I feel like they made this just for me!

This particular diatribe is inspired by the current euro:dollar battle mixed with the dependency on inflation and interest our money system has.

Take a look:
http://finance.yahoo.com/q/bc?s=FXE&t=5y&l=on&z=m&q=l&c=
Of course this URL is relative to the current day, so use the date range: 4/23/03-4/23/08 to see the numbers I am starting with. FXE started though only 28 mos. ago so that is all you should see data for.

For those who don't know, FXE is the symbol for the Euro Currency Trust account traded on the big exchanges. Basically by buying shares of it in dollars, you are buying euros. So one need not go to Forex.com and waste money on commissions just to get into euros. Since just the inception of the FXE trust, the euro has appreciated against the US Dollar an average of 1.3% per month, over 26 months.

FXE exchange: $120 in Jan ‘06 --> $158 in Apr. ’08

Well it was worse in post-WWI Germany but for the US, it’s still pretty bad!

But to get a more detailed range, go to http://www.oanda.com/convert/fxhistory (Open this in a new window so you can look at the data and keep reading this here piece of economic brilliance!)

Back on 4/23/03 it was .91 EUR:1 USD. Today it’s .63:1. Over 5 years, the dollar has lost the equivalent of .28 of a euro in value as compared to one euro. Think about this. If the trend continues, the USD will be worth nothing as compared to one euro-- in about another 12 or so years. Over 5 years then, or 60 months, the USD has lost on average .6% (or .6/100) of its value per month against the euro, calculated progressively. The big picture though is this: Over 5 years, it has lost nearly 31% of its 2003 value.

Whew, that's a lot of Gitanes and souvenir fake crown jewels, not to mention hotel stays and gorgeous views of the Riviera. [Trans-Atlantic tourism cannot be doing well as a result, at least not for overfed, loud Americans in funny shorts. Do you think the French miss us? I think so. I think aside from tourist dollars (euros), they got a vicarious kick out of watching fat middle-aged Americans look clueless and ask for directions in a totally wrong language. I mean, the entertainment value itself is priceless, and they got all that AND made a living off of it!]

Now of course we know this falling-to-zero-value is not going to happen. But it should give you some idea of just how fast and dramatic the drop has been. A .6% progressive depreciation per month doesn't sound like much until you watch it go for 60 months. Now you're talking turkey.

It's worse though when you look at just the last two years, 2006-2008, just 3 months less than the life of the FXE trust. The rate of depreciation of the USD v EUR has been increasing over the past 2 years.

But even if you just look at just the last 5 years and ignore the higher rate occurring over the last two years, a roughly 7%/yr. appreciation vs. the USD of any currency over just 5 years is not good news. It’s almost unheard of. In fact, I think it may be. [Possibly the 1970s saw something akin to this but that was for different reasons, I believe, and none having to do with either faith in the currency or the “petrodollar effect”.]

Bear in mind too I am not including inflation as a factor since the euro is also a fiat currency. Recently the euro’s inflation rate has been very high, almost 3%, and while it seems like it would make sense that this fact undercuts its value, and indeed it may well do so for consumers in Europe, it boosts its value v. the USD for a lot of weird and esoteric reasons. But the net result is the same for the average American consumer: If you were in Europe sitting there with a bunch of AmEx traveller’s checques, I’d suggest you exchange them for local money ASAP, as they are just sitting there in your passport case losing buying power.

But what does this have to do with the US? Well, we buy stuff from and via European nations. If their money is worth more but what folks there are getting paid (or businesses able to buy) is staying the same vis-a-vis the actual currency they have, their money is in essence worth more than ours, so they are charging more today than yesterday, even though the nominal prices stay the same, in order to make profit—or else not sell to us if we can’t meet the price. So if they cut their prices, they lose their margins, and of course, we hurt, since we already are stressed to afford whatever it is they are selling, and not getting the stuff we want. Strangely then, as recent history with the Chinese yuan has shown, it can often be to a country’s advantage in a sense for its currency to be less valuable that that of its trading partners. However for the individual citizens within the country? Well, things not so good from that point of view.

