Podcast

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Bob Moriarty: Solving Our National Problems Starts With Sound Money

The bedrock for fiscal, legal, education & health systems
Saturday, November 9, 2013, 1:14 PM

At the Casey Research Summit last month, Chris had the opportunity to sit down with longtime precious metals investor and proprietor of 321gold.com, Bob Moriarty.

Right before their conversation, Bob had picked up a local Arizona newspaper and read an AP article titled "US Reliability Questioned Overseas" (the government shutdown was in full swing at this time). It discussed, among other concerns voiced by foreigners, whether continuing to rely on the US dollar as the world's reserve currency is prudent given America's political dysfunction and its debt levels.

Bob took this as one of a growing number of important data points that suggest the world public is beginning to wake up to the fact that the status quo may not be sustainable, or wise. By no means is this awareness mainstream, but it's notably more prevalent than it was 5+ years ago (to the point where it can be discussed openly in a small US metro newspaper). Bob feels, now more than ever, that sites like his, PeakProsperity.com and their 'alternative media' peer set can play a critical role in helping the world get to the "tipping point" of awareness that the system is not just broken, but needs a full reset - and to agitate constructively for it. In his eyes, returning to a sound, fixed currency system is an important place to start:

We know exactly what the weight of a gram is. And a gram weighs the same thing in the United States that it weighs in France and it weighs in Tanzania. We know exactly what the quantity of liter is. A liter is a liter is a liter, no matter where you go. We understand temperature and temperature is fixed.

Now, there are some things that in life that have to be fixed. If you are going to be a tailor and you are going to make a suit for someone, the length of a meter cannot change from day to day. Because if you made half the suit and then you went home, you had dinner, you went to bed, and you got up the next day, and they changed the length of a meter, and you are making the left side of the suit as opposed to the right side, the length of the sleeve would be different. It might be longer, it might be shorter, but because the value of the meter has changed, it would be impossible for you to make a suit that actually works.

Here is something I have never heard anybody say but everybody needs to think about: Between noon Monday and noon Tuesday, the value of the U.S. dollar on the commodities exchanges will probably change 10,000 times. Now, if a Martian flew to Earth and landed, and he was talking to you, and he said, okay, how do you measure length, and you say, well, we do it in meters, and it is this long, and he says, oh, that is cool; how often does that change? Well, it never changes; the length of a meter is fixed. And that way, everybody that makes a suit, makes suits with sleeves that are the same length. And he says okay, well, how do you actually measure the weight of something? You say, well, we use grams, and gram is the same from day to day, and people say that is cool. And the Martian says okay, I can see that that works. How do you measure something like water or gasoline or liquids? Well, we use liters. And the Martian says, okay, I like that; that makes a lot of sense. And he says, okay, what do you use for currency, how do you exchange goods, you trade things? And you say, well, we use dollars. And he says, okay, dollars; that is cool; how often does the value of the dollar change? and you say, well, between noon today and noon tomorrow, it will change about 10,000 times. The Martian would look at you and he would be convinced you had lost your mind. Because how can the value of a currency change 10,000 times in a day?

Now, that did not occur prior to 1970; currencies were relatively fixed. They changed periodically based on economic events, but currencies were relatively fixed. When we got off the gold standard in August of 1971, all of a sudden we had a currency system that changed on a constant basis. Now what I am telling you is, that is absolutely insane. And when you go insane, you have to regain your sanity and you have to come up with something that makes sense. The value of money should be fixed. And I argue that many of the political problems that we have, the political bankruptcy that we have, the fiscal bankruptcy that we have, the failure of our education system, the failure of our health system, the failure of our legal system, is all tied to having a currency that is not fixed.

We do not know what value is anymore. So we have lost our financial compass, and that affects a lot of other things. We need to have that restored. And to read in an average newspaper, a German newspaper is writing about America being politically bankrupt – something that I have said for years, people here at the conference have said for years -- but people are waking up to it. We are financially bankrupt, we are politically bankrupt. You can be a Democrat and you can believe the Republicans are the worst people in the world, or you can be a Republican and believe the Democrats are the worst people in the world. But what we have is total corruption in government. If you are the biggest supporter of Obamacare, there is a 99% chance that you cannot even sign up. Our government is in a state of failure, and we need to restart, we need to reset. 

Click the play button below to listen to Chris's interview with Bob Moriarty (26m:39s):

Transcript: 

Chris Martenson: This is another Peak Prosperity podcast. I am your host, Chris Martenson. The world financial system, as I have often described, is really a confidence game. We have faith-based money, and the Fed is rapidly eroding our faith in the money just like the Japanese are in an attempt to get inflation. They are playing a very risky game with what I think is the most important social contract we have, which is our money system. And it is being actively debased.

So, here to help us talk about the importance of confidence and faith in the money system, and other parts of the system that we collectively call “the world we live in,” is Bob Moriarty, proprietor of 321Gold; a very accomplished individual; once one of the youngest – or the youngest – fighter pilot in the world. Too many things to go into in terms of what he has accomplished so far, but mostly I would describe him as somebody who is alert, aware, paying attention and just about as concerned as I am, if not more so.

Bob, welcome to the show.

Bob Moriarty: Thank you. It is a pleasure being here today, Chris.

Chris Martenson: So something has come up. You handed me a newspaper article, and it is an analysis, it is talking about something that is possibly going to impact this thing around faith or credibility in the system. What is it, and why is it important?

Bob Moriarty: Well, here is what is interesting. There are a number of people – I have been preaching for a dozen years now that we were going down the wrong path politically, we are going down the wrong path economically, and it was going to lead to bad things in the future. There are a number of gold shows; there is Casey show, and it is one of the better shows out there. It has got some great speakers, and you can go in and listen to ten guys talk about bad things are happening, and you need to be prepared, and the world is going to change in the future.

Well, what is very interesting to me is that we have been fringe; we have been preaching to a very small number of people who are being made aware. There are 500 or 600 people here at this conference. These guys have paid a lot of money. But actually, they already know that there are some substantial issues. What we need to do is we need to let the public in.

That is why I started 321Gold twelve years ago, to give people a fair shake and give them a chance of saving some of what they have worked for. The whole purpose of my website is to educate ambassadors. And I spend two-thirds of my time traveling all over the world visiting projects. I went out to breakfast this morning with a friend of mine, and I picked up a newspaper because I need something to read, and I read it; it is the Arizona Daily Star, Sunday, October 6, and the article is titled U.S. Reliability Questioned Overseas. And they talk about this fiasco that is going on in Washington right now.

Now here is the key: If you come to conference and you spend $1,500, you can listen to very bright guys tell you that the United States reputation is going downhill in a hell of a hurry. But at the real kiosk now, you can pick up a newspaper, and for a buck, you can read a German saying, What is clear, though, is that America is already politically bankrupt. Well, being politically bankrupt and being fiscally bankrupt is exactly the same thing.

So Chris was marginal, Chris was fringe, Chris was coming out with a new message when he wrote his book, but even newspapers are figuring out what is going on now. And that is the “C” Change.

Chris Martenson: Well, this is an amazing development, and so this article is really talking about the loss of confidence people have. And it seems to be accelerating, is the observation. Maybe exponentially accelerating. Of course, trust is something that you can lose in a heartbeat, and it takes forever to get it back. And this is important because in the United States, people say, well we have got this huge trade imbalance and the United States does not export nearly as much as it should, and that is false. The United States exports a lot. We export dollars. And what we need is people to willingly accept those all across the world.

And so when our political viability and our political – and I think even our moral – standing is being questioned in this article, the people are saying effectively that they do not trust the leadership; they do not trust the United States has a direction that they understand. It seems very self-serving. And so that is a pillar of confidence that is being rattled as we speak. And we rely, in the United States, on the rest of the world to not only willingly accept our dollars but to hold them.

There is about $7 trillion U.S. dollars held in reserve all across the planet in various places. China has a bunch, Japan has them, but they are everywhere. And if those seven trillion dollars suddenly decided they did not want to be held outside and they had to go somewhere, the United States prospects would change rather dramatically.

And so at this conference, we are hearing a lot of people say the United States – and we know this mathematically – is not solvent. Our assets and our liabilities no longer match. We do not currently have a cash flow problem so we are technically in bankruptcy as a legal term. But this article points to the idea that if the world changes its perceptions and does not want to hold U.S. dollars – maybe for political reasons or financial reasons or potentially economic reasons – the difference between insolvency and bankruptcy, that gap will close; they will be the same thing at some point. Bob, your thoughts?

Bob Moriarty: You raised an issue that was very interesting, and that was the moral connection, the belief in the dollar and the belief in money. I use an analogy that I never heard anybody else use, but it makes a lot of sense to me. We know exactly what the weight of a gram is. And a gram weighs the same thing in the United States that it weighs in France and it weighs in Tanzania. We know exactly what the quantity of liter is. A liter is a liter is a liter, no matter where you go. We understand temperature and temperature is fixed.

Now, there are some things that in life that have to be fixed. If you are going to be a tailor and you are going to make a suit for someone, the length of a meter cannot change from day to day. Because if you made half the suit and then you went home, you had dinner, you went to bed, and you got up the next day, and they changed the length of a meter, and you are making the left side of the suit as opposed to the right side, the length of the sleeve would be different. It might be longer, it might be shorter, but because the value of the meter has changed, it would be impossible for you to make a suit that actually works.

Here is something I have never heard anybody say but everybody needs to think about: Between noon Monday and noon Tuesday, the value of the U.S. dollar on the commodities exchanges will probably change 10,000 times. Now, if a Martian flew to Earth and landed, and he was talking to you, and he said, okay, how do you measure length, and you say, well, we do it in meters, and it is this long, and he says, oh, that is cool; how often does that change? Well, it never changes; the length of a meter is fixed. And that way, everybody that makes a suit, makes suits with sleeves that are the same length. And he says okay, well, how do you actually measure the weight of something? You say, well, we use grams, and gram is the same from day to day, and people say that is cool. And the Martian says okay, I can see that that works. How do you measure something like water or gasoline or liquids? Well, we use liters. And the Martian says, okay, I like that; that makes a lot of sense. And he says, okay, what do you use for currency, how do you exchange goods, you trade things? And you say, well, we use dollars. And he says, okay, dollars; that is cool; how often does the value of the dollar change? and you say, well, between noon today and noon tomorrow, it will change about 10,000 times. The Martian would look at you and he would be convinced you had lost your mind. Because how can the value of a currency change 10,000 times in a day?

Now, that did not occur prior to 1970; currencies were relatively fixed. They changed periodically based on economic events, but currencies were relatively fixed. When we got off the gold standard in August of 1971, all of a sudden we had to have a currency system that changed on a constant basis. Now what I am telling you is, that is absolutely insane. And when you go insane, you have to regain your sanity and you have to come up with something that makes sense. The value of money should be fixed. And I argue that many of the political problems that we have, the political bankruptcy that we have, the fiscal bankruptcy that we have, the failure of our education system, the failure of our health system, the failure of our legal system, is all tied to having a currency that is not fixed.

We do not know what value is anymore. So we have lost our financial compass, and that affects a lot of other things. We need to have that stored. And to read in an average newspaper, a German newspaper is writing about America being politically bankrupt – something that I have said for years, people here at the conference have said for years. But people are waking up to it. We are financially bankrupt, we are politically bankrupt. You can be a Democrat and you can believe the Republicans are the worst people in the world, or you can be a Republican and believe the Democrats are the worst people in the world. But what we have is total corruption in government. If you are the biggest supporter of Obamacare, there is a 99% chance that you cannot even sign up. Our government is in a state of failure, and we need to restart, we need to reset.

