Dissecting the Parasitocracy

[BobK71]

When I recently came across 'parasitocracy,' it struck me as a nice twist of wording -- instead of honest democracy or free-market meritocracy, we truly live under rule by parasites.

Trying to describe how the financial and political elites receive unearned wealth and power can get complicated very quickly.  To find a simple but rigorous theory to cover most major features of the beast requires looking at it the right way.

By and large, how it works is that:

• The elites use state power to prop up the value of money, debt, and other financial assets artificially, to benefit those who issue them, i.e. themselves.  When some over-valued asset eventually must crash, the entire economy suffers the loss of jobs, business and savings.

Example: The Bank Account

Public illusion. A commercial-bank 'deposit' is as good as money.  You will get all your money back, any time you want.

Reality. 'Deposits' are really loans to the bank which lends them to borrowers, some of whom may never pay them back.  Another danger is that savers may ask for their money at any time, while loans by the bank tend to have longer-term maturities.

How to bridge myth and reality. An honest system would communicate expectations openly.  A simple example could be having 'depositors' expect to lose money if the bank makes bad loans.  The problem with an honest system, of course, is that top politicians and bankers wouldn't benefit much.

The confidence trick.  The government supports the illusion, while it can.  Classic tools over the centuries include allowing banks to collude by rescuing each other in a crisis, bailing banks out with public money, and providing deposit insurance.  If this gives bankers the incentives to take too much risk, bankers redeem themselves by being a lender to the government.  Since both sets of elites benefit, what problem is there?  (In recent decades investment banks and money market funds have formed a shadow banking system which plays an equivalent role.  While the last US commercial-bank bust happened in the 1980s' savings-and-loan crisis, the last shadow-bank variety occurred in 2007-8.)

Analysis. While credit is indeed crucial to economic growth, to use government power to prop up the values of loans to banks, and then to rely on bureaucrats and their rules to limit risk-taking by bankers is a distortion of the credit market.  It is the driver of much human misery.  Central planning, somehow, always benefits the few at the expense of the many, even if it claims to do just the opposite.


Example: Government Bonds

Public illusion. The 'full faith and credit' of the government stands behind the IOU it issues to you.  Your IOU is as good as money.

Reality. Since much public debt is almost as trusted as money, incurring this debt is almost as good as printing money.  Politicians thus have an incentive to maximize the issuance of debt to receive free political capital, and destabilize their very system in the long run.  Even though powerful governments can keep their debt bubbles going for a century or more, those incentives mean that their IOUs will eventually lose value, one way or another.

How to bridge myth and reality. Even aside from the moral problems of 'money' creation and putting burden on people who can't yet vote, public debt should at least be allowed to sink or swim in the capital markets.  If a government incurs too much debt, savers would be incentivized to punish it by demanding a higher yield, and politicians would in turn be incentivized to cut back borrowing.

The confidence trick. When savers get wary of public debt, the central bank steps in to buy it with freshly printed money, thus propping up the value of these IOUs.  This is done in the name of 'monetary policy,' either by buying public debt directly as 'open market' operations, or, more frequently, by supplying banks with cheap new money so they will buy it.  Most of the time, savers can't fight city hall, and will thus tend to buy and hold IOUs, further limiting the downside risk of their values.  This entire system thus amounts to a bubble.

Analysis. It doesn't matter how powerful a government is -- Public debt always crashes eventually.  The dominant global empires of Spain, the Netherlands, and  Britain were destroyed by this crash in their days.  (In the case of Britain the relevant 'public debt' took the form of paper pound sterling that was officially backed by gold at a fixed price.)  No one believes US debt really payable with anything close to the purchasing power savers and foreign central banks used to buy it, although by the time its value can no longer be propped up, most politicians and voters who have benefited from issuing it will have been gone.


Example: Money

Public illusion. Central banks issue and destroy currency to manage economic output for the benefit of the public.  At least in the West, proper management has resulted in low and constant inflation that has justified the public's evident trust in currency's value.

Reality. The real job description of the central bank is to safeguard the state-bank alliance.  It holds power over the most central asset, money, in order to discourage both politicians and bankers from issuing assets too fast and thus endangering the system.  The goal is well-paced harvesting of the fruits of real work.  Over the decades, prices only move in one direction: up.

How to bridge myth and reality. Unfortunately, there is no way to remove the incentives to abuse the issuance of money while the state has any role in the issuance.

The confidence trick. The problem of holding up the public's trust in currency was solved in a simple fashion by the classical gold and silver standards in their day, while the authorities had enough precious metals to back their paper.  Today, the central bank needs to keep the return on 'safe' assets (e.g. short-term Treasuries, insured deposits) above the return on non-state-issued assets, i.e. gold, silver and Bitcoin.  (Recent books like 'Gold Wars' and 'The Gold Cartel' have come up with good evidence of central-bank suppression of precious metal prices by trading derivatives.)  In this it has succeeded most of the time.  It also needs to keep the return on 'safe' assets below the return on risky assets like stocks, over the long term.  The goal of both mandates is to use state power to force savers to take risks.  (Ever wonder why financial crisis always seems to come back?)  When you hear of 'tightening' or 'loosening' the money supply, this is what's really going on.  So, it's not that the public trusts currency; most feel they have no choice.

Analysis. It's not, as most mainstream ecnomists claim, that state-controlled money is required for modern economic growth.  The Italian Renaissance and Scottish 'free-banking' era were the counter-examples.  It's really the other way round.  The real productivity of the modern world gives value to the financial assets issued by the elites, and thus help sustain their financial inflation, at least until the perverse incentives destabilizes the system anyway.  In the Middle Ages, money was physical gold and silver -- when there was no wealth to extract, the state couldn't create its financial inflation.


