Pura vida!

the short end of the stick

It was one of the greatest heists in history. The scene? London, 1660. The perpetrator? England’s King Charles the II. The loot? All the gold he could con out of the country’s goldsmiths, bankers and businessmen. The tool?

A tally stick.

Tally sticks were a brilliant invention. But they were also insidious, as they formed the foundation for the fiat currency systems we still have today. One where the root of a currency’s value is in a promise from a faceless institution, and not in the actual value of an object.

Put into use about a thousand years ago, they were a common sense solution for a young gold-and-goods economy where gold was scarce. By the time of the heist they were used in everyday transactions.

Here is how it worked. When a loan was made, the debt was carved in a standard fashion on the surface of a small (preferably hazelwood) stick, and then the stick was split in half through the center of the carving. The longer end of the IOU was given to the purchaser, and its handle was called the “stock” — the root of the word’s use in today’s markets.

Even a mostly illiterate public could read the amount scratched into the wood, and the stick would only fit perfectly with its original other half. That way, when the debtor returned with the money (or goods) owed, the sticks would be matched and the debt would be “tallied.”

In that fundamental use, they worked perfectly. But of course, as is governments’ way, the King was tempted to stretch those bounds.

Charles II ruled at a time when royal power was still based on a divine mandate. His government and institutions — and indeed he himself — saw the king as the Chosen One, which was a real shame for him because it bound him to the laws of Christendom. And Christianity at the time still forbade lending or borrowing with usury (interest). When financing several failing wars against neighboring countries depleted royal coffers, Charles II needed some quick cash to continue living in kingly fashion.

King Charles II turned to the trusted tally and the keen idea of selling his (government) tallies (debt) at a discount. That way he could allow his lenders to profit without charging interest — the basis for government debt being sold at a discount today.

And the King could issue advance tallies for emergency spending, an idea that proved all too tempting. He sold the tallies collected by his Exchequer (tax collector), essentially trading future tax receipts to the country’s goldsmiths (bankers) for quick cash.

The tallies were receipts for taxes to be paid later in the year. This is a crucial part of the story: they weren’t trading on the value of the objects being traded, but on the cost of waiting for a return and the government’s ability to collect taxes and stay honest. If the government is not honest, this is an outright Ponzi scheme, one where new debt issue could theoretically pay for passing bills. For a while.

The King realized that he’d stumbled onto something big. He could wage all the war he wanted and pay his bills with the gold he got for hazelwood. The King spent and spent, and the goldsmiths’ vaults filled up with more and more sticks.

Goldsmiths were handing out certificates for fractional gold reserves and inflating the young economy in a con all their own. And since the King played along with their early building of a banking system, they played along with the sticks-for-gold investment strategy.

Over time, the market got wise to the game. Buyers started attaching larger and larger discounts to the King’s debt to offset the perceived risk in loaning money to the King. The discounts prompted the King to issue even more tallies, promising out more future tax revenues just to meet his short-term spending desires. But remember only the discount was changing here. So the mountain of taxes to be redeemed in order to pay off his debts grew in comparison, soon overwhelming the King’s income.

By the time the whole Ponzi scheme came to an end, the King’s sticks were trading at a 10% discount (to put that into perspective, short-term T-Bills are currently trading with discounts of one-tenth of one percent or less). The payments on his newer issues trading at that discount soon outmatched all the Kingdom’s tax revenues, effectively bankrupting his Exchequer and threatening to put the monarchy in the poorhouse.

So with the stroke of a pen, the King simply declared those debts illegal and ceased payment.

With that single stroke he stole most of England’s gold — having already spent it — and forced the young economy to fall flat on its face. The King’s various creditors ended up on “the short end of the stick” and all credit in the country evaporated very nearly overnight.

Pretty scary, huh? I’m glad such a thing could never happen today.

Into the light

No rest for the weary

Starting at around 1 a.m. last night, loud Hazmat firetrucks with lights a-flashin’ went up and down my quiet street — not a through street to anywhere — for several hours. At times they were followed by fully-outfitted firefighters on foot. I sat on a chair in the front hallway to avoid being startled awake by the urgent knocking I expected, a dire portent of an immediate evacuation, something I felt I wouldn’t weather bravely in my monkey pajamas.

No knocking came, no firefighters to help me with my coat, no CSFD minivans to whisk me off to Denny’s or wherever evacuated people go. Just a cold night in a drafty foyer, a sore neck this morning, and lots of unanswered questions.

dress for secess!

Nine state legislatures this week introduced bills intended to reclaim state sovereignty as protected by the ninth and tenth amendments to the Constitution. In case you’ve forgotten, these are the amendments proclaiming all power to the people excepting those powers specifically granted to the Federal Government which, you’ll recall, are quite limited both in number and scope.

The bills call for individual members of the military to return home and defend their respective states against a tyrannical Federal Government. This from Arizona’s bill: “…if the President or any other federal entity attempts to institute martial law or its equivalent without an official declaration in one or more of the states without the consent of that state … individual members of the military return to their respective states and report to the Governor until a new President is elected…” [emphasis added]

I am comforted by this! Arizona is only a day trip away. And if Colorado passes similar legislation then the loathesome fortress Fort Carson, which sullies the view from my back deck, will be instantly transformed into an oasis of protection and hope. And, like all the neighbors, my car may soon sport a bumper sticker: SUPPORT OUR TROOPS!

Yunnan dumplings!

the bad shipping news

The whining and hang-wringing about the "credit crunch" is getting on my nerves. It was this supposed crisis that led to the $700 billion bailout and we're told every day that it must be solved quickly, no matter the cost, or we're toast. But why? How many of us are actively seeking credit right now? Surely the developers and retailers want us to have lots and lots of it so we can keep hyper-consuming their goods; the bankers want us to have it so they can collect their interest and fees but, seriously, is free-flowing credit what the American public needs right now? Living beyond our means is what caused the credit meltdown in the first place!

