Thread by @Breedlove22

@RayDalio recently published the second chapter in his series “The Changing World Order.” Chapter 2 is titled “Money, Credit, and Debt” and explains these concepts in some depth.

In this thread, we will go deeper on these explanations. Let’s dive in:

linkedin.com/pulse/money-cr…

Ray starts: “All countries can print money to give to people to spend or to lend it out. However, not all money that governments print is of equal value.”

It is important to first realize, that all government currencies began as warehouse receipts for monetary metals.

Historically, monetary metals were the best technologies in terms of money’s five traits: divisibility, durability, portability, recognizability, and scarcity. Of these, gold was relatively the most scarce, and therefore it outcompeted others as the soundest store of value.

Ray: “...1) most money and credit has no intrinsic value, 2) it is just journal entries in an accounting system... 3) the purpose of that system is to help to allocate resources efficiently so that productivity can grow... and 4) that system periodically breaks down.”

Gold as money has never broken down, only its representational systems (coins and national currencies) have been taxed (via inflation) to the point of failure repeatedly throughout history. Further, intrinsic value is an illusion: all value is intersubjective (opinion-based).

Ray: “There is typically a positive correlation between a) the creation of money and credit and b) the amount of goods, services, and investment assets that are produced so it’s easy to get them confused.”

This is only true until the currency hyperinflates, the correlation of money supply to productivity then becomes sharply negative.

Ray: “However, that increase in wealth is more an illusion than a reality for two reasons: 1) the increased credit that pushes prices and production up has to be paid back, which, all things being equal, will have the opposite effect when it has to be paid back..."

Central banks are market manipulators: as monetary socialism proliferates, prices become more a function of policy then supply/demand dynamics.

Ray: “...central banks vary the costs and availability of money and credit to control markets and the economy as a whole.”

'Control’ here is a misnomer, central banks cannot control economies, which are complex systems, anymore than an epidemiologist can control a pandemic.

Ray: “When societies first invented money they used all sorts of things, like grain and beads. But mostly they used things that had intrinsic value, like gold, silver, and copper. Let’s call that ‘hard money.’”

Again: intrinsic value is a farce. Ray fails to account for that traits that caused gold to be freely selected as money.

Ray: “Soon people treated these paper “claims on money” as if they were money themselves. After all, they were as good as money because they could be redeemed for tangible money.”

Gold-backed paper currencies were intended to enhance the portability and recognizability traits of money. Since Bitcoin is pure information, these traits are maximized, and the need for central banks is obviated.

Ray: “…debt cycles happen because most people love to expand their buying power (generally through debt) while central banks tend to want to expand the amount of money in existence because people are happier when they do that.”

Bullshit detected: central banks like to create money because they profit from its production directly via seigniorage! Remember: The Fed is a private institution that pays an annual dividend to undisclosed shareholders and refuses to be audited.

Ray: “A bank that can’t deliver enough hard money to meet the claims that are being made on it is in trouble whether it is a private or a central bank, though central banks have more options than private banks do. That’s because a private bank can’t simply print the money or...

"...change the laws to make it easier to pay their debts, while a central bank can.”

This is why the self-sovereignty of the Bitcoin network is so important; it is resistant to legal compulsion.

Ray: “…there is nothing wrong with having an increase in money growth instead of an increase in credit/debt growth, provided that the money is put to productive use.”

Although there is no problem with debt creation in a free market, when the money itself is debt-based and monopolistically imposed, it fuels capital misallocations, business cycles, and consolidations of government power.

As @RaoulGMI points out, the business cycle has become more severe in tandem with the expansion in money supply:

Ray: “History has shown us that we shouldn’t rely on governments to protect us financially... we should expect (them) to abuse their privileged positions as the creators and users of money... for the same reasons that you might do these abuses if you were in their shoes.” 👏👏👏

Ray: “Later in the cycle, when successive leaders come in to run the more indebted governments the new government leaders and the new central bankers have to face the greater challenge of paying back debts when they have less stimulant in the bottle. To make matters worse...

