Greed and the collapse of the financial system

Albert Einstein supposedly said, “Two things are infinite, the universe and human stupidity, and I am not convinced about the universe.”
It is irrelevant if he said it or not; it’s true; and as a synonym for “stupidity,” we could use “greed.”

Economics is really interesting as a context for examining human behaviour.

Every economic system that we have devised deals with the same fundamental issue; the world (and the universe?) is a finite place, as opposed to human stupidity/greed. It is theoretically possible, and generally the case that our greed surpasses our opportunities to satisfy it.

Simple barter stopped working when supplies of things to be bartered ran out. Mercantilism stopped working because it is based on arithmetic, rather than geometric, progressions.
A greedy person just can’t get rich enough trading actual things.

Enter modern finance.

We can’t make the resources, energy and markets infinite; one can only extract so much raw materials before they are irretrievably depleted. At a certain point, you end up having to consume >1x energy to extract 1x energy. Once everyone with the money to buy a refrigerator does so, markets are exhausted.
But modern financial wizardry can make money abstract, and therefore infinite. Remember, we have an infinite number of 1’s and 0’s at our disposal.

So, now we have found a way to make money infinite, the problem is that if money is abstract and infinite, then it becomes worthless.
It has to be made artificially scarce so that it can retain its value.

So we tied it to debt, in a Zero-sum relationship. For every unit of money, there has to be the same unit of debt. Both numbers can be infinite, but they have to total zero or the scarcity, and therefore the value, is lost.

This worked really well for a long time, but from the very start some people saw the flaw in the reasoning and were able to predict how it would all fall apart. We call them “Marxists,” and we don’t listen to them because they’re no fun at parties.
Marxists were appalling social observers, terrible judges of human nature and dreadful bore’s, but they did discover the flaw in the capitalist financial system.

I believe, and many will agree, that our financial system is on the verge of collapse. It’s impossible to say exactly when that will happen, but it’s fast approaching.

The moment of collapse comes when a critical mass of people have an “Emperor’s New Clothes” moment and realize that the whole system is bullshit. That sentiment is growing and intensifying, but how far it has to go before it overwhelms people’s normalcy bias is anyone’s guess.

We’ve gotten to the stage in the financial crisis where actual productive endeavours are far less profitable than abstract manipulations. That’s why wages are declining and unemployment growing. That’s why the price of luxuries and trinkets falls while the cost of things we actually need rise.

So how does this happen?

We’re not really trading tangible things; we’re trading coupons tied, loosely, to the notional future value of those commodities. The price of those coupons turns out to have a lot more to do with the price of money lent at interest to fuel the extraction industries.

The price of oil tells us almost nothing about oil in today’s modern finance capital marketplace. It tells us a lot about the value of money. And the value of money is plummeting, as more and more people figure out that the supply is infinite, and the debt it’s tied to is also infinite and fictional and will never be repaid because it can’t be.

And the debt can’t be repaid because it’s gotten to be so huge no amount of productive endeavour can raise enough money to repay the debt.

The only question now is how long will it still go on, and what increasingly desperate measures will we turn to in order to keep up the charade?
At some point, one day nobody shows up. And that’s when it’s over.

When that happens, I have no idea. But when the whole system is based on pretence, and there is no real anchor to value, eventually people will stop playing.

Their greed will no longer be satisfied by participation.
We’re getting close…..