The Future is Blivets
If you have been paying attention, you may have noticed that the global financial markets are currently in meltdown mode. Apparently, the world has hit diminishing returns on making stuff. There is simply too much of everything, be it oil wells, container ships, skyscrapers, cars or houses. Because of this, the world has also hit diminishing returns on borrowing money to build and sell more stuff, because the stuff we build doesn’t sell. And because it doesn’t sell, the price of stuff that’s already been made keeps going down, lowering its value as loan collateral and making the problem worse.One solution that’s been proposed is to convert from a products economy to a services economy. For instance, instead of making widgets, everybody gives each other backrubs. This works great in theory. The backrub industry doesn’t generate an ever-expanding inventory of backrubs that then have to be unloaded. But there are some problems with this plan. The first problem is that too few people have enough money saved up to spend on backrubs, so they would have to get the backrubs on credit. Another problem is that, unlike a widget, a backrub is not a productive asset, and doesn’t help you pay off the money you had to borrow to pay for the backrub. Lastly, a backrub, once you have received it, isn’t worth very much. You can’t auction it off, and you can’t use it as collateral for a loan.
These are big problems, and one proposed solution is to create good, well-paying jobs that put money in people’s pockets—money that they can then spent on backrubs. This is best done by investing in productivity improvements: send people to school, invest in high tech and so on. It’s an intuitively obvious idea: productive workers are easier to employ than unproductive workers, because the stuff they make ends up cheaper, and people can afford to buy more of it. Whether they do buy more of it is debatable, especially if there is more than enough of it already and nobody has any extra money saved. Still, the theory makes sense.
But this theory doesn’t seem to be working all that well: no matter how much money we put into automation—robotic assembly lines, internet-based virtualization, what have you—the number of unemployed workers isn’t going down at all. And it’s even worse with driverless cars. In theory, they are great: if the driver doesn’t have to do the driving, then she can spend the time giving her passengers backrubs. But no matter how much money we throw at driverless cars, the number of unemplyed drivers, or unemployed massage therapists, isn’t going down.
But even if we give up on trying to stimulate demand through job creation and just let everyone starve, we can still put our faith in rich people. There are people who are as rich as entire countries! Surely they can spend and consume on everyone else’s behalf, and make the economy boom. But it turns out that it’s very hard for just one person to consume as much as an entire country. To make that happen, it’s necessary to pay people to consume on one’s behalf. But if other people can spend your money just like you, then that defeats the purpose of being wealthier than everyone else, and all that hard work of swindling people and of gaming the markets would turn out to have been in vain.
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But here is a solution that is so stunningly simple and elegant that somebody must have thought of it already. Alas, make a note: I am the first!
The solution is this: sell everything and go long blivets. Blivets are geometrically impossible objects: they can be drawn, but, by their nature, they cannot be manufactured. This solves a major problem with the futures markets, which is that people can actually take delivery of their futures contracts. This means that the stuff being speculated on actually has to exist. And this means that what some people have the audacity to call “the real economy” actually has to exist. What a nuisance!
For example, the gold futures market trades 300 times more gold than physically exists. [Update: the number just went up to 542.] This means that if just 0.3% [Update: 0.18%] of futures contracts resulted in deliveries, the vaults would be empty and there would be nothing to trade. The horrible thing is, unreasonable people, who take delivery of their gold, do exist: the Chinese, the Russians and various other nations with cash on hand or US Treasuries to liquidate keep doing this. Promoting “regime change” and looting various countries’ gold reserves helps a bit (Iraq, Libya and Ukraine have been looted already; Syria should have been looted by now if it weren’t for those pesky Russians!). But the eventual outcome of all this is force majeur: somebody wants to take delivery, but the vaults are empty.
A similar problem exists with the biggest futures market in the world: in crude oil. Here, traders have been having a merry old time taking advantage of a notional glut, driving the price of crude lower and lower. They could drive it as low as $1 a barrel, but then what? The problem is, nobody on earth can produce oil that cheaply, and so a day will come when somebody will demand delivery on their $1/bbl crude contract, and the only response will be an echo, as tumbleweeds blow across the abandoned oil fields.
You should have guessed the moral of the story by now: if you are going to “ephemeralize” the entire economy—the workers/consumers along with their productive capacity—you better switch to trading in things that are ephemeral too, or you’ll risk a market implosion, deflation, deleveraging and financial collapse followed by poltitical, commercial, social and cultural collapse in four-part cacophony with many screaming refrains and a shrieking, tumultous coda. I am not kidding. I wrote the book on that.