Foros de la Plataforma por una Vivienda Digna

[netodyssey]

The birth of the monetary system

It was on this day, exactly 35 years ago, that the monetary system of our world came to birth.

It was an immaculate conception, free of taint from history or tradition, mid-wifed by the administration of Richard Milhous Nixon, which decided that it needed to protect America's gold...and destroy the world's money.

Thus was renounced the solemn promises made by generations of US Treasury secretaries...that US currency obligations would be paid off in gold. Thus ended the time-hallowed monetary tradition of gold backing. Instead, in effect, Nixon plumped for default.

But who cared? By then, America was calling the shots around the world. If it chose to debase its own currency, who could do anything about it?

Three and a half decades later, we raise our heads and look around us in fear and trembling. What hath this goldless innovation wrought?

In the 1970s, it wrought the worst recession in 40 years, until big Paul Volcker finally got control of inflation. The stage was then set for a big boom – one that took the Dow in New York from under 1,000 to over 11,000. But, since there are never any free lunches in the financial world, stocks did not merely become 11 times more valuable; with the dollar no longer nagged by gold, there was also a tidal wave of money and credit that muddied the whole picture.

Yes, US stocks were priced 11 times higher, but what were they really worth? No one really knew, because the money in which they were quoted floated at high tide along with the stocks themselves.

The boom only ended in January 2000. What would have happened next, had things been allowed to progress normally, we shall never know. Instead, after a couple of jet planes flew into the World Trade Centre, the Feds panicked and pumped even more credit into the financial system, creating a fresh series of global booms...and bubbles - in residential real estate...in emerging markets...in gold and commodities...in derivatives.

Now it appears that bubble-time has finally come to an end. Loan applications are down 20% in the US from last year. The housing market index is at its lowest level in
15 years. And the National Association of Realtors thinks sales of existing houses will be about 6.5% lower this year than the last.

"Who’s going to buy all those condos?" asks the Minneapolis paper.

Who indeed. Markets go down...and go up. But what has the goldless market really accomplished? Are people better off? Richer, freer, happier?

They are no happier...say the polls. The welter of laws, codes, and regulations tying down the world's most powerful nation tell us they are no freer. But are they richer? Yes...and no. The rich have gotten richer...because their assets have shot up in price. But those who are not rich? The numbers are squishy, slippery...comparisons are elusive...but in terms of disposable money, the working man in the US has made almost no financial progress in the last 35 years.

"It bothers me," former Federal Reserve Chairman Paul Volcker said in an interview. "I tell you, I don't know why there hasn't been more discussion and more unhappiness about this because it's become quite distinct. For a long time now, if we believe the statistics, the average working guy does not have an increase in income."

Bloomberg elucidates further:

"Previously, [US] income grew more or less in step with household wealth. From 1962 to 1966, a period of low inflation and robust economic growth, real private sector wages rose 27.5% while real net worth increased 23.6%, according to Bloomberg News calculations based on government data. In the five-year period ending in 1996, real net worth gained 15.6% while private wages grew 11.3%.

"More recently, the gap between household net worth and wage growth has widened. From 2001 to 2005, the value of household assets minus liabilities rose 16.6% after inflation. Private sector wages rose just 2.7%."

We look around and also ask ourselves what the average man in the West has got from the new and improved monetary regime of the last 35 years. A bigger mortgage. A longer workday. More gadgets, cars and houses.

He has gotten more globalised commerce too. Easy credit has bought him gadgets from Hangzhou, China or Bangalore, as easily as from San Diego, Birmingham or Cologne. He’s also discovered 2 billion people who want his job, his house, and his standard of living.

Too bad they can’t afford them. Too bad he can’t, either.

*** Today is the Feast of the Assumption...which commemorates the day the Mother of Jesus was taken up body and soul into heaven. Even though it didn’t become a dogma until the twentieth century, the Assumption was widely accepted as a fact in the Middle Ages, along with a belief in Mary's immaculate conception.

It is a public holiday in many countries, including Cameroon, France, Italy, Belgium and Spain. We are not theologically inclined, but, unlike the Nixon administration, we see no particular reason why we should object to a tradition that has been around for centuries. In a few minutes, we too will be off to mass.





But meanwhile, as always in August, our house is open...and our liquor cabinet, too...to guests. Nearly every evening, we have them. Some from across the street. Others from far away. But without fail, the conversation is lively, often engaging.

And, though your editor is not an especially sociable fellow, he goes along with the rest of the family and keeps his ears open.

"A couple of things surprised us," started a French naval officer just returned from a three-year stint at Virginia Beach in the US.

"Americans are very warm, nice people. But they don’t seem well-travelled or well-informed. We kept meeting people who didn’t have passports and had never even left the state of Virginia. Or, if they were taking a big vacation, maybe they would go to Florida. That seemed strange to us in a country where people are so

rich...and so advanced technologically. You’d think they’d be more curious about the rest of the world.

"Then we read that even most members of [the US] Congress don’t have passports. It makes you wonder. After all, American foreign policy is the most active and aggressive in the world, yet, Americans themselves are not really very interested in the world outside and don’t know much about it. And then they are very bad at languages...and bad at understanding foreign cultures. Which makes me think they are going to be very bad at working their way through complex international situations – such as what we have today in the mid-east.

"It doesn’t really surprise me that they’ve made such a mess of things there. They just didn’t understand what they were getting into. And now they don’t understand how to get out of it.

"You can certainly criticise us French on many levels, for many different things...but we do know something about dealing with Arab countries. And we warned America’s leaders not to go into Iraq in the first place. Not because we particularly care about Iraq...we just know from experience in North Africa that you don’t go into those places unless you know exactly what you’re doing and how you’re going to get out. Americans – and I’m talking about the people I worked with at the naval base – oversimplify the rest of the world, because they don’t really know it that well."

"What was the other thing that you found surprising?" we asked.

"Oh...well, in France, military families tend to have a lot of children. It’s just tradition. We’re usually very conservative...and Catholic.

"But in America, big families are rare. We have 6 children and people think we are either very rich...or very eccentric. They don’t know what to make of it. Most of the Americans in our neighbourhood had two children...or maybe three at most. Six was unheard of.

"I guess these things go in fads and fashions...partly. But another reason could be that Americans have to pay for their own education, beyond a certain level. And for health care. And it gets very expensive to have families. Some people I know actually made that calculation when they decided not to have more children. They simply couldn’t afford them. So the only people with big families are the rich...or the poor, who don’t care about higher education.

"It’s kind of sad, really. It’s sad when people want more children and can’t afford them."

*** We also had another group of visitors – a family of Americans with four children. They returned to the US during the London airport closures last Friday. We were wondering how they made it home...and then got this
note:

"We returned safely to Maryland last night. Elisabeth's advice (after we saw our train leave without us) to jump on the next train to Paris was good. From Montparnasse, we took a taxi to the airport without problem.

"In fact, we were blissfully unaware that anything was going on with air travel until we reached Iceland.
Happily, the security guards there didn't take the idiotic restrictions on carry-on baggage literally. They seemed as annoyed as we were to have to go through with the motions. After checking with a supervisor, they even let us on with sealed baby food for Jeremiah - and Bethany's asthma inhaler, though we don't carry the doctor's written prescription with us. But it did delay us.

"Luckily our baggage was already checked through from Paris to Baltimore, so even though we were held up by an hour, the plane couldn't leave, since our baggage was already in the hold. We were literally the last to board..."

Regards,

Bill Bonner
The Daily Reckoning
http://www.dailyreckoning.co.uk/article/150820061.html