Bikini Economics And The Money Supply

“What do you know about gold, Moneypenny?” – Goldfinger

One of the few things that Pa Wilder left me in his will was his bed. I guess you could call it an heir mattress.

On April 5, 1933, Franklin Roosevelt signed an executive order that made the owning of more than trivial amounts of gold by individuals illegal. Owning gold wouldn’t be legal again until Gerald Ford signed a bill into law that reversed that abomination of a policy.

That law went into effect on December 31, 1974, and people could once again buy gold.

In 1933, the price of gold was fixed: $20.67 per ounce. It didn’t vary, because the value of the dollar was pegged to the price of gold. The Fed© couldn’t print dollars unless they had at least 40% of that value in gold to back it up.

Pro tip: If you have a balloon elephant that won’t fit in your backseat, you can always pop the trunk.

What did the government then do?

It defaulted on the dollar. A dollar had been worth (around) 1/20th of an ounce of gold. After the government stole it all, they decided that a dollar was now only worth 1/35th of an ounce of gold. Poof. Immediately, and with the stroke of a pen, the government stole 43% of the value of every dollar in existence.

The penalty for “hoarding” gold was a big one: a $10,000 fine and up to 10 years in the slammer. I guess the government didn’t (and doesn’t) like competition when it comes to stealing.

It was the biggest heist in history – until Nixon severed the link between the gold and the dollar completely. After that, people could own gold again. There was no real reason for the government to not allow them to own it: they had now stolen the rest of the value of the dollar.

If you rob a vape store, is that a Juul® heist?

And it only took 41 years from 1933 to 1974 to convince people that was acceptable.

Since Nixon removed all gold connection, a dollar is worth (today) about 1/1800th of an ounce of gold.

But that isn’t enough to feed the beast.

The (metaphorical) printing presses have been shoveling money into the economy under the mistaken assumption that all we need is additional debt to keep the engine going. It’s like a demented congressman who doesn’t understand engines deciding to open up the hood of an F-150® to just pour gasoline on it using the dim understanding of a toddler that, “gasoline makes engines go, so if I pour enough gasoline on the engine, it will be as fast as a spaceship.”

That’s really what passes as logic in Washington, D.C. now. I keep writing about the economy in the slim hope that whatever passes for an intellect in the halls of congress will get distracted enough to spend at least a minute or two learning before returning to the concept of, “Ugh, free stuff good. Grug pay for stuff easy because all money free. Wonder why Grug’s armpit’s stink?”

I swear, AOC couldn’t spell “cat” if you spotted her the “C” and the “T”.

See, economics can be interesting!

The Fed® has gone all-in on this economic shadow puppet theater, shoving pools of money toward banks to shore up their balance sheets. Some of the people who are on the winning side of this great wave of money being sloshed around have even spent some.

Blackrock® buying up all the houses for sale? Yup. They see what’s coming. All the rich and powerful buying farmland that will never produce enough via crops or cattle to justify the price? They see what’s coming. They’re moving as quickly as possible to use this money to buy everything they can.

And people are happy. “Hey, I sold Ma’s old house after she passed away for twice what she paid for it in 2000! I made out like a bandit.”

It’s not all bad. Thankfully, the velocity of money is down.

What’s the velocity of money?

That’s how fast a dollar gets spent. Poor people move money the fastest – a dollar comes in and, poof, out it goes again. They have to spend it because they don’t have any spare money. They get paid on Friday and on Saturday it’s turned into rent payments and insurance payments and Cheetos® from Target™.

Roses are red, roses are blue, depending upon their velocity relative to you.

But the velocity of money is now slower than Joe Biden when he’s asked difficult questions, like, “What is the year, Joe? Hey, we’re talking to you. Dammit, he’s gone catatonic again. Someone get those squeaky toys he likes. And keep Kamala out of the vodka.”

Things would be far worse if the velocity of money hadn’t dropped so far that it was moving as slow as Oprah trying to get off of a couch. Since poor people slosh it around so much, that means it’s exactly where the Fed® put it: with the rich people.

So, if the money supply has gone vertical, then why hasn’t the price of everything doubled?

And most of it is sitting in pools right now. Except for the early adopters who are looking for something, anything to buy so that when the dust clears out of the coming inflation that they are richer than ever and Oprah has even more Twinkies®.

I’m not against capitalism – but this isn’t capitalism. It’s a rigged card game where your money evaporates – first slowly, and then all at once.

The engine of debt isn’t driving economic growth anymore. What the debt is doing is papering over the holes in the system so that it keeps going another week, another month, and hopefully another year.

