"For whatsoever a man soweth, that shall he also reap."

The ancient Biblical wisdom quoted above accurately portrays what the world can expect over the next few years.

Incurring long term debt to finance consumption, speculating on successive stock, then real estate bubbles and dependence on unsustainable health and old age entitlements all carry costs. There really is no such thing as a free lunch.

The United States has been on a binge of funny money, entitlements, easy credit and unsustainable consumption for almost 100 years. Now its time to pay the piper. How bad will it be?

When the stock market crashed in the early 30s, it required 14 years after the bottom to recoup the lost value. That is probably a reasonable estimate of the time required for America to recover from this financial hangover, once we reach the bottom.

When will that depth be reached? Hopefully in 2009, but possibly not until 2010 when Medicare goes "cash flow negative." Possibly not until 2017 when Social Security follows suit.

The only certainty is that however long it took to dig this hole, it will probably take that long to climb out.

The risk is that in the attempt to stop the current bleeding a new bubble is being created, a currency bubble. The Federal government together with the Federal Reserve are inflating the currency to incredible levels in the so far futile effort to sustain liquidity. If they go too far, pass some ill defined unknown tipping point, then it's possible that hyperinflation could result.

To appreciate what that might mean read a little history about Germany during the third decade of the 20th Century. The crises eventually led to the end of the fledgling German Republic, which was replaced by the Third Reich.

In other words, our current situation is bad but it could easily get worse.

Wealth, Virtual Wealth and Debt

Frederick Soddy, winner of the Nobel Prize in 1921, wrote "Wealth, Virtual Wealth and Debt" in 1926, which anticipated the market crash of 1929. Given the current state of the economy perhaps it is time to revisit Soddy.

Soddy points out the the real world is subject to the laws of physics while the economic world is subject only to the laws of mathematics. Thus there is a limit to what humanity can physically produce and consume, which Soddy defines as wealth. But Soddy sees no theoretical limit to the amount of debt that humanity can incur. Virtual wealth is what we call money, a representation of wealth that can be traded as a medium of exchange or held as a store of value.

Why, asked Soddy should a medium of exchange and store of value representing real wealth be treated as a debt incurring an interest charge?

Yet debt based monetary systems, such as the Dollar, Euro, Yen and almost all other national currencies, compound debt through interest charges without regard to real wealth, creating obligations that can never be repaid. Every dollar in our pocket, checking account, savings account and retirement account incurs an interest charge collected by the Federal Reserve, a privately owned bank. Yet, we didn't borrow those dollars, we earned them. Why are we paying interest on those dollars?

When it is no longer possible to carry the debt (pay the interest and repay the principal) the debtor is in default and his or her property is seized by the debt holder (financial institutions, banks and ultimately the owners of the Federal Reserve). Thus there is a tendency in our ecnomy to concentrate wealth in fewer hands over time.

Soddy understood the inherent impossibility of a debt based monetary system to be sustainable. Such a system borrows money into existence without regard to real wealth, incurs an interest charge to use currency as a medium of exchange and multiplies debt without regard to the physical world's ability to carry or service the debt (pay the interest and repay the original principal)accumulated by a fractional reserve banking system.

"Wealth, Virtual Wealth and Debt" is still in print and worth reading for anyone wondering what is really going on in today's economy.

A Dollar

What is a U.S. dollar worth?

Everyone probably immediately thinks, "not as much as it used to be worth!" And, of course that's correct.

But what was it worth back when the Republic was young and vibrant? According to Wikipedia a dollar was originally (between 1792 and 1873) redeemable from the United States Treasury for 371.25 grains of silver.

So, what exactly is a grain? Again according to Wikipedia a grain is a measure based on the mass of a "single seed of a typical cereal," such as wheat of barley. In modern times a grain is fixed as an amount equal to about 64.8 milligrams.

In fact when I was a child I had paper dollar bills that bore the legend "silver certificate," meaning I could cash them in at any bank for an ounce of silver. So as recently as the 60s an ounce of silver equated to a dollar. As of this writing I can buy an ounce of silver for $17.44.

Thus, in the past forty years, by my estimate the purchasing power of a dollar measured in the quantity of silver it will buy is about seventeen and one half times less than it was.

