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22.02.2002, 00:03

Do you see why the elite hates Gold with such a passion? / Noch einer!

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http://www.mises.org/fullstory.asp?control=897
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Dishonest
Money
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by Sean Corrigan

[Posted February 21, 2002]

<img align="right" border="0" src="http://www.mises.org/images/dirtymoney.gif" width="205" height="220">Gerardo
Leone, commercial director at Argentine cold meat supplier Paladini SA, knows
he has to revise his price list that assumes an exchange rate of 1.4 pesos per
dollar. He just doesn't know when to do that.

"It's impossible to set our prices," said Leone.
"The country is such a mess." Without a believable peso rate, some
companies are either delaying production forecasts for the year or stalling a
revision in prices to match higher costs already charged by suppliers.

Although the unfortunate Argentines have allowed themselves to
be put in the position of being a reductio ad absurdum for the rest of us, Senor
Leone and his peers have encapsulated the Austrian theory of the business cycle
in a few brief words.

Though we labor to exchange those goods and services which are
our chosen specialty for those arising from another's mÃ©tier, we have to do
this by first exchanging them for money.

The swirling currents of supply and demand for the goods
themselves are naturally difficult enough to navigate, without us having to do
this in a craft of changing dimensions, using a paddle of indeterminate size,
subject to governmental"water management" schemes of artificial
drought and flood to affect the channel.

In less metaphorical terms, the inability to rely on a
monetary yardstick as a reckoning for honest exchange, for any length of time,
can only frustrate the business of wealth creation, as the Argentines are
finding to their cost.

If every time we bring the results of the sweat of our brow to
market, we are subject to an arbitrary assessment of their worth, either we are suffering
from deliberate imposts on the part of the authorities, or we are partaking not
in an entrepreneurial risk, but in a capricious lottery in which we have no
knowledge of the odds involved.

If we are to take one lesson from the current state of the
world economy--and the geopolitical stresses and ideological divides which
reflect this--we should alter the (oft-misquoted) phrase from the second book of
Timothy.

Rather than holding that"the love of money is the root
of all evil," we should all fervently avow that"the existence of
dishonest money is the root of all evil."

Consider the Telecom bubble's latest revelation, after the
sound of hollow laughter rang around the transcontinental skeins of"dark
fibre," as the SEC investigation of Global Crossing's finances homed in on
the wonderfully named"Invisible Rights of Use" agreements, or, more
colloquially,"capacity swaps."

This scam seems to work as follows:

I run a small hotel in a mountain resort, as do you, my
neighbor. Business has been bad this year since the recession hit our overseas
clients, what with their accounting worries and all, so we both have lots of
unbooked rooms and little prospect of a passing tour party to occupy them.

Then I have a bright idea: I will rent the ten spare rooms you
have, for the next ten years, if you will return the favor to me. Moreover, I
will recognize nine-tenths of the value of my multiyear"sale" to you
now, but offset it with only one year's worth of costs. You will do likewise.

No cash will change hands, but you and I will have
substantially increased both sales and profits, using these so-called"hollow"
swaps

What's more, when next we meet in the local chamber of
commerce, we will both be able to boast to our local bank manager how life in
the hotel business has never been so good!

Recognizing that this is a widespread practice in that
latter-day Canal Boom, the Telecoms industry has been late arriving, but, as Jim
Crowe, chief executive of carrier Level 3 Communications, told the FT,"We're
going to find instances of companies that kidded themselves, and kidded
investors, with hollow swaps."

When you consider that some estimates reckon that $1 trillion
has been spent by this industry in the past five years, funded by $750 billion
of debt and equity issuance, and that anything up to half of the value has
already disappeared, you can just begin to glimpse the tip of this very nasty
iceberg, looming out of the moonlight under the White Star liner's bows. 

You also get to understand what we Austrian School people mean
when we say dishonest money always leads to monstrous amounts of wasted, or
"malinvested," capital.

