Gold as Honest Money

“He who has the gold, makes the rules.”

  I don’t think so.  Not at this time.  It will come to pass eventually but now the Masters of the Financial Universe have things firmly under control. They own the Aladdin magic lamp called a printing press and can “create” the value of whatever they buy.  The magic show is all theirs.  I do not see any inclination on the part of most citizens to reclaim the right to use an honest money or contract and trade in market based money.  Political money is still king. It seems, despite America’s obvious financial  problems for the last 7 years, that  less than 5% of the population cares at all about what money is.  It just exists, like government, and is just accepted as a fact of life. They will value their life’s labor and savings in a currency they cannot even define..  A dollar just is. They will work their ass off to get more dollars but they do not ask questions about how this incredibly important substance is created.  Like Mission Impossible, the task they have accepted, is to find a method to work for and accumulate as many of these dollars as possible so they can enjoy  “financial security” and the finer things of life.  Those who don’t work or choose unwisely, forego those possibilities. But collecting dollars for financial security may be a chimera.  The 1% have no such prosaic concerns, they are impossibly rich.  Money is a number for keeping score, so called ‘higher’ Maslow needs. 

  I became interested in gold on Sept-1-2007.  At that time I predicted gold at $2,000 by 2012 and $5,000 by 2017.  I have been wrong.  But that does not mean gold is worthless.   What I believed was that responsible  financial accounting had been neglected since 1995 (at least), and that the system was irretrievably corrupt.  The build up of debt in the banking system , much of it mis-priced, was going to lead to a system extinction event.  It has not occurred as quickly as I thought it would because the ability to create money at will has backstopped a boatload of lousy assets. Who can go broke when you can print money?  I thought the responsible government stewards would take down the high flying Wall Street  hustlers but it turned out  the government shills were bought and paid for by financial and corporate Elites.   The middle class had been sold out a long time ago.  Remember the giant sucking sound from Ross Perot?  

So what is gold’s problem?  Why is the crotchety band of gold aficionados so ignored, maligned, and generally irrelevant?  Gold bugs want honest money—  Why doesn’t everyone else want “honest money”?  It just doesn’t matter to them.  Purchasing power is what counts.  Everyone wants more but will settle for no less. So they don’t care if it’s honest, they just want more of it.  The discipline of gold is not desired by the caretakers of the monetary and political system because it undercuts the policymaker’s power to intervene comprehensively and effectively.  If gold were not IN their hands, then the solution would be OUT of their hands.  Their feeling of responsibility, their pride, and the need for control cause them to denigrate gold money and promulgate political money.  Society then has an essential choice: political money or market determined (independent) money.  When money can be created it is akin to being counterfeited.  Many express this idea as “credit” is not “money”.   Government passes a law against counterfeiting and then goes and prints as much as it needs for political reasons. This undermines the social choices all other economic actors have made. 

Mandated money (or legal tender) can perform an exchange function but is unjust when it does not function as a store of value or a proper unit of account .  Money should retain roughly the same value.  I think it should have a definition but it currently functions as an idea of value, not a fixed “thing”.  If the money fluctuates in value it loses much of its exchange usefulness. The expectation of constant value is a shared understanding of the parties to any contract.  Modern “monetary policy” radically infringes on the rights of property and liberty throughout American society with the victims more or less in the dark as to what is going on and without legal recourse even if they do realize their victimization.

“Radically” is the correct adverb, because in principle nothing prevents “monetary policy” from being employed to destroy completely the exchange-value of the FRN thereby extinguishing the value of all holdings of cash or bank-deposits and of all long-term contracts. This redistributes wealth on a massive scale and throws the whole economy into chaos.  