OK, so now that I have ruined your day, keep reading, as I am finally getting to my “Magnum Opus”, posted on Sunday... read the next entry below...

So it has been some time since I added an entry here on my blog. Some of my most faithful blog-checkers [and you know who you are! ;)] have been coming to this site looking for a new entry now for weeks only to be greeted by nothing new. Sorry to disappoint. I am not a blogger by nature. I set up this blog largely for former coworkers to help them keep up with the odyssey of my relocation to upstate NY. It's been almost 3 years now since that so really, the actual purpose of this blog is really exhausted. But "let's don't" allow that to stop me! Ahh hahha! I am unlikely though ever to be a daily blogger type of person. But there are some updates I suppose I should get out there.

One is, I am engaged. Yes, you read that right. Mr. Bachelor is engaged. The wedding is set for late Sept. of this year. The very nice lady I have conned into, err, proposed to, heh heh heh, and I have known one another for a very long time. We got back together (we had been college sweeties) about a year or so after I moved back up here and one thing leads to another, as they say. So that's news. Not much else really but hey, one momentous burst at a time.

Announcements done, I can start talking about stuff only 1% of the population really cares much about. That is, economics, mathematics and temporal studies. Now if I have lost you at this point, that's OK. I often lose myself. The concepts here are not that hard to grasp and may only require a few visits to the psych ward. Be assured though you will see no heavy math of any kind. This is because I don't know any actual heavy math. But check back in 20 years, maybe then I can do something with it.

So here goes...

[Executive Summary: Fiat money’s value is not based on its relative value to other things but on the speed with which its relative value to other things changes.]

It dawned on me this past week-end of why our money will always be losing value. That is, why inflation is inevitable, with deflation being the exception and not the rule. I realized that the reason is obvious once you start seeing time differently from how others see it.

Time is the enabling portion of our experience; it allows events to take place. Without time, nothing could happen, as the very nature of cause and effect require the passage of time. But the thing to bear in mind is that there is no such thing really as a future or a past. There is, as the Zen priest said, only the present (he wasn't alone in this, either. A lot of old dead guys with funny robes have said or written this.) The reason there is no "future" is because the future as we perceive it can only exist as a fleeting "present" ("present" gets quotes because the present is never “the present,” but always the immediate past. And so if "past" gets quotes, so does "present".) What we actually have is an anticipation of an imagined, non-existent, not-yet-experienced, "now" being different from the the current "now" some time later (“later” being a word denoting anticipation, a current state in the “now”). "Now" is always "now", but is also always changing. Don't let the use of one word to describe many of itself to throw you off. There is only a now. The past is a force only insofar as "former nows" have left things a certain way (i.e., those "now"s held what we call causes, with the effects being in the current "now", and the current "now" being the immediate cause of the next "now", and being perceivable by humans as the force behind the "nows" that we anticipate will appear at some point). This includes the state people are left in, with memories, emotions, etc.

Got it? OK.

So now (no joke intended), we link this to money. This is where the math comes in, but as I say, only conceptually. This is the kind of thing calculus is used to express-- not values but rates of change. I will spare all of us this exercise though in even attempting to write an accurate calculus-based formula but instead just stick to the concepts. I'm a real concepts kinda guy; this is a polite way of saying I can talk about higher math and generally get the idea, but have trouble actually doing it. :)

