Tag: Economics

The Perils of our Workless Future

America is creating wealth and not working for it.  Even on the surface this statement seems dangerous, but most people can see that its true.  Many companies are worth billions of dollars as startups.  Take the example of Facebook acquiring Instagram for 4-billion-dollars while it only had 16 employees.  This acquisition was followed up by Facebook with a 16-billion-dollar purchase of WhatsApp.

The youngest billionaire in history will be a 20-year-old girl named Kylie Jenner.  She launched a make-up product line at age 17 and due mostly to her family’s fame, it is selling out everywhere.  She own’s 100% of the product line so the brand has become very valuable and sales are topping a billion dollars.

The product is made in Asia and Kylie is doing very little beside owning the asset.  Yet, here she is doing little work and making an enormous amount of money.  The illusion is that work is being done, that Kylie earned all that money.  The problem is that illusions don’t last.

Kylie’s billions were not created through work, it was created through asset appreciation.  The problem isn’t with Kylie, the problem is that the economy is over rewarding Kylie’s small contribution.  The economy has to reward Kylie with such an extreme fortune because asset prices have to keep going up in order to create the illusion of growth based on debt.

The thing about all these newly minted billionaires is that they are only worth a billion on paper they don’t actually have a billion dollars in the bank.  Kylie will however buy massive mansions in Malibu and dozens of other places using mortgages.

It is unlikely that Kylie has even earned enough cash to put ten million dollars in her bank account.  By the time she pays the manufacturer, the distributors and the retailors, Kylie’s share of the sales will be a fraction of the sales.  But her brand as an asset will still be worth a billion dollars.

Kylie can borrow money against her assets which allows her to spend like she actually has a billion dollars in the bank.  And all the Jewelry, cars, yachts and real-estate will all be bought using borrowed money.  And the people who she buys these things from will use it to borrow even more.  All the while nobody is actually doing any work.

America needs to understand that without work nothing has value, that asset prices unsupported by actual work is a recipe for disaster.  The only thing supporting America’s astronomical asset prices is debt and debt has to be paid back.  

The Definition of Money is Work

Once upon a time, people used to trade with goods and services to obtain the things they need. But after a while, this became tiring and inefficient due to the lack of transferability of bartering for goods.

Then, people decided to develop a medium of exchange to solve these problems. They created a type of good that worked as currency – commodity money. Goods such as corn were used for buying and selling because these goods were widely desired as well as easily storable, portable, and durable.

The dollar banknotes we use today are considered to be the U.S. medium of exchange and they don’t have inherent value. The money we earn and spend is more a tool for trading rather than capital.

If you found yourself on the top of Kilimanjaro or a desert island, the money in your pocket won’t mean anything because you don’t have a place to spend it. However, the one asset that you do invest irreversibly in order to get to the money is – work (or rather the time that you spend working).  Its work was done as a service for someone else or to produce a product desired by someone else, that’s how money is defined as work.

Economics has become so complex and confusing that the definition of money can be illusive and confounding.  However, if all the financial products created by the banking system are put aside then the definition of money can be simplified to mean work done by people.  And as people spend time working they accumulate money.

If the definition of money is work done by people, then automation is worklessness or something that does not make (cost) money.  Automation and technology, that displaces people from their jobs, shrink the economy because it produces less work or less money in the economy.

A clear symptom of this dilemma is the ever-decreasing interest rates on debt.  The economy is actually shrinking due to automation and in an effort to compensate central banks around the world have kept interest rates historically low.

Technology is Waging War on the Working Class

It’s a common topic of conversation the robots are coming for our jobs.  What most people do not understand is that there would be no robots without banks.  The cost of technology is actually astronomical.  Human labor is much cheaper than technology unless the technology can be paid for with a bank loan.

The bank loan allows the technology to cost less since it can be paid for overtime and this allows it to be competitive with human labor on a per hour bases.  Technology is only waging war on the working class because banks are financing the hostile takeover of people’s jobs.  But this is a zero-sum gain for the economy since people not working and earning less means a smaller less productive economy.

The economy is work done by people

Economics is the messiest of all human systems.  It is unpredictable and poorly understood.  At some point, people went from living in harmony with the environment to living in an economy that is wrecking it.  The economy has no direction, no goal and provides no certainty for our future.

But despite this massive distortion of outcomes, the economy is still the exchange of work (money) between people.   What is different today than in the past is that value (work/money) can be borrowed from the future in the form of debt as debt turns into work done today.  It used to be that if you needed work done today then it must be paid for with a transfer of value that didn’t come from debt.

