…and the Bitcoin Breakout

What we now call “The Cantillon Effect” was known far back as circa-1730, by at least one economist.  It hasn’t been taken very seriously in modern times, especially here in the fiat age.

Named after its author, Richard Cantillon, in his “Essay on Economic Theory” (“Essai sur la Nature du Commerce en Général”) — it is his only surviving work and was published posthumously in 1755, more than 20 years after he was murdered by a former cook whom he had dismissed from his household. The disgruntled ex-employee, returned by night, robbed his home, then set it ablaze, with Cantillon — and the rest of his manuscripts, within.

The Essay On Economic Theory had been previously circulated in pamphlet form, which is why copies survived to be published to the world, and lays bare the dirty secret behind all fiat monetary schemes:

In a nutshell, when money is created or added to an economy, the people who receive it first, benefit, but they do so to the detriment of everybody else.

The early recipients of new money were able to spend it on accumulating more of the productive assets that society had to offer. But this also increased the money supply, which diluted the purchasing power of everybody else’s existing money.

The wealthy got to invest new money.
Everybody else had to spend more of their existing money.

So, while the rich got richer, it made it more expensive for the poors to stay alive.

The elites invariably believe the system works great. From inside their bubble it certainly seems that way. But it is unsustainable over the long haul. As the dynamic iterates, it accelerates, and it increases wealth disparity. If there was a nice, meaty middle-class in the economic bell curve, it wouldn’t last for long as the productive assets increasingly get hoovered up by a rentier class using new money.

Eventually wealth inequality hits a breaking point, and when that happens, all existing social contracts – real or implied – break down.

The French Revolution may be the first example of the Cantillon Effect’s consequences, after Cantillon himself detailed its underlying dynamics.

The distortions introduced from currency debasement are far reaching and take a long time to play out. But the tempo intensifies toward a “quickening” as it enters the end game, much like compound interest and bankruptcy (“gradually, then suddenly”). The rich become more imperious, the poor more resentful and then, finally, after generations of silent theft and economic repression, something sets off a phase shift — and then it’s show trials and guillotines.

In France’s case, the monetary missteps that set it on a course to Bastille Day went at least as far back as Louis XIV, the great-great-grandfather of the Sun King who would be left holding the bag (and his head in a bucket) nearly a century later.

In Guy Rowlands “The Financial Decline of a Great Power: War, Influence and Money in Louis XIV’s France“, we are told of “dimunitions” which devalued the coin of the realm by decree, (nevermind that it was gold and silver backed)…

The government would typically prepare an augmentation by decreeing diminutions—or abatements’—of the coins in circulation, a decision that did not require coins to be restamped or re-created. This was not primarily so the king could pull in more coins through taxation (denominated in Livres),” as any such gain would be cancelled out: a diminution would in fact also force the king to compensate his fisco-financiers and bankers for losses on their contracts and on the coins they held at the time. ‘

 

The main reason was so there could be huge leaps upward in the value of the coins to the level decreed by the subsequent augmentation, thus bringing in more seigniorage to the king. The government also hoped that a diminution, generating fear of further diminutions, would flush coin out into circulation, particularly for lending to the fisco-financiers.

That is why diminutions were announced in advance, with weeks or even months before the new, lower values would come into effect. This gave people a window in which to lend out their assets. There were indeed often several diminutions in a row: prior to the 1693 augmentation, the values of the coins were diminished four times; and prior to the great recoinage of 1709, diminutions were announced in March and November 1708 and on 16 March 1709.

The state never brought the coin values back down to the level they bad been before the previous augmentation, and this was important to ensure the public did not think the bottom of the valuation had been reached.”

Does any of this sound familiar?

Cantillon on steroids: The Fiat Era & Stakeholder Capitalism

“Let them eat brioche” — Marie Antoinette, 1789

 

“You will eat bugs, own nothing, and live in a pod” — The World Economic Forum, every day.

With the fiat era, starting in 1971, new money was no longer limited by the supply of gold, or whatever else was backing a currency. You could print the stuff right out of thin air now – which meant that instead of ostensibly enriching all members of society, with its “targeted inflation” for expanding the money supply, it would just accelerate the rate at which the underclass was being impoverished (which for a long time could be papered over with “hedonic adjustments” when reporting on it).

The Global Financial Crisis in 2008, followed by over a decade of ZIRP, NIRP, and QEternity, overclocked that process, and then Covid hit, when it went literally parabolic:

On its own, this may look like just another hockey stick graph. Most people don’t make the connection on exactly how this manifests in the real world (especially central bankers).

There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.
— John Maynard Keynes 

(Even fewer people realize that Keynes was a Marxist and his economic prescriptions, which form the basis of conventional economic theory to this day, would  lead to socialism. This was intentional. Especially once you understand what socialism really is.)

This graph is just real estate, and as of 2020. That was before COVID, before lockdowns, before small businesses got shut down by decree while big box stores and Amazon stayed open and the Fed bought their bonds.

Let’s look at a couple of inflection points:

The graph above is from Pew Research. In 1971, the start of the Fiat Era, middle income households earned the bulk of the income pie at 62%. Along comes Nixon, who closed the gold window (“temporarily”), and it’s all downhill from there. All kinds of wealth inequality drivers can trace their genesis to that event in 1971.

Then when the bankers blew themselves up (again) in 2008, the bailouts happen (again) and we hit another inflection point: the era of ZIRP, NIRP and QEternity hits, and this is exactly where upper income households crossover the middle income earners. Again, this graph stops short of the Covid Era, at which point all of these trends accelerated. 

Where does it leave things?

The bottom layers of the economic stratum are looking like a cross between Mad Max and a  Zombie Apocalypse. Even worse, is that thanks to plunging income mobility, the underclass is growing.  The middle class are falling into the poverty more often than ascending into wealth.

This Visual Capitalist chart looks at the number of people earning more than their parents by generational cohort. Remember, because of inflation everything is getting more expensive, but if each generation is earning less than their parents, they’re losing ground:

Unless you’re already wealthy – then everything is fine because your share of the pie is getting larger…

All Cantillon Schemes Require a Totalizing Ideology

As I mentioned recently in my article on how abandoning sound money perpetuates Forever Wars,

If there is a far-reaching, multi-generational global conspiracy – it is one that brainwashes the masses into trading their time, wealth and property for meaningless chits backed by nothing. Who needs global Communism?

In pre-Revolutionary France, it was By Divine Right. The king was chosen and appointed by God to govern the kingdom. This belief was used to justify the absolute power of the monarch and his authority over all aspects of French life. And the masses went along with it until the economics became so asymmetrical and unsustainable that the peasants revolted. They had no choice, the alternative was to starve to death.

Today’s totalizing ideology is a kind of euphemistically wrapped Technocratic Marxism. Klaus Schwab calls it “Stakeholder Capitalism”, George Gilder, perhaps more accurately, termed it Emergency Socialism in his latest book, Life After Capitalism.

It’s called “Stakeholder Capitalism”.
(…and you aren’t a stakeholder ) pic.twitter.com/pjyU37SL2o

— Mark Jeftovic, The ₿itcoin Capitalist (@StuntPope) July 27, 2023

Gilder only uses the phrase out once or twice in the book and never really expands on it.

