![pigs](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.11.19..12.55.37-cbdc%20karstens%201%20.jpeg)

"What is going on!?" the three-year-old exlaimed at the breakfast table the other day. And it's indeed a valid question. Energy and food prices have been skyrocketing, yet another epidemic (monkeypox) has recently appeared to be spreading - at least it was declared [a global emergency](https://news.un.org/en/story/2022/07/1123152) this past summer, and the world's central bankers are changing their minds so quickly one suspects that they might soon land on their buttocks (perhaps [in butter](https://artistwd.com/joyzine/australia/strine/l-2.php#.VJ8L3BFfA)).  

And, as so often, regardless of what is actually going on, the ongoing itself is used as an argument to introduce what has long been sought after: "never let a good crisis go to waste". The war in Ukraine is even being used as a pretext to [increase the pace of introduction](https://www.ft.com/content/3e0760d4-8127-41db-9546-e62b6f8f5773) of Central Bank Digital Currencies (CBDCs) - even though current events are completely unrelated to CBDCs in any way. 

#### Money that rots like potatoes

Much of the discussion surrounding CBDCs in recent years has revolved around central banks' desire to be able to cut interest rates deeply into negative territory during the next recession, which would become possible if businesses and households no longer could flee to zero-return cash. 

CBDCs can help close this escape route. If cash is limited, abolished, or if an exchange rate between cash and CBDCs is introduced (this has actually [been proposed](https://www.imf.org/en/Publications/WP/Issues/2019/04/29/Enabling-Deep-Negative-Rates-A-Guide-46598)), there would be no limit to how deep negative rates could get. Your "money" could then be made worthless (rot) at a tremendous pace in the near future - much like in [Bokashi composting](https://www.thespruce.com/basics-of-bokashi-composting-2539742). 

##### This is what your money could look like in the future

![your money in the future](https://underorion.se/1/rotten_potatoes1_760.png)

More than a century ago, Silvio Gesell promoted the idea that money should "[rot like potatoes](https://www.npr.org/sections/money/2019/08/27/754323652/the-strange-unduly-neglected-prophet)". So nothing is really new under the sun. Silvio Gesell eventually became the minister of confiscation in the socialist [Bavarian Soviet Republic](https://en.wikipedia.org/wiki/Bavarian_Soviet_Republic), a state formation which admittedly - thankfully? - did not last very long. 

Now, roughly a hundred years later, we may not have a Bavarian Socialist Republic, but we do have plenty of five-year plans. Perhaps not exact copies of China's [Great Leap Forward](https://en.wikipedia.org/wiki/Great_Leap_Forward) but nevertheless ambitious ones: Agenda 2030, Build Back Better or The Great Reset - agendas which could all be "helped" by CBDCs...


#### Agustin's appetite for absolute control

Past decades of growing AML (anti money-laundering) and KYC (know-your-customer) regulations as well as the plans to monitor bank transactions ([USD600](https://www.dailymail.co.uk/news/article-10086681/This-seriously-mischaracterized-Janet-Yellen-defends-plan-IRS-snoop-accounts.html) in the US and [EUR1000](https://coingeek.com/eu-puts-defi-on-notice-revives-stablecoin-transaction-cap/) in the EU) have and will increase governments' power in terms of surveilling what their citizens are up to. But such monitoring can't (yet) prevent spending; only monitor - or punish it - after the fact. 


Broad use of CBDCs would however entail complete transparency of all payments from the perspective of the government, something which is not possible today (given the usage of cash as well as [correspondent banking](https://www.investopedia.com/terms/c/correspondent-bank.asp)), and indeed something which has never been possible in the past. And in contrast to today's banking system, the authorities - the [gosplanners](https://en.wikipedia.org/wiki/Gosplan) - will be able to prevent spending from even occurring.

> We tend to create an equivalent to cash but there is a huge difference.  Thus, we have no clue who is now using 100 USD or 100 Mexican pesos. The main difference between cash and CBDC is that **central banks will get absolute control** over rules and standards that would define the use of CBDCs; and we'll also get the technology for ensuring its compliance.

  

These are the words of the immense Agustin Karstens, BIS general manager and presumed [Aztec caviar](https://www.thevintagenews.com/2019/09/25/ancient-caviar/?safari=1) enjoyer. But perhaps the figure has an even larger appetite for absolute control? 

You might also consider the words of Sir Jon [Cunliffe](https://archive.ph/ESSlS#selection-951.0-954.0), deputy Governor at the Bank of England (when commenting upon CBDCs):

 
> You could think of giving your children pocket money, but **programming the money so that it couldn’t be used for sweets**. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.


Or the words by ECB President Christine Lagarde: 
 
> There has to be regulation ... at a global level because **if there is an escape that escape will be used**


There shall be [no escaping](https://web.archive.org/web/20210603092223/https://www.reuters.com/technology/reuters-next-ecbs-lagarde-calls-regulating-bitcoins-funny-business-2021-01-13/) the plans of today's [gosplanners](https://en.wikipedia.org/wiki/Gosplan), it would seem.

On the other hand, Neel Kashkari, President of the Minneapolis Fed, argued differently in his [Kinsley gaffe](https://en.wiktionary.org/wiki/Kinsley_gaffe) (accidentally telling the truth) [video](https://twitter.com/enlundm/status/1574820714313662465):

> I keep asking anybody, anybody at the Fed or outside of the Fed, to explain to me what problem this is solving (...) I can see why China would do it. If they want to monitor every transaction you could do that with a central bank digital currency, you can't do that with Venmo. If you want to impose negative interest rates, you can do that with a central bank digital currency, you can't do that with Venmo. And if you want to directly tax customer accounts you could do that with a central bank digital currency, you can't do that with Venmo. So **I get why China would be interested. Why would the American people be for that?**

If the government has full control of your money and knows where and how it is used - who knows what they can do with that power? Perhaps you believe that today's government is completely benign, but what about the next one? Or the one after that? These are legitimate questions that surprisingly few seem to be asking themselves. Or are they perhaps afraid of being called conspiracy theorists? 

#### The financial system is increasingly being used as a weapon

A worrying trend can be discerned if one has paid attention to the financial news over the past decade or so. Despite all the talk about diversity and inclusion, the opposite is happening in the banking sector, often due to government pressure. 

##### Figure 1. Nothing to see here, or a trend?

 ![weaponisation trend](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.11.19..12.58.45-kriget2_800vit.png)
 The financial system is actually increasingly being used as a tool - or weapon, which should be clear to all when we consider the following events (see a more encompassing list [here](https://underorion.se/en/weaponisation)):
 
- After pressure from the US State Department, Mastercard, PayPal and Visa stopped the possibility of donating to Wikileaks in 2010 (at that time the image of Julian Assange was much more positive than it is today), and this happened without a legal process in [Operation Payback](https://www.theguardian.com/world/2010/dec/08/wikileaks-visa-mastercard-operation-payback).

- A few years later, in [Operation Choke Point](https://en.wikipedia.org/wiki/Operation_Choke_Point), Obama's Department of Justice exerted pressure on the banking system in order to deny banking services to certain companies. Companies which did nothing illegal. This too took place without legal process.

- Earlier this year, Canadian Prime Minister Justin "Cuba Libre" Trudeau invoked emergency laws to freeze bank accounts for protesting truckers (even freezing the accounts for "[anyone linked](https://www.bbc.com/news/world-us-canada-60383385)" with the protests) and cancel their vehicle insurance policies(!), and this without the usual judicial review. Whatever one thinks of the drivers (who seem to have been reasonably popular), this was a novel way of using the banking system as a weapon against domestic citizens on a broad scale.

But where someone writes "freeze", as in the case of the Canadian truckers' bank accounts, one might as well write confiscate (language games can be played by all sides). Money which you can't use as you see fit, is it really yours? [Is it even money?](https://underorion.se/en/posts/is_fiat_money_really_money/) I would argue the answer is actually no, but more on that some other time. 

##### Did you notice when IMF was explicit about keeping voters in the dark?


> The financial repression tax has some interesting political-economy properties. Unlike income, consumption, or sales taxes, the repression tax rate is determined by financial regulations and inflation performance that is **opaque to most voters**. Given that deficit reduction usually involves highly unpopular expenditure reductions and (or) tax increases of one form or another, the relatively “stealthier” financial repression tax may be a more politically palatable alternative to authorities faced with the need to reduce outstanding debts.
> 

##### Your "money" has already been confiscated, now it will become 100% controlled 

Your money has already been confiscated via inflation (inflation is a hidden tax), via financial repression (an orchestrated mix of higher inflation and low interest rates - another way to [hide the devaluation of money and 401k(s)](https://www.imf.org/en/Publications/WP/Issues/2016/12/31/The-Liquidation-of-Government-Debt-42610)). but the "confiscation rate" could accelerate, and **the control would become absolute with CBDCs**.

What's more, use of any CBDC "money" will be able to be planned to the smallest detail, for the sake of justice, equity, diversity, inclusion, democracy, or for the climate, and so on - all depending on the political trends of the day. 


