The Balance of Trade.

Money is funny, but nothing to laugh about.
Every country it seems has one. A currency that is. In fact it seems to be the defining characteristic of the thing we call country. In the early days of our on US of A the story goes that George Washington stole the silver out of the pantry to make the first "Disme" the country ever owned. Fortunately for George someone had the foresight to put Martha on the obverse to appease the woman now reduced to taking her English tea from a China cup.

Unfortunately John Harper choose a bad hair day for the first lady's portraiture. (The chicken on the back was having a bad day too)

So it is, or so it seems, that the concept of money is so common that we don't even think about it. We dive for a dollar lost in the parking lot with the expectation that it is more than a piece of paper but indeed, in the big picture anyway, it is no more than a check from Uncle Sam's checkbook.

This is where the economist seem to lose their way. Stories of bags of hundred dollar bills in Afghanistan and the fourteen truck loads of hundred dollar bills spirited out of Iraq into Syria in the first hours of the second gulf war. These stories lose sight of the fact that they are in fact checks. Checks with check numbers that can be just canceled if we choose to do so.

According to the economists the balance of trade has no meaning. Because these dollars are in fact "checks" they must be cashed at the Federal Reserve Bank. Even though one might take these dollars in Syria and move them to Germany then to France, ultimately they must come back home. Home where they are traded for American Goods.

This theory might be alright if it were not for the funny money economy that drives the US government. If we printed checks that say Redeemable in bushels of wheat, or pork bellies ,or even in socks and jeans, we might have something. But we don't. We have checks that are redeemable in T-Bills. Debt of the US government. Now all this gets esoteric pretty fast. And it should hurt your head. Write a bad check at the X-mart - no problem just drop by and write another check to pick it up.

Do you remember a few years ago when some of the richest nations of the Middle East Decided to buy the US ports? We finally decided it was a bad idea to have the Muslim Nations doing our national security checks but that underscores the problem. Nations who sell us oil, for example end up with an obscene number of our checks. Then they can't always buy what they want with them. Making them less desirable that maybe checks from, say, Russia. (They can apparently buy congressmen but that's another blog). We have the same trouble with Chindia. The sell us whtchacallimits and dollars accumulate in Chindia in absolutely obscene quantities. And they don't buy goods from us. They buy our debt.

You begin to see the issue.

If one day China or India or Abu`Dabu decides that the checks are no good and she says "Hey Russia, what will you give me for these." "I want to buy Euros." - I will sell these useless checks for a disme on the dollar.

What happens then?

What happens then - is just exactly what is happening now.

The US Treasury franicks and pannics and starts buying its own T-Bills with its own bad checks to shore up the market.

The slide has started ..

Six months from now your dollars will be worth-less - And exponentially less as every year passes until your standard of living is a memory.

The only thing you can do to save yourself is what Gandhi implored his people to do when they wanted freedom from the English.

Make it yourself, buy less, and buy local.

Oh and worry.. worry a lot...