Sunday, July 6, 2014
Reconstructing the US Dollar
Preview Deconstructing and Reconstructing the US Dollar An International Alternative to the US Dollar You Can Convert Your Dollars into Now. There Are Necessary Trade Offs to Consider First Lex LoebContributor Network Talk of the US defaulting on its massive debt on Fox TV sounds like a lot of nonsense. It certainly would be a disaster if the government decided to default but the only reason it would actually do this is for some kind of political theater designed to destroy wealth built up over generations and to redistribute that wealth to people the government decides are more deserving. A default is also thought to be something that would cause the value of the dollar to suffer in at least a market devaluation. None of that is necessary. The government has plenty of assets it can use to settle the debts it has including millions of acres of land mostly in the western united states. The average value of land per acre is probably around $3000 if not just given away in the ordinary method of government selling assets but in having these assets put up for auction where individuals can bid on smaller number of acre parcels. That is about 3 billion dollars the government can take in for every marginal tract of a million acres if it wants to use its assets to back up its debts. The government owns 650 million acres about 30 percent of the land mass of the territory and this does not include the continental shelf lands where oil leases tracts are sold within. The government also owns more than half the fresh water in the great lakes and other bodies of water. The US government own power plants including the Bonneville administration and the Tennessee valley authority plants. The government owns plenty of land with huge coal reserves worth much more than $3000 an acre possibly. The government has other assets including all kinds of hardware in space . It makes it clear it owns most of the wildlife in the USA. The US government has tremendous assets to base it's full faith and credit of the US dollar on. But it does not have to. The government has to sell nothing just to back the dollar with its full faith and credit. We all want to have faith in the government and most of us don't want to see government become over extended and try to do what the private sector can do more efficiently than it can. Welfare recipients in the US don't want to get free land to homestead because they would actually have to work hard at farming it and the powerful environmental lobby does not want any government land touched by even the pinky on one hand of man. A real investment banker can instantly look at government accounts and accounting and say this is not a government that is going broke. Back in the days of the American revolution when the continental currency became wall paper worthless the country was able to survive that because it the currency was just the medium of exchange and not an actual asset. Fortunes of course were lost and are when a currency becomes instantly worthless and no one except for people like George Soros and communist manifesto toters want to see a total government default. Soros is not the kind of banker a country should go to help it get it's affairs in order because his interest seems diametrically opposed to what is in the best interest of the nation and the people who hold US dollars world wide. Soros just wants to shake things up for a quick get in and out trading profit. If you go to Great Britain today you see they survived his attack on the British Pound. British has a higher level of wages than much of the rest of Europe on the Euro in spite of past currency weakness . Britain does not rise to the level of popular American wealth levels because the cost of cradle to grave socialism is eating half of every one's lunch. Milton Friedman said it right. There is no free lunch! The socialists say free free free and their supporters say gime gime gime and everyone else is going to be forced to pay for this and in Great Britain you can see that the costs are incredibly high so that one can draw an economics's graph showing that it just does not pay to work for under 15 thousand British pounds per year because after taxes you end up with about as much money as just going on welfare. The same exact thing is happening in the US and will only get worth with all the new Obama Pelosi programs including nationalized health care and banking reform. All of this scares a lot of people and they do all sorts of stupid things with their investment money for things like retirement to try to protect themselves. We can all see how gold is moving into possible bubble territory because we can see that the US dollar and the Euro have not declined against all other commodities to the degree that they have declined against gold. Gold looks like it will come to a head like a wave, froth at the top and collapse on itself. It has done it before and will do it again. At the moment gold looks like a great alternative to owning the US dollar. One could have doubled or tripled one's money had one bought gold low and sold high. Yes sold. There is no other way to realize profits on owning gold then selling it. Gold pays no dividends and unlike a currency like the US dollar or the Euro or Yen it earns no interest. OK may the Yen earns no interest and the US dollar is starting to do the same too. The fact of the mater is that gold is a primitive version of what a medium of exchange is compared to paper currencies. Paper currencies give everyone using them a lot more flexibility. The dollar has moved onto the Internet along with banking and before that it moved onto credit cards, debit cards and ATM systems. The games played by the US Treasury, the Congress, The Federal Reserve with our currency also scares people who worry about owning dollars. People have to vote with their feet or as consumers. They have to decide what they want their money to be. The development of stock markets, commodity exchanges and foreign currency exchange are almost entirely outside of the control of all governments. Governments around the world have tried to take control of these and have only failed. Issuers of various currencies around the world try to protect their currencies against free market forces and that is the only reason that George Soros