> Unlimited power is apt to corrupt the minds of those who possess it


- William Pitt [the Elder](https://literarydevices.net/absolute-power-corrupts-absolutely/)


Before we let bureaucrats create this new digital gulag of theirs, bureaucrats who incidentally have no no skin in the game, and whose actual competence could be called into question after the past several years of abject policy failures, more of us should at least be asking if this is such a good idea.

So, are CBDCs carrying us towards utopia, towards dystopia, or perhaps both? It will depend on who you ask. The managerial elites and their jetsetting gosplanners, who see themselves as the [salt of the earth](https://www.biblegateway.com/passage/?search=Matthew+5%3A13-16&version=EHV) and the light of the world, will assuredly think utopia is now within their reach. 

But for the rest of us? To paraphrase George Orwell: imagine Agustin's boot, stomping on a human face - forever. 

##### Image 1. Boot stomping on human face

![boot_stomp](https://underorion.se/1/BBAward.jpg)

Source: WikiMedia Commons




![btc_dollars](https://underorion.se/1/bitcoin_vs_dollar_meme.jpeg)

Truth be told, investing legend Hugh Hendry had a point when he [recently](https://www.bloomberg.com/news/videos/2022-09-15/-the-fed-doesn-t-know-what-it-s-doing-says-eclectica-founder-hugh-hendry) said that "central bankers don't understand money, they only pretend". But before we merely assign blame to this modern clergy of ours, one might as well note that few of us actually seem to understand money. 

The essence of money does deserve to be discussed however, even by non-central bankers. After all, central bank bureaucrats and other [gosplanners](https://en.wikipedia.org/wiki/Gosplan) are rushing ahead with the introduction of central bank currencies (CBDCs), which will lead to **radically different money - perhaps an even bigger change than when the dollar was decoupled from gold**.

The global financial system is also undergoing major changes, not only due to extreme debt burdens, as a consequence of deglobalisation, but also from its increasing [use as a weapon](/en/weaponisation) - sometimes even against domestic individuals and organisations. In the midst of it all, there's the rise of Bitcoin and cryptocurrencies, which many find difficult to understand. But such difficulties are probably at least partially rooted in a lack of understanding of money as a phenomenon.

The usual economist definition is that something must fulfill three conditions to constitute money: 1) you must be able to use it for payments (it is a means of payment), 2) prices must be stated in its units (it is a unit of account) , and 3) it must store value over time (it's a store of value).

Are these three conditions fulfilled with modern fiat currencies?

1. **Means of payment**: swiping your deposit card in the grocery store or paying with Apple Pay generally both work well, but when was the last time you managed to pay with cash? Cash does not meet the first criterion very well, at least not in countries such as Sweden. Swedish cash thus fails to fulfil this condition and hence is thus not real money. What's more, if the electrical grid fails, or if the internet faces disruptions, money in your bank account probably won't be money either since cash registers will fail to work.

2. **Unit of account**: it is generally the case that the prices in your local supermarket will be stated in your local currency, be it US dollar, euros or Swedish kronor. Dollars and euros will however have a higher "moneyness" in this regard than more peripheral currencies such as the krona since you will find prices quoted in Euros in Sweden at times, but only seldom krona prices in the Euro area.

3. **Store of value:** with an inflation target of 2%, the purchasing power of cash will halve in 35 years. With the latest US CPI inflation rate at 8.2%, which was the measured outcome for the month of [September](https://www.bls.gov/cpi/), purchasing power will be halved in less than eight years. What's more, while it is generally believed that US house prices have been rising, that is not the the case if we adjust for the price of gold (both the Swedish krona and the dollar used to be linked to gold). US house prices have then moved sideways for 140 years, while Swedish house prices - even [in the capital area](https://twitter.com/enlundm/status/1388110815140720641) - have fallen(!). 

##### Figure 1. US home price index - prices flat for 140 years?
![us house prices](https://underorion.se/1/us_huspriser_vit.png)

We can also construct a table comparing fiat money in your bank account to cash, gold and Bitcoin, in a "battle of different moneys". The point is primarily to show that money - or moneyness - is a fairly complicated question.

##### Table 1. Comparison of different moneys
| Condition | Bank account | Cash | Gold | Bitcoin |
|:--|:-:|:-:|:-:|:-:|
| Means of payment | Yes | Sometimes | No | Rarely |
| Unit of account  | Yes | Yes | No | Rarely |
| Store of value | No | No | Yes | Unclear |
| | &nbsp; |  |  |  |
| Is money? | No | No | No | No |


#### No innocence equals less moneyness

What's more, what did it matter that [Canadian](https://www.newsweek.com/banks-have-begun-freezing-accounts-linked-trucker-protest-1680649) truckers had "money" in their accounts when banks - cheered on by the government - stopped them from using it? At that time, their Canadian dollars did not work as a means of payment or as a store of value. Their money turned out to not be money at all. (The financial system is increasingly being used as a weapon, or even as a political tool, see [here](/en/weaponisation)).
 
With today's AML (anti-money laundering) and KYC (know your customer) regulations there's also no longer a [presumption of innocence](https://en.wikipedia.org/wiki/Presumption_of_innocence#:~:text=The%20presumption%20of%20innocence%20is,a%20judge%20or%20a%20jury). **Your money isn't yours unless you can prove it.** "Gunnar cashed in SEK 311,500 - [the Swedish central bank kept the money](https://www.svt.se/nyheter/konsument/han-loste-in-311-500-kronor-riksbanken-beholl-pengarna)" is one of many [nasty headlines](https://www.aftonbladet.se/nyheter/a/k6mJja/gunnar-hade-26-miljoner-i-sovrummet--now-burns-the-state-everything) in recent years. This loss of innocence has undermined the role of cash further. Even companies are at times required to provide written reports or invoice copies to their banks in order to receive payments. This loss of the presumption of innocence, and a tsunami of bureaucratic hassle, has translated to less moneyness for fiat currencies.

Indeed, the money we are most used to has moved far away from the typical definition of money. Fiat money stopped being real money years ago.

#### It will get worse in the near future

Central banker Neel Kashkari said something surprising [the other month](https://www.youtube.com/watch?v=RotcD7OREP4), surprising because he said it in his his capacity as the head of the Federal Reserve Bank of Minneapolis:


> I keep asking anybody, anybody at the Fed or outside of the Fed, to explain to me what problem this is solving (...) I can see why China would do it. If they want to monitor every transaction you could do that with a central bank digital currency, you can't do that with Venmo. If you want to impose negative interest rates, you can do that with a central bank digital currency, you can't do that with Venmo. And if you want to directly tax customer accounts you could do that with a central bank digital currency, you can't do that with Venmo. So I get why China would be interested. Why would the American people be for that?

##### No sweets (or meat) for you?

With CBDCs, the authorities will be able to program your money so that it can only be spent on certain goods and services, see for instance the  words of Sir Jon [Cunliffe](https://archive.ph/ESSlS#selection-951.0-954.0), deputy Governor at the Bank of England:


> You could think of giving your children pocket money, but **programming the money so that it couldn’t be used for sweets**. There is a whole range of things that money could do, programmable money, which we cannot do with the current technology.


##### An appetite for absolute control


CBDCs will enable absolute control, as stated by BIS' general manager Agustin Karstens:



> The main difference between cash and CBDC is that central banks will get absolute control over rules and standards that would define the use of CBDCs; and we'll also get the technology for ensuring its compliance.


##### If you can't buy what you want, is your money still a means of payment?

Once CBDCs are implemented broadly, fiat money will become even less like real money. The central bank - or government - will be able to prevent spending , not only monitor or tax it after the fact. Is such "money" still a *means of payment*? Not at all. With CBDCs, there will be no limit how deep into negative territory interest rates can be steered.

The government will also be able to automatically tax or withdraw funds from your account, perhaps if you fail to show [the proper sign](https://en.wikipedia.org/wiki/The_Power_of_the_Powerless#Havel's_greengrocer). CBDCs will make fiat money an even worse *store of value*. Only the *unit of account* condition will be fulfilled with CBDCs (Compliance-Based Decay Coins?).



##### Table 2. Comparison of different moneys, including CBDCs

| Condition | Bank account | Cash | Gold | Bitcoin | CBDCs |
|:--|:-:|:-:|:-:|:-:|:-:|
| Means of payment | Yes | Sometimes | No | Rarely |No |
| Unit of account  | Yes | Yes | No | Rarely |Yes |
| Store of value | No | No | Yes | Unclear |No |
| | &nbsp; |  |  |  ||
| Is money? | No | No | No | No |No |


How about planning for an escape? Not so fast, there will be no one escaping today's [gosplanners](https://en.wikipedia.org/wiki/Gosplan), it would seem. In the words of ECB President Christine Lagarde: "there has to be regulation (...) at a global level because **if there is an escape that escape will be used**".


The current crop of central bankers not only seem preoccupied with control - even absolute control, but also with preventing escape. What does that remind you of? Perhaps Tolkien can give us a clue. 


