I love the way you presented this, Alex. I was a staunch capitalist business-minded person from a young age... until I faced the clash between my attitudes and Eastern upbringing. I knew capitalism offered a sensible and logical direction, but that so did the collectivism generally part of Eastern cultures. It was always a tug-of-war in my head and I wonder if humans will one day devise the system that survives human frailties.
Capitalism and communism are the flip sides of the same coin. Both in practice seem to evolve into mechanisms of state largesse with an exploitive and oppressive/coercive broad and deep control system over their populations. Tyranny.
Very important topic. The Left v Right paradigm is completely unhelpful in understanding what has happened under Globalisation or building a coalition against the Oligarchs.
As far as I understand, and please correct me if I am wrong, the American debt curb may soon have the skyline of Dubai's Khalifa tower and still nothing will happen, since that debt is being bought by the banks members of the FED which will be eternally financed and bailed out by the institution they own. It is like owing money to your mother... They will be less and less able to sell bonds internationally but who cares. They only problem is that those bank cannot and will not use those ressources on the country but just on regularly changing their mansions decorations. The Palatine hill sourrounded by a continental favela. And so what... On and on until the Dracula family dies. I hope.
Wonderful financial analysis . I come from another perspective as a l living creature . We are social creatures beyond any ideological borders I’d say with
The concept of belonging to a greater good an immense value.
How it’s done is the difficult question undergoing debate here.
Had a chuckle when you talk about each side (capitalism / socialism) excusing its faults by blaming 'it's the damn people' getting in the way of achieving the fantasy of pure utopia on one ideological side or the other.
The realities certainly are that fiat currency systems and fractional reserve banking, i.e. leverage and fakery, lead to concentration of wealth and government power along with endless wars. Though I would add, these sort of fake systems also lead to rapid increases in population as people have access to more resources (food, energy, housing, transportation) with mass credit expansion, than they otherwise would with unleveraged conditions. (just look at any chart of world population over the last 10,000 years and note when in the timeline, the planet instituted global fiat systems and fractional reserve banking)
The opposite effect manifests when you have credit implosion / deflation and less production of resources. Thus, you have less population through starvation and other forms of mortality such as suicide, medical and the 'Darwin effect' - death by stupidity.
As it is to capitalist & socialist economic systems to have concentration of power and wealth to those in control of things, it is intrinsic to human behavior to desire accumulation of either power / wealth.
The more fake the system, the more sociopathic the players.
In either system sociopathic tendencies emerge of course, however the behavior in each system is essentially the same. Both fail ultimately for the same reasons, with the real catalyst being the introduction of fractional reserve banking fueled by fiat currency. All following a predictable pattern, just like nature and the cosmos present us with such empirical evidence of vast cycles.
As all economic systems exist in a cyclical nature, the key point is to understand at what point of the cycle where the majority of humanity is treated most ethically and with God given sovereignty.
I believe this beneficial point of the cycle is where debt creation and banking activities are in private hands.
Private in the context of that fleeting point of the cycle where direct accountability for positive or conversely negative human action, is applied with robust enthusiasm of the market as well as justice platforms. In other words, you're a banking business and you create monetary flows by lending Paul's entrusted depository money, to Peter's economic venture to Albonia to acquire unicorns and bring them back to Wakanda for sale at the market. Should Peter's venture succeed, Peter enjoys reward right along with the bank and those that have entrusted the bank with their family savings. If Peter's economic venture to Albonia fails, the banker loses his shirt and depositor Paul is unhappy as he loses not only interest paid on his deposits, but potentially the deposits entirely.
The justice system then confiscates the banker's assets and distributes them to Paul and other creditors that entrusted the bank with their savings. Then the lucky non-dead bankers have to go down the economic ladder, quarterly bonus free of course, to cleaning poop out of unicorn stalls. This continues on until they regain capital and trust to the point where they can operate as live, breathing bankers again and be entrusted to be prudent with people's savings.
