Transcript Smoke and Mirrors: The Story of Fiat Currency

Smoke and Mirrors: The Story
of Fiat Currency Abuse
Richard Karn
Managing Editor
The Emerging Trends Report
http://www.emergingtrendsreport.com
An Exercise in Monetary Forensics
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US Dollar History: 1774 to 2008
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The Fed Period: 1914 to present
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A 45-year Career: 1965 to present
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US dollar is not different, just
more sophisticated
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better management
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more dominant and far better
distributed
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unparalleled promotion and marketing
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US Monetary History: 1774 - 2008
“A strong dollar is in the interest of the
United States.”
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19th vs 20th Century: gold standard & fiat
Technological & Financial Innovation
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Productivity Miracle
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Or was it?
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Ending all pretense to gold convertibility
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“Our experience shows a weak link between
money supply and inflation and output.”
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The Fed Period: 1914 to present
“Give me control of a nation’s money, and I
care not who makes her laws.”
The 6 stages of a fiat currency regime:
1.
2.
3.
4.
5.
6.
Implementation
Collusion
Greed overwhelms restraint
Disequilibria
Accelerated cycles
Collapse
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Fiat Currency Regime Life Cycle
Implementation
Rationalization
Opportunity
Proper Management
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Fed Fix-All: lower interest rates & make more credit available
Sleight of Hand
Expectations Management
Unintended Consequences
Bureaucratization
Less bang for the buck
No Agency Enforcement
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A Truly Bi-Partisan Effort
“Borrowing from ourselves”
Bigger Gov’t
Falling thru the Cracks
Accelerating deficit spending
Only Possible under a FCR
“Deficits Don’t Matter”
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1966: $1 of debt produced $.93 of GDP Growth
2007: $1 of debt produced $.18 of GDP Growth
From 1980 to 2007, the financial industry share of total US
corporate profits rose from 10% to 35%
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Fed Nightmare: Consumption now fuels 71% of GDP;
Saving starves it equally
Savings in lieu of wage growth
Growing income gap
Inflation becomes regressive
More demoralized
Wealth preservation takes on a
speculative bent
No end to E-Z Credit
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A 45-Year Career: 1965 to 2009
“I’m mad as Hell, and I’m not going to take it
anymore!”
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Generations Collide in Twin Tragedies
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Pending Change in the Status Quo
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Saving Fiat in a Negative Real Interest Rate
Environment
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“Gold Doesn’t Earn Any Interest”
…nice thing about models is that if you keep your data series
short enough you can make your model say anything you want
it to.
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Best Scenario: Another Trader’s, Not Investor’s,
Market?
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Sixth Stage: Collapse
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Without sufficient credit/debt growth, Ponzi-style
collapse looms
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Faith in monetary system shattered: social, political
and economic upheaval
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Final indignity is the realization of the extent of the
betrayal
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Occasionally a new democratic republic results,
more often a fascist state
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Conclusion
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Greed & Fiat Currency Abuse, not
Capitalism, behind Global Financial Crisis
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