Moreover, look at the international situation, where after
five years of whitening the graves--or papering over the cracks, if you
prefer--the dysfunctional nature of the system has been brought home, even to
the gates of Rome itself, amid rising unemployment, record bankruptcies, surging
defaults and delinquencies, and falling output.

Testimony to this breakdown is the fact that the IMF, at a
rough reckoning, is currently involved in the extra-constitutional direction of
around one-third of the world's polities and is imposing its failed and
destructive mix of"Black Ship" interventionism on them all.

It is thus employing dishonest money to impoverish the nascent
middle classes and subsume national sovereignty around the globe, with a twofold
aim.

The first aim is to bail out failed (dishonest money) credit
expansions, to the ultimate benefit of the predatory lenders who instigate them
and who are then rewarded by achieving higher returns on IMF-restructured,
"socialized" debt, while having the debt service itself underwritten
by taxpayers both at home and abroad.

The second aim is to impose economic colonization by
carpetbagging industrial capital in the form of phony privatizations, held in
devalued currencies. Further, it enforces what is laughingly called a market
"liberalization," but which, in essence, means an osmosis under duress
whereby Western goods and credit cannot be barred admission due to IMF loan
"conditionalities," but where the return flow of goods has to surmount
hefty tariff barriers, which in turn make the debt service less supportable and
so promote a spiral into poverty.

The sheer Kafkaesque absurdities to which this gives rise were
highlighted only lately when George W. Bush, keen to shore up his key Eurasian
client, Pakistan's Musharraf, felt free to intimate that up to $600 million in
purchasing power would be transferred from U.S. citizens in the form of aid, but
that the U.S.--ostensible and vociferous champion of free trade--regrettably
would not be able to lower tariffs or to increase the quotas currently limiting
textile imports from the factories of Lahore and Islamabad.

The fact that the resultant influx of cheaper goods would have
provided some offset to the poor U.S. taxpayer-as-consumer, as well as boosting
the free-market portion of the Pakistan economy, was naturally nothing beside
the howls of protest from Neanderthal Southern politicos, zealous advocates of
their local textile-manufacturing, campaign contributors, who shelter behind
such prosperity-sapping protectionism.

None of this IMF-supervised harm would ever take place if
money were not dishonest--if it were not able to be conjured into existence by
the central bank's willingness to foster the creation of what passes for"money"
in this world by the mere granting of an electronic book entry at a
fractional-reserve, fiat-currency, lending bank.

If tomorrow we foreswore this dishonest money, and we
irrevocably fixed its quantity and form, we would make sure that the title to it
had to be earned by fruitfully contributing labor, and thus we would forestall
much prejudicial misalignment of ends and productive means. 

We would we be able to separate the cornucopia that flows from
free enterprise and private endeavor from the subtle toxins of the financial
freebooters who use these honorable activities as a vector for the transmission
of their pathogens.

We would be able to differentiate clearly between classical
Manchester liberalism--of hard money and individual sovereignty--and modern
IMF-imposed"neo-liberalism," which brings the corruption of value
and, eventually, of morality, and which leads on from the inflationary
exploitation to excess, waste, despair, and disaffection.

If capital were once more not an ephemeral demand liability
from the banks, but a true, preservable token of that productive labor which was
spared prior consumptive recompense, it would be the more closely guarded and
better applied for the fact that it was scarcer and more hard-won. Economic
growth--especially that measured by mere spending--might be slower, but it would
be more steady, more equitable, and more sustainable as a result.

Moreover, the inarticulate rage of the dispossessed masses and
the pot-banging cacerolazo of the Argentine middle classes, together
with the metaphorical equivalent among many of the rest of us, would have no
further cause to inflame it.

Thus, violent fundamentalism--whether from the Middle East or
the Upper East Side, whether from collectivist Maoist guerillas or collectivist
Monroe doctrine globalizers, whether from rogue states or a rogue State
Department, whether from Medellin drug traffickers of meddling energy
traders--would not be able to seed itself where its vicious thorns and
fast-growing shoots could choke our liberties.

Now do you see why the elite hates Gold with such a passion?

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