The Ponzi Scheme That is The Dollar

By Cam Mather

Contrary to the impression I might have given you with my last blog post, I don’t actually watch TV all of the time. I’ve finally had some time to get caught up on reading because the garden is under snow. It’s one of my favourite parts of winter and the holidays. While the rest of my family were reading novels I stuck with non-fiction including “Currency Wars” by James Rickards and “The Ascent of Money” by Niall Ferguson. I’ve been anxious to read these books because I’ve spent so much time lately thinking about the reality of the U.S. Dollar. The U.S. dollar is a “fiat” currency meaning it’s not backed by gold. It simply has value because the government says it does. As long as people believe this to be the case all is well. If, at some point, people suspect that it is no longer holding its value, well, that could have disastrous consequences.

Exciting stuff I know, but this is how my brain works. Oh sure, I think about other important stuff, like whether or not those hoarders I saw on A&E last night let the crap pile back up in their living room once the TV crews left, but a lot of what I think about right now is related to paper dollars. And I’m not just thinking about how I wish I had more of them.

In 1971 the Dow Jones Industrial Average was about 900. Today it’s about 12,000. In 1930 it was around 200, so it took 40 years to go from 200 to 900. But then in the next 40 years it got 12 times bigger.

So what happened? What am I missing? Sure the world population and the U.S. population grew, and along with it the world economy, but it just seems too big a leap. It seems even more implausible since the 1970s was kind of the beginning of the end of the middle class, manufacturing job dream. This is when Bruce Springsteen started singing about the tough times in the industrial north. And Billy Joel sang “Yea we’re waiting here in Allentown, where they’re closing all the factories down, out in Bethlehem they’re killing time, filling out forms, standing in line…”

In the past the U.S. dollar was desired around the world because of the strength of the U.S. economy, in particular its manufacturing. Americans made stuff. Good stuff. Great stuff. But then people in power allowed those corporations to chase the lowest cost labor and today we have a U.S. economy that’s 70% consumption. So the economy is based on people buying stuff and less and less on people making stuff.

In 1971 the U.S. dollar was still theoretically convertible to gold. So if another country had an I.O.U. from the U.S. it could ask for it in gold. But then Richard Nixon took the U.S. Dollar off the gold standard and said it would have value because he said it did. And if you wanted to trade oil, you needed U.S. dollars to do it. Now there was really nothing behind the U.S. dollar.

This was also the time when the U.S. Federal Reserve seemed to discover the printing press. Around this time the U.S. money supply was about a trillion dollars. In 2006 it had risen to 12 trillion. So did the U.S. economy grow 12 times bigger? Certainly its manufacturing sector, the sector that created decent high paying jobs didn’t. It shrank. Then in 2006 the Fed stopped publishing the M-3, which is the broadest definition of money supply. They still provide the M-1, which doesn’t include bank reserves, and the M2, which represents money and “close substitutes” for money, but not the M-3.

That makes me kind of suspicious. In the world of economics it is important to know how much money is floating around out there. It kind of affects everything, including inflation. Back in the 1970s when the Fed started printing money, they still needed a printing press. Today, can you image how easy it would be for them to create money? Just a few keystrokes. So really, how could you not be tempted to just create money out of thin air? Every government that ever could, has done just that.

So if you look back at the Dow graph which went up in value about 12 times at the same time that the money supply was growing by about 12 times, you’ve got to wonder, what’s behind it all? If the government was just creating money out of thin air, and it was ending up in people’s hands, they had to do something with it, and putting it in the stock market so it could grow would be a logical place. Back in 1896 Charles Dow created his index to include the largest “industrial” companies. These would have been companies that make stuff.

Now it includes American Express, Bank of America, The Home Depot, McDonalds, Wal-Mart and Walt Disney. These are just part of the consumer economy where people spend money on stuff as opposed to making stuff.

So I think the reason the Dow Jones is at 12,000 is because there was a massive inflow of liquidity to the market in the form of dollars that were created out of thin air. Like magic. And I think the incredibly great lifestyles many of us have been experiencing for the last 30 years have been an illusion. Someone just rubbed a magic lantern and we all ended up with monopoly money that we’ve been spending on “stuff” made in other countries. But I think a day of reckoning is coming. And I think when enough people realize that the emperor of the U.S. Dollar has no clothes; we will experience a jarring return to reality. A return to an economy where people make stuff and trade with other people who make stuff. But to get to that point there will be a pretty stark downsizing and a realignment of how the world works.

