Unsound Money Has Destroyed the Middle Class

Duped and Distorted

DUBLIN – When you start thinking about what money is and how it works, you face isolation, shunning, and possible incarceration. The subject is so slippery – like a bead of mercury on a granite counter top – you become frustrated… and then… maniacal.

You begin talking to yourself, because no one else will listen to you. If you are not careful, you may be locked up among the criminally insane.

We’ve been thinking about money for the last couple of months. It has become our favorite subject. That is why people edge away from us at parties. Our family finds novel ways to change the subject.

“Whoa… sorry to interrupt, Dad… but isn’t that a flying saucer?”

Undaunted, we press on. We think we’re onto something important. We have come so far; we might as well go the whole way.

Economist George Gilder’s new book, The Scandal of Money, came as an unexpected reinforcement. He has been thinking about money, too. But he seemed fairly normal in Las Vegas last week. No facial tics. No babbling or paranoid delusions.

Gilder has come to much the same conclusions from a different direction. It is not real money. It only pretends to be. It has duped the entire world – and distorted the entire global economy.

Neither Cash nor Gold

We’ve already connected most of the dots. Today, we draw a new line from this new dollar to the impoverishment of the middle class. It explains why even Donald J. Trump – a man with none of the qualities you would normally look for in a chief executive – is the Republican presidential nominee.

The phenomenon is teased up for us by one of our own dear readers, who writes:

“Dear Mr. Bonner, you are brilliant. But you are missing a very important piece of the puzzle. As someone that had the unique experience of watching a whole economy transformed from a free market economy to Communism (the state centralized economy Cuban experiment under Fidel Castro and his cronies), I can testify that ultimately neither cash nor gold matter.

There is no shortage of paper money in Cuba. But there is nothing to buy with it. All the money in the world and all the gold in the world cannot buy you a cup of coffee, if no-one is willing to produce it.”

Yes, exactly. Money is not wealth. It only measures the stuff that you can buy with it. No stuff? Then money is worthless. Imagine a man at the North Pole. He is starving and freezing to death.

You give him a Ben Franklin. What is it worth? Zero. Give him a gold coin? Same thing. Good money honestly measures output. It is the output that is the real wealth. And if you want wealth, you have to produce.

That is the meaning of Say’s Law: You buy stuff with stuff, not money. Bad money, however, tricks up the whole system.

Populist Rage

How badly the system has been tricked up was the unintended subject of a recent article in the Financial Times.

“Populist rage puts global elites on notice,” writes the ever-elite, Parasitocracy mouthpiece Mr. Martin Wolf.

Poor Mr. Wolf. He conveniently misses the real cause of the “rage” – the phony money system put in place by the elite. He shows no interest in our perverse money system, but has begun foaming at the mouth anyway.

The gist of Mr. Wolf’s warning is that the elites had better take notice. “Real income stagnation over a longer period than any since 1945 is a fundamental fact,” he continues.

During the most recent end of that period – from 2005 to 2014 – for example, almost 100% of Italian households have seen their real incomes fall or remain flat. In the U.S., 80% of households have experienced the same fate. Britain, France, and the Netherlands are only slightly better.

We’re not sure if it were these facts themselves, or the dreaded populist rage…   but after reciting them, poor Mr. Wolf begins eating the rug:

“Prolonged stagnation, cultural upheavals and policy failures are combining to shake the balance between democratic legitimacy and global order.

“The candidacy of Mr. Trump is a result. Those who reject the chauvinist response must come forward with imaginative and ambitious ideas aimed at reestablishing that balance.

“Our civilization itself is at stake.”