Cryptocurrencies

The 7 Deadly Sins of the Financial System That Will Cause Its Loss

The economic crisis we are currently experiencing highlights more than ever the limits of the current monetary and financial system. Many believe this system to be unbreakable. Yet this is just an experiment that is not even 50 years old. The experiment represented by the current system suffers from 7 deadly sins which will probably cause its demise in the more or less near future. I suggest you take a full tour of it.


A Breathless System

De facto established by Richard Nixon in August 1971, the current monetary and financial system exposes its failures to light with the economic crisis into which the coronavirus pandemic has plunged us.

People who have made the effort to educate themselves about money and economics have long understood that experimentation with the current system is about to go wrong.

The disastrous consequences of the limits of the current system are felt at all levels: printing of fiat money in infinite quantities, explosion of public and private debts, increase in income inequalities to record levels, increasingly frequent banking crises, economic crises which follow one another more and more quickly with an increasingly strong magnitude, …

The list is so long that you would have to write a book to detail all of these consequences.

Instead of that, I suggest that you focus on the 7 deadly sins of the current monetary and financial system that will cause its bankruptcy sooner or later. Of course, an evolution of this system remains possible. However, the people who run it do not seem to be determined to make it evolve to make it better. The 7 deadly sins from which the current system suffers are therefore unlikely to be corrected.

Its extinction therefore seems inevitable.

1. Infinite monetary inflation

At the end of World War II, the Bretton Woods agreements drew the broad outlines of the international financial system put in place from 1944.

The world monetary and financial system was then organized around the US dollar, but with a nominal peg to gold.

If the US dollar was the world’s reserve currency, the system was based on something tangible: gold. During this period, which spanned 1944 at 1971, income inequalities fell before stabilizing. On the other hand, no banking crisis was to be deplored for nearly 30 years.

This gold standard system had therefore enabled a real stabilization of the world economy.

And then, in August 1971Richard Nixon decided to end the Bretton Woods system. His unilateral decision was to be temporary, but it eventually became final.

Jamaica’s agreements in January 1976 came to legalize the monetary and financial system that you know today. The monetary system of fixed but adjustable parities is then definitively abandoned. These agreements officially confirm the abandonment of the international legal role of gold.

The system of floating exchange rates is legalized.

Since August 1971, central banks have had all the power to create money.. Thus, a minority of people who are not representative of the people are able to print as much fiat money as they want.

This is the first of the seven deadly sins of the current system that the Fed and other central banks constantly abuse. This can be easily observed by looking at the evolution of the circulating money supply of the US dollar:

Increasingly rapid increase in the money supply in US dollars

The increase in the US dollar’s money supply (M2 Money Stock) has even accelerated sharply since the 2008, with an exponential increase in 2020. Indeed, the Fed has just increased the money supply by 3,000 billion dollars in just three months since March 2020.

This infinite monetary inflation is preventing the stabilization of the world economy. Worse still, it always makes the ultra rich richer, while the poor live in increasingly difficult conditions.

This issue had already been raised as early as the 18th century by economist Richard Cantillon in what is now called the Cantillon effect.

It is at the heart of the injustice of the current system.

2. Public debts which continue to grow

Since money can be printed in unlimited quantities, states take the opportunity to borrow more and more money. The current system is built on this notion of debts that never stop growing.

The public debts of states are never reduced.

Global public debt is slowly but surely approaching 100,000 billion dollars at the end of the year 2020. The world’s leading economic power, the United States is a leader in this field with a debt of more than 26.600 billion dollars.

At the current rate, and given the upcoming stimulus plans to support the economy in the face of the coronavirus pandemic, it is more than likely that this debt will reach $ 30 trillion by the end of 2020.

The ratio of public debt to GDP in the United States is now well above 100% :

US public debt as a percentage of US GDP

We can clearly see that the situation has worsened considerably since the economic crisis in 2008. As a result of this crisis, the problems of the current system have never been addressed.

Instead, all central banks have decided to print more and more money to cover up problems and put off their resolution.

The economic crisis of 2020 is only the extension of that of 2008 with a much greater magnitude.

At the level of private debts, the situation is just as catastrophic. The current system relies heavily on private debt as well. Private banks are always creating more money by lending to their customers.

For those who are confused about how banks create money by lending to their customers, I’ll give you a quick example.

Adam goes to his bank to borrow money to buy a car or a house. The bank gives Adam a line of credit. Each time the borrower makes a payment, the bank withdraws it from the principal amount of the loan.

This is not a zero-sum transaction, as the bank deducts the amount of the line of credit balance it has granted. The borrower’s line of credit remains the same, and the bank can continue to lend the money to other people in the future.

This mode of operation, based on customer debt, creates more and more new money.

The amount of money in circulation can only increase over time. The price of silver logically falls to him.

3. An opaque and corrupt banking system

The banking system is totally opaque and corrupt. This is again one of the deadly sins of the current system. For those in doubt, just type “Bank scandals corruption” into Google. You will be amazed to see all the cases involving well-known banks that come out.

You will see Goldman Sachs appear in connection with 1MDB scandal. For your information, Goldman Sachs has just agreed to pay 3.9 billion dollars compensation in connection with this case.

The Danske Bank will feature prominently as well. Via its Estonian subsidiary, Danske Bank was found guilty of facilitating the money laundering of 30 at 230 billion dollars of 2007 at 2015.

This very wide range clearly shows the opacity of the current banking system.

More than a private bank in particular, the entire banking system as a whole is failing. It requires having complete trust in men and women who abuse the trust of their customers. Under these conditions, the current banking system cannot function as it should.

