat currency regime - in which we all live - Hard Assets do indeed build your wealth through compound interest.

And anyone who deals in Hard Assets has seen a rapid appreciation in those assets the last few years can certainly attribute this rise to a correlative depreciation of global currencies.

Two good quotes from Hemingway:

 

“The first panacea for a mismanaged nation is inflation of the currency; the second is war. Both bring a temporary prosperity; both bring a permanent ruin. But both are the refuge of political and economic opportunists."  “Notes on the Next War: A Serious Topical Letter,” 

“How did you go bankrupt?” Bill asked. “Two ways,” Mike said. “Gradually and then suddenly.”  The Sun Also Rises

The stability of a fiat currency is based %100 on trust

 

America still has the biggest and best military in the world.  

But China's is rapidly catching up.  

The US still has the greatest pool of currency currently flooding the world with about 13 trillion US and Euro-dollars combined.

But global dissatisfaction with the weaponization of the dollar has caused a mad scramble to dedollarize.

And the US still has the most stable judiciary in the world so businesses like using dollars because disputes can be adjudicated.

But faith in the US judiciary is at an all time low - especially in the United States.

We are inexplicably attacking ourselves viciously and constantly from within, willfully destroying all of our necessary advantages.

We are the only first world country that has regular debates about whether or not we will honor our debts - or simply say screw you to the world - we're not paying, tough!  We seem quite willing to destroy our own currency and torpedo our own economy if it scores political points for one party over another.

We are also the only first world country  so viciously divided that we are willing to attack our own security forces: Army, FBI, Police if it benefits one party over another.

We even attack our own successul corporations - not over economic issues but strictly for political purposes.

We are also the first world country that has most lost faith in the integrity of our own leadership.  Congress enjoys an 18 percent approval rating.  The US Supreme court enjoys at 40 precent approval rating.  The Police Force in general throughout the country enjoys at 45 percent approval rating.

75 percent of Republicans think Democrats are immoral, dishonest and stupid. 65 percent of Democrats think the same about Republicans.

This is not a political blog.  This is to point out that this poisonous environment we've created for ourselves, is the worst possible environment for maintaining a global reserve currency.  

Other countries, looking at us, are having serious doubts as to the stability of our policies, our alliances and our contracts.

There are still natural bnenefits to the dollar that will support its reserve status. But we are attacking them from within on a daily basis.

The natural beneficiary of this condition is gold.  Because gold is the only other international reserve currency.  And the other central banks of the world understand this and they are loading up on gold.

Maybe you should get some too.