On sovereign financial reconciliation

When Necker published his Compte rendu in 1781, many have credited him with causing the French Revolution. Before the Compte rendu, no one in France had understood anything about Bourbon finance—possibly not even the Bourbons. As La Wik puts it, in charming Wikipedese:

Before, the people had never considered governmental income and expenditure to be their concern, but now armed with the Compte rendu, they became more proactive.

Indeed. Of course, in the subsequent decades, many thought twice about becoming more proactive! But governmental income and expenditure had indeed become the people’s concern—then and forever. Alas, it remains our own.

According to modern historians, Necker’s accounts were not entirely honest. I will go with the modern historians on this one—sight unseen. I have not personally inspected the Compte rendu, but my guess would be that Bourbon finance included a lot of strange French holes in which strange amphibians things could hide. The Bourbon administration, while great at many times and in many ways, is seldom celebrated for either simplicity or transparency.

One of the most fundamental patterns of history is that good government is responsible government. A corollary is easily deduced: good government is financially responsible government. Since good government is indeed our concern, we should become concerned indeed when our government does not appear to be financially responsible.

An easy way to be financially irresponsible is to be financially opaque. If an institution is responsible, it must be responsible to someone; to observe it, that someone must be able to form a clear picture of its financial operations. There are many ways to be financially opaque, while superficially appearing transparent. Suffice it to say that I am not sure anyone has a really sound understanding of America’s sovereign balance sheet.

But regardless of the cause, if an institution is not financially responsible, it must be reconciled. Reconciliation is simply a polite word for bankruptcy. What are we reconciling with? Reality!

As Carlyle writes:

Great is Bankruptcy: the great bottomless gulf into which all Falsehoods, public and private, do sink, disappearing; whither, from the first origin of them, they were all doomed. For Nature is true and not a lie. No lie you can speak or act but it will come, after longer or shorter circulation, like a Bill drawn on Nature’s Reality, and be presented there for payment,—with the answer, No effects.

Pity only that it often had so long a circulation: that the original forger were so seldom he who bore the final smart of it! Lies, and the burden of evil they bring, are passed on; shifted from back to back, and from rank to rank; and so land ultimately on the dumb lowest rank, who with spade and mattock, with sore heart and empty wallet, daily come in contact with reality, and can pass the cheat no further. […] But with a Fortunatus’ Purse in his pocket, through what length of time might not almost any Falsehood last! Your Society, your Household, practical or spiritual Arrangement, is untrue, unjust, offensive to the eye of God and man. Nevertheless its hearth is warm, its larder well replenished: the innumerable Swiss of Heaven, with a kind of Natural loyalty, gather round it; will prove, by pamphleteering, musketeering, that it is a truth; or if not an unmixed (unearthly, impossible) Truth, then better, a wholesomely attempered one, (as wind is to the shorn lamb), and works well.

Changed outlook, however, when purse and larder grow empty! Was your Arrangement so true, so accordant to Nature’s ways, then how, in the name of wonder, has Nature, with her infinite bounty, come to leave it famishing there? To all men, to all women and all children, it is now indubitable that your Arrangement was false. Honour to Bankruptcy; ever righteous on the great scale, though in detail it is so cruel! Under all Falsehoods it works, unweariedly mining. No Falsehood, did it rise heaven-high and cover the world, but Bankruptcy, one day, will sweep it down, and make us free of it.

There are many ways to define a sovereign bankruptcy, most of which convert one falsehood into another. A true sovereign reconciliation produces a financially sound and transparent sovereign balance sheet in one step, fair to all creditors. If your plan matches this definition, whatever it is, it cannot possibly be wrong.

As I see it, any sovereign bankruptcy which is “true and not a lie” must recognize three facts:

First, any real bankruptcy demands a change of management. What follows is certainly not a plan that can be executed by the present management. What restructuring plan is? But this is outside our scope today.

Second, precious metals are the only currencies to which a sovereign can be accountable. Therefore, reconciliation must produce a sovereign whose books are done in direct gold. A direct gold standard is 100% blue agave. A basket of gold and gold loans is not gold. (Ie, the 19th-century Bank of England “gold standard” was not a PGS.) The exact technical term is allocated gold.

