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It's All Just Monopoly Money


Everyone is playing with different amounts, but the outcome is still the same.

I'd like to discuss human nature and the paper we call money from a slightly different perspective. I was recently thinking about what's transpired in this country in the last decade: First the equity bubble, then the real estate/credit bubble, and then the steady debasement of the dollar (where a trickle is now threatening to turn into a flood).

I've been struck by how few people seem to understand how all these events are related, in that at the root, they each have irresponsible money-printing as the cause; the sociological and psychological phenomena that go with it (i.e., the regulators not doing their jobs) are just part of the process. Each problem led to the next, where one year ago, the financial system was bailed out at the risk of the country ultimately enduring a funding crisis.

One fact that strikes me is how few people seem to have been able to protect themselves from the first two (even though they were so obvious) and how few will be able to do so on this third, huge problem. In my own little world, I wrote until I was blue in the face about the risks inherent to both of those bubbles (as did other people), but still only a small subset of folks managed to avoid calamity.

Similarly, I've droned on forever about the weakness in the dollar and the necessity for folks to protect themselves via precious metals or some other idea. (What exactly, I don't know, lest I would have said it -- but there will turn out to have been other options.)

Let's face it: Dollars -- the things we call money -- are simply pieces of green paper. They're just a state of mind. They have no intrinsic value and are just like wampum. Thus, they're not worth anything. Furthermore, all paper currencies historically have lost all of their value.

Give It Up for the Real Rock Star

On the other hand, gold -- which has been in an eight-year bull market but still receives far more derision than it does praise -- has been money for literally thousands of years. Meanwhile, the green paper has lost 97% of its value versus gold since Nixon closed the gold window a little less than forty years ago. Yet, people seem to be terrified of owning gold.

For the last month or so, gold has traded at $1,000, plus or minus. Yet, what I see is a tremendous amount of angst on the part of those who hold gold due to fears about an imminent collapse in the price. But the point of this is to encourage people to think about what's liable to happen to the green piece of paper that I've nicknamed the "xera." (A continuation of Xerox, zero, and dollar.

Fed money-printing in the last year -- to create its own bailout and finance other government bailouts -- is the functional equivalent of the government saying that you can take the Monopoly game out of the closet, grab all the colored pieces of paper, put three or four zeroes on the end of each bill, then go out and spend it.
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