Don’t Panic.
Every Central banker around the globe at this moment worth their finance degree has a fist full of antacids in one hand and an expensive bottle of liquor in the other. No one wants to be the one that starts the panic that I have been calling the “Days of Vantablack” in the markets. The market is going to panic and there is nothing or no one that can stop it. Don’t panic, it will be alright. I am not here to blame the system or the people pulling the strings of the system that have forced this inevitable event that has been building over the last few decades.
In the past few decades the periodic collapse of bubbles in the market place has seen money run to safety to wait out the time of uncertainty while the equity markets stabilized. The problem with the markets this time around is that the bubble is in both the equity markets and the bonds markets to which equity money runs to safety. The realization will take hold that there is no safe place for money to run to as both sides will be in simultaneous collapse and we will be on the brink of the “Nightmare Scenario”. This will be the end of fiat currencies and the fractional reserve lending systems that accompany it. How ever both the “Gold Bugs” and the crypto currency pushers have it wrong.
For the crypto currency pushers they ignored a fatal weakness in the core premise their desired system. When you have a system that has to account for bad actors the higher the percentage of bad actors that the system has to account for the higher the drag coefficient of the system. This drag can be ignored for systems where few to no actors are trusted as long as the transaction rate is small. The drag increases geometrically with the rate of transactions. A bitcoin like system would require the computing power of Asimov’s Universal Univac computer to process the rate of the average days worth of world wide credit card transactions.
The Gold bugs would have been correct in the world economy prior to the 1980’s. Since the 1980’s if not four decades prior, the need to be able to expand the money supply to account for economic growth would not be possible. The amount of new gold that would have been required to be added to the system could only have been extracted from the Earth’s core or the asteroid belts. If the monetary system would return to the Gold Standard, the constraint of not being able to add gold at a sufficient rate to the system would cause a fatally acute deflationary bias.
There is only one item that can back currency that would naturally balance the inflationary and deflationary pressures in an expanding or contracting economy. Most of the activity of our economic system that keeps us alive and with our creature comforts can be reduced to MoMA. MoMA stands for Move or Manipulate Atoms. I pronounce it as a long o and a short a i.e. “moe ma” with the accent on “moe”. Any manufacturing or chemical process is Manipulating Atoms. Everything else is Moving those same Atoms from one place to another. At this moment only a tiny part of all MoMA is done with physical labor and the trend is for the percentage of physical labor to become infinitesimal if not zero.
When a person purchases a physical object from a company the company exchanges said item for money and then proceeds to replace the item. The entire chain of production can be simplified to the company paying out some of the money to people for there services and then purchases energy that is then used to mine the raw material, transport the raw material to a manufacturing plant, process the raw material into the final product and then transport the product to the customer. In the current system the fluctuation of energy cost is the dominant factor in the purchasing power of money.
From this it can be concluded that beginning with the industrial revolution and continuing to the future the value of money is approaching its purchasing power of energy. Granted there are differing forms of energy delivery but this has been shown to equalize with the markets ability to arbitrage. Money is equal to the promise to deliver some unit of energy in a particular form to a particular location and time.
For us humans energy in the form of food what drives us. Food in its wide forms of production also follows the above example with the added processes that plant growth is powered by the light coming from the sun and animal growth is powered from the consumption of a portion of the grown plants.
For economists this is a new “Stand up and shout”1. For anyone that is a biologist, rocket and/or satellite engineer this is as basic as water is wet.
ALL budgets are fundamentally an energy budget.
I need take the opportunity to make a public apology and point out who the real hero or heroes are that laid the foundation for the saving grace to our current situation. After the the 2011 Fukushima disaster a German politician/bureaucrat or group there of altered German policy to abandon the current atomic energy policy. Upon reading this change in policy I screamed at my computer screen uttering insults to the shortsightedness and disastrous consequences in following the fear mongering of nuclear power. I was wrong. They were right. Because of this change in the allocation of government directed investment into solar power a critical point was reached in 2017 where the full cycle of energy invested into a solar farm would be repaid in energy output in eight years with a continuing trend in the reduction of the EROEI, energy return on energy invested. This new dynamic created the situation that the growth of renewable energy sources can and will grow faster that the population growth indefinitely (well until we consume all the material resources of the entire solar system).
Back of the napkin business plan:
Lets combine the resources of all interested pension funds and create a co-op that take the premise to exchange any current debt instrument for a new promissory note to pay an energy equivalent of the current debt instrument’s energy value (take the current debts instruments value and calculate the energy equivalent of what it could purchase in oil and extract its full theoretical energy content) to be paid out at a future date accumulating a 6.5 percent annual interest compounding until fulfillment of the note. This co-op then takes these incoming funds and begins to build monstrous solar farm reinvesting the energy output into expansion of the farm until its critical mass is reached and it then can start paying off its energy note obligations. The excess energy can be distributed as short term notes to the population where the population can trade these notes for goods and services.
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