I can promise you right at the beginning of this article is already stiff drink time. This is going to blow your mind and it's going to piss you off. So sit down and buckle up.
In this article, I will explain what the Cantillon Effect is and how the rich are getting richer by this, why inflation is a monetary phenomenon, and what is the global elite secret agenda to produce an economic collapse.
The Cantillon Effect Explained
So, what is the Cantillon Effect?
The Cantillon Effect is the government and the Fed monetizing, spending money, and the money not being distributed equally. It doesn't go to everyone at the same time.
The government can come in and run huge deficits, and I'd like to remind you that the deficit for 2020 alone, just the additional debt the Federal government is adding to their balance sheet is equivalent to the combined total of all the debt the United States government accumulated between 1776 and 1996.
In other words, we are adding almost as much debt just this year as we did in the first 220 years of the existence of the United States.
Let that sink in a moment.
You may be saying: “George, that doesn't even make sense. Who would be crazy enough to buy that many treasuries and that much debt from your insolvent Uncle Sam?”
Look at the following chart:
We can see that buying from all the foreigners in the private sector is pretty much plateaued. The main buyer of treasuries is… You guessed it! The Fed.
The Fed is monetizing the debt. They're creating additional bank reserves to buy those treasuries when they're hot off the press, right at the auction.
There's a shell game at the primary dealer banks, but that's for a whole separate article.
Additionally, we have …
- The bailouts that we've seen over the past few months.
- QE infinity
- The repo market madness
- All of the four and five letter programs in bailouts the government is doing for corporate America. Of course, all of our favorites would be MMMFLF, the Money Market Mutual Fund Liquidity Facility.
That's it. These are all examples of how the Cantillon Effect starts. To understand this better, here is part of the documentary Hard Money.
Narrator: The Cantillon Effect is when you print and central bankers are providing more fiat, more liquidity into the system. They're doing it via financial assets.
The people who are benefited are indeed wealthy, but it's not specifically the wealthy people, it's more people who are friends with the money printers making money off the people who are not friends with the money printers.
Because, when you inflate the money supply, it's not Bernanke's helicopter where it just drops a hundred dollar bills on everyone.
Money is printed and first handed to a specific industry or group of people that the government, federal reserve, and commercial bankers choose.
Those people, because they now have more money, get to benefit from the fact that the rest of the economy has not adjusted its prices to that new amount of money.
Then by the time that ripples all the way to people like you and I, we have to just bear the brunt of the higher prices.
This is the thing about inflation. It's a wealthy distribution scheme, and you're taking from everybody else and giving it to yourself.
There's something really wrong about that, right? Who are the people that you see saying silly things like, “Hyperinflation is good for economies because it stops the concentration of wealth”?
They're the closest ones to the money spigot. They're the politicians and the socialized intellectuals. Of course, they have reason to perpetuate this nonsense.
I don't like to speak hyperbolically, but I find it hard not to call this the greatest con in human history.
I mean, they've been stealing vast swaths of our time, energy, effort, wealth just by tweaking the money supply.
(End Of Transcript)
The Cantillon Effect is pretty straightforward. The government comes in and spends money into the economy like a drunken sailor and the Fed monetizes the debt.
Additionally, they create massive amounts of base money through all the bailouts, quantitative easing, repo madness, etcetera. They create new broad and base money.
First, it goes to the political insiders, then, the financial insiders, and then, maybe to the subcontractors of the government and cronies.
Then it goes into the hedge funds, financial institutions, big corporations, corporate executives, and financial assets. Finally, it may trickle down to the average Joe.
The problem is by the time the average Joe sees any of the money at all, that's been created by the additional base money and broad money, inflation would have gone up so high that their purchasing power will be the same, if not lower.
That's how you get screwed through the Cantillon Effect.
A perfect example of this is the PPP loans that were part of the Cares Act, and the Fed coming and buying corporate debt.
They didn't do it directly, they went through some of their cronies, which is a great example of how the Cantillon Effect actually works. Check it out.
Here is a press release from April 23rd, 2020 from the Feds website:
What I want to point out specifically is the middle paragraph. “The SBA qualified PPP lenders” include depository institutions, such as banks and credit unions.
If we read between the lines, what this is saying is for mid-size and small businesses to get a bailout, they have to jump through all these additional hoops.
They have to go to their local bank, hopefully to get approved, and the bank is going to be understaffed because of COVID.