Allow me.

Today’s Totalizing Ideology is that you, dear peasant, must ratchet your standard of living downwards. You will have to take up less space. You will have to consume less resources, you will have to pay more for everything and you must accept ever worsening living conditions because if you don’t, the world will end.

And nobody wants that, right?

In the meantime, your betters, the people who have it all under control and everything figured out, will continue to re-imagine your life, and the lives of your children, so that they can forestall the implosion of the global monetary system and finish hoovering up the remaining 5% of the global wealth that they don’t already own.

“The peasants have no bread”. “Then let them eat bugs”.

Scene at Versailles as elitists who think you should own nothing, go nowhere & eat their processed crickets prepared to feast at taxpayers’ expense.#vampireelite pic.twitter.com/zSeKw7KcqO

— Nick Griffin (@NickGriffinBU) September 22, 2023

Which brings us to… Bitcoin.

If only there were some mechanism that was not only immune from dilution via inflation, but could actually reverse the Cantillon Effect.

Sure, there is gold – the age old monetary metal. I like gold and have been invested in it for nearly 30 years.  Silver too. Everyone should have an allocation to gold and have some silver, including junk silver to have on-hand for sundries if (or when) your national currency collapses.

But Bitcoin, as distinct from other “cryptocurrencies”, is a very unique monetary asset, backed by energy, decentralized, hard-capped in supply, and largely impervious to capital controls in a way that is distinct from all other monetary assets.

If only there were some mechanism that was not only immune from dilution via inflation, but could actually reverse the Cantillon Effect.
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To top it all off, Bitcoin exhibits a reverse Cantillon effect. Because Bitcoin is deflationary, it is becoming more valuable.  It is increasing its purchasing power, as more wealth flows into the system and it does so for everybody hodling it. The difference between Bitcoin and Cantillonism is that  the purchasing power isn’t declining as the currency units flow outward from the central spigot. It’s increasing for all units, at the same time.

Most people can’t wrap their head around this. Even the aforementioned George Gilder, concludes that Bitcoin can’t become the new global monetary standard because it is deflationary. And he did it in the chapter of his book called “Bitcoin Capitalism”. Heartbreaking.

But history has shown deflationary currencies not only work, economies thrive under them (see again, Sound Money Makes For Short Wars) – and Detlev S Schlichter wrote an entire book on why that’s the case.

“A monetary system with a money commodity of essentially fixed supply will experience secular deflation. A growing economy, with an entirely inflexible money supply will exhibit a tendency for prices to decline on trend, and for money’s purchasing [power] to steadily increase.

 

But the key question now, is why should this be a problem? We have already seen that historically secular deflation was rather minor and that it certainly never appeared to present any economic difficulties. No correlation between deflation or recession or stagnation is evident under commodity money systems. [T]here are no reasons on conceptual grounds to consider deflation to be a problem”

If there is any disparity, between time and value with Bitcoin, then it’s front loaded. People get into Bitcoin at the price they deserve, but there’s nothing stopping anybody from getting in whenever they want. With the Cantillion Effect, you have no control over new money creation, but yet you still have to live with the declining purchasing power instigated by other people.

With Bitcoin, even if you enter later, you are still on the escalator up, having your sats gain in purchasing power as more capital moves onto a Bitcoin Standard.

We may not have to fire up the guillotines in order to exit this particular episode of Cantillonism, (although we may fire them up for other reasons).

As more people exit the fiat system, the only people left to for the elites to dilute will be the remaining serfs who will get stuck inside the coming CBDC system.

More on that in a future post…

My forthcoming ebook The CBDC Survival Guide will give you the tools and the knowledge to navigate coming era of Monetary Apartheid. Bombthrower subscribers will get it free when it drops, sign up today.

The Bitcoin Capitalist: For Today’s Sovereign Individual provides actionable intelligence on the macro forces shaping Late Stage Globalism and a tactical toolkit for growing your wealth as it plays out. Try it today here.

Follow me on Nostr, or Twitter.

Turns out Keynes was a Commie

Awareness of the centuries old concept of The Cantillion Effect has been experiencing a revival of late, particularly since the extraordinary acceleration of monetary injections that occurred under COVID. Named for the French-Irish economist who died in 1734 (he was murdered), the Cantillon Effect is when you create a bunch of new money and inject it into an economy. What happens is the people at the front of the line who receive the new money first become wealthier, while the people at the end of the line who receive it last are further impoverished.

This is not peculiar to the post-Covid era. For more than a decade I’ve been describing how rampant money creation and credit expansion skews formerly free markets into a kind of economic vampirism, without actually knowing there was a term like this to describe it.

From my vantage-point as a tech CEO running a company that has never taken on VC funding, it unfolded as having to compete with multiple deep-pocketed 800lb gorillas and billion dollar unicorns who were losing money on every transaction and driving a race to the bottom across the entire industry. Companies like ours have to be profitable or perish. Serially funded unicorns just have to keep their burn rate below their fund-raising tempo.

Marc Andreesen, the noteworthy VC icon touched on it with his famous “Software is eating the world” euphemism, but it failed to capture the financialization aspect of it. It’s more like “serial up-rounds are eating the world”.

The dynamic intensified dramatically under COVID. Not only were the monetary injections accelerating, but governments globally shut down small and independent businesses for nearly two years, and then central banks went out and bought the bonds of the quasi-monopolies who were left.

Via Statista – the Fed purchased bonds of companies controlled by every person on this list.

But even if the people at the front of the line have a privileged position, why does this necessarily translate into them either using that position to launch, fund and flip money-losing unicorns, or hollowing out via financial engineering what would have otherwise been long term viable businesses?

It’s the currency debasement, stupid

When the cost of capital is cheap, like near-zero cheap, companies never have to be profitable. In fact if the capital pool is growing faster than the operating earnings are, you’re actually incentivized to eschew profits in favour of taking on funding – provided you have a short-term time horizon.

Here’s the thing about printing money: because it devalues the currency, it compresses time horizons.

If you think of currency as “shares” in the economy they denominate, then it should be easy to grasp that by increasing the number of currency units, you aren’t magically growing the economy. You’re just increasing the numerator (the currency units) while keeping the denominator (the actual goods and services available) the same.

If the numerator grows, that means it takes more currency to buy the same goods and services, so it is experienced as variations of “number go up”:

• For people who are already wealthy: assets increase in “value” because they are being measured in more units
• For everybody else: food, shelter and essentials get more expensive, same reason.

In fact government metrics that define some arbitrary “poverty line” as being based on some level of income almost completely misses the point. The line between poverty and wealth should more accurately be measured in terms of net assets. The wealthy have assets – that compound. The poor have bills – that get more expensive.

Whenever the monetary authorities increase the currency supply or expand credit, it is always proffered as a necessity of saving the system. The fact that the reason the system needed saving in the the first place was a direct consequence of previous expansions is ignored or shouted down.

There are only three real moves in the central banker toolbox: print money, expand credit, suppress interest rates.

