Too Strange to Be Fiction

A few ideas that are still in the oven:

Virtual Village. A nation is many things, but viewed through the lens of a pragmatist, it can be reduced to a contract of sorts between people and government. A pragmatist will see obligors and obligees, even employer and employees. A really pragmatic pragmatist will see it less as a contract, which implies (and may even require) the free will of both parties to be validly entered into, than a master-slave relationship. After all, while it's nice to think in terms of liberty and other lofty ideals, the bottom line is that, if you live on earth, you belong to some nation or another.

And while few like to admit it, if you're compelled to pay taxes, you are a slave of sorts. You have a very long leash, granted, but ultimately, if the Man wants you, he knows where to find you and make your life miserable. Conditional liberty, at best.

The pragmatist -- you know, the visionary, assured problem solver so desperately sought in our troubled times -- will view people, ultimately, as tax revenue to some national (or, alluding to our point, "supranational") authority. It matters little to a pragmatist where within the borders of that authority you reside, or what you do with your time, so long as, come April 15, you're paid in full.

When the pragmatic essence of citizenship is stripped down to the tax authority/taxpayer relationship, the physical definition of nationhood ceases to be relevant.

Imagine, then, if inch by legislative inch, some sort of supranational authority is created to tax financial transactions executed on the Internet. All sorts of laudable and, well, pragmatic, sounding reasons can be conjured up to justify such a thing.

Now, in order to consider possible future outcomes, we have to invoke the principle of the "slippery slope," along with its cousin, the dictum that "absolute power corrupts absolutely" -- which we might rephrase thusly: "power corrupts in proportion to its absoluteness." With these time-tested principles in view, considering things like global financial "meltdowns," G20 resolutions to create a "supranational currency," and high-minded calls for "global solutions" and "New World Orders" might add a bit of feasibility to the context.

In light of the realities of these sentiments and the popular delusions that support them, we put on the table (before anybody else, we'll wager) the proposition that national citizenship, in its current form, will be subordinated to "supranational citizenship" -- a compulsive contractual relationship with that "supranational taxing authority."

"Impossible," you snort. "Democracy is on the march worldwide. 'Compulsive governments' are dictatorships and those are so 20th century! People will never part with national citizenship..." Well, there are lots of progressive minded people who'd be in favor some fun sounding experiment like "global citizenship." But there are lots more sane, responsible citizens who'd never countenance such a notion. It's OK, they don't have to. It can happen anyway, finally. And there are, as history rushes on, decreasing odds that it won't, in some fashion.

Think of national citizenship as your underwear, supranational citizenship as the suit you wear to work. You don't need to remove the former to put on the latter. A global taxing authority can be "put on" over your national one in the right political climate (one, say, that traffics in terms of "global solutions," "world presidents," and "global currencies") with the right economic justifications (world financial crises, for example). From there, with a little of the Slippery Slope and Power Dictum effect, you're a citizen of the world, for tax purposes! Sure, you're a citizen of your country, too, but so what? That's just a small part of the world.

So, you'll grant this as a possibility, but stop short of connecting it with "citizenship" and global authority. No worries. It needn't be explicit. It needn't be subjected to a referendum. Was the fact that you cannot conduct any business through any financial institution without disclosing your Social Security Number ever put to a referendum? You cannot even obtain a library card without it anymore.

The point is that absolute authority can be de facto. And it frequently is. No social security number, no bank account. If you start spouting off about your right to privacy and the fact that there is no explicit provision in the Social Security Act that requires you to disclose your unique personal identifier to anyone other than the federal government, the clerk at the library will call security to have you ushered out before you finish the sentence. You might even be hauled in on suspicion of being a "right wing extremist."

Put in these terms, it seems almost inevitable, doesn't it?

We live in very confused times. Not long ago, people were using the term "messiah" and the name "Barack Obama" in the same sentence. The press invoked images of "president of the world." There was a time, not too long before they did, when such blather would have been unthinkable, or about as thinkable as, say, gathering in a park and waiting for the Mother Ship to come for you. But it's not possible to rid the public mind of even that sort of delusion anymore. In times like these, it seems almost anything is possible, and little of it looks like fun.

