The seventeenth stage of America’s Financial Endgame™ will occur when money stabilizes around either a commodity backing or fixed growth rules. This inflection point will represent the place where the tide “turns” in favor of sustained economic growth. The reason for this is because stable money serves as the fundamental basis of a sustainable economic system. When the value of currency is manipulated too easily, it becomes more profitable to extract excessive gains from “the system” than to do productive work.
As this cycle continues, it siphons off an increasing amount of intellectual talent into financial alchemy that could have been otherwise employed in some form of productive enterprise. Over time, this collective investment in complex system manipulation will deplete the real productive capacity of the economy as the best and brightest people are having their brain power invested in attempting to game the system.
Stable money that is one of the most reliable ways to hold this behavior in check. The most common form of financial alchemy involves large scale credit arbitrage where giant financial institutions use their massive base of assets to borrow at low rates and either underwrite loans or invest in other financial products that produce a higher rate of return. This process becomes even more insidious when the “too big to fail” aspect comes into play, since the financial conglomerates can undertake higher and higher amounts of risk with the knowledge that if the crisis grows too large, the government will step in to make sure that the firm is not forced into bankruptcy.
The financial crisis of 2008 proved that this principal is all too true.
However, this cycle of inflationary extortion on the part of financial institutions can only perpetuate if there is a central bank keeping interest rates artificially low and increasing the available supply of money. Thus, the lynchpin of the whole ponzi scheme traces back to stable money, or the lack thereof. By moving back to a stable money system, the US will pinch off the cycle of rapacious financial extortion on the part of major corporations, the government, and the central bank. For example, when the Zimbabwe hyperinflation was at its height, a “spontaneous dollarization” ultimately emerged, where vendors would no longer accept local currency, and US dollars became the de-facto national currency.
When money stabilizes, it will produce two important effects. The first is that commerce will flow toward economically productive projects, since the monetary authorities will no longer be manipulating the money supply in such a way as to extract effort and resources from the net producers. The second and most important factor is that the brightest people will no longer reap the highest returns from financial engineering, and will also be directed toward economically productive endeavors.
This is where the “real” growth of the future will come from. As new innovators discover new advances that make the workforce of America more productive, it will allow us to generate an increased amount of output for the same or less input. This increased productivity means that additional resources can be invested in development to discover the innovations of the future.
Ultimately, the path to a productive future will look a lot like the productive past, but with much more advanced technology and social structures. It is important to understand that the true path to sustained economic growth comes from perpetual improvement … from continually determining how to generate more output with less input. New inventions shift the value equilibrium constantly, so that what was highly sought after before will be an after-thought tomorrow.
At one point, whale blubber was the standard oil used in lamps that people used for illumination in the night time. The process of acquiring this substance was very expensive and barbaric, as whaling ships would troll the sea to search for, hunt, and kill whales for the purpose of finding this oil. What stemmed the slaughter of the whales, and vaulted the industrial age into high gear was not an international regulation forbidding whale hunting … it was the discovery, processing, and distribution of petroleum. Fossil oil became less expensive, more stable, and more useful than whale oil.
This represents “real” economic progress. Finding a new way to do something economically useful that is less expensive, more productive, or both. As more resources pour into these types of endeavors, more of them will bear fruit. As we reap more and more discoveries, our economy will grow and flourish. The path to the future can not and will not emerge from a preponderance of new rules from the government … it can and will only emerge from a barrage of new innovations.