by Doug Casey, International Man:
Let’s discuss words. Many of the words you hear, especially on television and other media, are confused, conflated, or completely misused. Many recent changes in the way words are used are corrupting the language. The corruption of language is adding to the corruption of civilization itself.
Words are extremely important because they provide the most important means we have to communicate with each other. If you don’t mean what you say and say what you mean, then it’s impossible to communicate accurately. Do you remember that famous line at the end of Cool Hand Luke, when Paul Newman gets shot? “What we’ve got here is failure to communicate”? That’s what I want to talk about.
Where shall I start, because there are over a million words in English? I’ve rather arbitrarily chosen a few that are especially relevant to investors and freedom lovers. Many of these words are popular with the political classes.
For instance, stimulate the economy. That phrase came out in the ’60s. It really just means “print up money.” They don’t use it much anymore because they can see it no longer results in stimulus; rather, the opposite. Now it’s called quantitative easing. And everybody uses it without questioning the fact that it means “print money,” “inflate the currency,” or “debase the currency.” They say “quantitative easing” with no irony. It makes me think the chattering classes are actually, in reality, quite stupid. I’ll discuss that word—“stupid”—later.
The “powers that be” use a word, and all the jabbering monkeys follow their lead using the same word. I advise you to call them on it. When you use the enemy’s language, you’re playing the enemy’s game on his field. And you can’t win a battle when you do that.
You may have noticed, for instance, that over the last 10 years, they only talk about gold in terms of tonnes. Not ounces, tonnes. This is doubly confusing to the average guy. Because they’re basically innumerate. Most people are unaware that there are two kinds of tons. There are metric tonnes, which are 1,000 kilos, or 2,204 pounds. And English, or short tons, of 2,000 pounds. And a lot of times, when I see things written, they’ll write “a ton of gold,” and they spell it T-O-N. It’s totally different from a T-O-N-N-E of gold, but nobody knows that, including the ignorant journalists.
But they shouldn’t be using either “tonnes” or “tons.” If you’re going to price something in ounces, and use something in ounces, and miners report it in ounces, it’s idiotic to insert “tonnes” into the conversation. Nobody buys or sells or uses a tonne of gold. Even though gold is priced in dollars per ounce, you have fools who talk about tons or tonnes—not having a clue how many troy ounces are in either of them. Or even vaguely knowing what a tonne of gold is worth. But it serves to make the subject of gold more confusing, and more irrelevant, to the average guy.
Let’s talk about bonds. I’m short bonds right now. But do you remember when debt instruments used to be called bonds and debentures? That is a critical but totally lost distinction.
A bond is a debt instrument that is guaranteed by a specific asset in addition to the company’s credit. A debenture is a debt instrument that is just guaranteed by the issuer’s general credit.
Whatever happened to debentures? Apparently, they don’t exist anymore. Why? Because although almost all debt instruments are debentures today, they’re now called bonds—which are better than debentures. It’s subtle, dishonest, and indicative of what’s happened to the credit universe in general. Things are made to look better than they, in fact, are.
Another one. Time deposits and demand deposits. Some of you may remember the proper use of those terms. But, now, they’re completely conflated. Banking is actually two totally separate and different businesses combined into one. With time deposits, you give the bank X number of dollars for a specific length of time, and then the bank guarantees you a specific amount of interest.
Why? So it can lend it out at a higher rate of interest for an identical amount of time, generally in a self-liquidating, secured business loan to somebody of substance. Consumer and mortgage loans are out of the question to a sound banker.
Time deposits still—kind of—exist in the form of CDs, but they’ve generally morphed into savings accounts in the common vernacular. And even those have disappeared and have been conflated with demand deposits—called checking accounts by most people. They are totally different animals. At least if you’re running a sound bank. Historically, with checking accounts, the bank doesn’t pay you interest; you pay the bank a fee. Why? For the service of storing your money, and the convenience of writing checks against it. It’s as if you gave your furniture to Allied Van and Storage, paying them to store it. Now, this distinction is totally lost, and they can, in effect, lend your furniture out. This, plus the fractional reserve system, is why all the world’s banks are illiquid, and most are basically bankrupt.
Investment. Savings. Everybody uses these words, often interchangeably. But nobody ever defines them, because they don’t understand what they actually mean. So, they’re misused and conflated. What is investment? “Investment” is the allocation of a certain amount of capital to a productive enterprise, intended to create more capital. It’s like planting a seed. “Savings” is simply putting aside the fruits of past production. You should produce more than you consume. When you set aside the excess, that is savings. Saving creates capital, and with capital, you can invest. But now, the concepts of savings and investment are conflated. The difference between them is undefined and therefore uncertain in the public’s mind.
Speculation. A lot of people think, “Speculation? Oh, that’s gambling.” Well, actually no. Speculation is allocating capital not to create more capital, but to take advantage of distortions and misallocations created in the market—usually by government interference. Gambling is to engage in a game of chance—roulette, dice, or the like. Since most people in the markets have no idea what they’re doing, they actually are gambling—just using their brokerage house as a casino. Perhaps that’s why people conflate the two things.
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