The Institution of Money

To obtain a definition of the word “institution” I went to Wikipedia and found the following which I have condensed somewhat:

“An institution is any structure or mechanism of social order and cooperation governing the behaviour of a set of individuals within a given community. Institutions are identified with a social purpose, transcending individuals and intentions by mediating the rules that govern cooperative living behavior.

The term "institution" is commonly applied to customs and behavior patterns important to a society, as well as to particular formal organizations of government and public services. Institutions are also a central concern for law, the formal mechanism for political rule-making and enforcement.

As mechanisms of social interaction, institutions are manifest in both formal organizations, such as the U.S. Congress, or the Roman Catholic Church, and, also, in informal social order and organization, reflecting human psychology, culture, habits and customs, and encompassing subjective experience of meaningful enactments. Most important institutions, considered abstractly, have both objective and subjective aspects: examples include money and marriage.

The institution of money encompasses many formal organizations, including banks and government treasury departments and stock exchanges, which may be termed, "institutions," as well as subjective experiences, which guide people in their pursuit of personal well-being.”

If you accept this Wikipedia content as being accurate, and I do not have any significant argument with it, then the role of money as an institution controlling social order must be acknowledged.

An institution is a form of organization, organizations assume an identity, and it is in the nature of most organizations to resist forces that might lead to the end of their existence.

Now here comes a paradox:

If money is an institution like Congress, or the Fed, or JPM, or the church, or marriage - then money has a collective identity which will collectively work to try to ensure its survival into the future. Any institution would try to ensure its own survival, right?

So if money and all its component partner organizations want to survive, then it must (collectively) oppose those elements within its own institution which threaten its survival.

Now that leads to the conclusion that if the (for my example I’ll stick with the US but it could be anywhere) Congress or the Federal Reserve continually devalue the USD currency (which is one tool of the institution of money) until it’s very existence is under threat, then this should cause a falling out, and the other forces which support the institution of money should begin to oppose the sources which threaten it. These positive member institutions would demand sound currency practises be observed to safeguard the institution of money."

So where are they? Sound money activism seems to emanate from outside the dollar (as an institution) rather than inside it’s other connected institutions.

Gold bugs support sound money, and that is an alternative currency, so in this particular regard they don’t count. The reason for gold bugs not counting is based on the idea that long term holders of a company stock have an interest in the wellbeing of the business. But traders who go long, and later go short the stock, or buy another different stock will always be, and be seen to be less loyal. No matter how well intentioned, their words are regarded as less constructive than those whose fate is tied to the stock. In short gold bugs are not listened to because they are outsiders of the institution of money - outsiders as regards it's present state to which it has been perverted to by corrupt insiders.

This is where the world seems to be at right now. The supporters of a strong dollar are abroad in possession of dollars and T-Bonds, and those entities at home have converted to a bizarre situation where like characters in The Manchurian Candidate they profit more from its continued slide and demise than its success and become sleeper agents for “the other side”.

Dollar support from orthodox internal sources has somehow been eradicated. Where are the pensions and insurance industry spokespeople in all of this? Do they have a deathwish for their own industry? Bill Gross’s tweets stand proud in this regard, but they occupy a rather lonely space. A trader can switch sides, but a bond holding company would be expected to fight the good fight with its public relations department.

I wonder has Mr Buffet said anything about this, or is he another dollar bear wrapped in a red, white and blue flag?

It looks like in some way the major fixed income earning corporations have been silenced to the point of not having anything to say to represent their fiduciary clients interests. Isn’t that interesting?

After an extended period of this state of affairs, the status of debtor has become almost universal. Debtors prefer inflation and want some of it. Inflation kills the dollar so that’s ok with them. A nation of debtors, in their own self interest, can go short money by borrowing to buy stuff. With interest rates where they are would you want to be a depositor? Saving is so 20th century! And so everyone somehow has come to want the destruction of the home currency to continue. And they are in debt too.

I try to remember that when just about everybody has gotten on the same side of a trade, it's not got long to continue.

The main part of this game is being played abroad at the moment as inflation has been exported pretty well so far. All it requires is for the banks to be motivated to lend and the home game can resume. For the moment the really big borrowers, wealth funds and banks, seem to have the field for their own use as they borrow free money from the Fed to go and buy stuff with.

The organizations which comprise the institution of money and who have benefited from money down the years are actually the ones who destroy it today.

It’s a funny old world.

Argentus Maximus

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The author posts daily commentary on the gold and silver markets in the TFMR forum: The Setup For The Big Trade. More information about the author can be found here: RhythmNPrice.

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Key Economic Events Week of 6/10

6/12 8:30 ET CPI and Core CPI
6/12 2:00 ET FOMC Fedlines
6/12 2:30 ET Jerry's presser
6/13 8:30 ET PPI and Core PPI
6/14 8:00 ET Some Random Goon
6/14 10:00 ET Prelim UMich