Chris Martenson: You raise a lot of really interesting points, there, Bob – in particular, the idea of currency uncertainty. I have been reading a lot about how U.S. corporations have stored up a pretty good amount of cash. They do not know what to do with it; they are buying shares back. What they are not doing is investing in the future, and part of the reason is they are very uncertain about certain regulatory pieces of the landscape, Obamacare being one. But there are a variety of tax code changes coming, so a lot of corporations are kind of up in the air, and when humans are uncertain, we tend to not be at our best.

We are not certainly moving forward. And one of the things we are not doing is making really long-term plans, the kind of long-term plans that allow you to structurally reform an education system that badly needs it, or to invest in infrastructure projects that might take a lifetime to see the realization for. We have these compressed time horizons because of that. And our currency system is at the heart of that forming because it introduces a mass amount of uncertainty. You and I have to share an uncertainty that, will it even exist in ten years?

So that compresses, it changes our decisions, our time horizons. And one of the most spectacular places I went to, because I just could not believe it got built at all, was the Cathedral at Chartres. It is the size of a football field. It was started in the year 1190 or something. This is in the midst of one of the largest depressionary eras ever, because the population was actually declining. And somebody sat down and unfolded a piece of lambskin, I am going to assume, and said okay, hang with me for a second, I have this idea. If I am lucky, in my lifetime, we will get the cornerstones of this thing laid. It is going to take 70, 80, 90, 100 years to build. It took maybe even longer than that. And it is spectacular.

The point I want to make here is that in that period of time, they had a money system that supported long-term thinking. When you have high interest rates, or interest rates that are varying, or currencies are varying, our time horizons compress. You are more likely to build a house out of pressboard and cardboard than out of durable stone. To see some of the great works that have been accomplished is to understand the role of having a structurally intact political system, cultural system, and money system that come together, so that people can envision very, very large, grand things.

That is my sort of sweeping observation about where we are. When you say politically bankrupt, that is shorthand. My slightly longer-hand for it is that we are seriously adrift, we are just flailing about. We are trying anything to preserve a status quo that I think arguably what the KC Research Summit and my work and your work illustrates is, we are on a path that does not really have a future. And that is a hard path to throw your weight behind and get excited about.

Bob Moriarty: That is not really true; we are on a train that is going down a mountain at a 45-degree slope. We have a future, and we know exactly what the future is going to be. And when I predicted fiscal collapse ten years ago or fifteen years ago, everybody thought I was nuts. When you can pick up a newspaper and read it today, it is now mainstream. This is going to be the most publicized financial collapse in world history.

But the governments of every country in the world are well aware that what they have got is totally non-sustainable, and it is going to blow up. I will give you an example. If you take the word austerity – and they use the word austerity a lot in Europe; they say well, we do not want austerity. If you translate that into plain English, what they call austerity means living within your means.

Now, I would tell my children, I would tell my nieces, nephew, I would tell any young people, if you want to live a happy life, you have to live within your means. It is true that as an individual, you have to live within your means; as a community, you have to live within your means; as a corporation, you have to live within your means. But we have the United States Government saying, You do not have to live within your means! We could spend money that your great-grandchildren are going to pay, and you are going to be better off. We could put people on food stamps where 51% of people are getting benefits from the United States Government every month. We have totally inverted the system. The system is totally insane; it does not work; it is not good for anybody other than the banks and the political figures who are literally stealing from the rest of Americans.

But the good news is, the system is in a rapid state of collapse. We know we are going to hit the bottom here real soon, the financial system is going to collapse, and it will give us the opportunity to restart and do something that make sense. And that is why I like your book so much, and I like your website, and I like your ideas. Because you are saying there is a better future if we plan for it. We do not need to be planning for what is going to happen tomorrow, we should know what is going to happen tomorrow. We need to be planning for a year from now and five years from now and twenty years from now.

Chris Martenson: Oh absolutely, and I am – one of my core tenets is that we do not need anything new to be developed. We already have all the information. We have all the things we need right now to start building towards that future. My concern is that train you are talking about that is heading down that 45-degree incline. You are right, it does have a future, but it is not a happy one. And my main concern is that the train wreck is going to be so severe that it is going to catch a lot of people unawares. And it is the lack of awareness that is probably the greatest threat. Because it is not going to be the actual economic collapse that is going to hurt people. We could cut our living standards quite a bit and still be very, very well off compared to ancient periods of history. It will be people’s reactions to it. It will be people’s responses.

So I am wondering, in your own life, does your view of the future inform where you choose to live, or who you want to be around, or how you would select a future for yourself based on how people might react?

Bob Moriarty: Of course, and the points that you make are very valid, but what I want to point out to you is, I am alternative media; I am French; I am a guy who thinks for himself and came to conclusions many years ago; you are alternative media. But people now have the ability to go to the Internet, and they have the ability to learn things that they did not have as little as 15 years ago. No, let me give you an analogy: If you go back to 1928 and 1929, there were a lot of very bright, very wealthy people who were aware the financial system was on the verge of a collapse. Bernard Baruch was well aware; Joseph Kennedy was well aware; a lot of financial guys were shorting the market because they knew bad things were going to happen. The average guy on the street had no advantage, had no information whatsoever.

Now, I am not a guy who says everything that you read on the Internet is true. There is a lot of nonsense on the Internet, there is a lot of crap on the Internet. It is not all true. However, buried among the crap are some kernels of some really good information. And there are a lot of guys like you and like me, and like Casey and like these guys, who are trying to educate people. And I have been trying to do it for a dozen years now. I do not need to run the website; my wife would really love for me to shut the website down, but we are trying to educate investors. We are trying to say, These are the bad things that are going to happen, and here is the alternatives to that, and here is what you could do.

I would like to point out that there has been a tremendous victory for the alternative media. I am the only person who has identified it so far, but three weeks or a month ago, we were within 24 hours of launching an attack on Syria, on the basis that somehow the government had used chemical weapons on their own people. Now, I am hard pressed to understand how killing people solves the problem of killing people, but someone in the government decided that is what we needed to do. The pressure from ordinary Americans calling up their Congressman and saying don’t you dare do that, we are sick and tired of war, was an absolute victory for the alternative media. And when the collapse comes – and it is coming – people are going to have the alternative of going to the alternative media, and they are going to hear what is really going on, as opposed to the nonsense that the six guys that control 95% of the media are feeding us.

Chris Martenson: Well, you know, the mainstream media – not the alternative media, but the big ones – they are constantly reinforcing this idea that the Federal Government is very big, very powerful. Who actually has the power in any country? Is it really the government, or the people?

Bob Moriarty: Well, that is a really good question. Let me give you a little bit of my background for the people listening to this or reading this. I went into the Marine Corps a week after I turned 18. It was late 1964; it was a month after the Gulf of Tonkin Resolution. I was accepted into flight training; I became a pilot when I was 19. I was flying the F4 when I was 20. I was in Viet Nam for two years. I was flying the F4; it was hottest fighter in the world. The enemy was the guy on the ground with a bowl of rice in one hand and an AK47 in the other. Do not forget who won. And it was them, because they control the moral high ground – they were not the terrorists, they were not the invaders, and they were fighting for their own country. We were fighting for freedom or to prevent Communism or stuff that people cannot even explain today, but it does not make any difference how much apparent power governments have; they do not really have the power.

If you do not believe that, Obama looks like a blithering idiot now; Putin looks like a genius. Obamacare clearly does not work; you cannot even sign up for it. The [U.S.] Government is in a total state of chaos right now, there are 90-year-old WWII Veterans in wheelchairs that are knocking barricades down so they can go see the memorial that is supposedly in their honor. Any rational person would look at this and say you know, the guys that are running the government, they pretty much screwed it up. And they really have, and people are waking up to that, and it is because of the alternative media.

Chris Martenson: Well, that to me is a ray of hope, this idea that the power really does sit with the people, because it is constantly reinforced. Certainly the NSA spy scandal, looking at the fact that I am certain that all of my communications are an open book now, that is a chilling sort of environment to live under. Even in Germany, they were saying the Stasi was never that complete and awful in terms of their invasiveness. And so my level of personal trust in my own government, that when they tell me – oh no, with that last revelation from the Snowden documents, that is how far we went. Yes, did we say we did not listen to your calls? We collected it, but we did not listen to it. Oh, we did listen to it, but not all the time…and it is just being peeled back.

Bob Moriarty: They only listened in if you were having phone sex with your wife, and that is exactly what they were doing with American servicemen who were in Iraq and Afghanistan. And some of this gets into really sick territory. And when you think about it, and you realize that the NSA has this power, if you put in video cameras in your house to prevent – you want to capture a burglar on video camera if you happen to get burglarized, you need to think about that. Because if you can access it on the Internet, so can the NSA.

And I am not saying it is good, and I am not even going to say it is bad. What I am going to say is, when we are going to allow the government to come into our bedrooms, this is something that we should at least be talking about. And I am not going to say that Snowden is a good guy or Snowden is a bad guy. I am going to say that he has done something tremendous for Americans; he has got them talking and thinking about something that is very important. I personally do not know how you feel about it, [but] I personally do not want the government in my bedroom.

Chris Martenson: Well, I share that strongly. I do not even want the government to have access to any of my records unless they have a really compelling need to, because history is just showing me time and time again, that is a form of power, and power without oversight inevitably gets abused. I mean, we already saw, the NSA admitted that a few of their employees might have been snooping on their exes and doing other things. It is a very invasive power, and it has no oversight, and so it has gone the inevitable direction. But a lot of this, I have heard people talk about, that level of intrusiveness is really just – it is a sign, it is a sign of something, it is a sign of a very nervous government. Because I have to be honest with you. My view is, terrorism is not a problem.

Bob Moriarty: Oh, absolutely not.

Chris Martenson: It is not something I worry about.

Bob Moriarty: Terrorism does not even exist. The chances of you drowning, falling off a bicycle, are literally higher than dying of terrorism. Terrorism is a bugaboo that the Government made up.

So what we have had is bizarre world. We have had a government totally out of control. I do not think that the NSA spying on Americans is them trying to get power; it is what happens at the end of an empire. What is going on in the United States is absolutely identical to what happened in Rome. I think that Michael Hastings was probably assassinated, and you can go to the decline and fall of the Roman Empire, and they did the exact same thing when they had somebody who was a political enemy for any reason, they just assassinated them. But we are in a state of collapse, it is obvious now, and things are going to get very bitter very soon. You have the ability to buy an insurance policy, and you know your house is burning down, and that is a good thing.

Chris Martenson: So talk to us. What is the insurance policy for the average person listening to this?

Bob Moriarty: Well, we just do not have enough time, there is not enough time today, literally. They should pick up your book and read it, because it raises so many interesting questions. The simplest thing is, you have to have some financial safety, you need to have a bunker, and the bunker would be owning some gold and silver. And I am not a believer in this; I am absolutely rabid about it. I live outside the United States and I do not travel anywhere without having several ounces of gold and silver with me, because I know the banking system is very unstable, and one day it is going to collapse. The very best thing that you could do to protect your family and yourself is to have some real assets when the collapse comes.

Chris Martenson: Absolutely, and of course there are a lot of other things to consider, and the book goes through some of those. We talk about those on the website all the time.

We have been talking to Bob Moriarty, proprietor of 321-Gold, that is 321-Gold, it is a great website if you have not been to it, but I am sure that most of you have. And we are going to be doing more work with Bob in the future, because education is the key here, and we really have to reach more people. I am very proud of the number of people that I have reached personally. I know that Bob is, as well, and it is not enough; we need to reach more people.

And so thank you so much for what you do, and your time today.

Bob Moriarty: Thank you. It has been a great pleasure. And I am just absolutely thrilled that you are doing what you do.

Chris Martenson: Thank you.