The Midas Moment - Summer 2010

I filled up at Costco this weekend and felt a sickening awareness that my petroleum lust was complicit in the BP oil disaster.  Do I need gas so badly that I would turn the Gulf ecosystem into an oil storage facility? The unthinkable happens when our faulty thinking is not focused on the harm we could unintentionally do.  Isn’t the first principle of medicine-First, do no harm?  Is that a naïve thought or a truism our pride entices us to forget? Naturally I wish no harm but with humans, failure is just a constant.  Preventable yes but inexorable given the level of world need and the scope of human action.  Some other disaster, perhaps one attendant to nuclear power, is a given as well.  The fact of long half lives ensures that the accumulation of radioactive crap will spoil some “natural” area.  People can’t go 10,000 years without screwing up.  But it is our blind desire for the baubles of modernity that make oil consumption a moral failure.  Every frivolous wish is granted.  We go to the grocery store for a forgotten gallon of milk on the wings of angels. We have a limitless genie in a bottle at our beck and call.  King Midas THOUGHT he knew what he wanted.  We think similarly.  We assume we will always have the natural world and so pursue the frivolous and trivial to make us happy. 

You know, I like my car and MacBook Pro, my “simple” flip phone but I wonder if the organization of economic production to provide these amazing things is not fundamentally flawed.  The quest for more of the stuff we find beautiful and entertaining  is gradually trashing what we must have to survive as a species.  And even if we really don’t need butterflies and tigers, it’s more than “just a shame” to lose them.  When the whole world looks like an abandoned industrial factory and neighborhoods are deserted and parking lots have only paper scuttling across them, we may miss the limitless forest.  In fact I already have a whimsical regret about the past.

   If your horse lies down in the road and you need to get to town, you may be tempted to beat him until he stands up and takes you there BUT,  you could just be wasting time and causing a lot of unnecessary pain.  You’re probably going to have to get to town a different way.  More stimulus money to a sick economy may be the same.  The dollars “invested” don’t create anything of long term value and are flogging a dying economy.   We can continue to pretend we are a rich country with a thriving middle class but we went from production to pretense years ago and now will have to figure out how to construct a new functioning economy.  The Rumplestiltskin model—straw into gold—is a fairy tale.

What exactly is wrong? The term, structure of the economy, means that we have specialization and interdependence to such an extent that our vulnerability to systemic failure is almost limitless. It is a bargain that has made us “rich”, if we all do our part, but now we don’t know what that is.  Someone wants to do soup kitchens, some one else performance art.  Landscape trailers roam the suburbs.  Not only can’t we grow our own food we don’t even know a farmer. If our electricity goes off, we are like ghosts in our own home.  Drifting like lost souls until it is restored.  Without gasoline at the service station, we have about 1 week of normal life and then we are unlikely to be able to get to work.  Everything we need is just in time delivery.  No truck from Publix, no vegetables, bread, milk, or meat in the fridge. And oil dependence. Oil is the lifeblood of modernity.  If its cost or its availability change, we are massively impacted.  All of the stuff we do becomes unimportant,  taking the kids to piano and football practice, etc.

     What has developed is an organic outgrowth of what came before but limits to inputs are causing fracture lines in communities.  Theoretically we could plan our way around impending disaster but we would need a clear idea of what the problem is or the infighting and cheating would not encourage the necessary change.  A whole structure of society has been built up based on What is valuable and what am I owed.  A sort of “if all do their duty, they will come to no harm” mentality prevails.  Just as trusting God does not mean a problem free existence so doing the right thing is no guarantee of justice.  In our complicated world I have limited capacity, the incentives in the economy determines my effort.  We “fit in” to maximize our own well being.   But what if the artificiality of an economy so distorted the normal incentives over a period of years and years that everybody was dependent on a completely flawed system?  Everybody lived in the wrong place and daily did the wrong things not out of malice but because their reading of the incentives encouraged them to do so.  Kids that can’t read or do math sell drugs because the incentives despite the dangers are better than working at Wendy’s.  I think we have found our way there.

  To help maintain order, government has intervened in countless ways to change the incentives and has created, like the former Soviet Union, a kind of Potemkin village where all go where they have been encouraged and now a NEW REALITY is struggling to appear.  The exoskeleton of the old order is being shed. Why is our leadership so uninterested in addressing this and why are we so uninterested in hearing it?  Warm and snug in dreamland, we do not wish to get up and face Reality.