The people best positioned to handle this new world will be those who have the skills to make stuff, and grow stuff. Pushing pixels around a computer screen won’t make it anymore.

It will be a very difficult transition for many people. There will a massive reduction in all our wealth and people will be dazed and confused and depressed and frustrated about it. But there will only be one way out, and that’s when we all get back to making and trading stuff we make ourselves. How we exchange these goods may be based on something like a dollar, but it will have a much different definition than it has now. Many of us will want to trade with precious metals like gold and silver, which have always been used as money. Ultimately every paper currency returns to some reality based on its relationship to these precious metals.

I think of these things as I cut kindling to sell at the hardware store in town, or dig trees from my property to sell, or grow garlic and vegetables to sell. I’m not getting rich. In fact, my time would be far better spent chasing those paper dollars on my computer. But garlic and potatoes and firewood and kindling are all things that I can touch and feel and when I sell them I know I have added value to someone else’s life. I’ve filled their stomach and given their body fuel or helped make their house warmer.

I could be crazy. Economists will dispute my perception of the money supply and the massive ponzi scheme that’s resulted from creating dollar bills out of thin air with no relevance to any traditional definition of real economic activity. And I’m OK with that. Even if I’m wrong, turning some sun and rain and seed garlic into hundreds of pounds of garlic to sell is all I need to stay sane.

16 Responses to “The Ponzi Scheme That is The Dollar”

  • Hi Bryden! Yes, we are well acquainted with James Kunstler and have read his many books and had the pleasure of seeing him speak in Ottawa a few years ago. As for “The End of Suburbia,” the sequel called “Escape from Suburbia” has a very short segment in which Cam is shown at a table, selling our books! Both are excellent movies….

  • Bryden:

    I don’t know if you’re aware of a guy named James Howard Kunstler. You are if you’ve seen “The End of Suburbia”, but in any case he has written several books and plays and a regular blog called “Clusterfuck Nation” (pardon my French) in which he pontificates on many aspects of American life in energy descent. I think you would enjoy his unvarnished observations, Cam.

  • I can’t agree more with this post and the comments made. I think if you are going to grow something for bartering that maybe carrots or beans would be a better medium of exchange than garlic though.

  • Cathy:

    Food, shelter, and a way to stay warm such as clothes, are our primary needs. Purpose/self acutalization comes next. Only these things we “need”. Everything else is a “want”, not a neccessity. Our survival comes down to our core needs being met. Everything else is surplus. Everything else is what we can barter with.

    “Precious metals” or anything for sale is only worth what a buyer is willing and able to pay. Paper money is only worth what a seller is willing and able to accept. Value is set by what a seller and buyer agree to accept.

    My $259,000.00(2005) home is now assessed,valued, and taxed at $159,000 and still dropping and I owe $204,000.00. My mortgage is called “up-side-down”. That is what materialism has turned our earth into. We are in an economic melt down due to greed. My economic bubble has burst and reality has set in. As the world begins to experience their personal bubbles bursting, more will come to realize that gold is not the answer. It is just another attempt to get an edge on everyone else, to have a sense of security.

    Governments and corporations are legal entities with legal rights and are able to act as a person(very rich entities). Unforunitely the collective cousciousness, of our elected officials and board members, does no work in sudo-entites that do not have souls or a conscience therefore they run amuck with materialism and greed, otherwise know as sin.

    “Civilizations” have collapsed repeatedly for the same reason. The UN was created to assist in unifying governments and expanding the current materialization civilization.

    Take care of your basic needs and barter what you can of your skills and talents and network in your local communities. Without money governments will callapse or decentalize back to communities. This gives choice back to the people. It will save those not dependant on the government or fake money. That’s my 2 cents worth…for what it’s worth in todays market.

  • Jeff:

    How did I know that an economic post like this would get such feedback. I agree with you though, and to paraphrase Douglas Adams from his 1970’s series “Hitchhiker’s Guide to the Galaxy” – useless jobs like telephone sanitizers attempting to colonize other planets are really just dead weight. It’s all about practical and usefull skills – I am a paramedic and my wife (also a paramedic) in soon to become a Family Nurse Practitioner – basically with many of the abilities of a rural physician, and hope that our skills will always be needed. We are avid gardeners and partially on solar power so far.

    It’s all about what Maslow’s Heirarchy of Needs really represents – food, shelter, fire, and a true sense of connection to the land. I respect you and Michelle for the decisions and sacrifices you have made. By the way, congrats on that new TV!

