A Tale of Two New Currencies: Oligarch Money and Political Money

The gross indebtedness of the United States, whose Treasury bonds have been considered the world’s backstop of sound money for three generations, has become apparent during the COVID crisis. Other nations are faring worse, as sovereign-debt-to-GDP ratios have ballooned globally in recent decades. Modern money is almost exclusively fiat, untethered to commodities or precious metals and issued at the pleasure of sovereign governments. Fiat money is also debt-based money. It supposes that the government will pay it back. However, the cycle of debt repayment for debt-based money is usually debt-based. A government pays back its debt with either the issuance of more debt or higher taxes exacted on its citizens in the fiat debt currency, but in the event that citizens lack significant income or savings, then only the former option of more debt issuance is really available to the government. National politicians, confronted with unprecedented sovereign debt and the resulting prospect of declining demand for future sovereign bonds, are becoming emboldened to hold down their debt to nominal GDP ratios. Among other things, they may engage in creative debt accounting and “financial repression” tactics. For instance, politicians may encourage commercial banks to make unlimited long-term, low-interest loans by eliminating reserve requirements and by making 100% bailout guarantees for these risky commercial loans. This strategy will increase inflation significantly, but also increase nominal GDP. Simultaneously, governments can compel pension funds and other large private national holders of wealth to purchase sovereign bonds to keep yields low (as was done in Europe for decades after World War II), and seize or tax private citizen and corporate wealth to repay sovereign debts using hard assets. This combined strategy will reduce debt-to-nominal-GDP ratios (thereby preserving sovereign bond credit ratings and making future issuances more attractive). Countries may also start to issue new joint sovereign bonds with other nations, temporarily masking the fact to hopeful investors that the sovereign debt partners are both heavily indebted, perhaps beyond what their individual sovereign credit ratings reveal. Simultaneously, apolitical central bankers may simply decide to “walk away” from this “Political Money” and no longer act as buyers of last resort for sovereign debts. Central bankers can do so by signaling to politicians that they will not oppose modified reserve requirements, bailout guarantees, and pension fund repression. They may not even seek repayment of sovereign bonds held on their central bank balance sheets. In return for this surrender of sovereign fiat monetary policy oversight to politicians, however, central bankers will want something in return. Throughout almost all of human history until the last 50 years, sound money was not fiat, but rather silver and gold. Federal Reserve Bank Governor nominee Judy Shelton in a 2012 essay proposed a stepwise process by which nations would transfer their sovereign gold (and, implicitly, silver and underground reserves) as “collateral” for their individual and joint sovereign debts to a central banker-run repository that would initially act as the world’s biggest escrow agent. She believed this supranational escrow agent/repository could (1) handle the retirement of most individual and joint sovereign debt and (2) eventually take de facto ownership of the pooled sovereign gold, such that the repository could itself issue a universal “gold-linked” (which is not the same as gold-backed) fiat currency (“Oligarch Money”). Shelton envisioned that Oligarch Money eventually may replace all national fiat currencies as a universal currency. If Shelton is a correct prophet, two fiat moneys, “Political Money” and “Oligarch Money,” will temporarily start to co-exist post-COVID. But eventually she believes Oligarch Money will drive out Political Money and nations should become financially borderless, losing their distinct fiscal characters. Political Money is simply a global expansion of current inflationary national fiat money systems into a global, financially repressive fiat money system that can no longer even theoretically be backed by precious metals because those metals have transferred de facto ownership to the central banker oligarchs. Political Money will be largely the same across all debtor nations (who will be issuing joint sovereign debts). But it will still be legally overseen in each nation by a political class that is theoretically accountable to the electorate but in practice cannot be collectively removed from power until there are no longer willing purchasers of their sovereign bonds. Oligarch Money entails the issuance of an inflationary fiat money, not shaped or constrained by national laws, overseen by an unelected and unaccountable elite who possess the vast majority of the world’s physical gold and silver. I have demonstrated in a previous article that both fiat money with its commonly attendant laws and highly concentrated ownership of precious metals lead to widespread poverty and environmental damage. This article therefore concludes that central bankers and politicians must resist the coming Faustian bargain by which first “Political Money,” and thereafter an all-consuming, universal “Oligarch Money,” will emerge. Central bankers must re-establish gold-backed sovereign currencies and exert lobbying and media pressure on sovereign politicians to limit fiscal spending and rein in sovereign bond issuances. Simultaneously, nations’ politicians must resist the temptation to surrender ownership of their countries’ sovereign gold and silver holdings to non-sovereign central bankers, who themselves could succumb to profiteering temptation and create an inflationary non-sovereign fiat money. Only by cooperation to limit sovereign fiscal spending and by re-tethering fiat currencies to national stores of precious metals – seen by many, but not by oligarchs and central bankers, as archaic relics of a bygone era – can poverty and environmental damage be lessened.