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My Challenge to all Economists and Economic Pundits! What is Reality today?

February 7, 2012

What is the purpose of Money? What is the nature of Value? Why are Currencies imaginary today? Why is a major Collapse coming?

My personal background involves teaching the history of money and also practicing in the profession of Value and the time aspects of money. I started my financial career as a lender, mortgage underwriter, appraiser, consultant, and observer of marketplace transactions. This career led to my interest in economics, money, valuation, and teaching. What I have learned from my experiences (these past 40 years) is that we live in an ‘illusionary’ world that has mostly emerged since the closing of the ‘gold window’ in 1971. What do I mean?

Prior to 1971, the psychology of the marketplace was mostly based on material aspects of reality. Our mindset was mostly focused upon the material objects which economics produced and the consumption of these objects (goods). Gradually, however, these material aspects of reality have evolved into today’s spiritual aspects. For example: money used to be viewed as a material object (paper, metals, or similar). This view of money created the mindset that ‘value’ was certain and measurable. We could denominate the value of an object (say a house) with money units that existed in space and time. This mindset led to the idea that ‘value’ was real and certain. As new money units entered the marketplace and bid for new material objects, we assumed that the ‘value’ of these objects (goods in the terminology of economics) would increase and remain at this higher level indefinitely. Prices (the proxy for ‘value’) could be viewed (under this paradyme of reality) as certain or specific…with the results calculable or measurable. What changed this mindset?

With the closing of the ‘gold window’, our money unit gradually changed in its nature. Since paper notes could no longer be converted into gold (or silver)…this made the paper notes the real money units…in the mindset of the marketplace. Then as these paper notes were replaced with digits in the computer screen…another reality emerged which we now call ‘virtual’ reality. Virtual reality has gradually replaced material reality as we now create our ‘money’ via the computer. The circulation of money units today consists of some 96% virtual units (digits in the computer screen) and 4% paper/coin units (material objects). What has this situation created for economic thinking and the financial markets? Why did this change in the nature of our money units create the mathematical concepts of finance (derivatives, index currencies, etc.) which were necessary to hedge risk in the marketplace? What has this created for all our economic and monetary concepts today?

What most economists and pundits do not seem to understand is the implications which have emerged as a result of this change in the nature of our money. The key concept of all historical money units has been their objective reality in spacetime. Gold is an objective item which exists in spacetime. Silver is an objective object which exists in spacetime. Paper is an objective item which exists in spacetime. BUT…what is a ‘name’ and ‘number’? What is a ‘digit’ in the computer screen? Can any of these items be viewed as part of material (objective) reality? Today, our money unit is called by the name ‘dollar’. The symbol and number which we use to represent our ‘dollar’ is:  $1.00. How do these units (name, symbol, and number) change the nature of our money and the concept of ‘value’?

Today, we witness the collapse of ‘value’ in the real estate sector of our economy. We have all witnessed housing values decline by 20-70% or more. How can this be possible if our money unit, the ‘dollar’, is a material unit? We measure ‘value’ in our money unit (the ‘dollar’). From the origin of our ‘dollar’ in 1792 up until the closing of the ‘gold window’ in 1971, prices of objects and things were relatively stable. This created the mindset that ‘value’ was also stable and real (material). When I ‘valued’ a house at $100,000, I did so with the mindset that this number was real and specific. All valuation professionals would represent ‘market value’ as a point estimate that was specific and real. BUT…what changed all this…especially since the financial crash of 2008? Why is ‘value’ now immaterial along with our ‘dollar’?

What emerged after the crash of 2008 was an awareness that our money units (dollars in the USA) were not real or material. We witnessed our Fed Chairman as he created NEW money units (in the trillions)…OUT OF NOTHING. The question emerged: Where did all these units derive from? What were these units (in reality)? What does it mean to create NEW units (now digits in the computer screen)…Ex nihilo (out of nothing)? The awareness which emerged after the Bernanke policies of QE1 and QE2 changed the reality and the mindset of many as to the NATURE of our money. We now could discern that our MONEY (a name, a symbol, and a number) were not  material objects or some thing from nature. The behavior and actions of our Fed Chairman revealed a NEW reality about our money and the origin of our money.

