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The Next Financial Paradigm?

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Zero Hedge users mostly agree the financial system will implode.  It doesn't take more than high school math skills to calculate that the current debt based money system has implosion built in, and it's guaranteed (this is one rare case we can use such a word in finance!), because at some point, not enough new money can be created to pay off an ever increasing debt base.  Collapse is a mathematical certainty.  What is not certain is when this will happen, what will be the trigger, how entities will react, and other wildcard factors.

Many of us know this collapse is coming, and are either feathering our nests as much as possible, or just waiting to time the collapse that we all exit at the same time (as is the Wall Street way).  What we don't do often, is discuss what's next?  Maybe we should ask Bob, he'll tell us what's next.  

What happens after the financial collapse?   Hopefully, and this is one of the more likely scenarios, there are enough resources in the west to keep the system running on a temporary basis until a new system can be implemented.  This is up to debate but we aren't betting on Zombie Apocalypse or end of Mayan calendar or Alien invasion.  Of course anything is possible.  But let's think about it for a moment.  The financial system is a complete illusion, money does not exist.  But there is a huge physical economy, a real economy, that will not be destroyed at all during the collapse (unless people are upset and burn down buildings).  We'll still have factories, machines, tools, fuel, commodities, and last but certainly not least, human capital.  So restarting will theoretically be easy, it's just a question of organization.  And whoever is in power at that time, will have the largest vote.  So the most likely scenario is they will decide what the new system will be.  Is this why large organizations, such as The Feds, are targeting nobodys on the fringe, with a vengence?

As the author of the ZH article points out:

But HSBC launders billions for Mexican drug cartels and they can continue their operations no problem.

Caldwell doesn’t accept U.S. dollars or any type of fiat currency. You send him bitcoins via the internet, and he sends you back metal coins via the U.S. Postal Service.To spend bitcoins, you need a secret digital key — a string of numbers and letters — and when Caldwell makes the coins, he hides this key behind a tamper-resistant strip.

 

So long as you can keep your Casascius bitcoins safe, nobody can learn the key. To date, Caldwell has minted nearly 90,000 bitcoins in various denominations. That’s worth about $82 million at today’s exchange rate.

 

Because he runs a bitcoin-only business, Caldwell says there’s no Casascius bank account for authorities to seize. But he adds that he has no desire to anger the feds, whether he agrees with them or not. So he’s cranking out his last few orders and talking to his lawyer. He says this may spell the end of Casascius coins. “It’s possible. I haven’t come to a final conclusion,” he says.

 

What a complete and total joke this government is. Don’t they have anything better to do?

Certainly they do have much bigger fish to fry, they do have something better to do.  Why targeting intellectuals, fringers, Bitcoin users, and suburban gardeners?  Let's skip Bitcoin for a moment because it is controversial, after all, it was used by criminals.  But what about planting a vegetable garden?  Even in an Orwellian police state, it's hard for rational executors to justify charging veggie gardeners with criminal charges and hauling them off to jail.  This is not an uncommon occurence, it's happening in Florida and many other places.  What do preppers, Bitcoin users, rogue gardeners, Retroshare users, Skype users (before it was infiltrated), and the DIY community have in common?  These are the people who are capable of restarting the system (any system) after any collapse.  They will build mesh networks, barter, and organize local movements, which can build into a national one.  

In the case of Finance, Bitcoin represents something the establishment doesn't like; it's anonymous, it's peer to peer, decentralized, and impossible to control.  The current debt based money system in Western countries all have one thing in common; central control.  And there is layer on top of the central control, a central central control, the BIS.   

Hundreds upon hundreds of top economists, leading intellectuals, academics, authors, and countless others, have proposed simple steps The Feds (if not The Fed, some other Fed) could take now to avoid a collapse.  To name a few, giving people money directly with QE instead of banks, The Inform Act (resetting Government accounting to realistic figures), or even Jim Rogers simple 'Let Them Fail' approach.  So why don't they do it?  Are they really that stupid?  Or they have other plans.

We're so concerned with our portfolio values, limiting tail risk, seeking alpha, and so on; it's easy to get caught up in semantic mathematical debates.  Will the S&P500 top out here near 1,800?  Or 2,000?  But does it really matter, if the S&P500 is 1,000 or 2,000? What's the real difference?  "Investors will be wiped out if the S&P500 is 1,000" you say?  You mean like .com investors were wiped out in 2000, Real Estate investors wiped out in 2007/2008, etc. etc.  

Bubbles are built into the system, but with each one we get closer and closer to 'the big one' - so let's say it happens.  What's next?  

An interesting trend has been forming, on a near grassroots level, best exemplified by the Bitcoin movement, but it's much larger.  

At TEDGlobal, Paul Kemp-Robertson talks about non-government currencies.  Here's a list of 10 of them, including Bitcoin:

Here, learn more about 10 kinds of alternative currency in use today, from Kemp-Robertson’s talk and beyond.

