Finding The Money, Part I

“Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ ‌ May 7, 2024 Finding The Money, Part I “Money is only a tool. It will take you wherever you wish, but it will not replace you as the driver.” – Ayn Rand [Reminder: In case you missed [our announcement]( The Essential Investor has merged with legacy contributors to Agora Financial. The new, larger, more inclusive project is called The Grey Swan Investment Fraternity. If you’re interested in the scope and benefits of our new endeavor, please see what prompted us to merge [here](. If you’ve been a member of The Essential Investor, keep an eye out for your new benefits.] Dear [Reader], May 7, 2024 – What is money? It’s the central question we ask every day. What is it? What do we use it for? How will we have enough of it… to live, to plan, to take care of our families? A new documentary,[Finding The Money – There’s Another Side to The National Debt]( seeks to persuade us that we misunderstand the nature of money itself. And that’s why we have a problem with the numbers on the national debt clock hanging in New York’s Times Square. “The national debt clock,” proposes Stephanie Kelton, an academic and proponent of the Modern Monetary Theory (MMT), and one of the key protagonists of the film,  “should be renamed the ‘dollar savings clock’.” Really. Debt is savings. We’ll leave the Orwell allusions to you, while we take the film’s director Maren Poitras at her word. In the film, our heroes are “an intrepid group of economists on a mission to instigate a paradigm shift by flipping our understanding of the national debt – and the nature of money – upside down.” “If we have a vision for a better future,” the press notes for the film read, “money is not the scarce resource we need to go out and find before we can start building it. Money is the organizing tool we can use to mobilize our people and real resources to make that vision a reality.” We’ve been intrigued by MMT for decades. Before we can debate its merits, we need to understate why the proponents of the theory actually believe they’re on a mission at all… The film sets up a straw dawg of sorts. It begins with the debatable “mainstream” understanding of what money is: Money evolved from the barter system. It became a substitute for cows, barley, clam shells, and labor. And now serves its own purpose of distributing goods and services in the economy. It is by nature scarce. Not true, the film’s architect says. Exploring these maverick economists' views, Poitras contends that money, since the dawn of time, has been willed into existence by political power. And is therefore only limited by our collective imagination. If we just understand the true nature of money, we wouldn’t worry about the national debt at all. It never really has to be paid back. And because money itself is abundant… we’d be able to divert its resources to common goals like climate sustainability. Our view is both can be true. Only one is uniquely more vulnerable to fraud, deception, and abuse. But let’s not jump to conclusions. We propose a theoretical debate like the one synthetically established in the film. First up, in our debate: Bill Bonner from this morning’s Bonner Private Research missive. Mr. Bonner hardly represents the mainstream, but gives us a snapshot of what’s shakin’ in today’s markets — for example, how are we doing in the task of managing credit and debt day-to-day, in the real world of finance? (How did we get here?  An alternative view of the financial, economic, and political history of the United States from [Demise of the Dollar]( through [Financial Reckoning Day]( and on to [Empire of Debt]( all three books are available in their third post-pandemic editions.) (Or… simply pre-order [Empire of Debt: We Came, We Saw, We Borrowed]( now available at [Amazon]( and[Barnes & Noble]( or if you prefer one of these sites:[Bookshop.org]( [Books-A-Million]( or [Target]( CONTINUED BELOW... >>ADVERTISEMENT<< Deadly Strike Coming To America's Power Grid Former CIA Director has issued a stern warning: An attack on America's infrastructure would "blackout the national grid and other life-sustaining critical infrastructures for over a year. Killing 9 out of 10 Americans by starvation and societal collapse". Imagine a blackout lasting not days, but months. That's why many Americans are taking matters into their own hands and are securing their own solar powered generator. [Our top recommendation in portable solar generators is the Patriot Power Generator.]( CONTINUED... America’s Big Block Party [Bill Bonner, Bonner Private Research]( I can resist anything but temptation. — Oscar Wilde “I think it is unlikely,” says Jerome Powell, “that the next policy rate move will be a hike.” But why? US inflation is running about 100% above the Fed’s supposed target. Why cut rates rather than raise them? Herewith, we propose a hypothesis. Last week, colleague Tom Dyson gave us a simple way to connect the dots. We are near the end of the biggest financial experiment in history, he says. Condensing the following 700 words to just five: central bankers cannot resist temptation. In 1971, guided by Milton Friedman, the US did something extraordinary. It changed the whole world’s money system. And few people even noticed. At issue was whether the US dollar system could be managed better by professionals — Ph.Ds with more discretion over interest rates and other banking policies — so as to improve capitalism.  The gold-backed dollar wasn’t easily managed at all. You can’t just ‘print’ gold.  