Final Thoughts

A key feature of this system is that it doesn't matter if you understand it.  You still must gamble, or risk your savings being eaten away by inflation.  The gamble by the public as a whole is certain to end in loss, since the elites will always destabilize asset values to the point of collapse.  The lose-lose proposition works the same way as literal highway robbery -- you can certainly hold on to your money; you just can't keep your life at the same time.

That said, there are times when the elites are likely to be forced to devalue their money, and with it all other conventional assets, against gold, silver and Bitcoin, in order to hold on to power.  This makes it statistically profitable to hold non-state-issued assets at those times.  (An extreme example would be standing at the front of the line to redeem deposits for cash during a bank run, or to redeem pound sterling for gold at the Bank of England just before Britain was forced off the gold standard.)  Necessarily, only a minority will profit from this bet, but its existence is a healthy incentive that pushes the elites to minimize financial inflation.

The system is an 'open conspiracy.'  Instead of secrecy, it relies on a combination of state power and ignorance by the public.  The only sustainable way to a healthy and just system is for the public to wake up.

[OROBTC]

...

BobK71

That is a fantastic post, I will need to re-read it tomorrow.  As well as comment in more detail later.

Most of us who closely follow what government and the banks are up to would agree with your analyses.

Briefly:

Re bank accounts, both printing money and bail-ins are "solutions" that could be imposed.  My guess is that in a crunch there would be some small bail-in (say 20%) while the Fed (B of E, etc.) scrambles to print baby print.

Re government bonds and the Debt, this can go on and on (as you write).  Note also that several writers also claim (probably correctly) that the national debt was never meant to be paid of (doing so would shrink the money supply).  My *take* is that it is GROWTH of debt that is the problem.

Re money, I like to think of "money" as having three attributes: Means of Exchange (a way to pay for something), Unit of Account (so we can determine a proper price) and Store of Value (an expectation that the value of each unit of money will be worth the same for a reasonable period).  I learned from FOFOA that no single type of "money" can fill all three roles.  And so it won't.  The most likely end game (again, as you write) is hyperinflation.

*   *   *

Yep, all investments are a gamble, they all have their different kinds of risk.  In my opinion, probably the best that can be done for anyone with "investable assets" would be to:

1)  Keep debt levels very low

2)  Diversify!  That includes gold and Bitcoin.

[ObscureBean]

I don't mean to take away from your effort, this is a great post, you've obviously put some thought into it, however your theory is fundamentally flawed. It looks great on paper but in practice the system it would give rise to wouldn't be any different from the current one.
You start with the assumption that there is something wrong with the current system and then proceed to identify the faulty element(s). The problem with this is that you're viewing the whole thing in God mode. By that I mean that you've taken yourself out of the picture, you're looking at everything with a critical eye (admittedly with good intentions). While making yourself the exception (perhaps unintentionally?).
The ones you blame are but reflections of yourself, although it is hard to see this if you're caught up in trivialities like wealth and power right from the start.
An honest 'system' is impossible to achieve simply because honesty is not a trait of human nature. It doesn't matter how much you twist and turn, how much you theorize and improve upon your theories, you will always end up at square one. Even if you decentralized power, everything would still remain the same.
But perhaps your goal is only to obtain a meatier/fairer slice of power?

[Xester]

When I recently came across 'parasitocracy,' it struck me as a nice twist of wording -- instead of honest democracy or free-market meritocracy, we truly live under rule by parasites.

Trying to describe how the financial and political elites receive unearned wealth and power can get complicated very quickly.  To find a simple but rigorous theory to cover most major features of the beast requires looking at it the right way.

By and large, how it works is that:

• The elites use state power to prop up the value of money, debt, and other financial assets artificially, to benefit those who issue them, i.e. themselves.  When some over-valued asset eventually must crash, the entire economy suffers the loss of jobs, business and savings.

Example: The Bank Account

Public illusion. A commercial-bank 'deposit' is as good as money.  You will get all your money back, any time you want.

Reality. 'Deposits' are really loans to the bank which lends them to borrowers, some of whom may never pay them back.  Another danger is that savers may ask for their money at any time, while loans by the bank tend to have longer-term maturities.

How to bridge myth and reality. An honest system would communicate expectations openly.  A simple example could be having 'depositors' expect to lose money if the bank makes bad loans.  The problem with an honest system, of course, is that top politicians and bankers wouldn't benefit much.

The confidence trick.  The government supports the illusion, while it can.  Classic tools over the centuries include allowing banks to collude by rescuing each other in a crisis, bailing banks out with public money, and providing deposit insurance.  If this gives bankers the incentives to take too much risk, bankers redeem themselves by being a lender to the government.  Since both sets of elites benefit, what problem is there?  (In recent decades investment banks and money market funds have formed a shadow banking system which plays an equivalent role.  While the last US commercial-bank bust happened in the 1980s' savings-and-loan crisis, the last shadow-bank variety occurred in 2007-8.)

Analysis. While credit is indeed crucial to economic growth, to use government power to prop up the values of loans to banks, and then to rely on bureaucrats and their rules to limit risk-taking by bankers is a distortion of the credit market.  It is the driver of much human misery.  Central planning, somehow, always benefits the few at the expense of the many, even if it claims to do just the opposite.


Example: Government Bonds

Public illusion. The 'full faith and credit' of the government stands behind the IOU it issues to you.  Your IOU is as good as money.

Reality. Since much public debt is almost as trusted as money, incurring this debt is almost as good as printing money.  Politicians thus have an incentive to maximize the issuance of debt to receive free political capital, and destabilize their very system in the long run.  Even though powerful governments can keep their debt bubbles going for a century or more, those incentives mean that their IOUs will eventually lose value, one way or another.

