Modern Economics is a Lie
And We Built Everything On Those Lies
Timing the market is notoriously difficult as perfectly captured in this quote:
“The market can remain irrational longer than you can remain solvent.”
One of the kings of modern economic theory John Maynard Keynes said that.
While that statement rings true today a great deal of the ideas of Mr. Keynes have proven false when put into practice. Here’s the problem: the entire central banking apparatus that the world uses as an operating system is based on these miscalculations. It might be fair to call them lies told to make it easier to steal the time of the masses alongside what little wealth they have, too.
Keynes argued that governments should play an active role in managing the economy, particularly during times of recession or depression. He advocated for using fiscal and monetary policies to “stabilize the economy and promote full employment”.
Keynes was also a key figure in the establishment of the Bretton Woods system after World War II. This system created a framework for international monetary cooperation and exchange rate stability. It also made it even easier for the US to create money out of thin air.
0 for 2 for Mr. Keynes.
Both of these events have already had tragic consequences for the living conditions of workers across the world. They also pose deep national security risks for America.
Money, Money, Money
One clear critique of Keynesian policies is that they lead to inflation.
If the government stimulates demand it pushes prices up, eroding the purchasing power of workers' wages.
As prices rise, the same amount of money buys fewer goods and services. This means workers' wages don't stretch as far, making it harder to afford necessities like food, housing, and transportation. This is especially challenging for low-income workers who have less disposable income to absorb price increases.
Inflation also diminishes the value of savings.
Money held in cash or low-interest accounts loses its purchasing power over time as prices rise. This can be particularly detrimental to those saving for retirement or other long-term goals.
Working poor and elderly retirees typically don’t own a great deal of assets that rise in value during these inflationary cycle.
In some cases, inflation can lead to a wage-price spiral. As prices rise, workers demand higher wages to keep up. This, in turn, can push prices even higher as businesses pass on increased labor costs to consumers, creating a vicious cycle. While Keynesian economics aims to boost overall economic activity, some argue that it can inadvertently exacerbate the gap between the rich and the poor.
It plays out in a cycle, here’s how:
How It Starts → Asset Inflation
Keynesian policies often involve lowering interest rates and increasing government spending. This can lead to increased demand for assets like stocks, real estate, and bonds, driving up their prices.
Those who already own these assets (typically wealthier individuals) benefit disproportionately from this asset inflation, as their wealth grows. Those without assets, or with fewer assets, miss out on this wealth-building opportunity, further widening the gap.
Then the government starts to meddle and that’s when we hit the next stage.
Stage Two → Uneven Impact of Stimulus & Government Influence
Government stimulus measures, such as tax cuts or infrastructure spending, can have uneven impacts across income groups. For example, tax cuts that disproportionately benefit high-income earners can worsen income inequality.
Government will create “Special Opportunity Zones” which suddenly make one side of the street worth less, alongside other actions which tip the scales of value and ultimately where money goes. Do you think small retail investors are the ones who snap up the valuable new property? Its large investment firms that have liquidity and legal resources to quickly execute closings.
Similarly, government spending programs may not always directly benefit low-income communities or workers in sectors with low wages. This can lead to a situation where economic growth occurs, but the benefits are not shared equally.
Stage Three → Obsessive Focus on Aggregate Demand
This is one of Keynes’ biggest misses. He (and his followers) take Government spending to be just as valuable to a nation as consumption or investments made by individuals and corporations.
Some critics argue that an pure focus on aggregate demand can overshadow the importance of addressing structural issues that contribute to inequality, such as access to financial education, healthcare, and affordable housing.
Without addressing these underlying issues, even with increased overall economic activity, the wealth gap may persist or even widen.
Stage Four → Debt-Fueled Growth
As mentioned earlier, Keynesian policies can lead to increased government debt. If this debt is financed by borrowing from wealthy individuals or institutions, it can further concentrate wealth in the hands of the already affluent.
As already mentioned, this debt-fueled growth also depreciates the purchasing power of the dollars the middle class and below have worked all their lives to save.
The Final Stage → Currency Debasement
The US Gov has a $36T debt. How will they pay it?
More money printing.
The sheer magnitude of the increase in our money supply and money velocity is unprecedented in modern history:
Look at that slope change in 1995.
That was the start of crazy easy money.
Then another slope change after the 2008 event.