Now, a person can charge work onto a credit card and pay for it at a future date.  This has worked well in the past but advanced technologies are having unintended consequences.  Technology can be paid for by people NOT doing work. Future debt payments that pay for the technology will not go to employees they will go to the bank that funded the loan and it literally disappears.

Making things worse, banks have access to an infinite amount of debt, they simply print money to fund their loans.  Banks only have one requirement and that is for the debt to be paid back.

Money is work done by people and therefore debt is negative work.  In other words, the money earned in the future will not be used to create more work it will be used to pay down debt.

The more debt on the books the less work can be done in the future.  The problem then arises when one considers that robots are being paid for by negative work while the debt eliminates work in the future.

So, when you read the national debt has reached 21 trillion and the total US debt is $74 trillion while the total global debt is $244 trillion, you should be looking at those numbers with the idea that less work can be done in the future because money has to be used to pay back the debt unless even more money is borrowed in the future.

How can debt keep growing?  The debt keeps growing because asset prices go up in tandem with debt.  The more an asset is worth the greater the debt that can be leveraged against that debt.

But assets have a real-world value they cannot just keep going up without an economy to support it.  And an economy that is only growing because of massive increases in debt is actually not growing and therefore not supporting the high valuations.

The Asset Illusion

Many people make money from stocks and real estate.  This should not be considered work because the majority of the money they make is from asset appreciation.  It may require work to figure out how to invest in assets that turn out to be worth more when selling then they were worth when bought.

However, that effort did not meet the needs of another person so, it is by definition not work, it is merely an effort for personal gain like combing your hair.  The illusion than of making money from asset appreciation is that it required work to do so when in all actuality one only worked for oneself.

Asset appreciation has become the main driver of wealth in America, not work.  America is getting wealthy by not working.  How is this possible?  Assets can be leveraged to fund loans; those loans can be used to buy assets and that increases the price of assets.  The problem is that while assets prices are going up the debt eventually has to be paid back with real work.

Take the example of a house, the materials required to build the house in the middle of nowhere is $100,000 and the labor is another $50,000 and the contracting firm sells the house for $200,000.  The house is worth $200,000 in the middle of nowhere.  However, move the house downtown Manhattan and it’s worth $10 million.  The surrounding real-estate is worth much more than the building materials.

The asset prices have reached such extreme valuations because of debt financing the continuous increase in property valuations.  Let’s face it, the house is the same, debt financing allows for debt to be leveraged against the asset making ludicrous valuations seem reasonable only because other people are spending exorbitant amounts of money on similar assets.  So, who would buy $200,000 worth of building materials for $10 million?

Just about anybody who thinks it’s a good investment and the market confirms that every day.  The problem is that banks fund the purchase of the house based on the asset value of the house or $10 million and the buyer only has to pay a small percentage of the price.

Work must drive the economy, not over inflated asset prices

The economy has been turned on its head by the financial industry, asset prices are creating wealth not work.  Asset prices are overvalued while work is undervalued.  Work is undervalued because debt is financing technology that eliminates work while the debt payments take the money and work out of the economy.

And as you would expect to see from an economy that is run by banks who sell debt, the global debt is exploding in an effort to have debt create work through the leveraging of assets.

However, no matter what is done with the money printed by the creation of debt, debt means less work in the future.  If there is going to be significantly less work in the future, then it will be significantly more difficult to pay for the debt of the future.  If the debt cannot be paid back, then we will have another financial collapse.  Under the current paradigm, the only way to get out of this mess is with greater quantitative easing.

The Future is Quantitative

Debt is exploding, assets have risen to irrational valuations, interest rates are rock bottom or even negative.  An asset class that has been driven up in valuation from years of low interest rates on loans will eventually cause a correction in the stock market that leads to another financial collapse.

The Federal Reserve does what it’s owners tells it to do, save the banks.  The Federal Reserve starts buying assets that are underwater (which means the debt leveraged against the asset is greater than the value of the asset).  And by doing this the Federal Reserve bails out the commercial banks once again using quantitative easing.

In addition, in order to pump up the value of the assets the Federal Reserve will lower the interest rates and hope asset prices recover since that’s what America’s economy is based on.  All these measures only make the situation worse.  It allows for cheap credit to pay for more automation and less work done by people.  Quantitative easing only makes things worse.

