Dollar Repudiation
FOFOA

Every day I read new articles about how and why a purely symbolic unit of account, a book entry, a piece of freaking manmade paper is going to RISE in value simply because a couple hundred million sheep can no longer be trusted to pay their bills. Are you kidding me? It is the SYSTEM that is failing. The system IS the dollar. The dollar IS the system! And the trusted administrators of this system are right now FLAUNTING their power to create new digits at will TO BUY THEIR OWN FREAKING DEBT!

Sure, I have some dollars. I have just what I need to pay my bills for the next few months. But not in my savings. Not in my portfolio. I just gotta wonder how confident these deflationists really are, that they have gone to 100% cash. 100% TOILET PAPER! Or are they just trying to conjure up some confidence through repetition? I suppose if you say it enough, it must be true! But I'll tell you, it sure feels good to know I'm holding real physical gold right now, not some silly piece of paper. Or worse, some quack's digital book entry that says I'm entitled to some silly paper!

What exactly is a dollar? And what value does it hold?

Of course a dollar holds the momentary value that producers and hoarders of real goods and services are willing to surrender for silly paper at any given point in time. The key is that value is determined by producers and hoarders of real stuff (not by printers and hoarders of paper stuff), and that their opinion of paper changes its value over time.

During the credit expansion phase of the system there are opposing forces that magically manage the value of a dollar. The first force is that credit creates many new plastic digits that bid on the same stock of real goods and services, putting upward pressure on prices. The second force is that the credit expansion process creates a paper Ponzi profit pyramid which lures producers and hoarders of real stuff into the paper world, putting upward pressure on paper. These opposing forces keep common prices in check. Another see-saw balancing act that makes price and value appear stable when it is most certainly not.

Then in the next phase, as the paper Ponzi profit pyramid pops, we see these forces play out in reverse! A flight from Ponzi paper and at the same time a disappearance of plastic phantom digits bidding on real stuff. More price and value stability! Well I'll be...

This economics thing can sure be confusing! By the way, please review my April post, The Judgment of Value to see who exactly sets the value of a dollar. It is this "judge" who is currently and temporarily dazed by these confusing forces!

What formerly made this "judge" want our worthless paper (the paper Ponzi profit pyramid) is no longer functioning properly. Yet he is still accepting our paper at the same previous rate. At least he is for the time being, probably because we are shoveling into his wheelbarrow a little slower now. But what is he going to do with all this paper now that it is paying 0% interest, and now that the paper Ponzi profit pyramid seems to have morphed into a black hole space vacuum monster?

It is true that we did hit him upside the head pretty hard with our shovel last September. And he may still be dazed and confused from the blow. Or maybe he is only pretending to be as he plans his escape.

About these "value judges", from The Judgement of Value:

The mechanism by which they pass this judgement [on our dollar] is an enormously complex concept. Our government tells us this concept is called "inflation" (or "deflation"). They tell us that these people of great control either "inflate" prices or "deflate" them. But in reality, these people are simply trying to balance the goods they can receive in the future against what they are willing to part with in the present. To do this, they weigh what they have in stock against what they need and want. And they pay close attention to the cost of those other things as well as the availability and time horizon for acquiring them.

So these "judges", these price-makers and value-setters are actually looking at the dollar's "store of value" function. And they are analyzing it relative to their own time horizon for purchases. Presently they cannot count on interest or the paper Ponzi profit pyramid to protect their paper holdings over time. They can only look at their own FUTURE JUDGEMENT as it pertains to and creates either future inflation or future deflation. They must judge the present based on a guess at their own FUTURE JUDGEMENT!

The problem right now is that these "value judges" are seeing the trend AGAINST future goods being offered in exchange for US dollars. Sure, the US will always offer its exports in exchange for dollars. But the main export of the US is paper Ponzi pyramids, which have fallen out of fashion. It is the rest of the world's "real stuff" exports being PRICED EXCLUSIVELY IN DOLLARS that gives this paper any value over time. And on this front, the future looks grim.

Of course we are now talking about the "medium of exchange" function of the dollar. And while this function will continue INSIDE the US, the only thing that matters to our "value judges" is if it will continue OUTSIDE the US. And remember, the dollar, like a drunken sailor, has sowed its seeds far and wide! But it is not the holders of those global dollars that determines their value, it is the holders of the real stuff they buy!

Of course, over time some of these producers have also become hoarders of US dollars in the form of Treasury debt! These dollar stockpiles are now stored in the central banks and sovereign wealth funds of some powerful judges. And based on this knowledge, we silly Americans tend to think, A-HA, we've got them! They are caught in our paper trap! They are in a Catch-22! They HAVE to keep shipping us their real stuff in exchange for our worthless paper! But do they? Is there really no escape from this "trap"?

There is no way these powerful judges could ever sell or unload all of those dollars they hold as US debt. But remember, it is held by their central banks, not private interests. So, the CB's would not be looking to "spend" these reserves in the usual way. They obtained them as their local economy generated excess sales to the US (for them a trade surplus) and their private citizens wanted to hold local currency assets, not dollars. So the CB's printed local currency and traded it with their citizens for these excess dollars. Then they traded the dollars for US debt so as to earn interest.

Now, exactly what good are these debt holdings as long as their country continues to run a trade surplus? Not much if the locals don't want to hold dollar Ponzi pyramids. In the end, if the CB's were to sell these Treasury holdings it would crater the US debt markets long before any real value was obtained. And, to further their problem, the real value could only come after spending the dollars to buy something real. Now what does a CB spend its reserves on, cars, TVs, other currencies?

No, the way CB's balance paper currency Ponzi value risk is through the age old asset of gold. Indeed, if a CB already has enough gold, all it needs to do to secure its net value is to use the medium in jeopardy, the dollar, to bid on its counterbalancing asset, gold. Then as dollar assets crash, gold rises in value to fill any void left by the dollars... and then some!

CB's deal in paper and gold. When the value of one starts to fail, they transfer that value to the other. This is what they do.

They certainly aren't done yet. But they have definitely started.

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