Fictional Markets and Snakeoil Salesmen

Imagine this scenario – I have a substandard product and I want to sell a lot of it at an inflated price. The problem is that no one will buy my useless thing because no one actually needs it. So I go to my bank and I say – I’m not going to be able to pay back the money I borrowed from you unless we find a way to sell my useless product and you are going to lose. The bank manager has been hearing the same thing from many other purveyors of useless shit and he is getting concerned because he operates his bank on a fractional reserve policy – meaning that while his deposits are equal to $1, he has loaned out $100 – and this is true for every dollar spent. So, he needs to figure something out – so his solution is to talk to his congressional representative and let them know that he needs to have the rules eased on the fractional reserve policy so that he can loan out $1000 for every dollar – he also needs to have the rules eases on who can borrow money because his biggest institutional clients (purveyors of useless shit) need to sell more to pay him back so that there isn’t an institutional run on the bank – the congressman agrees because the institutional clients are happy to donate more to his upcoming re-election campaign from the increased profits they get from selling useless shit to consumers who suddenly feel like they have an abundance of almost free money. Everyone wins. The congressman defeats his opponent who declares that we need less useless shit and more solutions to problems like disease, homelessness, and childhood poverty – because he calls for more free money for big institutions and easier loan requirements for banks and an increase in fractional (fictional) reserve limits. Consumers borrow, prices rise, money is easy and flowing everywhere, useless shit purveyors are becoming billionaires with lip implants and gold tone sneakers – houses go from $30k to $1 million dollars, banks loan more money on those, consumers pay $3000 for a door or a sink and don’t even blink – investors continue to pour money into companies that produce useless shit and that useless shit becomes more expensive with everything else. Wages stagnate and actually go down, but no one cares because the free money is flowing out to everyone forever and all you have to do is sign a paper. Accountants are actually getting paid to find ways to show that everything is really terrific. And it is (as long as you aren’t homeless, uninsured, part of a persecuted class, or unbanked). The whole world is awesome. My substandard product has sold millions of units. I am rich beyond my dreams. The bank is getting paid back. The congressman was re-elected. A cup of coffee is $15. Minimum wage is $8. A house bought twenty years before for $100k is now worth $1.5 million. Everyone wins! Until something happens – and it always eventually happens. A nail in the road blows out the overinflated tire. This isn’t the classic story of the bubble in equities – this is something else entirely. This is conspiracy and when the inflation bubble reaches a level where it can no longer grow – it will explode. Chaos will ensue.

I’ve been watching this for ten years. I’ve been expecting the balloon to pop. It keeps getting bigger and bigger. The question that I can’t give an answer to is whether or not they will figure out how to keep it going and if the populations of the unbanked, homeless, and those in insecure living situations will reach a critical mass and result in a revolution or whether society as a whole will become heartless enough to openly begin genocide. Or, more hopefully, whether the entire financial house of cards will simply collapse and leave people with a choice between building it again – or building something else.

My hopes hinge on the latter. This is why I find hope in decentralized digital currencies like Bitcoin and Litecoin and Digibyte. This is why I encourage people to be careful. This is why I shake my head as $20 no longer buys a bag of groceries.

What do you think?

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