It’s funny how most monetarists thought they knew about how the economic system operates and still caused the dot com bubble and 08 credit meltdown.
The Fed’s bureaucrats merely copy what John Law had done hundreds of years ago.
To save France from a coming debt crisis, the genius gambler and perhaps the most innovative economist in his era—— John Law, decided that he could print paper currency instead of physical gold and silver.
John Law, a self-made millionaire who made his fortune by calculating numbers and odds on a gambling table, later became the FIRST CENTRAL BANKER on this planet.
John Law has proposed a currency system beyond other nations’ traditional currency systems to the French emperor. John Law believes that an economic system issuing paper currency can further stimulate economic growth. Banks will only require much less gold reserves, and they can give much more loans. This means the bank can operate with more financial leverage.
John Law wants to create money out of thin air.
He held that money creation stimulated an economy, paper money was preferable to metal, and dividend-paying shares a superior form of money.
John understands that the government will not have the power to create currency in a gold-backed system. If the government can make money then it can pay its debt by selling surging company shares and securities….
He created the first central bank: Banque Royale.
Then he started another company Mississippi, later known as the Mississippi bubble.
The final goal is to directly link the paper currency value with the Mississippi share price. 300000 shares are created to pay off the French National debt.
As long as Mississippi company share value goes up, John law can liquidate these company shares, and profits will be able to pay off the debt.
Like the QE mechanism, since the 2008 financial crisis, FED has injected enormous liquidity into the financial market.
QE liquidity injection
To save the global economic system from collapsing and meeting another potential global depression, the ex-chairman of the Fed, Mr. Ben Benanke, decided he could create a massive amount of money and inject it into the financial market.
Consequently, stock prices surge along with other financial assets. Like the Mississippi scheme, as long as investors are still bullish and expect higher performance from the stock market, the system can be ‘self-sufficient’ despite having excessive debt.
The idea between the Fed and John Law is quite similar.
Having too much debt?….
Not a problem; we can create more money, raise the stock price, pay back our debt, or pretend we don’t have any obligation.
After the Covid impact, the current US national debt has sky-rocketed above 98.2%, and it is still growing!
FED’s scheme can go on as long as no inflation stops its way. Putin’s war on Ukraine is a black swan out of the FED’s control.
Monetarists will create another global depression soon, yet they will blame everything on the hyperinflation, and, of course, China and Russia will take all the blame.
Do not get me wrong; I am firmly against the brutality and open invasion led by Russia. However, this will become a convenient excuse for FED officers to blame-shifting.
So they can have zero responsibility for what they have caused.
Here I will explain why we are very close to THE NEXT Global Depression and perhaps a global financial crisis and meltdown…
There are four main reasons why we are close to a meltdown:
- First, the Russian invasion creates a severe global supply chain crisis; inflation will continue to increase. Energy and commodity prices surge will deteriorate corporate profit and revenue levels.
- Fed should raise rates aggressively and activates QT to offsets the inflation impact. Back in the 70s, when Paul Volcker was dealing with a similar hyperinflation problem, he had the hard way. A technical depression should be viewed as the ‘necessary evil’ policy to save and reboot our global economic system.
- Fed failed the 2017 QT operation; now, the Fed has stuck in another difficult situation: if the stock market plummets, it will be tough to bring consumers’ confidence back.
- The direct challenge of RMB internationalization.
livre
Remember how the Mississippi scheme ends?
When investors realize the livre(the currency John Law has created) has less value, and the Mississippi revenue is shrinking. Everyone will sell off their shares and demand their gold and silver back.
It all turns out that what central bankers have done today has very little difference compared to what John Law had done.
Ironically, until now, John Law is widely viewed as an economist rather than a charlatan.
If John Law is still here with us, he should be in charge of the FED, and no further questions should be asked to challenge his authority.