The Politics of Money

The world wide focus on banks and related government regulation is only relevant to the extent governments lie, borrow beyond their current income, and print money. This focus results from government fabricated value undermining confidence in value actually earned from work and free exchange.

Understand clearly that bank regulations and government money printing have nothing really to do with human interchange (the fundamental force driving economics) and everything to do with the politics of satisfying constituents dependent on various forms of welfare (from corporate cronyism to food stamps).

Here is a juxtaposition worth consideration.

If you put your life savings in a Cyprus bank in 2008 you would have earned a modest amount of interest, now had at least 40% of your “uninsured” deposits confiscated by a European Union regulator to repay the pain caused by your Cyprus bank “investing” your deposits in supposedly “safe” Greek bonds, whose value was earlier propped up by the fact that the Greek government outright lied about their finances while the European Union regulator now confiscating your money forgot to check. Read that again.

You would have been better off putting your money in LVMH Moet Hennessy Louis Vuitton (MC.PA), a company that sells arguably frivolous and overpriced merchandize to people who value status more than substance. One could argue that LVMH is the most risky of investments because the stuff it sells is not essential or even needed, yet, the common stock of the company has grown from $85 USD per share in April 2007 to over $133 USD per share in April 2013 (an 8% annual return) and currently pays a 2.2% annual dividend. LVMH is not regulated by anything other than its credibility with its customers.


Now, if you live in the United States you can certainly put your savings in a bank, but keep in mind that Mr. Bernanke’s assurances that your money is “insured” is based solely on his ability to inflate the money supply while he pays you nothing for incurring the risk (or is it a certainty?) that he is devaluing your savings by doing so. So where do you put your money when the government prints $85 billion a month in new money (now over $3 trillion in money printing) used to purchase bonds in the open market for the known purpose of manipulating interest rates in an effort to force private savers to take risk? This is a circular game that compounds and delays the consequences of the uncertainty engendered by the policy.

Herein lies the social justification for a strong currency. A currency that has a proven reputation for holding its value exactly because the government issuing the currency does not lie, does not borrow beyond its means, and does not print money stabilizes the value of private savings and increases trust needed to justify private risk taking, thereby creating jobs and opportunity for those willing to work.

Regards, Pete Weldon

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