Topic: A Brief History of Modern Money - page 2. (Read 3183 times)

Thanks for bringing up these great points.

It's absolutely true that a good part of the imperial financial system's support comes from parceling out the benefits widely and proportionately.  In a real sense, every citizen of the West, no matter how poor, is a major beneficiary who receives 'free' wealth from the rest of the world, since their government is able to issue paper wealth in exchange for real goods and services from the developing world.

We also have to remember that the problem goes beyond theft.  There have been major episodes of conflict and suffering every time the bubble becomes unstable (which, BTW, it always seems to become, because of the incentives for the elites to destabilize their own system.)

In the early 1890s the Bank of England itself had to be bailed out by foreign central banks.  Soon we saw massive military build-ups and sabre rattling for no apparent reason, and 'stability' didn't return until the US took over the bubble after the Great War.

The early 1930s' bank collapses would eventually lead to the Great Depression and World War II.

The late 1960's near-collapse of the dollar-gold system would lead to social and political upheavals around the world.  This time, the conflicts were more dispersed and less horrifying, since the imperial authorities saw fit, for the first time, to (effectively) devalue paper assets against gold massively, thus wiping out a good part of debt via inflation.  Stability didn't really return until W. Europe was forced to inflate and China made its labor pool a major support for the system.

This last bout of instability, starting in the late 2000s, has yet to play out, but we've already seen profound financial trouble in Europe and China, and much suffering in the Middle East.

I agree with you that it's not an easy problem to solve.  Most of us here, not just the elites, are addicted to the system, to one degree or another.  But surely the first step to recovery must be to realize the unsustainable nature of the addiction.  The next step will be to summon enough courage to change.

Yes a modern money most probably will be in digital format and that certainly will be bitcoin as per my predictions. Because I do not see any intensive competitor for bitcoin by any means. A modern money must be a demand of this generation who are living just with one mobile phone. I strongly believe bitcoin will answer all modern requirements.

From the past years,  there was a global fixed exchange rate. Currencies were linked to gold, meaning that the value of a local currency was fixed at a set exchange rate to gold ounces. This was known as the gold standard. But later on, governments used fiat currency as the basis of the monetary system where it was the non-convertibility and the flexible exchange rates.

The world bubble in financial world usually associated only with investments, but now a days we are seeing it is also being used for currencies and that must be a new innovative achievement of modern money and its system.

In my opinion bitcoin must be a origin point of modern money, from here we are going to enjoy the revolution of same traditional financial system but in complete modern more precisely in digitized mode.

I have been reading the word "bubble" and I am thinking, if the elites have been able to print money out of thin air to meet up with flagrant lifestyles, what is going to happen in future to stop them from continuing the trend, what will make the "bubble" burst when the elites don't want it to burst?

Hello!

It's rare to find a well thought out piece conveyed in language that is neither too technical nor too wordy.

I have much to comment about but perhaps not worth fleshing out here. I will say a few things:

1. The "true" or "core" financial elite may be a tiny but powerful entity. On a wider scale, even a number of us could be considered financially more able than the vast majority of the public. You mentioned an educated public - I shall refer to this as the middle class, which we all surely are if only for our ability to discuss this here on this channel.

2. We all must realise by now that the system is indeed broken, but we are not willing to sacrifice for it to change. We want our piece of the pie, no matter how small, before it is all gone. And this is why, we knowingly want the bubble to prolong, knowing it is unlikely to burst in our lifetime.

It is sad, but it is real. And I must feel that this is true for most bitcoiners out here.

Thanks.  I've read almost all his books but not this last one.

My views on the war on cash has changed somewhat recently.  I used to think of the cashless system and significant negative rates as the nuclear level of central bank weaponry, but if you think about it, truly negative rates will make the theft obvious to the average Joe, even if nothing of essence has changed.  (That is, most people don't understand that interest on 'safe' assets today is designed not to keep up with inflation -- and this is the only reason the system is tolerated.)  There's a good chance that the elites can explain all they want; people are just not going to stand seeing their bank balance evaporate just to 'encourage' loaning money to governments and banks.

So, my prediction is that, even in that world, the dreaded zero-lower-bound (by the elites, not by us!) will basically apply.

There are significant other benefits of a cashless world, for the elites.  Tracking of all transactions will make their financial market manipulation easier, but I think the main benefit will be the forced infusion of money into the banking system (since, of course, if cash is no longer an option, all your money has to be in your bank account.)

Cash under the mattress, whether owned by corrupt officials, drug dealers, or fearful citizens in a zero-interest world, is an under-appreciated enemy of the system today.  Its net effect is to draw quite a bit of money away from the banking system, money that can be put to work to pay the elites and to try to generate growth and inflation as per 'normal' system function.

