When the Whip Comes Down
The money system today is not quite the money system of a century, fifty, or even twenty years ago. Fundamentally, we still have a bank-debt money system. Money is lent, debt is created. The banks can then account this debt as new money and lend it again and again and again, more and more money is created.
The greatest power in any money system is who has the ability to create money. We give the banks a monopoly on money creation. And yes, bank-debt money creation is simply an accounting trick. Today, the vast majority of banking and thus money creation in the US is controlled by a half-dozen banks.
Banks entire reason to be, their existential worth so to speak, is based on lending, creating debt, then leveraging that debt into more debt. This money process offers no attached value except that of the debt being paid back. Debt paid back is good money, if not, well, that’s not so good money.
This money creation process is known as fractional reserve banking. Over the years, we learned but then regressed, the way to make a bank-debt money system stable is by restricting leverage. We made the banks keep a certain percentage of money in reserves. This money can’t be leveraged.
The Federal “Reserve” System was established to provide reserve stability for the entire banking system. Unlike the banks, the Fed doesn’t create money through leverage, they create money out of thin air – the horror, the horror.
In the last decades, “shadow banking” was innovated. Everything known as financial "innovation" is simply more leverage. In ‘08, it was revealed the banks, looking to avoid regulation, were all part of shadow banking. It’s worse today. The ‘08 money crisis was addressed and subsequently reflated with even greater leverage.
More debt requires more bonds and I'm not just talking about Treasuries, though they are essential, but corporate bonds. The difference between stocks and bonds, bonds are part of the money system, stocks aren’t. Thus, like in ‘08 when you have a crisis in bonds and whatever idiocies such as derivatives attached to it, that’s a crisis of the money system.
Which gets to our latest leverage binge, larger than any previous, some might call it unprecedented. It's piled atop the mountain of debt building not for the last twenty, but the last fifty years. This binge is the financing for the latest generation of compute marketed as AI (In the words of Dr. Collier, "These machine learning tools are not artificial intelligence. And yet, we're all just deciding to call it artificial intelligence. Does AI exist? No, but like fuck me, right?").
Yves at Naked Capitalism has good look in AI Off-Balance-Sheet Obligations.
Another good source is Ed Zitron. He's specifically rigorous on the AI debt count. Here’s an Ed video. I think Zitron is spot on crunching the numbers on AI debt, though a little too dismissive of the technology.
No one can say compute hasn't significantly changed a lot of things over the last 75 years, this generation of compute will too. The questions are what and how to use this technology. To let a handful of asocial and completely amoral technologists decide what is to be, concentrating ever greater power, and allowing them to grab mountains of money, well, shame on us.
There’s all sorts of problems with what and how they want to deploy all this. The first being the system architecture of massive centralized data centers. Zitron is spot on regarding what presently is being done and that the debt piling up to do it simply doesn’t’ add up. What Zitron’s been saying for the last half year or so, none other than The Economist recently pilfered and put in their pages a couple weeks ago.
Also, I recently found Eli the Computer Guy. He’s a certain archetype of many people I’ve known over the years in the industry. He knows both the industry and the technology. He's a good touchstone about what the technology is actually being used for and the various corporate skullduggeries in play. Eli completely agrees with Ed that the money just doesn’t add up.
The great irony, money is first and foremost an information system. Questions on the futures of both compute and money are increasingly directly tied together. The biggest questions are those of value. Here in the 21st century, our new compute and old money systems are at best insufficient value measures. At worst, they are both destructive on a planetary level.