A Thief in the Night

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

- John Maynard Keynes

Hardly a day goes by that we don't think about this quote, which is why we bring it back to the forefront regularly. We truly desire that everyone would plant it deep in their soul and fully grasp its meaning. Your entire perspective of money changes when it resonates for good.

This is of course the foundation of the great lie--that of a little inflation being a good thing--that requires such a wondrous deception. It is laughably idiotic to think that rising prices are somehow good for people. A healthy society produces more than it consumes, as entrepreneurs bear the useful stress of creating, innovating and producing. Capitalism is beautiful because it ultimately produces deflation, which in turn increases affordability for regular people.

This type of deception is only possible when the currency is fake, as Keynes suggests above. It can also only happen when the goalposts are constantly moving, the measurements are false, and the economy as a whole is manipulated from the top down based on a few ridiculous metrics. Managing a small business based on achieving a specific metric is impossible enough, let alone the most complex economy in the history of the world.

With that cheery bit as a primer, let's get back to following up on our quarters.

We noted last week how our friend Dana Samuelson so poignantly illustrated how the government pulled a Kansas City Shuffle by physically changing the structure of hard money to not-so-hard money. This was a classic example of seigniorage, the act of the government profiting from switching physical currency cost to a lesser valued material, thus debasing the intrinsic value without changing the face value.

But guys, they were just quarters, why is that such a big deal?

It's a big deal because it was likely the last significant physical act the government ever took to steal your wealth. President Richard Nixon sealed the deal in 1971 when he closed the gold window for paper currency. August 15th, 1971: when money officially became an idea, backed by nothing but the ability of the government to effectively lie to you about its worth (okay, fine...and some aircraft carriers).

In short, money became debt. Growth in a debt-based society must always be measured by furthering consumption, rather than increased production and innovation. This is why capitalism in a debt-based society becomes so obscure and grotesque. On one hand you have entrepreneurs relentlessly innovating and driving down costs, while on the other you have the debt-issuers desperate to keep the jig up. This is only sort of still working because of this guy.

Now, in a digital world there's nothing left to physically debase to steal your wealth, so how are they still doing it? It's a question that keeps us up at night, as they seem to be gaining proficiency in their thievery.

There are so many ways this is happening. The first is dishonest interest rates, which are being held at zero in nominal terms, and negative rates in real terms. Interest rates are the price of money, and savers are being penalized for keeping them. This is of course because we're incentivizing consumption and taxing production, perhaps the most idiotic of all financial ideas.

Next is through an incestuous relationship between the Fed, Treasury and commercial banks. They are still telling you they have not enacted yield curve control, but this is semantical at best. Where would rates be across the board if not for the Fed swallowing unfathomable amounts of government consumption and placing it on its balance sheet? Who would be buying this debt if not for the folks creating the digital paper necessary to enable it in the first place?

Next is through a monstrous increase in social programs, such as enhanced unemployment benefits, PPP "loans" (yet another mistruth, they were almost entirely grants), stimulus checks and several other programs. These few sentences are perhaps the strongest examples of a shift from monetary policy into fiscal meddling. In other words, directly monetizing the debt being created by the dastardly duo of the Fed and Treasury.

This is all being done in an effort to increase velocity (creating more taxes), thereby increasing inflation and reducing the debt burden. Of course, the net effect for you is every bit as disastrous as the effect of taking the silver out of quarters in 1964, you just can't see it anymore.

The takeaway is that folks benefitting from the Cantillon effect are becoming more astute in their obfuscation of wealth pilfering. The holy grail of this is likely to be enacted with the adoption of central bank digital currencies. Just wait until you hear about all of the ways they can steal from you with their new tool!