In this view, abolishing cash would be a one-time benefit to the system, as big as that may be.  To keep the system alive, the elites would still have to find major avenues of growth or other major supports for their system (such as the postwar economic domination of the US after other rich countries had been bombed flat, or China's central bank deciding in the early 90s to use the country's labor pool as the new gold to back the dollar.)

for me bitcoin has grow alot than i ever thought. it's so powerful because you can send and received money without any taxations or any fee bitcoin is bitcoin. that will never changed but the price will change for sure haha. hoping that it would make atleast 1k us dollar per bitcoin. if that happen i can make more investment in gambling sites bank roll for my profit to grow more. and maybe be rich someday hahaha 

On modern age as the trend of new generation is toward online business and I think bitcoin is the only currency which can be more convenient to them as it does no need to transfer it in to other crypto currency, therefore to me bitcoin can be consider as the currency of the modern age.

Nice.  The problem is the incentives faced by the elites.  While the system is stable, politicians receive 'free' political capital by issuing debt, and bankers (including the investment-bank shadow system) receive 'free' wealth by issuing their assets that are indirectly backed by state power.  "Stability breeds instability."

...

A new book worth taking a look at: The Road to Ruin (Jim Rickards), just out in the past few days.  He has written other books on modern money.  He is a very connected man.

I just finished it.  In short, he believes that The Elites are waging a War on Ca$h because they need to keep power and to keep spending money.  He suggests holding 5% - 10% of your investments in gold, the rest well-diversified.

Most of this is essentially what I've read over the two years that I've been studying currency and the history and consequences of all of it. Started small, got manipulated quickly, and then here we are, with a bunch of worthless paper and a minimal amount of value actually maintained by our governments. It's a shame everything had to go downhill so quickly.

Here's an afterthought on the future of modern money...

It's important to remember that the financial elite will do everything in its power to prevent a total collapse of the imperial monetary and asset bubble.  The reason is simple: if severe economic pain reaches the imperial center (say, a total collapse of confidence in the dollar via hyperinflation, etc.) the political elite will go after them.

When it becomes obvious to everyone that the system is totally broken, after the elites have been saying it is basically sound, the politicians will want both to push blame away from themselves and to confiscate the wealth of the bankers to help alleviate pain.  (Most likely, the bankers will have bought a lot of gold, silver and Bitcoin.)

This was what happened during the Spanish Inquisition.  Since then, for over 400 years, the financial elite have managed to avoid total hard landings by passing imperial power to the next country while the bubble was still holding.

Of course, prolonging the bubble in this way only means an even greater bubble, creating economic distortions and, ultimately, human misery on a greater scale.

Glad you liked it.

1. I'm not sure if you're old enough to remember Microsoft's strategy of 3 E's (embrace-extend-exterminate) against a competing technology.  This was what the elites tried to do with gold -- and unfortunately might do the same to Bitcoin.  We don't know if they have been buying Bitcoin to acquire price control one day -- I guess a consolation is that it would give a big one-time profit to Bitcoin holders when state(s) decided to use Bitcoin to stabilize their money.

2. IMO overt financial repression and manipulation tend not to work long-term.  The efforts at supporting the dollar after the elites were forced to abandon the gold peg in 1971 were messy and only served as stop-gaps to the early 90s when Chinese labor (at artificially suppressed wages by central bank policy) provided 15 years of stability.  So I think this option is low on the priority list.  The top global elites derive a good part of their power and wealth from the perception that they alone respect the market and that they allow people to get out of their assets freely.  This 'higher road' is more profitable as the deception is on a global scale.  (And they have the ideas to make it work -- e.g. the recently announced baby step by the Indian central bank to bring gold back into the system can actually serve as a template for an ingenious way of using gold to back money, but without owning as much gold or suffering as much embarrassment of devaluation as under the classical gold standard.)

Another sign they won't ban Bitcoin is that they just legitimized it.

3. Battle advantage will go back and forth between the elites and the public, but ultimately, the people (or at least educated people) must understand the problem.  It's going to be a multi-century struggle, but as soon as the public wake up, the problem will have nowhere to hide.

Great read, I enjoyed this article very much. I have a couple questions though:

1. Where bitcoin stands in this monetary war? It is electronic but is is not exactly under control of the elites (or so we think)

2. Will bitcoin be a danger to this future plan of wealthy elites to dominate in the currency war?
   What if they just take over it either by buying large amount of BTC or making it unpopular by claiming it is used by criminals etc. or push anticrypto law?

3. How bitcoin can be used to oppose this new era of financial repression?

From the central banks' point of view, more inflation and growth today would be nice, but the crucial thing is to maintain what remains of the global asset bubble after the bust of 2008.  In this they have succeeded by a combination of announcing boldly but treading carefully and creating just not enough pain to be politically problematic (even if they would never call it a bubble, of course.)

You're right that their power is not unlimited, especially at a time like this, so they have to accept some degree of failure.  But the system is basically holding, so far.

But trust me, if the bottom falls out of the system tomorrow, they will still have ultimate control.  They will just have to eat a bit more humble pie, effectively devalue currency against gold, and get their stability back.  In fact, stability will come back big.  (Most likely, the program will be called 'helicopter money' by what it looks like on the surface.)

