December 14, 2008

The Cashless Society

First, the gold standard was removed in 1975. Then, the Fed took the dollar off the M3 index(the measure of total debt/dollars/currency in the market) in 2006. At first these moves seemed obscure and insignificant. Then the credit crisis hit. Now, we have absolutely no idea how much money is in our supply. A recent article showed that Bernanke and Paulson won't even bother to give us an idea, a large part no doubt because we may faint when we find out that the collateral the fed has taken in when lending via printing is worth nothing. While our debt has long been viewed as the safest in the world, as evidenced by the three month treasury bill hitting negative this last week---essentially meaning people are willing to take an assured loss , albeit small, in exchange for the safety of the treasury security---the time will come when this will change. Every action has consequences. And the idea that we can print trillions without the world noticing is both dangerous and naive.

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