Third, fiat currency is sovereign equity. Let me repeat that: fiat currency is sovereign equity. Perhaps I could say it a little louder: FIAT CURRENCY IS SOVEREIGN EQUITY. If the right twelve people ever understand this, the world as we know it will come to an end.

Fiat currency has to be equity. It is (a) a financial security, and (b) not a debt. I.e., it is not a promise of anything. If it was a promise of anything—regardless of the quality of that promise—it would not be fiat currency! D’oh.

Therefore, we know exactly what a dollar is: a share of stock in USG. It is just one class of stock, of course, conveying no voting rights. The dollar has never paid any dividends, though perhaps this will change. In sufficient quantity it does convey one very important benefit: the right not to be arrested by the IRS. It also conveys an important right: the right to be treated equitably with all other dollars. My dollar is worth just as much as your dollar or China’s dollar.

If you disagree with these facts, you can stop reading this essay now. We are going to reason as if they were true. If they are not true, all that follows is nonsense.

First, we see instantly why we cannot get a clear picture of the financial condition of USG. It calculates its accounts in its own stock! Can you imagine a company which paid all its vendors in its own corporate shares?

Any corporation can, of course, issue new shares to itself any time it likes. (This is called dilution.) But how on earth can anyone assess whether this company is profitable? How do you value a share? Actual companies which do crazy things like this are generally not profitable, because otherwise they would not need to do crazy things like this.

And that’s not all. Not only does USG calculate its own accounts in terms of its own shares—it compels its citizens to do likewise. It operates an entire economy in which the medium of exchange is this scrip. Of course, we all know this and think of it as normal, so it takes some effort to see how insane it is from an accounting perspective.

One metaphorical crutch that can help us with this is the new invention of virtual worlds. Virtual worlds tend to have virtual currencies, whose economics differ not at all from the economics of real currencies—except, of course, that they are virtual. But virtual worlds are operated by real companies, which exist in the real world and do their books in it.

The virtual world Second Life, operated by Linden Lab, is one such. Linden Lab is not a publicly traded company, and perhaps it will never be. Suppose it was. We’ll call its stock ticker LLX.

Second Life has a currency called the Linden dollar. The Linden dollar is an irredeemable fiat currency, though LL keeps it roughly pegged. But suppose it was backed and redeemable—making it debt, not equity. What should it be backed by? US dollars? Gold? Or…

Let’s suppose Bernie Madoff, or some other unscrupulous person, were appointed the CEO of Linden Lab. As CEO, he is responsible to his board. His board will love him—everyone will love him—if he can only get the price of LLX up. Hm…

I know! Bernie will back Linden dollars with LLX shares. That way, when you buy Linden dollars to play Second Life, you are actually investing in Linden Lab. Share prices are set by supply and demand, of course—to issue a new wodge of L$, LL goes to Nasdaq to buy an LLX share. Naturally, this drives the stock price up. Which is what Bernie wants! Problem solved.

What Bernie has done is to redirect the monetary demand of Second Life residents into the market for LLX shares. Since as long as Second Life exists and thrives, this monetary demand will remain high and stable, what goes up need never come down. By using his own shares as a fiat currency, Bernie has performed a rare successful act of market manipulation.

The result is that LLX, as a stock on the Nasdaq, will not be priced like other Nasdaq stocks as a function of its theoretical earnings. LLX may have no earnings whatsoever, ever. A Linden dollar now certainly conveys no rights to any distribution. The shares of an ordinary company would be worthless under this condition, but not LLX. Were it not that Linden Lab’s churlish, ungrateful vendors demand payment in US dollars rather than Linden dollars, Linden could operate forever under these conditions, however inefficient its operations.

Needless to say, Linden Lab’s financial operations under this system would be entirely impenetrable—probably even to Linden Lab itself, but certainly to any external examination. But this is exactly the model under which USG operates: it directs the monetary demand of its own subjects into its own equity, in which it also does its own books. Small wonder no genuine Compte can be Rendu. There is nothing in the books but madness. Madness!

