Many of the words you hear on the media are 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. I’ve arbitrarily chosen a few that are especially relevant to investors. Many of these words are popular with the political classes as well.
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.
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. (Another option is cryptocurrency)
“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.
Inflation. This is one of the most misused words; few even think about its actual meaning. What is inflation? “Well, that’s prices going up.” No, it’s not. To say that is to confuse cause and effect. Inflation is an increase in the money supply. You inflate when the money supply is increased by more than real wealth increases.
Prices go up as a result. People have forgotten about that. Today, inflation seems to come from out of nowhere, like a freak storm. No cause. Unless it’s blamed on the butcher, or the baker, or an evil oil company. Nobody ever thinks it’s a central bank—the Fed in the U.S.—that actually creates more money, and causes inflation.
You’ve heard that the Federal Reserve is trying to create a little bit of inflation because, they say, “A little bit of inflation is good.” No, even a little bit of inflation is deadly poisonous. For two reasons: It creates the business cycle. And it destroys the value of savings. Saving is the basis of capital creation. People who say that a little inflation is a good thing are dangerous fools.
Well, what about deflation? That’s a bad thing, they say. Well, is it? In fact, deflation is a natural thing in a healthy capitalist economy. Why? Because in a healthy capitalist economy, every year, more wealth is created. An increase of wealth means prices, denominated in a sound money, will go down. And when prices go down, it means that the money you saved is worth more. Your standard of living will rise.
Deflation encourages saving. And that’s a good thing, not a bad thing, because remember, savings represents the excess of production over consumption. That’s how you get wealthy, by producing more than you consume and putting aside the difference.
And when you have deflation, where your money becomes more valuable every year, you’re encouraged to save. When the government destroys the currency by inflating it, saving is discouraged. Of course, at this point, because of the unsound monetary system, we might get a catastrophic deflation. A credit collapse.
Another misused word is money. Money can be defined as a medium of exchange and a store of value.
What you’ve got in your wallet, however—those dollar bills—are currency. Currency is a relatively recent invention. It’s the government’s substitute for money. It originated as a receipt for money, i.e., gold. Currency no longer has any relationship to money. And now, forget about even having currency; it’s all about credit. Even currency is going out of circulation with the War on Cash. Soon you’ll only have credit, ephemeral digits in the ether. Everything you buy or sell will go through your bank account, so the powers that be can know exactly what you’re doing. It’ll be pretty much impossible to evade taxes. Or maintain any privacy. The world’s rapidly going in that direction.
By: Doug Casey
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