How bad can quantitative easing make things?  There is certainly a possibility that countries will stop valuing the American dollar as the reserve currency of international trade.  This could make inflation in America absolutely unstoppable and a disaster.

But there is an even worse consequence, quantitative easing is forcing a workless dystopian future of technology owners which leaves everyone else as secondary citizens.  The secondary citizens are the homeless of today, technology does not serve those who do not have money.

Quantitative easing and asset prices based on debt creates an illusion of wealth which will persist as long as other nations support the dollar in international trade.  But make no mistake it’s an illusion of value, America’s wealth is no longer based on work.

The Illusion Grows and Self Destructs

The problem with illusions is that they do not last.  Like the oasis in a desert created by heat vapors coming off the sand, eventually the stark reality hits.  Assets are just not worth what people are paying for them.  And if real work isn’t the reason for high asset prices then those asset prices aren’t really worth that much.

And if debt payments are going to replace real work in the future then asset prices are going to be worth even less.  If asset prices go down, then the amount of money that can be borrowed is reduced.  A reduction in borrowing undermines asset prices.

In other words, the higher the asset prices go based on debt the more unstable the whole system becomes.  Another round of quantitative easing only exacerbates this issue.


It’s in the data

Over the last 70 years, the global population has been exploding.  The global debt has been exploding.  Global production of goods and services has grown considerably but the growth rate is heading south.  In fact, global economic growth is projected to be negative by 2060 as seen in the chart above.

How can the population and debt be growing so fast while the growth rate is slowing?  Simple, it’s taking less and less work to produce goods and services.  The real economy is based on work did not asset prices.

The real question is, do we really have 40 years of growth before the economy spontaneously shrinks?  Its notable from the chart above that the only year of negative global growth was in 2009.

There have been many recessions in the past 60 years, but the global economy grew despite it.  Asset prices based on debt as a means for economic growth is not sustainable especially with a backdrop of debt financing the elimination of work.  The slow growth of the jobs market post quantitative easing proves this point, as the low interest rates made automation and technology even more attractive.

Therefore, it would seem very likely that we are one recession away from the economy shrinking permanently.  The lower the interest rates and the greater the quantitative easing the faster the adoption of technologies that replace people at work.

Conclusions on Money

Money is often defined as a medium of exchange but that misses the point.  Money has to be earned or it’s worthless, especially when its FIAT money, not backed by gold.  A loan is supposed to be paid back with future earnings not with future loans.  The world economy as it stands today is not earning its way to prosperity, it is borrowing it.

The modern economy is like a person with no job who pays there bills with a revolving credit card scheme.  If the debt is pushing asset prices up, then the value of those assets is an illusion because nobody is earning enough money to actually pay for those assets.  Until work done by people is made the driver of the economy and not debt, the world is in for more pain.

There is a solution to this mess.  It all starts with monetary policy at the Federal Reserve.  The Federal Reserve is responsible for printing and circulating money but because the Federal Reserve is owned by commercial banks they do it for the purpose of their owners.

It should surprise no one that the commercial interests of banks do not align with humanity or even the citizens of America.  Redesign the Federal Reserve with the interest of the people of America and the world by getting the bankers out.

*Note:  The Bretton Woods Agreement of 1944 made central banks around the world follow the same structure as the Federal Reserve.   This means commercial banks are in control of the central banks in other countries as well.  This has been called ‘the new world order’.  Let’s face it, the new world order is getting very, very old.


The Real Cause of Illegal Immigrants from Central America

The United States is responsible for illegal immigrants from Central America crossing the border. Instead of instating the “Zero-tolerance Policy” on unauthorized entry into the United States and detaining and separating parents and children from each other, the country needs to reflect on its history, the root cause of refugee migration from Central America.

What they will uncover is the underlying framework that serves as the instigator of the influx of illegal immigrants into the country — the 1944 Bretton Woods Agreement.

However, the Bretton Woods Agreement was not the only instigator. The International Monetary Fund (IMF) and the World Bank collectively joined it to derail the economies of Central America. Instead of fixing the problem that the United States started, President Donald Trump decided to resolve the issue by building a wall and detaining families.

Since we live in a time dominated by a President shouting “fake news” and dispersion of actual fake news on Facebook, we need to educate ourselves by understanding the real cause of illegal immigrants from Central America — the Bretton Woods Agreement, the IMF, the World Bank and CAFTA-DR.

