Image above: Burning US $100 bills on the street to stay warm.
From (http://moneytipcentral.com/inflation-in-america-what-will-hyperinflation-look-like)
By Nate Hagens on 28 February 2010 in The Oil Drum -
(http://www.theoildrum.com/node/4591#more)
We can bicker about the warp and the weft, but if we squint the overall image we get from the tapestry is something like this:
Our modern economic system (what some now refer to as turbo-capitalism), viewed with an evolutionary lens, is people ‘selling’ their wares/skills/creativity to other individuals, with an attempt to move up the status ladder given modern environmental cues. We are both cooperative and competitive depending on the circumstances, but its very important to understand that our neuro-physiological scaffolding was assembled during long mundane periods of privation in the ancestral environment, something still not integrated into the Standard Social Science Model that forms the basis of most liberal arts educations (or economic theory).
We are a clever, ambitious species who for hundreds of thousands of years (or more depending on the model) lived off of current/recent solar flows. We eventually puzzled out how to access stored sunlight in the form of fossil fuels. The population and growth trajectory that ensued eventually latched on to a series of assumptions/rationales that would fuse into the system a belief that more is better and that there would be unlimited substitutes for finite natural resources like oil and water. The change from using solar flows to the energy gain contained in a barrel of crude oil was and still is, indistinguishable from magic in the larger scheme.
Eventually (1970s), some cracks in the assumptions underlying this model appeared. Real wages then peaked in the early 1970s and have been declining ever since. Globally, though the poorest people in the world earn more than they did a generation ago, the fact that over 2 billion people don't have a toilet doesn't really sound like an equitable global playing field. Oil peaked in the world's largest oil producer (USA) in 1970. In 1971 we discontinued the gold window and the worlds economic system had no natural tether to real assets. Without such a monetary speedbump, debt skyrocketed over recent decades and became every bit as important driver of economic growth as cheap energy.
Debt functions as a social abstraction which serves as a spatial and temporal real locator of real resources: away from the periphery and towards the center and away from the future and towards the present. Those at the center and the present are either unaware of such transfer (most) or quite pleased about it (the wealthy/elite).
Even though it has no fundamental backing in real wealth, new debt in a fractional reserve financial system immediately confers economic advantages as those who believe in its future, accept paper for goods. Thus in aggregate, debt is a zero sum digital game in the very short term– someone's debt is another's perceived retirement savings, so an increase in debt is also ultimately a ‘stretcher’ of the current social wealth accordion (higher intra-country and intragenerational GINI). What is happening now is effectively an ongoing blood transfusion from the health of the sovereign to heal the 'injuries' to various parties in the private sector. How high of % of total debt the government can bluff to is a hot question.
Not all people pursue money, but our cultural system itself does (via profits, etc.). So gradually, the digital markers amassed over the past generation or so have allowed a certain percentage of the population to extend their perceived relative fitness advantage over others of their same species, something they were evolved to do. However, the traditional land, labor and capital inputs have been dominated by the prevalence of cheap energy inputs, (and increasingly by an acceleration of debt-as-marker). The cheap energy/cheap credit drivers of this system will soon be a thing of the past, and act as a hard leash to future global growth aspirations.
In currency reform, which occurs when fiat currencies stretch too far above their ability to maintain stable servicing of debt extant, debts are basically partially or totally wiped away with a new scrip and new rules. Since our species has a prevalence to care about relative vs absolute, especially once a certain minimum threshold of basic needs are reached, a future of digital wealth destruction via currency reform seems to be one of the few paths that would qualify as a ‘solution’ given our resource and population constraints. As such debt deflation, hyperinflation or even new currencies and the wiping away of prior claims are not what concern me most -it's the hominid endowment effect reaction to losing what they thought they had, combined with our mirror-neuron fed propensity to act en masse, without understanding that real wealth hasn't really changed. (though it has been stagnating for decades which is what brought us to this precipice).
A currency crash, in my opinion, is now all but inevitable. (Indeed, last night Dominique Strauss-Kahn, head of the International Monetary Fund, reiterated the possibility of a new reserve currency). Questions surround when, how wide, and what do international trade/cooperation and social stability look like in the aftermath. Given that our real assets are natural, built, social and human capital, and that finance/debt/credit etc are just markers for real assets, a currency reform in itself would not alter the world's wealth – but it would alter the distribution, and such a transition would itself influence the potential for future wealth creation and sustainability.
One the one hand, I have increasing angst and frustration at watching people remain in ignorance about the imminent global problems we face. On the other hand, as long as no one really pushes the issue of what lies underneath the Kimono, we can probably continue a bumpy social plateau for some time to come. The problem is that we are curious monkeys, and the bold, clever, loud and persuasive among us will probably stumble on some combination of truth and emotion that will cause said kimono to flash open, and set the sovereign hockey puck in motion, eventually resulting in financial dominoes.
Policy requires the combining of normative (what goals should we have) and positive (how do we attain those goals) thinking. Thinking ahead, is there a series of actions, taken either globally or locally, that would allow us to acknowledge our constraints, while focusing on our opportunities (most notably: that we are an empathic/other regarding species; that solar flows, though diffuse, are large; and that we achieve decreasing psychic returns from more money/stuff once above a minimum threshold.)
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