How to bridge myth and reality. Even aside from the moral problems of 'money' creation and putting burden on people who can't yet vote, public debt should at least be allowed to sink or swim in the capital markets.  If a government incurs too much debt, savers would be incentivized to punish it by demanding a higher yield, and politicians would in turn be incentivized to cut back borrowing.

The confidence trick. When savers get wary of public debt, the central bank steps in to buy it with freshly printed money, thus propping up the value of these IOUs.  This is done in the name of 'monetary policy,' either by buying public debt directly as 'open market' operations, or, more frequently, by supplying banks with cheap new money so they will buy it.  Most of the time, savers can't fight city hall, and will thus tend to buy and hold IOUs, further limiting the downside risk of their values.  This entire system thus amounts to a bubble.

Analysis. It doesn't matter how powerful a government is -- Public debt always crashes eventually.  The dominant global empires of Spain, the Netherlands, and  Britain were destroyed by this crash in their days.  (In the case of Britain the relevant 'public debt' took the form of paper pound sterling that was officially backed by gold at a fixed price.)  No one believes US debt really payable with anything close to the purchasing power savers and foreign central banks used to buy it, although by the time its value can no longer be propped up, most politicians and voters who have benefited from issuing it will have been gone.


Example: Money

Public illusion. Central banks issue and destroy currency to manage economic output for the benefit of the public.  At least in the West, proper management has resulted in low and constant inflation that has justified the public's evident trust in currency's value.

Reality. The real job description of the central bank is to safeguard the state-bank alliance.  It holds power over the most central asset, money, in order to discourage both politicians and bankers from issuing assets too fast and thus endangering the system.  The goal is well-paced harvesting of the fruits of real work.  Over the decades, prices only move in one direction: up.

How to bridge myth and reality. Unfortunately, there is no way to remove the incentives to abuse the issuance of money while the state has any role in the issuance.

The confidence trick. The problem of holding up the public's trust in currency was solved in a simple fashion by the classical gold and silver standards in their day, while the authorities had enough precious metals to back their paper.  Today, the central bank needs to keep the return on 'safe' assets (e.g. short-term Treasuries, insured deposits) above the return on non-state-issued assets, i.e. gold, silver and Bitcoin.  (Recent books like 'Gold Wars' and 'The Gold Cartel' have come up with good evidence of central-bank suppression of precious metal prices by trading derivatives.)  In this it has succeeded most of the time.  It also needs to keep the return on 'safe' assets below the return on risky assets like stocks, over the long term.  The goal of both mandates is to use state power to force savers to take risks.  (Ever wonder why financial crisis always seems to come back?)  When you hear of 'tightening' or 'loosening' the money supply, this is what's really going on.  So, it's not that the public trusts currency; most feel they have no choice.

Analysis. It's not, as most mainstream ecnomists claim, that state-controlled money is required for modern economic growth.  The Italian Renaissance and Scottish 'free-banking' era were the counter-examples.  It's really the other way round.  The real productivity of the modern world gives value to the financial assets issued by the elites, and thus help sustain their financial inflation, at least until the perverse incentives destabilizes the system anyway.  In the Middle Ages, money was physical gold and silver -- when there was no wealth to extract, the state couldn't create its financial inflation.


Final Thoughts

A key feature of this system is that it doesn't matter if you understand it.  You still must gamble, or risk your savings being eaten away by inflation.  The gamble by the public as a whole is certain to end in loss, since the elites will always destabilize asset values to the point of collapse.  The lose-lose proposition works the same way as literal highway robbery -- you can certainly hold on to your money; you just can't keep your life at the same time.

That said, there are times when the elites are likely to be forced to devalue their money, and with it all other conventional assets, against gold, silver and Bitcoin, in order to hold on to power.  This makes it statistically profitable to hold non-state-issued assets at those times.  (An extreme example would be standing at the front of the line to redeem deposits for cash during a bank run, or to redeem pound sterling for gold at the Bank of England just before Britain was forced off the gold standard.)  Necessarily, only a minority will profit from this bet, but its existence is a healthy incentive that pushes the elites to minimize financial inflation.

The system is an 'open conspiracy.'  Instead of secrecy, it relies on a combination of state power and ignorance by the public.  The only sustainable way to a healthy and just system is for the public to wake up.

It is a very long post and you have put a good effort in putting your ideas into words and express it in a very clearly.

But I'll be not going to make a summary of your post but instead focus on the deceiving side of the banking system. Though I do not agree to all of your concepts but I agree with you that banks are making money out of air.

[groll]

When I recently came across 'parasitocracy,' it struck me as a nice twist of wording -- instead of honest democracy or free-market meritocracy, we truly live under rule by parasites.

Trying to describe how the financial and political elites receive unearned wealth and power can get complicated very quickly.  To find a simple but rigorous theory to cover most major features of the beast requires looking at it the right way.

By and large, how it works is that:

• The elites use state power to prop up the value of money, debt, and other financial assets artificially, to benefit those who issue them, i.e. themselves.  When some over-valued asset eventually must crash, the entire economy suffers the loss of jobs, business and savings.

Example: The Bank Account

Public illusion. A commercial-bank 'deposit' is as good as money.  You will get all your money back, any time you want.

Reality. 'Deposits' are really loans to the bank which lends them to borrowers, some of whom may never pay them back.  Another danger is that savers may ask for their money at any time, while loans by the bank tend to have longer-term maturities.

How to bridge myth and reality. An honest system would communicate expectations openly.  A simple example could be having 'depositors' expect to lose money if the bank makes bad loans.  The problem with an honest system, of course, is that top politicians and bankers wouldn't benefit much.

