E Monetary And Economic Financial Reset

Difficult to contemplate or understand concepts in monetary theory, economics, or the stock market are often described by comparing or referring to natural events observable in our universe. In this article we use three physical phenomena to describe imminent economic transitions: in the creation and issuance of fiat money, the future implosion of our present debt-based money, electronic currency applications circumventing banks, new distributed ledger means of conducting business, and the possibility of true global human emancipation.      

Ray Kurzweil in his masterpiece book “The Singularity is Near” published in 2005 answers the question as to what is a Singularity. “It is a future period during which the pace of the technological change will be so rapid, its impact so deep that human life will be irreversibly transformed. Although neither utopian nor dystopian, this epoch will transform the concepts that we rely on to give meaning to our lives, from our business models to the cycle of human life, including death itself. ”Mr. Kurzweil was describing a period in the near future when computer computational and learning power exceeds that of the human brain. A singularity can also be seen as a discontinuity in a system where after reaching an inflection point the prior laws or characteristics of that system no longer apply. Today, there are several global converging singularities that will irreversibly transform our society and human life, several of which we will address here.

In astronomy, a black hole is a region in space where there is an aggregation of mass, such as in a galaxy, where gravity is so strong at its center as to warp space itself around it, creating a spatial discontinuity pulling matter toward and into it, whereby matter is torn apart and collapses from this gravitational force. With this singularity, matter falls into a “black hole”, collapses, and disappears.

Entropy is concept which postulates that in closed physical systems order naturally tends to disorder. Applying this concept to social or government constructs implies that centralized systems become increasingly decentralized. These three natural phenomena will be useful explaining several approaching financial and societal singularities.

National debt singularity and black hole

Our nation’s monetary system has been managed by the Federal Reserve Bank since its Congressional approval and establishment in 1913. Despite the official-sounding name, the Federal Reserve Bank is neither federal not governmental, as it is owned by private banks. The government has given it certain mandates such as optimizing inflation and unemployment for our economy, or keeping prices stable, which largely have been managed by modifying the rate at which new fiat money is created, and the setting of interest rate levels. Money is created simply by the Fed crediting the Treasury in an amount equal to its debt issued as Bills, Notes, or Bonds; interest rates are controlled by its Open Market Committee.

Debt and fiat money have expanded massively over recent years, as government and politicians confirmed their persistent inability to produce a surplus in the setting of a federal budget. It is budget deficits that require increasing national debt – the repayment of which is the responsibility of government, but dependent on taking more wealth from taxpaying citizens.  For example, using the size of our national debt as a rough measure for the increase in growth of money (which understates that growth), we observe that between the years 2000-2020 national debt has grown from $5.7 to $26.7 trillion – an annual growth rate of 8.0%. During this same time period, the debt to Gross Domestic Product ratio rose from 56.6% to 136.6% (according to the National Debt Clock), highlighting the deteriorating urgency to our national financial solidity. 

Authors Carmen Reinhart and Kenneth Rogoff, in their book analyzing eight centuries of financial folly titled “This Time is Different” note that in the creation of the European Union its Maastricht treaty set the limit of debt to GDP at 60% as a means to protect the Union from individual country default. America’s present debt cannot be repaid from taxes and should forewarn of coming exceptional government or Fed action. That is to say that we are approaching a point of discontinuity which will manifest as a monetary and financial singularity.

Chairman of the Fed, Mr. Powell, has reconfirmed that the Fed is seeking inflation that averages 2% over time. This is a crafty and deceitful word game. Over decades economists have tried subtly to change the definition of inflation itself – from the increase in the growth of money – to a rise in prices. The rise in prices is the consequence of the growth or inflation of money. The Fed has persistently overachieved a 2% growth in the money supply (money inflation), as indicated by the growth of national debt at 8% over the last 20 years. The failure to distinguish money inflation from cost inflation allows economists to muddle the discussion over inflation, such that it diverts responsibility for economic damage from the Fed.

This vast and growing amount of debt and money can be likened to a mass in space that increases its gravitational force, which then propels this mass of debt to collapse into a financial black hole which destroys its purchasing value. Gigantic amounts of increasing debt, particularly over these recent quarters, with credible expectations that during these COVID-19 pandemic years it will expand further almost uncontrollably is now “warping the money space”.  It also heightens the lack of confidence or trust in the future value of our dollar currency both domestically and internationally, whose value will decline or can collapse – just as with a galactic black hole. This diminishing of dollar value is an unavoidable singularity that will affect the citizens of the whole nation.

Understanding money and price inflation

A 2% rate of inflation seems benign, one that appears to cause no reason for alarm, and no harm. However, a 2% rate applied over a 36 year period reduces purchasing power of a dollar by half! More insidiously, it reduces the purchasing value of your savings and investment assets also by half. That is incredible harm.  

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Disclaimer: The above is a matter of opinion provided for general information purposes only and is not intended as investment advice. Information and analysis above are derived from sources and ...

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William K. 11 months ago Member's comment

This extensive article is quite horribly depressing in many aspects. The very worst part is that I find nothing to challenge as incorrect, at least for the vast majority of the writing. Certainly the criticism of the fed is correct, although I lay the blame more toward greed than to incompetence.

The problem with debt will be at least as bad as projected, with the alternative of default not being an option this time.

And still, "The Big Fool Says To Push On", taking a line from a sixties protest ballad.