 | | The Daily Reckoning | Tuesday, January 10, 2012 | - World's second largest economy to employ 2-in-3 workers by 2020,
- The value of the coins in your pocket -- it's what's inside that counts,
- Plus, Bill Bonner on the wage-less jobs "recovery," household delevereging
and more...
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|  | | | | System D is for Free | | A brief introduction to the most important economy you've never heard of. |  | | Joel Bowman |
Joel Bowman, reporting from Buenos Aires, Argentina...
It's all happening today, Fellow Reckoner. Gold, stocks, oil...all have rallied to important highs. That's what the papers say anyway, so it must be true.
Gold has "reclaimed the rally," reported one outfit. The Midas Metal was trading for around $1,634 an ounce last we checked, up $24 in as many hours.
The S&P 500 is likewise north of where it began the session. The index rose 1% to a 5-month high on what Wall Street determined were solid earnings. We didn't bother looking at the actual reports. Stocks go up because more people buy them than sell them. Those people may be right, or they may be wrong. The future will reveal this information in its own sweet time, of course...but news reports are necessarily wedded to the past and, as such, don't tell us anything about the future. We'll have to wait and see how things shake out. Today, they're up.
Oil near $103 per barrel is important too. We would expect escalating tensions between the U.S. and Iran to express themselves in similarly escalating prices. But it isn't only geopolitical fissures driving the price of the world's preferred energy. Basic supply and demand fundamentals led Steve Belmont, Senior Market Strategist for the RMB Group, to declare that, "Crude oil may not only be the best commodity play for 2012, it could prove to be the best commodity play of the next three to four years." Mr. Belmont offered some pretty compelling reasons for his call in yesterday's issue of your Daily Reckoning (which you can read here).
So there you have it. Everything up...up...and away! That's what's going on in the known world. It's right there in the papers. But what about the unknown world...perhaps better described as the under-known world? We eluded to this mysterious marketplace yesterday.
Actually, it's not really so mysterious. Not for half of the world's working population who today find themselves in its employ, anyway. We're referring to that delicious bastion of creativity and unbridled innovation sometimes known as "System D." Robert Neuwirth, author of the book Stealth of Nations: The Global Rise of the Informal Economy, coined the term to describe the world's collection of off-book street markets. It's a kind of "global street market," or, if you prefer, one of the only truly free markets left on the planet.
"System D is a slang phrase pirated from French-speaking Africa and the Caribbean," explained Mr. Neuwirth in an article for Foreign Policy magazine. "The French have a word that they often use to describe particularly effective and motivated people. They call them débrouillards. To say a man is a débrouillard is to tell people how resourceful and ingenious he is. The former French colonies have sculpted this word to their own social and economic reality. They say that inventive, self-starting, entrepreneurial merchants who are doing business on their own, without registering or being regulated by the bureaucracy and, for the most part, without paying taxes, are part of ‘l'economie de la débrouillardise.'"
Mr. Neuwirth, who wisely abbreviated the phrase to "System D," estimates the size of the off-book global economy to be roughly $10 trillion anually, although he stresses that this calculation is "very rough and almost certainly on the low side."
It is important to note here that Mr. Neuwirth does not include activities such as gun running, drug or human trafficking or "things like that" in this calculation. Basically, System D refers to the "ingenuity economy, the economy of improvisation and self-reliance, the do-it-yourself, or DIY, economy."
All in, this admittedly conservative estimate figures the total System D economy at about two-thirds the size of the world's largest economy, the U.S., with an output roughly 40% higher than that of China. Now accounting for roughly half of all jobs in the world, System D's share of the global workforce is expected to increase to two in every three jobs by 2020. It's growing. Fast.
Is this really surprising, Fellow Reckoner? The various nation states of the world, in the final throes of a deadly debt spiral and facing imminent paper currency crises as a result, are erecting all manner of regulatory hurdles in order to protect certain, mollycoddled industries from the evolutionary forces of market capitalism. This, we wager, will not end well for them.
We touched on this in yesterday's issue. In all likelihood, the U.S., Europe and Japan will never make good on their debt obligations. These three economies count for roughly half the world's "official" GDP (spurious measure that it is). The U.S., we mentioned, just past the 100% debt-to-GDP threshold. Peripheral states lining Europe are there already. Japan's debt-to-GDP levels sit at more than double that of the U.S. Good luck with that.
