In November 2006, economist Peter Schiff stood up in front of over 200 mortgage brokers and Wall Street bankers and told them the impossible was about to happen: The 21st-century housing boom was not a new paradigm where home prices rose indefinitely, but an impending disaster, a ticking time bomb months away from exploding. Sure enough, Peter Schiff was right. In October 2008, the subprime collapse plunged the global financial system into chaos. The S&P500 index fell 57%, Iceland and Greece’s banking systems almost failed, and the Eurodollar system, the semi-secretive global marketplace that helped architect the crisis, broke in two.
But although Schiff proved to everyone inside the Wall Street machine — the analysts, the media, the brokers, and the bankers — that they got it wrong, they did not give him the praise he thought he deserved for predicting the crisis. Not only did Wall Street’s proponents fail to give Schiff a platform to explain how and why the crisis occurred and what caused it, they never invited him back, exiling the popular gold bug from mainstream financial circles.
Instead, Schiff spent his time growing an audience via YouTube, speaking at various conferences, and appearing on alternative media outlets, including Russia’s state-controlled news station, RT. And despite getting de-platformed, his audience grew. Word spread of Schiff’s scarily accurate subprime predictions, and how anyone who followed his advice up to and throughout the 2008 financial crisis had made it out alive. Feeling confident, while markets and Washington D.C. remained in panic mode, Schiff made another prediction. He declared that America was about to experience an economic reset, a purge of all the abnormalities, deformities, and defects in the system; the start of a new American cycle based on sound money and sensibility.
Twelve years on, however, to the delight of the elites — and now most hardcore Bitcoiners, Schiff couldn’t have been more wrong. Instead of a great economic reset, the old system has not only recovered but thrived. We embraced the rise of the fake economy, enabling the government and central banks to embark on a journey toward economic madness, leaving the money printer on overdrive. Over many years, we’ve witnessed the consequences and effects, but nothing illustrates the cheap money era more vividly than the media reporting ever-crazier headlines. “Bitcoin reaches 300% gains year-on-year” this week, “Elon Musk becomes the world’s richest man without ever turning a profit,” the next. As these types of stories have become the norm, it’s now smart to suggest that we’re nowhere near a new paradigm, that the madness has only just begun.
We’re in a unique situation where everyone knows we’re in a gigantic bubble. The people know it. Wall Street knows it. The elites know it. Everybody believes that everyone else knows money printing and economic stimulus fail to boost economic prosperity, but together, we’re complicit in the lie. Because the prospects of easy gains from cheap money trump all logic and reason, we’ve justified this system to ourselves. Never in history has an economy existed on so much fallacy.
But this is not just America’s economic delusion but the world’s. The global financial system’s increasing interconnectedness has forced every other superpower into partaking in the U.S. government and Federal Reserve’s economic suicide. Since every major economy has adopted this flawed system, when America falls into chaos, the world falls along with it. Events such as the unwind of hot money during the 1997 Asian Debt Crisis and the collapse of subprime securities in the 2008 financial crisis prove the system has yet to be fixed, and the only force preventing its collapse is governments and central banks injecting trillions of liquidity into the system, keeping the system stable and the cheap money narrative in play.
We have been lead to believe central bank policies would eventually fix the economy. Now we know that’s never going to happen, but we’ve accepted it. We’re not trying to fix it. Instead, we’re trying to prop up our mistakes rather than start over. Politicians, Wall Street, and Fed officials have become more concerned about what will happen to their reputation if the vast chain of financial instruments and derivatives becomes unstable and breaks apart — the gargantuan amount of leverage on top of more leverage just to prop up assets that the financial elites have conjured out of thin air. It’s no longer how we can improve the system but how we can stop the next collapse.
Preventing this collapse has zombified the economy so much that we’re starting to become too reliant on the system. We’re starting to think, do, and act the same. We want those in power to tell us what to do, what to invest in, what to consume, what to think. Forget the things that will help us find a solution: responsibility and thinking outside the box. Waning responsibility means no one can think of a solution.
Instead, we remain trapped in an endless loop, a bubble supercycle with each iteration causing more abnormalities than the last. Public and private debt rises. Wealth inequality increases. And we experience collective episodes of societal unrest. To paint over existing cracks, the elites in charge implement more destructive policies so they’re not held responsible for the greatest debt collapse in history. And even if they did take the plunge, no human knows how to return such a complex system back to normalcy, let alone has the political will to let that happen.
Nobody knows, for sure, what will break this trend, but what we do know is that we’ll have to face another round of madness before it ends. COVID-19 has concluded the last cycle in the bubble supercycle, and since late 2020, we’ve moved onto the next. The fake economy has started to show signs of life once again. Stocks have recovered from their lows, GDP forecasts have turned positive, and economic indicators have reached record highs. But don’t be fooled, this is not a new era or a new paradigm. We’ve just delayed the inevitable next peak in the bubble supercycle.
This peak will be identical to the last cycle. When economic growth rises to a level that Fed officials deem “satisfactory”, we’ll go through the same theatrics once again. The authorities will convince themselves, once again, that their failed policies have started to work, that the flawed economic system has fixed itself despite turning off its main energy source: the money printer going “brrr”. They will rip off the bandaid, and liquidity will start to drain from the system, letting real economic forces take shape. Interest rates will collapse, risky assets will plunge, and commodities will tank, but only until they reopen the liquidity floodgates, with the farcical boom and bust starting over once again.
But until then, providing we don’t run into a black or white swan event, the next fake economic expansion powered by the biggest injection of monetary stimulus on record will prevail. This decade will be known as the Great Moderation, similar to Japan’s Lost Decade back in the 1990s, only with a stark difference. As the economy continues to nosedive, instead of everyone enduring the shared hardship of falling asset prices, using linguistic alchemy and perception management, the elites will be able to find the Goldilocks zone where they double, even triple, their wealth while sweeping the harsh economic realities under the rug.
It’s a scary prospect that this scenario could repeat itself for many decades to come, but we’ve got to accept that it may happen. Make no mistake: 2020 was the crisis that the bears, the doom-and-gloomers, and the Cypherpunks wanted to ignite change; the economic collapse that was supposed to break the system and bring about a revolution. Though, just like in 2008, the elites managed to bridge the financial dam and kick the can down the road. “They didn’t care if they created a bigger disaster, they just wanted a bigger disaster, later,” Schiff said in his glory days, and that’s all that matters. Here’s to another decade of navigating more economic madness, another decade that will make the last ten years appear sane and rational.
For more analysis and ideas, subscribe to my mailing list.
This article is for educational purposes only, not financial advice.