Ask any man, woman, or child what defines a healthy relationship and they will all answer the same thing: trust.
The funny thing about trust, however, is how quickly it vanishes.
It can take years for people to fully commit to one another whether it be as friends, as lovers, as neighbors, as business partners, or any other meaningful arrangement.
Nations and societies act in much the same way as individuals. After all, they are merely collections of individuals.
There is a process of vetting out the other entity prior to making the commitment to engage in trusting them. This vetting process can take several weeks, months, years, or even decades depending on the circumstance.
Two people will normally require a series of dates in order to feel comfortable with one another. On the other hand, nations will generally require decades of trade, cooperation, and likely a war fought as allies in order to feel comfortable with one another.
This process is slow and gradual.
However, once your friend lies to you, your lover cheats on you, your neighbor steals from you, your business partner goes behind your back, or any of the like, it’s very likely that all of the expended effort and time that went into building up this mutual trust will be lost rather quickly.
Then it is back to square one.
With growing instability in our world, it’s no secret that both individuals and sovereigns are beginning to doubt the structural integrity of the global order we have enjoyed since the World Wars.
Analogous to our dating scenario, sovereigns are beginning to think that their significant others (allies, neighbors, trading partners) are cheating on them.
This is evident via the sabre rattling, the focus on trade differentials, social friction, identity crises, polarizing politics, you name it. It is most evident in the markets via USD strength – try UUP as a proxy.
What it all distills down to is a loss of trust.
It is an interesting thought to think we are already in a period of war. Wars are actively being fought here.
Due to the desperation of legacy medialosing ground to the internet, there is also a war being fought here.
However, the highest volume of warfare is taking place via cyber.
War is the primary means we have to build up trust on a global scale. Wars have clear winners, clear losers, and as the saying goes, the winner gets to write history. The line between winner and loser has been graying over the years with the proliferation of proxy wars, globalized economics, the transfer of ideas via the internet, and more broadly, via an increasingly interconnected world.
That is not to say that war is obsolete. In fact, as history shows many well-renowned people in high places were saying exactly this in the build up to World War I:
"Economies are too interdependent on one another for any one nation to want to attack another..."
We all know how this argument aged. Not well.
Yet, what is clear is that a war is currently being fought in the domain of cyber. What I find fascinating in this is that while we are actively living through numerous physical conflicts and a cyber war, we are also seeing the systems to potentially restore trust constructed simultaneously.
To my knowledge, this has never happened before in history. Usually this process of re-establishing a system of trust does not take place until the victor of the war emerges and creates a roadmap for all to follow.
Is this due to our world being more interconnected and ambiguous than ever, with lines graying all over?
Is it possible that the gradual process of re-establishing trust has already begun via the discussions and developments taking place around decentralized, distributed ledgers, and more broadly, mathematical systems aiming to minimize human oversight?
What this technology offers is a means of establishing a new Bretton Woods, a new Plaza Accord, a new Petrodollar, a new Eurodollar market, a new credit swap system that is frictionless and global in the truest sense of the word all while minimizing the effects of human tampering.
This last point is really the key: global means more access for individuals currently outside of our economy, which means more capital inflows – both human and financial capital.
Sure, we are in the early stages of this technology and this line of thinking, but name me a more promising prospect for settling global trade and finance. I await patiently.
Due to debt, demographics, and an incredibly technology-dependent world, deflation seems a sure outcome to expect in the years to come.
However, central banks have the ability to create money out of thin air (debase the currency) and as technology evolves it will incorporate more of the 2 billion unbanked and "unproductive" into the global economy, which will lead to increased production and capital formation.
These are two very powerful factors to argue for inflation, albeit on two very different time horizons.
Either way, the path has been cleared for trust to break down while, simultaneously, the solution to restore and/or create new systems of trust are just entering the scene and going through first iterations.
Exciting times that will require anyone serious about creating or preserving wealth to remain agile, open minded, and independent.
DISCLAIMER : This content is for informational, educational and research purposes only. This post is not to be taken as personalized investment advice.
Good article. Many interesting points made. Ironic that Bitcoin and other crypto currencies are built on the premise of "trustless" blockchain ledgers. Is the real answer "trust no one"? One has to wonder. The only thing that seems predictable in life is that every entity (person or corporation) will act in it's own perceived "best interest". Those "best interestes" aren't always financially based and many "human factors" -ie friendship, love and lust - are involved in the equation.
Certainly a complex topic to cover. As I like to remind myself, anything and everything built by man will have its flaws. Yet, what is clear is that better solutions exist for global economics, value transfer, and store of wealth. These solutions will revolve entirely around trust, just as they always have before.
The name of the game is shoring up our economies because it's the most pragmatic way to affect change in human quality of life. All this at a time where the current system is fracturing. Thanks for your comment @nateinsav.
"When a man's got money in his pocket he begins to appreciate peace."
The problem with the current "system" is that it seems to be designed to keep a man from having "money in his pocket"... By proxy very little contentment or peace - internal or external.
Exactly right. Rather than having money in their pockets (or the ability to generate capital), they have debt. And this proxy is manifesting itself in a wide variety of social, political, spiritual, mental et. all issues. And the media just deflects and directs all of this misguided energy towards Trump rather than having more productive discussions on the source of the issues.
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