Jeff Nielson
7 March 2011
For well over a year, we have been forced to listen to "economic experts", media talking-heads, and government "leaders" yammering on and on about "currency wars" or "trade wars" - and all because people who know nothing about economics are wailing about how the value of their money isn't falling fast enough. In this insane world, serial inflationists like "Helicopter" Ben Bernanke are deemed to be the "winners", since they are destroying their national currency the fastest. For those who are sickened by continuing to listen to their own governments lament about not destroying our wealth fast enough, let me recommend "taking a vacation" - in the real world.
In the "real world", people don't want their money to be worth less and less and less (and eventually nothing), they want it to be worth more. In the real world, it is considered a tremendous advantage for one's currency to appreciate in value.
Over the past several months, Hugo Salinas Price has trumpeted the growing "political movement" in Mexico to partially "re-monetize" silver - as a parallel currency to the current banker-paper (i.e. the peso). Indeed, commentator Ben Davies speculated that this factor alone would send the price of silver soaring higher, as yet another incremental source of demand (in a world where silver stockpiles are gone).
While no one has been talking about fully re-monetizing silver in any particular economy, I thought it was time that someone presented this scenario (at least in hypothetical terms) - as a means of countering the wave of nonsensical propaganda that devaluing one's currency was "the path to prosperity".
Since hypothetical examples are always most illustrative when we plug-in extreme parameters, let's assume that Mexico had already re-monetized silver - and had done so at $3.60/oz, a 600-year low for the price of silver. With silver now at $36/oz (and soaring rapidly), the citizens of Mexico would have seen their money increase in value by a factor of ten, over the past 15 years.
In the eyes of all the "experts" (telling us all to "devalue" our currencies as fast as we can), this would be seen as an economic catastrophe. However, since we are "vacationing" in the real world, let's analyze what would really have happened to Mexico's economy had it re-monetized silver at less than $4/oz.
To begin with, while all other nations are gripped in an inflationary panic from exploding commodity prices (as expressed in worthless banker-paper), the citizens of Mexico would be laughing about commodity prices - such as paying (once converted to banker-paper) $11/barrel for oil (as of the up-to-the-minute price).
While holders of banker-paper have seen the price they must pay for gold soar by nearly a factor of six, Mexico's silver-holders would be buying-up gold at the equivalent of about $140/oz - slightly more than half the price of gold when it was at its multi-decade "bottom" in its own price. All other commodities (including vital food products) would be so cheap that Mexicans would be likely unaware that those prices had increased at all.
Naturally, the much cheaper prices for raw materials also equates to much cheaper prices for all finished goods. Thus from automobiles to refrigerators to entire houses, everything would be much, much cheaper for Mexicans. Much like the holders of once-valuable Western currencies could strut around the globe "living like kings" once they had converted their currencies into the cheap paper of poorer nations, it would be the citizens of Mexico who would instantly become the world's new "kings".
"Hold on there!" protest the 'experts'. "You're conveniently leaving out the mechanics of trade in your analysis," they accuse. So let's take a closer look at international trade.
At first glance, we might have pause for concern. With Mexican labour now the most expensive/best paid on the planet, who will buy their goods so they can "afford" to buy all of those dirt-cheap imports?
First the instant arithmetic: with all foreign imported goods costing 1/10th their previous price, Mexico could see it's own exports plummet by 90% - and still be able to "afford" all they were buying before. The difference is that they would only have to surrender 1/10th as many goods (priced in their own currency) to acquire those products.
Furthermore, the stunted intellects of the "experts" leave them incapable of understanding the dynamics of such economics. While everything that Mexican workers buy would only cost 1/10th their previous amount, the wages paid out by employers would have remained the same (momentarily).
Obviously, Mexican employers would immediately start demanding wage-cuts from the workers. Note that if they cut the pay of their workers by even 80%, those workers would still be twice as affluent as they were before silver was re-monetized. Thus while there would be some grumbling, the overall arithmetic would still be extremely favorable for the Mexican worker - and even more so as his "falling wages" (in nominal terms) pushed him down into a much lower tax-bracket.
