In a purely theoretical effort, trying to make sense of what has happened and what is
happening, we can try to layout some points to have a better image and to conclude with a credible reasoning.
A brief summary of the stages that got us here:
1) 2008 - Subprime mortgage crisis: excess debt caused the collapse of the financial
system. The problem was not solved, on the contrary, it was decided that it would be dealt with more new debt, in a monumental measure, postponing the consequences and amplifying the danger.
2) What then followed were ten years of zero interest rates policies and uncontrolled debt growth that failed to boost the economy. Zero interest rates and monetary issues had the effect to boost hyper speculative finance. Anyone could go into debt and buy stocks and bet in the world of derivatives. The bubble was swelling alarmingly.
3) September 2019 - The bonanza seemed to have ended from one moment to another: the Bank of International Settlements raised the alarm sounding the bell:
!!!! "WHATCH OUT, IT'S ALL GOING TO BLOW!!!
4) October 18th 2019 in New York, Event 201 was staged. The big names of the world came together for a simulation that would later become real within a few weeks of the meeting. The general rehearsal of an epidemic of a new zoonotic coronavirus transmitted from bats to pigs to people.
5) January 20th 2020, the leaders of nations and major centers of power meet again in
Davos, Switzerland and, most likely, the heads of states and the media received the protocol of action on how to behave, for the measures that all of us had and still have to undergo, in spite of our liking or dislike.
6) Final phase: The military is deployed on the territories, individual freedoms are
practically zeroed. The economy is frozen and the Central Banks, in unison, with the
Federal Reserve in the lead, begin the most senseless monetary creation in the history of the world, injecting liquidity created out of thin air directly into mutual accounts with commercial banks, large corporations, fund managers and even directly to the Treasury, while continuing to buy government bonds.
7) In the midst of the economic crisis due to the measures adopted for Covid, an internal civil war in the United States is also unleashed, exploiting and fomenting racial hatred. In the generalized chaos, with the United States no longer united, but divided as never before, China seems to emerge triumphant and this really portends a design of the end of an era of the American dominance ,and the beginning of a new world dominated by China. The topic to which I will dedicate another newsletter.
At this point we can therefore say that the situation is an extremely dramatic global
economic problem that must be tackled in an urgent and concerted way. The globalized world came together and agreed on how to handle this matter.
I will seek to make sense of and explain the measures adopted, which are full of
contradictions, incomprehensible to so many sensible people who have tried yheir best to get a grasp on why such drastic and often even crazy and wicked actions were taken.
I have already addressed the topic in my previous newsletter
"THE RIGHT VIRUS AT THE RIGHT TIME"
but many have told me that the article was too much of a technical read.
To fully understand the importance that the financial world has on the real world, one
should have at least a basic education of how banks, money, trade, currency markets,
compensation between banks, markets and nations, arbitrage, swaps, and the shadow banking system with the intricate reality of the world of derivatives and OTC derivatives work.
However, just having seen and understood the film "Trading Places" should give
an idea of how crooked the system is.
Simply put, we need to know that the world is all connected. There is nothing that can
happen in one part of the world without having repercussions in another part of the globe.
When imbalances are created, action must be taken to correct them. When the imbalances are so gigantic as to compromise the very existence of the economic world we know, then the measures to be taken will assume a proportional dimension to the problem. As we saw in point 3, in September 2019 the entire economic system was about to explode.
The Bank of International Settlements has raised the alarm and the countries of the world, which are all wrapped up in a counterpart economic embrace, have all agreed, to take the prescribed measures. The prescription is very simple:
YOU MUST FREEZE THE ECONOMY!
Why must the economy be frozen?
Now I will explain it, which is relatively simple.
In a super-indebted world, where debts support the bets in the financial system, such bets are based on rates that are close to or equal to zero. In a high risk environment, it is inevitable that interest rates will rise. If rates rise, the nominal value given as collateral decreases and the chain reaction of margin calls is triggered.
This event would be cataclysmic for banks, hedge funds, pension funds and the entire
government bond market. To defuse the chain reaction, the only possible way is to inject all the necessary liquidity into the system. In a world where people struggle to make ends meet, it is difficult to justify the ease with which a Central Bank types bits into the PC and creates money in such an unlimited way. If people understood this, they would say, "if it's that easy, why don't they give the money directly to us"?
This way of reasoning highlights the great naivety of people. Gullible people believe that the decisions of the powerful are made for the good of the people, while that is the least of their worries. Decisions are made to maintain the solid structure of the control pyramid. We all need money to survive and the monopoly to create
money is in the hands the banking cartel.
The slogan "Everything Will Be Fine" put on the lips of simpletons all over the world, meant: everything will be good for us, not for you, poor fools!
The economy was frozen for a very simple reason: to allow central banks to create trillions of new debt without creating inflation. (inflation damages the creditor - the bank - and favors the debtor, so it must not happen) It is mistakenly thought that inflation is the increase in prices, but the increase in prices is only the consequence of inflation. Inflation means expansion: the expansion of the money supply. If banks create new trillions of dollars, they inflate the economy with new available money. If this currency begins to circulate, for example, if there is economic exuberance, then inflation is created, in proportion to the mass of new money put into circulation. When this happens, banks have only one way to intervene: raise rates to drain liquidity. But now this is impossible, because if rates are raised, the explosion of the margin calls on the REPOs is triggered and the entire system would blow up in a multi trillion Supernova. The only other option to create liquidity and stop it from
circulating is to freeze the economy, gaining precious time to intervene where there are leaks, trying to plug them one by one by throwing shovels full of money at them.
Here is the truth of this whole sad story where we were told everything, except that the real core of the matter is the economic core, as always. As in all wars and in all things that happen: the incipit is always economic.
Everything is easier to understand once we realize that people in the world are handled like a flock of sheep. They make us do what is useful to them. Those who force it on us, the visible rulers and the talking heads of the TV, are just the shepherd dogs. The herdsmen are the banks, owners of the money and therefore of everything else. The global economic system is based on debt and by its nature generates imbalances that become exponential over time. One popular way of intervention was to wage wars that caused what Schumpeter termed "creative destruction". Nowadays it is much more difficult to create wars because ideals are lacking and the young people, with Nintendo physiques, are no longer suitable to go to war. A more transversal strategy has been chosen. That of the threat of an invisible virus, with which all states are forced to fight, weakening and getting into debt. On the battlefield are left companies, control of resources and devastation while the power continues to be consolidated in fewer and fewer hands. There was also no shortage of the military presence on the field, to give credibility to the entire ongoing farce, while the media in unison repeated like a broken record: "we are at war against the virus".
It's all connected. And the glue that unites everything is money. We are all in the game. Like a great Monopoly game. When we play Monopoli, we know very well that the money we use is fake. What matters are our emotions that arise during the course, while we play. Contingencies, probabilities, houses, hotels, railways. It is our emotions that give value to all of this. That's the real currency we pay with to play the game.