The decay of the nation state has been a while in the making, like a slow, gangrenous rot attacking the vital organs of a once productive economic model. Fellow Reckoners are well-versed in our "march of the zombies" theme. Bill Bonner writes frequently in these pages about their relentless infestation...in health care, insurance, education, financial services and, the mother of all zombies, the murderous military industrial complex.
Thankfully, these are pillars of a dying economic model. They are the life-sucking parasites, the favored class and the politically connected, yes. But they have cause to be fearful, too. They are part of a dying experiment. We doubt the malevolvedcupcake Nazis in the TSA security line know it...but we have a hunch the higher ups are starting to get a little nervous. Surely they can smell the blood on the guillotine by now, just as their ancestors once did. Their days of looting with impunity are coming to a close.
The growth of System D is something entirely consistent with a global trend this editor expects to accelerate in the coming years -- that of increased geopolitical and economic decentralization prompted by a continued weakening of the overly-indebted, outmoded nation state model. In other words, as the edifice of the nation state continues to crumble under massive debt loads and the political impotence to do anything meaningful about it, more and more people will look to the unregulated System D markets of the world for both employment and, increasingly, investment opportunities.
We're interested in stories of freedom, Fellow Reckoner, and System D is full of them. Untaxed, unregulated, unlicensed individuals trading freely with one and other and with little or no regard for those that would tell them, "No!" Stay tuned for more... | | | The Dying U.S. Dollar:
Harbinger of doom for the U.S. economy and stock market? This shocking FREE video reveals the appalling facts that Washington and Wall StreetDO NOT want you to know...PLUS how to protect yourself and profit.
Click here to watch the new uncensored video. |
| | | | | | | The Daily Reckoning Presents | | The Nearest Thing to a Permanent Thing | |  | | Jeffrey Tucker |
You can find a coin shop in nearly every town in the United States. The proprietor is unlike any you will find in any other store. He is unusually steeped in history, intensely aware of the larger context of the passing economic and political scene. This is because if it is a good shop, you will find the whole history of modern life on exhibit, and learn more from looking than you find in a multivolume history.
There they are on display: coins from all lands. Why are they worth more than the coins in your pocket? Because they are old? That's part of it. There are some new coins here that are also just as valuable as the old ones.
What is critical is that they are made of gold and silver. You can pick them up and tell the difference. They are heavy. Stack them and let them fall on each other and they make a different sound from the coins that usually rattle around in your pocket.
It strikes everyone and anyone immediately. Somehow these coins are "real"; the coins we use today are not. But what does this really mean? And what does it imply?
The value of the coins amounts to far more than their marked value. Even dimes before a certain date sell for 10 and 15 times face value. The larger coins can be quite expensive.
What is real here is their substance, not the printing on the outside. This is the opposite of modern coins, the substance of which is completely irrelevant: All that matters is what is printed on the outside.
So the use of the term "real" here parallels how we use this term in any other context. Reality TV is said to provide the unvarnished truth about what people really do. We say someone should "get real" if we suspect that his thought or behavior is a mask or a blindfold obscuring a more-obvious truth.
So it is with coins. The new coins we use in transactions are not real. They are wearing a mask, a disguise, one put on by the state. More absurdly, the state tells us not to look at the reality, but rather to trust God that all is right with the money in the realm.
The old coins, in contrast, are precisely what they say they are and, therefore, have nothing to hide. There are no invocations that require a leap of faith. The truth is found on the scale and is told in ounces.
The gold ones are, of course, the ones you really want to hold. Their value reflects the metal content. Melt them, restamp them, make them into jewelry and they are still worth no less than the market value of the metal.
And who decides what the values of these old coins are? The coins might bear the likeness of a politician. They might bear the name of the nation-state. But these pictures and slogans are merely interlopers on the real point. What you hold is valuable not because some legislature, Treasury Department or central bank says it is valuable. Its worth was and is dictated by the market, which is to say, the choices and values of human beings. No government can add to or take away this value except by physically manipulating the coin itself.
Not only that. If you dig deep enough in the coin shop, you might run across coins that were not minted by governments at all, but by private manufacturers. In the early years of the Industrial Revolution, this was the way coins were made in Britain. Not by the Royal Mint, but by entrepreneurs no different from any other. George Selgin tells the whole story in his aptly named book, Good Money.