 

  1. Bitcoin. The world’s best-performing currency, according to Kemp-Robertson, #990000;">Bitcoin’s value is tied to the performance of a computer network. It’s “completely decentralized—that’s the sort of scary thing about this—which is why it’s so popular,” Kemp-Robertson says. “It’s private, it’s anonymous, it’s fast, and it’s cheap.” Bitcoin is a case study in the increasing desire to place trust in technology over traditional institutions like banks.
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  2. Litecoins. A virtual currency based on the Bitcoin model, Litecoins have a higher limit: “The number of coins that can be mined is capped at 21 million Bitcoins and 84 million Litecoins,” explained a #990000;">recent Wall Street Journal post, which also noted that Bitcoins are worth more and currently accepted more widely.
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  3. BerkShares. While Bitcoin and Litecoins are worldwide currencies, #990000;">BerkShares are hyper-local: they’re only accepted in the Berkshires, a region in western Massachusetts. According to the BerkShares website, more than 400 Berkshires businesses accept the currency, and 13 banks serve as exchange stations. “The currency distinguishes the local businesses that accept the currency from those that do not, building stronger relationships and greater affinity between the business community and the citizens,” the site reads.
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  4. Equal Dollars. Philadelphia is also trying out a local currency with #990000;">Equal Dollars. When you sign up to participate, you receive 50 Equal Dollars; to #990000;">earn more, you can offer your own possessions in an online marketplace, volunteer or refer friends.
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  5. Ithaca Hours. Another hyperlocal currency, #990000;">Ithaca Hours—usable only in Ithaca, New York—also hopes to boost “local economic strength and community self-reliance in ways which will support economic and social justice, ecology, community participation and human aspirations.” (For a full list of local currencies in the US, go #990000;">here.)
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  6. Starbucks Stars. Use of Starbucks’ #990000;">Stars is limited not to a particular geographic locality, but to the corporate ecosystem that is Starbucks. Once you get a Starbucks Card, you can earn Stars—which buy drinks and food—by paying with the card, using the Starbucks app, or entering Star codes from various grocery store products. According to Kemp-Robertson, 30 percent of transactions at Starbucks are made using Stars.
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  7. Amazon Coins. Another company-specific currency, #990000;">Amazon Coins, can be exchanged for “Kindle Fire apps, games, or in-app items.” You get 500 Amazon Coins, worth $5, by purchasing a Kindle Fire, or can #990000;">buy more Coins at a slight savings.
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  8. Sweat. Kemp-Robertson points to a particularly innovative business-specific currency in Nike’s “#990000;">bid your sweat” campaign in Mexico. Your movements, energy, and calorie consumption are tracked and can be exchanged for goods, ensuring a “closed environment”—only people who (a) own and (b) use their Nike products are welcome.
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  9. Tide detergent. This is a barter system that’s about as far from government-backed as you could get: in 2011, it was discovered that across the US, thieves had been stealing 150-ounce bottles of Tide detergent to trade for $5 cash or $10 worth of weed or crack cocaine. An article in New York Magazine from earlier this year details the #990000;">fascinating storyand what it says about Tide’s super-successful branding.
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  10. Linden Dollars. #990000;">Linden Dollars, usable within the online community #990000;">Second Life, can be bought with traditional currency or earned by selling goods or offering services to other Second Life residents. Many people earn actual Linden salaries—some to the tune of a million Linden Dollars—#990000;">says this article from Entrepreneur.com.
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  11. BONUS: Brownie Points. Granted by the universe as a reward for good deeds. Not exchangeable for tangible goods, just self-satisfaction, which we think is also important.

That's quite a list, and doesn't consider the growing number of community currencies in the United States alone - look at this huge list.

And just recently, Russia's largest bank, Sberbank, proposes a Bitcoin alternative, saying that "The Future Belongs to Virtual Currencies."

Are these all just fun experiments for economics students, or is there a parallel financial system developing, based on secure peer to peer barter, sophistocated technologies (that work), open source, and decentralized?

Let's not forget the United States of America has one of the most colorful economic histories when it comes to alternative currencies, most typified by the Free Banking Era, where banks would issue their own currencies printed on their own paper.  An interbanking trust network ensued, i.e. I'll accept Blankfein Bitcoins if you'll accept Dimon's Diamonds.  Smaller less strong banks failed.

Also let's bear in mind what we have today that all previous systems did not have; technology, masses of resources, the internet, ability to produce food and energy for the whole planet many times over, advanced science.  To a large degree, the economic prosperity of the US can be attributed to advances in technology much more than "Capitalism vs.. " or other such nonsense.

While pondering this, let's listen to Chris Hedges describe the overlords of our current financial fiefdom, who may be in the position to determine the one voice of the establishment when implementing the new financial paradigm, once the collapse happens. 

 


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Sat, 12/14/2013 - 02:56 | Link to Comment AurorusBorealus
AurorusBorealus's picture

Pretty naive really this article along with most of the thinking on this subject.  TPTB will do everything in their power to retain control of the system and that is a lot of power from drones, to complete control of the telecommunications and media broadcast systems, complete totalitarian espionage capabilities, etc.  People will be apoplectic.. either inflation will wipe out the ability of the poor to buy necessities or the scarcity of cash will prevent the poor from buying necessities; either way there will be mobs, violence, martial law... and then the real problems start...  The dollar is replaced by the Reichsdollar (or whatever), the Euro is replaced with the Deutscheuro (or whatever), the yen is replaced with the Nuyen... and during this period who will determine how prices are set on the international market? Who will decide the price of oil and who receives oil, the U.S. or China?  The flow of international resources will be disrupted or altered significantly, causing more hardship in places with riots and martial law... the end result... global war... that is the only possible outcome... sorry.