"... governments also have to bail out debtors whose failures would hurt the system.”

Governments do not “have to” bail out corporations; they are incentivized to do so due to the lobbying mechanism, through which private interests collude with lawmakers.

Ray: “Throughout history, rulers have run up debts that won’t come due until long after their reign is over, leaving it to their successors to pick up the pieces.”

This is why the demonopolization of money is important; these recurrent patterns of debt accumulation not only harm political successors, they are a form of intergenerational dispossession.

Ray: “At such times central banks have typically continued to print money and buy debt directly or indirectly (e.g., by having banks do the buying for them) and outlawed the flow of money into inflation-hedge assets and alternative currencies and alternative places.”

Capital controls are a violation of 1st amendment rights; Bitcoin’s resistance to capital controls and confiscation are among its most important features.

Ray: “…holding debt late in the cycle when there is a lot of it outstanding and it is closer to being defaulted on or devalued is risky relative to the interest rate being given.”

Remember: in the final analysis of central banking, both USD and USTs are debt instruments at risk of default; only provably scarce assets will successfully store value.

Ray: “Because most people don’t pay attention to this cycle much in relation to what they are experiencing, ironically the closer people are to the blow-up the safer they tend to feel.”

This is the Talebian Turkey Problem, discussed in this podcast: open.spotify.com/episode/5DV4yR…

Ray: “In the third type of system (fiat), governments can create money and credit freely, which works for as long as people continue to have confidence in the currency and fails when they don’t.”

Fiat currency is a pyramid scheme—a confidence game; it siphons value from those near the bottom to the benefit of those near the top.

Ray: “The US and the dollar naturally fit into that role because at the end of the war, the US had around 2/3 of the world’s gold held by governments (which was the world’s money at the time), accounted for 50% of world’s economic production, and was the dominant military power.”

Nations are supergangs—whoever controls the most turf and money imposes itself on all the others (i.e. Bretton Woods). Bitcoin eliminates these state supergangs' ability to control money.

Ray: “As a result, the Bretton Woods monetary system broke down on August 15, 1971 when President Nixon, like President Roosevelt on March 5, 1933, defaulted on the US’s promise to allow holders of paper dollars to turn them in for gold.”

After stealing more than they could cover with tax revenues (via money supply manipulation) the transition to fiat currency served as a means of effective government default.

Ray: “…the printing of money and the buying of financial assets, mostly government bonds and some high-quality debt. The last time they had needed to do that because interest rates had hit 0% began in 1933 and continued through the war years. This approach is called...

‘quantitative easing’ rather than ‘debt monetization’ because it sounds less threatening.”

Euphemisms are the memetic tools of 20th century Keynesians who sought to preserve their monopoly privileges through disinformation, coercion, and violence.

Ray: “So, on April 9, 2020 the US central government (the president and Congress) and the US central bank (the Fed) announced a massive money and credit creation program that included all the classic MP3 techniques, including helicopter money...

(direct payments from the government to citizens).”

Helicopter money is a desperate measure of central banks in which they kick-back some of the stolen loot to victims to maintain their confiscatory scheme.

Ray: “…in 1944 when the US dollar was anointed as the world’s dominant reserve currency, the US had around 2/3 of the world’s gold held by governments (which was considered money at the time).”

Proof that the sovereignty of nations is derived from the agglomerated self-sovereignty of their gold stocks; forcibly acquired free market money. Indeed, money has been both the means and ends of all warfare.

Ray: “Typically the big cycles start with a new world order—i.e., a new way of operating both domestically and internationally that includes a new monetary system and new political systems.”

Bitcoin promises to permanently break the long-term debt cycle, which is a direct consequence of the physicality of gold, as everyone ceaselessly fights over it and manipulates the monetary systems built atop it.

Ray: “At such times of debt and economic problems central governments and central banks typically create money and credit and/or devalue their currencies. These developments lead to the restructuring of the debts, the monetary system, the domestic order, and the world order.”

#Bitcoin is the paradigm shift @RayDalio sees coming, whether he realizes it yet or not.