(Tomorrow I head back to Denver for a while. I have had a marvelously productive first visit to the cabin this year. A lot of the framework for approaching this year, particularly all of us being a sign of hope as things continue to destabilize, has focused in my head and heart. A big element I will push for is public Eucharistic and Marian Processions across the country throughout the year. It is a great way to call upon the blessings and protections of heaven, to live solidarity, to fill Christians who have been cowed by the public oppression and ridicule with real hope, and to proclaim our faith in a public way to the world that is not confrontational, but solid. I will write a piece on that. Mother Ellen’s wonderful article on betrayal the other day opened up the issue of treating all sincer fellow Christians as full and equal partners in the work before us while maintaining the integrity of our own faith in a very concrete, rather than theoretical, way. Though there were some dicey moments in the comments, I was pretty proud of the way everyone reached out to each other. It is a credit to the mutual affection and respect you have all developed for each other. I will talk more about this, as living it well is going to be critical going forward. This is going to be a banner, joyful year for Pastors, Priests and Bishops whose love has faded a bit as they find they are caught in administrative detail. You are going to be called front and center to be spiritual leaders for those around you – and they will treat you and value you as such when you answer the great call. I will write about all this and more once I get back from my contemplative retreat here in the mountains. For now, a piece from a little more than a year ago that is even more timely now than it was then. Just remember: Be not afraid. God calls all men to salvation – and He has a plan, a plan that is unfolding before our very eyes if we will only see it. Oh, our reader, Michael Patrick, made a logo up for our heavenly baseball team. I love it. I put it at the top of this article because this is my website and I can.-CJ)
By Charlie Johnston
If a man develops a serious degenerative illness, he has a couple of choices on how to proceed. He can take medicine designed to ease the pain and mask the symptoms. That will make him feel better for a time, maybe even a good, long time. But if he doesn’t deal with the underlying cause of the illness, it will advance, eating away at him. If he waits long enough before taking action, it will eat away his chance to cure it. And then he will die, which might have been avoided if he had taken serious steps earlier rather than just masking symptoms. That is not the state of the American economy: it is the state of the world economy right now.
I have both bad news and good news. The bad news is that the entire structure of the world economic system has been so badly damaged it is near collapse. It is like a body whose arteries are badly clogged, arterial walls have gotten tissue thin, and blood pressure is through the roof. However good it may look, catastrophic stroke, heart attack and death are imminent. We have waited so long and done so much damage it is unsalvageable in its present state. This patient is terminal. The good news though is that this applies to the existing system. That does not mean that economic activity will cease. In fact, once people adjust to catastrophic collapse of the means of translating production into usable value, the economy that emerges will likely be more vibrant, vigorous and lean. What is about to happen is the equivalent of a forest fire, which violently sweeps away the old, particularly the dead wood, and in the process makes way for a surge of vital new growth.
I will avoid technical economic terms here and use intuitive terms to explain in simple form what is happening. First I need to explain what a monetary system is..
Contrary to what most unconsciously assume, currency – or money – has almost no economic value. The only things that have real economic value are goods and services. Everything else is just a tool to facilitate the use of the value created. Money – or currency – is a means of translating the value you create into a form that is immediately usable. Without it, if what you created was, say, electrical repairs, if you needed a doctor, you would have to find one who needed electrical repairs in order to trade your goods for his. By forming currency and having it represent the value everyone creates, it allows everyone to get what they need without having to coincidentally have what someone else needs. All productivity is translated into currency. This does not give money actual value: the actual value is still only in the goods and services produced. Money just becomes an incredibly useful fiction to represent the value of that production.
Over time, however, particularly in a stable economy of long standing, people unconsciously impute value to currency itself. It is kind of like getting absorbed in a soap opera as if it were real rather than having an actual life. This is not all bad. In times of short-term disruption. a government can use the perceived value of money to buy time to correct underlying serious problems without having a panic. If governments act responsibly, the perceived value of currency smoothes out the rough edges as a dynamic economy grows and recedes cyclically. Typically, when an economy falters significantly, but there are no serious underlying problems, a government may add currency to the money supply or depress interest rates. This creates an almost Pavlovian response. People see more money available more easily and spend more, which creates more goods and services and ends up causing the reality of production – real value – to catch up with the fiction of the money added to the economy. People hardly even feel it, like shock absorbers on a car. While effective medicine, it has significant downsides. If persisted in too long, it will trigger inflation, the rise of prices across the board, which depresses the economy while distorting the normal relationship of currency to value.