The confidence trick.  The government supports the illusion, while it can.  Classic tools over the centuries include allowing banks to collude by rescuing each other in a crisis, bailing banks out with public money, and providing deposit insurance.  If this gives bankers the incentives to take too much risk, bankers redeem themselves by being a lender to the government.  Since both sets of elites benefit, what problem is there?  (In recent decades investment banks and money market funds have formed a shadow banking system which plays an equivalent role.  While the last US commercial-bank bust happened in the 1980s' savings-and-loan crisis, the last shadow-bank variety occurred in 2007-8.)

Analysis. While credit is indeed crucial to economic growth, to use government power to prop up the values of loans to banks, and then to rely on bureaucrats and their rules to limit risk-taking by bankers is a distortion of the credit market.  It is the driver of much human misery.  Central planning, somehow, always benefits the few at the expense of the many, even if it claims to do just the opposite.


Example: Government Bonds

Public illusion. The 'full faith and credit' of the government stands behind the IOU it issues to you.  Your IOU is as good as money.

Reality. Since much public debt is almost as trusted as money, incurring this debt is almost as good as printing money.  Politicians thus have an incentive to maximize the issuance of debt to receive free political capital, and destabilize their very system in the long run.  Even though powerful governments can keep their debt bubbles going for a century or more, those incentives mean that their IOUs will eventually lose value, one way or another.

How to bridge myth and reality. Even aside from the moral problems of 'money' creation and putting burden on people who can't yet vote, public debt should at least be allowed to sink or swim in the capital markets.  If a government incurs too much debt, savers would be incentivized to punish it by demanding a higher yield, and politicians would in turn be incentivized to cut back borrowing.

The confidence trick. When savers get wary of public debt, the central bank steps in to buy it with freshly printed money, thus propping up the value of these IOUs.  This is done in the name of 'monetary policy,' either by buying public debt directly as 'open market' operations, or, more frequently, by supplying banks with cheap new money so they will buy it.  Most of the time, savers can't fight city hall, and will thus tend to buy and hold IOUs, further limiting the downside risk of their values.  This entire system thus amounts to a bubble.

Analysis. It doesn't matter how powerful a government is -- Public debt always crashes eventually.  The dominant global empires of Spain, the Netherlands, and  Britain were destroyed by this crash in their days.  (In the case of Britain the relevant 'public debt' took the form of paper pound sterling that was officially backed by gold at a fixed price.)  No one believes US debt really payable with anything close to the purchasing power savers and foreign central banks used to buy it, although by the time its value can no longer be propped up, most politicians and voters who have benefited from issuing it will have been gone.


Example: Money

Public illusion. Central banks issue and destroy currency to manage economic output for the benefit of the public.  At least in the West, proper management has resulted in low and constant inflation that has justified the public's evident trust in currency's value.

Reality. The real job description of the central bank is to safeguard the state-bank alliance.  It holds power over the most central asset, money, in order to discourage both politicians and bankers from issuing assets too fast and thus endangering the system.  The goal is well-paced harvesting of the fruits of real work.  Over the decades, prices only move in one direction: up.

How to bridge myth and reality. Unfortunately, there is no way to remove the incentives to abuse the issuance of money while the state has any role in the issuance.

The confidence trick. The problem of holding up the public's trust in currency was solved in a simple fashion by the classical gold and silver standards in their day, while the authorities had enough precious metals to back their paper.  Today, the central bank needs to keep the return on 'safe' assets (e.g. short-term Treasuries, insured deposits) above the return on non-state-issued assets, i.e. gold, silver and Bitcoin.  (Recent books like 'Gold Wars' and 'The Gold Cartel' have come up with good evidence of central-bank suppression of precious metal prices by trading derivatives.)  In this it has succeeded most of the time.  It also needs to keep the return on 'safe' assets below the return on risky assets like stocks, over the long term.  The goal of both mandates is to use state power to force savers to take risks.  (Ever wonder why financial crisis always seems to come back?)  When you hear of 'tightening' or 'loosening' the money supply, this is what's really going on.  So, it's not that the public trusts currency; most feel they have no choice.

Analysis. It's not, as most mainstream ecnomists claim, that state-controlled money is required for modern economic growth.  The Italian Renaissance and Scottish 'free-banking' era were the counter-examples.  It's really the other way round.  The real productivity of the modern world gives value to the financial assets issued by the elites, and thus help sustain their financial inflation, at least until the perverse incentives destabilizes the system anyway.  In the Middle Ages, money was physical gold and silver -- when there was no wealth to extract, the state couldn't create its financial inflation.


Final Thoughts

A key feature of this system is that it doesn't matter if you understand it.  You still must gamble, or risk your savings being eaten away by inflation.  The gamble by the public as a whole is certain to end in loss, since the elites will always destabilize asset values to the point of collapse.  The lose-lose proposition works the same way as literal highway robbery -- you can certainly hold on to your money; you just can't keep your life at the same time.

That said, there are times when the elites are likely to be forced to devalue their money, and with it all other conventional assets, against gold, silver and Bitcoin, in order to hold on to power.  This makes it statistically profitable to hold non-state-issued assets at those times.  (An extreme example would be standing at the front of the line to redeem deposits for cash during a bank run, or to redeem pound sterling for gold at the Bank of England just before Britain was forced off the gold standard.)  Necessarily, only a minority will profit from this bet, but its existence is a healthy incentive that pushes the elites to minimize financial inflation.

The system is an 'open conspiracy.'  Instead of secrecy, it relies on a combination of state power and ignorance by the public.  The only sustainable way to a healthy and just system is for the public to wake up.

It is a very long post and you have put a good effort in putting your ideas into words and express it in a very clearly.

