The Nature of Money: Greater Fools & FRNs

The Nature of Money: Greater Fools & FRNs

https://adask.wordpress.com/2011/02/20/the-nature-of-money-greater-fools-frns/

Mrs. Jester (the better half)

Image by Will Montague via Flickr

In 1998, everyone knew that the stock market was hugely overvalued. Nevertheless, people continued to purchase more stocks.  These purchases were justified in part by the theory of “greater fools”.

Under the greater fool theory, I can afford to foolishly pay $100 for a stock that’s only worth $50, so long as I can find an even “greater fool” who’ll pay me $150 for the same $50 stock.  My “greater fool” can safely pay me $150 (for the $50 stock) so long as he can find an even greater fool who’ll pay him $200, etc. 

So long as we don’t run out of greater and greater fools, Ponzi economics can flourish indefinitely and all of the fools can seemingly get rich.  But when the bull market of the late 1990s exhausted its supply of fools, the market fell 20%.

In hindsight, that’s all fairly obvious. But, whether we know it or not, all of us still play the “greater fool” game—even if we’re not specu­lating in stocks.

For proof, look in your wallet.  Find any FRNs (Fed­eral Reserve Notes)? If so, your prosperity also depends on the sup­ply and confidence of “greater fools”.

• Last week (in “The Nature of Money: All Rights Flow from Title”) I explained that understanding the difference between legal title (right of ownership and control) and equitable title (right of possession and use) was vital to understanding our “money”.

To illustrate the issue of title, consider your car. Do you own it?

Even if you have a “Certificate of Title,” the answer is No. You have equitable title to your car, but the state has legal title and therefore owns and can control the vehicle.  Be­cause the state owns legal title to “your” car, it can force you to license, register and insure the vehicle.  If you had legal title, the state could not subject you to those requirements.  However, since you’re only entitled to possess and use the car, if you fail to meet the state-owner’s rules, you can be ticketed, jailed, or even compelled to forfeit the “state’s” vehicle.

How do you gain legal title to something?  Primarily by paying for it with lawful money (gold & silver); by paying with a “medium of exchange” (exchange of legal titles) rather than a “medium of transfer” (transfer of equitable titles).

Most people would be astonished to understand that it’s legally impossible to repay your loans with modern debt-based currency like FRNs.  The reason is simple:  You can’t “pay” a debt with another debt.

Given that our FRNs are all loaned into existence, they’re all “debt-based” (promises to pay) and can’t truly “pay” for anything.  As a result, we can’t own (buy legal title to) any prop­erty purchased with FRNs.

Sound crazy?

It is. Our monetary system is a kind of Alice-in-Wonderland, eco­nomic madness with Ben Bernanke starring as the “Mad Hatter”.

Will you pay—or merely promise to pay?

FRNs are like IOUs. Suppose I want to sell ten acres of Texas ranchland for $100,000. Suppose no one wants to buy my land, except my friend Rick who not only lacks gold or silver to buy, but doesn’t even have enough FRNs to purchase my land. But if I’m a “motivated seller,” I might agree to accept Rick’s $100,000 IOU (promise to pay) for the land.

Anyone who knows Rick understands that: 1) the probability that he’ll ever actually repay that $100,000 IOU is zero; and 2) I was a fool to accept Rick’s $100,000 IOU in trade for my land.

Even so, fool that I am, all is not lost. If I can find an even greater fool to accept Rick’s IOU in trade for something I want, I can prosper.

Suppose I found a cabin on five acres in Minnesota that the owner was willing to trade for Rick’s IOU.  I would’ve found my “greater fool” and prospered.

The Minnesota fool would take Rick’s worthless IOU so long as he had confidence that he, too, could find an even “greater fool” to take the IOU in return for something the Minnesota fool wanted—say, $100,000 worth of Hawaiian pineapples.  The process works just fine so long as everyone can find a greater fool willing to ac­cept Rick’s worthless IOU.

•  However, there are some problems.

First, Rick never ac­tually paid for my ten acres of ranchland. All he did was “prom­ise to pay” (create a debt) by writing “IOU $100,000” on a scrap of brown grocery bag paper and sign his name. His total “cost” for purchasing my ten acres was a scrap of paper, some ink, and whatever effort it required to write a few words. In essence, he “purchased” my land for nothing.

