This is the second instalment of The Jackpot Chronicles: Four Possible Post-Coronavirus Scenarios.

Force Majeure means:

a chance occurrence or superior force that renders a contract unenforceable and frees all parties from their obligations under it.

We are frequently told that there exists some manner of “Social Contract” to which we are implicitly bound by virtue of being alive. This implied Social Contract confers legitimacy upon the institutions that order our world, the national governments, the central banks, the miltary and police. And by extension certain communication outlets and media are endowed with a status of official curators over the narratives around institutional power.

Under the Force Majeure Scenario, the first of four possible Coronavirus aftermaths posited in “Welcome to the Jackpot”, the overwhelming or superior force is not the pandemic itself, but rather the collapse of the debt supercycle, the monetary system that derives from it, and the structure of nation states that are burgeoned by it.

The last time we were here, when a systemic crisis has shaken the foundation of the social order, the policy response was favourable to one party of the social contract at the expense of the others.

The GFC, which I now call GFC 1.0 or GFC ‘08, saw the financialized class, those closest to the monetary spigots of the Central Banks enjoy accelerating prosperity as their asset values rose, whilst the rest of the population endured stagnation and a steadily increasing cost-of-living (which mainstream commentators refused to acknowledge as inflation).

The policy response from the last crisis has led us directly, in a straight line to this one. The only surprise being the exact nature of the catalyst which would pop the Everything Bubble, and perhaps the ferocity with which the air began to let out once it did.

The signs were certainly there that we were nearing some kind of archetypical “shoeshine boy”moment or phenomenon. Complacency in passive investing, extreme overabundance in the unicorn population, the fact that there exists (existed) an entire industry around arbitraging long term leases with short term rentals via AirBnB, there was a sense of Roaring 20’s around it all and all those vile contrarians were wondering “just how long can this go on?”

Under Force Majeure the public begins to understand that the people who populate institutions are just that, people. Despite specialized training perhaps, they are not endowed with any superhuman intellect or wisdom. Success within the matrix of the institutional elite comes from proxemics and adroitly navigating the system itself, not much more.

“An era can be considered over when its basic illusions have been exhausted”
— Arthur Miller

 

An era like this comes to an end when the public realizes that their betters aren’t intellectually superior but rather institutionally privileged. Now facing an existential crisis of their own making, they are completely out of touch with the public mind and out of their depth to deal with it.

Then The System Finally Comes Unglued. Now what?

The central banks and national governments have fired their bazookas in unison yet despite a typical relief rally in the form of a standard issue dead cat bounce, reality continues to insist on asserting itself. On a recent Jelly Donuts podcast, Grant Williams talks about forthcoming GDP numbers coming off 30% “truly apocalyptic”.

Yet, the incumbent institutional custodians will continue to deny reality and to discredit themselves, what will it look like then the populace comes to realize that the old social order, and the institutions that curate it are being deprecated?

Breaking: A new bull market has begun. The Dow has rallied more than 20% since hitting a low three days ago, ending the shortest bear market ever. https://t.co/06YS0XqWGP

— The Wall Street Journal (@WSJ) March 26, 2020

Ontario Premier Doug Ford recently advised citizens who couldn’t pay their looming rent bills at the first of the month to simply “not pay”. He later tried walking that back, but when this sentiment gets writ large, with governments printing money and sending out cheques, what happens when people and businesses simply decide not to pay their taxes either?

Can political leaders say, with a straight face, that citizens should stiff their landlords or mortgage lenders but not the State?

And if the State can simply print up money and send out cheques, why do we need taxes anyway? Have we arrived at full MMT?

All of the central bank and fiscal stimulus portends a secular shift from deflation to inflation and I don’t think very many people understand what that means.

It means a whole lot of broken clocks are gonna be right for once, but at a time it counts the most.

Now, every company that levered up on debt to buy back their own shares over the last 10 years wants a bailout. Grant Williams points out in Things That Make You Go Hmmm that the airline industry spent 47B on buybacks since 2010, they want a 50B bailout.

What the chart, right, doesn’t show is the total dollar amount spent by the airlines on buying back their own shares between 2010 and 2019.

That number is $47.3 billion (of which American Airlines – whose negative cumulative free cash flow between those dates was $7.9 bln – contributed $13 bln).

Even the private jet industry wants a bailout.