Our money system is based not on the amount or availability of something tangible and considered valuable, like gold or silver. These metals are objects that consist of themselves; they have no temporal dependency. A kilo of gold is a kilo of gold, provided it isn't destroyed by melting or whatnot, 10,000 years ago, now, and 10,000 years from the current "now". Its utility may change over time as the demand for it changes, but the gold is still the gold. This is why despite the vast increase in the goods and services available to be bartered using metals as a medium of exchange, a lot of things valued at x amt. of gold or silver are still valued at that same amount today as they were in some cases, centuries ago, in the places where metals are still used as an exchange medium. The metal doesn't change since it arises from the stuff all around us. That stuff can be measured without resorting to time or the passage of time. Fiat money however cannot be measured by anything except the anticipated future demand for it. As the anticipated demand changes, so goes the current value of the money, expressed in the interest one may charge for it. To lend money and charge no interest is basically to say the money has no value. This is why only under the bizarrest of conditions will you see fiat money lent without interest, and only by the originator of the money (this happened in Japan in the 1980s when they had a severe currency crisis), whether that be a central bank (such as the US Federal Reserve) or the government itself (such as the Treasury department of some country). The trick being played though on us (and with our consent I might add) is that there is no future value of fiat money, only the anticipated future value of it. This changes the current value of the money as expressed in buying power and rate of interest. To say that the stock market is a "leading indicator" is really not correct, since the same kind of thing is going on there as well. The stock market reflects the value of the stocks (expressed in terms of money) in it, not in future or past, but in the present, and only the present. Thus the stock market’s current value does not represent any "future value” of itself—not ever. And likewise, fiat money is valuable only for what it is "now". But since we have set up a system of money wherein something that does not really exist (i.e., a future) is the basis by which the value of money is set gauged to itself (i.e., fiat money is valuable only because you can get more of it later by using it for loans or as a means of purchasing something that generates an income, such as something that gets you more money-- a “capital investment”. Thus the profit gleaned from transfer-of-goods/services and interest-on-loans is essentially an expression of the same temporal dependency principle in action), the only way money can be valuable is if it slowly loses value over time. That's right, you read that right. Here’s how:

The universe, being a closed system, with demand and supply being a zero-sum game, as it were, the amount of stuff one can buy or sell doesn't change over time. It was the same 100,000 years ago as it is today as it will be in the year 1,000,000 AD. Forms change. Populations change. Needs and priorities may change. But the actual 3-D stuff doesn't. What changes? The "now". The "now" is always "becoming", never static. But that's all. And that change can never be captured really since it is always locked up in the "now".

It's OK to reach for the aspirin. If this stuff isn't giving you a headache, then you're not probably not paying attention.

So the amt. of stuff doesn't change but the money, in order for it to be valuable, has to be valuable relative to the demand for it. That is why you must charge interest in order for money to be valuable. But as the amt. of money that exists increases (i.e., interest on the money), and the amt. of stuff does not, then the only thing for money to do is become less valuable. It's Eco 101-- as supply increases and demand remains static, value goes down. So it costs increasingly more money to buy stuff since more money is appearing out of thin air in the form of interest. Again, interest is an expression of the degree to which money is in fact *losing* value as each "now" is followed by another "now".

It is said time is a dimension. And indeed, it may well be a dimension, but not the same way objects have physical dimensions. An object could theoretically exist without there being time. The three physical dimensions (NOTE: the whole modern-physics multiple-dimensions thing is an entirely separate matter and isn’t relevant to this discussion, as we don’t involve ourselves in more than three dimensions of space and one of time in terms of assigning value to things) would still exist even if no events were passing nor could pass. However time is in fact dependent on the three physical dimensions. Things could be measurable without time (though you couldn't actually do it, since that would itself be an event requiring time to pass), but time can't be measured without there being things to constitute the cause and effect that make up events.

So by treating time as an actual dimension akin to length, depth, and width, we have pulled a fast one on ourselves. Time is not any of those things. It has no place in the universe as part of the aggregate measurement of stuff available to get, use, etc. It is only part of the context in which that stuff exists. But by treating it as if it is THE key to value, we live in a total delusion. That is what a fiat system creates and in fact relies on.

Now before you go storming the barricades to get back at the evil Illuminati who are behind all this, bear in mind you must also condemn yourself if you will condemn them. That is because without fiat money, the modern world as we understand it, along with all the various cool forms our stuff has taken on, would not exist. That is because there isn't enough precious metal in the world to act as a medium of exchange for all the people that want to use it to trade stuff with one another. When the US Constit'n was written to define gold and silver as the money of the US, the industrial revolution hadn't happened. The economy was all about food, really, and most of that was bartered (back in the good old days...). Gold and silver was the concern of a few individuals who knew one could not easily trade 10,000 bushels of wheat for whatever else he wanted, such as, for example, 1,000 muskets or 1,000 uniforms, because the good in question was perishable and not easily ported from place to place. Most people went blissfully through life never laying eyes on a gold or silver coin, and that was just fine by them. They didn't need them.

