Puerto Rico Bankruptcy Officially Begins

After Obama changed the law so Puerto Rico could enter bankruptcy (thus shafting bond holders, but hey, that’s what Socialists do…) it was only a matter of time. The island has now officially entered bankruptcy court.

I’ve talked about Puerto Rico before:

When their “State Run” electrical system went dark:

https://chiefio.wordpress.com/2016/09/22/puerto-rico-goes-dark/

Yeah, it is called a “company”, but…

Some details on the economy and POV from during the elections:

https://chiefio.wordpress.com/2016/03/06/rubio-takes-puerto-rico-primary/

Including descriptions of the flood of Puerto Ricans heading to Florida and abandoning their home. Seems that applying a mandatory high Federal Minimum Wage Law to a tropical island surrounded by much lower wage rate destinations isn’t such a good idea after all…

Some comparative debt load and response review here:

https://chiefio.wordpress.com/2015/07/01/greece-puerto-rico-the-u-s-a-and-how-a-debt-crisis-happens/

I won’t rehash all that here. The thumbnail sketch is “the typical”. High tax rates supporting an ever increasing government bureaucracy with nice fat pensions slowly crushing the private sector profit making sector. Then layer on lots and lots of debt as a way to grease those skids to hell and not notice the pain until the final death rattle comes. (Pain is a valuable thing. It tells you to STOP doing something before it gets too bad…)

Eventually the debt become unrecoverable and the final spiral into collapse comes. Puerto Rico is there now.

The only things that really make this one any different from the dozens from South America over the decades or from Europe, pre-Eurozone, for that matter is that the legal structures are set in Washington DC. And like the EMU zone now, Puerto Rico can’t just bugger the currency.

Bonds were sold under an “impossible to go bankrupt” law, then the law was changed. You would think that was a kind of fraud, but it is done by Senators and US Reps, so just “normal business as usual”… This “impossible to bankrupt” was used as a selling tool to load up the mainland with P.R. Bonds. Hey, “Fleece the Rubes” is also “business as usual” in the “securities” business. The government of P.R. seeing an easy touch cash cow went whole hog for debt, who cares about 10 years later when it comes due, I’ve got an election to win NOW! As all politicians do. A match made in the heaven of D.C. Win-Win-Win… until the due date. Season with P.R. being on the $US so no way for the typical sovereign debt repudiation of buggering the currency with inflation. Then frost the top with the Congress adding an application of the mandatory Minium Wage Law. What could possibly go wrong with forcing the same minium wage rate that is set for New England and Las Vegas onto an Island in competition with the likes of Haiti and Jamaica both for jobs and for tourists.

It’s a Progressive Liberal Socialist Dream Come True! Just jack up real wage rates, screw the employers, have the government use debt to ease the pain of any friction and give fat retirement packages out like candy to anyone connected to the scheme…

The only problem is that the real costs drive away real industry and real jobs making real things. The basic economy starts to lock up, employers leave, property values drop, unemployment rises, and suddenly you have a giant debt Ponzi Scheme to cover all those loverly pensions… Ooops.

How to fix it? Well, first they need to get out of the Debt Death Trap they are in. The bankruptcy court will do that. The longer term fix will be harder to come by.

First, it is essential to let real economics laws operate. Take that Federal Minimum Wage foot off their throat. They may start as low paying jobs, but there WILL be jobs, and real productivity and real income and real growth. Competition will eventually raise wages to their equilibrium point. Second, stop applying the Jones Act to them. Let their ports handle goods and ships from anywhere. That will at least cut the costs for average folks on the island. Let their economy compete directly and freely and it WILL thrive.

As to the debt?

So the question really is who gets screwed. The bond holders, the US Taxpayer, or the financial companies. (It ought to be the folks who issued the bonds, but that is the purpose of bankruptcy, to let them off the hook for their debts.)

At this point IMHO there ought to be a claw back of earnings from any company that pushed P.R. Bonds as impossible to bankrupt (so ignore the bad fundamentals). The bond holders knew they were buying something not-AAA Federal Paper, so need some haircut (especially any vulture funds who already scammed the original holders buying them for pennies on the dollar). The US Taxpayer? Well, despite my usual “NO!” to Soaking Uncle Sugar: In fact, the US Congress made this mess by application of laws to promote some broken sense of “social justice” and force Jones Act wages on shipping and Federal Minium Wage onto a place that can’t support it. They, too, are liable. Now in an ideal world, we would have a claw back of the pensions of anyone in Congress of Federal Executive levels during the years the debt built up, but that’s not going to happen. So at least some can come from “tax the rich” and pay off some P.R. debt with it.

