Sunday, February 21, 2016

Our Physical & Synthetic Worlds

Deflation, stagflation, recession, depression, deleveraging or contraction - however you wish to label it - is a real world physical phenomenon. Just as real as the 98% who "make" this market phenomenon. When so much wealth is concentrated among the 2%, this leaves the 98% in contraction, and that contraction is felt in the real world (of door # 2. See last post and link for applicable reference).

This is not to say that "income equality" is the goal. That is interventionist lexicon. But there have been many eras in man's history where opportunity was more equally available, and these availabilities were not present due to the interventions of synthetic financialization or monetarism, or central planning interventionism. In contrast, there were good and wise kings in our golden ages, driven more by virtue than greed, and there were prosperous middle classes, along with a small poverty class they could help along.

Today, our central bankers do what men can do to address the problems they create. They are able to synthetically treat the symptoms of reduced opportunity by creating monetary benefits and safety nets, but they cannot as easily correct the root cause of the ailment - lack of economic opportunity. After all, not everyone can be a Quandt.

This begets a long philosophical discussion which is worthy to sip brandy over, but too in depth to treat here. Let us just say that the long running treatment of the symptom only, like handing out handkerchiefs for a runny nose, has run it's course in the treatment of a deadly flu, and the patient's constituents are beginning to understand this.

Of course helicopter money may well come - it is the next prescription in the synthetic treatment bag. But the physical market's bearing on consumption and growth is a built in self-destruct sequence in any "debt growth" model.

As the central planners desperately try every synthetic cure in the playbook to defeat the real world physical reality of debt deleveraging and growth contraction, their only hope is their utter defeat - the complete destruction of paper money, as has been so completely destroyed so many times before (lest those of very short memory should somehow forget).

No natural ecosystem is able to sustain unlimited, continuous exponential growth - as all 100% fiat (debt-based) valuation systems require. It is impossible, though through valiant synthetic efforts we have created a synthetic world which does (door #1). These two worlds exist parallel to one another and in contention, but also in sync, with one another.

The appropriate analogy is the paper substitute for any real world item, let us say, GOLD, for example (a terrible example since it is SO different from everything else in this world - yet ironically the perfect analogy just the same).

The synthetic version controls our synthetic valuation of the real world substance. Odd? An eccentric statement perhaps? And yet, we value the substance using our collective faith in the system of debt based money which is under such strain now. People now question debt as never before. Some see this now. Some market makers of epic importance do now question the system.

And that is all it takes. Lack of confidence will create a hyperinflation of all paper money unlike anything the world has ever seen. We know this, because our world has never had paper debt commitments spread so wide and so deep as they are today. Never.

Yes there have been episodes of hyperinflation, but nothing like the one that is coming, as our BIS and central banks struggle to quell the systemic strain of economic contraction that will slowly strangle the middle class into non-existence. Because that is not a world the 2% can accept, the effort to create inflation synthetically will "go loud" to be sure..

Oh, will it succeed! And you will see the re-emergence of the physical world in a paradigm shift that leaves our synthetic world in a state of value-less irrelevance through derivative debt default. The currencies will still represent the growth component of debt, to move civilization forward. But they will be backed by the physical wealth now on the balance sheets of all our central banks - priced accordingly, to recapitalize the 2%.

Again, they will own Door Number 2 as our world undergoes a metamorphosis.

No comments:

Post a Comment