Tolkien once rhetorically asked his friend C.S. Lewis: "what class of men would you expect to be most preoccupied with, and hostile to, the idea of escape?"

He then gave the obvious answer:

> Jailers.


---

*Cover image found somewhere on twitter.*

On the weaponisation of the financial system

![tank](https://underorion.se/1/Front_view_of_a_Ariete_tank.jpg)

The financial system / the banking sector has arguably increasingly been used as a political tool over the past several years, sometimes an extra-legal one. And not only against various "axis of evil" countries but also against domestic citizens or groups.


#### Nothing to see here, or a trend?

 ![weaponisation trend](https://underorion.se/1/kriget2_800.png)
 
 What do you think about the examples below? Who will be the next [querdenker](https://en.wiktionary.org/wiki/Querdenker) or group of lateral thinkers to be denied using a bank account, or get his, hers or their assets frozen?

*(Last updated 2022-11-05)* 


#### Examples against domestic citizens or groups  

- 🇺🇸 2010 [Operation Payback](https://www.theguardian.com/world/2010/dec/08/wikileaks-visa-mastercard-operation-payback): Visa, MasterCard and PayPal choked off donations to WikiLeaks
- 🇺🇸 2010 [Tea Party](https://www.npr.org/2017/10/27/560308997/irs-apologizes-for-aggressive-scrutiny-of-conservative-groups): IRS official admitted the agency had been aggressively scrutinizing groups with names such as "Tea Party" and "Patriots"
- 🇺🇸 2013 [Operation Choke Point](https://en.wikipedia.org/wiki/Operation_Choke_Point): The US government pressured banks to "debank" gun sellers, coal producers, etc
- 🇹🇷 2016 [Gülen supporters](https://www.hurriyetdailynews.com/bank-asyas-banking-license-cancelled-over-gulen-links-102003): The Turkish government cancelled a banking license over Gülen links
- 🇮🇪 2016 [Pro-Palestine activists](https://electronicintifada.net/blogs/asa-winstanley/palestine-bank-account-closures-ireland-clearly-political): Palestine bank account closures in Ireland “clearly political”
- 🇺🇸 2017 [Jihad Watch](https://www.breitbart.com/tech/2017/08/21/paypal-bans-jihad-watch-from-accepting-donations/): Online payment company PayPal banned Jihad Watch and the site’s director Robert Spencer from accepting donations  
- 🇺🇸 2018 [Gab social media](https://finance.yahoo.com/news/alt-twitter-gab-moves-bitcoin-001343266.html). Gab was banned by Strip. The twitter-like service said it was placed on "banking blacklist"
- 🇩🇪 2018 [Nicolaus Fest](https://jungefreiheit.de/politik/deutschland/2018/deutsche-bank-kuendigt-afd-politiker-fest-saemtliche-konten/): German AfD politician Nicolaus Fest debanked by Deutsche Bank
- 🇺🇸 2018 [Proud boys](https://www.americanbanker.com/payments/list/when-rioters-attacked-the-capitol-these-payment-companies-were-quick-to-respond): Shopify banned shops tied to the Proud Boys
- 🇦🇹 2020 [Martin Sellner](https://www.tagesstimme.com/2020/01/16/naechstes-konto-von-identitaeren-chef-sellner-gekuendigt): Austrian activist Martin Sellner claims to have been blocked by 17 banks
- 🇸🇪 2020 [Swedish journalist](https://www.friatider.se/swedbank-doms-obefogad-uppsagning-av-widar-nords-konto): Swedbank terminated a journalists bank account without just cause 
- 🇺🇸 2020 [Amazon](https://www.americanbanker.com/payments/list/when-rioters-attacked-the-capitol-these-payment-companies-were-quick-to-respond): Amazon halted donations to members of Congress who voted against certifying the Electoral College results 
- 🇺🇸 2020 [New Project 2](https://www.youtube.com/watch?v=SfBorgoYQa4): Patreon Alternative [New Project 2](https://reclaimthenet.org/dick-masterson-new-project-2-mastercard/) was banned by MasterCard
- 🇺🇸 2021 [January 6 protestors](https://www.americanbanker.com/payments/list/when-rioters-attacked-the-capitol-these-payment-companies-were-quick-to-respond): PayPal and Venmo banned organizers of the "Stop the Steal" rally. Stripe, Shopify and GoFundMe acted similarly
- 🇺🇸 2021 [Fair access rule paused](https://occ.gov/news-issuances/news-releases/2021/nr-occ-2021-14.html): OCC announced pause of the "Fair Access" rule that was intended to prevent another [Operation Choke Point](https://en.wikipedia.org/wiki/Operation_Choke_Point) 
- 🇺🇦 2021 [Anatoly Shariy](https://kyc360.riskscreen.com/news/ukraine-court-rules-to-seize-sharijs-real-estate-assets-in-foreign-banks/): Ukrainian politician (blogger?) Anatoly Sharij’s real estate and bank accounts were frozen
- 🇨🇦 2022 [Canadian truckers](https://www.bbc.com/news/world-us-canada-60383385): The Canadian government froze bank accounts for "anyone linked" with protests
- 🇺🇦 2022 [Anatoly Shariy](https://twitter.com/anatoliisharii/status/1509053159381078017): Ukrainian politician Anatoly Sharij claims Binance cryptocurrency exchange took money from his wallet
- 🇺🇸 2022 [Firearm retailers](https://www.pymnts.com/credit-cards/2022/visa-mastercard-amex-add-merchant-code-for-gun-retailers/): Visa, Mastercard and American Express added ISO merchant category for firearms retailers after political pressure. This opens up for information sharing to third parties (i.e. who is buying a gun, potentially side-stepping [the US Constitution](https://www.nraila.org/articles/20220913/new-credit-card-rule-creates-gun-registry#:~:text=On%20September%209%2C%20the%20International%20Organization%20for%20Standardization,and%20American%20Express%29%20use%20to%20categorize%20various%20transactions.)) 
- 🇺🇸 2022 [PayPal](https://www.dailywire.com/news/new-paypal-policy-lets-company-pull-2500-from-users-accounts-if-they-promote-misinformation); PayPal attempted to impose a $2500 fine on users who promoted "misinformation"
- 🇬🇧 2022 [Santander](https://www.coindesk.com/business/2022/11/03/santander-uk-puts-limits-on-payments-to-crypto-exchanges/). Santander UK announced limits of payments to crypto exchanges



#### Examples when the banking sector needed a bail-in or bailout 

- 🇨🇾 2014 [Haircuts on savings](https://www.reuters.com/article/cyprus-bankofcyprus-idUSL6N0G033120130730); The government confiscated parts of households' savings through haircuts on deposit accounts
- 🇱🇧 2022 [Withdrawal limits](https://www.euronews.com/2022/09/16/lebanon-hit-by-string-of-bank-robberies-as-citizens-try-to-claim-own-savings): The country of Lebanon was hit by a wave of robberies after imposing withdrawal limits


#### International examples of using the financial system as a weapon


- 🇮🇷 2018 [Iran](https://www.reuters.com/article/us-usa-iran-sanctions-swift-idUSKCN1NA1PN): SWIFT suspended Iranian banks' access to messaging system
- 🇻🇪 2019 [Venezuelan gold](https://www.theguardian.com/world/2020/jun/25/uk-high-court-hears-claims-boe-unlawfully-blocks-venezuelan-gold): Bank of England blocking the release of 31 tonnes of gold
- 🇷🇺 2022 [Russia](https://en.wikipedia.org/wiki/International_sanctions_during_the_2022_Russian_invasion_of_Ukraine): International sanctions during the 2022 Russian invasion of Ukraine



#### Examples of when Swedish authorities confiscated cash

- 🇸🇪 2017 [Confiscation](https://samnytt.se/98-ariga-ada-ville-byta-in-sina-sedlar-da-konfiskerade-staten-hennes-livsbesparingar/): 98-year-old Ada wanted to trade in her bank notes - the government confiscated her life savings
- 🇸🇪 2017 [Confiscation](https://www.svt.se/nyheter/konsument/han-loste-in-311-500-kronor-riksbanken-beholl-pengarna): Gunnar tried to redeem SEK 311,500 - but the Riksbank kept all the money
- 🇸🇪 2021 [Confiscation](https://samnytt.se/arvde-85-000-kr-efter-pappan-staten-konfiskerar-sedlarna/): Inherited SEK 85,000 from his father – the government confiscated the banknotes
- 🇸🇪 2021 [Confiscation](https://web.archive.org/web/20211031181607/https://www.aftonbladet.se/nyheter/a/k6mJja/gunnar-hade-26-miljoner-i-sovrummet--nu-branner-staten-allt): Gunnar had 2.6 MSEK in his bedroom - now the Riksbank will burn it all


---

What do you think? Feel free to share your comments below.