About the guest

Bob Moriarty

Bob Moriarty was a Marine F-4B pilot at the age of twenty and a veteran of over 820 missions in Viet Nam. Becoming a Captain in the Marines at 22, he was one of the most highly decorated pilots in the war. He went on to ferry General Aviation aircraft all over the world for 15 years with over 240 over the water deliveries. He holds 14 International Aviation records including Lindbergh's record for time between New York to Paris in two different categories. In 1996 he began an online computer business on the internet with his wife Barbara becoming one of the early adopters of the internet. Convinced gold/silver were at a bottom in 2001, Bob and Barbara started one of the first websites devoted to teaching readers what they need to know about investing in resource stocks. Bob and Barb now operate two resource sites, 321Gold.com and 321Energy.com where up to 100,000 people a day visit. Bob travels to dozens of mining projects a year and then writes about them. He was one of the first analysts to write about NovaGold, Northern Dynasty, Silver Standard, Running Fox and YGC Resources among many, many others. He claims with some justification that all of his readers are financially better off since they have been coming to his site.

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43 Comments

RogerA's picture
RogerA
Status: Silver Member (Offline)
Joined: Jun 18 2009
Posts: 106
I have to disagree.

First: 1 meter is not always a meter (well it used to be, but not anymore). It is a fact. Do you know the definition of 1 meter. Look it up, do you know why the definition changed. It is tied up to the speed of light, why would they do that. To hide the fact that the speed of light is not a constant, it changes. Still believe there exist something called science. its all belief systems - religion.

Second:The bedrock is not sound money. It is honest and truthful behaviour and attitudes. If the people are corrupted/rotten not any kind of system will do any good. Systems are a distraction to keep us occupied.

We do not have a system crisis we have a "spiritual" crisis.

AKGrannyWGrit's picture
AKGrannyWGrit
Status: Gold Member (Offline)
Joined: Feb 6 2011
Posts: 467
Great Podcast

Bob Moriarty sounds ike a straight-shooting, knowledgable and caring kind of guy.

There is an old piece of sage advice that says "don't tell me how much you know until you tell me how much you care". Anyone who has hung out here at Peak Prosperity knows that Chris, Adam and their team cares and It sounds like Bob does as well. I am very happy that PP will be working with Bob in the future and look forward to hearing or reading more from him.

Will be checking out Bob's website.

AK Granny

lunableu22's picture
lunableu22
Status: Bronze Member (Offline)
Joined: Oct 19 2011
Posts: 41
Traveling with metals

Bob said:

I live outside the United States and I do not travel anywhere without having several ounces of gold and silver with me, because I know the banking system is very unstable, and one day it is going to collapse.

How does he do this while going thru security checkpoints and not be labeled as a t...rr...st?

james_knight_chaucer's picture
james_knight_chaucer
Status: Silver Member (Offline)
Joined: Feb 21 2009
Posts: 160
Gold bullion jewellery I

Gold bullion jewellery I expect. That's how I'd do it.

Adam Taggart's picture
Adam Taggart
Status: Peak Prosperity Co-founder (Offline)
Joined: May 26 2009
Posts: 3080
I know the answer

lunableu -

I know the answer - Bob explained how it does to me when we were in Tulsa. But I'll keep silent out of respectful discretion.

Suffice it to say, he's a crafty guy.

Doug's picture
Doug
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Joined: Oct 1 2008
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I know
Adam Taggart wrote:

lunableu -

I know the answer, but can't tell. Bob explained how it does to me when we were in Tulsa.

Suffice it to say, he's a crafty guy.

Start a new thread giving advice on how to take PMs through customs.  No one will ever figure out how you got the info. ;^)

Doug

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LogansRun
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I've gone through customs dozens of times

with a couple of gold coins in my wallet.  Same with my wife.  TSA has commented twice, and then just shrugged.  In Europe, they didn't care.  S. America they acted like it happens on a daily basis.  Caribbean countries don't even check.  

Now, I can afford to lose a few coins so, I don't worry too much.  But again, I've never had a problem.  Keep them in a plastic foldup coin holder, with it's description and it looks like something you've collected. 

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thc0655
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Rolls of junk silver

Rolls of junk quarters or dimes pre-1965. It's US currency.

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Mark_BC
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Canada has loonies and

Canada has loonies and toonies and other small coins. Anything smaller than ounce coins in your wallet with the other coins won't even get noticed.

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RocketDoc
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Gold and fiat money

The problem of constructing a substantially just monetary system is Real whether the solution is fiat with good stewardship or gold based and pegged.  When reality changes, a fixed monetary system has problems.  So for hundreds of years we had 'problems' with financial crises even on a gold standard.  That said, the question of which is better is a fair question.  Generally one or the other gets picked and the rest of us just live with it.  Change after all being hard (and dangerous). And so here we are. I am not looking forward to the necessary deflationary collapse or crippling inflation though.  I'm 60. But change is what we are going to get.  I have some gold but it could be a crummy investment for a long time, there is less than an ounce for each person in the world. Everybody needs 'money' to eat but the big gold holders and rule makers might decide they need more of it to run things properly.  We could go to world money (SDR or bancor) or use gold as part of a basket of currencies and do a reset. There are a lot of scams we have not tried yet given the cluelessness of the public.

And buying gold is faintly illegal. Perhaps a majority of people think you should pay sales tax when you buy and capital gains when you sell. It's a commodity not a legal currency. They don't have any and don't want any.   Governments think you should pay too. Gold can go underground but it can't buy a house and get a title if the source of funds must be proven.  No, the law holds the whip hand.

  What is interesting are the rules that can be generated about how you can use your own money. You can't take your own money to France without telling a functionary, who may or may not decide that it is suspicious.  If it is, prove where and when you got it, that it is really yours and that you have paid all applicable taxes. (Let's just do a quick check of that 1040.)  You cannot buy a car with cash in the official economy.  You cannot use a $100 bill at Starbucks.  Cash has been made defacto illegal.  Go to the bank and ask for your $30,000.   You can have it next week if you tell the bank manager why you want it.  What if she doesn't like your reasons?  Government would like to "save money" by banning cash and getting everybody fired up about using their phone to buy things.  That new and improved system would undoubtedly work as well as big companies customer service phone lines.  Even now I have to agree to the new account terms or change my password before I can even get into my online accounts.  Mother may I anyone?

Personally I like the idea of a maximum amount of freedom.  Gold and silver should be allowed to be bought and sold with minimal transactional barriers. People could buy all the PMs they wanted and its fluctuations would be a judgment on the official money.  And we would pay real taxes and the government would make real budgets that politically we could really discuss and vote on.  But the current system is just flat wrong and at least 50 captains of financial industry should be in jail.     After all, if the government can print all the money it wants, why does it need mine?

The Big Steal is coming because honoring promises is actually hard.....

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Arthur Robey
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The Speed of Light and other Constants.

And there I was thinking that I was the only one who knew that they are fudging natures sacrosanct Constants.

This has echoes of Plato's idea that the sun and moon were perfect circles. We haven't come very far, have we?

The foundations of my faith are being white-anted. What next? Will we have to dump the "Thou shalt not create nor destroy energy"?

If the speed of light is not set in stone- can we stretch it? (May we?) Just for a little while, to get us to where we want to be going. This is something else again.

And then there is G, the gravitational constant. Such a pitiful thing, and so inconvenient. Surely we could do something about that.

I had better stop before I get excited.

Edit: Too late. I'm excited.

Professor Vyovskii took to Plank with a large hammer and bent it all out of shape. How bold is that? Anyway what was Plank doing loitering around between the micro and the macro worlds?

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RogerA
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Constants and fudging

Well apparently they dont like to use the word fudge, its called intellectual phase locking.

The beginning is near.

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Mark_BC
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RocketDoc wrote: The problem
RocketDoc wrote:

The problem of constructing a substantially just monetary system is Real whether the solution is fiat with good stewardship or gold based and pegged.  When reality changes, a fixed monetary system has problems.  So for hundreds of years we had 'problems' with financial crises even on a gold standard.  That said, the question of which is better is a fair question.  Generally one or the other gets picked and the rest of us just live with it.  

Good point. Even with a gold standard, the bankers will still be in control and the system will still be manipulated to maximally screw the middle class, regardless of how it's constructed. For example, there is nothing inherently unworkable about a government-issued, non-interest bearing, non-debt backed currency. It would not even need to be gold backed, it could be completely paper money; and it would work in perpetuity. No need for perpetual growth; and no solvency issues because the system wouldn't be debt backed. Along with this, ban usury (interest) like the Muslims do, along with fractional reserve banking (aside: this was only invented as a way to help the European economies grow at a rate faster than gold supply was increasing centuries back when they were colonizing and taking over the rest of the world -- now that the world is no longer growing we no longer need credit. The only reason we have it (and people believe we still need it) is because, conveniently, it is a very effective way for the bankers to keep all the serfs in debt servitude and prevent them from actually owning any of the wealth -- now, the only way the average person can own anything is to go into debt first). This would be the most just monetary system possible.

Of course people will counter argue that if you put the government in charge of the money supply it will inevitably be used and abused by politicians to screw us all yet again. Sure, but I am to believe that a private unregulated banking system (even gold backed) run by profit-driven bankers wouldn't? I ask: what entity other than the government could possibly have a shred of accountability to the public? The "private free market" would sort all that out on its own based on supply / demand dynamics? Yeah right... Just because our political system has been hacked and corrupted by private banking interests does not mean that all political systems need to be this way; nor have they always been this way.

The problem is that this ideal monetary system is nothing like what we have now, and the bankers in charge would never in a million years allow that kind of a system to be put in place under their watch. Instead, our governments (as is everyone else) are corporate debt slaves to the banks; the public and private sectors have merged into one central unregulated Orwellian regime of oppression. 

Ultimately, the problem is that the vast majority of the people are sheep; they are mesmerized by the media and its lies and diversions, and they therefore enable / allow those in power, whomever they may be, to manipulate the system to fleece the sheep. As long as this continues, and it seems this has pretty much always been the way it is, it doesn't matter what kind of monetary system we have in place -- the wealth will be continually stolen from the middle class, necessitating even more economic growth to replenish that stolen wealth, and this will continue until all the world's resources are used up and modern civilization collapses into the dustbin of history.

We as a species are simply not adapted to live coherently in these large groupings we call "countries". We came from tribes and that is how we best function. Schools of herring, on the other hand, can work together collectively quite well.

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Jim H
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Good points Mark and RocketDoc

This is a very interesting conversation because we are thinking about what a just system might look like.  I don't happen to think that a (fixed) Gold standard is the answer... I am more of the mind that you need to let Gold float freely as a separate reserve currency/money that is therefore reflective of the true value of any fiat currencies.  With regard to debt-based money..  I am of the mind that non-debt based Gov't issued fiat would actually be worse than the banker's debt based money because there is simply no natural limiting mechanism... at least when it comes to debt-based money... the demand for debt is (theoretically) the limiting factor.  As we know. QE throws that right out the window.  In any event, debt-based money still has a nominal limiter on it.... debt.  Gov't issued money, outside of a Gold standard, has no governor that I can see.    

Here is my latest thought experiment on fixing the problem;  As Chris has talked about, our system is unstable in part because the system creates the principle, but not the interest fraction. This causes total debt to run away from the total money in the system.. which makes debts harder to pay.. and makes the system constantly short of money.  One of the answers that the bankers have come up with is to keep the system in a state of perpetual growth.. nominal growth if need be.  If you have ever asked yourself why the FED targets 2% inflation, even though their charter is, "price stability"... this is why.  Having first access to the new money benefits the banks and the .1% mainly.   

There is potentially a simple fix to this;  Create the interest money whenever new debt is created, and distribute it equally to all system participants on a regular basis.  Put this money in the pockets of the people as a system dividend of sorts. 

What does this do?

1)  Takes away the need to artificially grow the system... the system is not dynamically imbalanced anymore... though we still have to face the pressure to contract, which will not go away. 

