End Of The Road

Political-Economic Catastrophe from Fiat, Debt, Inflation Targeting, and Inequality.

Excerpts

The Death of Fiat

Fiat currency, as it did when first introduced in 13th Century China, will generally lead to hyper-inflation as its cost to produce is negligible, tempting its production in vast quantities to meet extraordinary expenditures, such as those needed to fund wars.

Fiat does not conform to one important attribute of money - store of value, although this is easily misinterpreted during periods of stable prices. During such periods, a unit of currency today buys a similar amount of goods and services tomorrow, giving the wrong impression that it is a store of value.

The Abuse of Debt

The implication from the definition of debt, consumption of future income, is often not heeded, leading to a catastrophe in the making. For when the future becomes the present, and income has already been consumed, growth is only possible by incurring larger doses of debt, if there are compliant creditors, or by increasing productivity, if labor displacement by technology is acceptable, or by reaping the rewards from debt-borne investments, if debt is employed wisely.

Yes, there is a practical use of debt and that is in the funding of investments and infrastructure resulting in a future income stream. When this happens and especially when the present value of the income stream exceeds the original debt, it leads to surplus income.

Job Destruction

Money supply expansion, though inflationary, affects asset classes, due to the Cantillon Effect, which holds that those benefiting from the distribution of a currency are those closest to its distribution, such as capital markets. This inflationary pressure on asset classes, for example, corporate stock, is then touted as a solid performance of the economy, instead of what it is, asset inflation or bubble. Effects from increases in the money supply tend to trickle down to consumer prices, due to high interest rates on credit card debt.

Corrective action would require labor to be unfettered by labor legislation setting wage floors above market levels, and legislation setting benefits (holidays and vacations) and increasing its bargaining powers from unionization. The so-called gig economy represents such an environment for labor to operate freely from these legislative restrictions and is natural for labor to adopt, as is currently the case, when faced with redundancy.

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