But the downside to this is the longer a failing system is kept going by speeding it up, the more energy it stores, the bigger the crash, the bigger the collapse.

Why did Princess Diana cross the road? Inertia.

The economy has inertia, though. Even though it’s working on the most significant collapse in the history of the United States, people still believe. They take dollars because they believe. They believe the rules aren’t going to change.

They will.

Since we’ve seen this game before – we can take at least some steps to protect ourselves. I suppose it’s time to buy PEZ® before the rush . . . .

Author: John

Nobel-Prize Winning, MacArthur Genius Grant Near Recipient writing to you regularly about Fitness, Wealth, and Wisdom - How to be happy and how to be healthy. Oh, and rich.

37 thoughts on “Bikini Economics And The Money Supply”

  1. If you like your gold, you can keep your gold says the bestest government that money can buy.
    Elder FAM got a letter from Herkshire-Bathaway (names changed to protect the evil) saying Ms. Sherlock (yea right) is looking to move into your subdivision sector and the local sectors were named in the letter.
    The replacements need somewhere to live and it would be nice if well thought out editorials and Bible passages would make the Long March comrades have a come to Jesus moment but it doesn’t work that way in the real world.
    The great Robert Heinlein was right with the comment that politics boils down to those who want to control others and those who have no such inclinations.
    Too big to fail? The bankster banana republic most certainly isn’t and this just in from seventh century goat herders who live near the soon to began construction BRI route, y’all come on back and get some anytime, ya hear, as they sit on that $90 billion dollars of rare earth minerals deposit and that is just one spot.

  2. “Bikinis never lie.”

    – Ben “Fred” Franklin

    When gallows humor is all we have left, it makes sense to construct more gallows, no? I’ve heard that they come in handy for “other” purposes, too.

    The current economic situation/disaster-in-the-making puts me in mind of two famous lines from classic movies:

    “Remain calm, all is well!” – Kevin Bacon, Animal House

    “Hold onto your butts.” – Samuel L. Jackson, Jurassic Park

  4. C’mon, John. I know this is seriously bad stuff that’s coming, and that you’re writing about. But … blue bikini, yellow surfboard … somehow I just can’t concentrate. What were we talking about again?

  6. Great to see the economic bikini graphs making a comeback!!! Um, even if the vantage point is from the front!!!

    There is SO much background reading relevant to this subject. Here’s an especially relevant one published just last week with three interesting graphs about imaginary paper money. You’ll just have to fill in the bikini backgrounds with your own imagination.

    https://goldswitzerland.com/four-unreported-signs-paper-money-is-dying/

    1. LOL. Belated top o the hat to Horseless Headsman – his ZH link is the same as this original article they cross-posted.

  7. In a panicked rush for the exits, always depart safely long before the rush starts, and be at least a block away before it happens.
    Once the exits are choked, you will be too.

    True for theater fires, and for crashing economies.

    For the Slow Learners, that means the time to get out was five minutes ago.
    That will be true until it’s too late.

    And BTW, this will be a global crash.
    People in Sh*tholia and Trashcanistan won’t notice, but only because they’re starting from facedown, on the floor, already.
    For everyone else, there is no “safe space” country.

    Your only option is to find somewhere that TPTB, and the Golden horde of refugees, will have a difficult time taking an interest in you.

    Plan accordingly.

    1. Yup. Every time, people wait until it’s too late. A full tank of gas away is best. Half a tank will (sometimes) work.

  8. People in Sh*tholia and Trashcanistan will notice, because the money tap will be cut off. They will starve with the rest of us (some sooner than others). Just keep prepping.

    1. Um, no. None of that is so.

      Because the money tap means nothing whatsoever to someone who barters time for goods for a subsistence level of survival.

      Like they have since ever.

      They aren’t trading for fiatbux. Nor leveraging bond futures, FFS. All a crash means to them is less tourists in Sh*tholia. The bride price in Trashcanistan will still be paid in goats, and it will cost just as much walrus ivory for a pound of whale blubber anywhere north of the Arctic Circle, and just as many baskets per flint arrowhead in the Kalahari, regardless of the DJIA or the Prime Rate.

      QED

  9. There will always be some pockets of not-that-bad. Those who have paid-up housing (or, so inexpensive that they can manage to come up with the ready cash for the mortgage). Those who have some cash reserves – the actual dollar will have some residual value for a time).
    Those who have diversified income – it won’t completely collapse at once.
    Those who have skills, tools, and stored food/water. I’m looking into a home still system – say what you will, liquor keeps its value pretty well.
    But, yeah, bad. And, for long enough to shake out the country into those who will sit and wait for “someone” to feed them, those who are enterprising enough to GET some food, and those who will STOP the 2nd group from taking their stuff.
    As too many of us are passive, expect it to be bad for those with stuff, as the government is likely to commandeer all the available supplies. A bad time to be in a city of any size.
    Kelly Trumbull’s nightmare scenario is heading for us, lickety-split.