2)  Gives the "new money" benefit to everyone equally... if more debt is being created, more money is in the pockets of the average person.  

If you think about it... this is no more absurd.. i.e. money for nothing.. than the idea that banks can create money from thin air and then force you, the borrower, to pay it back with interest.   

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Mark_BC
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Jim H wrote: I am of the mind
Jim H wrote:

I am of the mind that non-debt based Gov't issued fiat would actually be worse than the banker's debt based money because there is simply no natural limiting mechanism... at least when it comes to debt-based money... the demand for debt is (theoretically) the limiting factor.

I think there would be somewhat of a limiting mechanism -- inflation. I envision more of a system like they have in India where people use gold and silver as the vehicle of savings and the currency as simply a vehicle fro transactions. This is why the bankers hate India... It's really hard to extract wealth from a populace that simply doesn't place its wealth in the central currency and that currency is continually inflating as a result.

We'd have no more concerns about deflationary collapses because there would be no more credit money. Bond vigilantes blowing up government debt would not be a concern either. All the system would be is this: the government decrees that "thou shalt accept this currency, or gold or silver, as payment for goods and services". That currency would be brought into the system by the government printing it up and spending it via its programs. Money would be taken up via taxes and destroyed which would maintain prices.

What would prevent the government from simply printing up and spending more of its money? Hmm, good question, I haven't totally worked that one out yet. I guess that's why historically governments had a gold standard, that's what the whole point of a gold standard is! So then maybe a government-issued, non-debt backed, non-interest bearing, gold standard currency would be the answer. Spending would be held in check by the gold reserves. The only inherent problem I see with that is that our governments' historical gold reserves (which used to belong to the people) have been stolen by central banks, and it seems it all might be headed over to China leaving us with nothing to back a new currency with.Imagine that -- the gold which is supposed to belong to the American people hasn't been audited in 60 years and not a single member of the public has any idea how much is left.

Inflation would be a check to prevent rampant government printing and spending, although admittedly inflation's never held it in check before. On the other hand, so what if there is perpetual 5% inflation, if savings aren't parked in that currency? It's merely for transactions. Let gold and silver prices float and that's where you'd park your savings like the Indians and Chinese do.

Jim H wrote:

]

If you think about it... this is no more absurd.. i.e. money for nothing.. than the idea that banks can create money from thin air and then force you, the borrower, to pay it back with interest.

I think we should be open to all ideas (each one has some merit to it even if it isn't a perfect solution) because nothing is more absurd than the current monetary system.

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davefairtex
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monetary system: what's the core problem?

I always enjoy reading people's solutions to the issue of the problems in our monetary system, because I don't have a solution of my own, and so as a result I want to see what other people come up with.  The current system is absurd, but all the other solutions I've seen have issues of their own.  Are they worse?  I think that depends on the circumstances.

Our current system has survived because for a long time, it was aligned with the overall economic growth picture we had in the world.  Money supply had to increase because economic growth and population growth were the reality on the ground.  Lots of things were tried, and the one that emerged as the winner was the current one - with all its faults and gifts of power and control to the banker class.  It allowed monetary growth to parallel actual growth, in energy, population, and so on.

However if we project forward a world without growth, its crystal clear that the current monetary system just stops working.  Another system will have to appear that deals properly with a no-growth reality on the ground.  So perhaps its a gold standard, or maybe its a currency based on a basket of commodities, or maybe it's government-printed money (along with - perhaps - constitutional limits on how much can be printed and under what circumstances).  I can see good arguments for any of these systems.  Eliminating fractional reserve lending also sounds good, since fractional reserve lending has always seemed like fraud to me.

However at the core of failures in other man-made systems is human nature.  People have this distressing willingness to forget the lessons of the previous generation, and they often succumb to the desire to take the easy path and try to get something for nothing.  Can a monetary system function over the long term more or less unchanged when administered by flawed humanity?  My sense is, humanity will eventually find a way to change the rules in order to allow "the free lunch" (at least "temporarily - for the duration of the emergency") in order to avoid facing tough choices.  We seem to be programmed this way.

Take Communism.  It has this aspect to it that it tries to be fair, yet fails in any large-scale application because it fails to deal satisfactorily with a broad cross-section of the human condition - many of us are greedy, ambitious, selfish, some have a drive to succeed, and some are lazy.  If we were just better people, Communism would be great.  But since that's not the reality on the ground, it fails.  Capitalism, on the other hand, leverages those very negative attributes towards making the system more efficient, at the cost of having to restrain a not inconsequential amount of rapaciousness.

So can we design a monetary system that takes into account - that even takes advantage of those human frailties, the same way capitalism does with invention, production, and motivation, while not being overrun by rapaciousness?

Its just a thought.

 

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gemel
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Bob Moriarty is not a good idea.

Chris and Adam, should have a skeptic join their ranks and not a convert! I have said this before and I say it again. Diversity adds value, controversy makes us think. PP should not be a closed site, but an open one. To me it seems that the ideas floated on the site are the same ice cream with different flavors. Today we get chocolate and yesterday we got Vanilla. We all love ice cream, but once in a while we should be served. Pie, Meat, Rice. Otherwise we will miss the boat. Bitcoin exploded, I am "angry" with myself for having missed that boat and mainly it's because, I kept the gold hat on. That is one error I will not make again. What other ships (ideas,investments,initiatives) being launched today which we will not consider because we keep eating the same ice cream over and over again, just because it feels good and changing the tune is risky and we will shock our audience. I for one, am here to be shocked and not to hear the same pop music. I say this with all the respect to Chris and Adam. Chris is my hero and he is one of the most people i respect in this world. 

My 2c

G

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Monetary system design

Davefairtex said,

So can we design a monetary system that takes into account - that even takes advantage of those human frailties, the same way capitalism does with invention, production, and motivation, while not being overrun by rapaciousness?

One interesting aspect of Bitcoin is how the designers harnessed the natural self-interest of the programming community to support the decentralized network... the folks running the creation software.. the, "miners" who expend their CPU cycles in creating new Bitcoins, are the same folks that maintain the Blockchain (Bitcoin's DNA), constantly self-referencing for consistency, etc.  The miners maintain the Bitcoin network, and they benefit by getting the incremental Bitcoins they create.  Interesting ecosystem. 

This also leads to a kind of feedback loop that regulates the rate at which new Bitcoins are made... as the effort needed to create new Bitcoins steps up (this is the mechanism of scarcity enforcement) the CPU time cost increases, hence miners would not be motivated to make new Bitcoins unless, in fact, the value of a single Bitcoin continued to increase.  Based on this understanding, I think it would be possible to project the value of the 18 millionth Bitcoin, or the 19 millionth Bitcoin... based on the expected rate of MIPS cost (always decreasing as computing power becomes more commoditized) vs MIPS needed (going exponential toward infinity for the last incremental Bitcoin), etc.  I have not gone through the exercise, but it might be surprising how high this model suggests Bitcoin value could rise to in years to come.      

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james_knight_chaucer
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Yes, I was just thinking

Yes, I was just thinking about Bitcoin. I believe there is a fixed maximum of 21 million bitcoins, isn't there?

I wonder if a monetary system could be made that had a fixed circulation of 21 million electronic pounds or dollars or whatever?

There would be no fractional reserve banking. Growth would be achieved by deflation. (The money in your electronic bank account would get more valuable as time went by.) Instead of interest, you would have to pay tax on what you have in your account, so you wouldn't get rich by being idle.

Loans could be done similar to a sharia compliant bank account: The bank buys the house or car or whatever, and sells it back to you at a higher price by payments over time.

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Jim H
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On Bitcoin, and Gov't (non-debt) money

JKC - yes, 21 Million is the limit that is often quoted as the max. number of Bitcoins that will ever exist, based on the exponential hockey stick of effort needed to create that last incremental Bitcoin.  Anyway... we already have money in place that acts very similar to Bitcoin  smiley  and that is of course Gold.  The richness of ore grades are decreasing, and the cost of energy to get each incremental ounce out of the ground and refined is increasing.. so we have a nature enforced limit to growth of the system.  Gold is wonderful because it is almost infinitely divisible- every 197 grams contains 6.02 x 10EE23 atoms that are each a unit of Gold... WOW... lots of divisibility!  23 orders of magnitude right there!

Never let anyone tell you there is not enough Gold around to become a reserve currency.. it's just a question of allowing the value of each Nanogram  (billionth of a gram) to grow to meet needs of the economy.  As I have said in the Bitcoin thread... we have all been programmed to believe that is somehow not possible... but that is a lie.  

My point is that between Gold, and Silver, and Bitcoin, we really don't have to invent anything else.. we just have to take what we have and break away from the reins of control and propaganda enforced today by the bankers and TPTB.  

Mark_BC said,

I envision more of a system like they have in India where people use gold and silver as the vehicle of savings and the currency as simply a vehicle fro transactions. This is why the bankers hate India... It's really hard to extract wealth from a populace that simply doesn't place its wealth in the central currency and that currency is continually inflating as a result.

So true!

  I just don't know that I consider inflation as an effective limiting mechanism.. because in extreme cases it becomes hyperinflation, which is so destabilizing historically.  Where is the point of loss of confidence?  How often will the Gov't money need to reset?  I think you see the problems in something like a "Greenback" that is simply a Gov't printed money with nothing backing it... there are certainly no easy answers. 

We are in a very unique period of time where the current debt-based fiat paradigm continues to be buoyed along by shear inertia.. all of the abused fiat currencies referencing against each other in a context of mutual assured destruction.. and with Gold being suppressed, no external reference available.  I am convinced that this will be looked back upon as abject insanity.  I am also convinced that China's insatiable appetite for physical Gold is their effort to opt out of the (mutually assured) destruction to come.                  

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Hrunner
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Back to basics- Money as a marker of wealth

Thanks to all for a very rich discussion.  Thumbs up for all, on the house!

I'll throw in my 0.0001 bitcoins worth.

While I initially had disdain for debt-based money, I came to objectively appreciate some positive attributes.

Good- Debt-based currency is fundamentally a currency based on a future "promise to pay" aka based on a reliance that a promised amount of work and wealth will be delivered in the future.

That's great if you want to expand an economy quickly based on the a future which optimistically can be delivered by a hard-working and innovative citizenry and lots of easy to get at oil and minerals.

I concede that maybe a debt-based monetary system could work if we had a very, very disciplined regulator at the helm.  Who would constantly look at our money supply and debts and weigh it against the likelihood that the economy could deliver said promised output in the future.

Unfortunately, to echo Dave's comments, as a species, we just ain't that good or trustworthy.

Bad- no matter what the ability of a citizenry to deliver in the future, a reckless government and greedy and immoral private sector can always outspend it.  Very much like the concept of no matter how much you make, you can always spend more than you make. 

This is where we find ourselves today.  We have outspent our future.

The best system I have heard of is to get back to the basics of what money is: a marker of wealth.

Not future wealth, or theoretical wealth, but actual wealth.  That's basically the main attraction.  That a hard monetary system would get back to properties that drew humans to money in the first place- fungibility, portability, assayability, rarity. 

Gold standards have some elements of this clearly, but seem too limiting. Gold standards have a major flaw that I don't get how proponents would circumvent- what happens when wealth grows faster than the supply of gold (or silver). 

How can gold keep up with a fast-growing economy?

The system that makes the most sense to me is a central authority that issues currency based on an accurate assessment of "wealth".  This fulfills the reason we invented money in the first place, to represent our wealth with something we could exchange with a fellow human for something they had that we wanted.

That aligns with the theories of capital formation and preserves appropriate value to said hard-earned capital.  Interest rates would never be 0.25% or 0.0% which totally mispriced hard-earned capital  but probably around 6-10% depending on how much capital was hanging around at any given moment.

