Capitalism is under attack. Our economic system is blamed for the growing imbalances in our economy. However, capitalism is not to at fault; our monetary system is.
In 1971 the gold standard was abolished, and the world entered the FIAT currency era. Since then, there has been very limited control over the supply of money.
Governments and banks are now able to create money at will by issuing new debt. As they both have obvious incentives to create more money, a lot of debt is created.
The global debt is now at an all-time high at more than 300% of GDP and is increasing exponentially. In 2017 alone, global debt increased by 7 times more than economic growth.
When we create more money than economic growth, we experience what we refer to as inflation. The prices increase, but no real value is added. In 2017 the global GDP was 79 trillion and there was created 21 trillion in new debt, i.e. new money. Economic growth was 2 trillion. This leaves 19 trillion for inflation. Only 3 trillion of this went to inflate consumer prices, which is the only inflation measured. A staggering 16 trillion went to inflate other markets, such as real estate and stocks. This shows us that having an inflation target could be very problematic as most people don’t spend excess money on consumer goods.
The hyperinflation in these markets is a key driver for the fast-growing inequality because these markets are a lot more accessible to those with a lot of money in the first place. Most people have bills to pay and don’t have the excess money or the knowledge to speculate.
When dept is created, interest pours into the financial sector, and this attracts both human capital and investments. Smart people find smart ways to sell money to each other instead of creating real value. Investments go towards bidding up financial prices instead of growing the economy. The financial sector, which should be a service and facilitator for other sectors, now grows rapidly at the expense of the rest of the economy.
Subsequently, the economic growth has more halved since we got rid of the gold standard. We have made a smaller cake which is shared more unequally.
To sum up, we experience imbalances and a slowing economy largely because we after abolishing the gold standard, have very limited control over the supply of money.
Bitcoin is often referred to as digital gold. Due to its unpolitical and trustworthy nature, a lot of people think it will take the same role as gold had as a world currency. With its fixed supply of 21 million coins, there is undoubtedly full control of the supply.
The problem is that when there is less money created than the economic growth, the amount of money compared to the economy will decrease. This forces the prices to fall and we experience what we refer to as deflation. Deflation is even worse than inflation. When prices fall, no one is willing to invest in anything other than the currency and the economy breaks down. Bitcoin is great for speculation, but only anarchists will want it to become a global currency.
Concluding that inflation and deflation are bad leaves us with only one option, keeping prices stable. This is obtainable by creating money at the same rate as economic growth. By linking the currency to GDP, money will be a pure representation of real value.
As we, until now, have no real definition of money, it makes a lot of sense to tie it up to the economy in order to make its value easy understandable.
Linking money to GDP will also ensure that money goes toward productive investments as all other prices would stabilize. This will discourage unproductive speculation and lead to optimal allocation of resources, thus the highest economic growth possible.
We actually tested this during the gold standard, when we, by chance, produced new gold at approximately the same rate as the economic growth. This is the unknown reason why the gold standard kept prices stable over time and balanced the economy. However, the production of gold did not follow the economic growth exactly and was easy to cheat on.
Globe is a perfection of the gold standard and will serve as an unpolitical and trustworthy world currency and a safe store of value.
Globe also works as a digital benchmark for how national currencies and monetary systems should be managed in order to ensure the greatest social and economic benefits.
Prizing commodities and doing large international trades in Globe will increase trust in the global market and free the world from today’s dollar dependency. This has never been fair, especially now as the US has gone from being the world’s largest creditor to the world’s largest debtor.
The restraining money creation will also prevent structural trade deficits that have caused the many nations working classes to be forgotten and the ongoing trade war.
Nations will no longer be able to run continuous budget deficits running trade deficits by borrowing money instead of collecting taxes. A moral hazard that has led a lot of western countries to borrow money from their future generations.