Money For Nothing

A favorite song, Money for Nothing, tells us that those rock stars of days of yore made lots of money for, well, not doing that much. 

Okay, you can argue that a successful band had to work at what they do to get really good. You don't just strap on your guitar or pound your drums and, voila, the hits keep comin'. So the song exaggerates a bit. But when the song compares the work of a rock band to the gents that do actual manual work, well, there's something to it.

But why bring this up today? Well, it's got to do with the recurring thought that arises from time to time of how our fearless leaders acquire money for nothing - in this case by creating it out of nothing.

Sure, many of us know this, have heard the phrase "out of nothing," and likely realize it's an ongoing thing. Perhaps many of us also know that this money for nothing thing started with the creation of the Federal Reserve Bank in 1913. Maybe some also know that the value of the US dollar, as a result of this practice, has declined almost 100% - somewhere in the 95% - 99% range.

Not good if you save and keep your money in dollars with no return. 

Now, for years you could plunk your dough in the bank and 5% back in interest. And this mostly outpaced inflation. You maybe didn't get rich; but you could hold your own. Basically, you set aside a piece of what you earned and put it away "for a rainy day" as we used to say. And based on your giving up present consumption for some future security, things could more or less work out in a modest way without having to unnecessarily take risks in items like stocks.

Oh, and remember that back in the day, when it came to stocks and bonds, we didn't have the plethora of mutual funds, ETFs, IRAs, 401ks, etc. that purportedly assist us in prudently investing our heard-earned dough into various markets (so they say). So the modest interest that exceeded inflation was a prudent, even necessary way to build something for the future.

All that changed over time, and changed with a vengeance after the 2007-2008 financial crisis. The history of how that change occurred would take too much time for today, but the bottom line is that banks no longer provide that interest that exceeds inflation, capped now by inflation rising in recent years. 

To put it simply: Once our country exited the monetary regime where the US dollar was exchangeable for gold or silver, and the purchasing power of said dollar declined precipitously, you could for a long time simply save and put your savings in a bank to at least offset the loss of purchasing power of the dollars you earned and saved.

No more.

Oh, and let's not forget that as opposed to us chickens running around, scraping the ground and pecking for what we can dig up from a parched monetary earth, there is a group of folks who benefit greatly from what we this monetary system. Again, for another time. But most of know what we're alluding to here. 

If not, we'll have to make do with a process described by Austrian economists. To simplify (over-simplify?), when money is created out of nothing, it enters the economy. But not everyone can get their hands on it. Those in certain positions (big shots) get first dibs. Over time, we chickens get the chicken feed.

In terms of this deteriorating value of the dollar: When the new money gets "injected," it immediately begins losing value. So those who get it first, get the most bang for those bucks. By the time the rest of us get what's left, the value is decreased already. This all adds up over time: good for "them"; not so good for us.

Well, that's today's thought for this past week, yet another in a long string of weeks where our dysfunctional (from the chicken's point of view) markets keep chugging along as if all is well. 

Heck, who knows? Maybe it is - at least for some of us. 

Oh, and in case you don't know the great classic rock song Money for Nothing, here's the studio recording, for your listening pleasure - something to kick off what we hope will be a restful weekend after a hard day's night (another great song) at work this week.