In other words, we have been brainwashed (by bankers) into believing that the only "mechanism" for ensuring some sort of (mythical) "economic equilibrium" is a world of permanent inflation structured into our economies (i.e. excessive money-printing of banker-paper). This is a total lie. In fact, deflationary dynamics work much, much, much, much better than inflationary dynamics at creating economic equilibrium, since they produce sustainable economic parameters - rather than simply an endless succession of banker Ponzi-schemes, followed by horrific "crashes" as each one bursts.
Lastly, the need/benefits of "foreign trade" have been grossly distorted by the economic charlatans. Understand the concept (the only one) which validates international trade: Comparative Advantage. This refers to the fact that some nations (whether due to efficiency or natural advantage) can produce certain goods more cheaply than other nations.
The way that international trade is supposed to work is that (naturally) nations only seek to export goods which they can produce "more efficiently". In reality the incompetent clowns who run our economies have flooded global trade with ridiculously subsidized goods. There are too many negative implications of such folly to even list them all - let alone properly explain them. But here's a start.
First, much of what is exported today is sold at a net loss - this is known as "dumping". That is, when we factor in direct subsidies, indirect subsidies, and tax-breaks, there is less-than-zero economic benefit for every unit exported. Heavily-subsidized U.S. agricultural products are a perfect example of this phenomenon.
The U.S. government has showered the agricultural sector with lavish hand-outs, including squandering most of the U.S.'s "water reserves", (as usual) leaving little-to-nothing for the people. Meanwhile, Ben Bernanke and Tim Geithner scheme to destroy the U.S. dollar even faster - so that the U.S. agricultural sector can sell yet more goods at a loss.
Because prices for goods are see-sawing back and forth erratically (due to the global markets being flooded with new banker-paper), there will be brief intervals where such trade can seem "profitable". However, converting the U.S. economy from a manufacturing power-house to a "banana republic" has been a pure money-loser - as evidenced by the overall collapse of the U.S. economy.
Thus, rather than strengthening our economies and raising our standards of living, much/most international trade is weakening our economies, and lowering our standard of living. Now let's return to the concept of "comparative advantage".
I submit that a nation which is able to buy oil, gold, base metals, food products and everything else at 1/10th the cost of other nations will have a pretty large "comparative advantage" in making and selling all sorts of finished products.
Even if that didn't occur internationally, such dynamics would certainly occur within the Mexican economy. While exports to other nations would certainly suffer, the trade-off is that Mexican manufacturers would be selling their goods to the world's most-affluent consumers and paying for their production inputs at 1/10th what non-Mexican manufacturers would pay.
Obviously the "comparative advantages" of trade within such an economy are enormous. Of course we don't have to view this scenario as totally "hypothetical". As I've written before, we have a previous precedent for a "high-wage" economy, with a "high-value" currency - and which also still managed to be a manufacturing power-house: the United States. Indeed, the U.S. economy reached its all-time peak in prosperity at the time when the U.S. dollar was at its peak in value versus other currencies and when the wages paid to U.S. workers were at the highest level in global economic history.
Everything we have been told about a "low dollar" and "low wages" leading to economic prosperity for the U.S. (or any other nation) has been all lies. In fact, each time the U.S. dollar takes another dip versus other currencies, the U.S. trade balance gets worse not better - as the soaring cost for imported oil grossly overshadows the increased revenues which this banana republic brings in from soy beans or cotton.
Worse still for this banana-republic, the corporate agriculture model created by the U.S. government is an oil-intensive industry, gobbling-up vast amounts of limited global production. This means that we could never see an extended period of time where "profits" from agriculture exports actually paid for more oil imports. The U.S. has entrenched itself in an economic "vicious circle" which must lead to its own annihilation.
We have now reached the pinnacle of global, economic insanity. Intellectually-bankrupt governments race against each other to see which can destroy its own currency the fastest - in order to prop-up an international trade paradigm which is losing money (on a net basis).
As is true in most facets of our economy, the optimal economic policies are to do the exact opposite of everything recommended by "experts". They say "destroy our currencies", I say "make our money better-than-ever". They say "trade or die", I say we must refuse to "die by trade".
To this point, I have only made my case by looking at a positive example of what happens when we increase the value of our currency (and then allow the natural economic advantages produced by that dynamic to flow through our economies). Some time in the near future I intend to present readers with the opposite dynamic: how destroying the silver-based monetary systems of the world's two most-populous economies was the real cause of "the Great Depression".
Jeff Nielson
www.bullionbullscanada.com