In all cases, however, the only real wealth is the goods and services produced by an economy. Ideally, the supply of currency should rise in a roughly parallel relationship to increasing productivity. Any time there is a prolonged distortion to that relationship, the economy is sick. If you have a prolonged period where the money supply is growing much faster than actual productivity, it is a serious cancer on the economy involved. If the underlying issues are not resolved, sudden catastrophic collapse will always come. Some of the more notable examples in the last 150 years have been Germany’s Weimar Republic, Pancho Villa’s Mexico, most recently Yugoslavia and, in American History, the Confederate dollar near the end of the Civil War. In each of these cases, officials were desperately trying to prop up a dying economy by creating more currency, which gave the illusion of health for a time, until a series of sudden jolts revealed the currency for the flimsy paper it was and all confidence in its value collapsed. Societies broke apart, wars erupted, rioting spread like wildfire as people would desperately try to trade a wheelbarrow full of currency for a loaf of bread. It’s very simple: there is NO real wealth except the goods and services people produce. If production continues to decline while currency supplies continue to rise, there will be a disaster unless it is stopped in time. This is an iron rule.
Knowing how distortions in production and monetary supply can ultimately destroy even the most vibrant of economies, governments have put in place monitoring systems designed to warn of approaching danger. It is like a doctor giving you the blood pressure cuff, checking your heart rate or your cholesterol levels – or the gauges on a car that tell you temperature, oil pressure, what the redline on RPMs are and the “check engine” light. All these things are designed to alert people to a problem so they can fix it before it has disastrous consequences. Imagine a doctor who “cured” your high blood pressure by hiding the blood pressure cuff? Or a mechanic who fixed your car by disabling the check engine light. It would give you a false sense of security that would last until your catastrophic stroke or when your engine blew up. That is what has happened in the American economy since President Obama took office. His team has to be the most economically illiterate in the history of the country. And that team’s response to everything has been to disable the monitoring systems. That is not a partisan issue. No Democrat I know of ever used bowdlerization of the monitoring system as an economic strategy. Both inflation and unemployment are much worse than they were under Jimmy Carter. Whatever Carter’s faults, he did not try to jig the measurement metrics to hide the problems.
A few examples:
1) Inflation under Carter was constantly double digit. It was one of the things that tanked his presidency. The response of the current administration has been to remove both energy and food prices from the calculation of inflation. That is literally like putting you on a 2000-calorie diet but telling you that cakes, pies, candy and cookies do not count for any calories at all. You could – and probably would – easily stay under the target mark while steadily getting more obese. Very simply, that is because saying energy and food costs have nothing to do with inflation is as stupid as saying cookies, pies, candy and cakes have no effect on your weight. Reality will intrude.
2) Until Obama, Carter was the only president of the last century under whom both inflation and unemployment rose simultaneously. But under Carter, if someone got so discouraged that they gave up looking for work, that was counted as a negative as welfare rolls rose and the productive base fell. This administration’s primary strategy for lowering unemployment rates is to get people to give up altogether – and then stop counting them as unemployed. It is as if a doctor counted successes by how many people he healed AND how many people died unexpectedly in his care. Which do you think is easier? The American workforce is dying out there and the administration is citing it as proof of success.
3) The productivity numbers themselves are being artificially inflated. For a private company’s sales and payments to be counted in productivity numbers, they have to actually happen. They are not counted until real sales and real payrolls are reported. For a government worker, the day they are hired, their next year’s salary is added to a full year’s productivity account. If 100,000 federal workers are hired tomorrow, fired the next day before showing up for the first day of work – the annualized salaries of all are dumped into productivity reports. It is fraud, pure and simple.
4) One measure of economic health is the circulation of money through the economy. It typically means the money is accomplishing something, going somewhere, doing something productive, like a car going from one destination to another. But sophisticated financial instruments have made it more easy to make it appear that currency is doing something when all you are doing is revving the engine. It is called the “velocity” of money. It is revving and spinning so hard you think something must be happening, but all that is happening is overheating the economic engine. Again, the rise of the stock market should roughly reflect the rising of annual Gross National Product. When it does not, prosperity is an illusion and crash is barreling inexorably down the tracks. In the run up to both the stock market crash a century ago and the bursting of the dotcom bubble a decade and a half ago, money was being traded madly through shell and paper companies that were not actually producing anything – creating an illusion of velocity while hollowing out the foundation of the financial markets. The housing crash had similarities in terms of the sub-prime equities flying around, but that was almost purely a government-forced distortion, so I don’t count it among actual market-created bubbles.