The intellectual basis of this approach is often rationalized as a prescription dictated by  “Keynesianism” or “Keynesian economics”, after John Maynard Keynes, the intellectual father of mainstream “economics” as it is known today.

Keynes was a bit of a mixed bag. Though often cited for his “gold as a barbarous  relic” quote, he ended up heavily allocated in South African gold miners years after he wrote that. Mid-way through his career he swore off macro investing, coming to the opinion that no amount of macro knowledge would give you an edge at the company level: he had become a sort of proto-value investor.

He was also a pederast, having kept detailed records of  numerous young, mostly male partners, their names and ages, which are preserved still in the archives at King’s College, Cambridge …he was a Malthusian believing it was “the salvation of the British economy” and eugenicist – having served on the board of the British Eugenics Society.

…and, as it turns out, Keynes was a raving pinko. Full blown Commie.

The Socialist scaffolding of Keynesian Economics

Vladimir Lenin is often attributed as saying “the best way to destroy the capitalist system is to debauch the currency.” However the quote is possibly apocryphal, because the earliest reference to it is a citation by Keynes in his Economic Consequences of Peace. 

Lenin is said to have declared that the best way to destroy the Capitalist System was to debauch the currency. By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens. By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some. … As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless;…

Lenin was certainly right. There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency. The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.

Keynes is describing The Cantillon Effect, and yet, as we’ll see, Keynes may not have been viewing this as a bad thing. While Keynes clearly understood that government spending and money creation drove wealth inequality, it seems as though he viewed this as a beneficial dynamic, because it would inexorably lead toward the ultimate wealth inequality: Communism.

Contrary to the popular platitudes that socialism and communism are about achieving equality for all, going so far to prescribe absurdities like “equality of outcome”. The reality, documented by the likes of Dr. Kristian Niemietz in his “Socialism: The Failed Idea That Never Dies”, is that the only equality brought about by collectivism is where everybody beneath the thin scab of elites and their apparatchiks are equally mired in poverty and servitude.

In Edward W Fuller’s “Was Keynes a socialist” paper, published 2019 in The Cambridge Journal of Economics, Fuller looked at whether John Maynard Keynes, the chief architect behind the entire edifice of conventional economics (and arguably it’s intellectual descendants like Modern Monetary Theory) was a socialist.

He compared the defenses of Keynes as “a liberal who wanted to save Capitalism” against various writings, correspondence and accounts of Keynes himself and from those who knew him, including his own father.

John Neville Keynes,  journaled on Sept 6, 1911 ‘Maynard avows himself a Socialist and is in favour of the confiscation of wealth’. Turns out this was not a passing fad, it was a lifelong devotion. Young Keynes first came out as a socialist in February 1911, declaring that:

“the progressive reorganization of Society along the lines of Collectivist Socialism is both inevitable and desirable”

Over the course of his career Keynes authored numerous odes to socialism, fraternized with notorious socialists like George Bernard Shaw (head of the Fabian Society) and Owen Mosley, who founded the socialist New Party in 1931, which later morphed into The British Union of Fascists.

Keynes supported the Bolshevik Revolution, even though it had seized power in a coup d’etat against what was then the only democratically elected government in Russia’s history (“the only course open to me is to be a buoyantly bolshevik”.) Keynes became a regular attendee at the 1917 Club, a Soho meeting place in vogue amongst socialists of the day, named to honour the year of the revolution.

It was at the 1917 Club where members of The Fabian Society met. The Fabians wanted to usher in global communism, but instead of doing that through, sudden, violent revolutions (a la Marx) they would take their time.

They thought in generational increments and proposed the slow, steady infiltration of higher education, government bureaucracies, cultural chokepoints (theatre, pop-culture, the media and the press), and posited that over time they could pull society toward collectivism without anyone realizing it.

Their emblem was a wolf in sheep’s clothing.

As per Keynes: “Socialism can be introduced gradually….the economic transition of a society [into Socialism] is a thing to be accomplished slowly”.

Fuller’s paper concludes that Keynes was a non-Marxist socialist, meaning he eschewed the obsession with the idea of class struggle and focused his thinking around increased State control over the economy.

If Keynes was a commie, why does it matter?

In a previous incarnation of this blog, I wrote about Keynes’s predictions of a theoretical future where humanity would be freed from all care of day-to-day concerns through expert management of the economic cycle by credentialed technocrats.

He called this future state “Bliss” and described it in his essay The Economic Possibilities of Our Grandchildren (coincidentally cited via marxists.org)

The pace at which we can reach our destination of economic bliss will be governed by four things – our power to control population, our determination to avoid wars and civil dissensions, our willingness to entrust to science the direction of those matters which are properly the concern of science, and the rate of accumulation as fixed by the margin between our production and our consumption; of which the last will easily look after itself, given the first three.

Economic bliss sounds a lot like fully automated luxury communism. But you can’t get there if the rabble is still making economic decisions for itself. Free markets must be destroyed, and only credentialed elites can be permitted economic autonomy. (That’s why nobody’s life, liberty or property is safe whenever the World Economic Forum is in session).

Keynes laid out a path to get there. Through endless money printing, the Cantillon Effect would lead to the destruction of the middle class. By wrapping it within a cloak of crypto-socialism, he gave it a veneer of intellectual acceptability:

“The work of monetary cranks like John Maynard Keynes taught in the modern universities the notion that government spending only has benefits, never costs. The government, after all, can always print money and so faces no real constraints on its spending, which it can use to achieve whatever goal the electorate sets for it”
— Saifedean Ammous, The Bitcoin Standard.

In Saifedean’s follow up, The Fiat Standard, Keynes and Marxism are mentioned as having large areas of overlap, goals and practically identical results:

“The number and influence of third-world leaders who were educated in British and American universities from the 1930s onward is staggering…anyone familiar with the economic history of developing countries, or with the rhetoric of any development agency or ministry in a developing country, will see this influence in the distinct stench of Marxist and Keynesian notions of central planning.The entire framing of the notion of economic development is driven ultimately by a highly socialist view of how an economy works.”

“By the 1970s, the development failures piled high, and a lot of soul-searching within the misery industry would lead to more government control and more centralized economic planning. As the “dependency school” approach became more popular, government central planning became far more pervasive. The combination of global easy money, following the U.S. government’s decision to suspend gold redeemability, and governments and international bureaucracies staffed with Keynesians and Marxists proved disastrous.”

Fuller’s paper goes a long way in providing an explanation on why collectivism and Keynesianism seem to resemble each other: it’s the same thing. It is all statist, centralized technocracy under the guise of

a) high-minded collectivism for the useful idiots of the working class, and

b) high-powered intellectual macro-economic policy for the useful idiots in the universities and think tanks.

This could be why we’re demonizing capitalism, energy, self-reliance, family, spirituality and anything else that falls to the right of Stalin. This is why Big Tech unicorns are by their own admission “commie as f*ck”, and why many of the celebrity class these days are self-proclaimed “woke” socialists. Especially the super-rich ones.