And what will public citizens get? Those whose businesses have been ordered to close, whose jobs have already been lost? They’ll get a check for $1,200, or a tax deferral until August. Bfd.

Charles Hugh Smith’s books speak a lot about this type of secular wane in institutional relevancy, which we discussed on our podcast once and it bears repeating here:

MJ: when I look at  Pathfinding [Our Destiny] like part seven where where we’re talking about what the way forward looks like, that it’s outside of the control of the of the establishment, that it’s outside of the system I get this sense that for society to flourish and adapt around this and evolve. I guess that’s the key word, we’re going do this around the institutionalized hierarchies.

They’re not going to get religion one day, we’re not going to elect the right candidate, we’re not going to have the right party gain power that’s suddenly going to say “I read this great book by Charles Hugh Smith and this is how we’re going to do it”.

It’s going to be something like institutionalized hierarchies will just lose more and more relevance as these new social and business and financial configurations start gaining more and more relevance.

CHS: That’s an excellent point and I think if anything I didn’t emphasize that enough. That really what we’re talking about is kind of like hacking the system in in the old time sense that a hack was a workaround. It wasn’t like you were breaking into the system to steal something, you’d created a workaround for a kludgy system that just didn’t work anymore.

And so I think you’re absolutely right, it’s going to be working around us and and Bitcoin is one example of how workarounds are manifesting and of course the status quo is going try to suppress those and/or co-opt them but what we’re really talking about is when systems fail at a systemic level you can’t reform them. You’re not going to make a policy tweak that’s going to fix higher education or the health care system. It just isn’t going work.

People are going to start working around that and they’re going be starting to pay cash for for medical care from pop up providers or remote physicians. Or there’s lots of different solutions to that in education. What I see the model that’s going to emerge whether people like it or not and is that students are going to start taking control of their own education and they’re going start organizing their own education.

They don’t need this bloated structure that charges them $70,000 a year and so that’s where technology, the internet and networking has really enabled a whole suite of solutions that basically bypass all the institutions that now hold the wealth and power, that have all this as you say institutionalized lethargy as as their their model.

It’s actually quite an exciting time but for those who are dependent on the system within these institutions it’s a very disturbing time

Under Force Majeure as the institutions become understood to be out of touch with both the causes and remedies to the immediate crisis, they begin to signal their own hypocrisy and irrelevance more intensely.

It will not be long before citizens will face the dilemma of continuing to observe the edicts of their governments, whose policies inexorably stripped them of their ability to weather any kind of economic speed bump. They will come to realize that despite what the government decrees, especially if that means keeping their businesses closed or their jobs on hold for much longer, they may be better off working around that.

That’s when myriad alternative economies and ecosystems will explode, black markets, grey markets, Local Exchange Currencies, private blockchains, invisible agoras.

As governments at all levels teeter on insolvency and their inability to control their own populace everywhere or to be in a position to guarantee security and order, I could envision neighbourhood watch groups morphing into localized militias. I would anticipate an explosion in private security and ex-military contractors.

Don’t be surprised to see Facebook resurrect their Libra, either under that monicker or some rebranded version as the large corporations, the ones that have revenues larger than most national GDPs begin to reassert some of their plans which may have been impeded earlier.

However it plays out, the key points to bear in mind are that:

• It would be a mistake to think of the next 20 years as a linear, albeit accelerated version of the previous 20 years (a la Chris Martenson)
• We are about to undergo a change in secularity from deflation to inflation (a la Grant Williams, Peter Schiff and many others)
• The incumbent institutions of the fiat currency era are about to be swept away, akin to the way the royal houses of Europe were after World War 1 (the last major “Force Majeure” transition period that comes to mind for me).

It will all be very reminiscent of Neal Stephenson’s “Snow Crash”

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A few months ago I was on the Lite Show (Litecoin) podcast, we got to talking about Facebook’s forthcoming crypto currency, which hadn’t been named yet. I mused then that it would totally suck for the entire crypto-currency space to have come this far with Bitcoin, et al only to have Facebook swoop in and take all the marbles. (In marketing parlance this maneuver is called  “grabbing the microphone”)

Then Facebook announced their digital currency, it’s Libra, and it was met with immediate resistance. But the pushback, didn’t come from where one might expect it, from within the crypto community. There was plenty of commentary about it to be sure, but nobody from within the crypto space was saying that Libra had to be stopped.