---

*Cover image: Italian tank C-1 Ariete. No changes were made to the image retrieved from WikiMedia Commons.*



Overton's window creates opportunities for the brave

![stained glass imageg](https://underorion.se/1/stained_glass.jpg)

> When you're one step ahead of the crowd, you're a genius. When you're two steps ahead, you're a madman

-- Shlomo Riskin

I was recently asked by a former colleague why I had increased my exposure to certain sectors in the equity market. After all, the information that had informed my decisions must already be priced in since the market is efficient, he argued. One could spend plenty of ink on the definitions of market efficiency as is usual in academia, but let's just not. Instead, I'd like to argue that the market, at least important parts of it, may have become notably less efficient due to changes to the information landscape. 

Many may be familiar with the concept [tragedy of the commons](https://en.wikipedia.org/wiki/Tragedy_of_the_commons). Jointly used land (commons) tends to be overused, polluted, and so on. Today's information landscape actually resembles such a common. Today's information commons has however become limited (reduced flora and fauna) and less valuable (the soil has been depleted), for several reasons:

- Regulations have made bank research less profitable. This has led to a shift of resources from the sell side (banks) to the buy side (funds). Since the analysts on the buy side rarely share their reports publicly, the information commons has thus become less abundant.

- What's more, after oh-so-many scandals pertaining to money laundering and the like, companies - and especially banks - have become keen to avoid "reputational risks". It's a game where only the perceptions matter, not the actual events. Even if you were in the right, you were wrong, if it was misinterpreted or disliked by some political heavy-weight or the like. 

- Moreover, puritan ~~regulatory bureaucrats~~ [energy vampires](https://whatwedointheshadows.fandom.com/wiki/Colin_Robinson) have been given free reign in crafting rules and restrictions on what employees can say, publicly, privately, yes, everywhere. The information commons is now becoming decidedly less bountiful.

- The social costs for expressions have also increased. A somewhat comical micro example is when I was told "you sure seem to know a lot about this!" when speaking on a theme which was highly topical a couple of years ago. This might not amount to much, but when individuals also have their mental health questioned due to [forecasts](https://twitter.com/enlundm/status/775753080130441217), or are accused of undermining trust for authorities due to questions about inflation, it should not come as a surprise that many choose the path of silence - at least in the public arena. It certainly could have been worse: in the time of [Tigranes II](https://en.wikipedia.org/wiki/Tigranes_the_Great) they shot the [messengers](https://sv.wikipedia.org/wiki/Jämförde_levnadsteckningning) instead. In any case, the information commons has dried up due to rising social costs.

- Certain questions - not infrequently the most topical ones - are sometimes perceived as too risky to even report upon. Several years ago, a major investment bank chose to censor a report on the consequences of the green transition, as its conclusions were deemed likely to cause an outcry (i.e. unnecessary reputational risks). Only several years later and in the middle of an energy crisis has it become possible to discuss such questions.

- What's more, this spring in Germany, fears of energy blackouts were deemed to be a far-right [conspiracy theory](https://www.spiegel.de/politik/deutschland/die-afd-schuert-angst-vor-dem-strom-blackout-warum-a-872887d2-4e64-4c94-82c2-7fc507437070), only to become a legitimate issue only [a few months later](https://www.bild.de/politik/inland/politik-inland/gas-knappheit-und-stromausfall-markus-soeder-warnt-vor-blackout-80649724.bild.html). "When you're one step ahead of the crowd, you're a genius. When you're two steps ahead, you're a madman," to quote Shlomo Riskin... Society as a whole could probably have benefited from a more open debate climate. The media would also have been perceived as [more honest](https://news.gallup.com/poll/403166/americans-trust-media-remains-near-record-low.aspx) if it hadn't been for these sudden shifts to [Overton's window](https://en.wikipedia.org/wiki/Overton_window).
  
- Another contemporary example is how the brilliant geopolitical thinker John Mearsheimer, who predicted the war in Ukraine - much as several of his realist colleagues - has been accused of being a [Putinverstehers](https://en.wikipedia.org/wiki/Putinversteher). As is often the case, activists have tried to get him [censored](https://twitter.com/RichardHanania/status/1500192254887022593) by the university. What do such events mean for the information commons (& for sense-making in general) when the analysts who are more right than others are the ones to get censored, demonized or fired? Nothing positive, for sure.

Once the information commons is rid of free-thinkers and Querdenkers then only the consensus remains. And of course it's nice to "think the same, together", it's not only [convenient](https://www.di.se/debatt/debatt-riksbanken-fastnar-i-snava-perspektiv/), it's actually [a privilege](http://www.paulgraham.com/orth.html) of sorts.

But when only consensus information remains, there is no real information left. The once-flourishing information commons has now turned into a desert. As all risk-takers know, it is only when something unexpected happens - or is expressed - that "something actually happens". If someone says that the sun will rise tomorrow, how valuable - how informative - is that statement? Not at all, based on Shannon's [information theory](https://en.wikipedia.org/wiki/Information_theory). Compare e.g. with the statement "next year there will be energy rationing". 

**It is only surprises, the new, the unexpected, the non-consensus, that provide real and valuable information.**


Before someone notes that it's not the entire information commons which has been ruined, let's admit that (a)social media does indeed exist. And on social media, different rules apply - at least partly. Even here though, the situation is far from ideal due to: 
- Opaque censorship bodies (which accounts are deleted?)
- Obscure algorithms (what information is presented to you? and how is it selected?)
- Contamination from internet bot and troll armies (bot activity was found to have caused [anxiety](https://arxiv.org/abs/2208.07038) during the beginning of the 2022 war in Ukraine)
- Political interference (e.g.[from](https://www.bbc.com/news/world-us-canada-62688532) [FBI](https://www.nytimes.com/2022/03/16/us/politics/hunter-biden-tax-bill-investigation.html)) or from nation states such as Turkey. Turkey demands to censor statements about the [Armenian genocide](https://en.wikipedia.org/wiki/Armenian_genocide), or why not France - a country who has has made it [a criminal offence](https://www.bbc.com/news/world-europe-16677986) to deny that a genocide was committed. What then? The algorithms - or the censorship bodies - might decide the topic is better not discussed at all...  
Feeling despondent? Don't. All of the above can actually be construed as good news!

For investors who dare to think differently, who dare to dig where few other dare to dig, there will likely be more alpha to be had, perhaps more than ever. And this will be particularly so where Overton's window deviate the most from actual reality.  

As computing legend [Alan Kay](https://quoteinvestigator.com/2018/05/29/pov/) once put it: 

> A fresh perspective can be worth 80 IQ points. 

What would that do to your alpha?

---

Cover image: Stained glass window, overlooking gardens of Montacute House. Source: Bates, Cadwallader John, The Armorial Glass in the Windows of Montacute House, Proceedings of the Somersetshire Archaeological and Natural History Society, 1886. Retrieved from WikiMedia Commons


![](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.9.27..08.09.31-Seat_of_the_European_Central_Bank_and_Frankfurt_Skyline_at_dawn_20150422_1____liten_540.jpg)

Claims that we need greater centralisation, more EU, or more globalisation are prevalent across the usual media channels. The climate crisis, environmental destruction, pandemics, the AI-threat, yes, everything will apparently be solved if a little more global coordination, governance and leadership can be brought about.

But, is this actually true? One of the best arguments for this conclusion stems implicitly from the futurist Eliezer Yudkowsky, who once proposed a new Moore's Law, though this time not for computer processors but instead for [mad science](https://futuristspeaker.com/predictions/is-moores-law-for-mad-science-inevitable/): "every 18 months, the minimum IQ necessary to destroy the world drops by one point".

Perhaps we simply have to tolerate more centralisation, globalisation, control, surveillance, and so on, to prevent all kinds of fools from destroying the world?

*Note: a Swedish version of this text is avalable at [Affärsvärlden](https://www.affarsvarlden.se/kronika/martin-enlund-centralisering-ger-makt-till-fel-manniskor).*



At the same time, more centralisation, globalisation, etc. is also what we have experienced. Power has been shifting from the local, and from the majorities, to central-planning bureaucrats working in remote places. This has been going on for several decades. The EU's subsidiarity principle, i.e. the idea that decisions should be made at the lowest expedient level, and which came to everyone's attention ahead of Sweden's EU vote in 1994, is today swept under the rug as untimely and outdated, perhaps even retarded. 
 
At the same time, there are many crises, more than usual it would seem. If it is not a crisis of criminality, a logistics/supply chain crisis or a water crisis, then it is an energy crisis, a financial crisis, a refugee crisis or a climate crisis. It is almost as if one starts to suspect that all this centralisation may be leading us down the wrong path. Perhaps centralisation is part of the problem, rather than the capital S solution?


#### Why centralisation may cause rather than prevent problems

There are several reasons why centralisation, etc, may actually be a problem. And though few seem to be interested in such questions today (or perhaps they are too timid to mention their concerns?), it has not always been this way. In this short essay we'll note four reasons (though there are several others): 

- Political failures (Buchanan et al)
- Local communities & skin in the game (Ostrom and Taleb)
- The local knowledge problem (von Hayek)
- Governance by sociopaths (Hare)

[James Buchanan](https://www.aims.ca/op-ed/interview-with-james-buchanan-1986-nobel-prize-winner-in-economics/) who was given the so-called Nobel price in economics in the eighties once said that: "politicians and bureaucrats are no different from the rest of us. They will maximise their incentives just like everybody else.".