So let’s reconcile this madness. Let us not only render accounts—but pay them. The ends of any design: (a) create a sound and viable financial structure; (b) treat all creditors fairly. These goals are just as appropriate and essential at the sovereign level as in any private bankruptcy.

No sovereign balance sheet can be reconciled without admitting and employing the full set of sovereign powers. Frankly, the days when it made sense to talk about property rights in the United States are over. Any such talk is babble—like talk of restoring the Bourbons. God may once have granted France to the Bourbon family, but he appears to have changed his mind.

If property rights must be preserved, USG’s balance sheet cannot be reconciled. You either do this thing or you don’t. We are all creditors of USG, and none of us has any special rights. After the reconciliation, of course, property rights can and should be as rigorous as anything. During the reconciliation, they are all just pieces of paper—signed by USG. USG is bankrupt. The pieces of paper remain important; the bankruptcy process will treat them fairly.

During the reconciliation, the essential criterion is fairness. A bankruptcy process creates no winners and no losers. At least, it creates no winners and losers among those in the building. If you got out before the bankruptcy, there is no way you will not be thanking yourself. Since USG is sovereign, to a limited extent it can perform such clawbacks, but a sovereign must be careful not to test the physical limits of its sovereignty.

What I’m trying to say here is that in any scenario in which any sovereign undergoes this process, and converts its balance sheet back to gold, there will be one set of big winners. These will be people who sold the sovereign shares, or assets denominated in those shares, for gold—before the bankruptcy. A sovereign, to a limited extent, can and should tax these moguls—just as it taxes people who bought Google at the IPO price. If it taxes them too much, however, it must either create a large gap between the price of natural gold and the price of monetary gold, or apply a tax rate which creates a black market in old gold. Either is dangerous.

There are always rich people. A marginal dollar in the hands of the rich is much less likely to be competing in any market with your dollar, than a marginal dollar in the hands of the poor. In other words: it is less “inflationary.” Therefore, enriching the goldbugs is not a serious concern for policymakers. They were right; therefore, they should profit. In a word, that’s capitalism.

The brutal truth about USG’s shares is that, due to the above (and other) manipulations, they are overvalued in gold. If a dollar is a USG share, and USG shares are repriced in gold, a dollar cannot be worth anywhere near 30mg. It might be worth 1, or 2, or 3. For the dollar holder, the main pain is still to be felt. If 2008 and 2009 felt financially stormy, your barometer is overcalibrated. The market has barely come under pressure.

Because even its currency is tied up in the strange machinations of its bizarre 18th-century government, USG, America must experience bankruptcy as a whole. USG was never designed to be a total state, but it is one now. If you would like it not to be a total state, the only way to start is by acknowledging that it is a total state. Capisce? Is this for some reason difficult?

The task of the new financial managers of this total state is to set a new price level across the entire American economy. That price level must be one at which the economy is (a) stable and (b) can generally pay its debts. At present, the economy is artificially depressed by deflation; thus, the new price level should be set at a low, stimulative point.

Devaluation is always and everywhere an economic stimulus. It rewards the poor at the expense of the rich. This is bad policy on a continuing basis, but excellent policy as part of any one-time event. Any reconciliation should include a strong dose of stimulative inflation. Because the endpoint is a direct gold standard, this stimulus will not last; in the long run, the economy must rearrange itself to a profitable equilibrium with no fiscal, trade or monetary deficit. However, through devaluation the transition can be made almost arbitrarily gentle.

This transition plan has six steps. First, we identify all of USG’s liabilities—simple or contingent, formal or informal—and securitize them, converting them to debt in dollars. Second, we nationalize all financial assets at the present market price, converting them all to dollars. Third, we cut each dollar in half: the left half is a share in USG without its gold reserve, the right half an allocated claim to that gold reserve. Fourth, we run a Dutch auction to set the price of left dollars in right dollars—an IPO for USG, now highly profitable, owning the entire country, and debt-free. Fifth, we convert all payment and accounting systems to right-dollars, treating left-dollars as ordinary portfolio securities, and normalizing right-dollars into units of weight—i.e., grams Au. Sixth, we privatize all the nationalized assets

The first and second steps are the hard ones. The fifth is a lot of work, but it’s a small matter of programming. The first and second actually require thinking. Let’s do that thinking.