The good news

There was a time, especially under lockdowns, when I looked at the direction things were going, and I thought the Fabians had achieved complete victory. World socialism was practically here, having arrived under banners with names like The Great Reset, The Fourth Industrial Revolution and Stakeholder Capitalism.

Even worse, large swaths of the public seemed to be clamouring for it.

COVID stimulus showed how the lubricant for a globalized socialism was the monetary printing press. In his day, Friedrich Hayek (the anti-Keynes) realized this as well and was similarly pessimistic.

“I don’t believe we shall ever have a good money again before we take the thing out of the hands of government, that is, we can’t take it violently out of the hands of government, all we can do is by some sly roundabout way introduce something they can’t stop.”
— Hayek, quoted in The Bitcoin Standard, p72

Enter, Satoshi.

The epiphany I had, and I’m not alone, is that we are not entering an age of centralized, technocratic authoritarianism, we are in the process of departing from it. We’re in the end game now. The crescendo of an age which has been unfolding for over a century – the era of the welfare state.

With the arrival of the Internet, and then Bitcoin, we’re undergoing a phase shift into the decentralized era of network states and micro-sovereigns.

The near universal mismanagement of COVID, from the possibility of a lab leak in the first place to being absolutely wrong about everything after that, pulled forward about 20 years of this tension and crammed it into 18 months. Too much, too soon. We were on track to gradually transition to a decentralized society via an interim phase of technocratic authoritarianism that could have lasted for decades, before giving away to the inevitable decentralized society. But now, we’re looking instead at a disorderly phase shift into deglobalization and decentralization. It’s already happening.

We’re at a point where reality is intervening with ideology and it was the pandemic that brought us here a few decades before I would have otherwise expected it. The conventional COVID narrative has all but broken down completely. Trust in institutions and experts is plummeting, the corporate media is a joke.

We may have already blundered our way into World War 3, while incumbent politicians around the world are being swept out of office on a wave of public backlash. Then there’s the economic and physical consequences of batshit policies that threaten to overwhelm our supply chains and energy availability everywhere.

Woke capitalism is being exposed as a sham. The public increasingly sees the Party at Davos as saturated with hypocrisy and arrogance.

The numbers don’t lie. #WEF #Davos was always about advancing Neo feudalism.? pic.twitter.com/RkQkS1iySx

— 21st Century Wire ?? (@21stCenturyWire) May 22, 2022

Make no mistake, we’re talking about the end of an epoch and the demise of the legacy power structure. Not only in terms of who the incumbents are, but the very architecture and fabric of how geopolitical and economic power is configured.

The old guard will not go down without a fight, and for the moment, they have the institutions and the media, but that is already changing.

“We’re all Keynesians now” was the intellectual rallying cry of the fiat era. Laser eyes will be the defining meme of the next one.

If I had to offer advice to anybody who was looking for ways to pivot their existing affairs and navigate the coming changes I would bullet point them as follows:

• Do not be reliant on government entitlements: these will soon be delivered via CBDCs and be full-throated social credit systems
• Turn off your TV, cancel all mainstream media subscriptions: read more books, get your news through alternative / indie media channels (start with The Sovereign Individual, both Saifedean Ammous books, and George Gilder’s Life After Google)
• If you’re a business owner: start taking crypto payments and HODL them
• If you’re not a business owner: Start one. Even a kitchen table business that you can grow over time.
• And stack sats. Always be stacking sats.

Buying Bitcoin is calling bullshit on everything

— Interstellar (@InterstellarBit) May 27, 2022

We’re going through a Fourth Turning-style phase shift. It will be turbulent, violent and at times terrifying.  But it will also bring boundless opportunity. Never before have we lived in an age where nearly anybody can go from a standing start to financial independence and self-sovereignty in the shortest amount of time with the lowest barriers to entry.

This dynamic will only intensify over the coming years and in the long run, this is what will propel a quantum leap in the human endeavour.

The world is undergoing a monetary regime change. Get the Crypto Capitalist Manifesto free, when you join the Bombthrower mailing list. Follow me as @bombthrower on Gettr or if you haven’t been kicked off Twitter (yet), @StuntPope

Buffett and Munger Pillory Bitcoin and Rationalize Cantillon Mercantilism at Berkshire AGM

There is nothing sadder than watching those who inspired you on your journey into contrarianism degenerate into mummified shills for a morally bankrupt status quo.

The Berkshire-Hathaway AGM was this past Saturday, and Warren Buffett and Charlie Munger didn’t sugarcoat their animus toward Bitcoin, saying

“Whether it goes up or down in the next year, or five or 10 years, I don’t know. But the one thing I’m pretty sure of is that it doesn’t produce anything,”

Munger went further, calling it evil, ultimately headed for zero and a problem “because it undermines The Fed”.

Obviously, Buffett and Munger are hitting back at the hordes of laser-eyed barbarians for being labeled part of The Gerontocracy by Peter Thiel at his keynote address to Bitcoin2022 in Miami (I was there, it was epic).

The AGM happened after I had already sent the month-end Crypto Capitalist Letter to the editors so it was too late to cover it there.

It does warrant some comment, because there’s arguably some cognitive dissonance: The Crypto Capitalist covers publicly traded crypto companies. We don’t do technical analysis, we don’t do charting or Elliot Waves anything like that. Buffett is the patron saint of value investing, and I got into crypto stocks because I saw them as value stocks. For real.

Discovering the Crypto Value Play

The year was 2020, the world had completely lost its shit overreacting to a not-cataclysmic COVID pandemic, our brilliant (unelected) technocrats imposed lockdowns across the entire world and so, like many people, I decided to use my time as productively as possible, deciding to double-down on my investment education. Loading up on books like The Joy of Compounding, The Book of Value and listening to endless Value After Hours podcasts (love that show), I  started combing through nanocap and microcaps looking for value plays.

I’d always been value oriented. I’ve got the Warren Buffett shareholder letters, dog-eared and underlined from several passthroughs. I’ve got two copies of Bevelin’s “Seeking Wisdom from Darwin to Munger” because one of them is signed by Munger and I wanted another copy to mark up and underline. Despite everything I’m about to say about Buffett and Munger, I’m still currently reading Adam J Mead’s Complete Financial History of Berkshire Hathaway. It’s fascinating stuff.

Over the course of immersing myself in the craft of value investing during lockdowns it turned out I kept finding it in a peculiar place: crypto stocks. With Bitcoin hitting all time highs, you would expect all the crypto stocks to be screaming higher at expanding multiples to nosebleed levels even more extreme than the underlying cryptos themselves. You see this in gold bull markets, in fact gold stocks typically lead the metal (both on the way up and the on the way down).

Not so in cryptos. At least not in the latter half of 2020. With Bitcoin, Ethereum and everything else ripping higher to fresh all-time highs, I was finding Bitcoin miners who were trading for less than the value of the Bitcoin on their balance sheet, with no debt. That would make them honest-to-God Ben Graham style net/nets.

It just seemed very asymmetric so I started loading up on names like Hut8, Hive, Bitfarms, Fortress Technologies (now Cathedra), Neptune Digital and this tiny little crypto-conglomerate nobody was paying attention to called Galaxy Digital.  There were a couple of stinkers in there too, but overall it didn’t really make a difference. I was finding genuine value in an entirely new and ascendent asset class. Buffett would be proud! Wouldn’t he?

