In today’s complex and often bewildering world, it is crucial to examine and comprehend the underlying truths that shape our financial realities. One might wonder how we arrived at our current state of affairs, especially when the foundations seem so shaky. This exploration will delve into those uncomfortable truths, illuminating the forces that are driving our economic landscape into confusion.
To begin, we distinguish between two types of facts: the factual data devoid of opinion—like the laws of arithmetic—and the subjective facts that are inherently intertwined with interpretation and perspective. Our focus today is on the latter, as we seek to understand the nuances of our current economic dilemma.
Here is the crux of the matter: we are ensnared within a system of counterfeit currency, which has proliferated confusion and instability across numerous facets of life. The rise of central bank fiat money, combined with the practices of commercial banks via fractional-reserve banking, has catapulted us into financial chaos. This cyclical expansion and contraction of the money supply perpetually disrupts the hardworking individuals striving to build a better life. The result is a profound devaluation of the rewards garnered from diligence, savings, and responsible living.
This reality is disheartening, particularly for those engaged in the daily grind to support their families. It is equally frustrating for retirees who, after decades of hard work, find their savings at the mercy of a flawed monetary system.
Short-Sighted Decisions
Tracing back to August 15, 1971, we can pinpoint a pivotal moment when former President Nixon unilaterally abandoned the world, defaulting on the Bretton Woods Agreement. This decision stripped member nations of their ability to convert U.S. dollars into gold. However, this was merely the culmination of a series of misguided policies initiated years prior, particularly during Lyndon B. Johnson’s “guns and butter” approach.
Since Nixon’s era, we have witnessed an unchecked proliferation of debt-based money. The results are staggering: the Institute for International Finance reported that by the first quarter of 2018, global debt had soared to a staggering $247 trillion, with a debt-to-GDP ratio exceeding 318 percent. These figures reveal the enormity of our predicament.
Moreover, public, corporate, and consumer debt have skyrocketed over the past decade, fueled by aggressive monetary intervention that kept interest rates artificially low, leading to numerous imprudent choices.
A prominent example of such reckless decision-making is evident in the recent corporate trend of financial engineering. Companies have borrowed extensively at minimal interest rates, only to invest these funds back into the stock market, driving up share prices and executive compensations. However, what will happen when debt repayments swell and stock prices plummet? Will the corporate executives bear the consequences, or will the everyday employees be the ones facing job losses?
Another glaring instance of short-sightedness lies in the escalating student loan debt crisis, which has ballooned to a staggering $1.5 trillion. This figure ranks as the second-largest consumer debt category, trailing only mortgage debt, surpassing both credit card and auto loan debt. One must ponder: what would become of the overpaid faculty and lavish campuses if this government-supported debt were to vanish?
The Degrading Facts of a Fake Money Hole in the Head
Currently, the Federal Reserve is actively reducing its balance sheet while simultaneously increasing the federal funds rate. Yet, the stock market continues its upward trajectory, as though we were experiencing a surge in liquidity instead of tightening conditions. This curious convergence presents a palpable tension.
Warren Buffet astutely remarked in his 2001 letter to Berkshire Hathaway shareholders: “You only find out who is swimming naked when the tide goes out.”
Indeed, we are confronted with a deluge of unsettling facts, and no simple solutions exist to reverse our course. These are not dilemmas that can be resolved with a mere tweet from a public figure. However, it is essential to maintain hope, as facts have the capacity to evolve over time.
Consider how, during the Middle Ages, medical professionals believed that trepanation—drilling a hole into the skull—was an effective treatment for ailments like epilepsy. By the 16th century, this barbaric practice had fallen out of favor, just as our current economic understanding may eventually shift.
We pride ourselves on our modern advancements. What could be more sophisticated than instant updates on stock prices, global weather, or cultural trivia delivered as we ascend in glass skyscrapers? Yet, we still rely on paper coffee cups, employ chemotherapy for cancer treatment, and tolerate a flawed monetary system akin to how our ancestors once accepted holes in heads as a cure for headaches.
These are the undeniable facts of today. Perhaps, in the coming centuries, we will look back and see how we, too, could be corrected.
Sincerely,
MN Gordon
for Economic Prism
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