But along came new inventions- new forms stuff can take on-- and these things were not edible. However they still promised to be able to make more stuff into edible stuff, and so were valuable. Then of course these new inventions gave birth to other stuff that promised to make life easier or better. Stuff changed form, portable sources of energy became available, and now people were no longer tied to farming all day to get enough to eat. So they started living more in cities where they could get cooler stuff and become more like what they are today. But trading corn and wheat for the cool stuff was impractical. This movement was stymied 200 years ago by the lack of readily available gold and silver. So fiat money, which was not a new invention (but one that was rightly distrusted) became the answer, such as it was. After gold and silver began to be removed as the underpinnings for bank notes, which is something that happened in the US slowly over time (there's time again!), finally totally ending in the 1970s, interest on currency became the only way to buttress its value, lacking any other kind of promise or substance behind it (I won't get into the "petrodollar" issue-- that was simply a way to make sure there'd be a solid market for US$ overseas-- the dollar's value was and still is fundamentally based on inflation due to interest). As the underpinnings of gold and silver dropped away from the bank notes, of course, the interest rates went up. So now we have nothing but fiat value for our currency and not surprisingly, the interest rates on our money are higher generally then ever before seen. A rate of 1% used to be thought of as exorbitant back when money acted as depository notes for gold and silver. Now, try getting 1% on something other than a teaser rate from a credit card bank-- which will become 16.99% some time later (more time again…).

In fact for a long part of the western world's history, usury was defined as just plain charging interest on loans. Then it became charging more than 1%, then 5%, etc., until now, most states define usury as charging more than 25% per year on loans. And a lot of these states have fallen from enforcing these laws so now the less numerically-literate among us find themselves paying as much as 50% in interest on loans of whatever kind.

How long did it take us to get into this mess? About 150 years.

Now what about deflation? Deflation occurs at gunpoint. What this means is that the government will create a state of greater scarcity of currency for whatever reason by just plain sucking it up as it passes though it by taxation and other means (up to and including just plain seizing accounts or piles of money-- something they have in fact done the past, before "computerized money" was invented—so now they need only seize accounts). Anyone who may have wanted that money now doesn't have a chance to get it. In the case of money taken out of circulation via taxation, what this means is that The Man is making what you did or traded to get that money no longer valuable as a tradable good. Its value in the economy is effectively destroyed. But to make the pill go down a bit easier, it means the money you have left in your pocket/account is now worth more than before, all other things being equal. The bad news is that when a gov't resorts to deflation, all other things usually don't remain equal. In either case, inflation or deflation, you are getting the shaft. And it's all because we rely on a totally illusory phenomenon to ascribe value to our medium of exchange.

How does math come into this? As you can see, I have spared you and myself any of that. But if you're up for it, it comes in this way: There is no such thing as the current value of any money, in the same way there is no static "now". The value is always changing; 99%+ of the time it is losing its value due to inflation. If you want to know what money is really "worth" you shouldn't look at its value in terms of its denomination (dollars, euros, etc.) You have to look at it in terms of its relative rate of change of value. This is why I said earlier that calculus would be the math to use if one was going to express it as a formula.

If you are watching the value of your money these days, and you should be, what should concern you most is how high or low its rate of change in value happens to be relative to itself and other currencies/goods and services. But the point here, after all this, is to say that even in the best of times, it is the rate of change of the value of currency that is important to watch, not so much the actual stated value itself at any given moment in time, because for any given moment in time, that moment has already gone whenever you go to examine it. There is only the value now of something, and the value it is changing into. Since "now" isn't capturable, it leaves only the rate of change the relative value of the money is experiencing to express its value.

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OK, now for the disclaimer: I did in fact think of this "all by myself". I haven't plagiarized anyone's work. It is possible however that somewhere some economist or math geek has written in essence the same kind of thing. Rest assured, I didn't rip it from some web site or scan it in from a book published before the Dawn of Civilization (i.e., before the Internet's invention). But if there is some writing out there that is similar to mine, then all I can say is, I am glad I am not alone in being a tinfoil hat-wearing kook.

Thanks for reading! And, I welcome comments to the substance of the writing.