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Cryptoassets are highly volatile unregulated investment products. No EU investor protection. Your capital is at risk.

4. Market manipulation

The unlimited printing of fiat money by central banks is the root of all the evils of the current system. The proof of this is again given by the way this money is used in the financial markets.

In order to save the current system at all costs, the Fed and other central banks are injecting printed money into financial markets.

The Fed mainly buys US Treasury bonds which allows the American government to increase the American public debt more and more. It goes further by buying a lot of other assets.

The US Federal Reserve does not yet have the right to buy shares directly from the stock market, but more and more voices are being raised so that she can do so in the future.

The Fed’s actions are distorting the market by creating a in fine a real bubble in the stock market. This is exactly what is happening in the midst of the economic crisis in 2020.

Driven from the bond market by ever lower interest rates, retail investors have flocked to the stock market by buying mostly shares of tech companies.

A real speculative bubble has formed which will eventually explode, hurting all less experienced investors.

The free market no longer exists in the United States. The situation is the same in Europe or in Japan. To give you a better idea of ​​the problem you can look at the Fed Balance Sheet which has literally exploded since. March 2020 :

Evolution of the Balance Sheet of the Fed

In a matter of weeks, the Fed’s Balance Sheet rose by + 70% to make the Fed the world’s leading asset manager ahead of BlackRock.

The situation of the European Central Bank is also of the same ilk. To tell the truth, all central banks follow this trend of exploding Balance Sheets.

The free market no longer exists in 2020.

In the corporate world, this free market no longer exists either, as the various bailouts granted by the United States government to certain companies have shown.

It is the United States government that has been able to decide the fate of companies that do not let the market do its natural selection. Companies doomed to disappear were thus saved. We are talking about zombie companies now, because they only survive with this kind of aid.

5. Censorship

Governments, central banks, and private banks control the current system. Their power of censorship is immense. At any time, a government can arbitrarily request that your assets be confiscated.

Private banks can block their customers’ transactions as they see fit.

Since they are private establishments, banks have the right to apply any rules they wish. In 2020, we had the example of banks that terminated the accounts of customers who dared to criticize them on social media.

Freedom of expression tends to disappear with the current system.

This is one of the deadly sins of the current system that citizens absolutely must fight against. Many do not understand that a fundamental right such as freedom of expression can only be preserved at the cost of a constant struggle for its preservation.

The people are therefore looking for alternatives to the current system in order to preserve this freedom of expression and no longer suffer this censorship.

6. A system that does not evolve

The politicians, central bankers, private bankers, and economists at the helm of today’s monetary and financial system are very smart people. They know full well that the current system is broken.

Jerome powell, the Chairman of the Fed, even confessed on May 17, 2020 in an exclusive interview for the 60 Minutes show:

“The people most affected are the most recently hired, the lowest paid. These are the women to an extraordinary extent. We’re actually releasing a report tomorrow that shows that of those who were working in February and earning less than $ 40,000 a year, almost 40% lost their jobs in the past month or so. This is an extraordinary statistic. So they are the ones paying the price for this situation. “

Jerome powell

Jerome Powell knows the injustice of the policy of unlimited quantitative easing in which all central banks engage.

The poorest people suffer more and more. The rich are getting richer.

Yet Jerome Powell will do nothing to try to change a system that benefits him. This system allowed him to become a multi-millionaire. The same is true for all players in key positions in the current system.

No one has an interest in changing a system that benefits them so much. This is the reason why we will have to wait until the Millennials come to power to witness the biggest transfer in history to new generations thanks to Bitcoin.

Stuck in complete stagnation, the current monetary and financial system will eventually die out. You know what we usually say:

Evolve or disappear.

This adage also applies to the current system. Since the leaders refuse to make it evolve, a fairer solution will eventually emerge from the people sooner or later.

7. The US dollar as a hegemonic reserve currency

The US dollar has been the world’s reserve currency since 1920. The establishment of the current monetary and financial system in August 1971 only strengthened the unchallenged hegemony of the US dollar.

This hegemony gives an exorbitant privilege to the United States.

The fact that the American dollar is the reference currency used in international trade, and in particular in the oil world, implies an ever stronger demand for this currency.

As a result, the US dollar is much more liquid than other currencies.. When the world is going through a liquidity crisis like it was at the beginning of the month of March 2020, the capital goes to the US dollar, which means a sharp increase in demand for USD.

The Fed will therefore increase the US dollar’s money supply to meet this ever-increasing demand. This then induces a devaluation of other currencies against the US dollar..

In doing so, the Fed will export the inflation of the US dollar around the world. The Fed’s failed policy is spilling over into the entire current monetary and financial system.

This unlimited monetary expansion devalues ​​the value of the US dollar in the long run. This allows the United States to impose a sort of disguised tax on everyone on Earth.

A more politically neutral currency will have to emerge sooner or later. It will balance things out and allow the construction of a fairer system for all in the future.

Conclusion

The current monetary and financial system is relatively young. It will celebrate its 50th anniversary in 2021. However, some believe that this system has always been there. In reality, this system is more of an experiment which shows its limits year after year.

The current economic crisis has allowed a growing number of people to open their eyes to the limits of the system. It cannot stay as it is forever.

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Cryptoassets are highly volatile unregulated investment products. No EU investor protection. Your capital is at risk.

The people at the head of the current system will sooner or later have to make it evolve so that they better respect the populations under penalty of witnessing its complete bankruptcy because of its 7 deadly sins, the first of which is of course the impression infinite fiat money.

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