JohnAl

The Dollar Ain't Picture Perfect, But What's Better?

The history of money is the history of how those who control it - almost always governments - use that control to rob others of their wealth. In ancient times it was through debasement of the gold or silver coins. In modern times it's done via the printing press (real or electronic).

It's a complete pipe dream of course, but in the best of all possible modern worlds, money would be privatized. As long as they maintain control governments won't let it happen, but there's no reason that privatized, electronic, PM or commodity backed currencies couldn't work as the world's reserve currency(s). All users of such a currency would need would be trust in it's future value, trust which could be built over time through regular audits by trusted entities.

The current problem with the dollar (and to an extent it's always there with every government fiat currency) is that there is a growing lack of trust in it's future value. With good reason.

Oh, and a privatized money would have one other effect. Some of us think it would a quite positive effect on most everyone's wealth. It would reduce government's ability to borrow, and without the ability to borrow government would be forced to downsize to a size that the citizenry were willing to support through current taxation.

The Dollar Ain't Picture Perfect, But What's Better?

"The Dollar Ain't Picture Perfect, But What's Better?"

Real money would be better. Gold.

Evidence That Big Inflation Is Coming

Excellent article and commentary!

I'm starting to feel comfortable in the "(general price) inflation will return later rather than sooner" camp. I don't see how "big" inflation can return until "big" borrowing does. Desire to borrow is the main missing ingredient in the credit bubble reflation formula. Desire to lend is missing right now too, but I'm guessing that banks will get cleaned up and will be ready to lend again before people and businesses are ready to borrow big again.

Many individuals with big debt got crushed last fall and others had the crap scared out of them. And most everybody is looking over their shoulder and hoping the boss doesn't show up with a pink slip. People are doing the right thing now, the rational thing - saving - and aren't likely to want to get in over their heads borrowing again any time soon, if ever.

And what business is interested in borrowing for expansion right now, with unemployment rising and the general economy looking like it's on life support?

Yes Bernanke and the gubmint are doing everything they can to reflate the credit bubble, and we can all see the enormous base money increase, but it can't do much harm just sitting there in the banks.

It's like Bernanke is furiously trying to light a bonfire but the wood is soaking wet. It's gotta dry out. It's gonna take a while to light.

Gold Cannot Be Inflationary, But the Dollar Sure Can

Mr. Ahlgren,

Wonderful article. I find much to agree with in your analysis.

While I've recently added substantially to my PM investments, including both physical and mining shares, there's one thing that's keeping me from jumping in with both feet, and it has to do with the questions you asked here:

"The supply of dollars is increasing. Prices and rates are going to rise unless the Fed can miraculously find a way to bring all those dollars back in, very quickly. But how could they possibly achieve that? Are they going to borrow more? Are they going to print more money? The problem is so obviously and viciously unsolvable that I'm not quite sure how anyone thinks the dollar can survive."

The Fed recently announced that they're looking at issuing their own debt. Many analysts speculated as to why. I'm not sure it's even legal for them to do it at the moment, but of course Congress can change that in the matter of a few days, and will if the Bernanke says it's necessary.

I'm thinking that the reason they'll want to issue debt is precisely to avoid the raging, or even hyper, inflation scenario. If the market were to accept and buy Fed debt, (and this is by no means a given), this would be a way for them to pull vast sums of dollars out of the economy very quickly, even while their balance sheet contains crap that, were they to sell it, wouldn't otherwise do the trick.

Whether they would or could act quickly enough to offset a credit expansion that could be expanding at light speed, given the monetary base your graph depicts, once banks DO start lending again, is another question.

Returning to a Gold Standard Is a Bad Idea

Why don't we let the market decide?

As another commenter said, gold, wampum, I don't care. We just need to take the power to create money out of thin air away from governments.

Bush and Obama Work to Restore Confidence

Not to pick on you, Ms. Lien, but the very title of your article - "Bush and Obama Work to Restore Confidence" - illustrates the problem. Americans look to government to fix everything, but government isn't the solution, it's the problem.

The only thing that will fix the problem is to allow the economy to work itself out. We need to let the free market work, but there's absolutely no sentiment in the current administration, the new administration or in congress to do that.

Spending like banshees isn't going to fix the problem. Where is the money coming from? They're going to have to print it. Printing money isn't creating wealth. Wealth has to be produced, utilizing capital and labor.

The rest of the world is kicking our collective behind at the moment, building superior products at lower costs, but when the politicians wake up, or when the people wake them up, we'll get back on the right track. America is in for some tough times, but we'll come out of it stronger and better off for it.

The Undisclosed Costs of the U.S. Government Bailouts

We might be helpless to stop this, but we can at least scream at the Congresscritters.

Write 'em and let 'em know how much you disapprove of this plan!

www.senate.gov/
www.house.gov/