IMHO, the best way to cover that is simple: Pass a bill removing Federal Minimum Wage and Jones Act (and any other crap progressive socialism lite laws) from applying to Puerto Rico, and in it, include a provision that the USA will “roll over” the existing PR debt. Bond holders take a small haircut (maybe 20%) and the Puerto Rico agencies are also kept on the hook for a portion (say 10%? Whatever looks doable in bankruptcy court). Any Puerto Rican Government Executive takes a 50% haircut on their Government Pension (no such rule applied to non-management personnel). The USA picks up the rest of the debt and pays off the bonds, while issuing US Debt (at near zero interest rates right now), but with Puerto Rico to repay the principle to the US Treasury as they mature. Say a ladder of 2% every year for 50 years or 4% every year for 25 years. No more debt to be issued by Puerto Rico until this is paid off (preventing a repeat…)

Background

Here’s some background on the PROMESA legislation (Part of the Obama Legacy…)

http://mcclintock.house.gov/newsroom/speeches/breaking-the-promise-puerto-rico-promesa-legislation

This bill applies a form of Chapter Nine bankruptcy to the general obligation bonds of Puerto Rico that are guaranteed by the commonwealth’s constitution.

Article VI, Section 8 of Puerto Rico’s constitution explicitly provides that “interest on the public debt and amortization thereof shall be paid first.” PROMESA ignores the Puerto Rican constitution and breaks that promise.

Here’s why this is so important to the rest of the country. Every state government has similar constitutional provisions that guarantee their general obligation bonds. This is what allows them to borrow at extremely low interest rates, because their debt is constitutionally guaranteed and therefore the risk of default is extremely low.

If Congress is willing to undermine a territory’s constitutionally guaranteed bonds today, there is every reason to believe it would be willing to undermine a state’s guarantee tomorrow.

This, in turn, invites credit markets to question such guarantees as being no longer secured on constitutional bedrock, but rather dependent on the shifting whims of Congress. And this, in turn, means the value of those bonds is devalued and interest rates paid by taxpayers on that debt will increase.

The governors of six states have already raised this warning. And the U.S. Virgin Islands, whose credit is directly undermined by this bill, wants out of the bill for that reason.

PROMESA could have respected the $18 billion of constitutionally guaranteed debt and focused instead on restructuring the $54 billion of Puerto Rican municipal debt that is not constitutionally guaranteed. After all, there is no reason to treat San Juan’s municipal debt any differently than San Jose’s. But constitutionally-issued debt is fundamentally different, and its reliability must be maintained. Tellingly, supporters of the bill voted down just such an amendment in committee.


Well, at least now we know that State and Territory Constitutions are meaningless and ALL “Municipal Debt” is now junk at its core, legally.

So just like Detroit and soon California, excess debt leads to financial ruin. You can not borrow your way to prosperity. You can not legislate your way there with wage laws and sweetheart deals to unions like the USA Maritime unions.

It is worth noting that these same forces are what is at work in Greece, Spain, Italy, etc. etc. Locked into one currency, so they can’t inflate their way out of debt; or out of nutty mandated wage rates. Tied to ONE legislative agenda set far far away and beyond their control. Increasing unemployment as they get defined into poverty for the benefit of the Central Planners. As their economies implode (accompanied by debt explosions), their youth moving away to other cities in other nations where high cost of living makes the high wages more rational; but where they still don’t thrive.

Just like Detroit became a rotting cancer, so too will the cities of Greece et. al. as the economic rot forces decay. An independent nation could fix that by several means (currency inflation, less debt, lowering wage rates, etc.) but a satrapy is limited by what the Master allows. Typically that is decay of infrastructure, lack of investment, population exodus, and eventual dependency as a poverty ridden colony.

Free people can turn anywhere into a great place to live. (Look at Phoenix Arizona. Built in the worst possible place in the middle of one of the more savage deserts on the planet, with nearly no natural advantages. Just a small water supply, and lots of sand. Add nuclear power and you get a retirement mecca… Add computer centers using that cheap nuclear power and you get one of the major financial computing centers of the continent.) A dependent people living by Social Ideals & Laws Imposed By Others and then buried in debt is a doomed people, no matter how rich in natural beauty and resources the rocks they live on. Central Planning always plans for the Center to Thrive – everyone else not so much.

http://www.chicagotribune.com/news/nationworld/ct-puerto-rico-bankruptcy-20170503-story.html

By Thomas Heath and Tory NewmyerWashington Post

Puerto Rico teetered into insolvency Wednesday as the chronically troubled U.S. territory of 3.4 million citizens buckled under its ever-increasing debt, which stands at $73 billion.

