“Time is money,” says the proverb, but it can be flipped to reveal an essential truth: Money is time.
– George Gissing
Divine Disorder
Time, akin to money, serves as a distinctive measure. It allows us to track, compare, and gauge both progress and setbacks.
What is your annual salary? How many hotdogs did Joey Chestnut consume in just ten minutes on July 4, 2021? What is the year-to-date return of Bitcoin? What is the maximum speed of a 1969 Ford Mustang at sea level?
The ticking clock seems almost methodical, presenting a clear and orderly sequence that could be viewed as evidence of a divine design. Sixty seconds form a minute; 60 minutes make an hour; 24 hours constitute a day, which corresponds to one complete rotation of the Earth.
Roughly every 30 days, the moon circles the Earth—marking a month. Each year, the Earth orbits the sun in 12 months.
All seems well, right?
However, the neatness begins to unravel when we attempt to quantify Earth’s annual trip around the sun. It takes not just 365 days, but an additional 6 inconvenient hours to complete that orbit.
This discrepancy highlights a flaw in our timekeeping system—one that underscores human fallibility.
Yet, we don’t allow these pesky 6 hours to disrupt our sense of perfection. After all, we are human; we innovate, adapt, and shape the world as we see fit. Thus, when the numbers don’t add up, adjustments are made.
We create off-balance accounts, round to the nearest cent, devise negative interest rate policies, and establish leap years.
Meaningless Abstractions
This coming Thursday marks a day of reckoning, when the books must be balanced.
Examining our off-balance account, we discover 24 hours that must be written off—accumulated over four years of faulty timekeeping. This warrants a day to reconcile the disorder of years gone by, syncing our calendar with the astronomical year once more.
Without this resynchronization, what would a year even mean?
Though the calendar might only drift slightly over a couple of decades, a mere 28 years could lead to an entire week’s disparity. Eventually, the calendar could become a relic, akin to scratched lines in a cave—a confusing abstraction devoid of relevance.
An extra day every four years to align our calendar with celestial movements is a minimal trade-off—truly, it could be much worse.
While time falls short by just 6 hours each year, currency—especially that not supported by gold or other fixed benchmarks—is an arbitrary construct. In the case of the U.S. dollar, what does it represent without a stable foundation?
It becomes abstract, uncertain, and inherently arbitrary. It can be generated at the whim of the Federal Reserve and subsequently spent into circulation by Congress and the Treasury.
A handful of dollars today may suffice for your needs, but tomorrow, those same bills might only be useful as birdcage liner.
And whatever happened to penny candy, anyway?
Helicopter Drops
The convertibility of the dollar to gold once constrained U.S. Treasury budgets and the Fed’s capacity for credit creation. That changed when Nixon severed the dollar’s connection to gold, initiating the dollar reserve standard.
Before 1971, any foreign bank could trade $35 with the U.S. Treasury for an ounce of gold. Once Nixon closed the “gold window,” however, foreign banks received only $35 in return—no gold.
At the G-10 Rome meeting in late 1971, Treasury Secretary John Connally succinctly summarized this new reality for his European counterparts:
“The dollar is our currency, but it’s your problem.”
Unlike gold, which carries no debt obligation or counterparty risk, dollars can become worthless if the promissory obligation is not met. They can also be rendered valueless when a desperate government pressures the Fed to produce more currency, executing “helicopter drops” of cash over urban areas.
If this concept of helicopter drops sounds far-fetched, think again.
Former Federal Reserve Chairman Ben S. Bernanke discussed this very idea during times of financial distress. He clearly articulated it in his speech on November 21, 2002, Deflation: Making Sure “It” Doesn’t Happen Here.
He went on to specify:
“The U.S. Government has a technology—called a printing press (or its electronic equivalent)—that allows it to produce as many U.S. dollars as it wishes at essentially no cost. By increasing the number of dollars in circulation, or even by credibly threatening to do so, the U.S. Government can reduce the dollar’s value in terms of goods and services, which is akin to raising prices in dollars.”
He even referenced a “helicopter drop,” envisioning a central banker airborne, dropping cash to the “struggling masses” below.
This rationale informed the abundance of stimulus checks distributed during the COVID-19 pandemic.
Day of Reckoning
While the dollar may not be without value just yet, its ongoing variability poses a significant challenge.
How can one effectively save and invest when the dollar’s monetary base is persistently inflated? How can investments be safeguarded during sudden credit contractions?
When Roger Bannister famously broke the four-minute mile barrier in 1954, the distance and time were unquestionable. A mile will forever be a mile, and 3:59.4 will always be 3:59.4—neither more nor less.
In contrast, when a saver stashes away $1, there’s no guarantee that its value won’t deteriorate. For instance, using the Bureau of Labor Statistics’ CPI inflation calculator, $1 in January 2024 holds the same purchasing power as $0.13 did in August 1971—the month the dollar lost its gold backing.
What happened to the remaining $0.87?
Essentially, it has been quietly appropriated from savers and redistributed by the government—a national disgrace.
Over the past 111 years, since the Federal Reserve’s establishment, and more markedly in the last 53 years following the Nixon shock, the baseline for measuring value—the dollar—has been twisted and manipulated.
The number of dollars in circulation has surged, while the dollar’s individual value has plummeted.
To clarify, the prices of individual items will naturally fluctuate due to supply and demand dynamics. However, when money is pegged to a reliable reference point—as it was during the classical gold standard of the 19th century—price stability generally follows.
Just as leap years are crucial for aligning our calendar with its celestial baseline, today’s currency needs a steadfast reference point to retain its meaning and value.
Without such a foundation, we risk spiraling out of balance. Each unit of currency will continue to accumulate more zeros, yet what value does a $100 bill have if it merely purchases what a $1 bill did previously?
So, embrace your day of reckoning. Time was always there; it merely required recalibration.
However, we suspect that settling the distortions stemming from the dollar reserve standard will not be a straightforward task. Yet, it is a necessity nonetheless.
[Editor’s note: Do you know the most sensible action during a recession? Put your fears aside and do the OPPOSITE of what your friends and neighbors are doing. >> Here’s why and how.]
Sincerely,
MN Gordon
for Economic Prism