First: boys and girls, let’s play a fun game—“find the liabilities!” USG has many conventional debts; it also has many strange liabilities of an unconventional form. We need to find and liquidate all of them, converting them into dollar securities.

In the second step, we convert all these liabilities to present dollars. We already did this in the first step for financial securities: if you held T-bills or Agency bonds, USG bought them at the present market price. However, many of USG’s liabilities are (a) contingent; (b) actuarial; or (c) informal. All of these must be discovered and replaced with mere dollars.

First, USG has contingent liabilities. These are promises USG has made which may force it to be liable for a debt. A good example is a loan guarantee. USG has made a lot of loan guarantees. Most of them were made to institutions acquired in the first step, and obviously a guarantee to oneself is void. But in case any are still floating around, they need to be cleaned up.

To clean up a loan guarantee, assume the loan and pay it off. If A has loaned $X to B and USG has guaranteed this loan, USG pays $X to A and is owed $X by B. Poof! Reality is revealed. A loan guarantee is in reality a government loan. Better living through bankruptcy.

Next, USG has actuarial liabilities. For instance, suppose you have been paying into Social Security. You have therefore earned Social Security benefits. The payout will vary depending on your age. The present actuarial value at present interest rates of your benefits, however, is easily calculated. This sum is deposited into your Fed account. Social Security can be entirely closed out in this way.

So can all entitlement programs, even those paid in benefits rather than cash. For instance, what are your Medicare benefits worth? What would it cost you, in present dollars, to buy your Medicare benefits from a profit-making insurance company? That sum is deposited into your Fed account. In fact—why not give everyone Medicare coverage while we’re at it? If the people want national health care, this is a perfect way to give them exactly that.

Essentially, we are cutting the strings of dependency that bind voters to Washington, not by eliminating their benefits but by cashing them out. Once said voters understand this model, it strikes me as unlikely that they will oppose it. If there is some problem with this, just increase the allocations by 20 or 30 percent. The yelps will rapidly subside.

These political buyouts should already be calculated in a generous and giving spirit. Since the old management spent 75 years buying political power with USG’s printing press, surely the new management cannot be excused for doing so on a one-time basis.

(Progressives are attracted to national health care because of the enormous number of strings it will attach. Voters are attracted to national health care because they want national health care. If you have a plan that provides national health care without any strings attached, do not expect it to attract progressives.)

All recurring payments made by Washington should be investigated for conversion to debt. They probably are debts—just informal debts. For instance, welfare payments proper obviously cannot be monetized and transferred to the recipients. This budgetary stream, however, can be monetized and converted into an endowment, which endows a charity that looks after the recipients. Washington, which is a very caring place, can get all its caring good works out of its hair and off its books in this way. Even national defense can be endowed—a proposition that would certainly tend to minimize unmotivated adventurism.

Even the most basic expenses can in fact conceal debts. For instance: consider a government employee who cannot be fired. Well, new management is what it is! It turns out: he can be fired. (In fact, I would be quite surprised if new management keeps many of the old employees.)

But the old employees have a right: the right not to be fired. This is an entitlement. Being sovereign, the new management cannot be compelled to employ them. Being fair, and anxious to prove its fairness, it is compelled to respect this entitlement, as it respects others. Thus it should compensate fired government employees with a mammoth dollar severance, which repays them for their loss of tenure.

So there is a simple explanation for the first step. Formalizing and securitizing entitlements is always and in every case a Pareto optimization—except in one case, the case in which the entitlement is a mechanism of dependency through which the provider asserts paternal guidance.

USG is particularly noted for the high quality of its paternal guidance. Not. Moreover, since this objective (debatable in the first case) cannot be observed in polite company, it cannot be the actual motivation for these policies. Otherwise, you would be making the same argument for welfare that George Fitzhugh made for slavery. I’m sure you wouldn’t want to do that.

