Hidden Forces of Economics - Keith Weiner

by Keith Weiner, Sprott Money:

We have noticed a proliferation of pundits, newsletter hawkers, and even mainstream market analysts focusing on one aspect of the bitcoin market. Big money, institutional money, public markets money, is soon to flood into bitcoin. Or so they say.

We will not offer our guess as to whether this is true. Instead, we want to point out something that should be self-evident. If big money is soon to come in, and presumably drive the price up to whatever new height—perhaps even the magic $1,000,000—what comes after?

In the restless churn that has overgrown our capital markets, investors speculators are always seeking to get into whatever asset is bubbling up. Big money leaving will follow big money entering, as surely as a rock thrown into the air will fall back down.

In last week’s Supply and Demand Report, we excerpted a quote from economist John Maynard Keynes. He cited Vladimir Lenin discussing how to destroy Western civilization. Here is the full quote (from The Economic Consequences of the Peace ):

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. The sight of this arbitrary rearrangement of riches strikes not only at security but [also] at confidence in the equity of the existing distribution of wealth.

Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become "profiteers," who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat. As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Keynes is talking about printing currency, which causes rising prices. He went on to note that businesses who buy and sell goods get rich. There is always a price increase between when they buy and sell. And when they borrow to invest in property and plant, they profit again.

He is describing the American economy in the 1960’s and 1970’s (except the Fed does not print, it borrows). It does not describe the present environment (see also Keith’s article The Lazy 1970’s vs. the Frenetic 2000’s ).

Today, prices are not rising, but falling. Crude oil, for example, has not merely fallen a little. It has been an epic collapse (which is likely not over). Commodities show monetary effects most clearly (and skyrocketing healthcare costs are not the effect of monetary policy, but regulatory and fiscal policy).

Yet, Lenin’s debauchery is still occurring. The hidden forces of economics are still in operation. The undermining of civilization is still the effect. And it’s still true that not one in a million can diagnose it.

Let’s focus on something else Keynes said, that the value of the currency fluctuates wildly. That means in both directions (we don’t have a graph of the value of the German mark, but this page by University of California Santa Barbara Professor Harold Marcuse shows it in a table).

The US dollar certainly fluctuates wildly in both directions. Look at this graph of the price of the dollar . The dollar goes up from 80mg gold to 120mg, then down to 16mg then up to 29.27mg on Dec 3, 2015. Since then, it’s been choppy.

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