It turns out that making money is a business like any other, not something that only governments do. In a free world, it would be done entirely by private enterprise. The same is true of exchanging money. Some of the world's first great fortunes were made this way, profiting from the buy/sell spreads in coinage markets. Today, the business is the same in some respects, and one can see the appeal of it all. Bless those who sustain it and believe in it.
So long as this good money is in your hands, it is your independent store of wealth. There are no taxes due, no withdrawals required, no forms to fill out. It is the physical embodiment of independence. It gives you freedom. It secures your rights. And because this coin is valued not by the nation-state, it rises above it and extends beyond it. Its value is recognized the world over, and not because the U.N. has proclaimed it, but rather because it is something everyone on the planet agrees on.
Geographic mobility is only part of it. Look at the dates on the older coins: 1910, 1872, 1830, 1810 and earlier and earlier. They are still beautiful because they are durable. Their value is not diminished over time, as with just about everything else we know about; rather, it increases over time. And by its very nature, gold protects your investment from the depredations of modern life.
How they inspire the imagination! What was the world like when such coins served as money? The economy wasn't managed by some central authority. It managed itself from within, by the buying and selling decisions of economic agents themselves. The coins were selected by the market to serve as the facilitator of exchange, the things by which we were permitted to rise above the limits of barter.
They made possible calculation between goods and services that were as widely diverse as the whole of the human project, and reveal what was profitable and what was not. So these coins made it possible to organize the world's resources into lines of production that served society in the most-efficient way.
And how did the politicians figure into this mix? When they got their hands on these coins, they could do terrible things. But it was rather difficult for them to get them. They had to demand that the citizens fork over the coins or else, which is to say, they had to tax people. You have to have a pretty good reason to do this. Or the lie you tell has to be pretty darn compelling. You can only tell fibs so many times before people catch on.
If this is the only money that circulates, the aspiring leviathan state faces a serious limit on its capacity to expand -- a limit imposed by physical reality and the unwillingness of most people to give up something for nothing.
This is why every state is so anxious to see money substitutes circulate widely, preferably in the form of paper that can be made at will. If that same state can get banks to cooperate in creating more paper than can be redeemed by gold and silver coins, it can begin to habituate the population to the idea of a "fiat" currency, that is, money invented out of whole cloth.
Even better for the state is a system that completely separates "paper money" from its historical roots in good money. Then there are no limits at all to how much money it can make to fund itself and pay its friends, even if that means that money in general becomes ever less valuable.
And here we have the short history of how money came to be destroyed and how the modern world came to host the ghastly leviathans that dominate it. Here is the basis of destructive and unnecessary wars that last and last, the character-shredding welfare state and the swarms of bureaucrats who run our lives in every respect. It all comes down to the way money was destroyed.
You can tell from looking at the dates on coins that all of this happened surprisingly recently. The process began in the early 20th century with the cartelization of the banking system so that banks could loan money out of deposits they promised to pay on demand. The government's own debts would be paid no matter what. This helped with the war -- taxes don't cut it when it comes to funding global war -- so the financial system was encouraged to set aside its usual concerns over stability, since it was now guaranteed not to fail.
The process continued with the attack on gold during the New Deal under the influence of people like John Maynard Keynes, who believed that paper money would usher in a new utopia of a government-managed economy. So desperate was FDR to have people stop trading good money that he demanded it all be turned in; he said this was necessary to stop the Depression. Then the paper money revolution was furthered by people like Milton Friedman, who believed that a pure paper money would somehow bring about a stable price level -- through a formula that may have looked good on paper but failed to account for the realities of politics.
In the end, we ended up on the other side of the great divide between freedom and tyranny, all symbolized by the contrast between the coins of the past and the coins of the present. It is reality versus fiat, independence versus dependence, value that lasts versus value that is the whim of the transitory political class.
You discover all of this when you walk into the coin shop.
Have a conversation with the proprietor, who tends to be of a type: perhaps a bit crusty, but highly knowledgeable and independent-minded. At his office, he lives amidst this history. He is surrounded by the truth about money that most people never discover. He is daily faced with the beauty of what once was, and perhaps, too, he imagines the possibility that it could be again. He is not usually the despairing type, either. He sees the difference between what is permanent and what is transitory. If you take the time, you can learn from him.
