I’ve done my best to avoid the news, but……

Richard Charpentier Notes from Rich 4 Comments

I just have to comment on recent events.  Can’t hold back any longer!

Ah, a non-photo oriented post!  😉  I think when I’m done here you’ll wish that I was talking photography…….

China has suggested that a new world currency is in order, free from the manipulations of one nation attempting to save itself and it’s financial system.  You can’t blame them really.  Our current tactic is to inflate our way out of our financial woes…..

Of course, the reason we’re in this bind is because we inflated our way into this.  Nobody in the media will say that to you, and nobody will fess up to it, but that’s what happened.  Most aren’t aware of it.  But the printing presses in their different incarnations have been “on” for well over a decade now.

It wasn’t just the treasury or the FED adding to the money supply since the 90’s.  Let’s not forget, Congress happily deregulated a ton in the banking industry during the 90’s.  And at the same time insurance companies and other financial organizations were dreaming up new ways to squeeze more out of debt obligations.  The final dreamed up game was the “Derivatives” market.  I’m not going to get into how derivatives work, most folks who created them don’t understand them.  What I can say though is that it allowed organizations to lend and borrow even more, created money out of thin air, and did so in a way to skirt around the issue of “creating money.”

See, only Congress is allowed to mint money.  But we’ve got many other organizations out there adding to the money supply.  When the FED changes interest rates….it alters the velocity of money thereby altering the money supply….when banks and insurance companies loan beyond their means through the use of derivatives they’ve essentially changed the money supply…. And so on.  It’s an inflationary process.  Bubbles were created and burst, and the money moved to the next bubble….. and now we’ve hit the bubble wall!

In the end, any other new “world reserve currency” will run into issues.  Having the IMF create a new currency and regulate it will run into the same problems that we’re seeing now.  Why?

Because Fiat Currency systems always fail!

Seriously, you need to peg value against something.  Otherwise somewhere down the road some idiot will turn on the printing presses and think they’re creating prosperity and wealth.  In the short term it will feel like that, and in the long term it will destroy an economy.

We had a pretty good peg once.  Gold.  Then somebody got the bright idea to do a “fractional reserve currency” and when that started breaking they blamed the partially pegged currency and said, “Let’s have a currency backed by nothing but our good word and honor.”  And we left that responsibility with politicians……

Seriously, we left the total control of an “honor system currency” in the hands of politicians and bureaucrats.  And you thought it would be ok?  Fortunately we bailed on the gold standard in 71….the year I was born.  So, I get a pass on that one!  🙂

In the end, the rest of the world is wise to the game we’re now playing.  Print more money, devalue the currency, which devalues the loan repayments we own the world.  Severe debtors (individuals and the government) win, savers and those who did right (folks in Airstreams for instance) loose.

By the way, if you’re mad at the AIG bonuses get over it.  The current head of AIG was put in by our politicians after it first hit the fan.  They were totally aware of the bonuses.  They’re making hay in the media to make sure you’re not paying attention to the fact that their hands have been in this the whole way.  Ever hear of Fannie Mae or Freddie Mac?  Yeah, government regulated and oversight the whole way, and there’s more burried issues that will be coming out.

Finally, the derivatives time bomb is just starting to go off.  There’ s a lot more to this, AIG isn’t the only one (just the one right now), and this “downturn” (understatement) is only at the beginning.

Whew!  I feel better!

Oh, just for fun……..PHOTOGRAPHY!  Now you feel better too!

Comments 4

  1. Well put Rich. So, what could you use to peg value to now that gold has been eliminated from the game because you were born(besides, more is refined every year)?
    What is a stable commodity which we cannot make more of? I vote for dirt, although I did consider water.

  2. The AIG mess is proof that government involvement doesn’t work – just messes it up more. What scares me is that the legislators set a very scary precedent with this AIG mess.

    It’s sad that those of us who are responsible, save, and invest are getting hit the hardest– and paying the price.

  3. Post

    I think the worst precedent set by Congress is a very recent decision.

    Retroactively passing a tax after the fact to get those bonuses back….. I wonder what other retroactive taxes will work their way into the system?

    Seriously, retroactive taxation? You’ve got to be kidding me!

  4. Post

    Oh, whoops….Doug.

    Gold could still be used as a peg. The money supply can “grow” in the face of a growing economy. It’s still a rare commodity, and a peg requires something that can’t be printed at will or altered electronically. It’s a hell of a lot better than any “fiat” solution out there.

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