#1 - Gotta Have This
Longtime readers here know that this blog was started years ago in an effort to offer a free resource to the public for anyone interested in issues that relate to the long term sustainability of our present financial and monetary system. I write this blog from the perspective of the average person who must try to sort through reams of often conflicting and confusing information about the state of our economy and monetary system while trying to make the best personal financial decisions for themselves and their families
After doing this now for years and having an opportunity to get input and information both from mainstream and alternative media sources along with some excellent direct input from leading experts on these issues from around the world, I certainly have learned some things along the way.
In this article, I wanted to share what to me are the three most important things I feel I have learned working on this blog for all these years. I will add that every effort has been made here to avoid any political agenda and instead try to focus on just reporting what I understand to be factual information and then let readers use the information to form their conclusions and opinions. Of course I have my own opinions, but the truth is that they don't really matter in terms of impacting anything that will actually happen (this is a main theme of the three most important things I have learned below)
1 - If something wants to be viewed as money, it MUST have the trust and confidence of the overwhelming majority of the general public.
This probably seems obvious and yet I constantly see articles and opinions all across the broad spectrum of views that imply that many people don't fully understand this basic principle. Just during the lifetime of this blog, I have read literally hundreds (perhaps even thousands) of articles and opinions explaining how our present system couldn't last more than just a few more years, or months, or in some cases weeks. The common theme seems to be that with all the enormous debt overhang and explosion of created money (including the US as a prime example of course) that there is simply no way the US dollar can continue to hold on to its position as the global reserve currency very much longer. They say people simply won't accept it as they see all the exploding debt and enormous amounts of created US dollars by the Federal Reserve and the US Treasury. Interestingly, most of those who take this position also scratch their heads and say they can't believe the public has not already rejected the dollar and that the system has not already collapsed. They express confusion as to why it has not already happened.
First, if you follow these issues, all these concerns are perfectly valid and no one can seriously say with a straight face that we have not seen debt explode higher and hugely expansive monetary policy at the Fed (both before and even more after the COVID pandemic). So why hasn't both the US dollar and the present system collapsed so far?
I believe it is because for whatever reasons, the overwhelming majority of people still do have trust and confidence in the US dollar and gladly accept it in payment for goods and services. Until something causes a much larger % of the general public to actually lose confidence in US dollars (and therefore not only not want to accept them, but start trying to exchange them for something else), the US dollar continues to get public trust and confidence (despite its flaws). So far, a desire to abandon the dollar by most of the public simply has not happened. Despite all kind of efforts to get people to move away from US dollars (Bitcoin, precious metals, cryptocurrencies, alternative currencies, etc), only a very small % of the general public prefers those alternatives to US dollars. That is just a fact. Even people who are sure the US dollar is or soon will be worthless still accept them and use them. It's perfectly reasonable to raise questions as to how long this will continue, but it is also important to understand that until there is a big change in what most of the general public trusts, we should not be surprised that the US dollar has not yet collapsed. That leads us directly to observation #2.
2- What Matters is What Actually Happens
This may be the hardest truth for most people to accept, but it is a mantra I have repeated here many times on the blog and something I have learned that is beyond question for me. It's human nature to believe that how we want things to be or how we are sure things must be is how they actually are. This can lead to some great frustration when over time it becomes clear that somehow things are not happening "the way they should be happening" based on my own understanding, which of course has to be right. When it comes to making personal financial decisions, this mentality can be destructive. If there is any point I would emphasize to anyone interested in these issues, it is to not get locked in to one viewpoint of how things have to unfold and especially any kind of defined time frame for events to unfold. I would encourage readers not to get so married to one "source" that they are sure can predict a future timeline that they close their minds to other points of view; and for sure don't close your mind to observable facts that contradict what you are sure "has to happen".
I am prepared to make the following statement after years of reading thousands of articles on these issues and hearing from leading experts all over the world directly. --- No one on this earth knows for sure how future events are going to play out in terms of when our monetary system may see major changes and when the public might lose confidence and trust in the US dollar. It is reasonable to examine facts, look at trends, and draw conclusions that our present system is not sustainable at some point in the future. But no one can tell you when it might actually change. I recall the late 1970's. At that time, concerns over the sustainability of the system were probably as high as they are today. Inflation was off the charts into double digits. I recall my father telling me that he could see no way the US could avoid bankruptcy in the next 10 years or less because of the way the national debt was getting out of control. Fast forward to 2020. The US still has not defaulted and the US dollar still holds its position as global reserve currency. The point is that my father was sure "it had to happen the way he saw it happening", but he passed away before anything like he expected actually happened. Does this mean it can't happen or won't happen? Certainly not. As we have documented here for years, there are all kinds of systemic risks out there that can lead to major monetary system changes at any time. My main point is that no one knows for sure when "any time" may be. The wisest plan in our view here is to have a plan in mind for a further extended period of time where the present system continues in place and a backup plan in mind in case it fails anywhere along the way. Because, no matter how much I believe something is going to happen or how much I might want something to happen -- when it comes to making a financial plan -- what matters is what actually happens. Here we will always try to focus on reporting what is actually happening as best we can determine it.