2020 is something different completely - the Federal Reserve embarked on programs known as Quantitative Easing. It also appears to be the start of intentional currency debasement.
Currency debasement is a deliberate policy by a government to decrease the value of its currency.
In Roman times they’d just use more filler material in their coinage but in modern economies, this is typically done through:
Increasing the Money Supply: The central bank (in the US, the Federal Reserve) prints more money or creates digital currency, increasing the amount of currency in circulation.
Lowering Interest Rates: Reducing interest rates can encourage borrowing and spending, which increases the money supply and can lead to inflation.
Why Would the US Be Incentivized to Debase its Currency?
There are three main reasons:
Reducing the Real Value of Debt
Inflation erodes the purchasing power of money. This means that the real value of existing debt decreases over time. For a heavily indebted country like the US, inflation can make it easier to pay back its debt with "cheaper" dollars.
Stimulating Economic Growth
Debasing the currency can make exports cheaper and imports more expensive, potentially boosting domestic production and creating jobs.
Avoiding Austerity Measures
Instead of raising taxes or cutting spending (austerity measures) to address debt, a government might choose to inflate its way out of the problem.
If people lose confidence in the currency, it can lead to hyperinflation, where prices rise uncontrollably, and the economy collapses.
Aside from the risks of this strategy debasing the currency can create a moral hazard, where governments are incentivized to accumulate more debt, knowing they can inflate their way out of it.
Increased government spending can lead to higher national debt. This could potentially lead to future austerity measures that cut social programs and negatively impact workers.
As the debt grows, so do the interest payments. This can divert resources away from other critical areas like defense, infrastructure, and social programs, potentially weakening national security over the long term.
Now our interest payments are contributing all-time amounts to our debt levels. A large debt burden limits the government's ability to respond to crises, whether it's a war, a natural disaster, or another economic downturn. This reduced fiscal flexibility can weaken the country's ability to act decisively in times of need.
A significant portion of US debt is held by foreign governments, particularly China and Japan. This dependence on foreign creditors can create vulnerabilities and potentially limit US policy options in international affairs.
In short - we are in deep danger as a nation, and we can set the world into a global Great Depression 2.0.
Is There a Fix?
Too much money has been created too quickly for there to be no consequences.
An “asset repricing” event like this has never happened before. We “solved” the 2008 crisis by papering it over with debt-cash. Decision makers at that time were unwilling to face austerity on a national scale. They could not stomach their 401Ks becoming 201Ks.
So they financial engineered.
They inflated the money supply and ensured that more credit and more cash would always “be there waiting” for their toxic assets.
And all money printing did was amplify the toxicity.
Now as 2025 approaches the world looks different.
The American CRE market is performing terribly, and the actual performance is even worse than the Regional Banks (who primarily hold the loans) have realized. A recent study from the National Bureau of Economic Research estimated that 385 American banks could fail over commercial real estate loans alone.
Once the words “mark-to-market” re-enter the global consciousness the collapses will be begin.
I meant to pluralize that. Several market collapses are likely to occur in 2025 and into 2026. The real estate market will see a major drop. Primarily commercial but residential will have a repricing also.
As teased earlier, this will have a knock-on impact to the finance / banking sector. That fire won’t stay contained at the Regional level thanks to cross-contamination via a dozen channels that drive the fire back to the core of the financial sector — JP Morgan, Bank of America and the other majors.
At this point a broad market sell-off will be triggered. I’m looking for a median drop of 40% across the equities markets with steeper slashes to fixed income and real estate. I think even the metals will go down.
What will go up?
I’ve made the case that Bitcoin changes the math from the last time we had a major financial event here:
Ultimately, the combination of a contracting real economy, a looming debt crisis, and overvalued real estate + stock markets creates a recipe for a significant market crash.
There is dangerous weakness across our economic system and our previous interventions have created “danger accelerants” right next to open flames.
Predicting the exact timing of a market crash is impossible, the current economic conditions suggest that investors should exercise caution and prepare for potential turbulence in the months ahead.
Shared this previously but for new readers - please review this preparation list for financial distress / prolonged recession:
Review your budget vs actual → cut off-plan spending
Bolster your emergency cash fund
Diversify income streams
Enhance your network
Upgrade your skills
Reduce your debts
You can’t prevent bad things from happening. You can diffuse the impact with preparation and planning.
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