Ripple effect is a better term than “Lehman Effect,” because, in this way, the fear behind any financial contagion due to the crash of a particular reality is succinctly expressed. In many op-eds, we have described how the current financial system is inextricably interconnected, where property rights are ephemeral, and no one knows who owns what. Evergrande is one of the most obvious symptoms of this system. The numbers are shocking, it is true, but there is something else to say. It only scratches the surface if it is stated that in China, it is necessary to be indebted for 10 if you want to create 1 additional unit of GDP, a ratio that is tripled compared to ten years ago; needless to say, this is a depletion of the so-called pool of real wealth, triggered by the Law of Diminishing Returns. Evergrande collapse also shows a dangerous reality in several Chinese sectors: excessive indebtedness without a real income stream or assets to back it up. Not to mention the exposure of various European countries, such as France and Italy, to Chinese financial institutions and financial products.
Needless to say, then, that the ripple effect is frightening, but this is not the whole story. In the Soviet era, the Gosbank wholly controlled the financial and banking market: there was no competition, and regulation was pervasive. It was a capillary control of a particular sector, and consequently, it was passively extended to the rest of the population. How? Through the subdivision of the economy into monetary and non-monetary. The non-monetary economy was one in which the use of cash was discouraged, and all business and corporate settlements, in general, were settled exclusively through the banking sector. Any losses were covered by the State. The monetary economy was the prerogative of wage earners and ordinary people. It was crucial that the central government maintain some control in the interaction of these two systems because the emergence of imbalances was physiological given the centralized nature of these systems. There was even a “cash plan,” which was updated regularly to show that everything was working as expected.
Money had therefore ceased to have any function in terms of price transmission, had no role in the consumer’s choice and was simply an “aggregation tool” that allowed for actions already planned to be carried out.
Although initially, the imbalances were minimal, time and continuing economic distortions magnified their scope. Real consumer demand inevitably outweighed the authorities’ supposedly well-crafted plans, and mismatches were bridged by increasing the supply of money and repressing inflation with excess liquidity. To keep the system alive and defuse the social tensions caused by the shortages, various one-off measures were implemented, including reducing the supply of cash. If at first, they seemed effective, later they showed their pathetic nature and collapsed under the weight of the contradictions inherent in monetary socialism.
If we look at the present days, we will notice that financial repression has been used to keep interest rates below the rate of inflation and to reduce public debt, it is an example of State power exercised to maintain (a sort of) balance despite structural imbalances. The same is true for commercial banking regulation: banks are required to demonstrate solvency “capital ratios” using models where government debt is zero weighted, prompting them to own such assets without volume limits. State guarantees are increasingly available (e.g. Italy and non-performing loans), and the weights used in bank capital models are simply an artifice to allow you to increase the level of risk taken while the levels of capital remain the same… or at least they said so. Not to mention the mismatch between the nominal and real value of financial assets, which continue to be inflated only by central banks and their “Fedspeak.”
In short, the normal functioning of a free financial market must be repressed, and the surge in the balance sheets of the various Western central banks is proof of the extent of the financial repression. In summary, the main Western central banks have become like a new Gosbank where they need to keep everything under control in order to exercise this control: fiat money disintegrates before their eyes. Indeed, even today, money has lost its price signals transmission, becoming a mere instrument of trust. Money is no longer a means but an end. To do what? Command/control by the ruling élite. During the Soviet era, there were widespread shortages and mass inflation, today we have supply chain chaos and rampant price inflation. Then, economic stagnation was the catalyst for the end of socialism. Today, in particular, the Eurozone is experiencing a similar stagnation.
To try to stem a loss of control, the further encirclement and induced staticity of the market players is necessary. This goal is being pursued through the implementation of the so-called CBDC, central banks digital currencies. For example, the digital yuan can be scheduled to be activated on a certain date, to expire on a certain date, to be valid only for certain purchases, and to be available only to citizens who meet certain prerequisites. Authorities issuing these CBDCs can then decide who has access to them, what can be bought and how long the purchasing power remains valid. Central banks can thus influence and control the behavior of the recipients of these CBDCs, as well as exclude those who want to penalize or who do not respect the rules or parameters of the State.
While central banks claim that CBDCs improve payment efficiency, increase financial inclusion and fight illicit transactions, their real motivations are surveillance and control. Surveillance of a population through complete visibility of the flow of financial transactions and user identities. Think of China’s social credit system on a global dystopian scale, where “vaccine passports” evolve into digital IDs, and the latter is linked to the issuance and use of CBDCs. Vaccine passports are just a stepping stone towards centralized digital currencies and global social credit systems.
If you want monetary freedom, then the use and possession of Bitcoin is the only way to counter the disturbing plans behind the command/control of the central banking system. The only way to get money back to its original function and retain the purchasing power of one’s legitimate labor. Bitcoin is open-source, like a spoken language, and its nature overcomes the State and the bureaucratic whims that preserve the monetary monopolies of central banks.