Buchanan was prominent in research on [rent-seeking](https://en.wikipedia.org/wiki/Rent-seeking) and political failures, i.e. when political "solutions" to so-called market failures make everything worse. Rent-seeking is when a company spends resources (e.g. lobbying) to get legislators or other decision makers to pass laws or create regulations that benefit the company instead of it having to engage in productive activities. The result is [regulatory capture](https://en.wikipedia.org/wiki/Regulatory_capture). The more centralised decision-making is, the greater the negative consequences from such rent-seeking will be for society at large. This is known.

Another economist, Elinor Ostrom, was given the same prize in the great financial crisis year of 2009. In her research, she had found that [local communities](https://www.nobelprize.org/prizes/economic-sciences/2009/ostrom/facts/) where people had influence over rules and regulations, as well as how violations there-of were handled, were much better suited to look after common resources than centralised bodies. To borrow a term from the combative Nassim Nicholas Taleb: everything was better handled when decision makers had "[skin in the game](https://en.wikipedia.org/wiki/Skin_in_the_Game_(book))".

A third economist, Friedrich von Hayek, was given this prize as early as 1974, partly because he showed that central planning could not possibly take into account all relevant information. The information needed in economic planning is by its very nature [distributed](https://en.wikipedia.org/wiki/Local_knowledge_problem), and will never be available to a central planning committee, or even to an AI.

Moreover, human systems are [complex](https://www.ncbi.nlm.nih.gov/pmc/articles/PMC2465602/) and not just complicated. When you realise this, you also understand why the forecasts made by central planners often end up wildly off the mark - and at times in a catastrophic way. (This in itself is an argument for relying more on factors outside of the models in the decision-making process.) 

From Buchanan's, Ostrom's, Taleb's or von Hayek's perspectives, it also becomes difficult to believe that today's bureaucrats are the most suited to manage and price e.g. climate risks. One can compare with the insurance industry, which has both a long habit of pricing risks as well as "skin in the game" - two things sorely missing in today's [planning bodies](https://sv.wikipedia.org/wiki/Gosplan).

#### Instead of preventing fools, we may be enabling madmen


An even more troubling conclusion is that centralisation tends to transfer power to people who perhaps shouldn't have more of that good. "Not all psychopaths are in prison - some are in the boardroom," psychologist [Robert Hare](https://en.wikipedia.org/wiki/Robert_D._Hare) once said during a lecture. Most people have probably known for a long time that those with sharp elbows and who don't hesitate to stab a colleague in the back can climb quickly in organisations. In recent years, this fact seems to have become increasingly well known even in [academia.](https://www.researchgate.net/publication/356399632_The_positive_connection_between_dark_triad_traits_and_leadership_levels_in_self-_and_other-ra)

You will thus tend to encounter an increased prevalance of individuals with narcissistic and sociopathic traits the higher up you get in the the status hierarchy. And if working in large organisations (such as the European Union or Congress) or in large corporations, is perceived as higher status - which is generally the case, then it follows that the more we centralise, the more we will be governed by people with less flattering [Dark Triad](https://en.wikipedia.org/wiki/Dark_triad) traits.

#### By their fruits ye shall know them

Perhaps it is thus not a coincidence that we have so many crises. Perhaps centralisation, globalisation, etc. cause crises. Perhaps the "elites" and their planning bureaucrats are, in fact, not the [salt of the earth](https://www.kingjamesbibleonline.org/Matthew-5-13/) and the light of the world. Perhaps President Trump even had a point when he said "they are not sending their best".

#### They are not sending their best





The opposite of centralisation is decentralisation. And while most people may still be aware that decentralisation can be a superpower within the business world, it's time we remind ourselves that this also applies to the economy - and society - at large, and preferably before the next [Great Leap Forward](https://en.wikipedia.org/wiki/Great_Leap_Forward) is fully thrust upon us. 



---

*Cover image*
By DXR - Own work, CC BY-SA 4.0, 

![poverty image](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..12.00.00-Urban_Poverty_sm.jpg)

Why is inflation so high, and what does the powers that be plan to do about it? Let's start our attempt at answering these questions by looking at the supply side, to which we have plenty of negative shocks in recent years. In particular since the discovery of the SARS-CoV-2/COVID-19 virus.

In 2020, virus fears and lockdowns changed consumption patterns, boosting demand for goods while limiting demand for services. You simply can't consume as many services if you stay indoors, whether voluntarily or not. This change in the composition of demand was inflationary for several reasons: it made goods scarce (few if any producers were prepared for such a huge pick-up in demand), goods prices are more variable, and goods production is more energy intensive than services production.

#### Figure 1. Composition of demand changed

![Composition of US household demand](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..11.22.45-composition_of_demand_vit.png)

The response to the pandemic also impacted labour supply negatively, in inflationary ways. Travel bans limited global mobility and hence global labour supply. Less immigration entails a better wage-bargaining position for local labourers, which has been good news for wage growth (and inflation). What's more, Biden's bonus benefits reportedly made some people better well-off economicially by sitting at home than looking for jobs. School and day care closures also led to a surge in home schooling and such, limiting labour supply further. 

Vaccine mandates and ~~movement licences~~ vaccine passports also limited labour market mobility and boosted structural unemployment (greater frictional unemployment in econo-speak). Rampant money-printing and ultra-low policy rates and yields boosted asset prices, which in turn led to a rise in early retirement which limited labour supply. Alcohol and drug abuse has also increased, also impacting labour supply [negatively](https://www.bloomberg.com/news/articles/2022-04-14/drug-and-alcohol-abuse-slowing-labor-force-recovery-fed-finds).

#### Figure 2. Labour market mismatches led to a shift of the Beveridge curve

![US Beveridge curve](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..11.22.45-beveridge_curve_vit.png)

The inflationary labour market angle is evident by the outward shift of the Beveridge curve (the relationship between job openings and the unemployment rate). Had the relationship between the two variables stayed the same as during the 2010 to March 2020 period, the current rate of job openings would have implied a negative unemployment rate(!). This outward shift is suggestive of a substantial rise in the natural rate of unemployment rate (the unemployment rate needed to keep inflation stable).

#### Figure 3. An incomplete list of negative supply shocks

![z](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..06.07.50-dumbflation_supply_list.PNG)

The powers that be have indeed been messing around with the supply side, and the list above is far from an all-encompassing one. So, what have they done to the demand side? Well, the answer is simple. They have been throwing around money willy-nilly.

#### Meme 1. Money supply growth - the elephant in the room

![The Joker inflation meme](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.11.13-broad%20money%20supply%20joker%20760.png)

Indeed, the pace of broad money creation in the US has been record-shattering. In comparison to previous QE programmes the Fed's money printing recently occured in tandem with fiscal stimulus, basically "[going direct](https://www.blackrock.com/corporate/insights/blackrock-investment-institute/publications/coronavirus-policy-response)" as suggested at the Jackson Hole conference in August 2019. Indeed, according to some estimates the fiscal spend "on COVID" was greater in dollars than the inflation-adjusted costs of World War II, the 2008 financial crisis and the 2009 great recession stimulus. Combined.

#### Figure 4. Money growth vs core CPI inflation

![US core inflation and M2 money growth](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.11.14-m2_core_cpi_vit.png)

#### Figure 5. A more complete list of inflationary factors

![Supply and demand list](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.14.34-dumbflation_list2.PNG)

So what's next? Let's now look the typical relationship between prices and stuff consumed in micro economics. The cheaper the price, the more stuff will be consumed (a downward-sloping **D**emand curve). But the cheaper the price, the fewer items will be produced (an upward-sloping **S**upply curve). Before the pandemic, we found ourselves at (1). Lots of stuff were being consumed at at fairly benign price level. 

#### Figure 6. Prices & quantities during a negative supply shock

![Marshall cross 1](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.06.00-1%20prices%20stuff.PNG)

As a result of the wrecking of the supply side, the **S**upply curve shifted to the left (S'). This has caused an inflationary shift from (1) to (2). 

#### Figure 7. ... and then during a demand shock

![Marshall cross 2](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.06.00-2%20prices%20stuff.PNG)

But at roughly the same time the authorities and the banking system, which is the chief engine for money creation, have been creating the most dollars in modern history as well as getting it directly into people's hands ("going direct"). This led to a shift of D to D', and from (2) to (3). Much inflation now. Big surprise.

So how can this situation be solved? The powers that be could try solving supply side issues (restarting nuclear reactors, incentivize energy and food production, implement measures to boost flexibility on labour markets, end or relax sanctions, [and so on](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.06.00-exxonquote.jpeg)). But since they for some reason seem dead set against doing just that, demand needs to be "solved" instead.

