The Biggest Casualty of 2008


There is a commodity not traded on any exchange, not measureable in dollars, immune to the effects of supply and demand, once present in many global markets, but now all but extinct. With the closing of 2008, the commodity with the grimmest prospects of recovery is trust.

There is a commodity not traded on any exchange, not measureable in dollars, immune to the effects of supply and demand, once present in many global markets, but now all but extinct. With the closing of 2008, the commodity with the grimmest prospects of recovery is trust.

From the laughable devaluation of the U.S. dollar through hyper-printing to the destruction of all the post-1933 regulations designed to thwart unregulated and over-leveraged gambling and lending, even school children are expressing their absence of trust in the adult world. While mainstream media occupies itself with causes and solutions that are short-sighted and just plain wrong, we’ve got to focus on this profound tragedy and develop a game plan for its restoration.

Despite the anti-regulation rhetoric of the new Obama economic team, it would behoove the rest of us to understand categorically that the investment banking industry’s sole interest is its own enrichment, and it will continue to act immorally and illegally (when it can get away with it) to achieve that goal.

Underlying the destroyed trust and the confidence that naturally accompanies it in world economics is the absolute destruction of trust in the number one unit of trade throughout the world, the U.S. dollar. Debasing the integrity of the global reserve currency through the unbridled and reckless expansion of it will cause its continuing decline in 2009, and demand for U.S. Treasuries and U.S. denominated assets will decline as we step into a hyper-inflationary future.

China holds the largest position outside of the United States in U.S. T-bills, and is also a regular participant in the financings of major financial institutions such as the Fannie and the Freddie. They are caught in the unenviable position of being forced to prop up the value of the U.S. dollar or risk undermining the value of its own huge USD holdings by abandoning it. The United States, in a persistent commitment to feckless and immoral business relationships with its creditors, understands this and confidently continues to undermine its own currency.

The time is quickly approaching when a new global reserve currency will replace the U.S. dollar, and contrary to the flawed wisdom of mainstream economists, an gold-pegged currency is not only feasible, it is perfect. It is astounding how many of these academic economists think that a global gold standard means that the available money supply is limited by the amount of gold in central bank vaults. If gold were merely allowed to trade absent the manipulative influences of the futures market and gold leasing and hedging operations, it would act as a natural barometer of the health of currency because in the simplest terms, how much gold you can buy with a given currency would be a direct reflection of that currency’s purchasing power relative to others. It is this market differential (and this same force is the “free market” force espoused superficially in so many modern economic tomes) that acts as a gold standard.

Unfortunately though, our nation’s ability to trust any currency, government bond issue, blue-chip stock, mutual fund, bank bond, or ETF is severely impaired by the general destruction of trust caused by the actions of Mssrs. Bush, Paulson, Madoff, Lay and Skilling, Blagojevich, Hsu, Black and a seemingly endless supply of other “pillars” of our communities.

Over Christmas, my nephew who seems to have evolved an abnormally keen interest in matters political for one so young (he’s 6) has embarked on the line of reasoning whose franchise is concentrated on the question “why”. Why did Bernie Madoff steal all those people’s money? Why doesn’t the government give all that money to the people instead of banks? Why don’t the banks lend people money anymore? Why isn’t George Bush isn’t arrested for lying repeatedly to the American people?

I listen to my brother explain things in a most diplomatic fashion designed to preserve the boy’s natural faith in the goodness of people and the importance of acting honestly in dealings with others, then watch as the apparent contradictions register in mischievous expressions on the youngster’s face. What else are you going to do?

“Son…its important that you understand that people who spend their lives making money as their primary occupation will generally lie and cheat and steal their way to their objective, and so you really must replace that charming yet naïve trust of yours with a healthy cynicism and mistrust that will better aid you in dealing with your fellow man.”

The thought is sickening. Yet if the truth were to be told in this day and age, that is precisely the approach one might be compelled to take.

The promise of Barack Obama appears to be diminishing rapidly as scandal follows blunder in his yet-to-be inaugurated administration. With the appointment of Summers, Rubin and Volcker to his economic advisory team, Obama sends a clear message that he will delegate the oversight of economics to a team of failed and corrupt academic yes men.

With his invitation to tele-evengelist Rick Warren to deliver the invocation, he confirms a populist approach the demonstrates both a dearth of experience and a puppy’s requirement for approval.

And most disappointingly, his commitment to spend billions of imaginary dollars on infrastructure projects to buy popularity and temporary jobs will compound the spiraling value of the dollar and add impetus for its demise as the reserve currency of the world.

There are more scandals and acts of fraud and duplicity yet to be uncovered in the upcoming year, and trust will continue to erode in the hearts and minds of average citizens the world over. While 2008 was a year that most would rather forget, 2009 will be worse – more so for the loss of trust.

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