I don't have an opinion of what format the money should be in, whether electronic or coinage or both.

But the key point is that it should reflect current state wealth, not future promises to produce and pay back.

The administrative details are tricky.  Humans are fallen and ever able to be corrupted.

Money supply managers would have to value food, buildings, vehicles, computers, CNC machines, purified metals, boats, furniture.  In a perfect system, all would go into the summation.  Then money would either be issued or retracted depending on the summation on current quarter versus prior quarter. 

I would not try to account for ethereal things like knowledge or education- hey it's not fair, but nothing's perfect.

I would invite auditors from other countries, drawn at random, to audit the money calculations and spot check a few neighborhoods and warehouses representing the wealth from the native money supply manager, to try to ensure integrity.  I would entertain ideas for as much transparency as possible.

Subject to corruption?  Yes, all systems are.  This one makes the most sense to me based on the basic function of money in the first place.

Take care,

H

 

 

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treebeard
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Preaching again

We try to solve the problem of the spirit with the flesh, but the flesh does not animate the spirit, the spirit animates the flesh.  Gold does not create sound men/women, that is the work of the spirit.  Materialism separates us from life because it is a craving for what has no life.  The life is in the living world which we say exists only in our own minds, even though the mind is only a mirror of the living world.

The debt that is a problem is not that on the balance sheets of banks, households and corporations. That debt can be eliminated tomorrow and everything in this material world that we have built will remain intact as it is now.  The debt that is a problem is the debt we have created by despoiling the living world.  We have despoiled it because we say that it has no life even though it is alive. In our unconscious cruelty we continue to despoil the world, but the world every day gives freely unto us even though we give nothing in return.

The world is visible in its wholeness, but we have broken it into a thousand pieces: science, religion, philosophy, nature, man, god and so we see nothing. All we have to do is become aware of when we have taken something and then give something back.

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thc0655
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Freegold

Hrunner said:

Gold standards have a major flaw that I don't get how proponents would circumvent- what happens when wealth grows faster than the supply of gold (or silver). 

Good point. Gold standards require governments to set an official gold price and that price is the limit you describe above. A better system is Freegold: just let the market set the price for gold. If wealth is indeed growing faster than the supply of gold, then the price will rise and currency can be increased proportionately.

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cmartenson
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Posts: 5733
How Gold Functions
Hrunner wrote:

Gold standards have a major flaw that I don't get how proponents would circumvent- what happens when wealth grows faster than the supply of gold (or silver). 

How can gold keep up with a fast-growing economy?

I would humbly suggest that your question comes from a frame of reference that is fixed in the current paradigm.

If you have a stable money system but growing wealth, then each unit of money simply buys more stuff over time, the exact opposite of an inflationary money system where your money grows faster than the economy and buys less stuff over time.

A fixed amount of gold in relation to more real wealth is merely the opposite of what we have now.  No reason it cannot operate, too.

So let's think about that for a minute.  What would a world be like where you had a form of money that you knew would become more valuable over time?  Well, that would be a powerful stimulant for saving.   And, of course, savings = investment.

So in a world where we have money becoming more valuable, we have a set of incentives in place to curtail current consumption in a way that promotes real investment.  Again, the exact opposite of our current system.

Would that be any better or worse?  I honestly don't know, but I'm willing to give it a try because the current system is destroying savings, promotes over-consumption today at the expense of the future, and is destroying the planet. 

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ferralhen
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Hrunner wrote: This is where

Hrunner wrote:

This is where we find ourselves today.  We have outspent our future.

 

i'll amen that.

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davefairtex
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how gold functions/deflation psychology

What happens in a time when money becomes constantly more valuable?  Certainly, having a fixed money supply in a time when population expands is inherently deflationary.  It likely leads to hoarding behavior, saving, parsimony, and all the evils of what happened during the Depression and also during the last 20 years in Japan.

Honestly, I don't see how that's a bad thing.  Not over-consuming, being careful, avoiding debt, and living within your means - perhaps that is just something that is aligned with my own worldview too closely for me to see that as anything but positive.  I dislike waste, and a deflationary environment impels people to not waste.  Deferring gratification brings benefits, unlike the paradigm of the past 50 years, where it just brings higher prices.

There is actually one area where we have experienced deflation in the current paradigm: computing machinery.  We all know, instinctively, that if we wait a year, we can get a better computer - if not cheaper, then at least faster with more memory and disk.  We expect it.  For me, deferring buying a new computer is second nature.

A gold standard would be like that - but across the board, for everything.  "Wait a bit, and it just gets cheaper."  So we use everything longer, we milk each device until it is really ready for the scrap heap.  And then we recycle it.

For bankers, it would suck, since debt would shrink.  Deferred gratification means less spending, less waste, less debt, and lower aggregate interest payments to bankers.  And no more money creation.

However, the one problem with gold is - what happens if we happen to find more of it.  The whole system is vulnerable to one lucky find.  Say (to put this way out there) a gold asteroid, mined in orbit.  Sudden, massive inflation.

But I like the concept of a fixed money supply.

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treebeard
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Hand in hand

with a stable money supply, there needs to be a sustainable resilient local economy.  Regardless of the monetary system, if you are a reseller of goods that come from half way around the world produced by a group of people making sub par wages, your income stream is extremely insecure.  The debt based money system has a lot of what we would call negative incentives, but the intent is to allow a small portion of the population skim wealth out of every transaction. Increasing transaction frequencies and debt benefits somebody.  The question you have to ask is negative incentives for who?  Cui bono?

Intent matters. I know this takes the comfortable theoretical discussion of monetary policy into the uncomfortable territory of politics, but I don't think that we can have a sensible holistic discussion that can reach actionable conclusions and can be a healthy predictor of future outcomes without taking all the variables into account.  We hear a number of complaints by those who are upset by missing out on the recent and continuing rise in the stock market and misses in predictions in the price of gold because of the constant hammering it gets (now down below 1,290 despite continuing claims that it will bust out soon, stock market is setting new highs every week).  Is the intent to profit at any cost?  Layoffs, externalizing costs, and stock buy backs drive corporate profits up.  Fewer people are working harder and harder.  This is polarizing the population, increasing government spending, and creating general misery in the population, do we want to profit from that? Then on the backside, the laid off workers are getting benefits cut because they just not looking hard enough for a job. Then to add to the craziness their hard working terrified of loosing their jobs colleagues cheer because they are told government spending is the problem.  This is really insanity!

The problem is that crime pays and very well.  We keep thinking that at some point the numbers will not add up and then like magic the financial system will right itself, maybe some pain in the process, but everything will be good.  Money printing that is distributed among the general population can cause hyperinflation, sure.  But printed money that sits on the balance sheets of the big banks can be used like a club to suppress the prices of gold and sack the economy.  It can go on for generations.  Think 18th century France or the British Colonies not Weimar Germany.  (I think that Weimar was a special case because of fears that the German revolution would go the way of Russia). Right now hedge funds are swooping into the market picking up distressed housing driving people into the rental market and the media pitches this as a housing recovery. "Investors" can make money on the way up and the way down. Without the rule of law in the financial markets those trying to do the right thing are forced out.  Buying gold at this point is more a bet on political changes then market changes IMHO.

I feel a little like the crazy cousin who is reluctantly invited to and spoils the Thanksgiving Dinner.  But monetary policy to me is to far removed from the hard work that needs to be done at a foundational level.  Natural systems are truly abundant when approached from a cooperative rather domineering perspective.  You can't do anything about these foundational issues by trading futures on the CME, you need to role up your sleeves and get your hands dirty. To me, buying gold is like fixing the plumbing in your 10th floor apartment when the foundations are crumbling. There is a revolution going on, thousands of people all over the world are working independently and in hundreds of organizations rejiggering  our relationship with our world. We are all working our arses off so that those who decide to buy gold have something worth purchasing.

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Grover
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Only For The Short Term
davefairtex wrote:

However, the one problem with gold is - what happens if we happen to find more of it.  The whole system is vulnerable to one lucky find.  Say (to put this way out there) a gold asteroid, mined in orbit.  Sudden, massive inflation.

Dave,

That very thing happened in Europe when the Spanish Conquistadores returned with the "New World" gold. There was an uptick in inflation (gold was less valuable because there was more of it) that eventually worked its way through the system. As with anything with a high perceived value that diminishes over time, the first users receive the most benefit. Too much money in the system will force prices higher.

It depends on how much gold was able to be returned to earth and how widely the information was distributed to set the massiveness and suddenness of inflation. Look at the diamond producers. (I don't know what level of reserves they currently possess. I've heard they have many years worth of sales in their vaults.) Are they flooding the market with their diamonds? They want to keep the quantities limited so the price remains very high. If they flood the market, diamonds won't be considered a safe haven. They lose their markets. Diamonds aren't nearly as scarce as the producers want you to think.

On the other hand, the markets (based on prices) are saying that gold is much more plentiful now than it was a few years ago. Perhaps it is just saying that more people are dishoarding. Isn't that what miners do? They dig and refine and sell into the open market. When the price drops too much, they go out of business. Eventually, balance returns to the system.

Grover

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Hrunner
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Deflation not equal to recession/ depression

Dave,

Great comments, just an editorial note.

Deflation can happen without recession.  Peter Schiff recently reminded us of this point in a recent appearance on CNBC

"The idea that the problem in Europe that there is an absence of deflation is ridiculous.   If you're going to define inflation as rising consumer prices, the slower they rise, the better..

Moderator (European know-nothing but attractive host): Depending on how much inflation you have, no?  You can't have pure inflation,  or you wouldn't have growth.

Peter Schiff:  Sure you can.  The natural consequence of a growing, vibrant economy is that prices come down.  Because economies find more efficient ways to produce things.    And the price of goods comes down.  That's what happened in America from 1870 to 1913.  Prices were falling rather sharply every year and we had tremendous economic growth.  You can even look at industries.  The fastest growing industries are where prices are coming down.  Not where prices are going up.  Look what's happening with cell phones, computers.  Prices come down every year.  And consumers buy more, because they have more purchasing power.

"(self important European analyst):  But I think the issue is this perception of if we are going to see disinflationary repression, the ECB are very mindful of that position, that will just further comprise consumer psychology .."

Peter Schiff:  But those aren't pressures.  You don't feel pressure when the things that you need to buy become less expensive.  That's relief.  Falling prices are a relief to consumers.  What pressures consumers are when costs go up.... So the ECB is going to complicate things by making things more expensive.  You don't grow your economy by destroying the value of your money."

This is a classic clip, which should go into your time vault, to be taken out after the collapse, of watching common sense and sound money versus establishment nonsense.  It encapsulates the status quo telling the masses why it is good for the producers of high quality goods and services to hand over wealth to central planners and financializers. 

It needs to be filed under the "what the hell were we thinking" folder.

I see different kinds of deflationary periods.   Good deflation that Peter Schiff references where productivity and efficiency lowers prices.

And bad deflation, which is a loss of confidence of the economy.

That's what happened in the 1930's.  Everyone got fearful, held on tightly to their money, which triggered of job losses, business destruction, bank destruction and bank runs, further job losses, families stopped purchasing for fear of a smaller future or an actual loss of income and an actually smaller future.

Even those bad deflationary periods will end quickly, if the government gets out of the way- see the Austrian theory of creative destruction.  Prices fall for a while, then bargain hunters plow in and things reverse quickly.

Great discussion, everyone.

H

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Hrunner
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Chris, Fixed but not Stable

Chris, and Freegold,

Ok I get it, thanks for your explanations.  You make great points re rewarding savers.  And for the record, I would prefer a gold standard to the manipulated fiat system we currently have.

But there remains some problems for a simple gold standard that you didn't mention.

Yes, we should like the feature that if you are a saver, and the AGEs you worked hard for and put in your vault are worth more as the wealth of the nation grows.