You had to mine it. And ship it. And store it. And in the end, you were lucky if the supply of new gold-backed money kept even with supplies of other goods and services in the real economy. Not a bad thing. The dollar was fairly stable... and hard to diddle. In 1913 — when the Fed was created — a dollar was worth almost exactly as much as it had been 100 years before. But the system limited the amount that US policymakers could spend. Temptation too much The new system changed that. Gold was out. The Fed could create money on demand. In 2002, Ben Bernanke explained: “The U.S. government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.” But could ordinary humans be trusted to resist the temptation to print too much? The answer, now in, is ‘no.’ This experiment was not new. ‘Paper’ or ‘monopoly’ money systems have come, and gone, many times. The coming was always fun — people had more to spend. It was the ‘going’ that was painful — often ending in depression, war or revolution.  After WWI, Germany was faced with huge war debts. It switched to paper money with no gold backing. By 1923, it took 4,210,500,000,000 marks to buy one dollar. A shopkeeper counts a box of banknotes in 1923 Germany, source, Getty Images. France in 1960, after years of excess money printing, had to replace the old franc with a new one, at 100 to 1. China... Yugoslavia... Argentina... Zimbabwe... Lebanon — all were social, political and financial catastrophes. Inflation in Germany led to such widespread discontent that gangs battled it out in the streets; Adolf Hitler’s national socialists won those street brawls and took over the country. Russia’s financial instability led to the Bolshevik Revolution in 1917. Chinese inflation in the 1940s brought Mao Tse-tung to power.  On August 15, 1971, in the US, came the Nixon Shock. The new dollar looked just like the old one. But it no longer represented an asset — a dollar backed by gold; now it was essentially an IOU, a ‘federal reserve note,’ issued by a federal reserve bank. Most economists nodded in approval. The public nodded off. It’s now 2024 — 53 years later. In 1971, US debt reached $400 billion. Even nine years later, it was still only $800 billion. At that level, the Fed’s last honest chief, Paul Volcker, could still fight inflation with extraordinarily high interest rates. His top Fed rate — 20% in June of 1981 — caused the worst downturn since the Great Depression. That is what it took to wring inflation out of the system.  It was a heroic move. Politicians and economists squealed. Volcker was widely despised. He was burned in effigy on the Capitol steps and denounced by thousands of economists. And today? A 20% Fed Funds rate would be impossible.  Here’s why. After Volcker’s save, cheaper and cheaper credit made it profitable to borrow and speculate like never before. Consumers, businesses, investors, and the government all went deeper and deeper into debt. They bought bigger houses, better cars, more fighter jets and aircraft carriers... mergers and acquisitions... dotcoms... cryptos — whee! A subtle corruption infected the whole financial system. The new money was a credit from the banks, not an asset. It was borrowed into existence – at absurdly low rates -- rather than earned. Who could borrow it most cheaply? Big, credit-worthy institutions — big banks, big business, and big government. That’s how firms like BlackRock were able to outbid families and buy up thousands of homes; they could borrow at lower interest rates: Floating on a tide of ultra-low interest rates, debt seemed almost weightless. But the farther out to sea it floated, the harder it was to get back onto dry land. Today, even a 10% fed funds rate — half the level of 1981 — would be so devastating the Fed wouldn’t dare to try it.  Today, there is $34.6 trillion in federal debt, rising by more than $120 billion per month. And the Treasury, trying to keep its debt payments down, is choosing shorter- and shorter-term debt — 2-year notes, rather than 10- year bonds, for example. The result is that more of the total debt gets ‘marked to market’ each year. And the whole lot of it becomes more sensitive to interest rates. At 10%... debt payments would quickly absorb all income tax receipts. At 20%, all Hell would break loose immediately. What this means is that the Fed can no longer ‘save the system.’ It can’t afford to. There’s too much debt. Instead, its real goal is not to eliminate inflation, but to manage it... to ‘monetize the debt’ — reducing its real value with sustained price increases. But to do so, inflation must be higher than the rate of new debt creation. US debt is galloping along at nearly 7% of GDP per year. The inflation reading needs to get up to that level... and stay there. That’s the real reason the Fed is talking about cutting interest rates rather than increasing them. But watch out. Trying to manage inflation is like trying to control a block party in a bad neighborhood. The bullets could fly at any moment. ~~ Bill Bonner   So it goes, Addison Wiggin, The Wiggin Sessions P.S. Let’s reserve our comments until we hear from the makers of Finding the Money. Tomorrow, we’ll dig into director Maren Poitrus’ motive for making the film in the first place. See you then… (How did we get here? An alternative view of the financial, economic, and political history of the United States from [Demise of the Dollar]( through [Financial Reckoning Day]( and on to<> [Empire of Debt<>Â]( all three books are available in their third post-pandemic editions.) (Or… simply pre-order<> [Empire of Debt: We Came, We Saw, We Borrowed]( now available at [Amazon]( and[<> Barnes & Noble]( or if you prefer one of these sites:[Bookshop.org]( [Books-A-Million]( or [Target]( Please send your comments, reactions, opprobrium, vitriol and praise to: addison@greyswanfraternity.com. The Daily Missive from The Wiggin Sessions is committed to protecting and respecting your privacy. We do not rent or share your email address. 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