(Source: https://threader.app/thread/1466389240342736904)
Money as debt
The US Fed unleashed a massive round of dollar creation post pandemic. That has led to a dollar deluge in some places and industries - the startup ecosystem in India, for example. At the same time, there is a serious shortage of dollars in other places - Turkey is an example. The world faces a dollar deluge and a dollar shortage at the same time. How is that possible?
When we understand money as debt, it becomes clear: when we take on debt, we have a deluge and when the debt comes due, there is a shortage and both are happening at different places.(4) So huge is the dollar-denominated debt that new dollar debt creation struggles to keep up with past debt coming due. Added to that sheer problem of quantity, there is also the issue that new debt doesn’t necessarily go to those who face repayment of past debt.(4) We witness the phenomenon of boom and bust going on simultaneously.
Never ending china + money production
China is addicted to investment, at the cost of consumption. They are constrained to “export at all costs” and that effectively forces other nations to import in excess.
The only way this system has “balanced” itself is by endlessly increasing debt (and therefore money, because money itself is someone else’s debt in our money-backed-with-nothing pure fiat system). In a saner monetary system, importing nations would have literally “run out of money(gold)” so they could not keep importing.
Can this fundamentally flawed system go on another 25 years? I am very doubtful but then again I thought the global financial crisis already signaled the end of the system.
Turbulence
The magnitude as well as the frequency of booms and busts increase. The system becomes increasingly unstable. The system is evolving towards the point of complete loss of control by the Fed. As long as the booms and busts were reasonably “contained” in asset markets, equity/bonds/housing, as opposed to the labor market and consumer prices, the Fed could maintain the illusion of control. That illusion is now shattered.
We are entering a new period of turbulence. The way that turbulence manifests itself for the average person or business is in the increasingly violent swings in prices of essentials or that of inputs and the increasing probability that wages (person) or output prices (business) go against us for long periods.
Response
What can an individual or business do in the face of such uncertainty? Become cautious and keep a cash pile. That is also increasingly seen. Such cash piles are interpreted as “excess savings”. They are merely insurance against violent swings going against us. Here is a strategy to cope: becoming resilient. That means cutting back on luxury spending for individuals or cutting back the reliance on costly inputs to business. Avoid the costly inputs, commodity output trap. Aim for high gross margin and low prices. 🙏