Digital Gold and Its Consequences

["John Gelles" <indexed-savings@xxxxxxxxxxxxx>]

Ben Bernanke has lent his voice to the chorus
of money cranks now alive and long dead who
cried out to their peers, "Now look, money is
what we need -- money to be spent into circula-
tion -- when supply is well secured but demand
is too weak to sustain commerce, jobs, living
standards, and the solvency of a monetary econ-
omy otherwise capable of serving the public
and its institutions."

Bernanke at
 http://www.federalreserve.gov/boarddocs/speeches/2002/20021121/default.htm
spoke of printed paper money, and computer
created, transferred and stored money, as the
essence of modern gold, whose purchasing
power could be harnessed to drive a monetary
economy in the unlikely event that deflation,
(that peculiar time when real things gets cheaper
by the day as money gets more expensive), grows
temporary roots. We can call this money "digital
gold".

Digital gold works only as long as hard workers
will risk life and limb and be willing to sweat  to
own it.  Such willingness, in turn, creates the sys-
tem only when people need things -- and digital
gold will buy them.  In other words, "supply" is
always King -- even when demand becomes a
Problem.

Observing the same situation that Bernanke refers
to, some internet scholars comment as follows:

SCHOLAR NO. 1:

    "The only way the US can fight deflation is to
    reduce unemployment and push up wages, and
    not by reducing interest income."
            -- Henry C.K. Liu, to PKT, 20 June 03

Liu would correctly hope that digital gold is
spent wisely in the public interest -- and, as a result,
jobs are created, wages rise, and needs are satis-
fied.  He also implies that interest income, which
before deflation, (and resort to digital gold was
authorized), was needed to pay pensions and the
like, would have to be sustained with yet more
digital gold.  OK.  There is no doubt that digital
gold is a remedy to be administered by planning.
Market mechanisms do not exist to suggest that
digital gold is a mature element of capitalism to
be "governed" by the invisible hand of the God.
Bernanke makes this clear.


SCHOLAR NO. 2:

    "... the process of buying US bonds in exchange
    for Japanese yen could be said to be importing
    US 'inflation' or exporting Japan's 'deflation?' "
            -- Warren Mosler, to PKT, 20 June 03

Mosler correctly points out, as does Bernanke, that
remedies for deflation and inflation in a global
economy, where any nation can employ traditional
interest-bearing, bond-backed money, as well as
digital gold, the interplay (of manufacturing for
export and subsequent investment of money profits)
will result in the import and export of inflation and
deflation, such as they are.  The implication, in my
view, of such interplay, is that Henry Liu's often
stated thought, (that dollar hegemony cripples all
players -- no matter how well they manage their
domestic economies), is false.  There is no crippling
hegemony.  There is no UN mandate enforcing use
of the dollar.  Liu is right, there are bad habits that
hoarders of dollars may have.  But these habits are
about to be tested by euros, yen, China, and perhaps
a new Asian copy of the euro.


SCHOLAR NO. 3:

    "... if we could get the reconstruction of Iraq going
    on an honest multilateral basis, with sound planning
    and solid, professional implementation by the best-
    qualified firms, perhaps that could provide a model
    for more universal cooperation to resolve our prob-
    lems of recession and chronic poverty throughout
    the world."
            -- James Cumes, to PKT, 20 June 03

Cumes identifies the objective of remedies for deflation
and inflation -- namely, to end global poverty and lesser
economic malaise.  He does not say "whose" traditional
money (or digital gold) might best be asked for, to pay
the contractors from many nations who will rebuild
Iraq.

In the past he has rejected my insistence that only
digital gold has the power to do what he proposes.
Now that Bernanke speaks of digital gold, Cumes may
be willing to entertain the thought that traditional money
is in too short supply for any nation to extract it from
its tax base to rebuild anything -- except by traditional
profit seeking investment.  He might even open his
closed economic forum to Bernanke-like ideas.


SCHOLAR NO. 4:

The issue is how to bring national and global
economies up from their current poor real
performance levels -- up, that is, measured by
living standards, jobs and sound future prospects
for green, more egalitarian, prosperity.

Viewed at the macro level, aggregate supply
must be raised to create the aforesaid higher
living standards.  Aggregate demand must be
raised to buy the supply and keep profits and
wages high enough to sustain a monetary sys-
tem of production -- GOVERNED by free and
democratic political institutions -- especially
institutions that, in fact, enforce human rights
against governmental abuse and abuse by
thugs of every stripe.

Why insist on a  GOVERNED  monetary sys-
tem of production, when so many powerful
people prefer  MINIMUM  government and
MAXIMUM  automatic market mechanisms
to allocate labor and money to good effect?
            ANSWER: Because our environment
is taking a beating and so many people are
poor and abused.

Why use a monetary system of production when
a computer-assisted planned economy or com-
puterized barter economy might be more efficient?
            ANSWER:  Because money still works to
motivate hard work far better than talk or the lash.

What then is holding us back from immediate
application of some small amount of digital gold
to finance homeland defense, finance projects in
the fifty states in America, and otherwise prove to
the world that America's aim is universal human
rights protected against totalitarian tendencies so
horribly evidenced in the 20th Century?

In my view, the brake that holds back digital gold is
 fear that "hard workers will  NO LONGER BE
WILLING  to risk life and limb and be ready to sweat
to own it."   The cradle to grave security promised
by digital gold may take the essence out of money.

In my view, this fear is easily tested by introducing
digital gold is so controlled a fashion that it does
no more harm to earth than high salaries have done
to baseball.

With or without such fear, it seems to me that we
are ready for digital gold because without it things
will go back to where they were circa 1914.  If
necessity is mother to invention, that necessity is
upon us.

Neither taxes nor for-profit banking can pay
the bills now due. We've got the computational
power to bring order to the global economy. The
key to it all will be savings.  The workers we must
persuade to supply all the things we need must be
promised a savings system geared to production and
a reward for holding on to the digital gold we propose
to use as fuel.  We have tried and failed with "tax and
spend".   It is time to "spend and save".

Together with inflation protected savings must come
radical reform of paperwork obstacles to production.
Remember supply and production are King. Without
them, digital gold and traditional money are just so
many meaningless promises.

The world is pretty good at games.  It is time to open
the game to fair play (to have a job for every pair of
hands), and to end "gaming" the system for crooked
advantage.

Legalese and small print are out of control. "Keep it
simple stupid" is nowhere obeyed. Ombudsmen and
arbitration are needed everywhere that the law has
made impossible.

Digital gold can pay for a lot of necessary reform. But
reform itself can only come from wise leadership and
wise follower-ship.  In recent months one set of leaders
have ended thirty years of hell in Iraq -- comparable to
the worst history on earth.  Others have tried to keep
that history of hell un-ended.  That sort of thing does
not bode well for the consequences both sides may
want.

        -- John Gelles, to PKT, 21 June 03