In last night's post, I was talking a bit about the debt model of the current economy, and how fragile it is. While being able to "take debt" is a good thing in terms of being able to trade, an economy with an increasing debt system is always going to collapse, because at some point, people are no longer willing to keep providing goods and services on IOUs. And, once that happens, the demand is ultimately going to drop, because without a line of debt credit, the consumers have nothing to spend.
In this regard, it is pretty simple to see.
However, over the last few hundred years of modern banking, the debt model has been increasingly encouraged and new and innovative ways of getting into debt have been established. This means that by continually kicking the can of repayment down the road, there is the potential to keep the illusion that the economy growing and keep extracting value from consumers.
However, extracting the value isn't enough, because if that value is held in something that is going to be impacted when the debt model collapses, it isn't valuable. So, there is no point holding large amounts of cash in the long-term, because due to inflation through debt growth, it is going to continually lose purchasing power. Instead, what needs to happen is that the value they extract gets converted into something that will hold value above what the value of everything else will drop.
Traditionally, this is in property, because it is a physical asset that is always in some demand. However, in a more general sense, it is about ownership, where anything that can be owned and will hold value long-term could be a store of the value extracted. For example, companies are property too and they act very much like a farm, where they produce something that is in demand, sell it at market and take the proceeds to produce more value, and distribute left over to the owners. They in turn invest their returns into generating more value also.
So, over the last few hundred years, there has been a shift in the definition of property, where it has gone from only the physical (land, gold, humans), to the non-physical (companies, patents, copyrights). But, what is similar between the two is that both are able to generate value into the future for the owners, but what they produce will only benefit the consumers for a short period of time. That is the thing with consumption -
you can't have your cake, and eat it too.
And the challenge we are now facing is the "wealth gap" which people seem to think is because some get paid more than others, but that is not the case at all, or at least, that is not the major reason. The real reason for the wealth gap is because of who owns what, with those who hold generative assets that give a return to the owners, will continually leech value from the consumers. It doesn't matter who of the workers gets paid more, without owning generative assets, that gap will keep increasing, as will the speed of increase.
And, this is what the debt model has enabled, as it has allowed people to keep consuming depreciating or valueless goods and services, through using the value earmarked for the future, today. This monetary time machine pulls in future value into the present to be spent on goods and services that generate wealth for the owners of the physical and non-physical "farms", pushing that future wealth into their hands and allowing them more capacity to expand their ownership portfolio.
This happens whilst the consumer who is spending tomorrow's value is going to increasingly have to take on more debt in order to keep spending, whether it be on luxuries or necessities. And, because that future value is pouring in, the value of the currencies will keep falling, so inflation will increase and more debt will get created through interest payments, where people are literally overpaying for the value of an asset, because the amount extra paid in interest, is higher than the value of the asset purchased. This creates another source of income for the owners to use to expand their portfolio.
And, currently, while people are worrying about owning their own home, the actual global value of real estate is a drop in the ocean in terms of all the money in the world. In fact, if you have a look at that visualization (updated November 2022), consider how much of that wealth is physical, and how much is non-physical assets. The biggest sector for example is the derivative markets, and they don't even know what that is worth, because it is such a convoluted and opaque system. However, the estimated notional value (over the counter) is over 600 trillion, which is twice the value of all the residential property combined.
And you thought buying a house was expensive.
But, other than the physical assets, nearly all this value is potentially valueless, because it is tied to property that can't be secured, that can be unnaturally inflated, that can be commandeered. Not to mention, if the people decide that the current economy and its tools are valueless.
And that is what I want to bring up to close this article. The chances of changing the economic system using the mechanisms of the current economy, is never going to work. Even the most successful individual in the system, can only by themselves a higher rung on the ladder. The reason is that no matter what you spend in the system, it is going to generate wealth for the owners and when it comes to most of the goods and services we consume, the owner pool is very narrow.
However, there is one thing we do own that can collapse the entire system almost overnight.
Ourselves.
While we act like financial slaves, what keeps the system going is that we are choosing to value what we are told to value. Yes, physical assets like real estate and precious metals are valuable, but much of the rest is not. And because this is where those who control the rules of the economy place their value, all we need do is devalue what they hold, which is incredibly easy. Why so easy, well, it all comes down to changing the definition of value again, just as it has been changed over the last centuries to move wealth from physical holdings to non-physical.
And, this is where crypto comes into it, as while it is a non-physical asset, similar to a derivative, it also algorithmically acts like a physical asset, like real estate. This means that it can be owned like a house, but not be commandeered like a house. And, not only that, unlike a house, it can also be cloned, where one blockchain can be abandoned in favor of another blockchain. This means that there is a self-regulating mechanism in place that allows the people to decide if they still find value in the asset, rather than being forced to hold value in it by central authorities.
Seems easy, eh?
But obviously, the difficult isn't in the theory, it is in the changing of behavior in order for people who have been conditioned their entire lives to believe what has value and what does not, to unlearn and redefine value. And this is what one of the values of blockchains is, as through tracing transactions transparently, we are able to more accurately see the value of actions and better evaluate what we value and what we do not. Yet, even this requires us to demand that all value be tracked in this way, including all of that derivative value that is hidden away from sight, but impacting our daily lives in ways we can't even imagine.
But it is interesting to note, that we believe we own our bodies, yet we don't even know what and how it is being affected in the economy. We feel the impacts, but have so little understanding of what is causing them and so little interest in finding out, that we just keep on going about our daily lives, feeling powerless. Yet, it is exactly our unwillingness to seek alternatives, that lead us to support what is causing us all this economic pain.
Will enough of us wake up and change everything?
I have hope. I don't have faith.
We are too happy to consume nothing of substance.
Taraz
[ Gen1: Hive ]