But I'm going to say something heretical in these pages, I think a gold standard in a growing economy would result in over-rewarding savers!

And punishes manufacturers in some ways.  Since labor costs can be 50-95% of some products (software, doctoring and nursing, consulting), that's a serious problem!

To be clear, if you are a saver, your money, gold or otherwise, represents hard earned capital, and as I mentioned, interest rates should be high enough to reflect the value of this saved capital.  You should be rewarded for over-producing, prudent spending and saving.  And one should be rewarded for risk-taking, if you take appropriate risks in companies that have a decent chance of "making it".

Consider a simple thought experiment.  I am a saver.  I worked hard and put 10 AGEs in my home vault after a year of employment at the tire factory.

For the sake of argument, we need to convert our gold coins into some commodity as an arbiter of wealth.  Let's say at the beginning of the year, 1 AGE = 1 bushel of corn.  Further, let's say the wealth of the nation doubled in one year, thanks to the hard work of all its citizens.  I'm just picking a round number to illustrate the point.  Let's consider a rapidly growing economy that doubles its wealth each year.

So at the end of the year, my 10 AGEs will be worth 10 bushels of corn.  At the end of the 2nd year, the same 10 AGEs would be worth 20 bushels of corn.  I have done no extra work.  I have taken no risks.  I have made no investments.  My AGEs are more valuable because they sat in the vault for one year.  And the economy around me grew at 100%.  I could have been unemployed for a year and I still would be 10 bushels of corn richer.

Now consider my employer.  She /He hires me a 10 AGEs per year.  That's my contract.  10 AGEs per one year of working at the tire factory.  Now at end of year one, those 10 AGEs are worth twice as much.

So my employer is in the unfortunate position of either over-paying me by 5 AGEs in value in year two, or cutting my salary by 5 AGE, which in some sense would be fair, since I am providing the same work, so I should get the same value in AGEs.

This illustrates why I think the mandate to the keepers of the money (the Federal Reserve Act) was STABLE prices and full employment.

The system you describe is unstable in terms of prices in oz of gold, in the setting of a growing (or shrinking for that matter) economy.

In contrast, in a wealth-backed currency  (call it 'new dollars' for convenience) that was pegged to actual wealth, would mean that the $100 new dollars in my vault at the end of year 1 could buy 10 bushels of corn, and at the end of year 2 could buy 10 bushels of corn.  Because the currency has been "normalized" to the wealth of the nation.

My salary would be $40,000 per year at the end of year 1, and assuming no change in my output, $40,000 at the end of year 2.  Which is fair, if my purchasing power is also stable in terms of dollars.

Both savers and workers are neither rewarded nor punished for saving or working. 

Actually, I should say both savers and workers are appropriately rewarded for saving and working.

 If savers want to increase their wealth, then they must take their dollars out of the vault and invest it and /or lend it at interest.  Then they can increase their wealth (over the original savings) by taking appropriate risks and "putting their money to work".

That system makes the most sense to me, as it allows money to function as it was originally conceived, as a "marker" for wealth.  No more, no less.

Thanks again for the discussion.

H

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cmartenson
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Posts: 5733
Hrunner...But what if the economy shrinks?

Hrunner,

I understand the idea that savers should not be rewarded for doing nothing, which is the premise behind rising home prices, incidentally (hey, I just sit here and I grow wealthy because my house is worth more!), and yet they should not be punished for wanting to safely store their 'markers for wealth.'

The one assumption you have baked into your example is that the economy will consistently be producing more and more real wealth over time.

In a world of depleting resources, that won't always be true.  We are living in a time of extraordinary abundance, fueled, literally, by a one-time raid on many millions of years of stored sunlight.  This allows us to do some really (energetically) silly things like split atmospheric nitrogen to turn into ammonia that we blithely wash into the sea in vast quantities.  

So we might also need to consider that the future system(s) of money should operate well in a world where there is reliably less every year, instead of more (kind of like Greece today).

Additionally, today's 'growing' economy is not growing at all if one subtracts the borrowing required to create that growth, so wee might view it as a temporary boost that will revert in a most negative way when the artificial stimulants are removed.  Thus, one's gold will be a marker for more stuff than is appropriate (as in your example with 200% more corn) during the up part of the cycle, and then be a marker for less stuff than is appropriate during the normalizing part of the cycle.

Over time that all washes out better than the current debt-based money system where the money supply simply grows no matter what (or else!).

I am completely unclear on how we could fashion a true monetary system where real wealth and money were somehow managed to remain in proportion to each other.  In the absence of perfect data gathering by some well-intentioned central body that then advances or shrinks the money supply based on the available information, my preference is to default to the collective intelligence of free-minded individuals who make use of a circulating medium of exchange that is NOT manipulated by any central body at all no matter how well intentioned.

Under this model, there will be imperfect flows and accumulations of money within and across borders ,but, over time, the money will seek out the opportunities and find its way towards the best uses.

Bluntly, I am quite assured that the central bank manipulations will ultimately prove to be destructive, as I think every attempt to centrally manage money always succumb to human tendencies, and I am equally convinced that debt-based money is a concept whose time has passed. 

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Hrunner
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Chris, Money and the Social Contract

Chris,

Good response and important point.  I agree with you that the wealth-backed money system poses a problem for savers in the event that the economy shrinks.

(Programming note- I responded to your post 48 hours ago, but after hitting the SAVE button, my post vanished.  I did not have time to re-write until now.  2nd time's the charm).

1.  My basic answer to your point is that money is fundamentally a social contract.  For money to function it is a shared resource that a group agrees to use amongst itself for the 'greater good', benefiting from all the reasons money was invented in the first place- portability, assay-ability, rarity, fungibility etc. 

It is a social contract.  Like a government, police force, marketplace, educational system, transportation system.

The corollary to money- as- social- contract theme is that in a wealth-backed system as I described, money is tied collectively to the collective productivity and wealth building activities. 

I once read somewhere that "No man is an island, entire of itself, every man is a piece of the continent, a part of the main"  (John Donne).  So it is with our social contracts, including our money

2.  John Mauldin once said "there are only two ways to increase GDP (aka wealth), increase your population and increase your productivity".  While I think I might be able to come up with a couple of additional ways, his point is well taken. 

If your GDP/ wealth is shrinking, according Mauldin then either your population is shrinking (ala Japan) or your productivity is shrinking.  If you live in a wealth-backed dollar country and the population is shrinking, that may have some benefits to you that will offset some of the loss of wealth.  There will less people therefore more land and resource per capita (the "capita" is shrinking, the land and renewable resources are staying the same).

If your productivity is shrinking, then you've got some bigger fish to fry, and it sucks to be you, living in your country.  You as a citizen had better figure out why productivity is shrinking and address it, or suffer the consequences of living in a productivity-shrinking country.  Is is education?  Lack of capital investment?  Government has grown to an out of control size and is wasting your dollars?  Are you voting the rascals out of office and replacing them with more fiscally-responsible politicians?  Are you and your fellow citizens being too stingy in investing your savings in new ventures? 

If any of the above, and several other possible reasons in your control to change are happening, then you deserve to have your money lose value.  Or at least I should say that value-loss is the natural consequence of all of the above.

Social contracts have down sides and up sides.  But a contract, including social contracts, ties you as Party A to the fate of Party B.  That's the nature of contracts.  That's actually the point of contracts.

3.  Interestingly, one of the results of the computer revolution, the internet revolution, and nano-tech revolution, we are increasingly able to have sensors in everything and have real-time analytics of everything.

I have pointed out previously a key feature of Keynesian theories.  If you run a country according to Keynes (or pseudo-Keynes in our case), then the government must be ready to swoop in and flood the market with money in the event there is a loss of aggregate demand.  You know, "temporarily".   To "smooth out the business cycle".  However, the key corollary is that the money flooders must collect huge amounts of economic data continuously in order to know two things: what is the right time to flood the money and how much money to flood.  And when to stop the flow.  And by how much.  We don't think about it much, but that IMHO is why we have the proliferation of government statistical offices- the BLS, the Fed money supply data, the TCDMO, the CPI and inflation rate, the crop reports, the import-export data, the GDP.   And I would include all the public company disclosure forms which include their balance sheets. 

Seems like we every piece of data know to man- except of course an accurate accounting of physical gold in the Fed's vaults and the vaults of the bullion banks- but that's another story.

Anyway, the advance of data-gathering which has been "used for evil" thus far, could be used for good, i.e. to have an accurate accounting of the nation's wealth to set the money supply appropriately.  This is a partial answer as to your question of how a wealth-backed currency might work.

4.  If you are a saver and find yourself in a wealth-shrinking economy, then you have options and one of them is the ability to get out of money, which is a marker of wealth, and exchange your money for actual wealth.  Exchange money for land, tools, PV panels, buildings, equity shares in growing companies, a tractor, insulation, purified metals especially ones that have an industrial use, firearms, food, oil wells, income producing rental property.

Kind of like what we talk about here at Peak Prosperity.

Good discussion.

H

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turtle1663
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Posts: 13
Mathematically Perfected Economy

So looking for immutable currency really, aren´t we??

Eradication of interest (it´s the interest, stupid), and a obligatory schedule of repayment of principal only at the rate of depreciation/consumption of the underlying property. It´s not rocket science is it.

That is what Mathematically Perfected Economy is all about. To restore our promissory obligations to its rightful state.

Gold will never save us as it cannot solve deflation, and when existing with interest it will not solve irreversable multiplication of debt by interest into insoluble debt (thereby also outstripping the gold supply)

Debt itself is not the issue, it´s our mechanism to retire money from circulation and keep the balance between money and whatever is represents. No inflation, no deflation!

 

peas

 

 

 

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Goodheart
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Posts: 1
International knowledge exchange

Hi All,

This is fascinating reading. I feel like receiving a free education in record time!

Anyone with a little common sense will have to admit that the current debt-based money system is way past its sell-by-date. The more I learn, the more I am convinced that the core problem is the fact that we have given away the right to create money to those that benefit most from that right.

Maybe I've missed it, but I see no mention on your site of an organization much like yours, trying to educate people in the same areas. They are British (yes, I know they sound funny...) and their site is positivemoney.org. I have a feeling that you are complementary and an exchange of ideas could benefit all those in search of a solution to the currency problems we are facing.

(also, it is delightful to hear a 10 year old girl explain to her teddy bear why there is so much debt, and what is wrong with the money system).

Greetings from the euro-zone!

Willem

The Netherlands

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Grover
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Posts: 843
Social Contract?

Hrunner,

I've read many of your other posts and generally agree with them. This post gave me heartburn. I'm sure you have some sound reasoning to support your conclusions. I'd like to hear some of those reasons. First, let's start with your first point:

Hrunner wrote:

1.  My basic answer to your point is that money is fundamentally a social contract.  For money to function it is a shared resource that a group agrees to use amongst itself for the 'greater good', benefiting from all the reasons money was invented in the first place- portability, assay-ability, rarity, fungibility etc. 

When I imagine how something actually became viewed as money, your description isn't the process that comes to mind. I imagine that someone (miner) found a shiny nugget of gold in a stream bed and thought it was unique enough to pick up and save. Later, during a bartering transaction, this person didn't have anything that the other person wanted ... and pulled out the nugget. Who knows what the circumstances were, but the key is that a trade was made. The gold nugget had as much perceived value as whatever was being traded. At this point, the gold nugget wasn't money. It was just a tradable item. If the person who accepted the nugget (merchant) later used it as an object for trade, then it would start to become money. When the merchant would gladly accept the miner's gold as a full value trade for a particular good, that is when it became money.