Then, they have to wait to find out if they've been approved, and who knows if that could take a month or two while in the interim, they're having a hard time keeping the lights on if not going out of business altogether.
Compare that to the financial insiders, the cronies, the people that have access to the Fed.
They don't have to go to their local bank to get bailed out because they just had lunch yesterday with Jerome Powell, almost literally.
They can call them on the phone and say, “Hey, we're screwed. We need a bailout.” They go directly to the Fed and get money immediately, so they don't have to worry about it.
While all of the average Joe's, the small and mid-sized businesses, have to jump through all of the hoops and just hope and pray that they get these table scraps.
But, there is more. Look at Barron's article titled “BlackRock is the Biggest Beneficiary of Fed Purchases of Corporate Bond ETFs.”
You might be saying, “How on earth does BlackRock benefit from the Fed bailing out corporations by buying their debt?” If you look right to the middle of Barron's article, it all starts to make sense.
The optics of the Fed's purchases of iShares ETFs are controversial, given that BlackRock is running the Fed's three debt-buying programs.
In other words, the Fed hired BlackRock to buy whatever BlackRock thinks the Fed should actually buy with this newly printed money.
What did BlackRock do?
Between May 12th and May 19th, they bought $1.58 billion in investment-grade and high-yield ETFs.
I know it says the Fed did, but let's remember it's actually BlackRock doing it.
I'm sure you'd be shocked to find out that BlackRock has many of the largest investment-grade and high-yield ETFs. Wow. Surprise, surprise.
What's happening is the Fed is giving all of this money to BlackRock and they're going right around just buying their own ETFs.
This, ladies and gentlemen, is how the Cantillon Effect works.
The first takeaway can be illustrated by this chart.
Starts off at the bottom, one day goes all the way to, let's say, five years, that amount of time isn't that relevant.
On the left, there is M2 the money supply in the commercial banking system. I want to be specific with that and it gets really nuanced, but again, that's for another article.
We're going to leave the minutiae alone for right now and just look at how this works from a broad perspective.
The money supply goes up. And it gets up from the Fed and the government's money printing shenanigans. But on day one, the inflation rate hasn't really set in and as time goes on, prices increase more and more.
The difference between the green line and the red line on the chart is purchasing power.
In the beginning, whomever gets the money first, the political or financial insiders, as an example, are going to have the most purchasing power.
Then when it gets down, we're going to have a little less purchasing power. By the time it gets to average Joe, we're going to have the least amount of purchasing power.
In fact, our purchasing power will stay the same if it doesn't go down. Again, you may say “George, well, that might not just apply to consumer prices. What if asset prices go up instead?” Well, that's a great point.
Let's check that out.
The average Joe buys asset prices right at the top. All the insiders sell, asset prices crash, and average Joe is the one holding the bag.
In the case of asset prices going up, as we've experienced since the GFC, the average Joe gets screwed even more.
Inflation Is A Monetary Phenomenon
Inflation is always and everywhere a monetary phenomenon.
This is a quote from one of my favorites, Milton Friedman himself.
He believed that velocity is always constant, and this was fundamental to his economic analysis.
Many people nowadays would kind of scoff at that and say, “Friedman didn't know what he was talking about. We know that velocity can go up and down.”
But to understand his views even better, look at the following transcript from Milton Friedman himself.
Milton Friedman: There has never in history been an extremely rapid increase in the quantity of money without inflation.
In order to persuade you of this quickly, and with a minimum waste of time, I brought a few pictures that will graphically illustrate the proposition about the relation between money and inflation.
There are two lines on that chart. That chart is for the United States, and it covers 13 years from 1964 through 1976.
The solid green line is the quantity of money per unit of output, the other dashed red line, is a consumer price index.
Those two lines cross in 1970, because that's the way they're constructed. Both of those series were expressed in 1970 as a base of a hundred in order to try to get the two series on the same scale.
Milton Friedman: But there is nothing whatsoever in the arithmetic of it to make those two curves the same elsewhere.
I may say that the quantity of money that's plotted there is a quantity of money for a year ending six months before the price index.
There is nothing funny about that and you can see that the two lines are almost indistinguishable.
I showed you a segment of 13 years, but if I had a segment of a hundred years, the relationship would be the same way throughout the whole of that period.
(End Of Transcript)
Most people would say, “No, not even close.” But in fact, you can pull up a chart on the Fed's website that shows velocity going way up in the 1990s, and since the GFC it came crashing down to where it is today, at an all-time low, going back quite a few decades.
