The grand fiat experiment in 2019

Hello everyone! Thanks to a nice article from the New York "Empire State" Times we have some incentive to do our own little review of the grand experiment.

What is the grand experiment you might ask? Well the grand experiment is, simply put, a decision made officially in the United States in the year 1971 by some folks in the Nixon administration to throw in the towel and offer supreme unaccountable political power to the currency issuers. Currency issuers would be able to issue dollars, in physical (M1) form and in digital (M2) form in any quantity they wish at any time, thereby gaining control of any resource that people were willing to trade for these dollars. It wasn't a new idea for a means of putting enormous wealth and political power in the hands of a few; the system was described by Marco Polo long ago.

In some sense currency issuers already had this power, but previously there was some allusion to the idea that users of the tokens could have redeemed them for some fixed (aka variable) amount of precious metals, gold or silver. The announcement 1971 was that the issuers would not even have to pretend they would redeem anything for their now purely fiat currency.

So, how is this grand experiment doing? Well, it's without a doubt the biggest industry on Earth. Many people will tell you that oil or weapons are the most profitable businesses on Earth but they are very wrong; issuing currency absolutely dwarfs these businesses, and in fact controls them. According to some folks employed by the Federal Reserve of St. Louis, dollar issuers created $800 billion in the last 12 months. Easy money. And this in an off year.

A nice exercise for the reader here is to imagine that you have the root password to several bank servers and can create dollars at the push of a button. What accounts would you create? Who would you give access to this money? Would you report a figure to these guys in the St. Louis FED which was more or less than the amount you actually handed out? Lets ignore this huge concern for now and take the $800 billion figure at face value. This is already about 10 times more than the total profits of the biggest 5 oil companies in the world, even before we consider the vast sums of Euros, Yen, Yuan, and other fiat currencies created in the last 12 months. So "the grand experiment", which is driven now entirely by the fact that we all are continuing to accept dollars and fiat money for our goods and services, is absolutely the biggest economic driver on the planet and as such affects every industry from academics to culture to construction to governance and infrastructure. As they say in the NYT article, why in the world? What's the idea here, why are we doing this?

One way to rationalize this system is that with great power comes great responsibility. The currency issuers would feel this responsibility and use their economic power for the betterment of the people of the nation and the life of Gaia, on Earth, the third planet from the sun. At least a little bit, right? They would do what the elected representatives of the people chose to do, and nothing more or less. The issuance could be used to finance the building of high speed rail across the country, to begin massive free education programs around the world, to finance renewable energy projects, to feed the hungry and shelter the homeless, to create the worlds biggest libraries and seedbanks, to clean the oceans and replant the forests. To renew the space program and explore new frontiers inner and outer, and commence our first interstellar travel. To tear down the prisons and build schools, to open the borders, etc. etc.

Did we see any of this? Well not exactly,, but we'll get back to this later. First lets dive into the article, the Empire State's defense and promotion of the fiat currency most commonly used in New York:

“There is no alternative to the dollar,” said Mark Blyth, an international political economist at Brown University. “We’re stuck with the dollar, which gives the United States astonishing structural power.”

No alternative? Well there are precious metals, there are a dozen or so other privately issued (fiat) currencies, and then there are a few thousand publicly issued currencies (crypto-currencies or bitcoins). Then there are trade ledgers, other commodities, other barter schemes, gifting, demmurage, national seignorage, special drawing rights, stablecoins, energy units, negative entropy units, a whole slew of tokens physical and digital, and a whole slew of other ways to do business. All of these are obvious alternatives, so why do you think he is claiming there are no alternatives? We will get to that question later.

Then consider the next sentence, in which he claims that using the dollar gives the United States structural power. In fact the exact opposite is true: acceptance of the dollar has robbed the United States of an enormous potential of structural power. I'm not just talking about the 99.99% of wealth of the citizens that dollar issuance has confiscated over the last century, and what might have been done with that financial resource, but of the malinvestment and misdirection that has moved countless institutions from manufacturing to R&D into dead-end paths and sickly ruts. OK, so dollar acceptance has given Halliburton stockholders a boost, and recipients of the missing pentagon trillions a boost, but is this really what we would like to think of as the structural power of the United States? I don't think so. Dollar issuance has boosted Cayman islands bank account holders, the Panama papers' who's who, and supported many a Ferrari in Monaco, many an evening in a 10,000$ hotel suite on Mikanos, purchased many yachts, and pumped some enormous real estate bubbles, stock bubbles, art bubbles, and even crypto bubbles, but it hasn't exactly helped our industry, transportation, equality, health, infrastructure, middle class, or education. It's hurt them all tremendously. Well we're getting ahead of ourselves again, lets get back to the article.