Where all systems go completely off the rails and distort not only currency, investment, economic / political activity and ultimately human population numbers, is when direct negative outcomes lack accountability for crappy decisions and are socialized / deflected. This 'off the rails' portion of the cycle where malinvestment / sociopathy occurs of course, is at the same time all gains are aggregated and concentrated into the hands of the 'smart' people in power. (privatize the gains, socialize the losses). This effect occurred in communist / socialist systems with the same flower as it did and does in capitalist / corporatist / fascistic systems. Power, influence and wealth always flow to those that control the levers of policy, currency and debt creation.
It is simply a part of the total cycle... and no, this time is NOT any different than any other time in human history. It is only magnified each time with increasing level of technological advancement in banking / fiat currency creation, thereby turbocharging production of resources, leisure and life extension through medical care.
Once these effects are set in motion and enhanced through technology, massive bubbles are created in population and economic systems. The bad part is, when a grotesquely fiat system metastasizes, it MUST continually create 'growth' in order to employ, feed and house the population bubble. If it fails to grow and then passes into deflation, population thus has less resources available, and death ensues. Once that deflation ball gets rolling, starving populations become less enthusiastic in their support for the powerful and go long on guillotines, rope and bullets.
I think we are in the cusp of winter for the fiat system in total. Be it socialistic or capitalistic, it will complete the cycle of credit expansion, flower, collapse and then begin anew.
Capitalism is a bit of an empty word. Free market is better as it more clearly states what the dichotomy is. Top down force vs leaving people alone. Unfortunately, we have indeed not seen a perfect free market, that is a utopia. But what we can clearly see is that the freer the system is the more wealth it produces. It is not an accident that a place like Switzerland is so wealthy, it has not had much state interference in the past, although it is catching up quickly now. And no, deflation is not at all a bad thing if it happens freely. It is only a bad thing if it comes from too much debt. On a free market prices naturally decline leading to a constantly rising standard of living. Short of governments prohibiting people to work there cannot really be long term unemployment as there are always lots of things to do. Only in paradise people would not find work to be done.
I'll agree about the inevitability of union between capitalism and socialism as described with two caveats:
First "crowding out" assumes a zero-sum economy. The Federal reserve says the US economy is only at ~75% of capacity. There are unemployed people and plants. Could the government's spending employ idle assets? Could government contribute to creating goods and services that wouldn't otherwise exist? Obviously the answer is "yes." If nothing else, government is responsible for funding roughly 80% of the basic research that shows up in an iPhone, for one example. The internet, touch screens, GPS, etc. are all thanks to the contribution of government. No one was "crowded out" in the sense we typically think when analog electronics were supplanted by digital, but government made that possible. See https://www.ted.com/talks/mariana_mazzucato_government_investor_risk_taker_innovator?language=en for the details here.
The big problem in "capitalist" economies is that, as Marx and other economists observed, truly competitive markets tend to shrink profitability as firms compete for market share (Tesla has begun lowering prices as more EV manufacturers come online). The answer from capitalist firms is to pursue monopoly or (unproductive) military production led by profits not purpose. (see https://medium.com/@monetarypolicyinstitute/austerity-for-the-people-and-keynesianism-for-the-war-6ae2ba741875)
Cogent and clear-headed brilliance Alex. Ideologies aren’t going to save us because they are the fundamental problem. Human life in all its aspects is simply too complex to be defined by an ideology. Ideas are critical but even more so are human values and humanity itself. I’m reminded of my epiphany well over a decade ago. I was drifting toward being a chunky middle-aged guy with fatty liver disease, the typical aches and pains, and low energy. I realized I was on a path that I had to change. Rather than nibbling and tinkering around the edges with tweaking my diet and exercising, I embraced a new paradigm of low carb - paleo and fasting. I lost weight and feel better now than I did before I started well over a decade ago.
We need a new paradigm and as you say, we have to get currency right. That’s a first step. But embracing human values and being willing to toss out the status quo thinking is absolutely essential. Bravo sir. I am sick and tired of arguing left and right. We have to move deeper into a whole new approach. And the sooner the better. We’ll done Alex.
