The fiat system is a Ponzi scheme that demands perpetual (and therefore impossible) growth of physical flows. We are heading towards an inflation as painful as it is conducive to Bitcoin.
Ponzi and Growth
Not a single euro, dollar, yuan, or franc in circulation originates from anything but debt. In the fiat system, money is entirely created from debt.
In other words, there would be not a single penny in circulation if all bank loans were repaid overnight. In fact, there would still be coins and bills. However, cash represents only a very small part of the money supply, about 5%.
The fiat system operates on fractional reserve banking, meaning money is created out of thin air by banks. Money emerges at the time of loans (especially mortgages) and disappears when repaid, except for the interest that compensates bankers.
Therefore, we are constantly paying interest on the total money supply. Consequently, each year, more money needs to be lent than the previous year to keep the accounting balanced.
This mathematical imperative arises from the fact that the money needed to pay interest is never initially in circulation in the economy. “Money doesn’t make money,” as the adage goes. To put it even more clearly, if some manage to repay debt AND interest, mathematically, others won’t even be able to repay the principal.
In short, the system requires perpetually increasing the money supply. Otherwise, some economic actors couldn’t find enough money in the economic pool to honor their loans. Payment defaults would become integral to the system, which is not efficient.
Thus, banks perpetuate a Ponzi scheme, because humanity always embraces the most efficient systems.
The problem is that we need enough energy and raw materials to match this perpetually increasing money supply, otherwise salaries wouldn’t keep up. We live on a finite planet after all…
Banking and Renaissance
The oldest bank still in operation is Monte dei Paschi, an Italian bank founded in 1472, during the Renaissance, a pivotal era in civilization.
Italian city-states such as Florence, Venice, and Genoa laid the foundations of modern banking, notably the bank of the Florentine Medici family, created in the 14th century, known for its innovative financial practices.
Mathematician Luca Pacioli introduced the concept of double-entry bookkeeping in his work “Summa de Arithmetica, Geometria, Proportioni et Proportionalita” (1494). This revolutionary system records both debits and credits of financial transactions. Letters of credit were also crucial in developing commerce, the ancestors of modern credit.
The democratization of banks, combined with the development of merchant navies, allowed economic activity and prosperity to grow. The Renaissance marked the beginning of a new era of exploration and maritime trade. All European powers embarked on ambitious voyages of discovery in search of untapped resources. Iconic figures such as Christopher Columbus, Vasco de Gama (first maritime route to India), and Ferdinand Magellan (first circumnavigation) laid the foundations of globalization.
And when you think about it, wind energy combined with credit and maritime insurance from Italian banks were the driving forces of this economic growth. Not to mention technological breakthroughs like the compass and the rudder.
All this to say that transportation and energy are the cornerstone of economic development and, by extension, the ability to lend money. One cannot go without the other.
Oil and Containers
The Industrial Revolution in the 18th century further increased the transport capacity of merchant fleets. Steamboats replaced sailing ships and catalyzed another tremendous growth in global trade.
The advent of steam made maritime transport more reliable and reduced distances by connecting continents in an unimaginable way before.
This time, the Great Leap Forward came from coal energy. Then came oil, which now powers container ships weighing 100,000 times more than Christopher Columbus’ caravel.
Today, merchant fleets transport almost all non-food products available in commerce. With its two billion tons of capacity (compared to tens of millions two centuries ago), it handles 80% of international freight.
As Jean-Marc Jancovici says, “without it, you and I could say goodbye to our purchasing power. […] This merchant navy consumes as much oil as global aviation, nearly 10% of global production. Trucks, which are also a crucial link in the economy, consume twice as much as the merchant navy.”
The great challenge in the decades to come will be to propel 300,000-ton giants of the sea and trucks despite the decline in oil production, which is much closer than we want to believe. In this regard, keep a close eye on the United States: Without oil, international trade will be considerably reduced, and deglobalization will become a reality. This will result in shortages of certain products and the inability to make loans without causing inflation.
Without abundant energy, we cannot physically match growth with the monetary Ponzi scheme. A Ponzi scheme that, once again, is neither good nor bad. It simply requires perpetual growth, which unfortunately slows down decade after decade.
Bitcoin and the Physical Limits of Growth
Oil is not infinite. We will manufacture electric trucks, but there are still limits.
Copper is the flagship element of the electrification of our civilization. Demand for this essential metal is expected to rise by 4 to 6% per year over the next eight years.
Production must therefore double by 2035. Considering that extraction consumes a lot of oil and that discoveries of new copper deposits are scarce… There is cause for concern from a purely geological point of view. Not to mention that installing small nuclear reactors on the 60,000 cargo ships is next to impossible.
The quantity of transported goods will inevitably decrease, preventing the physical flow growth that underpins economic growth.
And by the way, since half of the trucks carry foodstuffs, it is a foregone conclusion that their prices will increase and reduce households’ borrowing capacity. This will result in an explosion of the real estate bubble.
All this to say that inflation is far from stopping. Without an energy miracle and immense discoveries of copper, lithium, etc., growth will decrease.
Here’s the trend for the old continent:
-Maximum energy importation: 2007
-Maximum weight loaded in trucks: 2007
-Maximum number of m2 built per year: 2007
-Maximum disposable income: 2010
What happened in 2007? The peak of conventional oil. The absence of growth in Europe will translate into more inflation. As the saying goes, the “thirty glorious years” are over. Any good family man should now think about protecting his savings.
And what better way for the common man than to simply choose the only asset in absolutely finite quantity: Bitcoin.