But I'll be not going to make a summary of your post but instead focus on the deceiving side of the banking system. Though I do not agree to all of your concepts but I agree with you that banks are making money out of air.

The author was right to point out the deception and the government has placed into us through the years.

Banks will give out loans using my deposit and give it to you through loans. After which you will pay it with high interest. They earn a big amount from the interest and they will give you only a very small profit to your deposit. 99.99% percent of the net was consumed by them while the owners received a very small amount. It is unfair, it is usurage, and it is evil. Banks are evil

[BobK71]

I don't mean to take away from your effort, this is a great post, you've obviously put some thought into it, however your theory is fundamentally flawed. It looks great on paper but in practice the system it would give rise to wouldn't be any different from the current one.
You start with the assumption that there is something wrong with the current system and then proceed to identify the faulty element(s). The problem with this is that you're viewing the whole thing in God mode. By that I mean that you've taken yourself out of the picture, you're looking at everything with a critical eye (admittedly with good intentions). While making yourself the exception (perhaps unintentionally?).
The ones you blame are but reflections of yourself, although it is hard to see this if you're caught up in trivialities like wealth and power right from the start.
An honest 'system' is impossible to achieve simply because honesty is not a trait of human nature. It doesn't matter how much you twist and turn, how much you theorize and improve upon your theories, you will always end up at square one. Even if you decentralized power, everything would still remain the same.
But perhaps your goal is only to obtain a meatier/fairer slice of power?

Good question.

Certainly, none of us should be relied on to be honest at all times, and especially when a lot of money is at stake.  But the whole point of democracy, free markets, due process, and other ideals of the Enlightenment is surely to make it so we *don't* have to rely on people being honest, especially at the top, as much as possible.  I'm suggesting that we add managing money to the list of prohibitions against the state.

But it does seem you might have a deeper point as well...  If so please let me know.  There's also the 'imperialist' argument, that if one government refuses to inflate financial assets, it will be replaced by one who will, whether from inside or outside the country.  Would that fit into your view too?

[BobK71]

...

BobK71

That is a fantastic post, I will need to re-read it tomorrow.  As well as comment in more detail later.

Thank you!  I look forward to reading it.

...
Re government bonds and the Debt, this can go on and on (as you write).  Note also that several writers also claim (probably correctly) that the national debt was never meant to be paid of (doing so would shrink the money supply).  My *take* is that it is GROWTH of debt that is the problem.

If a debt goes on and on, its value becomes dependent on believing that other holders of the asset also believe they can redeem the debt for liquid assets any time.  This reliance on 2nd, 3rd, and 4th, etc. guessing is a characteristic of a bubble.  Bubbles can last a long time, yes, but you never know when it pops.  A public debt bubble is especially dependent on political strength -- not the sort that got Trump nominated!  The central bank is not legally bound to rescue public debt, and a large number of factors can be problematic for the bubble.

Re money, I like to think of "money" as having three attributes: Means of Exchange (a way to pay for something), Unit of Account (so we can determine a proper price) and Store of Value (an expectation that the value of each unit of money will be worth the same for a reasonable period).  I learned from FOFOA that no single type of "money" can fill all three roles.  And so it won't.  The most likely end game (again, as you write) is hyperinflation.

The key issue for me is not what form money takes.  I would want the market to work it out.  Who knows, in an ideal world most 'money' might be some kind of credit or derivative.  The key problem is that, when the state issues money, the power and the inherent incentives of such a system will lead to destructiveness of all kinds.  When private parties issue financial assets, no one needs to trust them (assuming there is no direct or indirect state support of any kind,) and that's the only way to build a healthy system from the start.

If you've ever listened to socialist bureaucrats, you'll have heard a lot of talk about how things 'should' be, and of course, the implication is that they should have the power to do this or that job.

Yep, all investments are a gamble, they all have their different kinds of risk.

There is the natural risk that comes from investment or any other activity with uncertainty, and there is also the risk that comes from state interference and distortion of the capital markets.  The latter is the only preventable factor.

In my opinion, probably the best that can be done for anyone with "investable assets" would be to:

1)  Keep debt levels very low

2)  Diversify!  That includes gold and Bitcoin.

Absolutely, diversify, and not put all your bets on gold and Bitcoin either!

[OROBTC]

...

BobK71

It's going to take some time to explore your ideas in this thread in detail, so I think I will explore them piecemeal.

*   *   *

I will start with "Parasitocracy", that great term you brought here.  Most awake observers would agree to at least some degree that those who hold the power (or who are The Elite, those who are very rich, etc.) are always gaming the system so they can make even MOAR.  Or get moar power for themselves.  This has been going on for millennia, and I don't think it is necessary to bring further proof to this discussion, it has been proven "enough".

Without going too deep into the weeds, there are many players with many agendas.  Banksters want loose rules (no Glass-Steagal), and moar (printed or electronic) money.  [Though many banks seem to be hurting from negative rates, but, I don't want to get lost in the weeds...]  Banksters also get Bailouts (2008) and look like they will be protected by Bail-ins if/when the time comes (IMO, the time will come).

Also, again just raising the topic and not wanting to explore the weed-infested fringes, there are many types of parasitism and levels (intensities).  The Clintons, for example, provide a fascinating set of parasitical behavior: Not only do they want moar, they want moar of almost everything!  The Clinton Foundation (just today coming under an IRS investigation) has made them rich, with apparently a low 10% of all contributions going to the needy, the rest going to them and cronies...  [Weed alert], yet another facet here is why so many who are already very wealthy need moar and moar and moar.  Once someone is worth, say, $10,000,000 (net of liabilities) why does anyone need yet moar?  At least why do they want moar to a degree that they would behave in an illegal way or scandalously?  Sociopaths behave like that.  Easy-to-digest references, for those interested, would include the two recent movies ("Hillary's America" by Dinesh D'Souza and the remarkable "Clinton Cash" that I saw at Breitbart) showing very disturbing and almost completely illegal behavior by the Clintons.