    1. Linda, you and Aesop are “on the money” so to speak. Listen to this, I put my two weeks notice in to the company I work for. Three days before the two weeks were up, they conned me into another two weeks for a small “stay on bonus”. Hell, I just want out before everyone else starts crashing for the doors. Now, we’ve lost 4 more workers, one of which was a supervisor. It puts the excess strain squarely on the folks with the brains, motivation, and knowhow to get the production runs done. My job is jack of all trades mechanic/electrician/plumber/welder/production worker/supervisor/trainer…I just want to cash in my 401k before cash turns to toilet paper. Btw, I’m debt free too.

    2. Learn to simplify, learn to garden, learn to make do . . . that’s a start. I think this will be far worse than the 1930s.

  10. The money issues are multi-folded:
    1. Holding dollars that are shrinking at a 5 to 10% rate is a fool’s position.
    a. Shadow Stats has increased their estimate of inflation to around 14% (1980 method). And that info is a month old.
    2. The stock market is way over extended and teeters on collapse. What is so good about the market that it is worth 1/3rd more than the end of 2019?
    a. Financial news has turned scary and warns of a correction (meaning 10%).
    b. Leveraged investing is back to levels of the Dot Com mess.
    c. Stagflation has been mentioned in the major press several times in the past couple of weeks.
    d. Supplies of many things are impacted, especially for home building. Now paint is not available because the base ingredients are not available.
    e. GDPNow shows a drop straight down for next quarter’s GDP (last week 3.7%). How can there be a healthy economy with no GDP growth? And now they have a big warning that Covid-19 is screwing with their numbers and cannot be trusted.
    3. We have multiple levels of extreme fools in charge of the gov (prez, VP, speaker, FED, generals).
    a. The Federal Debt ceiling needs increased at the same time the fools are pushing 2 bills that will spend well more than 5 trillion dollars.
    b. And they are pushing a significant tax increase on corporations even though it was proven just 3 years ago that corporations had moved off-shore because of the high US tax.
    4. Silver and gold are about 50% over-priced relative to values 1.5 years ago. Interestingly, the gold/oil ratio is right at the historical rate of 20:1.
    5. Property is over-priced. The bottom will fall out when interest rates start climbing since everyone’s idea of cost is the monthly payment. Inflation drives the interest rates. We currently have negative real interest rates.
    a. Buying bonds would be a real suckers move.
    6. Ammo is more available even if 2.5 times prior prices. Ammo prices have nudged back up a bit since Biden out-lawed imports of Russian ammo.

    So what is a person to do?

    1. Not dementia. That’s Gropey Dopey himself.

      His “brain trust” is over-named, and under-capitalized.

      But that’s because no one wants to hear for a “jackass fool” trust, nor a “village idiot” trust.

      But that’s all we’ve got to look forward to, at least until the overthrow.

      As always, if you think your ship has come in, the tsunami will be the ultimate hull proof-test.

      Interesting times.

  13. “It’s a rigged card game where your money evaporates – first slowly, and then all at once.”

    I think it was Matt Bracken who likened our economic system to a card game, just before someone flips the table over, the lights go out, and gunshots ring out as everyone runs for the door.

    And it’s going to get worse, just wait until everything is electronic so they can institute negative interest rates.

  15. 1913 theeee worst year for us peasants. Income tax and creation of our second central bank. Andrew Jackson killed the first one and survived, no CIA at the time like in JFK’s era. Linda I watched a guy build a still on a PBS show a few years ago and I have wanted one ever since but the corn access is 2 hours from here and by the time I would need it travel that far may be to risky. Does anyone have the bathtub gin recipe from prohibition?

  16. It’s interesting the M1 money supply is asymptotically upward while the velocity is asymptotically downward. Is it inflationary / hyperinflationary collapse or deflationary collapse? I’ve been wondering that for years.

    Not that there’s much difference in the long run, but in the Weimar, people would rush out to spend their money before it became worthless. Sit down and buy a cup of coffee? The price would go up before you bought a refill. Both money supply and velocity were tending toward infinity.

    Am I the only person who reads these for the graphs?

    1. Heh heh. I don’t think you’re alone.

      I think the money supply (Weimar) inflated first. Velocity only picked up as the inevitable started showing up. That was the key.

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