Buffett and Munger loathe Bitcoin. If Bitcoin is “digital gold” (it is), Buffett has never liked gold either. There was a lot of excitement in goldbug circles when a Berkshire-Hathaway 13-F revealed they had bought a chunk of Barrick. The BRK-fanboys dissected the trade religiously and wondered out loud if that was an actual Buffett trade or one of the inner-circle who were being groomed for succession.

It didn’t matter, because barely a year later, Berkshire had exited the trade anyway.

Buffett and Munger eschew monetary assets – like cash, or gold, because they are unproductive. They don’t generate any yield and when you can own a business that does generate returns, it doesn’t make any sense to keep anything on the sidelines. Especially when you can pick ’em the way Buffett and Munger can.

Yet they have also been known historically for steering clear of tech in general (despite now holding numerous tech investments which they entered far later in the respective companie’s lifespans).

Buy it now, or buy it later

Back in the dotcom boom, Buffett famously avoided tech stocks because he deemed them outside his circle of competence. He was ridiculed at the time as being out of touch, but he was eventually vindicated when the dotCom bubble imploded. Still, he could have bought Apple for a song in the wreckage, at (split adjusted ) prices ranging from under $1 to $2.50 or so up until mid-2006. It wasn’t until 2016 that Berkshire Hathaway backed up the truck and loaded up around the $100/share mark (pre 2020 split). By the end of 2021 nearly 40% of Berkshire’s portfolio was Apple!

But Apple wasn’t by any means the first transformative tech company Buffett eschewed at first. In 1968 Bob Noyce, was leaving Fairfield Semiconductor to start a new company Integrated Electronics and was raising an initial $2.5M seed round. Both Buffett and Noyce were trustees for Grinnell College’s endowment fund. Buffett signed off on an investment for the college, but declined to put any of Buffett Partnership’s capital into “Intel”. He wouldn’t be invested in the behemoth until 2011, and even then, he was out within a year.

Despite the general aversion to the tech sector, Buffett never called integrated circuits, personal computing or the internet “rat poison”.

I believe the reason for the visceral hatred toward monetary assets, like gold or Bitcoin is because on some subconscious level, Buffett knows that one of the major tailwinds of his stellar investment career has been the destruction of the monetary base layer and The Cantillon Effect.

Uncle Warren, Poor Charlie and Cantillion Mercantilism

Buffett and Munger’s belief is that the only reason for owning gold (or now Bitcoin) is in the hope of selling it to somebody at a higher price in the future. Yet, in Buffett’s own words, he likes to own businesses he understands when he

“like[s] the price at which they’re selling relative to their future prospects, and thinks 10 years from now that they’ll be worth more money” 

There is a strange kind of tunnel vision here. All investment seeks to either preserve or accumulate wealth, and everybody does a variation of the same thing: deploying capital where they feel will hold or gain value in the future.

Buffet, who’s “favourite holding time is ‘forever'” should perhaps think more deeply around why he would rather hold his wealth in productive businesses rather than unproductive gold, or even the ostensibly risk-free asset that is cash.

John Maynard Keynes once said of inflation:

“By this means the government may secretly and unobserved, confiscate the wealth of the people, and not one man in a million will detect the theft.”

Buffett is of those men, saying:

“Inflation swindles the bond investor … it swindles the person who keeps their cash under their mattress, it swindles almost everybody,” 

The most important word in this sentence is “almost”. Inflation swindles (steals, defrauds) almost everybody. But there are a few people whom inflation doesn’t rob, but actually enriches. Those people are Cantillionaires. Buffett and Munger, as skilled as they may be in investing,  belong to the Cantillionaire class.

Richard Cantillion, the British Irish-French entrepreneur who wrote one of the earliest economic treatise was the first to formalize how expanding the money supply is experienced in two different ways within an economy:

The elites who have direct proximity to the new money experience it as rising asset prices, making them wealthier, and giving them the ability to further compound their wealth by buying up even more of society’s assets.

Everybody else, the plebes, the rabble, the permanent underclass, they don’t experience it as rising asset prices, because they can’t afford to acquire any assets. They live on a permanent treadmill that keeps accelerating while the incline constantly increases… Euphemistically characterized by policy makers as “inflation”.

When you see the picture that lays out how the dynamics of Cantillon Mercantilism works, it makes more sense why the uber-wealthy like Munger and Buffett might rationalize hard money assets such as gold as “unproductive” and Bitcoin as “rat poison”. It’s because that magic money printer at the center of their world can’t print hard assets.

But it can and does print cash which even though they know it decays, and the more the machine prints the faster it decays, they also know that they’re first in line to get it.  That means they can use it to inflate the value of their own assets before it hits the outer fringes society where it inflates the cost of staying alive.

In the 2008 Global Financial Crisis: Berkshire-Hathaway didn’t receive bailouts directly, but at least four of their holdings did, to the tune of nearly $100 Billion USD (Wells Fargo, American Express, Bank of America, and Goldman Sachs).

During the COVID Panic: The Fed directly purchased Berkshire-Hathaway bonds (along with those of numerous other companies, all of whom were worth over $100 Billion USD).

Bitcoin Fixes This

Bitcoin, when widely adapted as money and a store of value puts an end to the Cantillon Effect. Because it is an inelastic, deflationary and asset based money, it gains purchasing power over time (volatility aside, which I expect to smooth out over the coming years).

For those who feel running an economy on deflationary, inelastic money is impossible I would suggest reading, Nik Bhatia’s Layered Money, Saifedean Ammous’ The Bitcoin Standard, or Detlev Schlichter’s Paper Money Collapse first edition of which came out before Bitcoin was barely on anybody’s radar (2011).

There is no barrier to entry for asset accumulation with Bitcoin, because you can start with a microscopic amount and watch it gain purchasing power over time. It enables savings and capital formation.

Ordinarily, enlightened capitalists like Buffett and Munger should be on board with this. But they instead recoil from it with every fibre of their being. Perhaps, without being consciously aware of it, they understand on some level that  Bitcoin presents a direct assault on Cantillion Mercantilism.

On the surface, Munger and Buffett bring living example to the famous Upton Sinclair quote: “It is impossible to get a man to understand something whose livelihood depends on them not understanding it”

However, being as they are among the few who recognize inflation for what it is (wealth destruction for everybody else, asset compounding lubricant for themselves), they probably understand Bitcoin more than most no-coiners, and what it represents.

What amplifies the dissonance around their posture toward crypto-currencies is that this is one of the few sectors of genuine value in the equities markets right now. In other words, right now, in Q2 2022, crypto stocks are value stocks. Granted, it’s been widely acknowledged that Buffett (and Berkshire) ceased being value investors a long time ago, optimizing more for “growth at a reasonable price”. It’s hard to find value at the scale BRK operates at.

Were Buffett to retrench to his value roots he could buy up Galaxy Digital ($4.6B), Silvergate Bank ($4B) and Coinbase ($30B) and still not really move the needle. This shows just how early it still is in the Bitcoin and crypto story.