Back when I was offering counsel professionally, even some Democrats privately sought my take on the likely consequences of various policy options, for I had a knack of getting the interaction of complex variables right. I have had to tell people who have called me for advice that I don’t know a lot of it any more, because the measurement metrics have been blown to bits. A few months ago, I did do a lengthy extrapolation of raw census data and labor department statistics to try to come up with a true unemployment rate. I generously dropped all college-age people, whether they were in college or not, from the stats; generously assigned a stay-at-home Mom to 40% of all nuclear family households and dropped them from the stats. I treated retirement as being at 62, so dropped them from the stats. Then I extrapolated the available adult workforce, actual full-time number of people in the workforce, defining full-time as 30 hours or more. I probably made a mistake somewhere, for even with these absurdly generous assumptions, I kept coming up with 32% unemployment. Even if I did make an error, it was not a big one. But I told the fellow who asked that he could safely say it was in the mid-20s. I was too shaken to report what I actually kept coming up with.
The bad news is, our money system is too far gone. It will crash. If you elect Democrats in a few weeks, it will crash. If you elect Republicans in a few weeks, it will crash. If both Democrats and Republicans suddenly got economically literate AND deadly serious about fixing things, it will crash. Well over 90% of you will live to see your money, your savings, your investments suddenly worthless. And because the United States has been the economic engine of the world for a hundred years, the world will crash. Innovation has come from America; America has been the back-up plan when other economies were seriously stressed. It had that much reserve and vitality. When the back-up plan collapses amid smoke and dust, all collapses.
So what could possibly be the good news? Well, as I explained, currency is NOT value, it merely represents value. If you lose the power of speech it will make it a lot more difficult to communicate, but if you do not lose the power to think, all is not lost. What we are about to lose are the stable currency, market and international currency relationships we have relied on for nearly a century. People’s focus will get much more narrowed, but they will keep making stuff, even if it is only crops for their family and wood to build cabins. The productive instinct will not vanish, just the traditional means of translating it into immediately usable value.
Some will be hit much harder than others. Those who have spent a lifetime just going to the mailbox to get a government check are going to be devastated, for the government which promised everything will soon be unable to deliver much of anything. The habits of mind and character that lead people to go out and work each day will sustain you, though the nature of your work will likely change dramatically for a time. If you have been an aerospace engineer, you may need to use your native intelligence and industriousness to learn how to fish, to farm, to do metal or woodwork in a small home or even wilderness shop. The biggest killer in the initial chaos will be panic. No one knows what specific challenges will meet them in this period, but if you resolve to meet whatever comes with industry and fortitude to either endure or die trying, you will almost certainly endure.
Back in the summer of 2007, I was instructed to begin to think seriously about a world in utter collapse and chaos…to think about how to put such a society back to work, get them on their feet with some confidence after they had been completely shattered…to think of how to re-establish ownership of things justly after the very concept of ownership had been decimated by events. It is the project I have maintained almost complete silence on, but the project I have probably worked hardest on these last seven years. Not a day has gone by, I do not think, that I haven’t spent at least an hour on it. When the time comes, I will vigorously share what has been developed with those who are charged with carrying it out. It probably sounds as crazy to you now as it did to me then, but I obeyed and I am glad I did. I suspect that folks trying to rebuild from the rubble will be more open to hear what the heavens have been saying about these things than they are now. Even in matters such as these, God keeps me focused on ordinary, homely things more than anything else.
So here is the bottom line: your capacity for productive work will be undiminished…but the monetary system that has been the way that work is translated into immediate value is dying before our eyes. When it is dead, it will seem for a while as if all is lost. Endure, get up and work at what you can, be a sign of hope to those around you…and you will get back on your feet. I have told you before and I emphasize it now: devote yourself during the period of early chaos to caring for those around you. It is obviously good for them, but it will also keep you from obsessing over what is gone. Do that enough days, just doing what the day holds for you, and hope will emerge from the ashes. Our current currency is so much paper and paste, held up by smoke and mirrors. When a new system begins to take shape – and it will – it will be grounded in reality.