So if oil suddenly spikes in price.  Let’s say doubles.  Our cost of living will almost double.  Without something changing, our quality of life could be halved.  It’s hard to be half hungry though and it’s hard to drive only half way to work.  The dislocations could be ruinous.  My power bill is doubled, my transportation cost is doubled.  Marginal labor is laid off.  Now the situation is akin to trying to build lifeboats when the Titanic is sinking.  Not enough to go around and hard to redeploy the iron and steel present in the mother ship to a new purpose.  Order, the old order is compromised and all rush for a safe seat.  Then, like a squirrel in the road and a deer in the headlights we are frozen as some monolithic aberration comes barreling out of the night into our world.  What else do millions of refugees worldwide mean?  “Events” displaced them.  I just wanted to fill my tank and now Egyptians are rioting about the price of bread.

Peak oil will necessarily require long term adjustments.  If we are being increasingly efficient—terrific- we may eventually substitute some better power source or find a better way of life.  But the structure we have created, the life as we know it and have now,  will have to change.

Nextdoor South of Greenwyche

I was recently asked to be a member of a neighborhood group called Greenwyche South of Drake(Nextdoor).  I had some questions about the purpose of joining this group but I reflected a moment and thought it a good idea.  We should have a "North" of Drake group too that together would comprise the Greenwyche Neighborhood Association.  The purposes are not obvious so I would like to address the advantages of such a community association.

The first thing to note is that no matter how friendly we are with our neighbors we are not dependent on them. We are not a village.  We are a group of independent families. Our lives circle out of our neighborhood to our jobs, activities, churches, schools, and shopping.  Most of us typically rely and depend on family members, work colleagues, fellow church members, city services, and paid service providers. If our neighbors are our friends then of course we rely on them but our proximity does not make us interdependent, like a normal village would.  A village would be an assemblage of mutually supporting interdependencies, one step up from the household economy, but today, being independent,  we have no obvious reason to build closer dependencies.  Building a community is time consuming and in our current economic environment has not been seen as necessary.  “Community” is thus one of those things that you don’t really need until you need it.  Currently we enjoy our freedom. 

There is a problem though.   I don’t think “community” can be suddenly turned on when it is needed.  Local government at the city council level encompasses the entire city (all 215 square miles of it), not the neighborhood level.  So the locus of communal action is the city or county level.  In many circumstances this scope of concern is too large.  We don’t necessarily care what is of concern on the other side of town.  Our schools are here,  not there. The big five utilities are electricity/gas, water, sewage, trash and cable/internet.  We have a public utility that provides the first four and private companies (Comcast, Google, DirectTV, and Wow) that provide the last. Our primary concern with these utilities is that they work.  Our secondary concern is that they do not go up in price too fast. We understand a little adjustment every year and we understand gouging. There is nothing governmental about these critical parts of our infrastructure and we are totally dependent upon their interest in our welfare.  Our complete quality of life depends upon these vital services.   What other sorts of neighborhood issues do we face today? Burglary? Neighbor relations? ( A catchall that could include frequent parties, barking animals, poor home maintenance).  Road maintenance?   Land use or property maintenance? Recreation? Schools? In short, we pay taxes and expect services from the city for life quality issues. 

So what would a community association do?  Is there anything  we would like to do jointly that the city would not be inclined to help us with?  Are there any problems BEST addressed at the neighborhood level?  I think there could be if we considered adopting neighborhood goals that fostered greater community and self sufficiency.  What would some of these goals be? 100% home ownership?  Employment for everyone who wants a job?  50% renewable energy with solar? Community watch/policing?  Better school involvement from non-parents? less garbage/waste? disaster preparedness? local currency district, community gardens?

