Guest Comment by Ernst Wolff
Ten years after the near-collapse of the global financial system, the business and financial world is once again like a casino. The reason: The money printed to save the system, which was inserted at ever lower interest rates – the main part of this money didn´t flow in the real economy, but in the financial sector.
Since the money is not given away by the central banks, but lent, we are currently dealing with the world’s highest debt of all time. And because most of the money goes into speculation, stock, bond and real estate markets are now enjoying one course record after another.
The Run on the Crypto Currencies
On the one hand, the resulting mood on the stock markets means that new money is always being lent and used to participate in the alleged gold rush. On the other hand, there is a feverish search for new possibilities to create further profit opportunities before the end of the intoxication. Business models that bring investors to drive the prices up to new record levels by outperforming each other are particularly successful. An extreme example of this is the Crypto Currencies, especially Bitcoin.
Until some time ago, the Banks still flatly rejected the Crypto Currencies. They feared that the underlying blockchain technology (sending money directly from the sender to the consignee without having to go through the banks) could make Banking obsolete. In the meantime, however, the banks have changed their strategy and are trying to earn money from Bitcoin intoxication. Even the Chicago Mercantile Exchange will enter the Business and offer Bitcoin-based derivatives by the end of the year.
But this only shows that the speculative delusion knows no bounds anymore. Bitcoins and other Crypto Currencies are not Currencies in any case (ie, warranties for a value), but artificially created speculative objects that are not bound to any real value (ie, a commodity produced by means of human labor such as a precious metal coin).
A look into the story
It is worthwhile to look back at the historical origins of currencies in order to understand the relationships: In the distant past, only commodities were exchanged for commodities in markets. As this became too time-consuming, precious metals in the form of coins were used as a medium of exchange. Later, the paper money was introduced.
Both coins and notes had one thing in common: they represented real values. However, the introduction of paper money made it possible to generate more money than was actually covered by goods – the birth of inflation. As a result, the purchasing power of the single coin or the single note decreases when uncovered new money is put into circulation.
Since the introduction of electronic payment transactions, the creation of money has finally no limits. For example, since the 2008 crisis, central banks have created between $ 14 and $ 16 trillion in unsecured new money worldwide, and to a large extent flowed directly into the financial casino.
No value is created in the financial sector
In the financial sector only money changes hands. But since the whole system is credit-driven, new money is constantly needed to service interest and clear debts. Because of the largely stagnant global economy for years and the very low added value since 2008, the central banks jump in and create new money – without any material value.
This artificially fueled cycle inevitably leads to a devaluation of the money and ultimately into hyperinflation. So far, however, this – due to the low mass purchasing power (mainly due to the austerity policy) – is hardly reflected in everyday life, but even more so in the stock, bond and real estate markets, where prices are booming.
That Bitcoin and the other Crypto Currencies are experiencing such a gigantic boom right now is mainly because they represent the last and highest form of financial speculation: Derivatives (“derived” financial products) had at least an indirect relation to real values. Crypto Currencies are absolutely synthetic products that have nothing to do with the real economy at all.
Crypto-currencies are nothing but the ultimate logical consequence of the explosion of the financial sector. Depending on how long the current central banking system of financial manipulation still exists, their course can continue to skyrocket and set new records. This does not show how valuable the crypto-currencies are, but proves how little our money really is worth.
As the global financial system (“house of cards”), which is currently under constant pressure from the central banks, collapses – and it will do so with 100% certainty – Bitcoin and Co and the rest of the artificial financial products will be reduced to their actual value. And this is – because of the lack of coverage by a real value – at zero.