Sound Money for a Sound State

Every day we see signs of waning confidence. The politicians pontificate and the markets plunge.  Talking heads rile the trading floors People are panicking, but are unsure as to what drives the panic. Lying behind this turmoil is the fundamental flaw in our economy: our money. The antidote is gold.

Over the last few months we have seen gold rally up to $1000. Suddenly it is being heralded as the investment.  If you held it since 2001, you’d really be laughing at this, and rightfully so.  Even mindless stock jockeys speak to the fact that in times of uncertainty, gold is the place where people should park their cash. It is the asset of last resort. Yet if this is considered the only safe place to put our money when times are hard, then why not just make this our currency? Why do we have a paper dollar whose intrinsic worth is equivalent to that of paper and ink, or alternatively your faith in Nancy Pelosi?

As the always pithy Daily Reckoning notes, over the last 2,500 years, an ounce of gold has maintained a value roughly equivalent to 350 loaves of bread. Seems like a pretty safe store of wealth to me. Alternatively, the value of the dollar has dropped over 95% since the government (under the auspices of the Federal Reserve) took control of our money less than one hundred years ago. You have to ask yourself, would you rather have your government constrained in the money it creates by a tangible asset that has always held its value, or a government that holds its heavy hand on the cranks of the printing press?

This brings into question another issue. The government does not control the bread supply, the iPod supply or the Kudlow supply. But when it comes to money, a good exchangeable for these other goods and services, we give the government free rein. Sure, one might argue that the central bank is technically private, but this is just the deceitful nature in which the government bends the rules of its Constitution. It is akin to Fannie and Freddie being “quasi-public” entities. But why should the government grant itself a monopoly on this product, while subjecting all private firms to its anti-trust laws?

And how does the government maintain this monopoly on money? Why, legal tender laws (PDF) of course. There was a time when money was coined privately, but those days are long gone. The question is, why shouldn’t the government allow a little friendly competition for the paper that it prints? The answer is that the power to control the money supply is great. Mainly, it allows the government to plunder the people. Here are a few politicians on the matter:

“Of all the contrivances for cheating the laboring classes of mankind, none has been more effective than that which deludes them with paper money.”

Daniel Webster’s disdain is matched by that of Thomas Jefferson:

“The evils of this deluge of paper money are not to be removed until our citizens are generally and radically instructed in their cause and consequences, and silence by their authority the interested clamors and sophistry of speculating, shaving, and banking institutions. Till then, we must be content to return quoad hoc to the savage state, to recur to barter in the exchange of our property for want of a stable common measure of value, that now in use being less fixed than the beads and wampum of the Indian, and to deliver up our citizens, their property and their labor, passive victims to the swindling tricks of bankers and mountebankers.”

On the other hand, he asserts,

“Specie is the most perfect medium because it will preserve its own level; because, having intrinsic and universal value, it can never die in our hands, and it is the surest resource of reliance in time of war.”

What of Woodrow Wilson, the man who signed the Fed into existence?

“I am a most unhappy man. I have unwittingly ruined my country. A great industrial nation is controlled by its system of credit. Our system of credit is concentrated. The growth of the nation, therefore, and all our activities are in the hands of a few men. We have come to be one of the worst ruled, one of the most completely controlled and dominated Governments in the civilized world no longer a Government by free opinion, no longer a Government by conviction and the vote of the majority, but a Government by the opinion and duress of a small group of dominant men.”

How about an economist for good measure? Perhaps our old friend Mr. Keynes:

“The best way to destroy the capitalist system is to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.”

Thanks for that one, Johnny.

If paper money through inflation impoverishes the citizenry and destroys capitalism, then one has to wonder why this system continues to hold sway across all nations. Further, the historical track record of paper monies shows that every single one has failed. But we continue to entrust our money to our politicians. To be sure it is great for some — for the bankers, the war-profiteers and the debtors, inflation is a boon. Not to mention the fact that it allows the government to do whatever it wishes — to run up unlimited debts, fight endless battles and further extend its largesse to its favored sons. This is an immoral process and one that undermines the integrity of our nation.