Over the same time, reserves entrusted to the euro have slipped to 20 percent from 27 percent. Much of this shift reflects the euro’s loss of value against the dollar. China’s currency makes up only 2 percent of total reserves, according to the I.M.F.

Much of this piece is devoted to comparing the dollar to other privately issued currencies such as the Euro and the Chinese Yuan. As the saying goes amongst investment advisors on wall street and elsewhere: "The dollar is the worst currency in the world, except for all the others". In particular the authors seem very keen on belittling the largest economy in the world, though this seems counter to the usual strategy of trying to make any potential rivals to the empire look bigger than they are.. The 人民币 is only 2% of world reserves? Lets check that out.

It turns out we can look at the same source, the St. Louis FED reporters, to see one estimate of how much Chinese Yuan is being kept in reserve. The figure is just north of 180 trillion Yuan. The place is absolutely awash in money, especially compared to the USA, but that's yet another story. In any case applying the not very useful official exchange rate of ~7 RMB to the dollar to these unverifiable estimates from the FED equates the RMB reserves to about 25$ trillion. Compare this to the total amount of USD being held in reserve in M2: just north of 14$ trillion, we see that there is much more value held in RMB than in USD. If any of you can figure out how 25$ trillion worth of RMB is only 2% of world reserves, do let me know in the comments section. Perhaps by "world reserves" is meant "world except for China reserves".

In any rate, China is officially on the exact same system of government as the United States, fiat issuance, and so deserves some mention in this report. There are however some differences in what the issuers have chosen to do with their power. While there are many similarities in corruption and creation of a real estate bubble, they have in fact given something substantial back to the people of the nation. It's almost like the issuers of the RMB in fact give a shit about China. They have built subways in a couple dozen cities, high speed rail throughout the country, and generously supported education and sciences. OK it's not all roses, as sadly much of it is repeating the mistakes made by Japan's fiat issuers and others made by the dollar's issuers, but comparitively you can see why the world increasingly distrusts the American Empire and has been opening doors to Chinese investors. The dollar issuers clearly don't care about the citizens of the United States, as evidenced by the lack of rail and loss of production facilities there, and have been a little more stingy than the RMB issuers in their USD issuance.F

In contradiction to the tone of the NYT article, the world's intellectuals have been very united over the last decades in their conclusion that the dollar has got to go to zero if any of the world's worst problems are to be addressed. Fiat issuance has enabled war, ecocide, massive structural imbalance, and some of the most embarrassing failures of humanity even in this past century of startling abundance we enjoy due to our increased technology. While in theory a benevolent issuer could use the power of fiat issuance to do great things, in practice there are always problems that develop with this corruptible centralized approach to controlling an economy. Does it really make sense to give your nations most critical resources, your children, your body, the product of your sweat and tears, to somebody in exchange for a token they created out of nothing with no work at all? If they are the good guys, then maybe it does make sense, but the problem is that the bad guys have a lot of resources and they will be using every trick in the book to worm their way in there.

Consider for another example that economics is considered in the highest halls of learning to be a "gut" subject, and not a real science. Why is this? Is it not important to keep track of our assets and ensure our survival, as individuals, as families, as nations, as life on Earth? Well it is important, but we simply cannot do it mathematically because people are still accepting dollars. Any attempt at a scientific approach is thwarted by fiat acceptance. If some people need to work all day for one dollar, and survive on this salary, and others can create one trillion with the push of a button, then this is hardly a scientific unit of value. Pretending that it is a scientific unit of value will continue to lead towards ruin for anyone involved.

But while that may be the future, the dollar for now remains what it has long been — the closest approximation to a sure thing in a volatile global economy.

In preparation for this piece I read several articles about how the dollar was doomed. You've all read several like this, and how dollar issuance is being used to prop up evil dictators, apartheid, the prison-industrial complex, the military-industrial complex, and various other horror shows. How the issuers are out of control and competing with each other to buy up the worlds resources before we catch on and stop imagining that toilet paper is an economic unit of significance. However in the worst case scenario it could very well go on being used for a couple more generations. In that sense the NYT article is correct: the fiat dollar is strong today. If people remain ignorant about their political power and how to use it, it will drag on until hyperinflation and hyperbitcoinization finally destroy it. The Jubilee will always be hard to predict; my recommendation is to be prepared for the worst case scenario predicted here by the New York Times.

5 Replies to “The grand fiat experiment in 2019”

Leave a Reply

Your email address will not be published. Required fields are marked *