A year ago, if somebody told us we’d witness a global pandemic, a civilian lockdown, plus the following annihilation of our purchasing power and a bailout of Wall Street, we’d expect society not to be as calm as it is now. Even with the killings of George Floyd and Walter Wallace, plus the Capitol storming, the status quo hasn’t changed. Once again, we have failed to overstep the boundary from order to chaos, reinforcing the belief that the latest cycle is here to stay, that the system is unbreakable, and that nobody has any idea how to see beyond it.
But we must not fool ourselves. We know this is inaccurate. No power, throughout history, has managed to bend economic gravity to their will forever. At some inconceivable moment, the elites will have to deal with the “unintended consequences” of the past cycle. They will no longer be able to use the same psychological, financial, and social tricks to maintain the status quo. As with the fall of many empires, like Rome and Mesopotamia, what worked in the past eventually fails.
Right now, maintaining the status quo means creating modern but also batshit economic policies. We’re in a crazy scenario where every traditional monetary and fiscal tool has become ineffective. These only act as psychological tricks to convince us the authorities have control over the banks while the opposite is true. Fed officials can’t even define money, but that’s what you get when you back your currency with nothing. Instead, their new role is to support the massive house of cards that the financial aristocracy has constructed over the past half-century.
When it comes crashing down, will it end in a societal breakdown? Doubtful. In a (somewhat) post-war world, we’ve become more of a civilized society. We don’t want to face returning to the chaos and horror of 20th-century wartime. Instead, we may scrap “tired” institutions. Abolishing central banks, the global finance cartels that bankrolled both world wars, will create more peace, prosperity, and equality in society. Leading monetary thinkers such as Stephanie Kelton will help shape and implement new-age policies that define the next monetary era. And if that fails, crypto or gold or a combination of the two may come to the rescue.
But before any of this happens, we’ll have to witness the dismantling of the status quo, the collapse of the legacy system, which could take decades. The people in power will not let economic gravity win without a fight. They will not standby and let the financial house of cards collapse on their watch, for their reputation is paramount. Behind the scenes, they know when the next crisis hits, once again, they will have to prop up the monstrous “bubble of everything” by neutralizing any emerging threat.
Right now, that threat is interest rates rising too far, too fast. After watching markets plunge when trying to raise rates and pay down debt, the Federal Reserve now knows if yields rise too high, only by a few percent, the global financial system will start to fall apart and the U.S. government will default on its debt. Now rates have exceeded pre-COVID levels, eventually, the elites will have to suppress yields to finance the colossal debt both Wall Street and some of Main Street took on at 0% interest. If they don’t, it's game over.
When the next “day of judgment” arrives, they do have plenty of tools to deal with rising interest rates, but their first move will be to introduce yield curve control (YCC). By conducting open market operations, Fed-speak for buying and selling a sh*tload of government bonds, they will sell short-term t-bills and buy long-term treasuries, which, in theory, will suppress rates, making it easier to finance and pay down future debts.
The Federal Reserve has tried this before with Operation Twist, with success, and interest rates did start falling back to zero. The problem is that it’s not a long-term fix. The world may start asking too many questions after they announce infinite yield curve control, but since they also need to issue bonds endlessly with rock-bottom rates, the financial elites will have to get a little more creative.
Perpetual bonds provide them with an effective solution: As the buyer gets paid interest indefinitely but at a low fixed rate, the U.S. could pay lenders close to 0% — if they take the bait. Once the Fed issues these instruments, other central banks around the world will likely follow suit. Recently, financier George Soros, “the guy who broke the British Pound”, ironically advised the Bank of England to implement a perpetual bond: “Issuing them in a climate where interest rates could hardly fall any lower has the advantage of locking in the current rates in perpetuity.” Unless inflation gets out of hand, this is a go-to policy to help kick the can down the road.
Let’s say, however, every unconventional yet conventional tools fail to keep the bubble inflated. This calls for drastic action. The elites could try to issue the mother of all debt jubilees: a worldwide abolition of outstanding U.S. dollar liabilities. Of course, trying to execute a global debt forgiveness program of this magnitude is new territory, and there will be several world powers unwilling to cooperate. Some use debt as leverage and as a weapon. Some have currencies that may lose all their value, possibly including the U.S. dollar. A debt jubilee will create so much pain and uncertainty in the process that it might also destabilize the status quo, so the elites will likely use it as a last resort.
They could also devise a semi-futuristic bailout program, which could bypass all the pain of a debt jubilee. Over the past half-century, we have moved from analog to electronic money, but now, with the mainstream starting to adopt blockchain, we’re in the early innings of a financial revolution, transitioning from electronic to digital money. In a crisis, it’s highly likely the majority will embrace the elite’s replacement for the U.S. Dollar, so why not offer a modern currency, one that will persuade them not to rebel and flee to other new-age systems gaining market share, like DeFi.
The masses have yet to embrace crypto. A Smerconish survey reveals only 14% would buy Bitcoin. Over time, however, they will realize the crypto movement is more than just Bitcoin and its price going up. With a Chase Bank account yielding 0.01% interest and our savings losing roughly 9% purchasing power each year to inflation, gradually, we’ll grow wise. If we park our savings in the DeFi (decentralized finance) space, we receive up to 40% interest on some platforms. That’s four times the average annual return of the S&P500, and the network compounds interest daily not monthly. Lose all of our purchasing power over our working life or have a modest chance of turning our savings into a decent retirement? For an ever-growing number of people, this is worth a new set of risks.
This small exodus from the legacy system does not mean it's game over for the elites. If they recreate DeFi — as the DeFi movement did with their system — but add “centralized” functionality, they could convince the masses to transition to a new paradigm and claim it's merely an upgrade. “We’re switching over to the new-age monetary protocol. Download the app. Here are your new tokens.” They simply switch us over to the new order, either globally using SDRs or locally using a (truly) digital U.S. dollar, and bingo: They have preserved the status quo, and the legacy order becomes the new order in a futuristic camouflage. Easier said than done, of course.
Whatever path the elites do take, we must also recognize that tomorrow is uncertain and unpredictable. Future technologies could change the state of play, rendering every mechanism presented here worthless — or supreme. Every time economists and market commentators (including this author) think the elites have run out of tools and firepower, they come up with new ones. These, though unconventional at the time, become the new norm, like quantitative easing (QE) and large-scale asset purchases: money printing verging on currency armageddon disguised with boring jargon.
Upon the elites implementing these radical new measures, perpetual bonds, modern monetary theory, even central bank cryptocurrencies, just as it looks like they’re on brink of losing power, control, and authority, they will again, somehow, maintain the status quo, propping up the legacy system with yet another monetary invention. One that none of us can perhaps fathom until the situation presents itself.
It makes you wonder how many rounds of the Great Moderation will people take before enough is enough, before order finally turns into chaos, before we challenge the status quo more than simply posting on social media. Well, we have to remember that with the system showing incredible resilience over the past few decades, maybe the bubble has only just started expanding. If so, it’s time to prepare for another Roaring 20s, except this time, by the end, the only thing roaring will be most of us, as we try to locate the nearest available exit.
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This article is for educational purposes only, not financial advice.