It is said that the Japanese poet Kobayashi Issa wrote this haiku upon the death of his daughter: "The dewdrop world is a dewdrop world, and yet, and yet......." (tsuyu no yo wa tsuyu no yo nagara sari nagara). It is poetry at its best: it hints at much more than it says. Here, I start from this poem about dew being an incorporeal thing to examine how another incorporeal thing, such as money, can affect us.
A few days ago, I was looking again at the presentation that Nathan John Hagens produced for the Earth Day of 2021. I had watched it when it appeared, but something made me return to it. It is a long story, but the point that remained in my mind is when Nate shows a graph with a clear "Seneca" shape for the global oil production curve. That is, something that grows slowly, then declines rapidly (at minute 38 of the presentation). Later, at minute 44, he shows a similar curve for the GDP.
Nate attributes the slanting forward of the curve to financial effects. My first reaction to that was that financial tricks, in themselves, do not produce oil (and can't raise the GDP, either). How can a basically non-existing thing such as money, mainly numbers stored in computer memories, affect the real world in such a way?
But, rethinking the matter, I am not sure anymore that the financial world really is an ethereal and inconsequential thing. Maybe it is the opposite. As I learn more about more things, I am always surprised by what I discover. My latest epiphany came from a talk given by Fabio Vighi, who teaches at the University of Cardiff, about a correlation between the lockdowns of 2020 and the global financial situation and, in particular, of the "REPO" market (you can find his take at this link).
I must confess that I had no idea of what the REPO was, not even that such a thing existed. Now, I know that it stands for "Repurchase Agreements" and I think I have some idea of how it is supposed to work. Basically, it is a market where financial operators can resupply with money by borrowing it. Where does that money come from? Typically, financial firms with large pools of cash do not want to let that money sit around, so they lend it to financial institutions, banks, at low interest rates. Then, the banks will use this money to fund short-term needs. The REPO market is a short-term thing.
I am far from having assimilated the obscure mechanisms operating inside the entrails of the REPO market, but this much I can understand: it determines the cost of money. Now, connect this concept with the real economy. The economy is made out of real things: resources, materials, equipment, goods, people, and more. And everything in the economy is subjected to depreciation (a name that economists use for the thing that physicists call entropy). If you want to fight depreciation (entropy) you must expend energy. (you can do that in an open system -- in closed ones, entropy always increases, but this is not the case for the economic system.)
So, to keep the economy running, you need energy. In order to get energy, you need energy (you probably heard the concept of "energy return on energy invested", "EROI"). But, in order to get energy to be invested, our economic system is geared in such a way that you need that non-physical thing called "money." No money, no investments. No investments in energy, no production of energy.
What if there is no money? Energy is not produced. Then people become very poor, and many die. Incidentally, it also happens that the rich get richer, but that's another story. Apart from the rich, the poor slide down the downward step of the curve: the Seneca Cliff. I do think that Nate is right in his interpretation: the Seneca Cliff would arrive even independently of financial factors, but financial factors can make it steeper. Money doesn't create resources (as economists are fond to say). But it can direct more resources to exploitation, making it faster. That gives people the illusion that there is more of it.
You see how everything is connected: our fate is determined by such mysterious things as the one called the "REPO market." Then, something horrible happened in 2019: a cash crunch caused the repo rate to soar — reaching as high as 10 percent intraday on Sept. 17. It pushed up the federal funds rate to levels much higher than it was supposed to be (between 2-2.25 percent) at the time.
The interesting thing about the story is Fabio Vighi's interpretation that the lockdowns of 2020 were the result of the attempt of the powers that be to cool the REPO market and avoid a financial Seneca Cliff. If this was their aim, they succeeded spectacularly.
Note how the REPO rate went down from the Spike of September 2019 to a very low, and apparently stable, level in 2021. So, Fabio Vighi's interpretation could make sense. But can it be true? Personally, I think it might well be the case, but it is also true that correlation does not mean causation and the spike disappeared much before the lockdowns. On the other hand, the powers that be may have been scared enough that they put into practice an emergency plan they had concocted long before. Whatever the case, they will never tell us the truth.
The thing that doesn't cease to amaze me, though, is how it is possible that humans placed themselves to me so dependent on the thing called "money." It is an ephemeral entity that has no physical consistency. I can also understand that small disturbances in the repo (and other money) markets can ripple through the entire system. The physicists call this the "butterfly effect" and you know how small perturbations can send huge systems tumbling down to their doom. Money has no more consistency than the morning dew. And yet, and yet......
Take a look at this incredible painting by Quentin Matsys, "The Money Lender and His Wife." painted in 1514 and representing two burghers of Antwerp, the ancestors of the people who have been playing with the REPO market in modern times. Just like Issa's poem, this painting hints at much more than it shows, but in the opposite way. Whereas Issa hints that the world is not real, here we see it as even too real. Reality is gold coins, much more important than the book of devotions that the wife of the banker should have been looking at, but she is not. Yet, the true value of those coins is all in the minds of people, by themselves they are not worth more than dew in the morning.
You can find Nate Hagen's 2021 posts at https://www.thegreatsimplification.com/
A more recent documentary is at this link: https://www.youtube.com/watch?v=g0w3GfW240M