Nor is to fun walk around thinking about stuff like this, but somebody's got to do it.

update: Zuckerberg proposes free internet for everyone on the planet

Imagine a supranational reserve currency...

It's easy if you try. Moscow has, according to The Moscow Times. And China, according to the Financial Times.

Regarding a supranational reserve currency, or even a national reserve currency, any such animal will likely need a nominal gold tie in order to establish credibility...which is why we remarked to a friend (some time ago) that gold is to be owned at all costs, even if it sells down to $5, in which case an opportunity to reduce its average cost would be present.

But why would such a thing even be feasible? Well, let's see how all this new debt - what are we up, $3 trillion so far? - and the taxes that will, of necessity, be levied to pay for it - affect the economy. And see how that affects our leverage with current and prospective purchasers of our debt. And see if there isn't a massive loss of confidence in "the full faith and credit of the U.S. Government" -- and why shouldn't there be? -- and let's see if the dollar doesn't get trashed or otherwise abandoned.

The "merged currency" mechanism was employed effectively in creating the Euro -- the pitiful condition of the underlying economies notwithstanding. And we all know that global problems and global egos call for global thinking -- BIG thinking. (And we all know just fallible BIG thinking is).

Hey, we're in the age of messianism -- of sweeping solutions to all our "problems." People won't settle for less...

(Seeking Alpha provided the link to the Moscow Times).

When China's Bubbles Burst

Ah, now there's something to think about. China has more of them than Mr. Bubble himself. And they know nothing about managing them - else they wouldn't be having them to begin with. Watch how the people panic when a dictatorship mentality stomps in to restore order. Watch how counterparties the world over invoke collateral claims -- or attempt to. Watch how assets get dumped.

How many ships will be scuttled in their wake? And exactly which "central bank" will step in as lender of last resort? Why, all of them, of course, flying the flag of the IMF. If a mere bank in New York can be dubbed "too big to fail," how much more so an entire nation, and one that owns everyone's debt (and makes everyone's junk), at that.

We remind you of previous posts about a supranational currency, and a de facto global citizenship.

We can always pray it doesn't happen.

A Primer on the Coming Global Currency

Having spent the last century teaching the rest of the world how to function in a civilized, productive economic order, and having enriched much of it by outsourcing container-loads of our productivity and going into massive hock [not hawk], is the US now about to be, in a moment of mortal weakness, relieved of its role as benefactor of the world?

The G20 has agreed to capitalize the IMF with $250 billion in SDR’s -- “special drawing rights” – a composite currency, prototyped by the Euro.

Details are by no means in abundance on this. If few things are more opaque and mysterious than derivatives, the IMF is one of them. Understood, if at all, only by initiates, one secret world is being invoked to remedy the faults of another. The media, as we will see, are spinning the story in real time. What hope is there of grasping this for us mere mortals? The best we can do is make educated guesses. To wit:

Think of the IMF (or some surrogate entity), in this capacity, as acting on behalf of the world as the Federal Reserve acts on behalf of the United States. And, please, by all means, don’t stop there: exercise your imagination and contemplate the implications for national sovereignty once a supranational body controls the purse strings. If you’d like an analogous situation to help you picture it, think of Citi, GM, and AIG on the dole and under federal control. The media jokes about the “Autocrat” in the White House, put in the driver’s seat, as it were, by federal bailouts to these businesses. Do you like having Obama running GM? You’ll love having some Eurocrat running your healthcare system, then.

Alarmist? What you will have, dear reader, is the lifeblood of a market economy -- credit -- being controlled by an entity that isn't subject to your constitution and, in fact, probably has been nursing a grudge about it for generations. Undoubtedly the US will have representation in such an entity. But representation isn't control. Perhaps it's right to be alarmist.

