As the final act of the fiat monetary logic plays out, society, and politicians first amongst all, become preoccupied with assigning blame to everyone and everything else but themselves.
These days I only quickly scan press articles not because I have no time but because what politicians, officials and pundits have to say is a foregone conclusion. One of the more popular commentators I monitor is Ambrose Evans Pritchard of the Daily Telegraph and one of his latest comments illustrates perfectly the foregone conclusion character of what he has to say. But more interestingly, what is more of a foregone conclusion is the hand wringing and the bewildered response of the commentators to the article.
Of course, if you grasp the logic enshrined in the fiat monetary logic, you also realize what, in fact, is the ultimate cause of any crisis. So that despite the fact that deliberately aberrant government policies are the root cause of crisis, society is not entirely free of blame.
It is true that government deliberately, unilaterally and arbitrarily imposes the monetary system thus providing well defined boundaries for the socio/economic/cultural development of society. It is also true that in order for the arbitrary choice of a fiat monetary system to have the desired effect on the development of society, government must ensure that the system is not questioned. Thus, ultimately, government is at the very least responsible for encouraging a type of education that omits studying the system. So, yes, government is the ultimate cause of crisis.
That being said, Western society as represented by individuals like you and me, must at the very least share the responsibility for the proximate causes of crisis. That is, society must share the responsibility for letting itself fall into the trap that “democracy” inherently sets.
Let me explain. Allow me to simplify the concept of democracy as the concept whereby each individual citizen has a say in shaping socio/economic policy. Society expresses its desires through representatives it elects to carry its message; these are the politicians. If follows that in order for politicians to acquire power they must promise desirable outcomes to ever larger segments of the population. That is the principle of democracy; i.e. the desire of the many will have the upper hand over the desires of the few. Thus successful politicians must secure large voting bases. Ergo, the democratic political process is a system of quid pro quo – I promise to give you benefits if you give me your vote.
From the above, it is clear that the democratic political process is predicated on perpetually increasing spending. That’s because no politician can ever hope to be elected to office by advocating cutting programs that are already established. So that by maintaining previously established expenditure and needing to promise new programs still, expenditure can never decrease.
And that’s where the utility of fiat money comes into play. Unlike value based money, in a fiat monetary system there are no temporal or capital constraints to expanding the monetary base so that state spending can be virtually instant and apparently infinite…. apparently, but not actually.
Fiat money appears to have no intrinsic cost thus it is thought to be free by politicians of all stripes. Of course, just like there are no free lunches, fiat money too has a cost. But, the cost of fiat money is a value that is accumulated and pushed forward in time. This cost is known as “inflation”.
If you follow this blog you will know that inflation is a dynamic that is exponential in character thus it is limited mathematically.
Hence the limit of the fiat monetary system.
Hence the necessity by government to maintain inflation on a positive trajectory come hell or high water.
Hence the reason government has a vested interest in at first tolerating but gradually encouraging and finally colluding if not perpetrating illegal practices.
Hence the reason government gradually becomes the largest actor in the economy.
Hence the reason that as the inflationary dynamic reaches its logical conclusion, nominal profits gradually concentrate in the finance industry.
Hence the reason that as the inflationary dynamic reaches its logical conclusion, the finance industry generates prodigious amounts of exotic instruments.
But lets take a break.
Assuming all I am saying is correct, what, you may ask, is the solution to the mess we find ourselves in?
There are multiple facets to this answer.
In the first place, we should not be where we are. Fiat money is actually a brilliant construct if only politicians could let the system follow its natural rhythm instead of constantly and artificially short circuiting the system’s natural inbuilt circuit breakers. But, then again, in a political system characterized by democratic features, a fiat monetary system will not and cannot be allowed to reset spontaneously. That’s because politics is inherently expedient thus as soon as the system threatens to reset (corporate bankruptcies) politicians will step-in offering assistance in a bid to garner votes (bailout and/or subsidies). Hence, fiat money in a democratic environment guarantees that inflation will run far in excess of underlying economic development forever… or, at least, for as long as inflation has a modicum of traction on the economy.
But as shown by this graph, our monetary system has lost traction.
So, we are where we are. Great. What now.
At least in theory, if both society and politicians could swallow their pride and admit to wrong doing, then we should be all right. We’d take our lumps for a few years but we’d be ok.
But other than in Iceland, nobody in the West is going to admit any wrong doing…
So the people will strike and rise up in anger and the politicians will be busy looking (creating) scape goats…
When enough people will rise up and things become messy and as the politicians begin feel power slip through their fingers, we’ll have us an appropriately evil enemy ready to focus the attention of the plebs… at that point, we’ll be ready to march on another military adventure… a military adventure this one that will employ large swathes of our unemployed…
Tic-toc, tic-toc… 2013/2015
Tags: ambrose evans pritchard, capitalism, deception, fiat money, fiduciary duty, free markets, legal theft, popula sentiment, raison d'etat, sovereign bankruptcy, theft, tyranny, war, white collar crime