No, the immediate pushback came from various tendrils of myriad states and government entities, including:

• Maxine Waters, immediately calling for Facebook to cease all work on Libra
• French Finance Minister Bruno Le Maire warning against Libra becoming a sovereign currency
• and most recently the G7 (at least recent when I last worked on this post), the G7 forming a task force to address the issues Libra raises, and urging the “highest possible level of regulation” on it,

This instant pushback against Libra seems even more intense than any initial government condemnations against Bitcoin itself when it started to gain traction over the initial ramp up. Perhaps there are good reasons for this, such as:

• In the rear-view mirror, it’s possible that governments now view giving Bitcoin some room to run was a mistake, and it opened a Pandora’s box (from their perspective) which would be unable to be contained, and
• Facebook provides an identifiable target – governments can actually pinpoint them and (for now) regulate or threaten to regulate them. They can’t target Satoshi Nakamoto or an open source repository of computer source code.

I mused in my dayjob’s #AxisOfEasy newsletter #102  that we seem to be arriving in a scenario depicted in the Mr Robot TV series, where the  crypto-currency Bitcoin and a private, corporate sponsored e-coin dual for supremacy in the aftermath of a hacker induced economic collapse (In the series, Libra’s role is depicted as the fictionalized “Evilcoin” with Bitcoin starring as itself. The economic collapse also turns out to be a Trojan horse operation launched by China).

The only thing missing from today’s reality, as I write this, is the economic collapse part, but with stock markets at all-time highs, and the Fed cutting rates again in this ostensibly great economy, clueful observers the world over sense that something is about to give. Tangentially the stealth bull in precious metals and resurgence of Bitcoin, even in the face of Libra, all point toward the idea that not all of these economic indicators can be right at the same time. That means at some point a disorderly readjustment may occur.

Welcome to a New World Order. We call it “Snow Crash”

Snow Crash was the Neal Stephenson near-future thriller set against a backdrop in which national governments found themselves set back on their heels, competing against privatized sovereignties across a wide spectrum ranging from a multi-national pizza conglomerate to the global Mafia.

Why didn’t Bitcoin tank when Libra was announced? If one is to accept the superficial premise that Facebook will indeed swoop in and capture the digital currency space after Bitcoin softened the ground for them, the announcement should have had a similar effect to when Amazon announced it was buying Whole Foods, and grocers everywhere tanked hard. That didn’t happen, why not?

By contrast, Bitcoin has more or less held steady since the announcement, after giving back some ground after an initial spike higher post-Libra. In any case, there was no instantaneous death crash compared to when Amazon entered the grocery space.

The reason, I think, is because Facebook’s Libra isn’t challenging Bitcoin. Facebook, perhaps without even being aware of it themselves, is doing the same thing Bitcoin and crypto-currencies did when they emerged out of a financial crisis spawned by central bank manipulation and a currency regime so rigged as to destroy all market signalling capabilities: it challenged the prevailing economic order, and that order is the scaffolding of the nation state as we know it.

In other words, these crypto and digital currencies are ushering in a new era of competitive economic sovereignty, and with it, the decline of the hegemony of nation states.

One of the best books I’ve ever read that anticipated this disruptive shift in the nature of sovereignty was “The Sovereign Individual” by James Dale Davidson and the late Lord William Rees-Mogg (father of Brexiteer Jacob Rees-Mogg, who was once reportedly on the short list to replace https://bombthrower.com/wp-content/uploads/2019/03/shutterstock_1030471843-e1551983495127-1.jpg Carney to head the BoE).

According to that book: Nation states arose by capturing escalating returns on violence and force. The transition into the gunpowder era ushered in the rise of nationhood, and increasing returns on violence, right up until the collapse of the Berlin Wall in 1989. The fall of Eastern block, they argue, was not an ultimate victory of the West over Communism, as Francis Fukuyama asserted in The End of History. Instead they posited it more as the death of a fraternal twin, that of nation statehood.

As the returns on violence decreased as can be witnessed by every military disaster the US has undertaken since WWII, the other twin is now sclerotic and withering. So what does have increasing returns now? It isn’t violence anymore. It’s information. The shift from one to the other means that the nature of the monetary system will also shift.

The old order monetary system was built on Bretton Woods – a global reserve currency backed by US military imperialism. That system is going away and everybody knows it.

