Just when you thought the Taxpayer Anal Rape Program could not be made any worse... the Team Obama-nation finds a way to sink to new depths. They are preparing what is billed as a big bang shift in the banks. More like gang bang. Bend over America. This after the President himself stepped into cancel a few hundred million of contraception funding - funding that pays for itself in saved services costs - in the stimulus bill.

Let's go over the nature of an American Republic: it consists of a mandate, a meaning, and a mechanism which operates through the meaning to advance the mandate. What Americans did not understand, is that in 2000 a new Republic was established, with a new mandate to maintain the status quo. Obama does not represent change from this new order of constitutional interpretation, but the process of normalizing it's monetary system. What we are about to see is the equivalent of the formation of the Bank of the United States in the Federalist Republic, the Legal Tender Act for the Union, or the FDIC/Federal Reserve combination of the New Deal. However, this is not a progressive republic, but a reactionary one. It's money is based on military fiat, and as such, cannot long endure. We have entered the era of Barrosian strategy money.

Strategy money is based on a credible threat to tax. It is a version of fiat money, in that it is predicated on the government's fiat. All governments must use fiat to defend or advance their monetary system. The presence of fiat is necessary even for the hardest of specie money systems, since governments that can't maintain fiat, are looted. Gold standards only work, if you can keep the gold.

Asset money is linked in a different manner to fiat. Where as specie money relies on fiat over a physical asset - that is it is a nation state function in Bobbit's terms, asset money relies on protecting a certain set of relationships and equilibrium. It is a market state function.

Thus the protection of both inputs, outputs, and confidence are fiat functions. The market state must exercise fiat to the extent that it must control the key inputs, the markets for its goods, and the ordinary functioning of the process by which transactions are converted into assets.

Because the exercise of fiat is a function of government mandate, and is enforced by the sense of the public encapsulated in meaning - whether "divine right of kings" or "we, the people" - money is a constitutional function. A maonetary system cannot function without the constitutional underpinnings that allow people to use it, and governments to use it as an instrument of enforcing the mandate which they are felt to have.

This same argument applies to compliance as well as fiat.

What then, is strategy money, and why is it different from asset money?

Asset money takes the demand for durable products and information entropy - that is to say rent - and uses this as the basis for the money supply. A bank loans money to buy a house, the value of the house represents a rent, and that it sells for that price shows that there is a stream of future payments - rental demand - that can pay for the rent.

The circulating medium and money supply are therefore linked to demand for rent, at the point where future revenues devoted to rent - that is rental demand - balances the supply of previously generated advantage - that is rental supply - the market for money clears.

Asset money then is based on upside decisions, with some number of downside decisions - liquidations etc. - as a correction against excessive upside optimism. As such it relies on market mechanisms, not fiat, as it's basis.

Strategic money relies on a strategic, not market, equilibrium.

More later - the real world calls.