Right now, at this time, I do not think there is an overarching need for  or even interest in greater community governance but I think it would be wise to consider a shadow structure that could be prepared to make important local decisions. I believe that living  primarily locally and sustainably is an important goal for the future.   Globalism and transnationalism have been the dominant philosophy for the last 30-40 years. Our growth model has increased specialization and complexity. But I think we are undergoing a retrenchment.  I think we are in the process of watching those international  multilateral organizations disintegrate.  Ultimately I think resource issues will curtail this philosophy of expanding international linkages and then a slow slide into a de-industrial future will be recognized as having already begun.  We are dependent on growth for our current lifestyle but infinite growth on a finite planet is impossible.  When growth stalls and the Progress Myth evaporates, our focus will need to turn to a more local level.  I believe peak oil represents a fundamental change in our economic system that will necessarily lead to a new financial normal. If we truly desire to live with as much freedom as possible, it will be important to have a solid local community. 

 Paradoxically, in the past, large cities and their anonymity have given people more freedom while local communities have been more confining, not accepting deviant behavior and demanding adherence to specific norms.  But a Community may be able to resist a future of atomized individuals ruled through the national State which could have sharp restrictions on freedom.  A financial calamity would leave us all dependent, like New Orleans after Katrina, on assistance from outside our local area and it may not be available or come with onerous consequences. There could be rules we don't like such as you only have access to your bank account for $300/week.  You can't travel to other cities. We need more taxes and your house is in our jurisdiction. There may be many rules for what you can and must do to support the authorities and all couched in the need for "sacrifice" for the common good.  Do not doubt that I am willing to sacrifice for my neighbors but I may be disenfranchised from contributing to how that is best done. What if a mandatory 2 year draft for young people is instituted so they are required to help in failing schools or "keep order".

I am expecting a collapse of our current financial system. I have no real idea of what that means.  I expect bank accounts to be revalued, pensions to be altered, debts forgiven and payments demanded.    This nearly occurred in 2008 and only massive injections of suddenly created money were able to stabilize the downturn.  Those issues have NOT been solved and will re-play again leading to financial and commercial collapse or massive economic changes in the near (2-10 year) future.  A broken financial system could mean widespread joblessness and erratic food and consumer goods supply.   

Several years ago we had a tornado in Northern Madison County that impacted our neighborhood with power loss for 5 days.  Individually we sat around our radios at 9:00 AM waiting for the mayor to tell us what was going on.   We then did whatever we thought necessary to improve our situation.   We had a curfew—no driving after dark by order of the sheriff and we bought generators to power refrigerators and re-connect ourselves to the outside world.  We did not face security problems—burglaries and the like nor did we have food insecurity issues.  The areas around us had power and a short drive could re-supply most needs.  If the involved service area had been much wider, this favorable condition may not have been the case.  We were also graced with perfect temperate weather, no heating or cooling was necessary. If the grid is down for longer then the 5 days we experienced, then many, many problems become immediate and critical.  Refrigeration.  Heating/cooling.  Cooking.  Water.  Food availability.  If banks and money are shut down, nothing will be like it was.  Old prices are no longer meaningful.  The ATM moment occurs when cash does not come out of the machine.  Credit/debit cards are just useless plastic.  Could this happen?  It did happen in 2008 in several countries.   We would look to government to fix it.  And then we may not like ‘the fix’.  We could be like stranded Katrina survivors waiting for someone to rescue us.  In some cases, that did not work out well. ….

Greenwyche neighborhood can be defined as all the houses whose occupants leave the neighborhood by Drake Ave or Garth Rd.  Cedarhurst is a small subset. From Robin Lane to Downing to Appalachee to Chandler around to Toney.  Nextdoor has included only the homes SOUTH of Drake but we should encourage a North of Drake group that includes the hill country people on  Downing, Barcody, Hickory Hill, Chandler, and Stonehurst.  This would include all the people in the shadow of Monte Sano.  People on the other side of the Farm are Jones Valley people and is another neighborhood.

