Being a Delta Rat

So, I was coding earlier today when I received an email from Doug Casey's International Man, which I reservedly follow.  He is good at describing the problems.  The title of the email was "Top Five Reasons Not to Vote."

The problem is political myopia induced by the enforcement of party lines and overarching political philosophies, which push out divergent, independent thought.

Fiat Currency: A Nation's Store of Wealth

Fiat currencies are a curiosity that has arisen in the last 40-50 years that has existed as a secretive matter-of-fact.  It is like the benign secret that all of the folks who created it felt was scandalous, when in reality it is a non-issue.  There are no new problems that are introduced by a fiat currency, simply new forms of the same old problems.  Problems with fiscal prudence, honest dealing, and straightforward politics are the same issues that existed before fiat currencies, but the crooked powers that be now have new ways to steal from people that they did not have available to them before.

For a brief review, fiat currencies are imaginary money issued by a government that backs up the industrious efforts of its people.  The intrinsic value backing a fiat currency is not dictated by the government, it is derived from the faith of the governed (and many times others not governed) who choose to use it.

There is another property of fiat currencies that I have been chewing on for some time that is slowly crystallizing for me.  Fiat currencies represent a store of wealth, in the form of faith and the wealth that follows it, that a country can use in lieu of debt or taxation as source of working capital.  The mechanism by which a country can use this capital is via the printing press, or really today by a central bank mainframe server into which more zeroes are simply appended to the end of a long-type value in a database somewhere.  It is literally as simple as making 1,000,000 into 1,000,000,000,000.

However, the ease of this creation of money should not be confused as a creation of wealth for the consequences of this action are severe if not carefully managed.  First, the government doesn't create wealth.  It never has, and it never will.  People create wealth and the government monetizes and uses a portion of that wealth to accomplish its tasks.  If the government prints too freely, above the wealth creation of the people of the country, then the value of the fiat currency will drop accordingly, thus lowering the relative value of the currency with respect to other nations' floating currencies.  If it is printed vastly beyond the wealth creation of the people, then you enter into hyper-inflationary territory, such as happened many times in the past in places like Wiemar Germany in the 1920s , Hungary in the 1940s, Argentina in the 1980s, Yugoslavia in the 1990s, and Zimbabwe in the 2000s.  And despite the Federal Reserve's incompetence in the past, I am glad that they are mostly allowing our currency to float upward in relative value, despite the trade penalties that are paid as a result.

U.S. Dollar Index over the past 5 years.

The fiat currency as a store of wealth can be accessed, much like a bank account for a nation state, to withdraw working capital from in times of need.  It is a good thing to let your currency float upwards and accrue wealth to store up for times of need.  So, despite all of the negative press that our strong currency is getting, I want to ensure that this message gets out.  A strong currency is not a bad thing.  In fact, I would argue strongly that it is a very positive thing, especially for countries who can produce everything they need themselves, especially food and fuel, since those are the two limitations that harm countries who have to import or export large quantities of to survive.  This is a stark contrasting view from Trump who views currency devaluation as a "smart" thing to do.  Sure, it is smart until you need to print money to actually mitigate an existential economic crisis.  If you devalue your currency during stable times, you invite hyper-inflation in the event of a real crisis.

However, this is not to say that the U.S. is on good footing.  As some of the economists that I follow have said, "The U.S. is the least ugly girl at the dance."  We are still ugly, but less so than most other nations in the world.  Since all fiat currencies are ultimately imaginary, it is difficult to measure it's true intrinsic value.  However, if one considers gold, a metal that possesses every property necessary to be used as a substitute for money, you can get a feel for the value of the U.S. dollar against something more permanent.  And although the dollar value of gold has been declining over the past 5 years, it took place before the significant rise in the exchange rate of the U.S. dollar, meaning that the dollar was accruing real value in 2013, while the 2015 exchange rate change is merely a worsening of every one else in the DXY currency basket.

Gold Price in U.S. dollars over 5 years.

This chart is especially significant since many other nations were buying up gold in copious quantities in 2013, most notably Russia and China, so a drop in the price of gold in the face of extreme demand accentuates the potency of this point.

Ultimately, though, the increase in the value of the dollar means that you, dear reader, get a stealth raise as your U.S. dollar-denominated salaries and bank accounts buy more than they did in 2012, although I am sure you already noted this at the gas pump.  I, for one, hope that the Federal Reserve stays out of the way and allows the U.S. dollar to continue to accrue value, as I expect will happen given all of the various crises around the world.  The U.S. is seen as a financial safe haven, despite all of our very serious fiscal and debt problems.