Vic Socotra

28 January 2009

Common Cents

(Bomber Jacket from the crew of Tom Paine)

A sheen of diamond-clear ice cloaks the roads this morning. The rains did come in the night, and the sounds of scraping from down below came long before the light. The Schools closed early, all across the region, except for the contrarian District, which has decided to open late.

The Federal Government, located in the same jurisdiction, is a study in ambiguity. Not closed, not exactly open. “Liberal Leave” is what they call it, with safety first the guiding principle for those that live in the distant hinterlands. My company is equally Sphinx-like in its approach.

So here is the paradox: with more time available, I have wasted it with great efficiency. I had intended to unpack some common sense about how to deal with the Continuing Crisis. We listened to the smart guys for several years as their delusions deepened and infected everything.

Not understanding monetary policy makes this difficult, just as it was when we were expected to believe that derivative funds had intrinsic value. It is like the Fed deciding to stop publishing their estimate of the M3 last year.

Money is painfully simple, and excruciatingly hard. The “M’s” are counted like this:

* M0: currency (notes and coins) in circulation and in bank vaults. The “monetary base.”
* M1: currency in circulation, plus checkable deposits (which now means debit cards). This is where you and I live, most of the time.
* M2: The total of M1, plus individual savings deposits less than a hundred grand, both time and money market accounts. This is the last one I understand, since M2 represents all the "close substitutes" for money.

Now it gets tricky. Catch a breath:

M3: is the total of all the M2, plus large time deposits, institutional money-market funds, short-term repurchase agreements, along with other larger liquid assets. The Federal Reserve quite estimating the M3 last year, maybe because they still do and what they found scared the living crap out of them.

In his delightfully Quixotic campaign for President, Congressman Ron Paul claimed "M3 is the best description of how quickly the Fed is creating new money and credit. Common sense tells us that a government central bank creating new money out of thin air depreciates the value of each dollar in circulation.”

He is right, you know. Even Alan Greenspan was right once in a while, when he reminded us “The business cycle has not been repealed.”

Now, if you think I am going to launch off on some condemnation of the colossal stimulus package working its way toward President Obama’s desk, you would be wrong. Of course the bill is composed almost entirely of bacon products, but the times are dire, and something needs to be done.

I would ask that we not abandon sense when we consider what the implications are going to be.

The President telegraphed his intent in the inaugural speech. It was pretty cool, and a bit of a cryptogram. I love a good puzzle .

You remember the part where he evoked George Washington:

“… the father of our nation ordered these words to be read to the people:

"Let it be told to the future world...that in the depth of winter, when nothing but hope and virtue could survive... that the city and the country, alarmed at one common danger, came forth to meet [it]."

But the clever misdirection in the citation is what is striking. The President did not claim that George wrote the words that were read to the troops in the bloody snow and ice. The words are from old Tom Paine, the wild man of the Revolution,20whose legacy was summed up by no less than Theodore Roosevelt as “that filthy little Atheist.”

Tom’s best-known work was called “Common Sense,” published in 1776. In it he summed up the perfectly logical reasons the British should be expelled from North America. Paine is not the first in the pantheon of the Founders for good reason. He was a hot-head, a grand radical and prolific pamphleteer.

"Common Sense" became an immediate bestseller, with fifty-six editions printed in that year alone. It was this pamphlet, more than anything else that helped popularize the Revolution.

The reason it was so popular was that it was true. All you had to do was slow down and think about it, point by point.

As we continue to print money in an effort to stop the great decline, we will be asked to forget for a moment that there will be consequences from this binge to cure the woes of the last binge.

Common sense says that might work in the short term, but that there will be hell to pay for it later. Since we are now committed to the short-term course, perhaps we should now take a moment think about what you and I ought to be doing to prepare for what will come after that.

That is where we will go tomorrow. At the moment, though, I have to embark on the common labor of chipping ice. Can’t make a living otherwise. I don't like it, but It just makes sense.

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