Size matters, and sometimes not in a good way: BRK’s outperformance has been in secular decline for decades….

It would be fair play should the likes of Buffett and Munger simply dismiss crypto-currencies as outside their circle of competence thus uninvestable for them. They’ve done that continually throughout their career and it has served them well and been a great lesson in discipline for all aspiring investors.

But the venom with which they demonize Bitcoin smacks of “methinks doth protest too much”

People who understand #bitcoin buy it. People who don’t understand #bitcoin talk about it.

— Michael Saylor (@saylor) May 3, 2022

Maybe, on the other hand they understand it all too well.

I write about the decentralized revolution and the rise of crypto-currencies on Bombthrower.com, get my investment thesis free when you sign up for the mailing list here. Follow me on as @bombthrower on Gettr or on Twitter here. The Crypto Capitalist Letter covers global macro as it pertains to Bitcoin with a tactical focus on crypto stocks. 

On Cantillionaires, Sycophants and Losers

“It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning”

— Henry Ford

“The ultimate crisis will occur when the situation is so thoroughly perverted that the defenders of the status quo can no longer resurrect confidence in the system”

— Vincent LoCascio, Special Privilege: How the Monetary Elite Benefit at Your Expense

Over several previous blog incarnations I’ve been writing about a couple of core themes. When I started writing about artificially low interest rates and the bad outcomes they would produce, I didn’t even know the economic terms for some of the things I was writing about.

But I knew keeping interest rates artificially low, or even negative would act like a type of event horizon that would be impossible to normalize from. I knew keeping interest rates too low for too long would force fiduciaries and capital allocators out the risk curve in search of yield, and that the most vulnerable among us, such as senior citizens, were the least able to absorb the inevitable drawdowns that would entail.

I also realized early on that hot money and credit expansion would spur an explosion of money losing unicorns, who would suck up all the oxygen in all the markets cannibalizing entire markets at a loss in order to get that Series E or F up-round. That one became apparent to me when I started seeing billboards for one of my largest competitors every 1/4 mile across the entire city of Toronto on my daily commute, and every other place else I ever travelled to in North America. I knew that they were losing about $300,000,000 a year at the time. They also had some pretty kick-ass Super Bowl commercials.

I only learned about Richard Cantillon and his early economic treatise a couple years ago and since then I’ve never been able to shut up about The Cantillon Effect, which is what all this describes and what I think is the single most divisive, corrupting and toxic dynamic shaping our world today.

Max Keiser recently coined the phrase “Cantillionaires”, and that’s an accurate demarcation line between the elites and everybody else. It isn’t “the 1%”, it isn’t white privilege, it isn’t capitalism or managers vs labour.

This helps the trend of ‘taking America private’ in a multi-trillion LBO by a few PE firms.

Before neo-feudalism can begin, the S&P must be delisted and controlled by a few cantillionaires.

Cloaking these PE firms in darkness will speed up the process of neo-feudalism https://t.co/xaIDsUQF4Y

— Max Keiser (@maxkeiser) July 17, 2020

It’s this:

When the Fed, or the ECB or the JCB or any other central bank prints money out of thin air, and then deploys that “liquidity” into the market, are you, or the firm you work for, among the first, second or third order recipients of that fresh injection of money? If so, then you’re a Cantillionaire.

And the rest of us? We’re losers. Remember this old Hugh McLeod ditty? It was priceless….

Let me correct it to depict the capital structure of the world.

An odd kind of reverse alchemy occurs as the newly created “money” flows downward toward the masses.

At the top we have the capstone class, the Cantillionaires, the superrich politicians and the Uber-rich financiers and conglomerators.

After this is the “The Sycophant Class”. In this layer are the spin doctors and support apparatus of the überclass of the Cantillionaires. In his book “The Coming Neo-Feudalism”, Joel Kotkin called them The Clerisy and described them as “the New Legitimizers”. Their job it is to hone the narratives that rationalize why this cap table makes sense for the losers below, as well run the actual infrastructure that perpetuates it.

As the newly created “money” flows down The Global Cap Table, it undergoes that inverse alchemy and the nature of the newly created money experiences a state transition.

The nature of the change is this: After it gets a few iterations out from the money spigot at the top, it stops boosting asset prices and starts raising the cost of living. At the top end of the funnel it makes everybody in proximity wealthier, and then down at ass end of the funnel, where the rabble resides, it makes it more expensive to stay alive.

That’s The Cantillon Effect and I’ve been searching for ways to explain it so more people would understand it for quite some time now. But lately, I came across a pretty stark manifestation of it that should, I hope, finally make this clear.

The epiphany occurred as I was reviewing the Federal Reserve disclosures listing the recipients of the SCCMF Program. The SCCMF is the Secondary Corporate Credit Facility to buy up corporate bonds in an effort to shore up the credit markets:

“The Federal Reserve established the Secondary Corporate Credit Facility (SMCCF) on March 23, 2020, to support credit to employers by providing liquidity to the market for outstanding corporate bonds.”

It later expanded the program to add junk bonds.

The SMCCF is supposed to be some mechanism to preserve jobs in the wake of the economic meltdown, but when you look at the companies whose bonds are being purchased, they don’t exactly look like they were in danger of going under throughout the course of 2020:

Berkshire Hathaway (three seperate entities), Cisco Systems, Exxon Mobile, Fox Corp, Halliburton, Intel, IBM.

All companies that are worth billions, Billions. With “B”s.  You can see a full list is here. 

Then what really got me was seeing Amazon, a company worth over One Trillion Dollars, a company whose business is up so much over 2020 that they had to hire 100,000 more people to keep up with demand, and the Fed is out there using a program justified as a job saver by buying Amazon bonds (some of which actually trade at a lower interest rate than US treasury debt was wrong, it’s narrower spreads – mjr) under the SMCCF?

AMAZON.COM INC Consumer Cyclical 023135BP0 0.400 06/03/2023 4,000,000 $3,994,878

The thing about Amazon that hit home for me, is that among other things, Amazon is also a domain registrar, and Amazon is a DNS provider, which means that Amazon is a direct competitor to my own business, easyDNS.

So not only am I competing, head-to-head, with literally the world’s biggest company, the Fed has to put their thumb on the scale by buying their fucking bonds?

But wait, there’s still more, as I perused the list I found other companies I have to compete with, directly, head to head:

MICROSOFT CORP Technology 594918BA1 2.375 02/12/2022 5,500,000 $5,678,039
MICROSOFT CORP Technology 594918BP8 1.550 08/08/2021 3,000,000 $3,040,837
MICROSOFT CORP Technology 594918BQ6 2.000 08/08/2023 5,000,000 $5,228,349
MICROSOFT CORP Technology 594918BW3 2.400 02/06/2022 3,000,000 $3,098,973
MICROSOFT CORP Technology 594918BX1 2.875 02/06/2024 2,000,000 $2,157,622

easyDNS competes with Microsoft’s Azure. The Fed is buying Microsoft’s bonds.

