This website advocates straight line logic, but not straight line thinking. Normalcy bias is the term used by psychologists to describe the tendency to think that what has occurred in the recent past will continue in the future. The dominant social trend of the last 100 years has been the growth of the state. As such, straight line projections to the future are common: world government wielding technology to eliminate civil liberties; mass subservience indistinguishable from slavery; execution of the nonconforming, and so on. 1984 captures a widely shared and feared vision.
The Jenga model offers a different vision. Jenga is a game in which 54 wooden blocks are stacked in a tower and players remove individual blocks until the tower collapses. A Jenga collapse is the opposite of the 1984 outcome. A choice between collapse or totalitarian super state may sound bleak, but the former would be the first real grounds for optimism in many years. Anyone who finds optimism in the latter is beyond hope or redemption.
SLL recently published an article, “The Death Of Cognitive Dollar Dissonance & The Remonitization Of Gold,” by John Butler at The Amphora Report. Butler points out that the present fiat currency and debt regime leads to chronic imbalances in global trade. At some point, exporting countries lose faith in the importing countries currencies and their debt denominated in those currencies. They are, after all, merely unbacked pieces of paper or computer entries. However, the exporters cannot insist on payment in their own currencies and debt, because the importers lack sufficient exporter currency and debt to pay for their imports. Such insistence would throw trade into reverse, imposing costs on both parties. Butler asks the question: “[H]ow can future international monetary arrangements nevertheless facilitate international commerce with exporters and importers at loggerheads over which currencies to use?”
He has an answer: gold. It is not a liability of any government, thus it can’t be subjected to the self-serving machinations made possible by fiat debt. (“Real Money,” SLL, 9/9/15)). Once an exporter, even a small country, demands payment in gold—clearly superior to depreciating fiat debt and currencies—others will follow; nobody will want to be last to acquire gold reserves. The scenario is plausible; the salient point for this article is the possibility that one country could upend the world monetary system by insisting on payment in gold. There have been innumerable discussions, analyses, and proposals for global financial arrangements, expansion of existing or creation of new multinational bodies, and regional or one-world currencies, essentially straight-line projections of historical trend. How “inevitable” are these developments when what we’ve got can be turned upside down just by one country asking for payment in gold? Such an emperor-is-naked moment sounds like Jenga, not all-powerful government.
Indeed, you find blocks precariously perched wherever you look. The monster in the closet of fractional reserve banking is uncontainable bank runs. It was that fear that fueled massive panic, ad hoc emergency measures, expansion of debt, and socialization of risk in the last financial crisis. Only a deluded optimist would think that such measures will rescue the system next time: government debt-to-GDP ratios are higher, the banking industry is more concentrated, hidden leverage and re-hypothecation chains permeate the shadow banking complex, and central-bank promoted interest rates are already close to zero. If Big Brother is depending on the debt-ridden, house-of-cards global financial system (see the SLL Debtonomics Archive tab), he’s apt to be discombobulated.
Surely things are not so precarious with the military and warfare, which is what governments supposedly do best. An objective examination of US intervention in the Middle East and northern Africa since 2001 blows that supposition to smithereens. The claim is that US interventions were maintaining some sort of order and balance of power. Russia and Iran are rescuing a dictator on the ropes, whose second-rate army was losing to a rag-tag band of jihadists numbering at most 100,000, the bulk of their weaponry pilfered from US backed forces, and apparently have destroyed that US imposed order and balance of power. If order and power are so ephemeral, after the trillions of dollars spent, lives lost, and devastation wrought, that they can be vanquished with such minimal effort by Russia and Iran, that’s Jenga tower instability, not Orwell’s iron hand. (We’ll see how the Russian and Iranian “iron hands” work out.)
The world is tied together by computers, and as a recent Wall Street Journal article highlights, they have countless vulnerabilities (WSJ, “Cyberwar Ignites New Arms Race,” 10/12/15). Naturally governments are taking the lead; hacking; probing defense, intelligence, financial, and industrial networks; stealing sensitive information; disabling critical applications with malware and viruses, and trying to defend themselves from such efforts by other governments. The Journal article is undoubtedly only the tip of the iceberg and nobody, given the secrecy inherent in all this, knows all that goes on beneath the surface. But it is not a stretch to suggest that hackers, public or private, with enough time and resources can eventually penetrate any firewall and disrupt any function they target. Jenga!
Discard normalcy bias and adopt an abnormalcy assumption: the future will be quite different from the past. Creaky towers are swaying on shaky philosophical and conceptual foundations and it will take surprisingly little to stress and topple them. Rebuilding from rubble requires far different tools and mindsets than battling Big Brother. The cause for optimism: how many times do we get a chance to learn from our mistakes and build something new?
Coming soon: Beyond Jenga
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How do you make change for a gold bar when the “dollar” is not stable? What would be the change given for 10 gallons of gas at $10.00 per gallon if I hand the attendant a one ounce bar of gold? How would I pay my county taxes with gold if they can’t give me change? If the dollar collapses how would gold be worth “money”?
Gold has intrinsic value, is not a liability, and has been used as a medium of exchange for centuries (see “Real Money,” SLL, 9/9/15). If the dollar collapses I believe markets will sort out relative values of gold versus other goods and services, and also provide gold in units small enough to be tradeable, or warehouse or deposit receipts against gold that will be tradeable. Obviously there will be transitional problems, but markets and the profit motive generally solve such problems. Never underestimate the ingenuity of people outside of governments.
If gas is $10 a gallon, and you buy 10 gallons, you give the attendant $100 in SILVER, common currency. Larger purchases, and long term debt repayments can be made in gold. And rather than monthly payments, a gold payment for a mortgage can be made quarterly. Silver for day to day transactions, food, fuel, clothing, etc. and gold for the larger, long term debts. You know you have to buy gas on a regular basis, you could deposit $500 in gold with the retailer, and pump gas at a credit pump, that is programmed to credit you for gas as long as your credit lasts, and until you deposit either more silver or gold. Commerce would slow a bit, but if you still have electric, and other utilities, the computers could be set for credit purchases all over, and indeed speed things up again. And if gold and silver become common currency again, $100 in silver will buy much more than $100 in dollars did before. Gas wouldn’t be $10 a gallon anymore. Silver would rate in ounces, or fractions of ounces, not dollars.
Sean, If the “owner” of the Gas station or food store went out of business or had to close because of their supplier problems or just took the “valuables” and ran then what would you do? Your out your “money” with little or no recourse in which to get a refund. What would you do, call a lawyer, lol? I’m just saying that there are too many people that think that investing in precious metals is the answer. If the dollar, actually when it falls, I’d rather have self sufficient as a back up. A cellar full of goods is easier to defend than a account full of gold. Remember how easy it was for Bernie that “madeoff” with many peoples money. Is there anyone that believes the USA government actually has all the gold it is reputed to have in Fort Knox?
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