Other parasites meriting investigation and probably punishment would be sleazy scumbags like Jon Corzine, a nexus of greed and political douchebaggery.  Not one significant participant in the Financial Crisis (2008 - ?) has been put in jail.  Corzine was also Governor of New Jersey...  Power and money.

Impunity.  A word we will likely see more and more.  And it will eventually anger the American people.

*   *   *

I have mentioned some of my views on diversification in other threads.  I agree about not HODLING too many (net) assets in gold or Bitcoin.  My rule of thumb (and this is just me) has been perhaps 10% in gold (or even diversified into other PMs) and 1% into BTC.  Of course, this suggestion would be for someone who has enough assets to more than cover their life's expenses (etc.).

In my case, my family's holdings are about 10% in gold and some other PMs (not paper gold), and about 0.5% in BTC.  I am happy enough to HODL some BTC as I think it is potentially a great speculation.

Gold will protect the owner from .gov predations and carry wealth forward.

But that still leaves traditional assets.  As I think some kind of financial disaster is very possible, I think that every thinking person should cover the downside with a holding of gold, and if "knowledgeable enough" (and interested), then HODLING BTC is great.  But traditional assets are OK with me because of proven historical value.  Everyone should hold some traditional assets because we may not have a financial disaster...

Stocks are good, because of their traditional growth that has been higher than most other investments (so HODL of up to some 25% in stocks if you are wealthy).

Bonds are not so good now, but have been OK for those through history needing income.  There are lots of types of bonds and other income-producing investments of various kinds and qualities.  

Real estate apparently has made more Americans wealthy than any other investment (inc. technology and energy).  Real estate is priced high now...  Holding real estate via too much borrowed money is dangerous!

"Alternative investments" (which depending on definition may include gold) are OK up to (say) 5% of new wealth according to many money managers.  Other alternative investments include fine art, hedge funds, foreign investments, etc.

What balance would constitute a diversified (diversified enough) portfolio?  That depends on each person's own situation, knowledge, and comfort levels (eg with risk).

In my opinion, financial safety would include all sorts of legitimate investments, and a good balance (not too concentrated into any one investment) is most appropriate.



(Edited various times)

[BobK71]

OROBTC, thank you for your thoughtful remarks.  It's nice to be taken seriously!

I would agree that the top rung people have sought to take advantage of their power, and pass their privilege to their offspring, for millennia.  I see part of the problem being that we must have law and order, so we have to grant a monopoly on violence to some entity.  And once mortal humans have power...  But the trend of modern history is to constrain the use of this power further and further.  (Hegel said the march of history is towards more freedom.)  I'm hoping the next step of Enlightenment will be the breaking of the chains of state money.

The only way really to attain more freedom is more public awareness, and the Internet will be helpful.  No less than elite mouthpiece David Brooks has openly complained about the effectiveness of online forums!

There is also a distinction between older leveraging of power and the monetary-financial variety.  In the old days, you might have murdered your way to the throne, but once there, you generally wanted peace and justice throughout your realm, even if you took your relatively bigger share of the spoils.  The unique thing about abuse by financial inflation is that you are incentivized to destabilize the very system that you rely on for support, and that's why every single dominant modern global empire (Spain, the Netherlands, and Britain) has collapsed from issuing too many financial assets.  This is another cause for optimism, in the long run.

More later...

[BobK71]

I will start with "Parasitocracy", that great term you brought here.  Most awake observers would agree to at least some degree that those who hold the power (or who are The Elite, those who are very rich, etc.) are always gaming the system so they can make even MOAR.  Or get moar power for themselves.  This has been going on for millennia, and I don't think it is necessary to bring further proof to this discussion, it has been proven "enough".

...

Though here's the thing...  it's one thing to think (and even 'know') the system is rigged, but it's important to understand exactly how.

Without knowing how, people tend to demand solutions, like electing a socialist or a Trump, which will likely make things worse.

The powers that be have a narrative (propagated by the educational system and conventional media) that we in the West live under true democracy and free markets.  So those who 'have' deserve everything they get, because others either voted for them or voluntarily bought what they have to offer.

It's imperative to destroy this myth by phrasing the problem in a succinct but rigorous fashion.  Otherwise, the prevailing view will be that free markets aren't working, so let's give even more power to the elites.

[OROBTC]

I will start with "Parasitocracy", that great term you brought here.  Most awake observers would agree to at least some degree that those who hold the power (or who are The Elite, those who are very rich, etc.) are always gaming the system so they can make even MOAR.  Or get moar power for themselves.  This has been going on for millennia, and I don't think it is necessary to bring further proof to this discussion, it has been proven "enough".

...

Though here's the thing...  it's one thing to think (and even 'know') the system is rigged, but it's important to understand exactly how.

Without knowing how, people tend to demand solutions, like electing a socialist or a Trump, which will likely make things worse.

The powers that be have a narrative (propagated by the educational system and conventional media) that we in the West live under true democracy and free markets.  So those who 'have' deserve everything they get, because others either voted for them or voluntarily bought what they have to offer.

It's imperative to destroy this myth by phrasing the problem in a succinct but rigorous fashion.  Otherwise, the prevailing view will be that free markets aren't working, so let's give even more power to the elites.

Mmm-hmm.  But, defining how the system is rigged is rather more difficult than it might seem.  Part of the problem might be a semantic issue: "Rigged", what exactly does that mean?  I like the term "narrative" that seems to have gotten popular say a year ago, and it seems to describe the propaganda that we all must bear.  But, I agree, there is a "consensus reality" that seems to be shared by The Elite and the MSM (Mainstream Media).