Second: nationalize all financial assets, at their present market price.

This is not hard to define. But why? What is the rationale for this unprecedented act? The word “nationalize” is needlessly provocative. Rather, we are consolidating the sovereign balance sheet. This is both righteous and essential for more reasons than I can count. But let me just enumerate a few.

The basic moral reason is that since the dollar financial markets are so fundamentally and thoroughly manipulated, the prices of financial assets cannot in any way be regarded as market prices. The new management will create free markets. The old management ran the book at a rigged casino. The new management is closing that book—with its present entries. If you have a balance at the casino, you get the balance back in cash. (Ideally at a premium, for your trouble.)

Perhaps you doubt that all securities prices are set by the government. Actually, this can be trivially deduced from basic investment theory. The price of a loan is set by the interest rate of that loan, the probability of default, and the risk-free market interest rate. If the USG fixes or manipulates the last—as of course it does—in what sense is this price a market price? Duh.

We can still compute the probability of default from the price of the loan; this market information is still visible. We can compare relative prices of securities. The number that appears next to the loan in the owner’s portfolio window, however, is entirely determined by USG. The absolute price, in dollars, is an administrative decision of the government.

For instance, if the Fed ceased to lend or buy loans tomorrow, interest rates might well go to 87%. I pick this number arbitrarily. It might also be 187%. Or 287%. Question: if interest rates go to 87%, what is a 30-year zero-coupon T-bill paying 5% worth? Can you even sell it? Or do you just recycle it? You do the math.

Moreover, this principle extends not just to financial instruments, but also to financed assets. Consider a house. The house’s owner is in the quaint habit of talking about what her dwelling was “worth,” as though this was some objective quality of the physical object, like being brown. Between 2000 and 2006, her house “went up”—before it was “worth” $300K, after it was “worth” 550K. The house, in fact, deteriorated. It did not spontaneously remodel its kitchen. Perhaps its neighborhood became more attractive—or perhaps the dollar market was being pumped full of government loans.

The economic planner thus faces a dilemma. Any return to free-market economics will have an extremely chaotic, and generally negative, effect on the price of financed assets. This is because any return to free-market economics is likely to result in higher interest rates, since there will be no government lending or loan guarantees.

This is why no realistic reconciliation plan can maintain property rights—at least, not in the market for securities and securitized assets. It is essential to fall back on the less rigorous, but more important, standard of fairness. What is fair in dealing with this problem? What’s fair is that whatever you own, be it stocks or bonds or houses, you bought in dollars; if it “went up,” you earned those dollars too; when it “went down,” you suffered with it; whatever you are “worth” is yours. All results of the financial ancien-regime are permanent.

The present prices are not free-market prices. But they are market prices. They represent genuine results of real life. A fair system would maintain these results. Therefore, the only way to revert to market pricing, while preserving fairness, is for USG to buy these assets at their present price, which USG itself has set; and sell them again at market prices. Which will generally be lower, since any liquidation is bound to be deflationary.

What is the difference? Who takes the loss? The “loss” is a liability that USG assumed, when it decided to manipulate the freakin’ market. It cannot just cancel this debt. Rather, the debt must be paid. But the debt cannot even be calculated without returning the asset to the market. Thus, temporary nationalization is essential.

Nationalization can be quite involuntary. Financial assets are not, in general, of sentimental value. Houses are an exception. There is no sense in kicking people out of their houses. However, there is such a thing as a long-term lease. If the government nationalizes your house, you will obviously get a long-term lease.

Therefore, we have our plan for the asset side of USG’s balance sheet. Since USG is sovereign, it is the final and ultimate owner of everything. It exercises that right. It buys all market-traded securities at the market price. It grants all holders of all financed assets, right down to cars, the right to sell the collateral to USG at the present market or assessed price, whichever is higher. Cars and houses are leased back to their owners. For financed assets, this is an option and you don’t have to take it—but if you don’t take it, USG is not responsible for any pain you may taste.