So, your initial reaction was accurate and a dollar really isn't worth what it used to be worth.

The Good Idea Test and Wellness Tokens

How do you know if an idea is really good?

We all hear lots of ideas. Some are obviously bad like those inspiring the Darwin Awards each year. Those ideas are usually fatal to the poor soul who acted on them. If you aren't familiar with these awards, visit http://www.darwinawards.com/ where a record of 746 "Enterprising Demises" is kept. Obviously any idea that kills you probably isn't a good one.

However, the relavant merits of most idea aren't that obvious.

How can we quickly evaluate whether or not an idea we hear is a good one? I have a simple rule. In my experience, an idea is likely to be a good one if my initial reaction to the new idea is, "Gee, I wish I'd thought of that!" This is my version of the "Blink Test," named after the Malcolm Gladwell book "Blink: The Power of Thinking Without Thinking."

Over the years this test has consistently proven an accurate indicator of the relative merit of the idea. I have learned if the new idea has to be sold to me and I buy it, I'm usually sorry in the long run.

When I first heard about Wellness Tokens that reward people for behaviors that keep them healthy, my initial "Blink Test" response was, "Why didn't I think of that?"

Before I tell you about Wellness Tokens, let's explore the problems of our current system of medical care.

Consider how our current system works, or doesn't depending on your pont of view. We are basically ignored until we get sick or hurt. Then herioc measures are undertaken, massive quantities of expensive drugs are prescribed and everything possible is done to put Humpty Dumpty together again. But the odds are that once we are sick enough to need the Doctors, Hospitals and drugs we will never be quite the same again regardless of the quality of care we receive. Although lip service is paid to the idea of prevention, the efforts are usually half hearted and inneffective. Too often prevention is focused on using fear to scare the hell out of us, which causes most of us to simply retreat into denial rather than change our behaviors.

The medical establishment (Think: AMA, hospitals, health insurance companies and pharmaceuticals companies.) have created a cozy little system that tends to discourage or even exclude alternatives to their put Humpty Dumpty back together model. And of course all the financial incentives are on the side of treatment/cure rather than prevention/wellness. That is all well and good for the medical establishment; however, should you or I fall into their cozy little system we had best have great insurance or a good bankruptcy lawyer.

In other words our system isn't a system of health care at all, it's a system of medical care. Until you need to cure a disease, heal a trauma or deal with the symptoms of age--so long as you are healthy--you really aren't a suitable candidate for medical care. And, relatively little or no attention is paid to helping us stay healthy and thus avoid the need for medical care.

So, with that background, what exactly is a Wellness Token and why am I promoting it?

This good idea was initially published in 2006 by a Belgian economist named Bernard Lietaer in an article titled "Wellness Tokens: A Currency That Promotes Preventive Care."

In his original paper Lietaer begins by describing the problem and pointing out the difference between medical care and health or wellness care.

Lietaer describes the importance of financial incentive in determining the focus of care. For example until the late 19th Century Chinese Doctors were compensated by patients so long as the patient maintained good health and if the patient became ill the Doctor paid the patient. Imagine that for a moment. The financial incentive in pre 20th Century China was wellness and prevention.

The Wellness Token, according to Lietaer, is designed to emphasize the focus on three areas: wellness, prevention and holistic health care rather than on after the fact medical care. Wellness Tokens would focus in a manner familiar to anyone who has ever participated in a frequent flyer program. Tokens would be earned in two ways:

• Providing non-medical help to the elderly, handicapped and folks who need chronic care; and,
• Participating in specifically qualified preventitive health programs (For example: obesity reduction programs, educational programs, fitness programs, etc.).

Lietaer writes that Wellness Tokens could be redeemed in part for other goods and services such as preventive therapies, discounts for purchases of healthy foods, fitness programs and such. For example, according to Lietaer, the Elderplan Insurance Company of Brooklyn, NY accepts alternative currency for up to 25% of insurance premiums for elderly customers.

After reading all of that is there any doubt that the Wellness Token conceived by Bernard Lietaer passes my "Blink Test?" Although I didn't think of it, I can at least write about it and introce you to the concept!