Septic Tank Economics

Monty Pelerin
Fiat currencies are like particles floating up and down in a septic tank. At times one currency floats higher than another. Comparing currencies against one another is a relative and not an absolute game. You really don't know whether one has strengthened or the other has weakened. 

The reality is that regardless of which particle has floated higher or lower, everyone knows what is in a septic tank. That is the proper way to look at fiat currencies (and also handle them). 

Here is a classic example of septic tank economics:

"By all rights, the dollar should be declining in value, but it's not," says Eswar Prasad, economics professor at Cornell University. "For the dollar to decline in value, you must have currencies on the other side that will" rise.

Bad as things are in the United States, they look worse in Europe and Japan, making the yen, the euro and the British pound riskier bets in 2011. A notable exception is the Chinese yuan, which is likely to rise next year as Beijing fights inflation.

"The dollar remains the ultimate safe haven," Prasad said.

The first paragraph provides the "septic tank" analysis. The last paragraph is irresponsible and unforgivable for an economist. The statement itself belongs in a septic tank. Perhaps the author might explain why the dollar has declined for ten straight years against gold. Gold was around $250 in 2000. Today it is about $1,400. Last year the dollar declined another 30% against gold!  

It would appear that the "ultimate safe haven," certainly for the past ten years, has been gold not the dollar. In reality, gold has been the ultimate safe have for about 5,000 years, long before governments invented the fraud known as fiat currencies.

In a world of pygmies, a six-footer appears like Wilt Chamberlain. The dollar is not Wilt Chamberlain. It is merely the least sick of the dying fiat currencies. That is so for the moment and at least in the opinion of some analysts.

Monty Pelerin at Economicnoise.com


Fiat currencies are like particles floating up and down in a septic tank. At times one currency floats higher than another. Comparing currencies against one another is a relative and not an absolute game. You really don't know whether one has strengthened or the other has weakened. 

The reality is that regardless of which particle has floated higher or lower, everyone knows what is in a septic tank. That is the proper way to look at fiat currencies (and also handle them). 

Here is a classic example of septic tank economics:

"By all rights, the dollar should be declining in value, but it's not," says Eswar Prasad, economics professor at Cornell University. "For the dollar to decline in value, you must have currencies on the other side that will" rise.

Bad as things are in the United States, they look worse in Europe and Japan, making the yen, the euro and the British pound riskier bets in 2011. A notable exception is the Chinese yuan, which is likely to rise next year as Beijing fights inflation.

"The dollar remains the ultimate safe haven," Prasad said.

The first paragraph provides the "septic tank" analysis. The last paragraph is irresponsible and unforgivable for an economist. The statement itself belongs in a septic tank. Perhaps the author might explain why the dollar has declined for ten straight years against gold. Gold was around $250 in 2000. Today it is about $1,400. Last year the dollar declined another 30% against gold!  

It would appear that the "ultimate safe haven," certainly for the past ten years, has been gold not the dollar. In reality, gold has been the ultimate safe have for about 5,000 years, long before governments invented the fraud known as fiat currencies.

In a world of pygmies, a six-footer appears like Wilt Chamberlain. The dollar is not Wilt Chamberlain. It is merely the least sick of the dying fiat currencies. That is so for the moment and at least in the opinion of some analysts.

Monty Pelerin at Economicnoise.com