14/11/2018/017:00CET
If you are like me, cannot abide by illogicality, are overcome with a powerful certainty that something irrational cannot persist indefinitely, then you are infected by reason.
The condition called 'reason' forces one to look at all situations in a rational way. By trying to discern the underlying tenets that support it, and estimate their evolution in order to predict what comes next. Once a sufferer makes a prediction, they start to adjust their behaviour according to the prediction and they try to share this prediction with others.
What has this got to do with anything?
Reason is the cornerstone of the human condition. It is what allows us to combine abstract information and make predictions about the future that are more probable than other outcomes. This allows us to prepare for more probable outcomes. This has given the human species an insurmountable advantage.
But over the past decade since 2007, when it comes to economics and finance, those that either did not 'suffer' from reason, or could control its symptoms did quite well. In this regard, I did badly.
It has been at least decade now since I came to the realisation that all our toils and dreams hinge on the abstract notion of economics. And those that control economic levers in society are the real gods to watch. It is their actions that we should be obsessing about, for they will ultimately make your toils worthless or make your dreams come true.
As I progressed on my journey of learning about economics, the further back in time I started to look. I will not bore you with the minutiae of these discoveries, but I will share with you a powerful finding that underpins so much of what we see around us today.
Credit creates fake prosperity in equal measure with instability which always ends in crisis,
And the only real way to solve a credit fed crisis is... to reduce credit.
When you read credit, you can also read debt, for they are the same thing. The 2 terms simply describe the same thing as seen from either side of the transaction.
Just about every financial bust in the last century has been caused either wholly or to a major degree by too much credit. In most of the cases, most of the reckless credit was written off. A loss by the creditor, the party who supplied the credit. After all they are the ones that took the risk and reaped the reward in interest payments for this risk.
What happened in the last few busts though, was the 'Gods of the economy' stepped in and saved the creditors instead of allowing their risk to be realised.
The true nature of our economy rests now on the distortions this intervention has created. To keep it succinct I will distill the distortions to just 2:
- Creditors were 'bailed out' by taxpayers. The taxpayers will eventually pay by way of inflation. Creditors (mainly big banks) had their losses covered by us, even though we did not get to share in their wins.
- Creditors became emboldened by this 'safety net' and went out to make yet larger and more risky bets now assuming taxpayers will cover their losses
ifwhen they occur.
We have had well over a decade of this now, and the 'real economy', the one you and I live in, is buckling under the weight of bailing out these creditors, the proverbial banksters. Remember that these entities are just the front end of the elite class that prefer to stay in the shadows, but to be fair, to a large degree, these elites are also having difficulty in joining the dots too well. After all their prosperity is predicated upon them not joining these dots.
The short version of this story is that we are headed for a crisis. An economic crisis. Another one.
And in keeping with the predictable progression of economic crises over the last few decades, this one will be again more severe than the last, and the economic gods, will try to ameliorate it the same way they did before, the only way they know how.
i.e. more credit/debt.
This time around there is something else afoot: #Cryptocurrencies
Before #cryptos, there was nowhere except precious metals to hide from monetary debasement. I won't go into the farcical way financial engineering has brought to heel precious metals, probably the only historical safe haven from the credit/debt economy.
But now with cryptos in the mix, this playing field looks quite different. It will be very interesting to see how it all unfolds this time.