Since the crash of 2008, we have witnessed our Fed Chairman continue to create and manipulate the markets via his NEW money units which he creates Ex nihilo…Out of Nothing. This brings up the issue of:  what is money today? If Bernanke can create $trillions of NEW units by just THINKING…then what does this mean? Wouldn’t this mean that Bernanke is creating MONEY from his CONSCIOUSNESS? Where does money derive from when there is no materiality or objective reality to the units being created? Does not this mean that Bernanke just THINKS up numbers and then has these NUMBERS ‘clicked’ into virtual reality via the computer? Are not the ‘digits’ that Bernanke creates via his decision (with the approval of the FOMC committee) a form of VIRTUAL REALITY that is based on IMAGINATION derived from his MIND? Is this the NEW reality that we now call Casino Capitalism?

This is my Challenge to all economists and financial pundits: What is money today? Where does money (say our dollar) derive from? Who is mostly responsible for the $trillions of NEW units which have been created…Ex nihilo…since the crash of 2008? What is meant by the concept…Ex nihilo? If our money unit today is an immaterial concept of the MIND, what does this mean for all of our economic concepts and ideas? If our money units are subjective then all assets in the marketplace have a subjective VALUE…with no stability!  Since the purpose of MONEY is to represent VALUE, then do these concepts have any objective meaning today?

Historical Capitalism is based upon material MONEY. Historical Capitalism is based on measurable VALUE. If any asset (say a house) is not capable of being VALUED objectively, then how can we call our current economic SYSTEM viable and objective? If our Fed Chairman can create MONEY…Ex nihilo…and do this secretly and privately…now in the trillions…how can anyone have any CONFIDENCE in any long-term values (say mortgages)? Capitalism is based mostly on two concepts:  MONEY and VALUE. If these concepts are subjective and meaningless to people in the marketplace, then what does this lead to as people negotiate new ‘values’ via their transactions?

What is now necessary for economists and for every financial pundit is to understand our NEW economic and monetary issues as we experience them today. Money has evolved from a material object (1792-1971)…to its current status as a spiritual concept of one’s consciousness (mind). Virtual reality (digits in the computer screen) reveal an image of a deeper immaterial reality…the consciousness of person’s who create these digits Ex nihilo. Ron Paul is basically correct when he says that the Fed creates ‘money out of thin air’. Another concept for ‘thin air’ is Ex nihilo. Both these concepts reveal a new nature for our money which every economist must now understand!

The consequences of this change in our MONEY has major implications for all asset VALUES going forward. Since our money is now immaterial we should expect great volatility in the value of all financial assets going forward. This will eventually lead to a loss of CONFIDENCE in all financial institutions. Money is the ‘life blood’ of Capitalism. Few seem to understand money and its history. Now may be the right time to learn this history. Enjoy and give this missive your serious attention:

P.S. Ask yourself these questions: Why is gold and silver now in much greater demand by informed investors in the marketplace? Since 1971, a one ounce gold coin has gone from $35/ounce to near $1750/ounce. If the one ounce coin does not change in its material reality, why does the ‘price’ of this coin change? What is ‘price’ today when our measuring tool is immaterial? If ‘price’ is an Ex nihilo reality, then could all ‘prices’ go to ZERO at some future point? If ‘prices’ of all goods today are based on immaterial consciousness, then is not ‘value’ also immaterial? What is Capitalism when all major concepts (money and value) are spiritual in nature? If money is immaterial (say spiritual) then is all our debt ‘immaginary’? Is all of our accounting based on immaterial consciousness? I think we have entered a NEW reality whether we like it or not! Think it through!

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