Hey guys, just going to go through here some of the possibilities of what I think will be happening to the global economy in the very near future (next 5 years).
As many of you may know, we saw a huge rise up in Bitcoin value ever since its creation in 2009 by Satoshi Nakamoto. The main reason for this is a lack of confidence in the traditional central banking monetary system. I will go through below very clearly why a lack of confidence is present and it will be separated in several sections.
- Creation of the Fiat Currency System
- Current Problems with Debt
- Price Manipulation in Sound Money
- Possibility of Returning to Asset-based Economy
- Possible Further Expansion of the Debt-based Economy
In this post, I will cover the first two sections and then I will publish the last three sections in another post.
Creation of the Fiat Currency System
Prior to 1914, the United States was in an asset-based economy. An asset-based economy means that some form of barter system was used - where precious goods were exchanged for precious goods. The main form of precious goods at the time used for transactions as we all know was gold as it has always historically been considered sound money. In 1914, the United States created the Federal Reserve and officially started to print the national US Dollar currency with the claim that it will be pegged against gold. It was also during this time that the United States began confiscating all the gold from its citizens, in order to force the US Dollar into circulation.
During the aftermath of the second World War, the national powers around the world agreed upon a financial system known as the Bretton Woods Agreement. The purpose of this system was to learn from the past world economy mistakes which had led to the two World Wars, and create a global financial system which will attempt to stabilize the economy and prevent further war escalations. Due to the United States being the world super power after the second World War, other nations agreed to peg all national currencies to the US dollar, and thus pegged to the value of gold. This also created the IMF and the World Bank Group. The IMF had the responsibility to ensure the exchange rates were stable and the World Bank Group would help to loan out to those countries with deficits.
You can imagine that with a system like this, there would be a lack of incentive for nations to govern its spending, as they would be able to literally create as much "fake" gold as possible to increase imports rather than exports. It escalated to the point where it was no longer possible to properly peg the national currencies against each other and nations began to demand for gold redemption from the United States. However the supply of gold was never enough in the very first place, so after some rounds of gold redemption, knowing that the United States would not be able to meet all of the physical gold delivery demands, in 1971 President Richard Nixon made a widely successful United States political move by abolishing the gold standard and created the fiat currency system that we now currently live in.
So as you can properly tell, the creation of the current financial system could be traced all the way back to 1914 when the first US Dollar was printed.
Current Problems with Debt
You can imagine that the current monetary system is as follows. If the United States government wants to have a road built, they would print some US Dollar and give these printed money to the builder after the construction is finished. The problem with this is that the work and production side of this trade is on the construction side, not the printed money – therefore the printed money is actually debt. However the builder would be unable to legally redeem any lawful money (ie. gold or silver) from the United States government using the printed money – which means that the debt will never be repaid, unless the United States government gives the road back to the builder, but which the government does not have any legal obligation to do so.
So every time we use the US Dollar to exchange goods with each other, we are actually exchanging debt with each other.
Now onto the 2008 financial crisis. As many of you know, the financial crisis was a banking nonsense created by the collusion of the US Federal Reserve and the banks with printed money debt. The banks had no choice but to take this printed money debt gift from the US Federal Reserve – because who wouldn’t want to accept free gifts? So we have a debt system that expanded into a larger debt system which was asking to be imploded when interest rates began to hike. When the crisis happened, it would have been fine if the banks were allowed to fail for taking on such high risk investments, however instead of allowing the free market to do this and consolidate the economy, the Federal Reserve stepped in and bailed out the banks, which effectively means bailing out the rich people who were taking on too much risks, and getting fat paychecks/bonuses for selling casino financial products. The financial sector is therefore by far the biggest sector in the United States because it is the fuel for driving debt higher and higher. The US Government placed many hurdles for US companies to export goods to other countries because the fuel for driving interest rates lower and saving the rich people is to create as much debt as possible - so by reducing exports and increasing imports, more US Dollars will be circulated to foreign entities and these foreign entities will have very little use of these paper bills other than to buy US Treasury bonds, and thus lowering interest rates.
A trade war with China will have the function of decreasing the amount of US Dollars being circulated to foreign entities and therefore decrease the amount of US Treasury bonds being purchased. This has the potential impact to increase the amount of US exports which will drive demand for China to sell its US Treasury bond holdings and this will increase interest rates. It has the potential to create an economic recession in the United States. However it indeed will stop the United States from piling more and more debt for the next generation.
The introduction of quantitative easing further increased the gap between the poor and the rich because lowering of interest rates robs the US Dollar of its purchasing power and so assets such as stocks and property would increase in value. Typically the people who hold stocks and properties are the rich people. Sound money such as gold and silver also began to increase in value however these have recently been suppressed in value by price manipulation using paper derivatives – which I will cover in the next section.
We are currently at a juncture where the interest rates are at the verge of no longer being able to be lowered without entering negative territory and the US Dollar being hyper-inflated. Many people are beginning to realize this so there has been an increase in the purchasing of physical gold / silver / Bitcoin to circumvent this traditional debt-based system and enter an asset-based system. When the interest rates begin entering negative territory, many people would begin seeing the problem with the debt-based economy system because they may begin to have difficulty meeting very basic daily needs and have the need to see why this is the case.