was able to successfully attack the British Pound. Communist countries have had a habit of making their currencies so worthless that relatively better currencies like the US dollar come to be called Hard Currency! We just saw a major devaluation in Hugo Chavez controlled Venezuela all because the US dollar is probably more of the real defacto currency there. One would think that George Soros would be attacking the currency mess being made in Venezuela (and he probably is for easy money which is what a instant devaluation can do for a smart speculator). This is just a little background on what the dollar is before going to show you an alternative to the US dollar you can get today, tomorrow or the next day. Holding the US dollar has built in risks. If you believe the US is going to default or should default you maybe crazy because of the evidence just prevented to show it is not broke. If you believe that the government is going to massively devalue the dollar banana republic style because Obama is an airhead and a socialist you may or may not be right. I would personally bet that the US treasury and the federal reserve and even the president are not so stupid as to undermine their own power in the world and assure their removal from office and power because the US is not yet Venezuela or Argentina . Argentina by the way ,has defaulted more than once and it was all about corruption. The country has never recovered the wealth it lost because of that kind of stupidity but it always pays off for the corrupt officials who pre-plan a default. If Glenn Beck is correct and Obama will do anything to harvest the corrupt gains from having a communist revolution here it just does not seem that people in his own party like Hillary Clinton will want to see the wealth they stole in office eroded away instantly . Government waste in spending money is the problem and not necessarily the debt since we do have generations to pay off the debts and deficits over time and the government can amortize the debt over longer periods than say a typical thirty year mortgage. Government accounting practices can completely erase the debt in an instant if we wanted to do it that way and it would cause no default and no devaluation. The hysteria itself offers no solutions but redefining the problem does. The problem is government spends too much and most of it is wasted. The government is not giving people the opportunity to work for benefits. There is nothing in the Obama pelosi health care plan that says that people who have debts to hospitals can go to work there as volunteers to work off what they owe! Remember the stories you have heard where people go to restaurants ring up a huge bill and then have to go to work as the dishwasher? That seems to make more sense than a system that is supposed to cost less by giving everything away free of charge. I call it the Communist House of Waffles. How does a restaurant owned by the government stay in business when all it does is give the food away? We know it lasted over 500 years in the Roman Empire but the cost was having millions and millions of slaves and at some point the Roman Citizens found out that their citizenship was not much better than slavery for the sake of having the free benefits. If you want to deconstruct the US dollar you can immediately with your own finances. You have to think about why you want to hold dollars in your savings accounts which is the real issue. You hold savings because you hope to have a return on your money. If you are used to putting your money in a bank account you generally share the investment returns you could be making elsewhere with the bank in return for the bank offering you what appears to be safety. The US government has become involved offering insurance to the banks to help you protect those dollar savings because the government likes you to hold the currency they control and print. You can find alternatives instantly to owning dollars by converting dollars to all sorts of contracts, currencies, and equity securities and now it is even easier than it has ever been to do. What you do with your dollars does not make them cease to exist because when you buy something with them the currency just goes into someone Else's account. If you want to destroy the US dollar because you are a true communist just burn it or put it in a paper shredder. Then it is gone. When you do that you actually reduce the money in circulation so it might be deflationary except that the US government can and will only print a lot more when ever it feels like it. The dollar you burn or shred has already been spent by the government on some big ticket item or government employee salary or in someone's social security check before you get hold of it. It already is losing value because of inflation which has been pretty steady over the years. You can spend the dollar instead of shredding it. Spending the dollar on investments you hope will yield a profit or at least interest to counteract the decline in value due to future inflation. You have lots of choices. Investing is a way to avoid having to deal with dollar savings banks. Because of ubiquitous computers you can now buy Exchange Traded Funds ,ETFs, which carry the risk of fluctuating in value more than owning the dollar does. There are tax consequences when you buy and sell these based on capital gains and you also have dividend or interest income issues to consider. Right now you can buy an ETF that is a depository receipt for x amount of gold being kept in a secure vault in a basement in Manhattan and each share is worth a fraction of an once of gold at the daily or minute to minute trading day spot price. If you believe in gold as a better medium of exchange you can buy into a fund like GLD which is it's symbol on the exchange and you can hold that fund over the longer or short term but beware there is a commission charge unless you have commission free trading There are exchange traded funds that track the entire world markets. Go to goggle finance and compare the various ETF funds and see that you can and may lose money investing in these with the opportunity of not having the risks that the dollar has for your financial accounts. It is a trade off. When people talk about deconstructing the US dollar and replacing it with an alternative the ETFs already offer