Joe Barbieri
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Currency Wars, Deflation and A New Paradigm

Currency wars and deflation are back in the news again. Deflation is when the prices of goods continue to descend, leading to less investment, less growth and less production. This spiral continues until there is a great depression and some sort of new beginning is created in the financial system. A currency war is designed to fight this possibility by issuing more and more currency units into a given economy. This is done through inflating the debt or money supply combined with very low interest rates. This is supposed to ignite investment and spending, thereby reversing the specter of deflation.

There are numerous problems with the results of this strategy so far. The devaluation of the currencies done on a global scale will have the competitive advantage of devaluing a currency cancelling out. This happens because the value of a currency is measured relative to other currencies, not to what an economy actually does. All of the currencies will go down further and further in value leading to all of them becoming worthless. Should the devaluing plan actually work and inflation is ignited, the massive amount of debt that is currently in the system will have to be paid back. Since the debt is so large, paying it off would result in shortages of money in the rest of the economy leading to a great depression. If interest rates are increased to “normal levels”, the same result applies. Should the debt be forgiven instead and banks go bankrupt because the size of the debt dwarfs any real assets that the banks have, there will be colossal bank failures worldwide and a great depression.

This is where the new paradigm fits in. There is a saying that what you fight persists. If you continue to fight deflation and not solve the underlying problems, the situation will become unsustainable and some kind of shutdown and rebalancing will have to take place for survival. A new paradigm allows this change to happen peacefully and smoothly, but people have to embrace a new way of doing things. What does it look like? Money used to be valued on what the economy actually can produce. If the economy produces less and less each year, this is acceptable if the constituents that the economy is meant to serve are taken of. Infinite growth is not sustainable and in fact is dangerous. A perpetual balance that serves everyone and everything involved should be the new basis for an economy. Where does everything come from? Nature of course. Why not have the preservation of nature as the ultimate guarantee of production and sustainability? Nature has been the essence of the economy all along but our systems have forgotten this and are focused on numbers, measuring units and profit rather than the actual purpose. Why not redesign a paradigm to align with how things actually are?