What if we never were the economic power we thought we were? What if the dollar really held up on its own? What if the three largest economic powers of the past 60 years all suffered from failing one of wisdom's oldest admonitions recorded as the words of the Patriarch Moses.
"… And it will be, when the Lord, your God, brings you to the land He swore to your fathers, to Abraham, to Isaac, and to Jacob, to give you, great and good cities that you did not build, and houses full of all good things that you did not fill, and hewn cisterns that you did not hew, vineyards and olive trees that you did not plant, and you will eat and be satisfied. Beware, lest you forget the Lord, Who brought you out of the
, out of the
house of bondage." land
Devarim 6:10-12. The Fifth Book of the Torah (Deuteronomy for Gentiles).
In July 1944, it was not certain that the Allies were going to win the Second World War. The winds were blowing in their favor to be sure. The Allies were regaining territory on the west with
France and on the east in Russia. One month earlier, the success of D-Day had
buoyed confidence that the German juggernaut was vulnerable and that the Allied
powers may indeed prevail. The U.S. economy,
barely functional save the frenetic ultra-nationalist industrial orgy
supporting the war machine with a dollar untested since the Great Depression,
had no evidentiary power save the aspiration wafting on the breezes of imagined
victory. U.S. Secretary of State Cordell
Hull pleaded with is colleagues for free trade as a remedy for a world at
war. Thinly veiled post-colonial score
settling placed the U.S. dollar above the British pound in large part due to
the linking of the British Parliament accession to Bretton Woods one year after
its negotiation as a condition of $4.4 billion in much needed reconstruction
aid. A similar inducement forced the
Franc to bow to the Dollar in exchange for a Dollar denominated billion dollar
loan for French reconstruction.
A cunning convergence of levers conspired to create the illusion of U.S. dollar hegemony. The International Monetary Fund (IMF) and the International Bank for Reconstruction and Development (IBRD, later the World Bank) were carefully constructed to reinforce what, at the time was merely an illusion. The great concession - linking the U.S. dollar to a gold rate of $35/oz - was half the commodity illusion; the other being the growing global demand for oil conveniently financed with dollars. But, to reclaim the prophetic warning referenced above, we must consider the Marshall Plan and the
U.S. occupation and MacArthur administration of Japan. The fiat currency - in the form of the U.S.
dollar - was instrumental in rebuilding Europe and Japan and building infrastructure
(and dollar trade dependency) for the manufacturing base of the subsequent
economic booms in both regions. By
August 15, 1971, President Nixon realized that the illusion could be maintained
no longer. Slamming the gold window
closed and, with Executive Order 11615, instituting a last gasp effort to
preserve the Adam Smith inspired economic employment doctrine, Nixon sealed a
fate that would have come fully due in the early fall of 2001 had it not been
for a certain distraction.
Without the world's credit tolerance - a much ignored though vital policy that Nixon crafted to allow expansion of foreign ownership of our dollar-denominated debt - we would have lost our Bretton bet long ago. With Treasury Secretary Geithner's recent announcement that we are once again at a debt ceiling - one side or the other of $16.394 trillion - we continue to bet that the foreign 'others' and our pensions will keep us going. But what we seem to overlook is the $1.26 trillion in debt that we have to repay this year! That's in addition to the new debt we have to raise.
Now, I'm warning you, I'm about to introduce a concept that you may think is entirely unrelated; but please indulge me.
In 1993, Richard M. Auty introduced the term "resource curse" to describe the phenomenon in which countries rich in natural resources were typically locked in grinding poverty. He and hundreds of economists and social scientists have pretended to be puzzled over this phenomenon in faux sincerity. But this "curse" is an illusion derived from disingenuous monetary myopia. While Bretton Woods broke the literal colonial trade controls of
and to a lesser degree France,
by imposing the U.S. dollar reserve and trade dominance, it merely traded a
sovereign colonial force for a monetary one.