Fri, 12/13/2013 - 22:19 | Link to Comment Clueless1
Clueless1's picture

I am not so sure BTC is impossible to control.  What what I have read, the block-chain is going to become absolutely massive as more people adopt the currency.  Downloading terabyes of data in order to conduct transactions is beyond the ability of most people.  The obvious solution to this would be regional server farms set up all over the place in order to act as an intermediary for BTC transactions.  If that happens...BTC ceases to be truly decentralised.

Of course, this future issue could be somewhat, or wholly abated by developments in telecommunications and data storage.  Less cumbersome cryptocurrencies may also gain traction if BTC becomes unwieldy, as some people predict.  Access to these technologies will be critical if BTC is to survive.  Creating a technological apartheid, where only a few, in select parts of the developed world have easy access to cryptocurrency markets, is not a libertarian utopia.

Interesting times ahead.

Fri, 12/13/2013 - 21:09 | Link to Comment lasvegaspersona
lasvegaspersona's picture

at FOFOA's blogspot site this is the major question we try to answer. We think the answer is a system that has been named freegold. We will see the collapse of the current fiat system. What will be left on the world's central bank balance sheets will be gold and a few other rare assets. All paper currency will see ruin when the dollar tanks as most of the CB balance sheet consists of paper (backed by dollars) and gold. The Euro has about 50/50 gold and US treasuries.

With paper gone, only gold will be on those balance sheets. For gold to function it will have to be at a very high value. With the dollar gone you won't be able to express it's price in dollars per ounce. The ECB could offer to buy gold at the physical market and establish a price that way. If they did we would know it's price in Euros. China could do the same and I expect the USA would follow with it's new dollar.

In the case of the USA, the treasury would have to move it's gold to the balance sheet of the entity running the new currency. Gold would be the way settlement occurs and the way CBs defend their currency.

Fiat has become too easy to use in world commerce. It is not going away. As much as we see the bad things the printers are doing today, at least in the new system they will be constrained by gold. If they over print the price of gold will go up in that currency.

Savers can save in gold and be assured of stability for if the currecny zone abuses the power of the press their gold will increase in price in that currency.

We think the Euro was developed for this reason and that this is likely to happen. We watch as the last of the physical gold moves out of the last known available hoard, the GLD inventory. It has dropped from 1350 toms to 827 tons in 11 1/2 months. At this rate we could wait as long as 2 years for it to go away. Some of us think it will be sooner. China seems to want gold, ever wonder why they don't just buy it all? They have 1.3 trillion dollars to buy it with. Maybe they can't have it. Maybe it is already reserved for someone special.

Anyway, it is worth thinking about. Fofoa's guess on gold's value is about $50,000 2009 dollars per ounce (equivalent purchasing power). If he is correct it will be a good thing for physical gold holders and an even better thing for the Central Banks. As the system dies my guess is that these things are being given a good deal of thought.

Fri, 12/13/2013 - 20:48 | Link to Comment mess nonster
mess nonster's picture

Barter faires were an inland NW phenom in the 80's and 90's. Then the IRS came in and began to hassle the promoters- the IRS would find (or make) a "leader" and then charge that person a made-up  (but still owed) tax on all goods bartered at the barter faire. Of course, the number of barter faires collapsed to... one- the Tonasket Barter Faire is still going strong. Anyway, it's how the govt fucks real people over. Just a bunch of hippies trading potatos and honey for home canned tomatoes and goat cheese. Fuck Reagan and up the line to now.

Fri, 12/13/2013 - 20:29 | Link to Comment I Write Code
I Write Code's picture

After financial collapse chop wood, carry water.

Fri, 12/13/2013 - 18:14 | Link to Comment michael_engineer
michael_engineer's picture

No mention of Executive Orders in the text.  I think there is one that spells out possible contentions and conditions for the next paradigm.

Fri, 12/13/2013 - 17:26 | Link to Comment DOGGONE
DOGGONE's picture

Candidate:
LET'S TELL THE F___ING TRUTH
http://patrick.net/forum/?p=1230886

Fri, 12/13/2013 - 17:03 | Link to Comment falak pema
falak pema's picture

don't shed your tears on illusions. You sound like a libertarian who has realised that ROn Paul is not immortal; like those guys who felt the same way about "MAdiba". 

What happens after the financial collapse?

If we're dumb its WW3 if we're smart it will be a new deal...

Fri, 12/13/2013 - 22:50 | Link to Comment NIHILIST CIPHER
NIHILIST CIPHER's picture

falek pema           Know your illusions when you see them. Read Albert Pikes letter to Mazzini, I believe the year was 1871 which lays out the three world wars. The first two have gone completely according to plan and the third world war backdrop is right to the letter. You will get what they plan for you.

Do NOT follow this link or you will be banned from the site!