So now that we know who we are, what sort of community are we?  I am going to think out loud about it.  If everyone was encouraged to join this group we could establish the structure of representative democracy where all issues of concern to the neighborhood were brought up for consideration, discussed, and codified. We could do it actually in a meeting at a central location like Valley Methodist Church or virtually in an app like Nextdoor.  A village of 1,000 homes is too large for everyone to know everyone else and operate like a pure democracy.  Dunbarton's # suggests that people can "know" approximately 150 other people well.  We would know everyone with one degree of separation.  That is why we would need a representative system perhaps organized by blocks.
 

We already have a local government and it is a reasonable question as to what exactly a neighborhood group is organized to do  We can exchange lost dog info and warn of burglars and car thieves but I think the most  practical purpose is to encourage community awareness and foster local decision-making institutions.  We all work together to control the problems of living together.  Philosophically, the need for community organizing is really only necessary when larger government entities do NOT provide for the general welfare.  If  everyone is happy with how life is in our community then we do not need to utilize this proposed “shadow” neighborhood system. But if conditions at a larger level fail and our circumstances are deteriorating, then we will want the protections of a well organized local community.

A Community Called Greenwyche

  I live in a 1000 household(3,000 person) upper middle class neighborhood that is well delineated, interconnected through volunteer activities, school issues, and church attendance.  We are as close to bulletproof as a community can be.  But I can envision an abrupt change in defense contract dollars that would put large numbers of our fellow citizens out of work.  Fewer jobs impacts mortgage payments and lots of people would move to find better opportunities. I have thought that it would be useful to construct a shadow “government” neighborhood network based on the community pool recreation center.  It was created in 1962 to give the neighborhood children a summer pool they could easily access by walking or riding their bikes. Our family belongs because it is easier to pay $350/summer for a large pool and swim team than try and build your own. 

A financial crisis like 2008 will expose a big problem for my neighbors,  the level of unencumbered home ownership.  If the financial system seizes up and job loss spreads,  the middle class is in danger of losing their home.  We are an old and settled  neighborhood but I just don’t know how overextended everybody is—I use lots of remodeling and new fancy cars as a negative indicator of indebtedness.  Everybody looks a lot wealthier than me and perhaps they are.  

There are really two important issues to address with financial collapse or electricity grid collapse:  Security and food.    Community meetings that gradually focus on issues of sustainability are conceivable.  The key is to think local community WORK rather than passive dependency on distant elected officials. What can a bankrupt local government offer?  The problem will be converting to a neighborhood state of mind when your $86,000 government contract salary has assured your independence.  As those fail at varying intervals we would need to keep the employed fortunates,  engaged and sustaining the neighborhood. Those with “income” cannot go it alone or try and support everyone but we should be mature enough to avoid a Zombie Apocalypse.  I do wonder when the time is right to push for more local autonomy.  A Dow stock crash would be a wake up call so people could see there was a problem—perhaps local efforts could begin.  I find my suburbia comforting.  We had a very pleasant mini-crash in 2011 when a tornado took out the power for 5 days.  Without TV and electronic devices we gathered as neighbors to cook up the food defrosting in freezers and talked about whatever.  The temps were pleasant and a car could take you 30miles away to go to a store if necessary.  I thought the template was encouraging.  Essentially it was a 5 day vacation.  Grocery stores were emptied, gas stations could only pump if they went to the trouble to bring in a generator and then people got mad if they raised prices on their gas.  You had to pay with cash.  At the end the generators began to disturb the peacefulness  and then the power returned.  A longer collapse scenario will not be so cheerful but I am counting on 5 days without security or hunger issues to institute and declare local autonomy.  Let the police work their magic in other neighborhoods.  We will go it alone.  But we would need some serious preparation.

Are American neighborhoods too independent to rapidly change to a local sustainability model?  It would be better to work together before a lot of people get hungry or other more organized groups dictate conditions.  I think collapse conditions are just too slow to permit cooperation without some serious forethought.  I would propose that people think about their neighborhoods as a resource for managing the decline of industrial civilization because financial collapse can come on quickly and leave many citizens betrayed without  being able to support themselves.  If the national government starts printing a UBI for everyone, they are making a play for control of the new conditions and municipalities should be careful of the proffered assistance.