Due to popular demand, the “Funny Money” article has become a series. Please read the first installment before venturing on:

Funny Money Part I

Thanks to “Funny Money” Part I we know that U.S. currency is exactly that: funny money. We know who orchestrates the funny money monetary system and who routinely confuses credit with capital. Convenient, isn’t it?

We also know that currency isn’t immortal. Currencies have failed in the past and they will fail in the future. A currency’s health depends on a government’s monetary and fiscal policy.

A government’s monetary policy decides how money will derive its value: by faith in pieces of paper or backed by a physical asset such as gold. The U.S. monetary system utilizes a fiat currency, or money declared by the government to be legal tender. With fiat money, the Treasury and Federal Reserve can control the money supply. They do this by printing new money or by purchasing securities like Treasury Bills on the open market. This is a way to take money sitting in the Federal Reserve coffers and hand it to an investment bank, or in other words, infuse cash into the system. Notice how the word “cash” was used in the previous sentence and not “capital.” The cash isn’t always capital; it’s often credit. Other renowned aliases include debt and Outlaw Pete.

A government’s fiscal policy determines its cash flow. The politicians budget out their desired spending and project their annual revenue from taxes, tariffs, user fees, etc. If the spending outflows exceed the revenue inflows, money has to be borrowed to finance the bloated budget. That’s where China, Japan, and the oil exporting countries come a-knockin’. Some people argue that deficit spending is healthy for an economy from time to time. A compelling case can be made for that. Though the key phrase is “from time to time” and certainly the amount of deficit spending is at the heart of the issue. What cannot be argued is that at some point deficit spending meets diminishing returns. In the eyes of many, the U.S. hit that point a long time ago. The end effect on currency from huge government deficits is unpleasant; the currency’s value is driven into the ground.

The funny money game will end; either by the government and the Federal Reserve stopping the above actions in time or the dollar collapsing. But what shenanigans would ensue if the dollar did collapse? American’s wealth, now standing on its last legs, would be worthless. Products and services would once again derive its value solely from their necessity for survival. We’d all be playing an impromptu game of Survivor; tribes being our local neighborhoods (never before have school boundaries been so imperative). All amateur athletic statuses and regulations would fly out the window. The “Fightin’ Irish” tribe would gladly trade little Billy to the “Axemen” for some livestock. Heck, the Irish would extort the Axemen by busting out Mr. Jennings’ tool collection. They’d be swinging a big stick alright, only the stick would be a garden hoe. Those babies are sharp.

With a failed dollar we’d have far more church-going citizens eager to stockpile communion crackers. And for the altruistic of the local tribes, the communion crackers might end up back in the offering basket.

Agricultural might would flex its muscles and unite a region. Without that pesky need for the agricultural industry to be globally competitive in dollars and cents, Americans would remember how expansive their farm system could be (especially without corn subsidies).

In the U.S., agriculture made up only 0.90% of GDP in 2008. GDP in the United States is substantial, though, relative to other nations. In addition, developing countries place greater weight on their agricultural sector because industries like “information technology” haven’t quite flourished yet. For example, 65% of Somalia’s GDP comes from agriculture. (1)

The U.S. brings the heat in individual commodity production. We produce more almonds, blueberries, cow milk, cranberries, grapefruits, maize, sorghum, soybeans, strawberries, string beans, and indigenous cattle, chicken, pig, and turkey meat than any other country. We rank second in apples, cherries, game meat, hen eggs, honey, hops, lettuce, mushrooms, oranges, pistachios, spinach, tomatoes, and walnuts. We rank third in asparagus, avocados, carrots, grapes, hazelnuts, linseed, oats, dry onions, peaches, nectarines, pears, green peas, raspberries, safflower seed, sugar beets, and wheat. We rank fourth in green chilies and peppers, garlic, groundnuts in shell, pumpkins, squash, gourds, tobacco leaves, and watermelons. (2)

I see plenty of options to fulfill the food pyramid guidelines, expediently brought to you by the U.S. Department of Agriculture (USDA)! But seriously, almost all of my favorite foods are in that expansive list. I see beer, wine, chocolate milk, protein powder, strawberry spinach salad, and peach-berry smoothies. When can the agricultural self-sufficiency begin?

It doesn’t stop at a nation’s agricultural might. The United States has an embarrassment of riches in natural resources. I’m not sure what’s more embarrassing, the fact that the U.S. is so resource abundant or the fact we’ve been so reluctant to use them, opting to consume other country’s resources instead. Only estimates begin to project the true reach of U.S. resources as many of them remain unexplored. Within the U.S. boundaries lie coal, copper, lead, molybdenum, phosphates, uranium, bauxite, gold, iron, mercury, nickel, potash, silver, tungsten, zinc, petroleum, natural gas, and timber. The U.S. sits on the world’s largest coal reserves with 491 billion short tons, accounting for 27% of the world’s total. (1)

The climate in the continental United States is moderate across most of the nation. We have the tropical climate covered in Hawaii and Florida. Plenty of moose’s frolic about in the arctic climate in Alaska. We have mountains and valleys as well as vast coastlines and Midwest plains. Wind power can be harvested throughout the west and Midwest as well as solar energy harnessed in the deserts of the southwest (and everywhere else the sun pops out occasionally).

As Barack Obama stated: “We have some beautiful real estate.”

To quantify it even better, here is how the U.S. ranks in various “real estate” resource abundance:

2^nd most water area (only to Canada): 664,707 sq. km.

3^rd most irrigated land (only to India and China): 223,850 sq. km.

3^rd largest country by size (only to Russia and Canada): 9,826,630 sq. km.

4^th total renewable water resources: 3,269 cu. km.

5^th most land area: 9,161,923 sq. km.

6^th most proven natural gas resources: 5,551,000,000,000 cu. meters

10^th coastline: 19,924 km.

11^th most proven oil reserves: 21,760,000,000 barrels (1)

There’s lot of water in that list, a commodity the world will fight for vigorously one day as populations exponentially increase.

If the dollar was to fail the first thing the International Monetary Fund (IMF), United Nations, and G20 would do is attempt to implement a new reserve currency. Whose currency no one knows for sure; it could even be a new currency. That isn’t particularly important after the sunk cost of a failed dollar. Whichever currency was promoted, rest assured it would be a fiat currency, one in which it’s “declared” legal tender by some government body so they can inflate and deflate it at will.

The powers at be will try to press restart on the funny money game. But if the world decided the funny money game would no longer be tolerated, one of two things would happen: an uproar of civil unrest would occur forcing change to a currency backed by a physical asset OR currency wouldn’t be a part of everyday life anymore. If we moved to off the cuff Survivor tribes, the United States could clearly take care of ourselves.

Maybe this is the underlying motivation for the government trashing the dollar. No matter what happens in a non-nuclear world, the U.S. will survive and possibly even flourish. We have military power that can only be rivaled by India and China (those two countries have four to five and a half times as much manpower fit for military service as the U.S.). (1) In our undeniable hubris we test how much money a country like China is willing to loan us. We continue policy that kills the dollar and the value of all the U.S. Treasury Bills sitting in China’s Central Bank. Economists have one universal response: China needs us to buy their products. Maybe they do, maybe they don’t. I’m not educated enough to say in the long run but damnit if we’re not pushing them to the edge. We may need each other now but not in a world of agricultural self-sufficiency. The U.S. will be on its merry way.

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(1) CIA – The World Factbook

https://www.cia.gov/library/publications/the-world-factbook/index.html

(2) Food and Agricultural Organization of the United Nations
Economic and Social Department – The Statistics Division

http://www.fao.org/es/ess/top/topproduction.html?lang=en&country=231&year=2005