Coffee to Car Payments

SEC: Palm Beach Premier Episode (Starring Christopher Cox and Guest Appearance by Bernie Madoff)

Image via WikipediaCox is Chairman of the SEC and hears that an old buddy who used to be Chairman of the Nasdaq is suspected of engaging in some questionable business practices in his second career running an investment business.  No one really knows what Bernie's business does or invests in, only that his investors are happy (in fact honored) to be earning a tad over 10% per year with no down years.  Cox decides that rather than launch a full investigation, he will fly to Palm Beach himself and handle the matter as quietly as possible and preserve his old buddy's impeccable image.  He walks into Bernie's office and here's how it unfolds:

Cox: Hey Bern!  How's the golf game?

( Bernie looks up from his paperwork over the top of his reading glasses and breaks into a huge grin.)

Bernie: It's been a while.  What brings you to the Sunshine State?

Cox: Bern, we gotta talk.  I'm sure it's probably nothing.

Bernie: Sure.  What's on your mind?

Cox: Well, people are starting to ask questions about your investment practices.  You know, my job is to protect consumers and I just want to make sure your doing things right and we're not going to end up on opposite sides of a courtroom at some point.

Bernie: Well Chris, I gotta be honest.  I expected a lot more when I started this business but, as it stands right now, I've only got 23 clients.

Cox: Well, like I said, I was sure it was nothing.  I just had to be sure but, with only 23 clients, anyone can see there's no massive Ponzi scheme here.  Can I just get you to type up and sign something to that effect so I can put it in your file?  That way no one can question whether I actually looked into this. 

Bernie:  Sure Chris.  Wanna go have a few drinks?

Cox: Sure.  Type fast.  I'm thirsty.

Bernie:  You got it.  Drinks are on me.

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One really large bill.

Recently a friend of mine from South Africa gave me $10,000,000. For a while I carried it around in my wallet just for the novelty of it, but then I felt a little silly. After all I couldn't actually spend it.

The issue isn't that it isn't real, it absolutely is. The problem with my money is that it isn't worth the paper it's printed on. It's a Zimbabwean $10,000,000 bill.

Zimbabwe is going through what several other countries have experienced, most notably recent being Argentina earlier this decade. It's a disaster called hyper-inflation.

At one time, their dollars were actually worth something. But because the Zimbabwean and Argentinian economies use what is called fiat currency--that is, a currency that is not tied to anything intrinsically valuable like gold or silver, their governments weren't able to resist the urge to print more and more money when their countries were facing challenging economic times.

Hmmm. Guess which other country has fiat currency. Heard anything in the news lately about the United States Government's printing press? Sad but true.

Oh, but certainly we couldn't experience the same problem here...our government is much more established and savvy to succumb to that error, right? Well, one would hope so, however, with the amount of pseudo expansion we've already taken part in, it wouldn't take much for the U.S. to reach the tipping point of a rapidly devaluing of our currency.

Once all of the countries (think China) who hold of our national debt realize they might be holding potentially value-less dollars, how fast do you think they'd try and dump them? Our situation is kind of like standing at the top of the St. Louis arch and wondering how far down either direction you can go before you reach the point of no return. You won't know until you get there.

So what's a country supposed to do when recession looms? Nothing? The livelihoods of it's people are on the line. Yes that's true. And it's also true that for the long-term financial good of the people, recessions are necessary. It's the natural ebb and flow of the financial tide.

I think one of the best things a country can do for it's people is encourage financial education and responsibility. And it starts within their own house. The United States government needs to live within it's means and model for it's citizens how to properly use financial resources. Over-leveraging, out of control spending, and general lack of discipline reaps what it sows.