Notes on the Structural Issues Causing Political Instability in U.S.A
When we seek to treat an illness we should not look at the symptoms but instead try to identify the root causes. I think this is very much akin to dealing with the political chaos and high probability of a second Civil War in the United States. As a Canadian this concerns me because the fate of our two nations are intertwined like two brothers standing together within a global world.
It strikes me that people are beginning to realize the importance of treating each other with dignity and respect. That is it important to listen to the other side and to not block information, despite the efforts of some. However even good discourse and open conversation is not enough to save us from the underlying structural issues that are plaguing our society and causing intergenerational poverty. I would like to share my perspective of why the political discourse of our North American society has decayed into anarchy and instability.
There are many reasons that contribute to social-political tensions within the United States today such as race, free speech, police brutality, reforming the prison system, education, etc. Instead of talking about theses points my analysis will focus on the economic pressures that impact the every day man or woman — important issues that I feel have not been discussed much but are at the core of many of the problems.
My first thought is that civil, social, and political tensions are the result of the lack of economic prosperity. The average North American family was living paycheck-to-paycheck even before the virus hit. Over the last 50 years the world has transformed itself with technology yet little of this value has been trickled down to the everyday man and woman. This begs the question of why the average citizen is so poor even though the majority of us are hard working people in main street in real jobs that do real things. There is real frustration by many who feel like they have been left behind and have no voice in the system. Most people just want to be left alone to work an honest job, make a decent living and spend time with their families in safety. Without this we as humans get pretty pissed off. And understandably so.
My second note is that intergenerational poverty is being perpetuated on a structural level due to inflationary pressures and monetary spending. I mean to say that the wages of we the people have remained stagnant over the last few decades, but the price of everything else has increased dramatically. No matter how hard you work it is impossible to get ahead if the job market will not give you the salary you need to survive, save, and thrive. We should now ask ourselves: “How come when I was in high school $1 will buy me a bottle of Coca-Cola but now it takes over two bucks?” — -“Why, in private circles, are economists saying that inflation is a tax on the stupid?”. My third assumption is that real inflation is the result of mismanaged monetary spending by central banks around the world. This being the result of the adoption of fiat currencies under the Bretton Woods system.
If you do not have a technical background in economics, here is a clean way to understand it. When you print money there is a tradeoff between short term gain and long term risk. In principle money symbolizes trust. Whether it is shells or paper or gold, money in its ancient and purest form represents your honest hard work and it’s value to me as another human being. Instead of deploying an operation to destroy you and take your stuff (and fearing you do the same to me), we as ancient humans choose to respect each other as sovereign equals and do business together by mutual consent first through barter and then eventually via money. This means that if you have something that is valuable to me, like a nice flute that you crafted out of bamboo with your time and labor, then I will pay the price if it is the right price for that beautiful flute. I would also have to earn that money with the valuable things that I do for someone else.
The sum of our transactions builds our “economy”. In this sense we are all part of a system that requires good will and trust for the network to work. However because of manipulation of fiat currencies by central banks, even though we have free values as a people, we no longer have a fair market where supply and demand can freely interact e.g I might want to buy your bamboo flute at a fair price, but if some fraudster keeps making fake shells and circulating it in our economy, then it will be harder for me to compete against all the other bidders who are flooded with fake shells. This manipulation and destabilization of the market disincentives people from participating in this system of exchange. One loses faith in the currency, loses trust in the system, and people begin to play by their own rules.
My fourth stipulation is that excess credit and the current commitment of indefinite printing of money on the federal level will result in more destabilization of the economy and more long term political chaos. I find myself drawn towards the principle that “We must work and earn our money before we enjoy the fruits of our labor”. When we increase our monetary supply our societies benefit from short term gains at the expense of long term volatility and increased debt burdens. I am also reminded of the phrase “they kicked the debt can down the road and sold the youth down the river”. This problem is compounded from an game theory perspective as nation states are trapped in an institutional cycle where they must each keep printing to stay competitive or elected.
Monetary policies are not always bad if the money that is printed is treated as a well planned investment that significantly betters society in real and meaningful ways that pay off dividends (i.e investment into infrastructure, education, police, emergency protocols, etc) — however in principle one should not spend money that you do not have and in practice the distribution of funds have almost always been grossly mismanaged ( for example the averaged U.S citizen got virtually no help during the ongoing covid crisis, even though incredible amounts of cash subsidies were issues).
My last assumption is that the worst is yet to come. We have recently witnessed a spike in printing and central bank debt obligations due to covid emergency responses measures — furthermore the US dollar is losing its global legitimacy and authority in the financial markets as increasing crime and poverty will result in more political instability and monetary spending. When bond interest rates begin to rise, defaults will begin and a great unravelling of leverage will happen. Many businesses are going to become bankrupt and even more unemployment will occur over 2021 to 2030.
By definition “fiat” currency in Latin means “This is valuable because I said so”. Throughout history governments have tried to control human economies—the US dollar has been the global standard and it is worth noting that there have also been over 700 fiat currencies in history that have risen yet all have fallen into obscurity due to mismanagement of the currency by politically influential individuals of their time.
So how do we protect ourselves in a world defined by uncertainty, political incompetence, structural inflation and rising poverty? How do we not become the financial Neanderthal whose wealth is wiped out due to inability to adapt and compete in an increasingly difficult world as individuals? How do we combat inflation and make sure our hard earned $1 is able to buy $1 worth of stuff in a few years time?
Perhaps an answer is that we stop using the US dollar or the fiat currency of our nation as a place to store our value and begin exploring alternative currencies that are designed with fair and transparent management principles in mind. Instead of keeping our savings in US dollars, perhaps we should divert the fiat income that we earn and store the value elsewhere. My gut instinct tells me that time tested assets like gold and land combined with technologies like blockchain and crypto capital markets are going to be critical to the evolution of our global economy. I’d also argue that public companies with a promising business that yield a price-to-earning ratio below seven is also attractive as a place to store and protect your long term personal wealth.
I do not know how this is all going to play out politically, but it has become clear to me that we must adapt and evolve our underlying economic system.
It does not matter if you are from the left or from the right — — we must first find a way to protect the value of people’s hard work if we expect to have a stable political economy.
To be continued…