Hi Alex, wonderful and clear what you write. I saw the interview of you and, Tom Luongo, Gordon Dimmack on/with Crypto Rich and you and Tom touching briefly on the also possible 'religious' grander story behind happenings in the world. Somehow this video that Mathew Ehret just shared ties into that a little bit more. Here is the link: https://rumble.com/v4kclel-breaking-history-ep.-37-1200-pm-et-.html. Have a great day!
is fractional reserve financial system really a main culprit here? I could imagine that the deflationary gap would appear even when using gold backed money too? Would it not?
One thing missing from the "closed system" model is that you can have growth without fiat inflation if you mine new gold. Additional efficiencies and products can offset the savings factor. Finally, a savings rates can be safely lower in a non-inflationary money system.
Great piece. We have to get beyond the ideological economy-(for the)stupid-bullshit. So let's stop getting overheated by Hayek. But i guess in reality there is no such thing as a "closed system" and the balances of the system have to be seen and analyzed as well from a national as an international point of view. If I were a country, I d rather try to lend from my own family and not from my neighbour who always wanted do overtake my little farm, y know.
Thank you for this important article Alex. So if I am understanding this concept correctly, then am I correct in stating that regardless on whether we have honest money or not, whether it is bitcoin, gold, or whatever, that there will still be this problem of the "deflationary gap" that is inherent to economies, and there is not necessarily a great solution to this problem yet known.
Thanks for this - although he says he's an avowed Marxist I generally fall in with the ideas of Michael Hudson, who puts it more in terms of the state dealing with natural monopolies, like fuel utilities and trains, while promoting small local banks to support small local businesses. Rather like what China is doing, from what I understand. The covid tyranny however made me a lot more suspicious of state monopolies in education and healthcare than I used to be. As an old idealistic leftist, now unhomed as it were, I think what the left left out was the importance of small businesses, confused about whether these are real 'capitalists' and the so-called petit bourgeoisie. Really I think just an excuse to not bother organising with them. And somehow dealing with money and debt became a 'right wing' thing. Very stupid. What do you think of Hudson's insistence that in this debt based fiat system we need an individual debt jubilee?
I love the way you presented this, Alex. I was a staunch capitalist business-minded person from a young age... until I faced the clash between my attitudes and Eastern upbringing. I knew capitalism offered a sensible and logical direction, but that so did the collectivism generally part of Eastern cultures. It was always a tug-of-war in my head and I wonder if humans will one day devise the system that survives human frailties.
Capitalism and communism are the flip sides of the same coin. Both in practice seem to evolve into mechanisms of state largesse with an exploitive and oppressive/coercive broad and deep control system over their populations. Tyranny.
Very important topic. The Left v Right paradigm is completely unhelpful in understanding what has happened under Globalisation or building a coalition against the Oligarchs.
Hope you will return to this topic. Best wishes.
As far as I understand, and please correct me if I am wrong, the American debt curb may soon have the skyline of Dubai's Khalifa tower and still nothing will happen, since that debt is being bought by the banks members of the FED which will be eternally financed and bailed out by the institution they own. It is like owing money to your mother... They will be less and less able to sell bonds internationally but who cares. They only problem is that those bank cannot and will not use those ressources on the country but just on regularly changing their mansions decorations. The Palatine hill sourrounded by a continental favela. And so what... On and on until the Dracula family dies. I hope.
Wonderful financial analysis . I come from another perspective as a l living creature . We are social creatures beyond any ideological borders I’d say with
The concept of belonging to a greater good an immense value.
How it’s done is the difficult question undergoing debate here.
Great analysis Alex.
Had a chuckle when you talk about each side (capitalism / socialism) excusing its faults by blaming 'it's the damn people' getting in the way of achieving the fantasy of pure utopia on one ideological side or the other.
The realities certainly are that fiat currency systems and fractional reserve banking, i.e. leverage and fakery, lead to concentration of wealth and government power along with endless wars. Though I would add, these sort of fake systems also lead to rapid increases in population as people have access to more resources (food, energy, housing, transportation) with mass credit expansion, than they otherwise would with unleveraged conditions. (just look at any chart of world population over the last 10,000 years and note when in the timeline, the planet instituted global fiat systems and fractional reserve banking)
The opposite effect manifests when you have credit implosion / deflation and less production of resources. Thus, you have less population through starvation and other forms of mortality such as suicide, medical and the 'Darwin effect' - death by stupidity.