ORACLE CORP Technology 68389XBB0 2.500 05/15/2022 2,000,000 $2,066,967
ORACLE CORP Technology 68389XBK0 1.900 09/15/2021 8,000,000 $8,133,006
ORACLE CORP Technology 68389XBT1 2.500 04/01/2025 4,000,000 $4,275,958

Oracle owns Dynect, who easyDNS competes with directly again. The Fed is buying Oracle’s bonds.

And from the June 29th disclosure I saw that the Fed was buying Google’s bonds, and Google is also in the DNS and domain registration business, yet another head-to-head competitor.

It’s tough enough running a small business when you have to compete with an 800 lb gorilla in your space. Especially when there’s a half dozen of them now and since everybody else who has to compete with these companies (not a single one with a market cap under 100 billion dollars) doesn’t get propped up by a central bank, printing up money out of thin air, it puts all other companies at a clear competitive disadvantage.

Isn’t this a little bit like picking winners and losers?

One might point out that small businesses were eligible for Federal funds as well. They sure were, they were eligible for loans and although loans and bond issues live on the same side of the balance sheet, the resemblance ends there.

In the US, any PPP loan over 25K is full recourse, and anything over 200K requires a personal guarantee. It’s similar up here in Canada. It means the business owner has to collateralize the loans, most often with his or her principal residence, and they have to be able to demonstrate that their business has been materially impacted by the pandemic.

I doubt Jeff Bezos has to personally guarantee those Amazon bonds, and if the Fed had a similar requirement to demonstrate business impairment to qualify I don’t know how Amazon would be able to make that claim with a straight face having just hired those 100,000 additional workers just to keep up with increased demand.

This is another example of that inverse alchemy we see as the new money trickles down the Global Cap Table:

At the top, it props up non-recourse bond issues and buoys the corporations who issue them. And when those bonds come due they can probably just do what every corporate behemoth does and roll them over.

At the bottom, the small business owner has to pledge his house and his personal assets as collateral and then those loan payments get added straight onto the monthly nut.

Referring back to the Global Cap Table, above The Loser Line megacorps can externalize their bad outcomes and in many cases, literally lose money for a living. Everybody up there makes their money on financial events

Below the loser line reside all the small businesses. The ones every politician says “are the backbone of the economy!” yet they enact policies that make it harder for them to remain open and as we’re exploring here, cultivate policies that make it near impossible to compete.

If all this wasn’t bad enough, everybody knows where this is headed next, once this economic depression asserts itself over the current blow-off top in stocks: eventually the Fed will probably step into the equities markets and prop those up too. So not only is the Fed buying my largest direct competitors bonds now, down the road they’ll be buying up their shares.

…with money they pulled out of their ass.

Does it make a mockery so-called free markets when the smallest businesses have to deal with the vagaries competition while the largest ones get propped up with the full faith and credit of the central banks?

This isn’t capitalism. I used to call it “crapitalism” or you sometimes hear it called “crony capitalism”, but extending Max Keisers’ label of “Cantillionaires”, I finally know what this is and what to call it. What we have here folks, is your good ole fashioned, centrally planned Cantillionism.

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(My fledgling audiobook company just released an audio version of Eugen Richter’s 1893 work “Pictures of the Socialistic Future”. In order to have an audiobook version of a public domain work accepted into Amazon’s Audible store, you have to first make a kindle version and add some unique original content to it, such as a foreword. What follows is my foreword to the 2019 audiobook edition of this work).

This remarkable little novella posits a fictional socialist sweep into power in Germany towards the end of the 19th century, anticipating the Bolshevik and Marxist revolutions of the subsequent decades. It follows the arc of a family as narrated by its patriarch as he initially enthuses over the socialist ascension to the seat of government.

Quickly, however, he progresses through various stages of disenfranchisement that inevitably ensue: first tempering his expectations, then ratcheting them downward, followed by grappling with cognitive dissonance brought about by the internal contradictions of the new system. When those conflicts are inescapable,  he finally spirals into angst and despair as he comes to fully comprehend the horrors of socialism.

Realizing it is too late for himself, with his family and livelihood largely destroyed, he commits one final act of repudiation against the socialist future.

In writing this warning, the author, Eugen Richter, a politician, journalist and a leading liberal (in the classic sense of the word), transmits to us a highly plausible, credible account of where socialist experiments unwaveringly go under their own volition.

Richter died in 1906, but the socialist experiments of the 20th century are a matter for the history books now. Even today in Venezuela we are witnessing a “Mad Max” style collapse in realtime within the country that has the highest proven oil reserves in the world.

Despite overwhelming evidence that the only problem with socialism is that it doesn’t work, this idea is finding new traction in the 21st century. Apologists point at previous failures as “not real socialism”.

Meanwhile they compound that fallacy by mistaking the wealth inequality, recessions, and financial crises as indicators of capitalism and free markets run wild, when the reality is that they are instead a direct consequence of state and central bank interventions. This point is an important one, which we’ll return to shortly.

In another audiobook we’re producing, Dr. Kristian Niemietz, in “Socialism: The Failed Idea that Never Dies” laments that:

“The not-real-socialism defence is only ever invoked retrospectively, namely, when a socialist experiment has already been widely discredited. As long as a socialist experiment is in its prime, almost nobody disputes its socialist credentials. On the contrary: practically all socialist regimes have gone through honeymoon periods, during which they were enthusiastically praised and held up as role models by plenty of prominent Western intellectuals. It is only after the event (i.e. once they have become an embarrassment for the socialist cause) that their version of socialism is retroactively redefined as ‘unreal’.

Richter anticipated this dynamic wonderfully as his protagonist undergoes this arc personally as he narrates his story.

When Thomas Mackay wrote his introduction to the English translation, he observed that when the book was written (1893) it was just an idea and there was no appreciable socialist yearnings within Imperial Germany.  By the time the English translation was ready in 1907, there was a socialist party contingent in parliament. By 1920 it was a full on battle between socialists and fascists for the soul of Germany.

History not only rhymes, it accelerates.

When I came across this novella in the summer of 2018 I had never heard of Democratic Socialism and Alexandra Ocascio Cortez was still a bartender in The Bronx.

I had heard of ideas with names like Libertarian Socialism, Left Libertarianism and Libertarian Communism but like most free market and liberty-minded people, I dismissed these as libertarian in name only and entirely oxymoronic.

In the intervening mere months since I had the good fortune to discover this wonderful little book, the rallying cry around socialism in the US has become deafening, and eerily similar to the enthusiasm experienced in the opening chapters of Richter’s parable.

I am chagrined to report that “socialism” is the new buzzword among my own social circles and in my online media timelines. It is truly astonishing and frightening to see how fast a bad idea is becoming palatable to the populace.

The basic requisites of socialism’s core ideology include confiscation and redistribution of private property combined with enforced collectivism and a strong central planning apparatus that quashes individual liberty. The suggestion that it can be democratic or libertarian is pure propaganda. Although, circling back to Dr. Niemietz’s observation that today the democratic socialism moniker hopes to deflect this reality noting that:

“Contemporary socialists appear to assume that a democratised, participatory version of socialism would not just be more humane, but also economically more successful. Autocratic socialism failed, but democratic socialism would have worked just fine, in terms of economic performance.”

