A well-managed national currency that which a Rightist might refer to as a “Sound Money,” should serve three fundamental roles in our economy:
Most Democratic governments seek to aggressively manage the extent to which their particular national currency performs each of these three prerequisite tasks. These three aspects of what makes up a currency exist in equilibrium. If a currency performs one to a maximum extent, then the other two functions will lose power as a result. The ultimate “Sound Money” balances all three of these goals in metastable equilibrium.
Should that currency circulate more, then its value will tend to dissipate resulting in price inflation. The mathematics of properly accounting for value grows more complex as a currency fluctuates in value. This is why El Salvador will suffer profoundly from counting Bitcoin as a money, rather than a risk-laden security.
So which of these three functions of money appeals most to individuals who maximize wellbeing over the shortest time span? These people will want the monetary dials constantly cranked in the direction of liquidity. To get the next big thing, a consumer has to have cash in the wallet to make that buy. If everybody wants the next big thing with no regard to whether they can afford it, there is a way to temporarily make that Foo-Foo Toy available. Debase the currency by throwing it out of helicopters. What happens when the majority of the citizens in a nation have the ability to influence important decisions?
That society will quickly revert to a time preference that is in accordance with the large mass of the people who can influence important decisions. As that population enstupidates and increasingly capitulates to short-sighted greed, that society will not make future oriented decisions. Once this occurs, the leadership of that society becomes afraid of the people they rely upon to remain in power. This is a state known as demotism. Once a nation submits to the whims of the mob, the mob will always demand that everything they want be available whenever they feel an urge to scratch an itch. Most national banking systems can make that happen for a time. Then that time expires, and the bill for the demotic shopping spree comes due.
When the Demotism put expires, the national banking system can clean up after the party in one of three ways.
…the major mistake people make about economics is the idea that capital is scarce, and must be rewarded heavily to encourage investment in job-creating projects. Keynesian theory says that this view is utterly wrong. Keynes says that the amount of capital needed to operate an economy at full employment is limited, and once achieved, the marginal return to capital will drop to the point that it merely covers depreciation, obsolescence, and a small return for risk and for managerial skill and judgment. “Now, though this state of affairs would be quite compatible with some measure of individualism, yet it would mean the euthanasia of the rentier, and, consequently, the euthanasia of the cumulative oppressive power of the capitalist to exploit the scarcity-value of capital.”
This basis gives us the ideological wellspring of Helicopter Ben Bernanke Economics. But, like any other seigniorage, these policies only trigger Gresham’s Law. The real value gets absorbed into commodities ranging from precious metals to necessary economic inputs. The rentier is never euthanized. The rentier becomes overpowered because the rentier now owns all of the rare earth elements that are needed to make modern technology function. The rentier will simply collect that scarcity premium via hyperinflationary increases in chokepoint asset prices.
Japan bought John Maynard Keynes and have ridden that asset down to the basement. Keynesian Economics ultimately enacts a policy to accommodate a national surrender to a mob of idiot demotists. The Japanese experience has been what John Maynard Keynesacide ultimately looks like. John Rubino’s autopsy involves a 10-step process by which demotism kills a currency.
Step 1: Build up massive debt – federal debt rose from 40% of GDP in 1991 to 100% of GDP by 2000.
Step 2: Lower interest rates to minimize interest expense – Bank of Japan pushed interest rates down as debt rose, thus keeping the government’s interest cost at tolerable levels.
Step 3: Continue to borrow at virtually no cost Japanese debt to GDP ratio went from 100% to 256%.
Step 4: Experience sudden, sharp inflation.
Step 5: Experience a plunging currency.
Step 6: Reluctantly allow interest rates to rise – where US Federal Reserve Boss Jerome Powell is right now.
Step 7: Get swamped by interest expense – a lot of the debt was government debt.
Step 8: Desperately try to lower rates.
Step 9: Watch impotently as the yen craters.
Step 10: Game over – those who recognized the scam and converted cash and government bonds into real assets are enriched.
This will be the fate of any nation that attempts Keynesian Euthanasia of The Rentier. Interest rates are a price, not a scam. Forcing these rates to levels that are artificially high or artificially low will knock the currency out of balance. Forcing low interest rates to keep money in the streets works about as well as rent control works in major US cities. It’s all fun and games until no sane person wants to remain a landlord.
The US economy used to attempt at least some degree of sanity by targeting a steady, but tolerable level of inflation that allowed the Feds to clip the coins so-to-speak and survive a debt level without breaking the backs of the people. This changed when our government lost the will to ever tell anyone the magic word “No.”
The government had to borrow more every time its roles expanded. The government had to force interest rates down to keep both Wall Street and Big Retail fat, dumb, and happy. Over time, the dollar was turning into toilet paper and foreign Rentiers were buying up Amerikan industries and assets. It caused East Palestine’s euthanasia; not a nice, comfy dirt nap for some rentier like Mitt Romney.
The only way those lattes could keep flowing for the symbolic analysts paid six-figure salaries to shove around pixels, was for communities like Gorbutt, PA to die. The only way for there to be a “living wage” was for countless Amerikan industries to die. It’s all good with the demotists as long as the Wi-Fi kicks. All the good Foo-Foo Toys come from China anyway.
As long as the dollar remains less converged than either The Euro, or The Ramimbi, or The Yen, we will temporarily get away with this. And then one day we will not. Demotism will have destroyed our currency and the lives that we have become accustomed to will be far beyond our ruined means. Demotism will have killed the value of our money.