As it is to capitalist & socialist economic systems to have concentration of power and wealth to those in control of things, it is intrinsic to human behavior to desire accumulation of either power / wealth.
The more fake the system, the more sociopathic the players.
In either system sociopathic tendencies emerge of course, however the behavior in each system is essentially the same. Both fail ultimately for the same reasons, with the real catalyst being the introduction of fractional reserve banking fueled by fiat currency. All following a predictable pattern, just like nature and the cosmos present us with such empirical evidence of vast cycles.
As all economic systems exist in a cyclical nature, the key point is to understand at what point of the cycle where the majority of humanity is treated most ethically and with God given sovereignty.
I believe this beneficial point of the cycle is where debt creation and banking activities are in private hands.
Private in the context of that fleeting point of the cycle where direct accountability for positive or conversely negative human action, is applied with robust enthusiasm of the market as well as justice platforms. In other words, you're a banking business and you create monetary flows by lending Paul's entrusted depository money, to Peter's economic venture to Albonia to acquire unicorns and bring them back to Wakanda for sale at the market. Should Peter's venture succeed, Peter enjoys reward right along with the bank and those that have entrusted the bank with their family savings. If Peter's economic venture to Albonia fails, the banker loses his shirt and depositor Paul is unhappy as he loses not only interest paid on his deposits, but potentially the deposits entirely.
The justice system then confiscates the banker's assets and distributes them to Paul and other creditors that entrusted the bank with their savings. Then the lucky non-dead bankers have to go down the economic ladder, quarterly bonus free of course, to cleaning poop out of unicorn stalls. This continues on until they regain capital and trust to the point where they can operate as live, breathing bankers again and be entrusted to be prudent with people's savings.
Where all systems go completely off the rails and distort not only currency, investment, economic / political activity and ultimately human population numbers, is when direct negative outcomes lack accountability for crappy decisions and are socialized / deflected. This 'off the rails' portion of the cycle where malinvestment / sociopathy occurs of course, is at the same time all gains are aggregated and concentrated into the hands of the 'smart' people in power. (privatize the gains, socialize the losses). This effect occurred in communist / socialist systems with the same flower as it did and does in capitalist / corporatist / fascistic systems. Power, influence and wealth always flow to those that control the levers of policy, currency and debt creation.
It is simply a part of the total cycle... and no, this time is NOT any different than any other time in human history. It is only magnified each time with increasing level of technological advancement in banking / fiat currency creation, thereby turbocharging production of resources, leisure and life extension through medical care.
Once these effects are set in motion and enhanced through technology, massive bubbles are created in population and economic systems. The bad part is, when a grotesquely fiat system metastasizes, it MUST continually create 'growth' in order to employ, feed and house the population bubble. If it fails to grow and then passes into deflation, population thus has less resources available, and death ensues. Once that deflation ball gets rolling, starving populations become less enthusiastic in their support for the powerful and go long on guillotines, rope and bullets.
I think we are in the cusp of winter for the fiat system in total. Be it socialistic or capitalistic, it will complete the cycle of credit expansion, flower, collapse and then begin anew.
Capitalism is a bit of an empty word. Free market is better as it more clearly states what the dichotomy is. Top down force vs leaving people alone. Unfortunately, we have indeed not seen a perfect free market, that is a utopia. But what we can clearly see is that the freer the system is the more wealth it produces. It is not an accident that a place like Switzerland is so wealthy, it has not had much state interference in the past, although it is catching up quickly now. And no, deflation is not at all a bad thing if it happens freely. It is only a bad thing if it comes from too much debt. On a free market prices naturally decline leading to a constantly rising standard of living. Short of governments prohibiting people to work there cannot really be long term unemployment as there are always lots of things to do. Only in paradise people would not find work to be done.
Great article to be shared far and wide.