What Led to the Development of the Bretton Woods Agreement?

The United States’ habit of interfering in the affairs of other countries remains a known fact around the world. The rich history of the U.S. military and economic intervention in Central America weakened the region, causing them to become dependent on the United States. The constant interference of the United States combined with the formation of the Bretton Woods Agreement, the IMF, the World Bank and CAFTA-DR negatively influenced the economy of Central America.

Worsening the region’s economic condition was the ongoing interference from their neighbor and the formation of the 2004 Dominican Republic — Central America FTA (CAFTA-DR). All of this gave rise to drug cartels, violence, corruption, and a failing economy.

This in return led to an increase in illegal immigrants from Central America flooding the United States. It was a combined effort, initiated by them. Now, they face the consequences of their actions, but reversing them is not a priority for them as it would defeat the purpose of them growing as a “Superpower.”

Therefore, they have resorted to other extreme measures to control the influx of illegal immigrants from Central America. These measures have only managed to put a pause on it. Let’s travel back in history by taking a closer look at the Bretton Woods Agreement, the IMF, the World Bank and CAFTA-DR.

The Bretton Woods Agreement: The Conspirator

The Bretton Woods Agreement is the system for monetary and exchange rate management established on July 1, 1944 at the United Nations Monetary and Financial Conference in Bretton Woods, New Hampshire. The agreement pegged currencies to the price of gold and perceived the U.S. dollar as a reserve currency connected to the price of gold.

From the agreement, emerged the IMF and the World Bank — two global institutions — thus fulfilling the aim of the meeting to ensure a foreign exchange system, promote economic development, and prevent competitive devaluations.

This meant that when a country’s currency fell, other countries agreed to purchase their money in foreign markets at fixed exchange rates between the US dollar and their currency, thus preventing inflation and economic instability.

Unbeknownst to third world countries, this agreement paved the way for the United States to assume dominance over other nations, who were asking for loans from the IMF and funds from the World Bank to rebuild their country. Even though President Richard Nixon suspended and later officially ended the agreement in 1973, the damage was already done.

The International Monetary Fund: The First Accomplice

IMF’s aim is to promote global economic development and financial stability, encourage international trade, and decrease poverty. Although the IMF consists of 189 countries, only the most powerful countries have major influence in the voting process. When the Bretton Woods Agreement ended, the IMF began to promote floating exchange rates. The floating exchange rates rely on the market forces to decide the value of currencies relative to each other.

The World Bank: The Second Accomplice

The World Bank, an international organization, helps reduce poverty by allowing countries to borrow money to fund their projects. It offers countries low-interest loans and interest-free grants and credit, and focuses on improving infrastructure, education, and health.

Its primary objective is to reduce poverty in countries by overcoming it by encouraging growth, reconstructing countries fresh out of war, offering a bespoke solution to third world countries, prompting governments to prevent climate change and control the spread of communicable diseases, working with the Arab League, and sharing its expertise with other countries.

The Central America-Dominican Republic Free Trade Agreement (CAFTA-DR): The Third Accomplice

CAFTA-DR signed in 2004 is a trade agreement that eliminates most tariffs, trade barriers, and customs duties on services and products between the United States and five Central American countries — Costa Rica, El Salvador, Honduras, Nicaragua, and Guatemala as well as Dominican Republic. This agreement gave the United States direct access to markets in Central America on a larger scale, allowing them to introduce banking, media, telecommunications and insurance among other services.

The Negative Effects: How the IMF, World Bank, and CAFTA-DR Become the Primary Cause of illegal immigrants from Central America?

When countries need to borrow money, they borrow money from the IMF and the World Bank to stabilize their currencies. If they decline their request to borrow, the countries either establish trade barriers or increase interest rates.

However, borrowing from both organizations comes at a cost. It burdens countries with strict debt repayment plans that they are unable to repay. It comes with the caveat that the repayment needs to be made only in dollars. Adding to the burden is CAFTA-DR, a free trade agreement that functions in the United States’ favor.

This free trade agreement caused domestic industries to weaken and deteriorate by creating a massive trade imbalance and importing American agriculture and industrial goods into the Central American markets.

Each of them worked to drive out people from Central America and escape to the United States.

The United States has an upper hand, as it is the only country with the authority to print dollars. Both the IMF and the World Bank give loans in US dollars to third world countries. These countries need to earn more dollars to repay their debt. The United States has a monopoly when it comes to reproducing dollars. For third world countries to repay their debt, it gave the “Super Power” access to their resources and gave American businesses an opportunity to enter the Central American market.