To participate in the global economy, a single currency hegemony insures
that local collateral (in the form of extractable resources) will be
denominated in a debt-based currency (the dollar). The country capable of selling resources,
unable to develop them with direct investment in local denomination is
pressured to debt-finance its minority equity participation in its OWN
resource development thereby forcing two monetary inefficiencies from which
escape (sans corruption and despotism for the few in power) is impossible. The natural resource, which in the ground
could serve as the basis for sovereign wealth, becomes the alienated collateral
for international financiers who, with no thought for development, extract
rents in excess of the resource commodity sales yield insuring instability and
ultimate unrest. By removing domestic
enterprise and commodity optionality through compulsory
dependence on a debt-denominated currency financial utility, the country is
incapable of sustainable development.
Which leads me to a couple of conclusions. By betting the
U.S.'s future not on our
productivity, industry, or innovation but rather on our money, we removed
our own optionality to recover from our present fiscal maelstrom. Money, in and of itself, is not productive
and has no natural yield. It is
optionality constrained. If its flow is
directed towards assets with future productivity, it can serve an important
purpose. However, if money is its own
productive cycle in the form of capricious usury, it is unsustainable. Our perpetual debt growth cycle - fueled in
the U.S. and Europe by our complete unwillingness to evidence economic
will to: a) live within our productive means; and, b) reduce our Federal
employment and procurement market dominance; insures our dollar's ultimate
demise. By financing our trade empire with a dollar backed by debt rather than
by resource or productivity-linked value creation, we've cut off our own
economic and wealth-creating future options.
Ignoring productivity and assets, we've implored the world to continue
the illusion for its own sake. But we've
failed to recognize that our dollar was never entirely what the world
wanted. We used our power to create the
mandate making it what everybody needed.
When that illusion breaks, well… let's go back and look at the Children
of Israel and see how they faired in the "promised land."
Recitation of a lie, no matter how loud and often, does not make it true. But for the Commonwealth (Anglo-Iranian Oil Company later to become BP which globalized oil production ahead of the Rockefeller's Standard Oil; Anglo-American, De Beers, Rio Tinto; etc.) the U.S. and Europe would have been incapable of enacting Bretton Woods because it was through dollar debt denominated commodity pricing and industrial production - not acclaim and desire of the nations - that the dollar had its ride. While the World Bank's International Finance Corporation perfected the natural resource piracy still alive and well in Papua New Guinea, the Pacific Forum Secretariat nations, Southeast Asia, South America and Africa, it did little to improve upon the debt slavery extractive industry model that was quite well entrenched by the Commonwealth and other colonial powers before the Second World War.
So where am I going? Very simply put: the
and Europe are currently trying to fix a
central bank-enabled problem hoping that, in so doing, they'll reassert their
will on the world. They're hopeful that
today's pensioners-in-waiting (a polite way to say modern labor) have total
financial and historical illiteracy and, as a result, continue to buy growing
debt. But that's where InvertedAlchemy
seeks to be a bit of a spoiler. The
clarion call that emanates once a week from
(home of the fiscal incompetent but globalist Thomas Jefferson) explicitly
reminds you that productivity-linked economic models are, and will be, the ONLY way for
We The People to actually build sustainable systems. If we allow indebtedness to stand as a
surrogate for our unwillingness to be productive, we all lose. Charlottesville, Virginia
Allow me to leave you with the most compelling statement made in this year's volume on June 10, 2012.
wealth = utility x retained optionality∞
where ∞ = ∫ of all users across all value dimensions
When one considers this formula, one can readily see that the greatest wealth is experienced when the maximum benefit can be derived (in number of participants) from the least phase and state alteration (for more on this, take a look at my previous postings on Phase and State Coherence). And the more value (in terms of integral accounting) dimensions can be simultaneously appreciated by the more participants, the greater the momentary and residual wealth. So use 2013 to align your assets with wealth of the form that lasts! Happy New Year!