The process that Puerto Rico has undertaken is a prelude to bankruptcy, but in this case it is tailored for governments. Given the size of the debt, it would be the largest such insolvency in U.S. history, far outstripping Detroit’s $18 billion restructuring in 2013.
[…]
Puerto Rico’s situation is not dissimilar to Detroit’s, which was the culmination of years of economic stagnation and bad policy. Puerto Rico, an island in the Caribbean that is about the size of Connecticut with half its gross domestic product, needs billions to stimulate its economy and upgrade its infrastructure, including its water and electrical delivery systems as well as waste collection. Both also face massive pension obligations.

So where did the prior $72 Billion go? Hmmm? Perhaps also spent on ‘infrastructure projects’ and to “stimulate its economy”? It is NOT a stimulus to the economy, it is a funnel for Friends Of Government to get rich. What stimulates an economy is economic freedom and low tax rates.

A seven-member federal oversight board set Wednesday’s events in motion when it filed in U.S. courts to place the territory under protection from a growing avalanche of bondholder lawsuits.

The oversight board was empowered under legislation known as the Puerto Rico Oversight, Management and Economic Stability Act, or PROMESA, to submit a plan to a court with the power to impose a settlement. A bankruptcy judge is expected to be appointed to oversee the process.

Investors had bought the bonds in the belief that Puerto Rico, like U.S. states, would not be allowed to fail
and the debt would be protected. But many of the agencies that have issued government debt in Puerto Rico missed payments, putting them in default.

I only note in passing that these were likely bought by the present fund holders at distressed prices from the original small holders, so sob stories about poor mainland pensioners living on their Puerto Rico Bonds are likely a farce. Who will make whole the already fleeced small holders who sold to these Vulture Capitalists? Eh?

A maze of government-issued bonds through various taxing authorities and revenue streams complicated attempts by Puerto Rico to settle with bondholders.

“The complexity of Puerto Rico’s debt, with multiple types of debt and classes of shareholders, make voluntary negotiated settlements more difficult,” said Andrew Biggs, a resident scholar at the conservative American Enterprise Institute and a financial oversight board member. “It’s possible that the prospect of legal adjudication will put new energy behind a negotiated settlement.”
[…]

Rep. Nydia Velázquez, D-N.Y., who was born and raised in Puerto Rico, said that thanks to the law, the territory has the tools it needs to climb out of its crisis. “It is time for the government and the creditors to move forward in restructuring the public debt,” she said.

It is unclear how much will be paid to holders of Puerto Rican government bonds. The territory had planned to cover less than a quarter of the debt that is due over the next 10 years.

A coalition representing a third of Puerto Rico’s senior secured bondholders, with $2.5 billion at stake, applauded Rosselló’s move, calling it “sound public policy and … a much-needed step forward on the island’s path to restructuring its debts in an orderly manner.

“This was certainly an option of last resort,” according to the group, which includes retirees, investors and asset managers such as GoldenTree Asset Management, Merced Capital, Tilden Park Capital Management and Whitebox Advisors. “The move enables Puerto Rico to freeze numerous lawsuits, maintain essential services for its residents, and rely on a court-driven restructuring process to objectively determine respective creditors’ rights.”

Nader Tavakoli is the former chief executive of Ambac Financial Group, a large insurer of Puerto Rico debt. “A long and drawn-out battle with creditors will be catastrophic for Puerto Rico and its people,” he said. “It’s difficult to see how Puerto Rico will have access to the large amounts of affordable capital needed to revitalize the island without consensus with its existing creditors.”

In other words, get Sugar Daddy to pay off the credit cards and guarantee the new debt, then start the cycle all over again…

Unsecured creditors and junior bondholders have taken significant losses in past restructurings, such as in Detroit, and are probably more vulnerable to large losses in Puerto Rico.

“Puerto Rico’s bankruptcy is unique in size,” Williams said. “But it’s not just the size of the problem that is unique. It was the long-standing absence of a legal path for restructuring its debt that contributed to this.”

