Money & Markets: Government money makes the world go round

Money moves like honey: it flows and quickly gets everywhere. As the proxy for almost everything, money is an unstoppable force. So, when money sluice gates are opened as they have been all over the world, the cash floods into all sorts of nooks and crannies.

Helicopter money, an idea coined by a previous Federal Reserve Chairman, has arrived around the world in the form of handouts, to a broad range of participants from mighty corporations down to individual citizens. This is an attempt to keep the world’s economies from spiralling into a vicious circle of collapse. It’s a high-risk gamble.

So far printing near infinite amounts of money has worked a treat, and it fills a money vacuum of there being a shortage of money to fuel the new economy. This shortage has been caused by a collapse in the velocity of money, which engineers can think of in terms of a drop in economic voltage. This money voltage drop is likely fixed by now with the vast shock therapy of central banks buying up assets at a furious rate with freshly minted money. Even if more money still needs to be magicked from the magicians of governance, the new money so far created will tend to rush into assets because the resources are not distributed by the invisible hand of economics but by the dumper truck of a centralised power.

This means assets jump in value or the value of money falls or both. There is no smoothing by the hive mind of commerce or by the passage of time – boom, the hose of new money is directed into the fat ditches of finance to gush into whatever gully can channel the flow.

The outcome is volatility and bubbles.

So there are two mighty bubbles under way: the stock market and cryptocurrency.

The bubble in the stock market is paying technologists and engineers off royally as any programmer in Google, Facebook or Amazon will attest. Meanwhile at the spicy end a phenomenon called SPACS is driving a whole new generation of newbie speculators insane. A SPAC is a Special Purpose Acquisition Company, beloved of the financial mania that put the bubble into stock market bubble, the South Sea Bubble. Back then there were companies formed “for a project which shall hereafter be revealed,” now today they are called SPACs for ‘blank cheque’ companies which amount to corporate vehicles with a big bag o’ cash to go out and buy something spicy.

As with the South Sea Bubble, the operative word is ‘Bubble’ and as such it is no surprise that SPACs are crazy about electric vehicles. So much to the good because speculators love risk, and risk loves technology, and those technologists sure need piles of cash to land their rockets backwards from space on a barge floating in the ocean, let alone junk the fabulously historic and powerful internal combustion engine. The bubble will burst, as did the bubbles in tulips, railways, canals, cars, rubber tyres, electronics, telecommunications and the internet, but while money burns easily technology is nigh on impossible to eradicate once it has escaped its Pandoran box.

When the crash comes we will only be another generation away from the next, when a new cohort of day-trading kittens will have yet to experience the downside of jumping onto the hot stock-market stove.

Which segues nicely into crypto, which has been alluded to in previous columns, exploded into new levels of preciousness. The fiat money has gushed into crypto of all shapes and sizes because it has to go somewhere, and anyone old enough to have experienced their money turned to ashes by inflation (and you don’t have to be old at all in many parts of the world) knows that anything anywhere is a better place for your wealth than government confetti.

Meanwhile the march of blockchain continues. First it was token money with Bitcoin. Then those crazy software engineers came up with Ethereum, an internet distributed computer about as powerful as your last-gen iPhone. Now arrives the third generation, decentralised crypto computing that has morphed into systems that can run robo-banks, stock exchanges, insurance companies and utterly unimaginable financial services which float disembodied like some William Gibson Cyberpunk imagining. To top all that, it is clear this is just the early days of developments that will cascade into every aspect of our lives, making the web’s disruption of the status quo look like a prelude.

You have to love a bubble, because there is always a way to profit from it so long as you know that it will crash and burn and that out of the ashes a spectacular phoenix will rise that will drive the next economic cycle to higher highs.

Word peddlers hate numbers, whether it’s in science or in finance. They will be howling soon enough, that the crash when it comes wasn’t fair and wasn’t necessary. They will cry that it shouldn’t have been allowed and that somehow, next time it can be different, if only they stop this, tax that, hold some scapegoat accountable. But what will have actually happened is that after the phony tide of money hosed indiscriminately into the economies of the world by our governments sinks into the sand, what will be left behind on the bedrock will be the glittering gold of invention.