Well, today started off weird. There was a pall of smoke around our house, our neighborhood. I had to bring Winston, our Corgi, home a bit more hastily than normal. He was hacking.

New York amid the haze. (Source: Metropolitan Transportation Authority)

If you read the New York Times, this thick haze in the mid-Atlantic has been caused by the warming of the climate.

We could probably piss off everyone of our readers if we made a comment.

One fact, the smoke in Northwest Baltimore is enough to choke my dog.

I’ve had an ongoing conversation about the climate debate with a friend of mine. He runs the Rising Sea Level Institute. His name is John Englander.

Here’s how we connected. John has been a consumer of the financial advice we publish for a number or years. We first met on a trip to Nicaragua because he was interested to see what impact rising sea level would have on the Pacific Coast of Nicaragua.

We’d also connected because John has an idea.

He likens the rise of sea level across the globe to the rise of national debt.

Both are social issues in his mind. Both require a collective response.

I’m going to leave off my own commentary today with a segment from The Demise of the Dollar. A section that begins on page 72, called appropriately today: Smoke and Mirrors.

Do you think climate change and national debt issues are a legit question to compare… to ask?

As a student of history, these questions matter to me. And they will determine investment decisions, both institutional and personal, alternative and the like… stuff you need to know.

Addison

P.S. What follows is an excerpt from The Demise of the Dollar.

Smoke and Mirrors

When the United States removed its currency from the gold standard, it seemed to make economic sense at the time. President Nixon saw this as the solution to a range of economic problems and, combined with wage and price freezes, printing as much money as desired looked like a good idea. Unfortunately, most of the world’s currencies followed suit. The world economy now runs primarily on a fiat money system.

Fiat money is so-called because it is not backed by any tangible asset such as gold, silver, or even seashells.

The issuing government has decreed by fiat that “this money is a legal exchange medium, and it is worth what we say.” So, lacking a gold backing or backing of some other precious metal, what gives the currency value? Is there a special reserve somewhere? No. Some economists have tried to explain away the problems of fiat money by pointing to the vast wealth of the United States in terms of productivity, natural resources, and land. But even if those assets are counted, they’re not liquid. They’re not part of the system of exchange. We have to deal with the fact that fiat money holds its value only as long as the people using that money continue to believe it has value—and as long as they continue to find people who will accept the currency in exchange for goods and services.

The value of fiat money relies on confidence and expectation. So as we continue to increase twin deficit bubbles and as long as consumer debt keeps rising, our fiat money will eventually lose value. Gold, in comparison, has tangible value based on real market forces of supply and demand.

The short-term effect of converting from the gold standard to fiat money has been widespread prosperity. So the overall impression is that U.S. monetary policy has created and sustained this prosperity. Why abandon the dollar when times are so good?

This is where the great monetary trap is found. If we study the many economic bubbles in effect today, we know we eventually have to face up to the excesses, and that a big correction will occur. That means the dollar will fall and gold’s value will rise as a direct result.

The sad lesson of economic history will be that when the gold standard is abandoned, and when governments can print too much money, they will. That tendency is a disaster for any economic system, because excess money in circulation (too much debt, in other words) only encourages consumer behavior mirroring that policy. Thus, we find ourselves in record-high levels of credit card debt, refinanced mortgages, and personal bankruptcies — all connected to that supposed prosperity based on printing far too much currency: the fiat system.

We can see where this overprinting will lead. As debt grows relative to gross domestic product (GDP), we would expect to see positive signs elsewhere, such as growth in new jobs. But like a Tiananmen Square Rolex watch deal, the value simply isn’t there. There is some job growth, but, in reality, there is also a decline in earnings.

High-paying manufacturing jobs have been replaced and exceeded by low-paying retail and health care sector jobs, so even if more people are at work, real earnings are down. Instead of simply measuring the number of jobs, an honest tracking system would also compare average wages and salaries in those jobs. Then we would be able to see what is really going on — more low-paying jobs being created, replacing high-paying jobs being lost.