Where does USG get the money for this? Remember, no one has any money. Fiat currency is sovereign equity. Instead, we have shares of USG. The correct question is: where does USG get the dollars? The answer is: it issues them. Any financial reconciliation will see the creation of enormous numbers of shares. That’s why they call it a debt-to-equity conversion.

As for gold, USG demands that all citizens turn in half their gold. It’s called a “tax,” doofus. The new management is hardly about to abandon their right to tax! And the tax includes jewelry—to keep it, pay the gold tax. More than this, and people will cheat. Less, and USG would get more by asking for more. 50% should be somewhere near the top of the Laffer curve.

Moreover, no such tax is a rational reason for present gold holders to oppose this plan. Again, they will profit massively by it—as they should.

What have we done to USG’s balance sheet? On the liability side, we have added 10 or 20 trillion dollars—at least. Almost all American debts are now owed to USG; almost all American assets are now owned by USG. This is the nation-state as giant totalitarian corporation. It is not a sustainable state of affairs, but we do not intend to sustain it. On the asset side, we have added a large number of valuable assets—debts, homes, corporations, etc.

We also must consider personal balance sheets. As a result of this operation, your net worth in dollars is unchanged. Your net worth, however, consists entirely of dollars. If you had $200K in home equity, you now have $200K in dollars. If you were in debt, you are still in debt. (Except that underwater nonrecourse mortgages are wiped out.) All that changes is that you now send your checks to Washington, instead of “The Lakes, Nevada.”

Moreover, since the Fed has acquired all banks, you don’t have $200K “in the bank.” You have your own account at the Fed, a privilege previously reserved for actual banks. This layer of indirection is entirely artificial and unnecessary—in short, a historical legacy. In a world of electronic dollars, the Fed’s state is simply a big spreadsheet in which each row is a pair: your SSN, and the number of dollars you own. Your number indicates how many brownie points Uncle Sam has assigned you, so to speak. And if you prefer your brownie points on paper, all ATMs now have a new logo: the Fed’s.

Liquidation is the conversion of debt into equity. But when we find all the spending that is actually debt, and convert it into actual debt, we don’t just liquidate the debt.

What we are doing here is destroying USG’s chronic deficit. All of its regular expenditures which are not related to the production of revenue—revenue in gold—are in fact debts of the old regime. Since the old regime was bankrupt, all its debts are converted into equity—i.e., present dollars. The result is a gazillion dollars—but all those dollars are shares in USG. Which is now massively profitable. Bankruptcy in a nutshell!

Financially, the continent has been converted into one immense gold farm. It costs very little to administer, the Americans being docile, and produces enormous returns. In short, it is more profitable than Jesus. This profits must be split, however, across a gazillion shares—or dollars.

The new America has the simplest possible balance sheet. On the liability side, it has no debt and a single class of equity. On the asset side, it has everything. An enormous stream of gold, from both taxes and debts, pours into Washington’s coffers. Naturally, it must be distributed to the shareholders—and thus the shares have value. Gold value.

But what, exactly, is their price? USG’s profits are not yet an enormous stream of gold. They are only an enormous stream of dollars. An entity cannot be financially responsible if it pays dividends in its own shares. This would just be bizarre.

We now face our third problem: dividing the dollar. This is our automatic dollar-gold devaluation figure.

Again, all dollars are cut in half. Quite literally—if you hold dollars as cash, you take a pair of scissors and cut them right down the middle. Electronically, of course, no scissors are required. Electronically, all dollars are in your Fed account. This will simply change from one number to two. If yesterday you held 50K dollars, today you hold 50K left-dollars and 50K right-dollars. These will not exchange at 1:1 exactly—probably nowhere near. But their sum is no more, and no less, than what you had before.

Left dollars are shares in USG’s vast pile of assets, seized in the nationalization, and of course in the future revenues of USG itself. Which are themselves vast. Right-dollars are claims to USG’s gold reserve, fully allocated and redeemable. Essentially, a left dollar is a share in the American Treuhand; a right dollar is a zilligram in BullionVault.

