Caveats | Founders' Review Editorial

Let's assume you are your own bank as an individual. You directly borrow from the central bank with the official rate without intermediaries. You can do this because you get a lump sum payment at the end of your life from the government to pay it off.

Where is the caveat? Why don't we do this today? Why wouldn't it work?

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Well, first of all some communities already work this way. We just call and label things differently. Replace the lump sum payment with a check from a younger family buying your house at the end of your life. This means your credit line is actually your mortgage. The interest rates accumulated cover the risks. The principal is what you borrow throughout your life.

You choose the location and purchase price of your house based on the likelihood of paying off the mortgage. Assume an individual domestic product of $75000. This is a gross salary adjusted for net trade. This allows a 20% of $15000 for mortgage payments. It assumes a house price of $450000 with a thirty-year mortgage not accounting for inflation and interest rates. Add interest rates and inflation into your calculation, and you are getting there what I am thinking about.

The economy usually finds ways to do the thing what is possible. They just call it differently. You just need to watch. Cryptocurrencies, cloud all have a demand. There is usually a reason, why they exist.

The first caveat is money. My definition of money deals only with the monetary base that covers basic daily consumption, and trade. This assumes short term holding. People tend to buy funds of bonds and stocks to save for the long run.

Why is that? Money was introduced as coins of precious metals to defer ownership. You could for example sell a farm in one county move to another one and buy land there. The key was the limited supply of gold and silver.

Colonization changed this making the Catholic Church sell confession letters for gold becoming a de facto central bank removing extra gold from America from the system. This partly caused reformation and the division of the state and religion during Enlightenment. The reason was that a hardworking part of society fell out from the benefits of colonization. Manufacturers of fabrics, steel products, or shipyards in the Netherlands or Britain had safer business relying only on their own work excluding the Catholic Church and its Nobility.

Consumption of groceries can not be deferred, as they are perishable. Money saved cannot be exchanged later for anything else causing higher prices, and inflation. This made people live closer to rivers and oceans. They could invest in fishing and boats and invented trade.

The extra supply of food covered the loss of produce due to any recent drought preventing risks, rates, and inflation. Near shore trade of muslim countries spanned across oceans from the Horn of Africa to the Far East of the Philippines. Trade gave them a choice, lower prices, and adequate food supply even in dry deserts where farming is limited. Remember, such countries limit interest rates assuming lower risks. High interest rates above risks and inflation are mere usury subsidizing a portion of society.

As newer types of goods were introduced, money saved was matched with steel or coal in warehouses. Money became a check, paper money, or credit money that can be exchanged for assets held in warehouses. Machines making goods were even more lucrative to promote saving. Capitalism was invented.

Services are a different kind. A jobless teacher does not produce value at the moment. Time is lost, money saved will meet with less consumption making prices higher elsewhere.

Spending less on travel reduced the demand for services during high oil prices in the 1970s after the auto industry and fast food chain boom of the 1950s and 1960s. This process was accompanied by inflation.

Nowadays central banks watch the data to adjust the level of the monetary base based on the service and product supply. It is a difficult task because services lost will never be replaced but some products can be kept in warehouses for a longer time until the customers return. Less communication and smaller trade creates imbalances and inequality making predicting consumption even more difficult. Increasing costs trigger layoffs, especially in fixed short term cost servicing jobs. Services lost will never be replaced reducing domestic product even more. This explains the inflationary period of the 2020s.

Lower supply or quality of online services introduced cryptocurrencies. Oftentimes their supply is artificially limited as a way to ensure some share of a fixed pie later. Lower supply of services cause less consumption and product inflation. IoT, satellite communication may cause complexity and higher failure ratios with deferred replacement of cars for example. Ransomware disturbs computer usage making computers more expensive. The ever lowering prices of Teslas and the introduction of low-cost alternatives of BYD are supportive evidence of the theory.

Higher payments in Bitcoin for ransomware unlock codes also push up BTC price. It becomes the "confession letter" for the sin of negligence not investing in cybersecurity enough. Possibly this will lead to another digital "reformation" returning to core values and appreciating the individual workforce and their personal computer.

The solution will probably be simple. People saving for retirement might want to invest in groceries, elderly care and healthcare facilities that take care of them after retirement. This is what they need. Anything more may be risky depending on transactions of two unrelated third party employees in the far future.

Wealthy individuals will still invest in equity meaning that they are frugal, and not a player in the monetary base of money markets. They are the "battery" charged in the circuit of the economy of the invisible oscilloscope of Adam Smith.

Enterprises can still grow easily with supportive central banks. Banks issue enough credit as short term corporate bonds for domestic growth. This is the secret sauce to understand the success of Amazon Web Services, Microsoft Azure, and Nvidia. Remember, extra low risk loans to competitive industries do not change the equity valuation due to the net present value of very low margins. Value created in terms of recurring income of cloud customers does create equity.

The United States has not voted on the Clarity for Payment Stablecoins Act of 2023, yet. The next bunch of internet companies may probably grow large on term coupons or term stable coins. Such instruments allow a pay earlier approach securing their cash flow.

Pay later approaches regulated by credit card laws will probably rule the market of physical products and supply chains that span across many companies. These instruments support faster turnarounds in the age of hard financing, and high dollar interest rates. Fix terms tie or "ground" prices of securities and tokens to real recurring revenues making them more stable and any market disrupting bubbles less likely.