I'll agree about the inevitability of union between capitalism and socialism as described with two caveats:
First "crowding out" assumes a zero-sum economy. The Federal reserve says the US economy is only at ~75% of capacity. There are unemployed people and plants. Could the government's spending employ idle assets? Could government contribute to creating goods and services that wouldn't otherwise exist? Obviously the answer is "yes." If nothing else, government is responsible for funding roughly 80% of the basic research that shows up in an iPhone, for one example. The internet, touch screens, GPS, etc. are all thanks to the contribution of government. No one was "crowded out" in the sense we typically think when analog electronics were supplanted by digital, but government made that possible. See https://www.ted.com/talks/mariana_mazzucato_government_investor_risk_taker_innovator?language=en for the details here.
Second: "Fractional Reserve Lending" is still taught in conventional economic classes, but it's not practiced by banks. Even the Bank of England is on board with banks extending credit rather than lending deposits (see https://www.bankofengland.co.uk/quarterly-bulletin/2014/q1/money-creation-in-the-modern-economy).
The big problem in "capitalist" economies is that, as Marx and other economists observed, truly competitive markets tend to shrink profitability as firms compete for market share (Tesla has begun lowering prices as more EV manufacturers come online). The answer from capitalist firms is to pursue monopoly or (unproductive) military production led by profits not purpose. (see https://medium.com/@monetarypolicyinstitute/austerity-for-the-people-and-keynesianism-for-the-war-6ae2ba741875)
Cogent and clear-headed brilliance Alex. Ideologies aren’t going to save us because they are the fundamental problem. Human life in all its aspects is simply too complex to be defined by an ideology. Ideas are critical but even more so are human values and humanity itself. I’m reminded of my epiphany well over a decade ago. I was drifting toward being a chunky middle-aged guy with fatty liver disease, the typical aches and pains, and low energy. I realized I was on a path that I had to change. Rather than nibbling and tinkering around the edges with tweaking my diet and exercising, I embraced a new paradigm of low carb - paleo and fasting. I lost weight and feel better now than I did before I started well over a decade ago.
We need a new paradigm and as you say, we have to get currency right. That’s a first step. But embracing human values and being willing to toss out the status quo thinking is absolutely essential. Bravo sir. I am sick and tired of arguing left and right. We have to move deeper into a whole new approach. And the sooner the better. We’ll done Alex.
Hi Alex, wonderful and clear what you write. I saw the interview of you and, Tom Luongo, Gordon Dimmack on/with Crypto Rich and you and Tom touching briefly on the also possible 'religious' grander story behind happenings in the world. Somehow this video that Mathew Ehret just shared ties into that a little bit more. Here is the link: https://rumble.com/v4kclel-breaking-history-ep.-37-1200-pm-et-.html. Have a great day!
is fractional reserve financial system really a main culprit here? I could imagine that the deflationary gap would appear even when using gold backed money too? Would it not?
One thing missing from the "closed system" model is that you can have growth without fiat inflation if you mine new gold. Additional efficiencies and products can offset the savings factor. Finally, a savings rates can be safely lower in a non-inflationary money system.
Great piece. We have to get beyond the ideological economy-(for the)stupid-bullshit. So let's stop getting overheated by Hayek. But i guess in reality there is no such thing as a "closed system" and the balances of the system have to be seen and analyzed as well from a national as an international point of view. If I were a country, I d rather try to lend from my own family and not from my neighbour who always wanted do overtake my little farm, y know.
Thank you for this important article Alex. So if I am understanding this concept correctly, then am I correct in stating that regardless on whether we have honest money or not, whether it is bitcoin, gold, or whatever, that there will still be this problem of the "deflationary gap" that is inherent to economies, and there is not necessarily a great solution to this problem yet known.
Thanks for this - although he says he's an avowed Marxist I generally fall in with the ideas of Michael Hudson, who puts it more in terms of the state dealing with natural monopolies, like fuel utilities and trains, while promoting small local banks to support small local businesses. Rather like what China is doing, from what I understand. The covid tyranny however made me a lot more suspicious of state monopolies in education and healthcare than I used to be. As an old idealistic leftist, now unhomed as it were, I think what the left left out was the importance of small businesses, confused about whether these are real 'capitalists' and the so-called petit bourgeoisie. Really I think just an excuse to not bother organising with them. And somehow dealing with money and debt became a 'right wing' thing. Very stupid. What do you think of Hudson's insistence that in this debt based fiat system we need an individual debt jubilee?