The Monetary Straightjacket II

Pluralistic open societies like to boast the democratic principles and ideals under which they presumably endeavor. Few proponents of open societies however understand the utility or the desirability to allow individuals to choose what type of money they want to utilize in daily life. Western citizens are free to choose where to live, what car to buy, whom to marry and, to a certain extent, where to work but they cannot choose the money they wish to make use of.

There is of course a very good reason why money is imposed by government and the privilege to manage it is bestowed upon an unelected third party.

By forcing individuals to make use of a specific variety of money that is under the control of a privileged party, the monetary authority can gradually divest society of its financial and professional independence thus making the individual dependent on government. This is a generational strategy of course but it is arithmetically guaranteed to work. We have already gone through the arithmetic of how this works. What we have not yet explored however, is how this same dynamic eventually results in an homogenization of policy resulting in traditional political ideologies becoming indistinguishable in their policy implementation. But this dynamic should be clear.

In a Fractionally Reserved monetary system, money is gradually debased. This is a self evident truth. This is achieved by aggressive monetary inflation which in turn is justified by the political and social process which inevitably results in an expansion of government. As money is debased, government expands and the financial independence of the individual is ineluctably compromised. The eventual but direct result is that government not only becomes the largest employer but it also becomes the entity that is considered the only and primary “investor” in the economy.

Although the contradiction in terms should by then be glaringly evident to even casual observers, at that point the continued expansion of government is deemed vital to the welfare of society.

This is too the point at which government is deemed to be the only viable solution to the crisis; a crisis that has been precipitated by the constant debasement of money, the excessive expansion of credit markets (think mortgages or student loans) and the concomitant expansion of government and para governmental agencies.

It is at this point that, regardless of the rhetoric, whoever may be elected into office is presented with a set of monetary realities that foster a set of political conditions that cannot be reversed easily or quickly. This is the point at which the choice is to either do what is arithmetically sensible by reducing the deficits and the debt and go down with the political ship on a wave of social upheaval as the incumbent will be perceived and portrayed as the destroyer of wealth, or just go along for the ride thus allowing the political dynamic to continue as it has and try to keep credit markets expanding and postpone the political upheaval as far off into the future as possible. Just to be clear however, either option results in the same outcome. There are however two important differences in that the latter option buys time at the cost of creating a more dramatic outcome and, certainly,  a more costly one both in financial as well as human terms.

As we have already pointed out several times in these pages, credit markets cannot be expanded forever. The point at which each new Dollar of debt generates less than $1 of GDP this strategy is pretty much dead in the water and the piper is knocking at the door.

FRED Graph

When the piper is knocking at the door, trying to do more of what you have done till the present moment only serves to dig a deeper hole for society.

This is where we are today in the West. Obama, Draghi, the new head of the Bank Of England and now Japan’s Abe have all embarked on the same strategy of perpetuation of the status quo only in spades. But the arithmetical reality is what it is so that the final denouement is going to be that much more severe with, this time, bloodshed in the cards for all; and I mean all including Western citizens.




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6 Responses to “The Monetary Straightjacket II”

  1. ducati998 Says:


    Spot on. I’m going to pick up the theme in my linked post.

    jog on

  2. The Rule of Law « ducati998 Says:

    […] has a post up here that really spells out the political consequences of the incessant inflation that we have been […]

  3. Patrick Donnelly Says:

    As you will see and agree, the “big banks” appear to be necessary for only one thing: FAILURE! As a deliberate policy, collapsing economies allows a soft reset and make a hard reset, (WAR!) much easier.

    This whole thing has been planned. Many will make out on the up and then on the down. Sad!

    Now we have to ask is there an “International Rescue” ready to send Thunderbird 1 to our rescue? Gerry Andersen made a large chunk of my childhood!

    This will be an unHappy New Year for millions of people, but I hope you and yours proper!

  4. Patrick Donnelly Says:

  5. Patrick Donnelly Says:

    The Mob are always with us. So long as they are entertained and fed, they are quiet. Voting is not transparent. It is more entertaining than determining who runs the place. As we have two, succeeding, improving, generations and then then one of reorganization, causing catastrophe to those who do not understand, we seem to be muddling through. Most of us are richer than we were. We know the system to an extent? Just because some of us have now been caught out, by what others who are historically literate always knew, is no reason to get too upset? This is not new. I tried, and try, to tell those close to me what is about to “go wrong”, a mismatch between expectations and reality, but they dismiss me. You get what is to happen soon. It may not end in as much blood as WWII. Starvation was the main weapon. Not this time?

    • guidoamm Says:

      It is not only those that don’t know that got caught out. Some of us who know got caught out too. Damage limitation has been the name of the game for the past five years.
      Happy new year mate.

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