There was no social contract expressed or implied. There weren't any contracts of any kind at this stage. It was an intermediary for a bartering transaction. The idea of money wasn't invented so much as it was stumbled upon. Once the concept was accepted, the search was on for the best money. As you noted, the best money had to have certain characteristics - http://www.preservearticles.com/201012271798/qualities-of-good-money-material.html General acceptability, portability, durability, divisibility, homogeneity, cognisability, stability, malleability.

Fast forward to medieval times and you find people depositing their gold with goldsmiths for save keeping. These goldsmiths would then give the gold owner a receipt for the gold deposited. The goldsmiths would relinquish gold to whoever possessed the receipts. These paper receipts were used as money. At this point, the paper represented the gold that was being kept for the receipt keeper. There was now a contract between the depositor and the goldsmith that could be transferred. There still wasn't any kind of social contract.

The goldsmiths soon determined that only a small percentage of the gold in their vaults was ever called. They reasoned that they could write more receipts than they possessed gold to cover ... and no one would be the wiser. This practice likely started slowly and progressed as the smiths became emboldened. It worked until a rumor spread that there wasn't enough gold to cover all the receipts. Runs on the bank commenced and when the gold ran out, lynchings began.

Fast forward to modern times and the bankers have successfully changed the basis of money from gold to debt. There can be no more runs on the bank (unless you want to convert your electronic deposits into paper receipts.) Bankers who prefer their necks to stay the same length have benefited greatly. There are contracts everywhere between the borrowers and the lenders ... but I still don't see the social contract that you speak of. What am I missing?

Hrunner wrote:

I have pointed out previously a key feature of Keynesian theories.  If you run a country according to Keynes (or pseudo-Keynes in our case), then the government must be ready to swoop in and flood the market with money in the event there is a loss of aggregate demand.  You know, "temporarily".   To "smooth out the business cycle".  However, the key corollary is that the money flooders must collect huge amounts of economic data continuously in order to know two things: what is the right time to flood the money and how much money to flood.  And when to stop the flow.  And by how much.  We don't think about it much, but that IMHO is why we have the proliferation of government statistical offices- the BLS, the Fed money supply data, the TCDMO, the CPI and inflation rate, the crop reports, the import-export data, the GDP.   And I would include all the public company disclosure forms which include their balance sheets.

I have to say up front that I'm not a fan of Mr. Keynes' monetary philosophy. It is interesting that you say we run our country according to pseudo-Keynes philosophy. Actually, I agree with your assessment, but you give the money flooders too much credit. Keynes said that money should be borrowed to be injected into the system to stimulate the economy during down cycles. When the economy was sufficiently revived, the stimulus was to be removed (austerity via higher taxes.) It seems that our politicians are always eager to find reasons to borrow and spend. They aren't quite as quick to remove stimulus. They direct those borrowed funds toward projects that are specifically designed to give them more political power. Meanwhile, all of us are stuck with the debt they accumulate. The politicians make promises that are to be upheld by others - not necessarily the constituents who put them in office. What kind of promise is that? Is this the social contract you speak about?

Grover

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darbikrash
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Posts: 573
Air Capitalia

Grover I liked your description of the timeless “coin of the realm” narrative outlining how debt based currency began its ascendancy. There is certainly truth in that narrative, and it is quite popular with the Austrian view of the world, but there are some other perspectives that may have greater accuracy.  

 

I have an alternative interpretation of the concept of a “social contract” in the context of money. I would define this instead as social relations, as opposed to a contract, although the differences may well be semantics.

Any discussion of money has to start with a good understanding of the concepts of value and commodities. Money was primarily created to facilitate the exchange of commodities, which right off the bat contradicts the Austrian notion of barter as being a dominant form of social relations in early societies. As the sociologists tell us, the concept of barter was never really widespread, it did of course occur, but mostly on the fringes. The stringent requirement of a double coincidence of wants necessary to allow barter is too cumbersome to be useful in any permanent setting.

So money was needed even in very early civilizations.

It has become fashionable to conflate the ascendancy of debt based currency and the decline of gold based standards to the decline of civilization as we know it. Money, either debt based or gold based, is a primarily a lubricant, and (much) later in time a store of wealth. Money is and was a utility, and is subservient to the dominant social relations of the era. The tail does not wag the dog, money, and all its attributes are created and designed expressly to advance the exchange of commodities.

What began to happen was not so much a change of monetary attributes during medieval times for example, as a change in the social relations. For example, in feudal society it was not possible to sell ones’ labor, so the prospect of (capital) accumulation was rendered moot, and money as a store of value was not really that relevant. It was however, a very efficient means of managing the exchange of commodities.

 

So the real story is the fundamental change from tribal civilizations, to hunter/gatherer societies, to feudal, and ultimately, to capitalistic societies. During these profound shifts, money changed, and it is still changing. The notion that monetary forms precipitated the change in social environments is not correct- not by a long shot- and this erroneous conclusion is the source of many ideological errors. It is exactly the opposite.

 

If the focus is steered away from how currency is backed, away from debt issuance, and instead recast to how commodities are exchanged- and what commodities are exchanged, we see a very different picture. In addition, if we are going to discuss commodities we have to discuss value, and have a deep understanding of what value is, and how money represents value. This is actually much easier said than done as value is a difficult concept to grasp. One technique is to use the principle of dialectics to review the subject of commodities, and then to examine the value of said commodities within this framework. Dialectics has to be the most confusing, misunderstood concept I have encountered, if you (try) and read the Wiki definition your eyes are sure to glaze over and you’ll come away with no understanding whatsoever- it is a word salad and a bad one at that. The video by Steve Keen below does a very good job of explaining the concept of dialectics in layman’s terms, and is quite simply the best explanation I’ve ever seen of the subject. If you’ve ever wondered what this mysterious subject is about, you’ll find a good explanation between minutes 4:00 and 19:38 of the video.

Along with this description of dialectics, the video covers topics of commodities exchange and value, at least in summary. To this we can add the subject of money as a facilitator of commodities exchange and a very different picture begins to emerge.

These principles eat away fundamentally at ideological precepts like “sound money” and other tropes of the gold bug crowd, as when labor becomes a commodity, and to survive one must exchange labor for sustinence, the machinations of the Federal Reserve, the requirement for unfettered (fiat) monetary supply and the preoccupation with the government towards full employment become much easier to understand- although still profoundly distasteful. A metaphor may well be captured by a passenger plane hurtling through the sky, Air Capitalia, if you will, on route to destination unknown. In the smoke filled and chaotic cockpit, klaxon horns blaring, the chief of the Fed and other cronies are desperately trying to wedge the control stick upwards to keep the plane from crashing, 3 of the 4 engines are on fire, fuel is down to fumes, and the next landing strip is 2000 nautical miles away. In the passenger cabin, the complaints are that the peanuts are stale and the drink service is slow, the passengers oblivious to the realities of the situation.

 

But ahead is a KC10 refueling tanker, out comes the umbilical for inflight refueling, alas, it’s not fuel, its champagne for first class.

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Hrunner
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Posts: 256
Grover, put the "social" into the social contract

Grover,
I get your concern, but you are describing a strange world of miners exchanging gold
nuggets that is not reality.

The point about money as a social contract is at the reason money works at all is that
items that have good sound features of money (gold coins, silver coins) or
government-printed tokens (paper money and base metal coins) is that everyone
involved with money agree to play by a set of "money rules". 

The rules are something like- the government (or goldsmiths, or tribal money authorities) will create money according to some rule of thumb.  

They will not create more or less than society finds useful as a marker of actual wealth.  They will not create money to support their own little pet projects e.g. (well, the U.S. with debt-back wars and insolvent social programs has already blown that one!).  

 The users of the money will exchange it back and forth between each other according to a system of pricing that makes sense to the members, factoring in things like scarcity, need, desire, input costs, competitive, opportunity costs, etc.

These fundamental social contractual agreements have been in place as long as money has been around.  Government (hat tip to Hobbes), Laws, protection, ethics, are other examples of social contracts. 

These don't  work unless the majority of the community agrees to a set of rules. 
What you are describing is a private contract, which, while valid, is not the concept of a community social contract.

The paper gold receipts from the goldsmiths that you reference functioned like money because the participants continued to play by the same rules as before with physical gold money. 

The social contract broke down when goldsmiths broke their promise to only create paper receipts that were exactly in the amount of the gold on deposit.

We are witnessing the breaking of the social contract around the world wrt money by the malfeasance of the central banks, who are now excessive money printers, governments, who have failed their responsibility as watchdogs, and money authorizers, and the financial sector, who has failed even greater an central banks due to their excessive money printing, and even worse, fake money instrument creation way out of proportion to what is justifiable by human activity.  

When the social contract breaks, humans fall back on inconvenient but simpler and more trustworthy social contracts such as  barter of and precious metals as a safety net.

darbikesh
Thank you for the thought-provoking post.

You introduce some new points, and I want to understand more about Keen's dielectic- is this different from the Greek dielectic versus sophistry debate?

Good point about the utility of money and how it changes to suit the social construct of the current times.

But I confess I didn't see where you were going with the whole commodities thing.  It seems to me you are talking about a time past.  Your point seems to be, if I may simplify, that money only has value as it relates to/ represents commodities.

You do know that we are living in the information era, no? 

So I would posit, if you added up the dollar value of commodities and the dollar value of information (IP, trade secrets, consulting companies, analytics firms, etc, etc) you would see the "value" of information-based assets far outweigh the sum total value of all the piles of wheat, oil (above ground), corn, paper, timber etc.

Also, the significant majority of us get paid to produce, manipulate, deal with information.  

The significant minority produce food, ore, or even manufactured goods.  Manufacturing is
9% of the U.S. economy, and nominally largest economy in the world.

I'm not saying this is good thing or a stable system, it just what it is.  So money as a universal and
fungible marker of wealth must represent commodity or 'stuff' wealth and 'knowledge'
wealth. 

I said in my earlier post valuing knowledge wealth versus commodity is difficult to grapple with in a sound 'wealth- backed' currency system.

Chris' Crash Course I think points out that this present system where commodities are minor wealth components, is a by-product of cheap and easy energy, which, due to invention and use of machines such as tractors, combines and fertilizers relatively
devalues commodities.  

And has provided us humans time and luxury to create knowledge wealth. 

The debt-backed monetary system accelerated the process by expanding money supply rapidly to allow all that cheap energy to be put to use, and create more real wealth,and in turn leveraged for more debt-money.

If the cheap energy theme turns, then the whole system must turn, sweat it out,  and re-value commodities at a higher price, because it will simply cost much, much more to produce them.

I honestly did not get the Air Capitalia metaphor, but I do agree that most of the time it looks to me like the Fed is steering a careening jet through smoke-filled cockpit, so

I'm good with leaving it at that.

H

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Grover
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Where to from here?
darbikrash wrote:

Grover I liked your description of the timeless “coin of the realm” narrative outlining how debt based currency began its ascendancy. There is certainly truth in that narrative, and it is quite popular with the Austrian view of the world, but there are some other perspectives that may have greater accuracy.

darbikrash,

Wow. That was a most polite way of saying I was wrong. Thanks (sincerely.) I've noticed in your writings that you can point out problems with other's logic, but I don't recall you ever proposing a solution. I think it is time for you to step up to the plate. You obviously have the knowledge and you are very articulate. You see the shortcomings of all the systems. Given that all fiat systems fail (or are in the process of failing,) is it wise to have a monetary system based on fiat? Can Bitcoin fill the void? Is there any system that is incorruptible? Which direction would you like to see money go after the dollar (debt based fiat) fails?

Hrunner,

Tribal societies didn't need money because everyone knew everyone. They kept the "naughty and nice" accounting in their heads. And yet, the social needs were met. Obviously, money didn't factor into the social needs equation. Why does the money system need to be burdened with current social woes?