This go 'round re president is not very promising.  BOTH will likely spend lots & lots of money, that is one of a few shared positions (but spend on different things).

I will leave the words "democracy" and "representative republic" alone, further discussion of those two might resolve your comment re democracy.

However, "free markets" are an ideal, it could be argued that on-and-off the USA has come pretty close.  Clearly we are not very close to the ideal now.  And both Trump and $hillary (ahh, whom would I be for?) would hinder free market activity, the former by his opposition to the TPP (which may be a bad treaty, especially if that is the one that is secret).  Hyena Rodent is a proven liar, and has been for 30 years.  Trump would be a High Risk President, who might run us off the rails with a bad decision or two...

As a general rule, the more libertarian, the better.  Fewer restrictions on our economic and political freedoms, the better.  The contrary (bigger government, concentration of power, etc.), the worse.

I still the think the term "parasitocracy" that you introduced here is an excellent one-word summary of many flaws in our system.

*   *   *

Bitcoin's price crash today (which I just read about, "Mi Reina" and I were out running errands) is relevant here.  BTC is reasonably beyond easy control by The Establishment.  And so takes another black eye.  I do feel a little better having spent some BTC for gold when BTC was at $690 and $660.  Maybe the time has come to buy again?

[BobK71]

Bitcoin's price crash today (which I just read about, "Mi Reina" and I were out running errands) is relevant here.  BTC is reasonably beyond easy control by The Establishment.  And so takes another black eye.  I do feel a little better having spent some BTC for gold when BTC was at $690 and $660.  Maybe the time has come to buy again?

You know, I always thought that BTC's price is recently too stable and smooth over long stretches of time.  Call me paranoid, but if the authorities suppress gold, I'm suspecting they're 'managing' BTC too.  It has the potential to be something that state currencies can lean on, when they need support, and I think that is why the US is currently embracing it.

I will leave the words "democracy" and "representative republic" alone, further discussion of those two might resolve your comment re democracy.

One of my main issues with politics today is gerrymandering (oops, I mean 'redistricting') of Congressional seats.  Another is the close relationship between mainstream journalists and powerful office-holders who are their sources.  The quip-pro-quo is that, you print what I want to see aired in public, and don't print what I don't want aired, and I'll give you good stories from the inside from time to time.  The reporting has gotten so uniform and bland (and especially not touching any land mines that might blow up the imperial asset bubble,) that I am turning to ZeroHedge as my main source of news.

Mmm-hmm.  But, defining how the system is rigged is rather more difficult than it might seem.  Part of the problem might be a semantic issue: "Rigged", what exactly does that mean?  I like the term "narrative" that seems to have gotten popular say a year ago, and it seems to describe the propaganda that we all must bear.  But, I agree, there is a "consensus reality" that seems to be shared by The Elite and the MSM (Mainstream Media).

That question was what I tried to address in the original posting, and I would of course welcome debate on the points I raised.  My main idea was that the market power of a big entity (the state) is being used to distort markets to favor the top politicians and their banking allies.  While leveraging the market power of size happens daily in the private sector, and probably has no easy cure, when the state does it, the problem is of a different scale altogether, partly because of the legal and military tools available to the state for supporting its asset bubbles.

And I understand that the market 'feels' free to 99% of the people.  The competition between Four Seasons and Ritz Carlton is real.  But a competitive economy is not necessarily a free-market economy.  The size of the luxury hotel business comes from demand that is distorted from day one by monetary and financial manipulation at central banks and governments.  So when asset bubbles crash, the loss of jobs and wealth won't have been caused by free markets either.

[BobK71]

It is a very long post and you have put a good effort in putting your ideas into words and express it in a very clearly.

But I'll be not going to make a summary of your post but instead focus on the deceiving side of the banking system. Though I do not agree to all of your concepts but I agree with you that banks are making money out of air.

Thank you.  But think about it... why are banks allowed to 'make money out of air?'

Most people will think it's because bankers 'contribute' to politicians.  A much larger and more fundamental force at work is that banks provide support for the public debt issued by top politicians, by buying it and treating it as money.  As long as bank assets hold their values in the 'market,' public debt will hold its value.

The world is run by an alliance between the political and financial elites, with the central bank as the stabilizer of the alliance.

[yayayo]

It is a very long post and you have put a good effort in putting your ideas into words and express it in a very clearly.

But I'll be not going to make a summary of your post but instead focus on the deceiving side of the banking system. Though I do not agree to all of your concepts but I agree with you that banks are making money out of air.

Thank you.  But think about it... why are banks allowed to 'make money out of air?'

Most people will think it's because bankers 'contribute' to politicians.  A much larger and more fundamental force at work is that banks provide support for the public debt issued by top politicians, by buying it and treating it as money.  As long as bank assets hold their values in the 'market,' public debt will hold its value.

The world is run by an alliance between the political and financial elites, with the central bank as the stabilizer of the alliance.

Your analysis is convincing. The symbiosis between banks and governments was significantly tightened after the 2008 Lehmann collapse. Now debt is bought indirectly or even directly by the central banks, because there is no sufficient demand for it in the public market. So apparently some market actors understand what's going on here. Which brings me to my small disagreement with your assessment: I don't think that the statement "it doesn't matter if you understand it, you still must gamble" is correct. Instead, I think that all market actors do always gamble, but the probability of a positive outcome is much higher if you are well informed.