President Barack Obama signed the PROMESA legislation over the summer as the territory’s financial situation grew dire and the economic death spiral took hold.

The Obama Legacy lives on. No bankruptcy for GM (that would NOT have ended the company, just passed ownership to the bond holders) but plenty of bankruptcy for a State, City, or Territory? Guess that’s the Socialist Way. As long as governments and unions win and capitalist bond holders lose.

The island territory, 1,500 miles from Washington, saw its population plummet to 3.4 million from more than 5 million. Its economy has withered, its debt has mounted, and the unemployment rate has settled into double digits. The territory’s agriculture department suspended subsidies to farmers. Businesses experienced power failures from the state-owned utility. The treasury withheld tax refunds.

That’s pretty much how it goes when you can’t cut your cost basis. No ability to change the currency (the usual way bad governments repudiate debt in real terms), no ability to change the exchange rate (thus moving from artificially high political wage rates to real competitive wage rates compared to other neighbors), no ability to remove the excess debt overhang indulged in by their “Political Leaders”. AND subject to all the legal red tape of the USA Congress and national laws…

The rescue plan involving the oversight board was fraught with politics as it wound its way through Congress last year. Some politicians used politically charged language to describe the plan.

One group, the Center for Individual Freedom, spent millions on ads calling the Puerto Rico bill a “bailout,” targeting congressional districts. As Jeff Mazzella, the group’s president, sees it, the oversight board’s action “will allow Puerto Rico to rob millions of American retirees and savers who invested in Puerto Rico bonds.”

“Furthermore,” he said, “it cements the political precedent set by Congress for high-spending states with unsustainable debts to ultimately follow suit.”

And, I would add, for the USA to do the same when the time comes… Though really why bother? We’ll just crank up the inflation rate and let it melt away in real terms… Oh, wait, we’re already doing that…

Well, I hope that in some way or another Puerto Rico gains enough liberty to thrive. I’d love to vacation there, and might even enjoy some retirement time there. At present, the medical staff are bailing for better wages and jobs on the mainland (along with the young and future “human capital”) so not with the best health system for retirement living… but maybe after a couple of years of ‘turn around’. The place can be a wonderful tropical paradise, with the right liberty and laws…

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About E.M.Smith

A technical managerial sort interested in things from Stonehenge to computer science. My present "hot buttons' are the mythology of Climate Change and ancient metrology; but things change...
This entry was posted in Political Current Events, World Economics. Bookmark the permalink.

14 Responses to Puerto Rico Bankruptcy Officially Begins

  1. John F. Hultquist says:

    Note, the link below is 2 years old.

    Likely many people in the US will not think of this story being linked to a loss for them. However, many holders of mutual fund shares have already lost. From the Chicago Tribune
    [July 2, 2015]

    For example, the Franklin Double Tax-Free Income fund, lost 3.58 percent and Oppenheimer Rochester Maryland Municipal lost 4.45 percent last month, according to Morningstar. Both had exceptionally large portions invested in Puerto Rico bonds for the last reporting period examined by Morningstar — 47 percent and 37 percent, respectively. Guggenheim Municipal Income, with 8.5 percent invested in Puerto Rico bonds, lost 0.74 percent, said Morningstar. Vanguard Longterm Tax Exempt, with only 0.20 percent invested in Puerto Rico bonds, lost just 0.30 percent for the month.

  2. E.M.Smith says:

    RT just had a story on P.R. saying there’s a 3 way referendum up for a vote in a month or two.

    1) Independence
    2) Regular Statehood
    3) No Change.

    I hope they choose wisely. Not sure which one I’m for… I emotionally lean toward #2, but there are advantages for them in #3 and they get out from under The Feds with #1.

  3. philjourdan says:

    Soros is heavily into PR debt, so he is pushing hard for a bailout. It will be interesting to see how Trump handles it.

  4. E.M.Smith says:

    Well, if Soros is doing his usual “parcitize public debt for fun and profit” then I’m all for whatever costs him the most. If he wants a bailout, then make sure any bailout is limited to $1 million per person and to private persons only, all funds and companies get squat…

  5. Pingback: @KarenHudes Replying to @Defendress81M .@Defendress81M The Banking Cartel is trying to steal our pensions. Still not working for them: | My Blog

  6. I hereby remind you the following:

    CONSTITUTION OF THE UNITED STATES

    ARTICLE IV

    SECTION 3. …

    The Congress shall have Power to dispose of and make all needful Rules and Regulations respecting the Territory or other Property belonging to the United States; and nothing in this Constitution shall be so construed as to Prejudice any Claims of the United States, or of any particular State.

