The Problem With Phony Money… by Bill Bonner

A bunch of virtually free gold and mercantile policies didn’t help 16th Century Spain much. From Bill Bonner at bonnerandpartners.com:

SALTA, ARGENTINA – Yesterday, we visited the museum in the center of Salta.

It is a museum of the history of the city and the province, set in the repurposed town hall in the main square.

We had begun the day by going to mass in the old cathedral across the square – an ornate and opulent example of Spanish colonial architecture.

The cathedral is magnificent. It is a classic cruciform building with barrel-vaulted ceilings and a large cupula in the center.

Behind its altar, in the apse, is one of the most spectacular, over-the-top sanctuary adornments we have ever seen.

There is so much gold leaf over so many decorative elements, sparkling, shining, reflecting light in every direction; it takes your breath away.

Spain First

Salta had never seemed like an attractive city.

But yesterday, we were surprised. After mass, we stopped for coffee at one of the outdoor cafes on the plaza.

The arcaded square – with the cathedral on one side and the town hall on the other – was splendid. In the center was a park with palm trees, green grass, and a huge granite monument.

Couples necked on the benches and families with young children strolled by. Nearby, a blind accordion player gave us fine renditions of tango favorites. The weather was perfect.

The museum is large with collections focused on three periods.

There is the pre-Hispanic period, with clay pots, arrowheads, and petroglyphs, some thousands of years old. Then there is a display of the colonial period followed by one of the War of Independence.

It was the colonial period we found most interesting. In particular, one room showed us samples of money used in the colonies and explained a bit about how the economy of the era worked.

We learned two things that may be of interest.

First, phony money always causes problems.

Second, “Spain First” didn’t work well back then, either.

To continue reading: The Problem With Phony Money

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3 responses to “The Problem With Phony Money… by Bill Bonner

  1. Mr. Bonner’s column reads like Mises’ 1922 book Socialism; both highlight the absurdity of a system yet fall far short of ultimate utility in being incapable of predicting when the absurdity will end.

    “Fighting the tape” is an exercise in futility, yet staying with an absurd trend at some point surely becomes a self-destructive attempt to “win” the game of Chicken. Today’s world looks to me like a host of airliners converging on the same exact point in space, piloted by those who grow richer by staying on course no matter what.

    In the end, I boil the economists’ fools’ gold (rationalization) to this: They misinterpret Say’s Law.

    Bonner directly alludes to this. To enable entry to the marketplace without having first produced something to sell in it is the single most destructive force in economics. It is self-evident that modern economists’ “demand creates its own supply” is an absurd misinterpretation of Say’s Law.

    But here we are, just as was Mises at the end of his life, the USSR then with still almost two decades left to mock his irrefutable critique of socialism.

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    • Here’s one rule of thumb I had trading. The bigger the trend change, the earlier the perceptive and wise see it coming; hence they’re invariably wrong for some time. All those predicting disaster–me, you, Mises, Rand, Prechter, everyone else–will be right sooner or later. A is A, after all. When we are, we’ll have plenty of speculative opportunities to go with the deteriorating tape, if we’re so inclined. My personal hunch, and its only a hunch, is that we’re pretty close to the turn, perhaps within in year. We’ll see.

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      • Then this is truly The Mother of All Turns, for it has reignited after seeming flame-out each time for twenty-two (or more) years.

        In my view there are three necessary precursors to a condition I now believed baked into the future:
        1. The permanence of the trend becomes unassailable as one forecast of imminent decline after another proves wrong, until such forecasts (and their agents) become objects of pervasive ridicule, if not outright satire.
        2. The actual underlying rot, malfeasance, unrecoverable capital mis-allocation and dependency on the unsustainable becomes so pervasive that alternatives cannot be discussed and “baked in” real hardship rises far above any level that can conceivably be papered over. (i.e., Big Consequences.)
        3. People have to be taught, in their personal time-lines, that only suckers and fools sell. Axiom dictates that capitulation brings lows, so the only way to have a truly massive decline reach its natural nadir is to train Pavlov’s Dogs to never capitulate. Very, very clearly we see that 2000-2003 and 2007-2009 have taught people that it’s stupid to sell out even if markets fall 50%…even 80% (if looking at the NASDAQ’s 2000-2003 experience.) In order for the pendulum to make a full return trip, we have to see a fall, a recovery (like in early 1930) and then the real fireworks. Have people been sufficiently trained to BTFD at -50%, then BTFD at another -50%, and another and another? Will they honestly average down the whole way?

        Rhetorical question, of course. Maybe we’ll get a chance to answer it in coming years. I wish I could do so without having to be a participant, however.

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