What does solving demand mean? In the words of ex-Fed William Dudley (who once argued the Fed should try to stop a [sitting President](https://www.nytimes.com/2019/08/27/business/trump-fed-william-dudley.html) from getting re-elected):

> (...) many U.S. households do hold a significant amount of their wealth in equities. As a result, they’re sensitive to financial conditions: Equity prices influence how wealthy they feel, and how willing they are to spend rather than save.

#### Figure 8. Monetary Poverty Policy

![Marshall cross 3](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.19..05.06.00-3%20prices%20stuff.PNG)

In short, barring successful attempts to solve supply chain issues, the Fed needs to crash household wealth (housing, equity, crypto) so that the demand curve can be shifted to the left (D''), a shift from (3) to (4).  

"Real disposable income per capita is on track to show the greatest yearly decline since 1932", [CNN](https://edition.cnn.com/2022/06/17/economy/inflation-wage-gains-economy/index.html) reported recently.

Maybe you won't own nothing, but you will own less. Will you be happy?




### Well, of course a recession is looming. 

In contrast to the PhD's in charge, the US yield curve (i.e. the difference between the 2y yield and the 10y yield on US Treasury bonds) has a fairly long history of being predictive of economic recessions. Most if not all mainstream economists will disagree with this conclusion. That doesn't mean that you should.

> The fault does not lie with the experts. 
>
> It’s that we have no experts. (*)

#### Figure 1. US 2/10 yield curve since 1976
![x](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.18..12.55.25-us_yield_curve_vit.png)

For instance, back in 2018 and 2019 when the curve was flattening like a madman, and eventually inverted in August 2019 around the time of the Fed's Jackson Hole conference, economists such as Fed Chair Powell and US Treasury Secretare (& ex-Fed) Yellen were all disregarding the implications from the inverted yield curve. 

Instead the powers that be were heard stating "this time was different", for instance as a result of negative interest rates outside of the US, or perhaps due to massive bond purchase (money printing) programs elsewhere. This prompted some of us to come up with the phrase "[yield curve apologista](https://twitter.com/search?q=yield%20curve%20apologista&src=typed_query)". 

As late as November 2019 Fed Chair Powell stated there's "no reason to think, that I can see, that the probability of a downturn is at all elevated".

Often wrong, but never in doubt, as it were. (One might note that central bankers are even paid to deliver fake news, though in economics jargon it's called forward guidance. Alas, pointing this out tends to be considered rude (for some reason).  

As usual however, the yield curve soon emerged victorious over the economics profession. The US entered a new recession a couple of month's after Powell's comments, on February 2020. The curve thus either predicted the pandemic (or the response to it), or it predicted a recession was overdue "because reasons", or it was pure lucky (but then it was as usual luckier than the economics profession).

Turning to recent developments, we see that the US 2/10 yield curve has been flattening since March 2021. It also inverted briefly already on March 31 this year. The curve then proceeded to close in negative territory on the first day of April 1, and it was not a joke. The curve has even been in the news over the past week, when it inverted [again](https://www.reuters.com/business/huge-selloff-rocks-treasury-markets-yield-curve-inverts-2022-06-13/).

What can recent history tell us about the timing of the next recession and the implications for the S&P500? Let's look at two simple tables.

#### Table 1. US 2/10y yield curve inversions and recessions since the 1970s 
| Curve inversion | NBER recession date| # months after inversion|
|:-:|:-:|--:|
| 1978-08-17 | 1980-01-01 | 17 |
| 1989-01-05 | 1990-07-01 | 6 |
| 1998-05-26 | 2001-03-01 | 34 |
| 2000-02-11 | 2001-03-01 | 13 |
| 2005-12-27 | 2007-12-01 | 23 |
| 2019-08-14 | 2020-02-01  | 6 |
| Median  |   | 15 | 
| 2022-04-01 | ? | ? | 

On data since the mid 1970s, an economic contraction on average starts some 15 months after an initial yield curve inversion. If we were to follow this timing the National Bureau of Economic Research (NBER) would declare a recession by May or June 2023.

#### Table 2. US 2/10y yield curve inversions and S&P500 since the 1970s 
| Curve inversion | S&P500 peak date | # months after inversion | % peak vs inversion date |
|:-:|:-:|--:|--:|
| 1978-08-17 | 1980-11-28 | 28 | 34 |
| 1989-01-05 | 1990-07-16| 6 | 32 | 
| 1998-05-26 | 2000-03-24 | 22 | 40 |
| 2000-02-11 | 2000-03-24 | 1 | 10 | 
| 2005-12-27 | 2007-10-09 | 22 | 25 |
| 2019-08-14 | 2020-02-19 | 6 | 19 | 
| Median  |              | 25 |   29 | 
| 2022-04-01 | ? | ? | ? |

Looking at the broad stock market index S&P500, the index typically continues to rise by some 29 months(!) after an initial inversion of the curve. This too would appear highly unlikely given that the Fed seems dead set to induce poverty ("reverse wealth effects") in order to dampen inflation pressures. 

To the author of this piece this sounds far too late, especially as we seem to be living in a time of acceleration and permacrisis. If we're not experiencing a global financial crisis, it's another [current thing](https://twitter.com/pmarca/status/1519525028370419712) such as BLM, Drumpf, COVID-19, or PUTIN-22...).

#### Figure 2. ISM manufacturing vs US recessions
![x](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.18..12.55.18-ism_recessions_vit.png)

Has the US economy already entered a recession? Perhaps, but the current levels of ISM manufacturing - a measure of business confidence in the manufacturing sector - is not yet at levels typically associated with an NBER recession. I'd thus venture a recession still lies ahead, sometime over the ~~rainbow~~ next 12 months.


#### Figure 3. US 10y yield vs ~40y downtrend
![x](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.6.18..12.55.21-nber_recessions_10y_trend_vit.png)

We are already firmly in "crisis territory" gauging by the level of the 10y yield, as the above chart shows. It should thus not be seen as a coincidence that fraud is being revealed in e.g. the crypto space, it's what usually occurs when the global tide of liquidity is ebbing. 

While there have been plenty of pain in crypto, in bonds, and in equities already, it's not as if we haven't been talking about the "everything bubble" for several years. Thus, expecting the pain to be over already at this juncture seems like an odd bet. Buckle up, if you haven't already... 

---

*) Or to be more precise: the fault lies in who gets anointed as an expert. It's not that knowledgable people doesn't exist, but somehow they seldom make it through the anointment process... 


On Gutenberg, Satoshi Nakamoto and political polarisation

Is technology political? The answer is a resounding yes! *All* technology is political, though some technologies *are more political than others*...

In society, we see a trend of increased polarization, there is talk about filter bubbles, and more and more people seem to be living in completely different worlds in terms of their opinions and their "knowledge" of the world at large. At the same time, confidence in legacy media is falling precipitously, and on a trend basis: fewer than half of Americans harbored trust in the media at the beginning of 2021 according to one poll... How did we get here, and what's next?

> Technology is neither good nor bad; nor is it neutral.

--- Melvin Kranzberg's [first law](https://ssrmc.wm.edu/technology-is-neither-good-nor-bad-nor-is-it-neutral-the-case-of-algorithmic-biasing/).

One way to explain what is going on with these trends is by revisiting one of the most important technological events during the Middle Ages, that is to say Gutenberg's invention of the printing press.

### On Gutenberg and Martin Luther

According to some historians (there is not *a history*, there are several histories - just ask a Japanese person about the origins of World War II to see what I mean), Martin Luther became uncomfortable when he noticed that his parishioners no longer seemed to feel any regret for their sins when they paid for letters of indulgence to rid themselves of their wrongdoings. Perhaps the reason why had to do with the church's usage of (Gutenberg's) printing presses to produce the letters had **cheapened them in the parishioners' eyes**.


Martin Luther nonetheless reacted, and after a while nailed [his 95 theses](https://www.luther.de/en/95thesen.html) - all written in Latin - to the door of the Castle Church in Wittenberg (or so legend has it). Some time later, his works were translated into German, and at one point they comprised [a full third](https://www.history.com/news/printing-press-renaissance) of all books sold in Germany(!). He admitted to not understanding how his work could have become so popular. In a letter to the Pope he wrote "it is a mystery ... how they [the theses] could have become so widely spread."

**The printing press not only made it easier for the church to mass-produce indulgences, aggravating Luther, it also decentralized the information channels of the time**. The media topology changed suddenly. Owing to this technological shock, a *crisis of common knowledge* was imminent, and the [Reformation](https://en.wikipedia.org/wiki/) ensued.

After the translation of Luther's theses and the New Testament from Latin into German, the peasantry - at least the small proportion that were not illiterate at the time - could read these texts. What followed was natural: people eventually started to disagree on how to interpret the texts. **Disagreement arose, and common knowledge collapsed**. Several religious wars ensued, one of which was the bloody Thirty Years War (1618-1648).

That war ended with the [Peace of Westphalia](https://en.wikipedia.org/wiki/Peace_of_Westphalia) which one might argue gave us today's nation-states in a form of compromise: "You take care of yours and I take care of mine."