3- It is much harder to get consensus for any kind of major change to a system than many people realize
Without a doubt this is one of the three most important things I have learned over the years working on this blog. I see article after article assuring me that "blockchain is the next revolution in the financial system" or that "the IMF has a master plan to issue a global digital currency next year" or "China will replace the US dollar with a gold backed yuan" or "China will replace the US dollar with something else" or "the COVID crisis was created to provided cover to implement a new global monetary system" etc. etc. Let me be clear, there are valid reasons why people talk about these kinds of changes and many very intelligent people believe one or the other of them are about to happen. I can also report that there is absolutely legitimate concern about the sustainability of our present monetary system I have gotten directly by email from experts around the world. I have tried to discover and understand all kinds of ideas on how to reform and/or replace our present monetary system if the day comes when that has to happen (some are documented here).
These concerns comes from every direction. People who think we need to return to gold standard are concerned. People who think we need move towards some kind of cryptocurrency based system (gold backed or otherwise) are concerned, people who like Bitcoin are concerned. People who have worked inside the present system for decades and are leading experts in the world on these issues have concerns. Today, even many people in the general public who don't normally pay much attention to these issues are also concerned. They see the US debt exploding higher and the Federal Reserve expanding its balance sheet to over $7 Trillion. We can easily agree that lots of people are concerned.
Unfortunately, based on what I have seen here studying this for years, that is pretty much where the agreement ends. How to change the system, how to actually implement some kind of new system, how to have a system that promotes fairness and justice, and any kind of actual detailed plan to really implement a new working system are all areas of huge disagreement everywhere I look.
First, let's understand that nothing changes in a system without the political will and power to make it happen. So how is that going in the US for example? We have the most divided population ever. Trust in all kinds of institutions is at all time lows. Trust for most politicians is based mostly on whether they agree with your views or not and even if they do, trust is still very low. I cannot imagine any kind of consensus in the US coming together for any kind of major changes to our present monetary system without massive opposition from one group or the other (up to and including possible civil unrest). Let's move on to the global community. Let's look at the IMF since so many people feel they will be implementing some kind of new global monetary system any day now. The IMF has (if I recall correctly) 190 member nations. The US has a 16% vote at the IMF which requires 86% total voting approval for any major rule to be adopted or changed. So the US essentially has veto power. On the flip side, the combined voting power of the BRICS nations can also total up to a veto power. This is a perfect combination for the same kind of deadlock we see in the US political arena. While the IMF does manage to get approval from time to time on various proposals, any kind of major changes are likely to involve nations lining up to protect their own national interests first. Just recently, we noted in a blog article here that the US and India were opposed to the IMF doing a new allocation of SDRs in response to the COVID pandemic. This US has historically been determined to protect the interests of the US dollar at the IMF and everywhere else it can, and there is nothing to suggest that will change. Does all of this suggest to you that we can expect some kind of grand plan to remake the global monetary system to emerge any time soon that will have the consensus required to succeed? If so, I would refer you to point #2 above for a reality check.
The three points listed above are what have led me to report here for a long time on this blog that:
1- Changes in the system tend to be gradual and incremental rather than fast and major
2- Unless we get a huge global financial crisis so large that the present system simply cannot be preserved, the tendency will be to try and preserve the present system for as long as possible despite all the systemic risks that clearly exist to it
3-Obtaining consensus on some kind of new monetary system is almost impossible under the current US and global political atmosphere. Not in the US or globally. Nothing suggests this will change soon.
I believe the biggest reason the above three conclusions are valid is that the risk of trying to change from the present monetary system to something new with no ability to obtain the kind of general public consensus needed is simply too great. Until something changes that equation, I believe authorities are unlikely to take that kind of risk. Not only do you have to have the public buying in to point #1 above (overwhelming majority of people trust it), you have to actually have some kind of new system/currency that can actually be implemented and the technology ready to go to make it happen. None of that exists in any kind of real world tested environment. I am quite sure on that point. There are all kinds of ideas, proposals, and studies on technology changes, but they are nowhere near ready to be implemented in an actual real world situation even if you could get some kind of major consensus on which one to implement (which does not exist now). All this tends to promote stasis (not much change) as the only realistic option left for those in power until something happens out of their control that forces major change away from the US dollar .
I offer this article with the goal of trying to help people like myself sort through an enormous amount of information and disinformation that exists on this important topic. It's prudent and right to raise concerns about the sustainability of the system we have now. A problem can arise however, if you get married to one idea of how this will all play out and make personal financial decisions on the assumption that it has to play out the way you believe it will. I can say that if the leading experts in the world are not sure where all this is going, we can't be either, and we need to keep open minds and be flexible in financial decision making. It's foolish not to try and insure against this kind of uncertainty in any way you can.
Added note: A long time friend and blog reader reviewed this article and sent the comment below. I thought it was an excellent summary:
"This is what I think you are saying (in my own words):
Why is the US dollar still the global reserve currency today? Because there is not any better alternative today. Why has the astronomical US debt and huge FED balance sheet not caused any financial instability so far? Because all nations around the world have dramatically increased their national debt and Central Bank balance sheets in a very coordinated fashion since 2008. In theory, they can continue to do this and leave interests rate at zero forever. In practically, they cannot do it forever. Run away inflation may be beyond the Central Banks’ ability to continue financial control. The next major crisis may cause the problem. The most recent crisis COVID has not done it (so far). I am confident that the status quo will not last indefinitely, but I don’t pretend to know the timing on the inevitable change."