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Many of us believe it will be produced by global warming. For the moment, however, the "settled" science of global warming is rather unsettled. Something about scientists in England tilting the evidence and fictionalizing the science in favor of Al Gore's favorite cause.
Nonetheless, global warming has a consummate virtue: people understand it. It makes for a great narrative and it allows celebrities to feel that they are smart!
Meantime, the American Congress is consuming itself with work on reforming the health care system. As though health care is what determines whether or not people have jobs.
Working your butt off to institute radical reforms in the health care system is like fiddling while Rome is burning. It is a futile exercise, more the problem than the solution.
Or, as the President of China asked the President of the United States: That's all well and good, but how are you going to pay for it?
I am not suggesting that all of this apocalyptic thinking is for naught. I believe that it is simply misplaced. If the last crisis was the threat that the financial system was going to collapse, the next crisis will be upon us when the almighty U.S. dollar collapses. In many ways that will be our Armageddon, because we will not be able to solve it by printing more dollars.
We could print and borrow our way out of the last financial crisis, but if people are no longer willing to accept the dollar at face value and are no longer willing to lend us money, well then, we cannot print and borrow our way out of it.
Few people are going to see this coming because, compared with global warming, melting ice-caps, starving polar bears, and flooded resort communities, the collapse of the dollar is not so easy to understand. It is even harder to place within a narrative and harder still to visualize.
Sometimes people believe in prophecies or other fictions because it is easy to understand them as a story and because they are easily visualized.
The image of dying polar bears is more persuasive than the fact that the polar bear population is increasing. For a true believer like Al Gore, this inconvenient fact will have strictly no impact on his quasi-delusional beliefs.
All of this to introduce an article by the estimable James Grant, one of the few who foresaw the pending collapse of the market in mortgage-backed securities, and who has now written a "requiem" for the U. S. Dollar. Link here.
If you like being in touch with reality, even the most dire realities, you will love reading James Grant.
For the purposes of this blog the impending demise of the dollar reflects what happens when our most cherished and universally-held beliefs run up against reality.
Truth be told, we are not very good at dealing with reality. Our culture does not encourage it; many of us have not even learned how. Those who determine the course of the culture, people who are drawn to matters psychological and intellectual, prefer to believe that mind creates reality. If you can convince enough people that mind creates reality then the intellectual elites gain status and prestige and power. What's not to like about that.
The last thing the intelligentsia want you to believe is that reality exists on its own, that it has a form and a shape that persists regardless of what you think about it or feel about it, and that we cannot reshape it, but need to negotiate with it.
We have been led to believe the contrary. We have learned that reality is what we name it, how we talk about it, how we interpret it, what we feel about it, and how we perceive it.
Even if we admit that there is some indeterminate stuff out there, we tell ourselves-- because we have studied in the best universities with the best philosophical minds who have been able to earn tenure-- that our minds must take up this stuff and form into a coherent and intelligible whole. Our minds are like potters working with big clumps of clay, making them into Ming porcelain.
If reality is only what our minds make it, then there is, according to our greatest professors, no such thing as immutable essences or intrinsic values.
Which brings us, somewhat circuitously, to the dollar. As Grant argues, what makes the dollar money is the simple fact that someone, in this case, a government, said that it was money, and that a bunch of other someones are willing to accept it as money.
Paper money is money by fiat. As Grant and other amateurs of yellow metal insist, gold is money, not by fiat, but in fact.
Gold is real money; paper money is a fiction, become ever more fictional the more we print it. For my prior thoughts on this topic, with due reference to James Grant, see this post from over a year ago. Link here.
It was bad enough when mortgages turned out to have no real value because they have been sold and bought based on the assumption that real property had the value that the mortgage bankers all believed that it had.
Now it turns out that appraised home values were more fiction than fact, that the salaries that justified the granting of mortgages were more fiction than fact, that the investment products constructed of these mortgages were more fiction than fact, and thus that your savings, which you had dutifully entrusted to your local bank, had been invested by said bank in one or the other of these fictions, and thus, had, in large part, simply disappeared.
It's one thing for the polar bears to disappear; it is quite a bit more frightening for your savings to disappear. Best go back to the polar bears.
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