This holds true for banks and the average Joe in the same way. If you know that fiat money, bonds, and bank deposits are a gigantic debt-fueled scam, you can buy assets (like precious metals and Bitcoin) that will protect you from the system's inevitable downfall. Of course that only holds true on an individual level - it is impossible to save everyone. On the other hand it is somehow fair, because the less ignorant you are the better your chance of escaping the disaster.

ya.ya.yo!

[OROBTC]

...

Corruption is so deeply embedded in many parts of our system.  That is one reason I looked into Bitcoin, flawed as it is (14% at an "BTM" for example, few spending outlets, etc.).

Slowly, some of this corruption is becoming more visible.  I am on vacation now bought some BTC at a BTM, the FIRST BTM) in Vancouver, no ID needed...  That is a small strike at the parasites.

A worry mentioned above is what happens when things go too far.  The totalitarian hammer comes down.  We may get to see that in Europe re immigrants.  I do NOT see how the Parasitocracy ends comfortably for us, at least in America.  There are too many beneficiaries of the parasitical/corrupt system we have now to be easily disentangled.

[BobK71]

Your analysis is convincing. The symbiosis between banks and governments was significantly tightened after the 2008 Lehmann collapse. Now debt is bought indirectly or even directly by the central banks, because there is no sufficient demand for it in the public market. So apparently some market actors understand what's going on here.

At this point in the financial inflation cycle, the elites must try to keep what remains of the bubble afloat.  This just means more financial stimulus and/or repression (e.g. with zero interest rates and printing money to buy Treasuries), which will increase the distortions and malinvestments (not to mention adding to the incentives for some among the elites to destabilize the system) and set us up for a bigger crash down the road.

Which brings me to my small disagreement with your assessment: I don't think that the statement "it doesn't matter if you understand it, you still must gamble" is correct. Instead, I think that all market actors do always gamble, but the probability of a positive outcome is much higher if you are well informed.

This holds true for banks and the average Joe in the same way. If you know that fiat money, bonds, and bank deposits are a gigantic debt-fueled scam, you can buy assets (like precious metals and Bitcoin) that will protect you from the system's inevitable downfall. Of course that only holds true on an individual level - it is impossible to save everyone. On the other hand it is somehow fair, because the less ignorant you are the better your chance of escaping the disaster.

ya.ya.yo!

I absolutely agree that we have better chances, the more we understand the system.  What I was referring to, however, was the fundamental feature of the system, that everyone must gamble with significant risks, most of the time.  The elites can't really afford to allow even a few people to win so predictably that more and more people start taking notice.  (The biggest act of financial repression, so far, IMO is still forcing gold and silver to have a return of zero under the metallic standards.)

There is just no way to say, I want to be left alone; I only want to preserve the value I have earned and retire safely.

Now apologists for the system (and especially the professional economists) are going to come back at you by saying, money in *any* form is merely a claim on future real wealth.  And the future is uncertain no matter what, so what the claim will buy you is always uncertain.

While this is true, we must also acknowledge that state-driven financial inflation has drastically worsened the natural instability.  When you force people to spend and lend by eating away their savings automatically, you can't be surprised that much of the spending and investment will be frivolous or wasted.  When demand collapses, everyone's wealth will shrink.

[Dassi]

Now that we know the government is controlling fiat to its own advantage, what is the way forward?

Even if the whole world start spending bitcoins, the elites can still create a controlled inflation.

[davis196]

Wow,pretty long post.You have to write a book about this topic.

The post is nice,but you sound a little bit like a communist. Just kidding.

Elites really use the governments to gain more power and more profits.This isn`t a secret.

"Parasitocracy" is a nice term by the way, i like it.

[BobK71]

A worry mentioned above is what happens when things go too far.  The totalitarian hammer comes down.  We may get to see that in Europe re immigrants.  I do NOT see how the Parasitocracy ends comfortably for us, at least in America.  There are too many beneficiaries of the parasitical/corrupt system we have now to be easily disentangled.

Totalitarianism is always a worry, but a fundamental force that has been working in our favor is that modern empires (as opposed to pre-modern ones) must use a combination of hard and soft power to keep their empires alive.

If you need people to, essentially, trust in your debt, you have to appear to respect classical liberal values and institutions, and to keep your promises.

Even though promise-breaking sits at the heart of the system, most people don't know that.  In fact, the imperial elites have always been allying themselves with, shall we say, less classically liberal rulers around the world (helping keep them in power in return for their states' support for imperial assets,) but will also expose the lesser rulers' even dirtier politics and finances to the public, at the right times.  This is all part of the stage management to portray the imperial center as a desirable place to invest.

The important thing is that the imperial system mechanically requires investor confidence -- it couldn't become a full military dictatorship if it wanted to.  Its delicate task is always to maintain a facade but profit from a very different reality.

As for the end game, I'm not sure if you read my other thread about the Spanish Inquisition.  What the imperial elites want is a smooth transition of power to the next global empire, populated by a people who have yet to experience their economic explosion, and keeping that country friendly to the existing order, so the old empire can be eased into gradual decline.  This transition has been achieved by the Dutch and British empires, and I'm sure is the holy grail of the American elites today.

[Wind_FURY]

Example: The Bank Account

Public illusion. A commercial-bank 'deposit' is as good as money.  You will get all your money back, any time you want.

Reality. 'Deposits' are really loans to the bank which lends them to borrowers, some of whom may never pay them back.  Another danger is that savers may ask for their money at any time, while loans by the bank tend to have longer-term maturities.

I think I just had an epiphany. This is what bitcoiners have been saying all along! If you want to disrupt the banks then do not make deposits to them. What you should do is "deposit" them where you have total control of your money! Buy BTC. Well it is not really "buying", what you are actually doing is converting fiat to BTC. So do it now and encourage the people around you to do it too. Enough with the BS of the banks.