**Eventually however, new mechanisms for creating consensus emerged**.

Technologies - in the broader sense of the word - such as schools, universities, newspapers, radio and television had now been developed, through which **a few could send information to the many** - even to a majority. Economies of scale also made it possible for the majority of the population to take part in the same information to a very large extent. This strengthened the cohesion of society and *a new consensus-building system had been created*. Technology had thus created new societal glue, in the form of new *common knowledge*.

### A technological-media cycle

The scientific revolution did however not only bring about **centralizing forces** (radio, TV, and so on.), but some time later also brought us the Internet as we know it today, and **the internet decentralizes information channels similar to what happened after the advent of the printing press**. In short, an epistemic revolution...

##### Image 1: The printing press decentralised the information topology. Internet is doing the same today
![ The printing press decentralised the information topology. Internet is doing the same today](https://enlund.org/1/gutenberg_cycle.png)
Source: 




#### Stage 1 - an epistemic revolution

Not unlike how Gutenberg's printing presses eventually enabled the spread of Luther's and the reformists' work during the late Middle Ages, Tim Berners-Lee has given us the web, which has made it possible for almost anyone today to create their own radio or TV channels. Just look at Joe Rogan, he is estimated to reach [11 million people](https://www.newsweek.com/joe-rogan-dethroned-spotify-chart-new-gaming-podcast-sapnap-karl-jacobs-number-one-1634239) per episode, perhaps more than the popular Tucker Carlson show on Fox News...

Indeed, instead of a **few individuals or organizations being in control of information dissemination to the many** (as during the "TV era"), today **many can easily send to many**. Through youtube, instagram, tiktok, rumble, odyssey, bitchute. Or via twitter, parler, minds, gab, gettr or [urbit](https://urbit.org/).

#### Stage 2 - collapse of common knowledge

Much like in the late Middle Ages, there are no longer any guarantees that the majority of a nation's population will be reached by the same information. Instead, it is now possible to **live in different worlds, in terms of information and understanding.** Common knowledge is rapidly collapsing, if it has not already done so.
 
What's more, **just as a [commons](https://en.wikipedia.org/wiki/Commons) such as a sea can - and probably will - be polluted, today's information commons are experiencing massive pollution.** The Internet as we now know it is full of actors who sow division and spread disinformation to promote all sorts of agendas.

"Deep fakes" are about to make the situation worse. Due to AI technology, no one will soon be able to trust any audio or video. Maybe that's a conclusion that should have been drawn already? See for example this hobbyists' [Tom Cruise "impression"](https://www.youtube.com/watch?v=iyiOVUbsPcM). (What could a state actor do with the same technology?)

It was furthermore recently discovered that British, Dutch and Baltic parliamentarians sat [in video conferences with a "deep-fake" chief of staff](https://nltimes.nl/2021/04/24/dutch-mps-video-conference-deep-fake-imitation-navalnys-chief-staff). (The Chief of Staff of the Russian dissident Navalny...)

#### Stage 3 - a war of religion, a culture war, or an information war?

Gutenberg and [the reformation](https://en.wikipedia.org/wiki/Reformation) led to the [Wars of religion](https://en.wikipedia.org/wiki/European_wars_of_religion), of which the [Thirty Years' War](https://en.wikipedia.org/wiki/Thirty_Years%27_War) was one (1618-1648). Today we can often read about a [culture war](https://en.wikipedia.org/wiki/Culture_war), not a very bloody war, but still a serious conflict it would seem...

##### Image 2: Gustav II Adolf "The Lion from the North" and his wounded horse Streiff (1632)
![](https://enlund.org/1/schwedenschimmel760.jpg)
Source: Wikimedia Commons

One technique used today by polluters of the information commons - a kind of "information violence" - is spreading rumors. This is something that many if not most large organizations are now keenly aware of. The associated "reputation risk" does not necessarily imply caring about having done something wrong, but **instead about reducing the risks of being perceived as such.** ([Baudrillard](https://en.wikipedia.org/wiki/Jean_Baudrillard) comes to mind). Of course, this also applies to individuals, who unfortunately can - and do - have their lives ruined by all sorts of rumors - whether true or not.

> A lie can travel halfway around the world before the truth puts on its shoes.

--- (Often attributed to) Mark Twain, though this is probably [fake news](https://www.professorbuzzkill.com/twain-lie-travels/).

The author Neal Stephenson recently popularized the idea of ​​enabling almost anyone to ruin someone else's reputation on the internet in his book *Fall; or, Dodge in Hell*. The idea is that if **everyone can do it, it will contribute to many fewer trusting such rumors** (in *the miasma*, according to Stephenson). Perhaps this will be a natural development due to the decentralizing technologies at work?

The so-called *cultural war* can at least partly be said to resemble the religious war phase that followed the advent of the printing press. Perhaps it's only in its starting phase, as in Churchill's worn quote: "[t]his is not the end. It is not even the beginning of the end. But it is, perhaps, the end of the beginning".

#### Stage 4 - a new consensus-making system

There are scant signs of new consensus-building systems. Sure, one could argue that media conglomerates and social media companies and so on attempt to fact-check and censor as an attempt to create **more societal glue** (cohesion) in the form of common knowledge. Though one might also suspect less-than-benigh reasons behind their attempts. "[ктокого?, kto kogo?](https://en.wikipedia.org/wiki/Who,_whom%3F)".

Nor does it seem that we as a society or a culture are close to a compromise such as the one around the Peace of Westphalia. Instead, many attempts to censor, deplatform or, frankly, demonize are more resemblant of the bans used by the (to-become) Catholic Church in the late Middle Ages.

Since Martin Luther refused to apologize for his provocations (as defined by the central power of the church at the time), he was excommunicated by the pope in 1520, and he was later declared an outlaw in 1521 by the German-Roman emperor.

**The dissidents who today do not denounce their prior beliefs may not be excommunicated by a pope or declared outlaws (yet). But they are instead deplatformed by twitter**, facebook, amazon or other platform companies. China has its own ["social credit system"](https://en.wikipedia.org/wiki/Social_Credit_System) which is not very different. (If one were to propose that all so-called dissidents actually deserve to be deplatformed, I recommend reading Paul Graham's essay on the [Orthodox privilege](http://www.paulgraham.com/orth.html).)

##### Image 3: Martin Luther burns the [papal bull](https://en.wikipedia.org/wiki/Papal_bull) in 1520 
![Martin Luther burns the papal bull](https://enlund.org/1/lutherbranner1520_760.jpg)
Source: Wikimedia Commons

#### Stage 5 - common knowledge arises

Perhaps a new compromise like the Peace of Westphalia is needed before the current "epistemic crisis" has passed, or, alternatively, common knowledge will be required.

What seems clear is that today's societies face great challenges, something that also applies to the internet as we know it...

##### Image 4: A celebration in Amsterdam following the Peace of Westphalia
![A celebration in Amsterdam following the Peace of Westphalia](https://enlund.org/1/munsterfirandet760.jpg)
Source: Wikimedia Commons

## Today's internet is misdesigned

Think about the fragility present in today's internet (internet 2.0). Recently, 500 million individuals' phone numbers were leaked from Facebook, something the company has said it will try to ["normalize"](https://www.vice.com/en/article/7kvp7y/facebook-normalize-mass-scraping-personal-data).

When that same company discovered that "some" user passwords were stored unprotected, they meant [600 million](https://twitter.com/enlundm/status/1113147300434640898)... Does it really make sense to "normalize" such massive leaks of private data?

Oracle CEO Larry Ellison once [said](https://www.wsj.com/articles/SB121962391804567765) "the privacy you care about is mostly an illusion. All you have to give up is your beliefs, not your privacy. Because you have no privacy".

**But what would happen in society if all instant messages ever written on Facebook or Twitter were leaked and made searchable by the public?** Is that a society we want? Or would one then question the reasonableness of centralizing all information to a few IT giants (often in other countries than the one you're posting from)?

Apart from unnecessary centralization, the existence of **free social media accounts is behind much of the pollution of the information commons** on the internet, through [Sybil attacks](https://en.wikipedia.org/wiki/Sybil_attack).

**Anonymous free accounts allow almost anyone to create troll armies** to influence people's flow of information, for example on twitter and facebook [social graphs](https://en.wikipedia.org/wiki/Social_graph).

**It is indeed possible to envisage a future system where the claims of forecasters, seers or researchers must be registered on public blockchains** if they are to be taken seriously. Such procedures would simplify the tracing of those polluting the same commons, which ought to be damaging for one's reputation. Nor could one falsify history as easily for this would leave traces in the blockchains.

Unlike Twitter's verified checkmarks (a mark of shame in some cirlces), a blockchain system would not be dependent on a central authority (see Facebook's problematic leaks above).

**By using blockchains it would also be possible to register who first wrote a certain text or created a certain image.** This ought to make it more difficult for fraudsters to claim that they are theoriginators, which would further reduce the pollution of theinformation commons.