you that kind of alternative where you can access your funds online and buy and sell whole markets or positions in most commodities, stocks , treasury notes etc with a single transaction. We are talking about finding a staple replacement to the US dollar that has a different set of risks and not the political risks and other risks attached to the US dollar. If am thinking about going into the ETF business in creating an alternative world wide currency based on the idea that the strongest economies on the earth are the whole basis for having money, I think that maybe the US government and the US Treasury under maybe a Ron Paul led government could go into the ETF business and re design the US dollar to have a big basket of commodities including US land ownership as a depository asset on hand backing each and every US dollar, Before doing that I think the best idea would be to find cost effective ETF indexes and have a basket of those that would not expose owners of this currency to the risk of just single commodity or commodity trading indexes so the value of the exchange traded fund dollar I want to create for the government would be even more stable than the US dollar. That would mean that the fund would have to hold a vast array of assets world wide where it would have a trending up chart that was more or less flat lined. That is how money market funds have been designed by investment banks. We know they work pretty well and the only time when the net value came down below the dollar line with out intervention was when we had the great crash after Lehman brothers went bust. The US treasury can issue a sort of ETF that is more stable than the dollar if it wants to just the same way the owners of the ETF funds manage those. Right now it does not want to because it does not have to. I think that once people like Ron Paul gain the power to make monetary decisions they will discover that the government should not do what it does not need to do . Just changing the way government works can probably boost the US dollar to new levels. If you want to boost it with more credit than faith a computer driven Exchange traded fund dollar issued and controlled by the US treasury might be a godsend or because it is still an experimental idea it could be a disaster. I would only start it out as a test experiment before forcing anyone to use it. When paypal started out they gave people free deposits online to try out the service. Yes free money and now paypal is a billions of dollars monster bank thanks to that kind of thinking. The US treasury can probably also package its debt in exchange traded form where people could buy and sell the debt at lower interest rates than they now have to pay because it would work like a US dollar that automatically defended itself against inflation by compounding the rate of inflation as interest. If you could use those kinds of dollars instead of the dollars now issued from the US treasury you would probably switch. Suddenly the government would not get away with inflation games the way it used to once everyone discovered that one kind of dollar pays interest verses the old kind that self destructs. It is possible to create a whole new banking system for the bank of the United States where the game of trying to protect against government is mostly unnecessary. The government might not make inflation protected dollars available to foreigners but that could be a costly mistake. Already the treasury does offer inflation protected bonds but these are not funds that can be immediately withdrawn on demand. I am suggesting that they be so believing that savers probably would remain savers on a net fund basis because people have traditionally held dollars. Constructing a monster US treasury ETF where a dollar is always worth a dollar plus inflation return interest paid daily when it rounds out to the penny so that the system does not change spending habit in the economy where dollar savers have to wait for interest to post quarterly or monthly. That then deconstructs a lot of useless banking we have in this country that no one needs. Bank can hold and pay interest on interest bearing government EFT currency just the same . All of this is already being done by the big ETF issuing companies and in some cases you can find brokerages that offer their own lines of ETFs commission free. Take some of your savings and see if you can structure a mixture of ETFs as your liquid savings and you might do better than staying with dollars in bank accounts, Remember the risks are different. All currencies carry risks. You can exchange your dollars for gold and euros immediately with etfs but remember it is not the same thing as burning or shredding the dollars you own. It could save you from a default except that a corrupt government like FDR gave us can just set the value of what you can cash your ETF out for the way FDR set a value the government would confiscate gold at and then after your were forced into US dollars FDR devalued the dollar verses gold. Worried about that then just buy physical gold and wait for the SWAT team to review your credit card purchases and come to your home to get it from you if you won't cash it in at the government's preset rate. If you buy physical gold you are buying a different set of risks and potential liabilities including having to pay for security. It is not just government that may want to steal your gold. The ETFs are reasonably efficient and low cost alternatives to other investments if you can avoid high commission fees and if you don't take risks of overly concentrating assets in areas that are overly bid up to begin with. ETFs have risks of computer systems going down and of having a run on their assets. It is not supposed to be a problem but if everyone sells at once it means they do have to sell underlying assets and those go into the general market depressing prices on a wholesale basis jolting the value of underlying assets for those who continue to hold the ETF shares. The same dynamics apply to the US dollar if you are trading/ exchanging it. Most people don't want to bother with an understanding that there are alternatives to the dollar. In Europe before the Euro people would dump their Lira .Pesos and Francs and by Swiss franks or German marks or us dollars at times to avoid the pitfalls of owning currencies