Money does not issue forth from power, recall my prior citations of Stephen Zarlenga: who controls the money system, controls society. Power emanates from money. Nation states and central banks assumed they would retain control of the money system indefinitely. They assumed that they could continue to manipulate the money supply to further their own interests (Cantillon Effect driven benefits) and there was nothing anybody would ever be able to do about it.

But Revolution has a way of lobbing disruptive, explosive technologies from the periphery where nobody is expecting an asteroid to originate. Did the major music labels expect to be reinvented by Apple? Did the Hollywood studios expect to be elbowed aside by Netflix and Amazon? And did the nation states and central bankers think disruption would encroach and fundamentally transform all aspects of society but stop at the demarcation point of sovereignty and money? Why yes, yes they did.

I have said repeatedly – the incumbent system has overreached itself, and out of that necessity came Bitcoin and crypto-currencies. This was essentially the market re-asserting itself in the face of endless manipulation.

Money has evolved, and is now reinventing itself for the next ascendant wave of increasing returns: information. Next, sovereignty will reconfigure itself to adjust to the new format of money. This is the opening that Bitcoin opened up, and Facebook is the among the first to make a move into it. And that’s why ensconced governments are so up in arms about it. They recognize direct, real competition to their own authority and relevance. The nation state isn’t going away any time soon, but the rise of the platforms isn’t going to be stopped, either.

In the future, your digital single-sign-on credentials that you use to access various online platforms (or the one platform from which you derive your entire sustenance and livelihood) will be as important to you, perhaps eventually more so, than your government issued passport.

Governments want to regulate how the Age of the Platforms will rise, which is similar to how the Papacy once deigned to guide and arbitrate royal succession. But over time this will reverse and it will be the Platforms that increasingly set the terms for nation states. Given the accelerated pace things move at today, this process will not play out over centuries, the way the transition from feudalism to nation states did, but over decades, even years in some places.

Today nobody raises an eyebrow that the Swiss National Bank is Apple’s largest shareholder by printing francs and buying shares. What happens tomorrow, when Facebook issues some Libra, sells them for USD to pay their taxes? Or to settle one of the myriad fines levied, like Papal encyclicals of yesteryear, against these upstarts? My guess is governments will scream foul, “only we can print value ex nihilo!”.

But the reality is that anybody can create their own monetary instruments provided they can find a market to ascribe value to it. Money has always changed with the times and arisen privately, the states then adapt, co-opting whatever emerges as money at the earliest possible opportunity. Looking back on today that may be what Libra is to Bitcoin. The equivalent of a Federal Reserve of Digital Currencies (the Libra Founders Association looks hauntingly like a modern, cyber analog to the member banks of the Fed).

The Real Battle of the Future

One might think that this means the battle of our times will be between the falling (failing) nation states and the rising Platform challengers, but that’s not the way I see it. In many cases nationhood and platform will effectively merge, witness China, where tech giants like Google and IBM’s Open Power Foundation is helping the Chinese government build out their Sesame Credit total surveillance platform.

In other situations, platforms may prevail, if Facebook or some other technology upstart is successful in their machinations they may become more relevant than the State in many jurisdictions. They may effectively become the de facto state in some areas.

In both these cases the defining characteristic will be centralization and consolidation of power and authority.

Against this, will be the ascendency of decentralized, autonomous sovereignties based on crypto-currency models and the original ethos of Bitcoin. Where Western Capitalism vs Communism was the defining question of the now ending age of industrial nation states, the fraternal twins of the future may be that of platforms vs protocols. The former centralized, consolidated, authoritarian as anticipated by Fukuyama and fleshed out today in The New Digital Age, Google’s manifesto penned by Jared Cohen and Eric Schmidt:

We collaborated first as writers of a memo to Secretary of State Hillary Clinton about lessons learned in Iraq, and thereafter as friends. We share a worldview about the potential of technology platforms, and their inherent power, and this informs all of the work we do, both within Google and outside it. We believe that modern technology platforms such as Google, Facebook, Amazon and Apple, are even more powerful than most people realize, and our future world will be profoundly altered by their adoption and successfulness in societies everywherer.

and the latter decentralized and anarcho-capitalist, anticipated by The Sovereign Individual and realized more now in George Gilder’s Life after Google

However it plays out, it will all be very cyberpunk.