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March 02, 2022

Wednesday Morning Guest Rant [Joe Mannix]

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When the Future Has No Value

A lot is going on the world - the SOTU, COVID, Ukraine, loss of liberty, rising police states, etc. This post is not about these things because they have been or will be covered. Rather, this post is about something more mundane but in my opinion very interesting: interest. It is the price of money with two components: risk and time. Interest is a sophisticated and fascinating concept not only because it balances the price of two things into the price of a third thing but because it is a practical manifestation of a fundamental human concept: the future. Mankind's discovery of the future was a seminal moment in our development of a species. Suddenly there was choice and there was the concept of deferred results.

Later on, we figured out how to put a price on the future. We are nothing if not remarkable.


After Volker sent interest rates to the moon to help deal with the Carter/Nixon inflation, Greenspan started to grind them down. Economic shocks like the Russian default and the Asian Financial Crisis saw the Fed (and to a lesser degree Treasury) start "backstopping" risk. The grinding down of interest rates was offset by the policy machinations that served to transfer risk - risk that was no longer priced by interest, at least not for the big guys - onto the public.

Then the dotcom collapse and 9/11 happened and the response was to grind down interest rates still further. It was in the early aughts when real interest rates for the big guys fell into negative territory. This accelerated greatly in the aftermath of the Global Financial Crisis. Since then, real interest rates have been negative. In some countries, even nominal interest rates spent some time in the red. Negative real interest rates imply both that there are no risks and that the future has no value - or even that the future is a negative value.

When the value of the future is entirely rejected by the ruling power structure, what happens? I suspect that we are in the process of finding out. None of those people acknowledge (or maybe even understand) that the system they have built is a system that considers the future as valueless, but they have and it does. It doesn't discount the future, it repudiates it entirely. It's a null value. It doesn't even exist. How does one behave when there is no future? A reversion not to pre-modern but pre-human conditions. Bestial consumption of all that there is at this moment, actions reactive to the moment, a world comprised entirely of an eternal now.

This is not the fault of negative real interest rates, but I do think that negative real rates are a consequence of the same driving force. There is no future and increasingly there is no past, either. There is merely the avarice, vice, appetite and power of the moment, with no consequences and no timeline.

Such a world is impossible and our rulers' wishing will not make it so. This world of now that they have built will fail, and it will be up to the men of vision - men who remember that the future exists and must be won - to do what they have always done and drag people kicking and screaming out of the ashes. They would do well to remember that the future has a price and manipulating that price to zero or below is a very important signal that they're doing something very, very wrong.

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posted by Open Blogger at 11:00 AM

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