with faster rates of devaluation due to inflation or actual government devaluation manipulation. The idea of having the US government run their own ETF for the dollar and the debt makes sense to me. I might propose creating the system so the US post office could be the physical place to issue the notes along with banks and after testing the idea with a small pilot project than considering first doing it as a national system and then as an international system to replace the dollar as we know it. I would like to see a scan able dollar for easier counting where cash registers just scan them in and ATM machines can print out encrypted codes that can be converted to cash and then dropped in the trash after the value is taken out of them. Not only can the whole system be made more credit worthy with less faith required it can be made a lot more efficient. even coins in the system should be scan-able. Plastic holographic coins anyone? It won't mater if that they are not made of base metals if each one is backed up with ETF holdings. Should the US government ever decide to default on the dollar what happens is the same thing that happens in foreign countries where they do this. People start using alternative currency. The good thing is that the United States government would immediately realize how broke it is because it would have no purchasing power the way it does now. Countries that try this to wiggle out of their debts end up trying to nationalize everything of value not to pay off creditors but to keep the government insiders paid. The bad thing about default is that instead of putting up its own assets for sale the government will look to take yours, Communist party members love the idea the problem is that it is mostly communist countries and banana republics that do this default nonsense. In North Korea and Cuba it is still being done. Those governments want to own all the foreign hard currencies for their own use and not allow their people to have access to owning the foreign currency that retains value. This is why George Soros and what he is saying is so suspect! I doubt that the President or the US Treasury under his administration just wants to destroy the good thing they have just because George Soros paid for his being elected. Maybe Soros had hoped Obama would be an even greater idiot than he turned out to be. We have all heard of greater fool theory in market behavior but now we have the greater idiot theory where financiers pay for government officials to be elected because they hope they will be stupid enough to destroy the country. Just remember you can't destroy a dollar by spending it. It may be worth less after you spend it or if deflation is real or at least in some commodities and housing then it is an appreciating currency! You would be able to buy a bigger home with your savings if you had your savings in gold or ETF gold for greater liquidity in owning gold but that is looking backwards in time after seeing gold appreciate. Gold can instantly go way down in price. You can imagine what the US Treasury can do to the price of gold if it wanted to. If they decide one day to dump gold on the market or if they spend a lot of the money they print buying up extra gold on the market to pump up the price before dumping they will profit along with Soros on the decline. You maybe better off just holding dollars but it would be nice the money supply was a lot more predictable. Not everyone likes the idea of the dollar being valued at a high rate that favors imports coming into the US at low prices and these people want the dollar to decline to favor exports. But that as a government policy is a devaluation that causes you to have to work harder than you do to buy foreign goods with the goods you produce. The US out competes all other countries manufacturing certain things it does best even with the dollar reasonably high on world exchanges. The dollar is mostly a free floating currency which means it is finding a market value that makes sense and if it means higher oil prices because the dollar is softer than harder then it is telling us that we should be producing more oil at home and importing less. The markets are sending a signal loud and clear. There is new evidence that etfs are allowing market manipulation on a mass scale to occur because these large funds can hoard resources. It happens anyways. There are unpleasant risks to ETF holders when this happens because high prices signal producer to produce more and holding hoard of resources off the market just to profit from speculation can as easily lead to your financial doom as to high profits. That is why when considering ETFs instead of the dollar that you need to broadly diversify for liquidity and to work to counterbalance the craziness in markets that maybe temporary or longer term. If the US treasury just ETFed the dollar domestic users of the dollar would probably notices more stable domestic prices as a result especially if they balanced the dollar with commodities and currencies so long as the dollar as it is is no longer available for comparison with the replacement dollar. If someone like Ron Paul continues to grain power and calls for backing the US dollar I think we can expect to see something like an exchange traded basket of commodities, land and resources exchange unit developed just because there is not enough gold on the planet to replace the dollar as the monetary instrument of choice internationally. I think we will see the US Treasury bundling the national sovereign wealth funds that include the 650 million acres of land and other resources as credit behind the national debt. Eventually we might even see the government monetize future rights to tax the American people. It sounds bad but it ultimately gives US citizens a sense of what the debt means in terms of the number of hours for the rest of their lives they have to put in to pay off the debt. It also will infuriate anyone having to work and pay taxes so someone not having to work on welfare of any kind gets a free ride. If you do the same sort of analysis for Cuba you find out that it does not pay to work at all because the harder you work there the less extra you gain over someone who does no work. Putting the national debt in terms of how hard people will have to work will not turn them into communists. .