  • Kitty H:

    Neil B. Orleans, O’Brian states that our SS and Medicare are the source of our economic woes. Wrong. Over 50% of our budget is defense related. I include veterans affairs. And now the neocons want to start another war, with Iran. Sheesh! I’m outta here. Have a good weekend.

  • Kitty H:

    In 199, my husband and I cut up our credit cards and managed to pay off our house. The only bills are utilities and assorted stuff like that. Our vehicles are old but paid off. We are both SS recipients and manage to save a little each month. We garden and are able to take care of our home upkeeps ourselves, so far. A good book is Five Acres and Independence by M. G. Kains. Hard stuff to take but helpful. Cheers!

  • Kitty H:

    The Federal Reserve is a group of private banks, many of which have large foreign stockholders. Our tax and other federal money is deposited in the FR and we have to pay money to them to get it back. This is the reason the Fed loaned money, our money, to foreign banks.

    States can’t, I think, revoke corporate charters anymore. The courts ruled, I’m like 95% sure of this, that corporate charters fall under the Commerce Clause of the Constitution; therefore, states have no real power over them. Sucks, I know.

  • Neil B. Orleans:

    I agree with the above statement “if anything is about preparedness, this one is”.
    Even the former Mayor of Ottawa, Larry O’Brien (Ottawa is the Capital of Canada), wrote in his blog in June 2011 about preparedness, “Get Prepared! Something wicked this way Comes…”
    This Mayor, while in office, had a poor “green record”… what is the old saying, “Seems like he has found religion”.

    Check it out at:

  • Chris Hackler:

    The federal reserve is not “Federal” neither is it a “Reserve” and as far as making money out of thin air the fed and the american government have been doing that since the civil war. Both democrats and republicans do not object because they both serve the corporations and the banks. Its called corporatism and until states revoke the charters of corporations and of banks, when they get out of control this will not change but get worse. Free enterprise works when the government stays out of business, not when it props up bad business such as car companies, railways, corporations and banks.

  • Clay:

    Hi Cam, from way down here in Louisiana. If you are crazy, then I am too. The “system” is, in fact, a massive ponzi scheme and the collapse is both unavoidable and inevitable.

    The real problem is gross inattention by an asleep sheeple population: American Idol, McMansions, football and the insane need to drive gas-hog SUV’s as large as a living room. Years of training to not think and feel in a correct-living manner.

    Change will come. Some will be prepared, like you, and others will go the way of the do-do bird. Darwin in action, as I say.

  • Last year I realized that we all hold on too tight to this thing called “making a living” without seeing that the one thing it is doing is actually stopping us having a life.

    I decided then and there to get out of the rat race and have been working toward just that ever since. Along the way I learned that once you get out from under a mortgage and utility bills the amount of actual money you need drops considerably, grow some or all of your own food and it drops even further.

    They say the majority of people are two missed paychecks away from losing their home because of the amount of debt we have been allowed to saddle ourselves with, and yet there is no bailout for joe public.

    Change is definitely on the way as people see the economy for what it is. We have lost so many skills to the “life of convenience” that we are now sold at every turn that I often wonder just how we would cope if it all fell apart one day.

  • Rita:

    “garlic and potatoes and firewood and kindling” You got it right, Cam! These are things we all need, food and warmth, they are our most basic of needs. And if you can provide them for yourself and others, how could you not survive no matter what the economic status is. At least you have them for your self even if no on else can afford them. But when we produce the crap that fills our store shelves and provide services that few can afford, what do we have at the end of the day. A few pieces of paper, that like you said, only has worth…”As long as people believe”. And everyday that piece of paper feels like it’s worth less. It is not very filling in the belly and the heat it would produce if burned would not last very long. You on the other hand will always have a full belly and warmth to share with your family and friends. Good job! Thank you for sharing your experiences and giving us examples of how we can all walk the walk. 🙂

  • […] read Cam Mather’s latest post “The Ponzi Scheme that is the Dollar” and thought “if anything is about preparedness, this one is.”  This is what I […]

  • I agree–get your hands in the dirt, people! When the house of cards falls there won’t be time for playing solitaire. Get the skills now for surviving then!

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About Cam
Cam Mather and his wife Michelle live independently off the electricity grid using the sun and wind to power their home and their CSA. Cam is working towards the goal of making his home “zero-carbon” and with his extensive garden he aims to grow as much of his own food as possible. He is available to speak at conferences and other events and has motivated many people to integrate renewable energy into their lives, reduce their footprint on the planet and get started on the path to personal food, fuel and financial independence.
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