Perhaps a part of a future solution is [Urbit](https://urbit.org/), which strives to be *a new internet*?

### Tim Berners-Lee or Satoshi Nakamoto?

Who is today's Gutenberg - Gutenberg 2.0? Perhaps it's [Tim Berners-Lee](https://en.wikipedia.org/wiki/Tim_Berners-Lee), the creator of the web - which the author of this piece assumed until recently. But perhaps it is the pseudonymous [Satoshi Nakamoto](https://en.wikipedia.org/wiki/Satoshi_Nakamoto) who through Bitcoin and crypto currencies has created and popularized the idea of blockchains?

A perhaps even more interesting question is **who is the Martin Luther of our time**. 

Martin Luther once remarked "**printing is the ultimate gift of God and the greatest one**". What would Luther have said today about the web (3.0), or about cryptocurrencies? 

**What are you thinking?** Feel free to leave a comment below, reach out to *millyt-dorsen* (or via the [bird app](https://twitter.com/enlundm)).

---

##### Video 1: A Mona Lisa-deepfake - done with a simple app...




Note: Mona Lisa was painted by Leonardo Da Vinci between the years 1503 and 1519.



Is the US about to experience a new "Great Disorder"?

US inflation has recently been surging and is now "trotting". From Gerald Feldman's description of Germany's inflationary episode a century ago, one is struck by many similarities with today...

US CPI inflation recently hit 7.9% - not only is this a 40-year high but it's also a pace one might refer to as "trotting" inflation. If inflation keeps rising, we - or at least the Americans among us - might be about to experience "galloping" inflation. 

A shift from trotting to galloping inflation is described in Gerald D. Feldmans great book "The Great Disorder" which analyses Germany's economic and political situation between 1914 and 1924. One comes away with the conclusion that Germany probably had a theoretical ability to combat inflation in the early 1920s, as well as the intent - at least among some key decision-makers - but in the end the country's political ability was shown to be lacking. 

##### A trotting horse and its driver
![A trotting horse and its driver](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.3.16..11.33.54-travande_hast_svartvit.jpg)
Source: [Wikimedia Commons](https://commons.wikimedia.org/wiki/File:American_roadsters_and_trotting_horses_-_being_a_sketch_of_the_trotting_stallions_of_the_United_States,_and_a_treatise_on_the_breeding_of_the_same_(1878)_(18160419855).jpg)

What makes [Feldman's book](https://www.amazon.com/Great-Disorder-Economics-Inflation-1914-1924-dp-019503791X/dp/019503791X?me=) even more interesting is that he - writing about the beginning of the 1920s - describes an environment which in many ways is ominously reminiscent of today.

#### Conditions when Germany transitioned to galloping inflation vs the US in 2021


|Germany 1920 | United States 2021 |
|:--|:--|
|The central bank had accumulated a large share of government papers which had led to more money in circulation. | The size of the Fed's balance sheet AND the amount of money in circulation is record-high. |
|The weakening of the currency enabled a "permanent bull market" in equities. | "Permanent bull market" is unlikely to be technically correct - nothing is permanent, but the phrase has been prevalent in recent years. |
|It was a time of "never before seen speculation", where even rich capitalists accumulated "real values".  | Measured as S&P500's market cap as share of GDP or margin debt as share of GDP, we may have experienced unprecedented speculation. Individuals such as Bill Gates have been accumulating real values such as [farm land](https://www.theguardian.com/commentisfree/2021/apr/05/bill-gates-climate-crisis-farmland) and Fink's BlackRock have been [buying houses](https://slate.com/business/2021/06/blackrock-invitation-houses-investment-firms-real-estate.html). |
|Companies were importing more commodities in anticipation of them becoming even more dear. |  Companies across the globe has been importing plenty of resources. In some countries and sectors even hoarding commodities. World Bank recently [warned](https://money.yahoo.com/world-banks-malpass-warns-against-183209918.html) (or recommended) against hoarding of food and gasoline - never a good sign.  |
|The Chancellor worried that citizens had started to "flee" the reichsmark in order to protect themselves against currency weakness.  |  Individuals have been fleeing fiat currency into equities, gold and crypto for years. A friend of mine said more than two years ago that he "was afraid to hold cash". |
|Increased use of foreign currencies was seen as threatening the country's "monetary sovereignty".  | Central banks ARE worrying about reduced "monetary sovereignty" due to the rise of crypto currencies such as Bitcoin. Facebook's Libra/Diem currency scared e.g. the ECB and caused an acceleration into CBDC development. |
|The working class was losing confidence in the government. | The larger trend of falling confidence in Congress and media remains in place, and Biden's approval rates have been falling since inauguration 2021. |
|The Chancellor at the time was distressed by "reports that women appeared to be in a particularly belligerent mood". | Just have a look at social media :-) (nota bene: I'm not implying Biden is as "distressed" by this phenomenon as was Germany's Chancellor, but perhaps it can help explain why the Biden admin is seeking help from teenage [TikTok stars](https://www.dailymail.co.uk/news/article-10613795/Joe-Biden-deploys-teenage-TikTok-stars-blame-soaring-gas-prices-inflation-Russia.html)). But I digress. |

What finally caused Germany's inflation to start galloping in the early 1920s was a change in wage formation. According to Feldman:

> The tide against wage restraint was turned in the summer of 1921. 

After a bread price hike of 50% on August 15 2021, workers in the coal industry demanded higher wages, which the industry accepted - and subsequently hiked prices in order to preserve their profits. Government employees didn't want to lose out on the fun, and successfully sought to compensation for the high cost of living as well. "The private sector was no less troubled."

Simply put, the workers had finally gotten tired of falling real wages and now sought to anticipate the inflation rather than react to it... ´. And it was at this point that inflation started to gallop.

A couple of months later, the city of Berlin prohibited public meetings in order to prevent plundering and "panic buying" of clothes and shoes. 

US wage inflation has reached its highest pace [in 40 years](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.4.01..11.19.52-us_wage_growth.png), and gauging by quit rates and other measures of labour market strength wage earners are in a stellar position currently... 

##### Piles of new banknotes awaiting distribution
![Piles of new banknotes awaiting distribution](https://urs.fra1.digitaloceanspaces.com/millyt-dorsen/2022.4.01..12.06.09-Bundesarchiv_Bild_183-R1215-506%2C_Berlin%2C_Reichsbank%2C_Geldauflieferungsstelle.jpeg)
Source: [Wikimedia Commons](https://commons.wikimedia.org/wiki/File:Bundesarchiv_Bild_183-R1215-506,_Berlin,_Reichsbank,_Geldauflieferungsstelle.jpg)

#### Good intentions and theoretical abilities not always enough

Fed Chair Powell was recently [asked](https://www.bloomberg.com/news/videos/2022-03-03/fed-s-powell-clashes-with-senator-shelby-on-inflation-video) whether the Fed is prepared to do what it takes to get inflation under control, he obviously responded in the positive. As Fed Chair he is not allowed to say anything else. The intention to combat inflation is likely present within the Fed.

Theoretically, the authorities are also likely to be able to dampen inflation. The "easy" way to combat inflation is simply tighten monetary policy *enough*, possibly triggering a new recession. Fiscal austerity *could* help out: just stop spending and/or hike taxes, Austerity does not seem likely, as evidenced by the discussions regarding (inflationary) tax cuts on fuel, not to mention Green New Deals, Build Back Better Programs and prospects for more wars... 

#### Two weeks to flatten the price?

There are also unorthodox tools that can be put to use. The German city of Berlin prohibited public meetings to prevent "panic buying" in 1921. Perhaps it was on to something? If current authorities were to prohibit public gatherings this would offer another way to combat inflation - perhaps delay it, simply via implementing more lockdowns (though perhaps this could turn the population restless after the past two years).

In related news, the International Energy Agency (IEA) has suggested taking away other freedoms, such as implementing "[car free Sundays](https://www.theguardian.com/business/2022/mar/18/car-free-sundays-iea-sets-out-10-point-plan-to-reduce-global-oil-demand)", and also to prohibit people from driving their private cars: "cars whose number plate ends with an odd number can drive on Monday". What's not to like, if you're not a climate denier?

Feldman's book shows that good intentions are sometimes not enough, not even when coupled with theoretical abilities. At times the political ability is simply not present.  Those in power cannot always control everything, and what they think they are controlling might even revolt against them.  

Prohibitions of public meetings and consumption bans were **not** enough to change Germany's trajectory towards galloping inflation in the 1920s. 

Galloping inflation rates were followed by still-higher ones - hyperinflation.


Stations

unfiltered macro <--

CBDCs - utopia, dystopia, or both?

Is fiat money really money?

On the weaponisation of the financial system

Overton's window creates opportunities for the brave

Centralisation is part of the problem

Monetary Poverty Policy

Well, of course a recession is looming

Well, of course a recession is looming.

On Gutenberg, Satoshi Nakamoto and political polarisation

Is the US about to experience a new "Great Disorder"?

Links

Stack Podcast