Also, in an earlier post, you were saying (paraphrased) that savers shouldn't be disproportionately rewarded for just keeping it in a safe. Should bankers be rewarded for what they do? Look at the "too big to fail" banks that were bailed out a mere 5 years ago. It should be obvious that they had this nation by the balls. Things have gotten much worse, not better. Look at what percentage of GDP their profits command. (I'm sure someone can post an interesting graphic to show their obscene profits.) Do you find this fair? Could they accumulate this level of power in a gold based money system?

Grover

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darbikrash
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Grover, not saying you are

Grover, not saying you are wrong. I do have a different perspective, and it’s neither right nor wrong, it’s just a different way of looking at the same problem. As to solutions, I think this is a little unrealistic, no?

We have rapidly disappearing natural resources, pending climate catastrophes, a sham of a two party government system, and crumbling mainstream economic theories unable to explain what happened yesterday let alone predict what will happen tomorrow, and you want solutions?

 

It took us nearly 400 years to get where we are today, it is not going to be solved in a blog post, and there is growing realization that it will never be solved at all. In the meantime, I would propose that we can help ourselves by not incessantly claiming that we can reverse the negative effects of our political economy by simply changing currency attributes- again the tail does not wag the dog.

 

 

Hrunner, Keen’s description of the dialectic theory is 180 degrees opposite from Greek or Hegelian dialectic. The 15 min band I mentioned in the video does a good job of outlining these differences.

Regarding commodities, we have to broaden the definition to move past mainstream understanding of things like pork bellies and soy beans, past the vision of factory workers chained to machinery engaged in mass production. The definition of commodities is both abstract and concrete, and both must be discussed.

To the concrete, virtually all objects are commodities, the computer I type on, the desk I sit at, the car I drive, and the IT infrastructure and software used to write this post. Entertainment is a commodity. The most important commodity however, is the commodity of labor power. Labor power is the most ubiquitous of all commodities (followed by money-also a commodity).

While so-called knowledge workers in technology vocations tend to exclude themselves from the hoi polloi of collective labor, the laws of commodity exchange are not suspended just because one produces software or provides a labor based service. It still reduces to an individual selling a commodity (labor power) for money- which is used to purchase other commodities.

In the abstract, commodities can be defined as any object or service that can be reproduced using socially necessary labor power. Money represents remuneration for labor power, and is used as a contrivance for universal purchase of other commodities (as well as a store of wealth).

Everyone in a wage labor economy participates in the exchange of commodities, factory workers, knowledge workers, consultants, software producers- everyone. This concept, far from being outdated or obsolete, is even more relevant today than it ever was. In fact, it would not be overreaching to suggest that the core activity of our economy-perhaps even our civilization- is the exchange of commodities- to the exclusion of virtually everything else.

Our interaction with other people is predominantly through the exchange of commodities. Whether buying a cup of coffee at Starbucks, grocery shopping, or going to work, the vast majority of our human interactions are centered around, and enabled by, the exchange of commodities.

Again in the abstract, one of the more interesting attributes of commodity exchange is that the process of exchange obscures the social relations. This is a very important principle. Is it not strange that an act so central to our human interaction, in and of itself obscures the true nature of ourselves? When you buy a undershirt at Walmart (or wherever) the social relations used to produce that shirt are completely transparent to you- you don’t know who produced it (a 14 year old girl in Bangladesh?) and she does not know who bought it.

These characteristics of disconnect produce side effects like alienation, which have profound consequences for our society.

In turns out that this obfuscation is essential to the function of our economy.  It turns out there is not much of a market for goods produced by slave or child labor- even in faraway countries. It turns out there is not much of market for goods produced by knowingly destroying the environment, or depleting natural resources en masse.

So the beat goes on.

 

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Hrunner
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Not a tribal society

Grover,

Agree with your rhetorical question- no, bankers should not be rewarded with massive amounts of money for serving in a utilitarian function similar to a manager of a water-treatment plant or an electric utility.  Seems they should be paid, in a wealth-backed monetary world, whatever those highly capable utility managers are paid, since they would be in essence moving money around society like a water treatment plant manager is moving water around.

Your utopian example of a tribal group of perhaps 20-30 people is romantic, yet has no bearing on the world we live in, where, as I write this, I am connected by communication and by commerce to several billion people instantaneously.

True, it might be a nice world to live in a tribe of 20-30 people, but that is reality for only an infinitesimal fraction of the current population.

I was addressing a money system for the remaining 99.99999999999999% of the world.

Good discussion.

H

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cmartenson
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Posts: 5733
Hrunner wrote:2.  John
Hrunner wrote:

2.  John Mauldin once said "there are only two ways to increase GDP (aka wealth), increase your population and increase your productivity".  While I think I might be able to come up with a couple of additional ways, his point is well taken. 

If your GDP/ wealth is shrinking, according Mauldin then either your population is shrinking (ala Japan) or your productivity is shrinking.  If you live in a wealth-backed dollar country and the population is shrinking, that may have some benefits to you that will offset some of the loss of wealth.  There will less people therefore more land and resource per capita (the "capita" is shrinking, the land and renewable resources are staying the same).

If your productivity is shrinking, then you've got some bigger fish to fry, and it sucks to be you, living in your country.  You as a citizen had better figure out why productivity is shrinking and address it, or suffer the consequences of living in a productivity-shrinking country.  Is is education?  Lack of capital investment?  Government has grown to an out of control size and is wasting your dollars?  Are you voting the rascals out of office and replacing them with more fiscally-responsible politicians?  Are you and your fellow citizens being too stingy in investing your savings in new ventures? 

Hrunner - great conversation going on here...I would like to again address a single point out of many fine ones you have raised, and it centers on the construct Mauldin has advanced, which is actually the centerpiece of current mainstream economics.

The problem I have with the idea is that it ignores natural capital, or, more accurately, assumes that the only limiting factor to economic growth is how many people you have and how diligently they advance their value generating processes.

But this is obviously and tragically incomplete.

Consider, for the moment, Saudi Arabia.  They have a rocking GDP that has advanced smartly over time. As measured in terms of per-capita spending power, they are doing great.  Their population is also expanding rapidly.  In conventional economic terms, they are doing great.

But are they really?

For all practical purposes, Saudi Arabia's GDP is due entirely to the extraction of oil.  As long as they have oil to extract, they will have an economy, and as long as they have enough oil to both consume and export, they will have a rising GDP due to the effects of a rising population, just as Mauldin articulated.

But what happens on that eventual day when internal oil consumption outpaces domestic production? Then it becomes painfully obvious that instead of economic activity being a function of people x productivity, Saudi Arabia will discover it was mainly an artifact of the draw-down of the principal balance of a natural resource. 

And what is true for Saudi Arabia is true for the rest of the world, only it's not quite as obvious because SA is an extreme case that lays bare the issues in black and white terms.

The actual formula that Mauldin should be offering has to include (population) x (productivity) x (resources).  The old way of simply assuming that resources are never a limiting factor in the economic equation, and therefore ignorable, needs to be modified and we have to finally understand that the natural world is not a subset of the economy because it is the economy that is a subset of the natural world.

 

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gillbilly
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Economics by Omission

Interesting thread. I have yet to find an economic model that hasn't omitted something from it so that it can have an inherent logic. Such is deductive reasoning. I'm not sure why we keep looking for it. Godel and Pascal already proved this, but yet we omit their findings and continue searching. That's probably why I'm always playing the devil's advocate on this site:) I came to the conclusions awhile back, like Darbikrash, I don't believe there is a model or system that will solve our predicaments (Chris, as you have said, predicaments can not be solved). But that shouldn't be mistaken to mean we shouldn't act on what we know...in some ways it requires a leap of faith.

To me, sound or stable money will not be an answer to our woes because it ignores or omits too many things. Gold, Bitcoin, even Fiat currencies all have an inherent logic as long as you omit or dismiss certain things from them. For instance, a lot of context, historical or otherwise, has to be stripped from all of these types of currencies for them to even work within their logical framework. Realities such as our current corruption, manipulation, organized crime, futures/derivatives, excessive mining at the expense of people and the environment/externalities, size of corporations/govt., the friction between the concept of the individual and the collective, are just some of the realities that have to be omitted or ignored to some degree in some or all of these models for them to work.  Too many flawed assumptions are made. General equilibrium is flawed, the concept of utility, sound money, are all flawed. There will always be something that lies outside of whatever system you choose that causes that system to be incomplete. And thank God for that!! Otherwise, the mystery of life is gone!

So in my opinion, Darbikrash is right in that it comes down to one's perspective. Again I've gone back to earlier writers, and currently I've been fascinated with John Stewart Mill's writing. What an enigma. It's not very useful to read his Wiki page as it is very incomplete and some of it is, well, just wrong. All the things we are discussing were being discussed back then, and he had an interesting perspective on how and when capitalism, socialism, and their attributing concepts might work in different contexts. His ideas on utility are interesting as he tries to make room in economic analysis for the "dreamer," the pure scientist, resources, and for laziness and/or irrational enjoyment. Go figure. He was also an advocate for women's rights.

Darbikrash, I also agree that alienation is a big reality that is overlooked by all economists, well at least, in a quantifiable way. How can we even begin to measure it? But yet we know it's there, even if only intuitively. Technology is our greatest disseminator of alienation, but yet it is what we are basing our current and future economy. The paradox continues.

Many thanks to all of you!

 

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Grover
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Posts: 843
We Seek Tribal Interaction
Hrunner wrote:

Your utopian example of a tribal group of perhaps 20-30 people is romantic, yet has no bearing on the world we live in, where, as I write this, I am connected by communication and by commerce to several billion people instantaneously.

True, it might be a nice world to live in a tribe of 20-30 people, but that is reality for only an infinitesimal fraction of the current population.

I was addressing a money system for the remaining 99.99999999999999% of the world.

Hrunner,

I think it has more relevance than you give it credit. The social needs were met when money wasn't the basis for exchange. It wasn't a utopian society - it was a brutal existence that was made tolerable by help from others when the need arose. Someone who didn't help was socially castigated. Enough transgressions and they were excommunicated. That meant that they had to face the brutal future alone.

Today, we have money to facilitate the exchange of goods. There are too many of us to keep all the accounting straight without a ledger. We can maintain a few hundred to a few thousand nonwritten accounts at most. As you note, you are [potentially] connected by communication and by commerce to several billion people instantaneously. I'd hazard a guess that you've only actually communicated with a very small percentage of those billions.

Our modern day tribes are much more varied than the ancient ones. Back then, the tribe had to satisfy all the social needs ... simply because that was all there was. Today, we have our family and close friends, our neighborhood community, our coworkers, hobby groups, and even internet based communities (like this one) to fill the tribal needs that we have. Have you heard the end of the national TV news where the anchorman says, "I'll see you here tomorrow." We long for the personal connection enough that we want to believe that there actually is a personal connection there. How absurd is that???

And yet, because of money, I can hire complete strangers to satisfy my most basic needs without any direct social interaction. Does the farmer who grows the corn really care that I ate corn flakes for breakfast? Should he/she? What about the miner who digs up iron ore to make the tractor that the farmer buys? Is it imperative that the money system we adopt carry the social needs with it? That is a little too much to ask of it. It is enough to ask the money system to facilitate the exchange of goods without distorting the social interactions. Our debt based money system works for exchanging goods, but negatively distorts the social systems. It gives too much power to the first users. That isn't right.

Grover

PS I don't know if you've got fat fingers or you were exaggerating to make a point. From reading your posts on other threads, I believe that you understand what 99.99999999999999% means in a discrete system such as human population. For those who don't, it means that the 20-30 tribal members represent 1 part in 10 quadrillion. So, that directly implies that there are 200 to 300 quadrillion people in the world. How absurd is that??? We're about 7 1/2 orders of magnitude fewer.

If I've told you once, I've told you a million times - don't exaggerate! wink

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