Allowing American businesses to establish their base in their market did not benefit their failing currency, causing it to decline further. This scenario has left them with no choice but to borrow more dollars to stabilize their currency. Failure to stabilize their currency means no international trade. Then, there is CAFTA-DR that has caused the local agricultural economy of the countries in Central America to gradually wither away, leaving American products and services to reign supreme.

How Can Central America Repay the Hefty Debt?

Central America has turned its attention to growing and selling drugs to repay the hefty debt. To repay the debt, earning in dollars is a must. With the demand for drugs high in the United States, drug cartels have sprung up in the region, growing and selling drugs for dollars across the border.

The drug cartels in Central America evoke fear in people through violence. With corruption in drug-ridden areas being high, even the police turn a blind eye to the drug lords based in these regions. Families pack up and leave for the United States due to the constant terror of being targeted by drug cartels and becoming another statistic added to the body count.

The Rise of Drug Cartels in Central America and How They Triggered Mass Illegal Immigration

The following facts on the rise of drug cartels in Central America offer an exclusive insight into the relation of drugs, violence and illegal immigration:

· El Salvador, Honduras, and Guatemala have the highest crime rate with El Salvador and Honduras making the list of the top five most violent countries in the world

· Drug cartels especially target women and children, forcing the youth to join them or extort them while threatening women and girls to get into a relationship with gang members

· Seeking help from the police is of no use, as they are often corrupted and involved with the drug cartels

Who is to blame for the rise of drug cartels in Central America? — The United States

Between 1996 and 2002, the United States sent back thousands of convicted criminals to economically and politically fragile countries in Central America. Gang members saw this as an opportunityto combine local youth gangs and promote the use of violence to control entire neighborhoods in the region.

Another example of the United States intervening into the affairs of Central American countries is when the CIA ousted the democratically chosen government of Guatemala in 1954, resulting in decades of civil war and dictatorship. What about the time when the United States sent the gang that supplied MS-13 to the streets in California back to El Salvador?

The presence of these immensely violent gangscoupled with the increased demand for drugs in the United States and Central America’s dire need to repay the debt with dollars has kept the drug trade alive, especially in Honduras. The drug trade is a trillion-dollar business controlled by drug cartels, but the dollars earned from it are illegal and thus hidden away.

On the other hand, we have the United States which has waged a prolonged war on drugs, one that is costing them trillions of dollars. However, do not expect them to change their strategy, as the drug money they seize benefits them; it increases the existing value of the dollars circulating in the United States. Since Central America cannot repay their debt with drug money, they invite American businesses to establish stores so they can repay their debt back in dollars.

Back in the day, the Bretton Woods Agreement tried to help, but it did more harm than good.

The Bretton Woods Agreement sought to repay those countries by offering them loans in U.S. dollars to rebuild their economy. These countries used the money to pay contractors from the United States, but that left them in even more debt than before.

Central American countries can neither print money nor borrow against an asset. If the countries chose printed money and spent it where needed, it would result in hyperinflation. Hyperinflation erodes the value of the currency, increases the price of goods, and causes people to decrease their holdings in that currency in exchange for a stable foreign currency.

To stabilize their currency, the countries would need to request for additional loans from the IMF, thus sinking them further into debt. Not only has the United States put their interests first and above all else, they have repeatedly meddled into the affairs of countries in Central America, causing further damage to an already fragile economy.

U.S. backed-military coups, neoliberal mining of resources, and corporate plundering have fueled poverty, instability, and violence.

Even though the Bretton Woods Agreement was the wheel that set everything in motion, the IMF, World Bank, CAFTA-DR, and repeated intervention of the United States throughout the history of Central America have wreaked havoc on their economy.

The region’s economy, which shows no signs of getting better, has served as the stepping stone for drug cartels to roam freely and spread their fear through terror tactics, corrupt the police with money, and silence the people with the threat of violence. Without having a voice, people belonging to countries in Central America feel unsafe and the only way to ensure their safety is to flee to the United States.

Separating families at the Southern border and putting up a wall is not the answer. Instead, the United States needs to rewind the clock to see how they can make these wrongs right. Only then, can they take steps to resolve the issue of illegal immigrants from Central America coming to the United States to start their new life. The world would be better, safer and more humane if globalization meant that all economies thrived and not subjugated by debt.

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