Day of Reckoning

“Time is money says the proverb, but turn it around and you get a precious truth.  Money is time.”

– George Gissing

Divine Disorder

Time, like money, offers a unique marker.  Something to count and compare.  Something to use for measuring progress – and failure.

What is your annual income?  How many hotdogs did Joey Chestnut eat in 10 minutes on July 4, 2021?  What is the year-to-date return of bitcoin?  What is the max MPH of a 1969 Ford Mustang at sea level?

In fact, the tick tock of time all seems so systematic, arranged, and orderly.  Almost a direct proof of deism.  Sixty seconds make a minute, 60 minutes make an hour, 24 hours make a day, and one day equals one complete rotation of the planet earth.

Roughly every 30 days the moon orbits the earth – which is one month.  Then every 12 months the earth orbits the sun – which is one year.

So far so good, right?

But here’s where the nice and neat order of it all breaks down.  Because if you try to measure one of earth’s orbits of the sun in days it’s not so divinely tidy.  For it takes 365 days plus an inconvenient 6 hours to fully complete the cycle.

In other words, our system for measuring time is not perfectly accurate.  Moreover, this inaccuracy provides a glaring measurement of human shortcomings.

Of course, we don’t let these inconvenient 6 hours hamper our perfection.  We’re humans, after all.  We innovate, invent, and make the world in our image.  So, when the numbers don’t jive, we do what must be done.  We fudge them.

We create an off-balance account.  We round to the nearest cent.  We contrive negative interest rate policy.  And we invent leap year.

Meaningless Abstractions

This coming Thursday is the day of reckoning.  The day the books must be balanced.

Peering into our off-balance account we find 24 hours, which were accrued over four years of imperfect time recording.  These hours, in a debt jubilee of sorts, must be written off.

Consequently, we must have a day of reckoning for the disorder of the last four years.  We must resynchronize the calendar year with the astronomical year.  Moreover, we must recalibrate our measuring system with its baseline – its reference point.

Without this resynchronization, what’s a year really measuring?

Perhaps, the calendar wouldn’t get too off kilter for a decade or two.  But in just 28 years the calendar would be off by an entire week.  Not long after that, the calendar would be debased to nothing more than etched lines inside a cave dwellers grotto.  Pointless and meaningless abstractions.

An extra day, once every four years, to keep the calendar attuned with the heavens is a small concession to make.  Really, it could be much, much worse.

Whereas time only comes up 6 hours short each year, currency, when not backed by gold or some other commodity or limitation beyond human control, is an arbitrary construct.  In the case of the U.S. dollar, without a stable base to hold its supply in check, what is it?

It’s abstract, indefinite, and arbitrary.  It can be created out of thin air at the whims of the Federal Reserve and then spent into the economy via Congress and the Treasury.

A pocket full of dollars one day and you can buy the things you want and need.  On the next day these same dollars can revert to their intrinsic value – at par with bird cage liner.

And whatever happened to penny candy, anyway?

Helicopter Drops

Dollar convertibility to gold once limited U.S. Treasury budgets and the Fed’s credit creation machine.  So, too, it limited extended trade imbalances.  But that was before Nixon severed the dollar’s link to gold and commenced the dollar reserve standard.

Prior to 1971, a foreign bank could exchange $35 with the U.S. Treasury for an ounce of gold.  After Nixon closed the gold window, when foreign banks handed the U.S. Treasury $35, they received $35 in exchange.

At the G-10 Rome meeting held in late-1971, Treasury Secretary John Connally reduced the new dollar reserve standard to a bite-sized nugget – a bumper sticker – for his European finance minister counterparts:

“The dollar is our currency, but it’s your problem.”

Unlike gold, which has no debt obligation or counterparty risk, dollars can expire worthless when their promissory obligation is defaulted on.  Alternatively, they can be inflated to nothing when a desperate Washington compels the Fed to crank up the printing press, and execute helicopter drops of suitcases full of money over major urban centers.

If this helicopter drop concept is new to you let us assure you that it is no joke.

In fact, this is what former Federal Reserve Chairman, Ben S. Bernanke, said the Fed would do in a time of financial crisis.  He laid it out very clearly in his November 21, 2002 speech, Deflation: Making Sure “It” Doesn’t Happen Here.

Then, as Federal Reserve Governor, Bernanke provided the following insight:

“The U.S. Government has a technology, called a printing press (or, today, its electronic equivalent), that allows it to produce as many U.S. dollars as it wishes at essentially no cost.  By increasing the number of U.S. dollars in circulation, or even by credibly threatening to do so, the U.S. Government can also reduce the value of a dollar in terms of goods and services, which is equivalent to raising the price in dollars of those goods and services.”

Later in this same speech, Bernanke made reference to a “helicopter drop,” alluding to a central banker hovering in a helicopter and dropping suitcases full of money to William Jennings Bryan’s “struggling masses” below.

Of note, this rationale was the basis for the abundance of stimmy checks sent out by the Treasury during the COVID fiasco.

Day of Reckoning

The dollar may not be worthless – yet.  But its continual variability is a continual problem.

How does one save and invest when the dollar’s monetary base is continuously inflated?  How does one protect their investments during abrupt, episodic periods of credit contraction?

When Roger Bannister first broke the four-minute barrier in 1954, running a mile in 3:59.4, everyone was certain of both the distance and time.  A mile will always be a mile.  And 3:59.4 will always be 3:59.4.  No more.  No less.

To the contrary, when a saver squirrels away $1, he or she has no assurance that the value of that dollar will be preserved.  For example, using the Bureau of Labor Statistics’ own CPI inflation calculator, $1 in January 2024 has the same purchasing power that $0.13 had in August 1971 – the month and year the dollar’s last tie with gold was severed.

Where did the other $0.87 go?

In all truth, it was covertly stolen from savers and redistributed by the government.  This, no doubt, is a national disgrace.

Over the last 111 years, since the advent of the Fed, and more so over the last 53 years, following the Nixon shock, the baseline – the dollar – used to measure the value of goods and services has been twisted and contorted like a politician’s spine.

The quantity of dollars in existence has increased.  Accordingly, the unit value of the dollar has decreased.

To be clear, prices of individual goods and services will fluctuate to account for natural changes in supply and demand.  But when money is anchored to a stable reference point, like during the classical gold standard of the 19th century, overall prices will by and large be stable.

With respect to recording the passage of time, leap year’s necessary, vital, and appropriate, for preserving the calendar year’s conformity with its baseline.  So, too, today’s money needs a stable base to derive its meaning and value from.

Without such a reference point, we’ll just continue to spin out of orbit.  Your currency will continue to accrue more zeros at the end of everything it measures.  Yet, what good’s a $100 dollar bill if it only buys you what a $1 dollar bill did before?

So, enjoy your day of reckoning.  The time was there all along.  It just needed to be reconciled.

Alas, we have a startling suspicion that reckoning the distortions of the dollar reserve standard will not be so amiable.  Though it’s necessary, all the same.

Article originally posted on the Economic Prism.