WRT to market vs. central bank power -- say you have $10K invested in Treasuries, and know that the US government, in the end, can't remotely repay its debt with anything near the purchasing power of what creditors lent it, and you know that every other investor knows it.  What can you really do?  Sell Treasuries and get 0% in a bank account?  Let's say a bunch of investors all decide to get out (say, after a political episode on Capitol Hill,) they all know that the Fed will step in to buy Treasuries if the price falls too much, and they can easily end up losing on the trade.  So they and you decide to put off the decision for another day, especially since the market is still perceived to be liquid.  Since everyone knows most others will do this, the price of Treasuries stays at its over-valued level, and the Fed hasn't spent a penny.

Now for a major holder of Treasuries like China or Saudi Arabia, it's a slightly different bargain.  You are much better off playing ball with Uncle Sam, hold the Treasuries, and get what you can from Washington policies.  Ultimately, you can't win an outright confrontation, since you know you're a corrupt dictatorship and your people tolerate you only barely (the 'free' Western media has made sure of that) and you need US co-operation, in one way or another.  (Especially since you know the only damage you can threaten Washington with is that the Fed will swallow some more pride and print money to buy up your Treasuries.)

This is a microcosm -- the entire system works this way, globally.  It's the essence of using state power to support an asset bubble.  For the public, on the receiving end of this power, the choice is always, ultimately, lose-lose.

Your ideas about central banks are seriously outdated. Their role has diminished as markets have grown gigantically. Central banks only deal with puny amounts compared to the global markets.

But according to you, the puny amounts that the Fed transacts scare markets that have vastly larger amounts into fulfilling the goals of the Fed. I'm not persuaded.

The facts show the Fed has failed repeatedly, year after year to reach its inflation target. Likewise, the Bank of Japan has failed for the better part of a generation.

The facts show that the Fed's multiple QEs have failed to lift the economy anywhere near 3% growth.

The Fed isn't the god you think it is. But I understand that conspiracy theorists always nitpick anything that contradicts them.

The amounts only reflect what central banks have had to do in the past.  Even though the Fed more than doubled its balance sheet after 2008, it has basically been able, so far, to leverage its ability to issue unlimited money (plus its advertised will to do so) to get the markets to do most of the buying and holding of the assets it wants them to.  This is what it prefers.  Actual money printing on a vast scale would only be a last resort (which it might be contemplating -- note the increase in talk of 'helicopter money' to get inflation going.)

True, central banks can't do all the heavy lifting, but the alliance between central banks, top politicians, and financiers is quite powerful.

Western central banks have always used small but key incentives to get the markets to comply (that is, except the few times they lost control even in the US -- the present time may be a slow case of this.)  Short term interest rates (which they control pretty well) are historically kept artificially low to push people to spend money and to acquire riskier assets like stocks and real estate.  The gold and silver standards were used to keep the rate of return of gold and silver at zero (ie below even short term interest, and below the inflation caused by asset issuance) to push people out of these assets.

As I said, these are small but key steps.  The markets do the rest (at least in 'normal' times.)

The BoJ problem you cite is precisely a case of gentle but chronic loss of control, resulting in economic misery from the stagnation caused by money hoarding -- ultimately a result of the financial bubble, and the distortions that happened while the bubble was inflating.  We may be headed there, but we may not be able to stand it for as long as the Japanese have.

But ability of the BoJ and Japanese govt. to fend off big asset drops (and the immediate pain) for all this time is a (small) example of the power of the central authorities.  Almost by definition, private market participants dominate the scene during 'good' times -- during 'bad' times the fangs of a state-controlled system are exposed, more and more.

And being exposed in this way is part of why the elites call these times 'bad!'

To the extend that private parties still buy or hold assets, central authorities don't interfere.  If they're doing what you want, let them.  Why expose your system?

As I mentioned indirectly, the pegging of currency to 'hard money' is just another tool in the authorities' arsenal to profit from a manipulated system.  What we need is to ban any manipulation whatsoever.

Have you seen the balance sheet of the Federal Reserve? It's only a few trillion dollars. The Fed literally has less than what Fidelity manages. The global bond market is $100 trillion+. The derivatives market is so big and unregulated that it's unmeasurable but is estimated at $1 quadrillion+. You vastly overestimate the importance of central banks.

The only rates central banks set are on their own deposits and interbank lending. They don't set rates of return on other investments. That's what the vast market does.

The commodities markets have a bigger say on inflation than central banks do. The Bank of Japan is the best example. It's been expanding the money supply for, how long, 15 years? But inflation there has stayed abnormally low.

Is your ideology to force "elites" to acquire precious metals to back the unknown $quadrillion+ in liabilities?

It is not at all these people that we've been talking about.  I'm sorry if I haven't been explicit, but I've been talking about the top politicians, central bankers and high financiers who have the power to issue money, 'safe' debt, and highly profitable financial assets.

There's a big difference between people who can conjure up wealth out of thin air and those (however rich) who can only profit when other people want to pay them.  Over-achieving is probably required for the latter group.  (Although we should remember that the markets that over-achievers in the real economy sell into have themselves been distorted by the issuance of money and debt by the top elites -- but that's an issue for another time.)