If you think that’s bad, just wait until Rick realizes he can write even more IOUs to other fools. Pretty soon, Rick will have a new Ferrari, a mansion, a bevy of big-chested blonds, and may even run for the Senate. So long as he doesn’t run out of ink and grocery bag paper, Rick could purchase the whole state despite the fact that he’s never done an honest day’s work.

Obviously, there’s something fundamentally unjust about empow­ering anyone (be it my friend Rick or Ben Bernanke) to purchase real property with pieces of worthless paper (be they IOUs or FRNs).  While everyone else has to work to create assets to trade for their food, shelter and property, the person who prints the paper currency (debt instruments) need do nothing but occasionally sign his name. Should we be surprised if a person entitled to pass mere promises to pay (debts) rather than actual payments (physical gold and silver ) eventually comes to “own” the whole earth?

• Article 1, Section 10, Clause 1 of The Constitution of the United States declares in part that States shall not “make any Thing but gold or silver Coin Tender in Payment of Debts.” But a “tender” is not a “legal tender”. A “tender” is an offer to pay a debt that a creditor may freely choose to accept or reject. However, a “legal tender” is an offer to “discharge” a debt with a worthless debt instrument which—though acknowledged to be worthless—cannot be refused.  If you’ve offered to sell your car, house or land—you are required by law to accept perfectly worthless FRNs (“legal tender”) as “payment” for your property.

For example, I can “tender” (offer) Rick’s intrinsically worthless $100,000 IOU to purchase a Minnesota cabin; the Minnesota “owner” is free accept or reject my offer. But if Rick could persuade Congress to pass a law that declared “Rick’s Reserve Notes” to be “legal tender,” then, when I “tendered” Rick’s IOU for the Minnesota cabin, the previous homeowner would be effectively forced to accept that “legal tender” of intrinsically worthless paper in trade for possession of his valuable house.  His only hope in taking my worthless “legal tender” would be that he might find (or even create) some other, “greater fool” who would again accept the “legal tender”.

Of course, Congress passed no such laws on Rick’s behalf, but Congress did pass such laws to favor the Federal Reserve System and cause FRNs (which are just as intrinsically worthless as Rick’s IOU) to be accepted as a legal tender—but not a “payment”—for any debt.

Government-granted privileges

The federal government granted the Federal Reserve System a very special privilege: in violation of the Constitution, Congress legislated FRNs to be “legal tender”. Although the FRN has no more intrinsic value than Rick’s IOU, thanks to the “legal tender” law, we theoretically shouldn’t have to worry about finding a “greater fool” when we accept a worthless FRN.

With FRNs we needn’t worry that some smart guy might refuse to accept our worthless pieces of paper. Because each FRN carries the legal notice “THIS NOTE IS LEGAL TENDER FOR ALL DEBTS PUBLIC AND PRIVATE,” even the guys who understand that FRNs are worthless must nevertheless accept them—whether they want ’em or not.

By passing “legal tender” laws, our government has forced Americans to accept the status of “greater fool”—i.e., we are required by law accept worthless pieces of paper in return for our labor and tangible property. And if you think you’re not a “greater fool” than the guy you got the FRN from, consider that, thanks to inflation, a FRN worth $1 in 1933 is worth less than a nickel, today. Since A.D. 2000, the FRN’s purchasing power has fallen by at least 40%.  Every FRN you’ve ever received is worth less today than the day you accepted it.  FRNs are constantly “leaking” value.  If you’re saving your wealth in the form of FRNs, you’re a fool.

The “greater fool” legal tender system is a Ponzi scheme. More, since each successive fool must be an increasingly “greater” fool, the magnitude of the economic foolishness eventually rises to a point where even public school graduates recognize the madness, refuse to play and start buying gold and silver. Once we run out of “greater” fools (as we inevitably must and are beginning to do), the system must collapse.

•  Why collapse?  In large measure because a debt can’t be paid by an­other debt (a “promise to pay”)—it can only be paid by the exchange of substance for substance, like for like, legal title for legal title.

As debt-instruments, FRNs can be used to transfer use (equitable title) of property from one person to another, but they can’t convey/exchange that property’s legal title between the immediate buyer and seller.

As a result, we are deemed to merely possess (but not actually own) whatever we’ve “purchased” (not bought) with FRNs, checks, or credit cards. Our debt-based currency thereby makes us poor and reduces us to the status of eternal sharecrop­pers who are foolishly working to possess that which we cannot truly own.