A crucial question is whether Fort Knox accepts bail-ins—i.e., you can deliver a right dollar’s worth of natural gold to Fort Knox, and get a right dollar for it. If so, the monetary system is a direct gold standard. If not, the price of monetary gold may float above the price of natural gold. There is no technical problem with this, but it is probably imprudent. A hybrid gold standard with restricted bail-in is an interesting design, but perhaps too experimental. After 75-plus years of New Deal economics, the people will demand only the simplest and most classical of financial designs. Floating super-gold is not in this class.

To divide the dollar, we need to (fourth) establish an exchange rate between left and right dollars; and (fifth) convert the standard of payment to right dollars. (a) is the same problem as the problem of valuing the East German Treuhand, except in gold—of assigning a stable gold value to all financial assets. Basically, a left dollar becomes an investment dollar; a right dollar a spending dollar.

In particular, all debts are converted to right-dollar debts, at the initial left-right rate. If the market does not set a good exchange rate, debtors may be unfairly penalized or rewarded. However, we cannot do better than this market.

In a single gigantic Dutch auction, a left-dollar price is set; all those who prefer left to right dollars below this price receive left for their right, and vice versa. The result is the Rate—best expressed as the price of a dollar in milligrams of gold. (My guess is: somewhere around 2.) The old dollar is split into left dollars and right dollars; the left is an investment, i.e., a stream of future returns; the right is money.

To create a new capital market, we must value our investments in terms of money. We must value the dollar in gold. We do this, in one step, by getting all the investments into one pool, and valuing that pool in gold. We can then By centralizing this decision, we ensure that its consequences are fair to everyone.

And, again, fifth: payments can then be switched to right dollars. Or rather, grams of gold. Since right dollars are no more than claims to gold, going all the way to a weight-based standard is trivial. And probably advisable. But the difference is not substantive. Once we have valued left dollars in right dollars, we can value dollars in right dollars. Or rather, grams of gold.

Let’s say we go directly to milligrams. On the flag day, therefore, all prices become milligrams Au, all payments gold payments. To set the gram price from the dollar price, multiply by the Rate. To rewrite old contracts written in dollars, multiply by the Rate. This change, like any redenomination of the currency, is mechanical.

Of course, these prices may fluctuate; all prices do. However, we have been extremely careful throughout this entire exercise to preserve relative purchasing power. Asset prices will have no choice but to change, because the entire financial market has been rebooted. Consumer prices and labor prices should remain roughly the same, because purchasing power (relative to the Rate) has remained roughly the same.

Or, for a slight stimulus, become slightly greater. At the expense, of course, of stealing from the rich and giving to the poor, the economy can be arbitrarily stimulated on a one-time basis in the course of this procedure. In the long run it will have to become more productive or more austere, hopefully the former. In the short run, the transitional management can print as many dollars as it wants. And probably should—to grease the wheels. Inflation is not a concern.

Not continuing inflation, anyway. Because, again, the result is a direct gold standard. A thing never before seen in history, at least not for the last three centuries. It will run stably and indefinitely without serious market fluctuations. It will certainly not exhibit persistent inflation, unless someone figures out how to extract gold from seawater. (There actually isn’t that much gold in seawater.)

Finally, in the sixth step, USG spins off the nationalized assets and becomes a lean, mean 21st-century corporate government—extremely small and highly profitable. When it sells (reprivatizes) the private assets it acquired in the second step, it sells them of course for gold.

It will sell them into a market that can establish true, stable market prices for them. This market will price them by measuring their expected yield in direct, 100%-reserve gold, and setting a yield curve that reflects the balance between present and future direct gold.

And this is the end state: a stable private economy on the gold standard. Moreover, unlike most plans for returning to gold, this plan does not cause a reduction in aggregate consumer demand by reducing aggregate purchasing power. Implemented properly, it should perform a one-time inflation in which the purchasing power of the rich is redistributed to the poor—stimulating demand, not contracting it. But this inflation cannot be chronic, as it is one-time. It thus cannot produce the perverse incentive structure we see under chronically-inflating economies.

So can we do it? Nah, we can’t. No way. Nothing like this will ever happen. I guarantee you.