Think of a committee of foreigners deciding how much of the US debt gets refinanced by SDR’s, were the market to trash the dollar. How might that go? Probably about as well as any other smoky back room power-play, only instead of good old boys deciding the terms, a bunch of self-righteous UN types does it. National salary caps? International “rich” tax? Reparations for historical “wrongs?” Social engineering covenants? If that doesn’t scare you, then think about moral hazard writ global: everything for which Alan Greenspan has been excoriated on national television by the morons in congress, brought to you instead by a mealy-mouthed panzy from Brussels. To whom will the world turn for a bailout then? If aliens don’t exist, they will have to invent them, along with an intergalactic currency with an intergalactic central bank to refinance the debt. It is, after all, all about confidence. Which might be another way of saying, it’s a con.

But things can’t happen all at once. The media, during the G20 meetings, dutifully passed along its emissions, and dutifully back-pedaled and qualified its reporting once the reaction to said emissions was expressed in markets. First, from Russia, the call for a global currency. Then, as if on cue, a paper from the governor of China’s central bank, supporting the idea. Not long after this, Tim Geithner’s historical, drooling endorsements on the creation of SDR’s: “we’d love to see that.” Indeed.

By the time Giethner opened his mouth, the markets were getting the drift of the G20’s Big Idea. That single utterance was the straw that broke the camel’s back: it had such an immediate and destructive effect on the price of the dollar in foreign exchange markets (it dropped over 1% within moments) that he was forced immediately to recant. As things are currently being spun by the Financial Times, everyone misunderstood all this SDR talk; the G20 resolutions are “unlikely to threaten the dollar,” and nobody meant what we told you they said a couple weeks ago, especially Timothy Geithner.

We propose the following translation: “If the dollar crashes, the whole world goes to smash, so forget all that SDR stuff.” Meantime, of course, the IMF is capitalizing SDR’s, and we’re betting on seeing a drip of international debt financings denominated in them, just as if the SDR were a regular currency, and the IMF was its Central Bank.

Just a drip, at first, until the public mind has been made to forget the G20 comments; lest the natives get too restless. But the drip will turn into a stream, etc., as the world decides its has outgrown its need for the United States to be its big brother now that its heretofore bottomless, benevolent pockets have finally come up empty. It is painfully clear that the United States is bankrupt, and that future generations must be taxed to repay our massive outstanding debts.

This, naturally, concerns our debtors. The SDR is a clever shot at a fix: create a new, fiat currency and use it to support an economy as the dollar once did. The cost, of course, is the United States’ position of economic leadership in the world. Oh, we’ll still be the workhorse. We just won’t own all the stock. In this round of poker, we’ve folded, but the house may extend us some margin in order to make whole our competitors. Instead of the US working its way out as it always has, it’s being subsumed into a socialistic international financial order that will hinder its ability to be productive and will likely worsen our debt picture. Think of the tail wagging the dog. It’s a very sophisticated form of slavery, debt is.

Now that the world understands central banking, and a singular moment has come, it’s stepping up to seize it; now, while there are still international markets that function because of the status of the dollar as reserve currency -- now is the time to piggyback upon it and launch its international supplanter. “Global solutions are needed,” they say. “A new world order,” they cry. Even the president of the US thinks his country has seen its better days, and won’t shut up about “European leadership in the world.” About the only thing that can delay or interrupt this development is a disruption on par with a world war. Or, however unlikely, the holy wrath of the American people who, the last time we checked, were actually responsible for the decisions their government makes.

China and Russia are two elephants on the world stage that seem to be good and ready to hedge their reliance upon the dollar. From a purely academic viewpoint (which, unfortunately, is the viewpoint of many policymakers) hedging anything makes sense. It makes sense to hedge your portfolio if you’re investing. It’s not likely that selling a bit of one stock to buy another is going to cripple the future of that company. But a worldwide rejection of the US dollar will decimate US national sovereignty. And this is in the offing, just as the administration has announced historic cuts in its military budget.

You might as well put away your flaky novels, dear reader, ‘cause you’re living in the flakiest novel of them all: post-modern reality. Contrary to press releases claiming otherwise, this is the official launch of a global currency that will very likely supplant the US dollar as the world’s reserve currency. You may not (or may) ever buy a cup of coffee with an “SDR,” but no matter – it’ll be at work behind the scenes, behind the dollar in your pocket.