Losing faith

Over the past few millenia, humans have used a great many things as money. Units of labor, peppercorns, giant slabs of rock too heavy to lift, seashells, clay tablets, sticks, and of course, gold and silver. (The sticks were surprisingly effective. Worked for centuries in England.)

From an elitist's perspective, the most fantastic form of money yet devised is paper. It has less utility than seashells (which after all are made of minerals), or peppercorns, or sticks. Even the lowly stick can be burned for warmth. (The British had loads of these very old sticks lying around in the Houses of Parliament, and in 1834 they got the brilliant idea of destroying them in a stove, whereupon the entire Parliament burned down. That was some seriously dry wood.)

But fiat paper money doesn't represent any tangible goods whatsoever. (Over 90% of our "paper" money is actually just a computer entry somewhere.) Paper money is an object of collective faith. That could be said about any of the other forms of money, too; but the thing with paper is that it can be created by governments, in enormous quantities, at will. Money printing makes the currency less rare and therefore less valuable, robbing the people of their savings.

Whatever governmental mistakes bring about the failure of a currency, in the actual moment when it tilts over the precipice and plummets in value, it's mass psychology that does it. It's a sudden, widespread loss of confidence in the value of the currency.

I note that people are already losing confidence in Wall Street, in the Treasury, in the Presidency (that is, in the position itself), in Congress, in the two-party system, in the People themselves. This is to say nothing of the sense of decline one gets from the new crappy houses with deteriorating siding and toxic drywall, the clothing made of increasingly thin material, the ruined historical buildings and town centers, the shrinking food packages, the disintegrating barns and silos, the uglier and emptier strip malls, the rusting factories, the increasing drop-out and illiteracy rates. As an Empire, we are through. Stick a fork in us, we're done.

As for the financial world, I wouldn't know where to begin or how to express how criminal, insane, and plainly dangerous the markets have become. On blogs where people are knowledgeable about these things, the cynicism and bitterness are rampant (although there's a lot of humor, too-- what can you do but laugh?). Nothing in the financial world is considered to have any meaning anymore, because it's all disconnected from the real world and the real economy.

In short, there's not a lot of confidence in the institutions surrounding the dollar, nor in the society that exports all these dollars, nor in the international banking system in which the dollar operates. Psychologically speaking, the supports are being knocked out one by one.

You can start to prepare yourself for this coming distrust of paper money by taking out a bill-- not a one-dollar bill, but say a twenty-- and recognizing that it is just a bit of cotton and ink. Seriously. The only reason you can hand it over and get gas or jeans or eggs in return is because the guy taking your money is an idiot. Okay, not an idiot, but willfully blind, in the manner of the villagers praising the non-existent clothing of their emperor.

Another tactic is to imagine yourself on a desert island with a big wad of tens and twenties. You're screwed, right? Now imagine you get one hour to shop at a Super Wal-Mart before we drop you and your stuff off for two weeks on that same barren island. Makes it pretty clear what's really important, doesn't it?

This is NOT all survivalist thinking. Actually there is a very long-term cycle in which for a couple of decades or more, financial assets (paper) do very well. And then they get way over-valued and there is a return to real assets (also known as hard or tangible assets) such as gold, silver, real estate, agricultural commodities, crude oil, natural gas, base metals, etc. We are now exiting the overblown paper party, and hard assets will be far superior investments for the foreseeable future.

But it's true, it's pretty easy to understand at a survivalist level. If you have loads of cash, you assume that can be turned into wheat or clothing or firewood or batteries at your convenience. Essentially those dollars are someone else's future promise to give you stuff. As long as nothing goes wrong, these future cashiers can keep that promise, and you won't have to do without.

As long as nothing goes wrong. I mean, as long as people don't change their minds and start worrying about the bits of cotton in their wallets. If people start worrying, en masse, then in the blink of an eye the stores may no longer have that stuff you meant to buy. Whatever can be reasonably converted today from "colored cotton paper" into "stuff" should be converted. A great many things last almost forever: toilet paper, soap, salt, sugar, popcorn, properly stored firewood, wool blankets, oil lamps & oil, Coleman stoves & fuel canisters. Think of it as making an investment change from paper assets to hard assets, and try to get it done before all faith in paper is lost.