If you trade with him, you can enter into his world of knowledge and partake in the ancient truth about money, politics and civilization. Owning these coins helps grant some sense of independence to you, too. You will possess a store of wealth not subject to wild bubbles, state-manufactured inflations and political whims. It is a kind of privatized secession.
Is it any wonder that people who enter this world think differently from others? Their blinders are off. They see what is real and true. They no longer believe in the great modern lie that the state is our wise master, in whom we should trust our very lives. The owner of gold and silver coins is just a bit less attached to the state than others. And should a time of great crisis come and you look among the survivors, you can be pretty sure that pre-eminent among them will be those who love the coin shop as much as I do.
Regards,
Jeffrey Tucker,
for The Daily Reckoning
Joel's Note: So what about the price of the metal in those coins then, eh? Up...down...neither?
There has been much ado about various predictions for the price of gold in 2012 that have recently appeared in these pages. "Flat for the year," reckoned Bill just last week. "A buy, perhaps now more than every," countered Eric Fry. "Gold stocks will have a great year," added Chris Mayer, tossing his stock-picker's hat into the ring.
What to think, Fellow Reckoner? Well, we've gathered some of the brightest minds in the business to discuss just that in a special webinar presentation to be aired at 11am this Thursday.
In short, our handful of experts reckon they've discovered a price anomaly that could deliver investors hefty profits even if the price of gold goes nowhere for the year. But, judging by a few charts we saw them forwarding around this morning, the opportunity to cash in on this anomaly may be closing even faster than they first expected. If you'd like to sit in on the webinar (it's entirely free), please let us know here. And do so quickly...even virtual rooms get crowded.
A version of Jeffrey Tucker's essay, above, appears in his excellent book, Bourbon for Breakfast: Living Outside the Statist Quo. | | | | | And now over to Bill Bonner with the rest of today's Reckoning
from Johannesburg, South Africa... | | Jobs Up, Income Down | | The real story behind the wage-less recovery |  | | Bill Bonner |
Recession fears are receding. At least, that's what it says in the papers. The economy has been adding new jobs at an average rate of about 130,000 per month. That's only about what it takes to stay even with increases in the population.
Still, it's not bad. Because it seems to mean that the economy is not getting worse.
Or...does it? While jobs are looking better, income is looking worse. David Rosenberg is on the case:
A WAGE-LESS JOBS RECOVERY
It was interesting to see that from July to November, the U.S. economy managed to generate 653k net new jobs, and yet real personal disposable income fell in four of those five months and at a 1% annual rate through that period. What prevented an overall contraction in consumer spending was a drop in the savings rate from 5.0% to 3.5% and a benevolent 60 cent drop in gasoline prices. Absent these two effects, real consumer spending would have actually contracted at a 3% annual rate in the July-November period. (As an aside, did you know that there is a 70% inverse correlation between gasoline prices and consumer confidence?).
Unfortunately, the household net worth-to-disposable income ratio has fallen to a low enough level in the past two quarters to suggest a complete reversal in that savings rate decline in the months ahead, and our biggest concern as we head through the winter months is a renewed rise in the price of gasoline, which has already carved out a bottom. If you recall, last year at this time the consensus was looking for a 3.3% real GD growth rate for Q1 of 2011; instead we got 0.4% at an annual rate (the stock market actually peaked after the first release of that quarter primarily because of the run-up in prices at the pump (rising 60 cents). People who still expect a full recovery has some explaining to do. Specifically,
they should tell us where will it come from.
Either households are de-leveraging or they're not. And if they are, they've
got a long way to go. Household debt levels have come down from their peaks
in ‘06 - 07. But they are still far higher than they were in the ‘80s and even
the ‘90s.
At least half...and maybe all...the "growth" of the 20 years leading up to 2007 came from increasing household and financial industry debt levels. And most of it depended on rising housing prices as collateral.
Do you see that happening again? Do you see another source of income or
spending gains?
We don't. And without income gains or another borrowing binge, we don't see
how a real "recovery" is possible.
But we don't have any more time to think about it. Not today...
We're on our way to South Africa. Stay tuned...
Regards,
Bill Bonner,
for The Daily Reckoning -------------------------------- |
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