{"id":35439,"date":"2016-01-23T00:15:35","date_gmt":"2016-01-23T08:15:35","guid":{"rendered":"https:\/\/lenpenzo.com\/blog\/?p=35439"},"modified":"2024-11-22T16:35:55","modified_gmt":"2024-11-23T00:35:55","slug":"black-coffee-the-deflation-bogeyman-and-americas-decline","status":"publish","type":"post","link":"https:\/\/lenpenzo.com\/blog\/id35439-black-coffee-the-deflation-bogeyman-and-americas-decline.html","title":{"rendered":"Black Coffee: The Deflation Bogeyman and America’s Decline"},"content":{"rendered":"

\"\"<\/a>It’s time to sit back, relax and enjoy a little joe<\/em> …<\/p>\n

Welcome to another rousing edition of Black Coffee, your off-beat weekly round-up of what’s been going on in the world of money and personal finance.<\/p>\n

Money is the barometer of a society’s virtue. When you see that trading is done, not by consent, but by compulsion — when you see that in order to produce, you need to obtain permission from men who produce nothing — when you see that money is flowing to those who deal, not in goods, but in favors — when you see that men get richer by graft and by pull than by work, and your laws don’t protect you against them, but protect them against you — when you see corruption being rewarded and honesty becoming a self-sacrifice — you may know that your society is doomed. Money is so noble a medium that it does not compete with guns and it does not make terms with brutality. It will not permit a country to survive as half-property, half-loot.<\/em><\/p>\n

Whenever destroyers appear among men, they start by destroying money, for money is man’s protection and the base of a moral existence. Destroyers seize gold and leave to its owners a counterfeit pile of paper. This kills all objective standards and delivers men into the arbitrary power of an arbitrary setter of values. Gold was an objective value, an equivalent of wealth produced. Paper is a mortgage on wealth that does not exist, backed by a gun aimed at those who are expected to produce it. Paper is a check drawn by legal looters upon an account which is not theirs: upon the virtue of the victims. Watch for the day when it bounces, marked, ‘Account overdrawn.’<\/em><\/p>\n

When you have made evil the means of survival, do not expect men to remain good. Do not expect them to stay moral and lose their lives for the purpose of becoming the fodder of the immoral. Do not expect them to produce, when production is punished and looting rewarded.<\/em><\/p><\/blockquote>\n

That is an excerpt from Francisco d’Anconia’s famous “money speech” in Ayn Rand’s classic novel Atlas Shrugged<\/em>. I think it is one of the finest books ever written, and I strongly encourage everyone to read it. Although Atlas Shrugged<\/em> was published in 1957, the story — and the warning that comes with it — is more relevant than ever.<\/p>\n

Okay, and with that, off we go …<\/p>\n

Credits and Debits<\/strong><\/p>\n

Debit:<\/strong><\/span> Oh, noes! Don’t look now, but the “deflation monster<\/a>” has come out from under the bed and it’s putting a big scare into a lot of people. Apparently, falling prices are a bad thing. At least in the upside-down world we live in today.<\/p>\n

Debit:<\/strong><\/span> The Royal Bank of Scotland is so scared they’ve advised their clients to prepare for a “cataclysmic year” and “sell everything<\/a> except high-quality bonds.” Everything?<\/em> Even gold and silver? Wow. And you think I’m<\/em> a fear-monger?<\/p>\n

Credit:<\/strong><\/span> By the way, somebody should tell the Royal Bank of Scotland that “high-quality bonds” aren’t as high-quality<\/a> as they used to be. Just sayin’.<\/p>\n

Credit:<\/strong><\/span> For a little perspective, the Mises Institute points out that deflation doesn’t have to be a bad thing<\/a>. In the US significant deflation was associated with its two greatest growth periods during the 1800s: from 1820 to 1850 and from 1865 to 1900.<\/p>\n

Credit:<\/strong><\/span> Deflation has certainly hit the gasoline pumps. Heck, forget Star Wars; gas wars are back<\/a> — with a vengeance. Well … at least in Michigan. A gallon of unleaded there could be had for 46 cents<\/a> this past week. And, no, that’s not a typo.<\/p>\n

Debit:<\/strong><\/span> Those low fuel prices are a reflection of the worldwide oil glut. Unfortunately, that spells serious financial trouble for the petroleum companies that produce it — and the banks they have loans with. As a result, the banks are now bracing for billions in bad oil loans to implode<\/a>.<\/p>\n

Debit:<\/strong><\/span> Perhaps this impending doom in the oil industry is just one reason why the New York Times felt compelled to ask this week if America’s best days are in the rear view mirror<\/a>. Um, yes — for now. But I’m confident greatness will return. We’ll have to suffer through an economic reset first, however.<\/p>\n

Debit:<\/strong><\/span> Although the Dallas Fed denies it<\/a>, Zerohedge reports<\/a> that they’re attempting to stave off bank contagion from oil loan defaults by “effectively suspending mark-to-market<\/a>” accounting for petrol companies. The mortgage companies tried the same trick before the last financial crisis in 2008 — but it only delayed the inevitable.<\/p>\n

Credit:<\/strong><\/span> Assuming the Zerohedge sources are legit, commenter “Phillipat” summed the situation perfectly<\/a>: “Does anyone else remember there used to be this thing called GAAP<\/a>, and an Accounting Standards Board that actually applied standards via public accountants? Just another example of how the entire US system is completely corrupt.”<\/em><\/p>\n

Credit:<\/strong><\/span> Financial author Doug Casey remembers. In fact, he says America’s decline is because, “The institutions that made America exceptional: a belief in capitalism, individualism, self-reliance, and the restraints of the Constitution are now historical artifacts<\/a>.”<\/em> Sadly, Mr. Casey is spot on.<\/p>\n

Debit:<\/strong><\/span> I believe the start of America’s terminal descent began on August 15, 1971; that’s the day President Nixon “temporarily” closed the gold window<\/a>, officially severing the last link between the dollar and real<\/em> money: the yellow metal. You can bet Francisco d’Anconia would agree with me.<\/p>\n

The Question of the Week<\/strong><\/p>\n

[poll id=\"97\"]<\/code><\/p>\n

Last Week’s Poll Results<\/strong><\/p>\n

How many tickets did you buy for the $1.5 billion Powerball lottery last week?<\/p>\n