Cooperation vs Competition

Sometimes I wonder what world people live in, because it sure doesn’t seem to be the same one that I live in. The aspect I’m thinking about today is that of competition vs cooperation.

I often hear people talk about the “cut-throat competition” of the economy and the “dog-eat-dog” nature of business. While it is true that some businesses compete, this really seems to miss the big picture.

Every company that I’ve ever worked for cooperates with far more businesses than it competes with. For example, we might have 4 or 5 businesses that we compete with, and you might describe that competition and fierce. But we probably cooperate with a hundred times as many businesses: starting with the businesses that built the buildings we use, the businesses that run the water and electrical services, the businesses that do our payroll and taxes, the businesses that built our computers and run our internet, platforms that help us with online commerce (like Amazon), the companies that made all the software we use, the companies that deliver our email, run our ad campaigns, and help us market to our customers. There are companies that build our phones and run the cell networks, there are the companies that bring us gas to put in our cars so we can actually get to work, companies that cook and bring us our lunches, the companies that made our furniture. I could go on and on and on.

Where other people see “dog-eat-dog competition,” I see an incredible web of cooperation – there are probably a hundred companies with tens of thousands of employees that support us directly, and that’s not counting the companies that support those companies and their employees! When you get down to it, there might be a hundred thousand people in the business of helping us (and others) run our company. It’s a truly remarkable, incredibly beautiful, and almost unnoticed phenomenon. It is, in fact, the basis of our civilization.

So the next time you hear someone talking about the cut-throat competition in the economy and whining that “if only we could learn to cooperate”, remind them that they are focusing on 1% of the picture and ignoring the 99%. Open your eyes to the amazing beauty of cooperation!

The Chart No One Talks About

In this era of Uncharted Financial Conditions, there’s one indicator that no one seems to talk about, but it sure seems important to me. That’s the Fed’s Excess Reserves in the Banking System chart.

So what are excess reserves? Banks have to keep a reserve of about 10% on the loans they have outstanding. That is, if they have $10 billion in loans out to customers, they need $1 billion in their account at the Fed. If they have $2 billion on deposit in the Fed for those $10 billion in loans, that means that $1 billion of it is “excess reserves”.

As you can see in the chart above, for decades banks kept as little excess reserves as possible. That’s because they didn’t make any money on excess reserves; only when they lend out the money did they actually earn any interest. Until the financial crisis of 2008, excess reserves were consistently at $1-2 billion; practically zero for the financial system.

When QE and ZIRP and all that nonsense started, excess reserves rose to higher than $2.5 trillion! This is astounding in light of the fact that the Fed’s balance sheet only expanded by about $4 trillion – $2.5 trillion our of a total of $4 trillion went into the banks’ account at the Fed and just sat there, never entering the economy. This, I believe, is one of the factors that kept us from experiencing price inflation when the money supply base was expanded so recklessly.

But wait, you might say – if the banks don’t make any money off excess reserves, why don’t they lend them out and make some money? The answer is that in 2008 the Fed started paying interest on the excess reserves of banks.

Ok, so think about that. The Fed creates “funny money” out of thin air, and gives it to the banks. The banks deposit the money at the Fed and the Fed starts paying them interest! I just want to say, that I would be very happy to park a trillion dollars in my own bank account if I can keep the interest on it. Please send me a check. This has to be the most bizarre racket for making money that I’ve ever heard of. When the banks need taxpayer money, the Fed has so many ways of funneling it to them. And they wonder why the 0.1% get richer – it’s easy to get rich if the Fed wills it so.

I’ve been watching this graph for years, and wondering if we’ll actually have the recession while the amount of reserves is falling. My understanding is that the banks are lending it out, which increases the amount of money in the system. In fact, one dollar of reserves can back ten dollars of loans in our fraudulent fractional reserve system, so as the reserves are drawn down the amount of money in the system keeps expanding rapidly. Once excess reserves are back down to normal, historical levels of $1-2 billion, that’s when I think a real financial shock will happen. In order to keep the money supply inflating at that point, the Fed will have to go back to some sort of QE or other money-printing operation. At some point, people are going to lose faith in the dollar and flock to gold, crypto, or some gold-backed offering from China or Russia. That will be a very dangerous time in many ways.

At the time of this writing (June 2019) the Fed (and other central banks) are actively plotting flooding the system with more funny money. It’s as if they are actively plotting the complete destruction of the world’s financial systems. For the next QE, I think it would be totally cool, and much more in line with reality, if they just declared that actual Monopoly money is to be taken as legal tender. Everyone who had the foresight to own a Monopoly game would get a huge windfall, and that would “stimulate the economy” (as any good central banker can tell you, printing more pieces of green paper makes everyone richer – it’s what makes the food grow and the timber for houses grow and harvest itself!).

Why We May Never Be Free

The history of humanity is that of ruler and ruled, oppressed and oppressor, the dominant and the dominated, etc. I long for a better system, where individuals are free to live as they choose without coercion.

However, sometimes I worry that human beings will never be free. There are a lot of factors that lead to the dominance hierarchy.

• First, humans are primates, and primates have hierarchically organized social systems. We are hard-wired to either follow the alpha, or be the alpha if we can.
• For many people, freedom is too much work. They are quite happy to give up their freedom and essentially become slaves, so long as they have a nice TV and enough money to buy beer for the weekend. Maybe go to Hawaii every year or two.
• Decision fatigue. It’s hard to run your own life; you have to make decisions that are difficult and could have adverse consequences. Rather than take that reponsibility, many people are content to let the government or their company make the decision for them.
• Humans are easily propagandized and influenced. For a century, the powerful have studied the science of propaganda and influence and have really made it powerful, subtle, and irresistable. You can be sure they are not using that power to make you a free-thinking and noble individual.
• Power corrupts. People in power end up wanting more power, and power corrupts them. The phrase “drunk with power” is not a metaphor; individuals’ judgement is severely affected by power, and they become bad actors.

With all these factors acting against us, I sometimes despair that we’ll ever throw off the yoke of the tyrant. Maybe someday…