As we see the flood of people to gold as the only safe asset, in a time without price inflation no less, we must question the paper money through which our politicians pilfer. Restore power to the rightful hands of the people to produce their own currencies, and we can give the central bankers a run for their money. Our liberty depends upon it.

Further leveraging is not the right way to stimulate the economy!

To stem foreclosures and keep people in their homes in a socialist mind set is not
enough, we need to have a free market based stimulus plan to get people to come back to
the real estate market to ensure on-going prosperity. Our country’s and hence the global
economic prosperity hinges on the continuing consumption power of the American citizens.
Nothing is more effective than to shore up the home value for every American to fix this
global economic problem.

While we still have time to do so, the new economic leadership we need now is not just a
socialist bailout mentality for people to get to survive but rather a committed mission
to help bring back the global economic prosperity. Over the long run, only free market
incentives could accomplish that prosperity goal. When this current opportunity is missed
and American citizens get into desperation next, the worst form of socialism may most
likely take hold of our entire free society at that time. Ask any older Chinese or
Russian citizens, they may be able to give you plenty of explanations on how that was
done in the past.

While creating housing demand through free market incentive plans is plausible,
continuing to be restricted to manipulation of interest rates alone to encourage more
leveraging will simply bring us back to where and how the current mortgage troubles
started. Therefore, further leveraging is not the way to stimulate the economy, either by
homeowners, consumers, banks, the Fed or the US Treasury. It would only lead us into an
eventual total destruction.

As explained on the home page, playing tricks or keeping artificially
low interest rates temporarily to provide relief is a fictitious housing affordability.
True housing affordability could only be accomplished through shared appreciation/shared
equity economic concepts, just like investing in or owning any other assets that you
could not afford. To summarize in a simple sentence, true housing affordability simply
means “don’t bite more than you could chew”. To allow people who do not have the income
capability to use high leverage to get rich quick is exactly what caused our current
economic crisis in our economic society.

The problem with the conventional practice of shared appreciation concept in the past is
that the shared appreciation component was stuck in the Shared Appreciation Mortgages
(SAM) and often managed in a socialist way through using taxpayer’s money by
municipalities. They are neither quantifiable nor extractable and there is no easy way to
attract free market investment money from private sectors. SwapRent with its embedded
mortgages HELM was a new methodology specifically created so that the shared appreciation
components could be quantified, exacted and therefore it would become feasible to create
a secondary market of these new tradable shared appreciation contracts. Economic benefits
such as pricing transparency, maturity term flexibility, early termination reversibility
and capital regeneration, … etc. could therefore be easily achieved. Therefore the free
market based investors would feel confident and be interested in getting involved

From a macro-economic perspective of solving the crisis, consumption power via home
equity gains would be restored and revitalized through these housing purchase incentive
and economic stimulus plans by simply letting the future home equity gains go to those
who have the current economic income means to buy these future appreciation through
SwapRent contracts. Consumption power produced from the home equity gains by these
investors will create jobs, tax revenue for states and municipalities and it will
increase economic activities again. Those who did not have the economic income means
before will have the chance to work to create the income capability. They can then save
and invest in future home equity gains again similarly through these same SwapRent
contracts. All these investment activities should be done within their economic income
capability and without any unscrupulous abuse of high leverage again.

From doing social good’s perspective, all the low income homeowners could get to continue
to occupy and enjoy the comfort of their homes through this new “economic renting”
concept via the use of the SwapRent contracts while the investment activities could go on
with or without these homeowners because of the separation of legal and economic
ownership inherent in the SwapRent concept.

Once these shared appreciation/shared equity concepts through SwapRent contracts have
become well accepted practices in the future, there won’t be any chances for
leverage-created asset bubbles any more since asset growth will become more legitimate
and healthier by only letting those who have the money to invest without the use of high
leverage. In another word, more rational low leverage investment to foster steady asset
growth and create wealth could be accomplished easily through introducing this new
SwapRent based reversible and tradable appreciation sharing concept.