We find yet another stab at socialism that is supposed to look good on paper, however, as I write this foreword we’ve just seen the first iteration of a legislative proposal for a so-called “Green New Deal”, also being dubbed “GreenLeapForward” by people who aren’t actually satirizing the Maoist genocide that took place under a similar label.

Under the Green New Deal, the economy would be transformed utterly, every structure in the USA would be rebuilt or retrofitted, and by the end of it there would be no need for cars or air travel (I suspect, however, exceptions would be made for party elites who need cars and planes to conduct important affairs of state). All jobs created would be unionized, and every family given a guaranteed income, paid vacations, paid retirement, even those unwilling to work.

The stated ideals of the early bill cannot possibly be accomplished, and even if so, they could not be accomplished under any democratized, participatory socialism because many citizens don’t want to be unionized, they don’t want to rebuild their home, or give up their car, or never fly anywhere again; let alone fund the living expenses, vacations and retirement of other people who are “unwilling to work”.

In short, the New Green Deal posits a complete centralized command economy, which is not participatory and certainly not democratic.

But even with the repeated failures of socialism there for all to see…

Where is this impetus toward socialism coming from?

We need look no further than the Global Financial Crisis of 2008, and in particular, the bailouts of the banks who had over-leveraged themselves with bad loans and untenable derivatives.

 This act, of socializing the losses, backstopping the failed “banksters” under guise of saving the global economy, from which they paid themselves exorbitant bonuses for their abysmal stewardship was the single-most damaging act to the credibility of free market capitalism, ever.

It bears emphasizing that what happened was anything but free markets in action or an example of capitalism. Under capitalism, you reap the profits by bearing the risks. That is the entire point. If you are not on the hook for the risk, then it’s not capitalism.

The rationalizations that the global economy was on the verge of collapse have been examined by less hysterical personalities in the aftermath, and found to be lacking in substance.

Former congressman and Director of Office of Management and Budget under President Regan David A. Stockman wrote exhaustively on this topic in his voluminous “The Great Deformation: The Corruption of Capitalism in America” he wrote that:

“A handful of panic-stricken top officials, led by treasury secretary Hank Paulson and Fed chairman Ben Bernanke, proclaimed that the financial system been stricken by a deadly “contagion” that had come out of nowhere and threatened a chain reaction of financial failures that would end in cataclysm.

That proposition was completely false, but it gave rise to a fateful injunction—namely, that all the normal rules of free market capitalism and fiscal prudence needed to be suspended so that unprecedented and unlimited public resources could be poured into the rescue of Wall Street’s floundering behemoths.

And further, that:

The Main Street banks were never in danger.

There was no logical or factual basis for the incessantly repeated claim of Washington high officials that Wall Street’s losses would spill over into the nation’s $12 trillion commercial banking system and from there ripple outward  to infect the vitals of the Main Street economy. Owing to the composition of its asset base,  the Main Street banking system was never remotely risk, and it had no need for capital infusions from TARP.

The actual evidence shows the “run” on the wholesale money market was almost entirely confined to the canyons of Wall Street. During the heat of the fall 2008 crisis, there were no runs on the nation’s eight thousand commercial banks and thrifts,  save for a handful of clearly insolvent higher fliers like Indy Mac and Washington Mutual.

Nor would there have been one in the absence of TARP and the Fed’s aggressive Wall Street bailout actions.

Despite this reality, the mainstream narrative around the global financial crisis was one of panic and within the financial centres from which the panic originated there was an infantile denial of culpability combined with petulant demands for special treatment as personified by CNBC’s Jim Cramer in his now legendary meltdown on national live television.

As I once noted in a previous writing, when some venerable juggernaut from the non-financial sector like General Motors or Kodak hits on hard times and has to lay off thousands of workers, Jim Cramer dismisses it as “the way of the world, folks” and he’ll hit one of his “Mad Money” noisemaker buttons on TV and that company’s share price might even experience a lift.

But if it’s a huge swath of the financial sector that blew itself up selling each other toxic derivatives, and numerous hedge fund buddies of Jim Cramer are going to go bankrupt as a result, then it’s a veritable crime against humanity.

And so, the financial sector was bailed out. They went on to award themselves lavish bonuses and then embarked on a decade long stock market boom supported by ultra-low, artificially suppressed interest rates, rampant money printing and a phenomenon known as “The Cantillon Effect”.

First observed by the 18th century economist Richard Cantillon, who wrote in his Essay on the Nature of Trade in General, the Cantillon Effect states that newly created money is non-neutral, and wholly benefits early recipients at the expense of later recipients. In other words, when the Fed or the ECB or the JCB print money, which they call “Quantitative Easing”, the parties in closest proximity to the central bank, including the money centre banks, the investment banks, the hedge funds and private equity derive the benefits of the expanded money supply first, and experience that as rising asset prices, stock market booms, and everything bubbles. For everybody else, the new money gets to them later, and they experience it as cost of living inflation.

It is no surprise then, that as the stock markets and asset bubbles around the world hit an uninterrupted string of all-time-highs over the ensuing decade, the middle class felt additionally squeezed, and understandably resentful.

The zeitgeist of the post-crisis decade of the politically connected rich getting richer was captured in one short missive by Twitter humorist @RudyHavenstein, when commenting on the 2016 World Economic Forum, whose theme that year was “Mastering the Fourth Industrial Revolution”.

While the world’s super rich where in Davos discussing how to master that shift, RudyHavenstein remarked:

That resentment turned into populism, with figures like Donald Trump garnering votes on a “drain the swamp” message. But as the central bank policies continue to inflate away purchasing power, push up asset prices, and widen wealth inequality even further, populism is now jockeying with socialism, and the early indications are that eventually socialism will win out or absorb the former. To quote Dr. Niemietz’s title, “socialism: the failed idea that never dies” looks to gaining serious momentum in America.

Richter’s novella, albeit a fictionalized account, does correctly anticipate the stages of these socialist experiments, and contains relevant analogs to what appears to be the next attempt.

When socialism comes to America it will be under the well worn banner “this time is different”, because it will be ostensibly democratic socialism, even though we know now from the text of the New Green Deal bill not to hold our breath for the “democratic” part.

But we’ll purport to have new tools in our repertoire to make it work, such as Modern Monetary Theory, which is gaining traction alongside democratic socialism and exists solely to justify unrestrained money printing and increased central planning.

As the comrades of Imperial Germany found, their international trading partners had something to say about it when they debased their own currency and repudiated their debts, so too will the new experiment in the USA fail to anticipate international trading ramifications of democratic socialism and MMT. Not the least of which is that one should expect to see the US dollar lose its status as the global reserve currency.

I urge anybody flirting with an infatuation with “this-time-its different” democratic socialism to set aside 2 hours to read or listen to this book. As you read it, compare the mechanics of how socialism unfolds in Richter’s Germany with the tenets of the The New Green Deal, for example. I think one will find the resemblances, striking, if not chilling.

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