Devalued Diamonds

When I woke up this morning, there was a message waiting from a friend with a link to an article he thought I would be interested in, as it mentions a lot of the things we have talked about over the years in regards to low interest rates and the economy in general. A quote from the article I would highlight is;

"Not only central bankers but anyone with an iota of economic literacy could have predicted today’s raging worldwide inflation beforehand (and some did)."

So the question becomes, why didn't central bankers and anyone with an iota of economic literacy do anything about it? And while the article doesn't dive into this, I just think it is the way the economy is set up, where there is a maximization policy at any cost and when only a few have the power to control direction, they are going to maximize themselves over the interests of the others. There is essentially zero personal cost to screwing the global economy for the decision makers, but there is a lot to gain.

And this is where perhaps it gets interesting, because as noted in the article, inflation was a problem before consumer inflation was an issue - it was just in things that aren't considered consumables - stocks and real estate - investments.

The newspapers are talking about how the tech stocks are crashing and the contagion of the bank collapses, but this is predictable, because of those evaluations being so wildly overvalued in the previous years and then, spurred on even harder by Covid incentives. But, this started before Covid, as the bullrun on the markets has been going on, ever since the interest rates were dropped to zero (and below) and there was a massive incentive to not hold cash, as well as borrow even more money to invest into a rising market.

But of course, once the merry-go-round slows down, those who are quick on their feet bail off their horse and leave the laggards waiting for the conductor to kick their assess off the ride. Those who were early in were able to drive profits derived from those who were late and then, in a tale as old as time, the early in were also the early out, meaning that the rest are left holding the bag. And who is holding the bag?

Us of course!

Because, whether we invested into the market or not, our governments took massive amounts of money in various ways and directed it toward driving those stock and real estate values upward into the heavens. However, they did this through us, which means they have no control over where that money ends up - essentially it is like me taking a loan in your name without your permission, giving it to a gambler, and then you have to pay the loan back when it is all lost - at an increasing interest rate. And my justification is, "well, money was cheap to borrow". So now, we have to pay back massive loans that we never took, to institutions that had already benefited, setting up a double, triple and quadruple dipping system.

So, the stock values were inflated along with the real estate and then, as the investors pull their money out before interest rates rise to cover their loans, all that money pours into the system, driving inflation upward for consumers, who were the ones who financed (though government loans) the bubble itself and now, will have to pay back through interest rate increases and the devaluation of whatever was bought on credit - whether their personal debt or that of the government.

Pretty amazing system!

But as you can see, there is essentially zero risk for the people making the decisions, because they are not playing with their own money, they are playing with ours. And, even when they take the loans for the market, they are also always able to be ahead of the government debt money, which means they can benefit at the influx of printed money going in and also get out before it is going to have a chance to get out, often meaning that the chance to get out is gone.

For example, if someone bought a house for 1.5M in Sydney during the pandemic, they likely paid about 600,000 more than it was worth before the pandemic. They took it on a record low interest rate, but were still encouraged to take the longest loan period possible, due to the uncertainty of the world. There is no way under normal conditions they could afford a 1.5M house, but conditions weren't normal and even now with interest rates rising for almost a year straight. What is normal? Other than this last period, where rates are now is the bottom of normal in Australia.

That's right. When I bought my first house (in Australia in 1998), the interest rates were higher than they are now. But, you know the "cost of living" has also gone up etc. Yes, but why has it skyrocketed so fast? Because low fucking interest rates forced spending, rather than saving and the consumer mindset is to keep spending, even when there is no money left to spend - so debt increases in all sectors and debt is??

Fucking inflation.

It is money created out of thin air to spend now, but will have to be paid back in the future with real money, with a lower value on it, and an interest rate attached. So, unless you bought assets with your debt that increased in value past the inflation rate and above the interest rate payments to service it, you are in the red. And, governments are most certainly in the damn red.

What this economy should indicate to everyone is that no matter how much money you have, your money is not your money, because you don't control what is happening to it, how it is being spent by governments and what factor of inflation is going to be added. At any point, it can be devalued, it can be commandeered, it can be used to provide liquidity, and there is no guarantee you will ever see it again.

The article finished up with a statement that;

Capitalism does not work if money is free.

This is true, but it is more than that. An economy doesn't work without broad participation, as well as responsibility and consequence. Yes, we are all participating in the economy, but the responsibility for the economy has been proxied to a very fine sliver of the population and, they don't have to personally pay the consequences of their behavior, those without decision-making power do. Us.

Nothing is free.

But to take responsibility - we have to develop at least

An iota of economic literacy.

Taraz [ Gen1: Hive ]