The concept of known unknowns and unknown unknowns

By Bob Livingston

The concept of known unknowns and unknown unknowns came into the public consciousness following a statement by then Secretary of State Donald Rumsfeld in 2002 during a discussion about Iran and terrorist groups. What Rumsfeld was saying is there are things the people don't know that they know they don't know, and there are things that people don't know but they don't know they don't know them. I believe this applies to most Americans in discussions about government money systems. While many people — even trained economists — may believe they understand government money creation, they know there are things about it they don't know. But what most people don't understand is there many things about the system that they don't know that they don't know. Conventional wisdom holds that the Federal Reserve is essential to sound monetary policy and that its activities ensure that inflation and unemployment are kept in check. For the average citizen and Keynesian-trained economist, this is a known known. Another known known is that the United States is in debt and you should pay your "fair share" of tax dollars — as determined by a group of collectivists — into the U.S. Treasury in order to keep government functioning and pay off that debt. The problem is, neither could be further from the truth. For most people, the system of government money is a study of unknown unknowns. Look at the dollars in your pocket. They are nowhere near the value of the dollars that you had as a child or that you may have stored under your mattress. That's because they've been inflated away. Most people think that a dollar is a dollar. Not so. Today's dollars (nominal dollars) are quicksand money that destroys financially all who trust it. For many people, the topic of monetary realism — what money really is (and is not) and how the government creates a fiction called money and cons people into believing it is substance — is a boring one and understanding it is drudgery. But it is all important to our liberty. It's hard to imagine that more 5 percent of the conscious American adult population (those who bother to follow issues at a minimum level) truly understand inflation and how the Federal Reserve's policies are stealing our wealth every day. Sadly that percentage seems to become frighteningly lower with each passing day, even though their financial health and well-being rests upon proper understanding. When you do understand it, it will affect every financial and political decision you make. This week, Bloomberg reported that U.S. inflation has reached a six-year high. If you ask most people what that means to their wealth, they haven't a clue. They think that rising inflation means simply rising prices. That is incorrect, rising prices are simply symptomatic of inflation. Inflation is the increase in the money supply and credit. The word "inflation" once applied only to the quantity of money. It meant that the volume of money was inflated, blown up or overextended. As the money supply is increased, people have more money to offer for goods. But if the supply of goods doesn't increase — or increases at a slower pace than the money supply — the prices of goods goes up. Each individual dollar becomes less valuable because there are more dollars available. This leads to more of them being offered for a commodity. A "price" is an exchange ratio between a dollar and a unit of goods. When people have more dollars, they value them less. Goods then rise in price, not because there are fewer goods than before, but rather because there are more dollars available. (Taken from What You Should Know About Inflation — Henry Hazlitt) According to the excellent financial writer Peter Schiff in his book, Crash Proof: How to Profit from the Coming Economic Collapse, published the year before the 2008 financial collapse, there are five reasons governments desire to create inflation: Inflation makes the national debt more manageable because it can be repaid in cheaper dollars. In a democracy full of personally indebted voters, the government will pursue monetary policies hospitable to debtors even as it accommodates the special interests that lend to them. Inflation finances social programs that voters demand but avoids the politically unpopular alternative of higher taxes, allowing Uncle Sam to play Santa Claus. Inflationary spending is confused with economic growth, which is confused with economic health. (Of course, gross domestic product numbers are theoretically adjusted for inflation, but that doesn't mean much if the inflation figures are misrepresented.) Inflation causes nominal asset prices to rise, such as those of stocks and real estate, instilling in the minds of voters the illusion of wealth creation even as the real purchasing power of their assets falls. Anything that artificially increases aggregate demand for goods and services is inflation. It could be lowering interest rates, increasing credit or money printing, as the Fed has been doing with its so-called quantitative easing. This is the uncomfortable truth the money creators don't want you to know. But why would they want to hide it? Schiff writes that governments hide inflation because it keeps the interest on national borrowing low, allows the government to keep Social Security payments as low as possible and allows for lower interest rates for consumers, which encourages the phony expansion of the debt-dependent economy. By hiding the truth, the money creators seek to control the system, or non-system of fiat dollars which they use to control us. Americans believe they have trillions of dollars in savings and investments. In truth, what they have is only numbers, not substance. It is fiat, which is "money" only by the decree of the "authority" of government. We have had fiat paper money since 1913, and most of that time it was being debased (inflated). Put another way, it now takes more than $25 to buy what $1 would buy in 1913. We are only as rich or as poor as the purchasing power of our money. As to whether Federal Reserve or a central bank is necessary, one need only look at the 100 years before the creation of the Fed in 1913 (a period that also included Civil War inflation and the war's destruction of the U.S. economy). An item that cost $1 in 1814 cost only 47 cents in 1913. That's almost completely the reverse of the past 100 years. So what can we do to preserve our wealth? First, stop thinking conventional thoughts. They are not your own. If you will digest completely what I write, you will be catapulted into the real world. You will not spend your life frivolously and off point. Preserve your labor, your savings and retirement with gold and silver in your possession. You will know what to do with your precious metals when the time comes — and it will come. Precious metals don't pay interest, you say? This is conventional thinking backed by the paper money myth. Gold and silver are the only real money in existence. They are real money as well as intrinsic wealth. Moreover, gold and silver appreciate in purchasing power as paper money depreciates. That is your real interest. All understanding of hard money has been lost down the memory hole of the fiat paper world money regime. I am proud to be an American, but I know that my government and my country have been stolen by the money creators.