  7. E.M.Smith says:

    @Alvin:

    Oooh, good one!

    So maybe we ought to put it up for auction… I bet China would pay a lot… they like Islands :sarc/

  8. cdquarles says:

    No surprise at all. About those ‘fleeced’ small holders of government bonds. I say they were not fleeced, if they were willing to buy them despite having the gun of government pointed at them. This is why I will not voluntarily buy *any* government bond. You see, everyone thinks that they’re the safest of them all, for various reasons; whereas, they are the most risky of all bonds, since taxes come from everyone’s own money. Currency, by the way, isn’t necessarily money; but it is a money substitute.

  9. philjourdan says:

    So maybe we ought to put it up for auction… I bet China would pay a lot… they like Islands :sarc/

    Sarc with a lot of truth.

  10. E.M.Smith says:

    @CDQuarles:

    Someone else “gets it” about currency vs money! Yay! ( I’ve spent years saying that “Currency is a medium of exchange while money is that plus a store of value. Paper currencies inflate, so are not a long term store of value.” Few people seem to care.)

  11. p.g.sharrow says:

    Gold and Silver or Smith’s Suit are “real money” federal reserve currency is just paper/computer units that are traded for real stuff because it is handier then packing around real money. Sooner or later “not worth the paper it is printed on.” A dollar of my youth is worth less then 3 cents of real value now. A paper Federal Reserve “Dollar” really is not worth the paper it is printed on. A fist full of 1 Dollar bills in my wallet really is a pain in the rear, no longer a comfort of substance…pg

  12. E.M.Smith says:

    @P.G.:

    The original Silver Dollar was was reduced in size to make the Liberty Silver dollar at just under an ounce of silver. Per the wiki:

    However, the order was given by President Thomas Jefferson to halt silver dollar production due to the continued exportation of U.S. dollars. The Spanish 8 Reales, which was slightly heavier than the U.S. dollar, nonetheless traded at a 1-to-1 ratio. So U.S. dollars went to the Caribbean, were traded for heavier 8 Reales, and those were then brought back to the U.S., where they would be recoined for free into more U.S. dollars; the difference in silver, then, was kept by the exporter. This ensured that no dollars would circulate in the U.S., but would instead be exported for their heavier counterparts overseas, leaving little but old, foreign money to circulate in the United States in a process known as Gresham’s Law.
    […]
    Seated Liberty dollars were introduced in 1836 and were minted in lesser quantities than the sparsely minted Gobrecht dollar that preceded it. The dollars were used in general circulation until 1873. The production of large numbers of U.S. gold coins (First $1 1848 and $20 in 1849) from the new California mines lowered the price of gold..so the value of silver rose. By 1853, the value of a U.S. Silver Dollar contained in gold terms, $1.89 of silver. With the Mint Act of 1853, all U.S. silver coins, except for the U.S. silver dollar and new 3 cent coin, were reduced by 22.9% as of weight with arrows on the date to denote reduction. The U.S. silver dollar was continued to be minted in very small numbers mainly as a foreign trade to the Orient.

    The international trading partners did not like the fact that U.S. coins were reduced in weight. The use of much more common half dollars became problematic since merchants would have to separate higher value pre-1853 coins from the newer reduced ones. From 1853 onwards, trade with Asia was typically done with Mexican coins that kept their weight and purity in the 19th Century. This ended in 1874 when the price of silver dropped so that a silver dollar has less than $1.00 worth of silver in it (huge amounts of silver coming from the Nevada Comstock Lode mines). By 1876, all silver coins were being used as money and by 1878, gold was at par with all U.S. paper dollars. Beginning in 1878, huge amounts of the Morgan silver dollars were produced but few were used as money. The size was too large to carry on business so Silver Certificates were used instead. The mint made the coins, placed them in their vaults and issued the Silver Certificates instead. This is the reason so many Morgan and Peace dollars can be purchased in AU or UNC condition (near perfect)… they sat in bank/U.S. Treasury vaults most of the time.

    Each coin is composed of 0.77344 troy oz of silver. They were minted at Philadelphia, New Orleans, Carson City, and San Francisco. A Silver dollar is worth $1 in silver at $1.31 per troy ounce. The current silver price (March 10, 2017) is $17.01 per troy ounce so a silver dollar is worth, in melt value of about $13.15 US.