Here's a meaty statistic: the Baltic Dry Index, which measures the demand for global shipping capacity, dropped from 11,793 last May to, get this, an inconceivable zero. The complexity of the BDI is beyond the scope of this post but, suffice it to say, there are lots of cargo ships sitting at anchor today. The collapse of the BDI augurs a rapidly evaporating demand for foreign goods. Combine this with the massive deterioration in domestic consumption during the fourth quarter of 2008, and wager a guess as to the meaning of it all. We're not buying anything and the world is following suit! So tell me, Wall Street wizards, why the continued hyperbole about a credit crunch?

How could our purchasing habits change so dramatically overnight? Currently, Americans own an estimated 250 million personal computers and 175 million iPods. There are 9 million mobile homes within our borders, approximately 102-130 million single-family homes, and countless million apartments. One could safely assert that there's a home, an mp3 player and a personal computer for every man, woman and child in the United States. I'll go on. Everyone has a television, a cell phone. Nearly everyone owns a car. Most have closets full of clothes they never wear, and we all have too many shoes. So when Barack Obama, Ben Bernanke or anyone else talks about freeing up the flow of credit, we should ask ourselves why.

Recently, through the dense economic fog came a thin ray of revelation: I may actually have enough stuff. Perhaps, just maybe, I can stop buying new stuff for awhile. I can keep my slightly dented iPod for yet another year. My Toyota with 90,000 miles is probably good for another road trip or two. I won't move to a bigger house just yet, or buy the 52" flatscreen Santa forgot to leave under the tree. I may have to forego the spring sales and make do with last summer's tank tops, wrong color though they may be.

I don't mean to minimize the hardship of doing without, but we are a nation of excess inventory. Somewhere in our stuffed dressers and overfull garages, there is room to accommodate a changed perspective.

Wall Street is telling us that all will soon be well. If we just give them hundreds of billions, they'll take their cut and loan the rest to us so we can get back to "business as usual". But what if we don't cooperate with their economic "recovery" plan? What if we collectively turn our backs on Wall Street and Madison Avenue and live simply, buying what we need and paying as we go, stopping to share with others along the way?

Remember, our banks and investment companies built themselves toward inevitable failure during the economic boom. Don't expect them to act nobly in the coming recession because they won't -- you can bank on that. So stop worrying about their silly market indices and their credit machinations. Let the Federal government give them another trillion pieces of worthless paper. Help them plaster their walls with negotiable instruments. Make them eat derivatives for breakfast, sell them short against the box and leverage them to outerspace. Leave them with their excess shipping capacity and their phantom dollar bills.

It's time for the rest of us to disembark this sinking stinking ship for good.

Revolutionaries in the wilderness

Edward Abbey presaged America’s current path to tyranny forty years ago and predicted that the end of American democracy would be coincident with the destruction of the wilderness.

What’s the connection between democracy and wilderness? Personal liberty is a fleeting commodity, according to Abbey, and history has shown that governments invariably move toward totalitarianism. When faced with authoritarian governance, wilderness is crucial because it serves as both a refuge from political oppression and a base for guerrilla warfare. Uprisings in urban settings are too quickly quelled by those with better weaponry, but hidden in mountain, desert or jungle settings, revolutionaries can gain an edge on establishment forces and engage in protracted — sometimes successful — battle. Consider Che in the mountains, the Vietcong in the jungle, Osama bin Laden in a desert cave.

From Desert Solitaire:
Suppose we were planning to impose a dictatorial regime upon the American people — the following preparations would be essential:

1. Concentrate the populace in megalopolitan masses so they can be kept under close surveillance and where, in the case of trouble, they can be bombed, burned, gassed or machine-gunned with a minimum of expense and waste.

2. Mechanize agriculture to the highest degree of refinement, thus forcing most of the scattered farm and ranching population into the cities. Such a policy is desirable because farmers, woodsmen, cowboys, Indians, fishermen and other relatively self-sufficient types are difficult to manage unless displaced from their natural environment.

3. Restrict the possession of firearms to the police and the regular military organizations.

4. Encourage or at least fail to discourage population growth. Large masses of people are more easily manipulated and dominated than scattered individuals.

5. Continue military conscription. Nothing excels military training for creating in young men an attitude of prompt, cheeful obedience to officially constituted authority.

6. Divert attention from deep conflicts within the society by engaging in foreign wars; make support of these wars a test of loyalty, thereby exposing and isolating potential opposition to the new order.

7. Overlay the nation with a finely reticulated network of communications, airlines and interstate autobahns.

8. Raze the wilderness. Dam the rivers, flood the canyons, drain the swamps, log the forests, strip-mine the hills, bulldoze the mountains, irrigate the deserts and improve the national parks into national parking lots.

In a final round of environmental fuck-yous, the Bush administration has offered up significant portions of pristine Utah wilderness to oil exploration. Aside from one notable monkeywrenching incident, the trashing of the American wilderness continues unabated.

the comforting solidity of Mother Earth

"We are preoccupied with time. If we could learn to love space as deeply as we are now obsessed with time, we might discover a new meaning in the phrase to live like men."
~Edward Abbey, Desert Solitaire

Strengthening my resolve

It's already twelve days into the new year and I'm just getting around to making some resolutions. Actually, I made some resolutions awhile ago but I'm only now getting to the Resolution Implementation phase which doesn't bode well for my poor dear resolutions.

One big resolution for 2009? Write more. And I will later today, or maybe tomorrow. Hopefully before 2010.

Dang.