Still more notes on the delveraging economy:
What we have written here is all speculation based on our understanding of how the economy works. Please do not construe it to imply you have been wasting your life in a job which produces nothing, creates nothing, and only serves to empty your remaining years on this earth into a black hole of worthless activity.
For the past seventy to eighty years, an increasing portion of transactions in our economy have been based on the exchange of some real thing for a notional placeholder – a valueless piece of fancy paper with a picture of a dead president on it – and, worse, by some promise of future payment in the form of this fancy piece of paper.
That real thing – a single family home, car, 42 in wide screen high definition plasma television, or pair of shoes – has long since suffered the ultimate end that all such goods suffer: It was consumed through days, months or years of use, until nothing remained of its original utility to us.
Shoes wear out, cars die by the side of the road, the television goes on the fritz right in the middle of American Idol.
Even a house, the most durable of our goods, eventually succumbs to old age.
It is what things do.
But, of all the goods mankind has ever created, there is one exception to this rule: Money.
Money is never consumed because it exists simply to serve as the medium by which goods circulate in our society until these goods fall out of circulation to be consumed.
For instance, it has been estimated that eighty-five percent of all the gold mankind has ever pulled from the ground and stripped of its impurities lies somewhere in some vault of a central bank, or around the neck of some rap artist.
And, here is where it gets really interesting:
What is true for gold, is true for money in general. And, we believe, this also has to be true for the chain of incomplete transactions waiting to be completed since the Great Depression: Every transaction where someone made a purchase on credit that was not eventually completed with the creation and sale of a new good, is still hanging out there in our economy waiting to be completed- every home mortgage, car note, or bag of groceries, whether repaid or outstanding.
These incomplete transactions are sitting as an asset on the books of some financial institution or on the computer in the basement of some central bank.
Mind you, we’re not talking only about debt which has not yet been repaid with the fiat money in your wallet: even debt which has “officially” been repaid with dead presidents, but has not been replaced by a real good, must be considered incomplete.
The reason is simple: The dollar is a valueless piece of paper, which, while it can stand in the place of real money (gold or other precious metals) for purposes of facilitating transactions, cannot itself complete those transactions, i.e., can not do what real money does: replace the value of the good that has been transferred from seller to buyer.
Thus, in any such transaction, the seller has accepted, in return for his/her good, not the money equivalent of that good, but a pretty piece of paper.
This point must be understood: Should there arise a circumstance where real money is called for, where paper can no longer serve as a representative of this real money, because it has no value in and of itself, the aggregate value of all such transactions, all the way back to the moment the dollar was debased from gold, will vanish, as if they never occurred.
All of the “wealth” allegedly created by, and predicated on those transactions, collapses in a massive catastrophic implosion.
If these transactions expire without being completed – without the previously consumed good being replaced by a new good – the economic value of the transaction vanishes, in much the same way as the ledger value of your mortgage vanishes when you default and are foreclosed.
Since the great mass of these incomplete transactions will never be completed owing the the very structure of our economy, where superfluous work composes the great bulk of economic activity, and only adds to the volume of incomplete transactions. the only thing standing between current valuations of assets in the economy and this massive implosion is the relentless addition of even more such transactions.
For all these years, Washington has forced the use of fiat money in place of money, because of the one attribute of money for which fiat cannot be substitute: money’s irreconcilable antagonism to superfluous work, to work that that is meaningless and has no productive value.
The costs of this meaningless work is now embedded in the price of every good sold in our economy, every asset held, and, most of all, in the very employment of millions across this nation.
To evaporate, all that is now required is a trggering event: an event, we believe, that has already happened…