    As I remember when silver dollars were commonly in use as money, it means that during my lifetime the “dollar” has gone from roughly parity to 1/13 of the silver value. Sometimes even lower when silver prices were higher. Now that’s the raw silver value. In reality, most things have seen even higher inflation since the melt value was supposed to be kept below face value to prevent folks melting the coins (which failed in the late ’60s early ’70s). Essentially that’s the difference between the silver metric 7 ¢ and your 3 &cent value of the dollar. By my best estimate, it is about a nickle headed for 4 ¢ but any estimate has big issues to deal with from technological change and benchmark products changing.

    What is NOT in dispute is that over 93% of the original value of the $US has been inflated away in about one lifetime, the rest to follow at the same or higher rate. It is now the case that it costs more than it is worth to print a $1 bill, so the treasury has chosen to use cheaper paper (minus the color threads) and tried to force folks to use $1 coins since they last longer…

  13. cdquarles says:

    A quibble, EM. with respect to ‘store of value’ being a property of money. No, per the Austrian School, it is not. The ‘store of value’ is something that resides in people’s imaginations/minds. Thus. it is subject to rapid change since no human’s valuation of anything economic is static. Thus, prices are discovered and not set. Bids,and asks are set. Decisions are made based on that versus the internal valuation, which is ultimately a point-in-time cost/benefit evaluation. There is no future for an embodied entity if one does not survive right now, where now is the length of time for irreversible cessation of the electrochemical reactions within said body to occur and that’s 1 hour. Add to that that the most time we have in these bodies is 120 years, for now.

    Money is the thing people will use to facilitate trade. Usually this will be some commodity that has little other use other than as money. Money substitutes come into being when that commodity has production, handling or other problems that make it more convenient for such a mutually acceptable substitute to trade in money’s place (that is, currency). Credit is one such substitute. Printed paper is another. Cigarettes, alcohol, rocks, whatever is available at lesser cost, at the time, than the primary agreed-to form. As long as people don’t perceive misuse in any form, the money and its substitute trade at par. When people do perceive misuse, they discount the more readily available form (thus Gresham’s law), and that is the inflation people feel.

    Since the individual’s valuations, which reside in their heads, cannot be measured; but one can measure the resulting actions. properly speaking, one should never put numbers on inflation where that misleads people into making the number be the real thing when they are not the real thing at all.

  14. E.M.Smith says:

    I’m using the formal definition from my Economic Text Books. Samuleson and similar. So not Austrian. IIRC, the Austrian definition is “the most easily traded commodity” or was back in the 80s when I ran into it.

    Yes, all value is in people’s heads, but nature helps with establishing properties that make some things more useful than others, thus naturally more valuable.

    But yes, it is an ongoing ‘quibble’ in all of Econ. What is money is subject to much noise and heat, little light… Then there was the lack of consistency of being fed the ‘official definition’ of money as medium of exchange AND store of value and currency being the medium of exchange and usually paper THEN being told all the things in M1 vs M2 vs M3 vs… and seeing that many were not really either a store of value or a medium of exchange. So how can you have a half dozen ‘types’ of ‘money supply’ that don’t meet the assigned definition of ‘what is money’? My professor just brushed it off with something like “those are just the definitions”…

    The current fad in Econ is to basically say money is kind of a token printed by government and there’s no reason not to just print all you want and let the Central Bank manage the inflation rate… so print baby print… (My free interpretation of ‘Modern Monetary Theory’) So I expect the definitional problems in Econ to get worse, not better. Many folks now not even being told money ought to be a store of value at all. The buggery of the currency now reaching up stream to the definitions of currency and money. Sigh.

    So over the centuries we’ve moved from money as an inherently valuable commodity, like rare metals or jugs of whiskey, to a representative of that commodity (silver certificates, gold bonds), to simple tokens of Credit Of The Government to now just bags of bits with nothing behind them. I fully suspect all currencies backed by only faith and credit to reach zero, only the rate changes as the faith and credit exhaustion rates vary.

    But to your point:

    The place that effect is most visible is during disasters. Folks expect gold coins to be their store of value. In fact, water bottles, coats and boots, bars of soap, perfumes, bags of beans, tanks of gasoline, box of bullets. All those are more valuable during a disaster than a gold coin. The disaster shifts the perceived relative value stored in each.

    Yet while true, it isn’t reflected in those “just the definitions” in the text books…

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