Americans like to hear the mantra that “America is the richest country on earth.”  But the truth is that the total American debt (governmental and private) is estimated to be at least $75 trillion.  We appear to be wealthy because we’ve used our MasterCard to pay off our Visa to pay off our American Express.    But the truth is that we are the biggest debtor-nation in the world.  By that standard, we are not the richest nation.  We are arguably the poorest. The Emperor is buck nekkid.

America’s illusion of wealth has been maintained in part by exporting trillions of FRNs (debt instruments) that Americans might not take to foreign countries and investors.  But these foreign “fools” are running out of “greater (foreign) fools”.  Because they’re no longer able to dump their FRNs on the international market without offering significant discounts, the foreign FRN-holding fools are coming back to the USA to buy our businesses, stocks and natural resources.  And they’ll be able to trade all of their worthless FRNs for tangible American resources because our “legal tender” laws force Americans to be the “greater fools of last resort” and accept those worthless FRNs in trade for our resources.  As we’re finally forced by law to trade our resources for worthless FRNs, we may finally discover that we are not the world’s richest country, but one of the poorest.

Quantity vs. Quality

If your “money” is debt-based FRNs, it constitutes a loan and legal title to the FRNs remain with the lender.  Therefore legal title to whatever you think you’re “buying” actually belongs to the entity that loaned the debt-based FRNs into circulation (the Federal Reserve System). You only “purchase” equitable title to property with FRNs.

As a result, though it seems unbelievable, the quality of your “money” is more important than the quantity.  You can buy more (legal title) with one dollar’s worth of lawful money than you can with a million “dollars” worth of legal tender (which can only get you equitable title).

Since there’s virtually no lawful money (gold/silver) in circulation, you can’t acquire legal title to property you purchase.  As a result, government (acting in concert with the Federal Re­serve System) can fine you for failing to mow “your” lawn or jail you for driving “your” car without insurance.

Why? Because they’re not really “your” lawn or “your” car—they’re the Federal Reserve’s and/or the federal government’s.  You merely get to “use” those properties much like sharecroppers are entitled to “use” (but not own) farm property owned by their “masters”.  Thanks to FRNs and legal tender laws, the state/Federal Reserve System “owns” legal title to virtually all the property you believe is “yours”.

Without legal title, you have no legal rights to that property, you have no standing at law or access to courts of law (which are in­tended to determine legal rights). You have only equitable rights and access to courts of equity wherein the judge rules according to his own “conscience” and can slap you around however he likes (judicial activism; judge-made law). All of these disabilities flow from the quality of your “money” rather than the quantity.

In the 1990s, a number of individuals (particularly in Oregon) bought automobiles and secured bills of sale that expressly reflected the fact that the automobiles were paid for, in part, with genuine, pre-1964 silver dimes (lawful money).  When traffic cops tried to ticket to these drivers, the drivers went to court, produced the bills of sale and the judges dismissed the tickets.

Why?  Because the buyers had paid (at least in part) for their cars with lawful money and therefore had some claim to the legal title of the automobile.  The state didn’t clearly own legal title to the automobile and therefore couldn’t regulate its use by issuing traffic tickets.

Today, the government’s defenses against using a stack of silver dimes to buy legal title have become more sophisticated.  It’s harder to make an effective claim of legal title to your property, but if you’re very knowledgeable, it can still be done.

My point is that even if you offer $1 million in FRNs, you won’t usually get legal title to a new car.  But if your payment includes over 20 silver dollars, you might be able to get legal title.

The quality of your money is ultimately more important than the quantity.

•  Remember the old saying about “A fool and his money”? Today, thanks to the legal tender laws, that saying might be updated to, “A fool and his law (or perhaps a fool and his legal rights) are soon parted.”

Are we fools? Yes. We are “statutory fools”—fools-in-law.

Why?

Because our government betrayed our trust and passed legal tender laws which force us to be the “greater fools” who merrily accept worthless paper as if it were lawful money. By playing the fool, we’ve lost most of our legal rights and our access to courts of law. Like Esau, we’ve traded our inheritance for bowls of pottage.

If you would regain your inheritance and your liberty, stop playing the fool—compel your government to restore a constitutional money.

Written at arm’s length and without the singular “United States” (“this state”) by Alfred Adask