But I want to challenge that today. I need you to sit down and maybe pour a stiff drink. Definitely keep an open mind because this is going to blow you away. You have to put your thinking cap on for this one.
I want to really encourage you to start thinking critically and get outside of the box. I think that's what my articles are all about.
Look at the whiteboard. On the top, you can see the M2 money supply measured in trillions, and I'm going to start from the 1990s. At the beginning of 1990, it was right around $3.2 trillion.
These are just general numbers that sometimes are from the beginning or the middle of the year. They're just for the example so you can understand the overall concept.
So, starting in 1990, M2 was $3.2 trillion. In 2000, it rose to $5.2 trillion. That is an increase of 62%.
Then, GDP went from $5.8 billion to $10 billion, and that is an increase of 72%.
How on earth do we figure out the velocity?
It's actually a very simple formula that economists like Milton Friedman drawn to perfection because they used it all the time.
It's GDP divided by the money supply. GDP/M2=V.
Sometimes it's M2 or M1. This makes a lot of sense because if the GDP is $10 and there's $10 circulating in the economy, that means money turned over once. It was 10 divided by 10, so the velocity would be one.
So in this example, the velocity in 1990 started off right around 1.8, but it went up to 2.1.
Velocity actually increased based on these numbers and the charts.
I drew it out to make it a little more simple and to make sure we are on the same page.
GDP starts out at a higher number, that's why I drew it on top, and it goes up at a 60-degree angle. But it started out low in 1990 and went up in 2000. It went up very steeply.
In this case, the M2 money supply goes up, but it goes up at a slower rate. Remember 62% compared to 72%.
Since there's a bigger increase in the gap or the Delta at the end of the time sequence compared to the beginning, that means velocity would have gone up as well.
But we have to add another factor because you guys are intelligent individuals. That's why you're reading this article. You've heard me talk a lot about Jeff Snyder and the Eurodollars.
We know that there's a lot more dollars outside of the United States, potentially, than there are inside of the United States.
So if we truly want to understand velocity, and if the formula we're using is GDP/M2= V, then we have to understand what the money supply actually is.
If the M2 money supply is only calculating the dollars, the currency units, that are domestically in the United States, that's an inaccurate reflection of the money supply in general.
The problem is the Eurodollar system is in the shadows. Nobody knows exactly how many Eurodollars exist. There are no charts, there is no data.
So, we have to speculate using other sources of data to put all the pieces of the puzzle together. For this example, on my whiteboard, I wrote some numbers that don't mean anything.
I'm just using them for the example, so you can understand the concept.
Let's assume that in 1990 there was $10 trillion worth of Eurodollars outside of the M2 money supply. The total money supply, in this case, would actually be $13.2 trillion.
At the end of this time sequence in 2000, let's say that the Eurodollars went up dramatically. The internet boom happened so banks outside the United States were definitely lending a lot.
That's increasing the money supply. So let's say the Eurodollars went up to $17.5 trillion.
Now we have to add $5.2 to $17.5, which gives us $22.7 in total, or an increase of 72%, which would be the exact same increase as GDP.
Therefore, true velocity would not have increased, but as Milton Friedman said, it would have stayed perfectly consistent.
I'm not saying that this is actually what happened, don't get me wrong, what I'm doing is walking you through a thought experiment to do a couple of things.
Number one: Show you how the global elites understand this and are going to use it to make themselves rich while they're making you poor.
Number two: To walk you through this thought experiment so you start to, not only look at velocity in a different way, but all of economics. Not from a typical narrative, but to get outside of the box.
This way you won't have to rely on the mainstream narrative and the status quo. You have to start thinking for yourself to determine what is actually true. This is going to help you make better financial decisions in the future.
In the first example I mentioned, there was a greater increase in money supply, which meant that velocity didn't increase, but actually flattened out and stayed consistent.
Look at the whiteboard again. Look at what happened from 2008 to 2020.
I specifically used this timeframe, because going back to what we've learned from Jeff Snyder, this is when the Eurodollar system broke. I'm talking about the middle of 2008.
The Eurodollar system that created all the additional dollars outside of the United States, outside of this confined monetary system for the entire globe to expand, broke down. It collapsed and it's never been fixed.
According to Jeff Snyder, the only thing the central banks have done with all of the “money printing” is just filling a gap that was created by the collapse of the Eurodollar system, but they haven't even printed or created enough money.
In 2008, the M2 money supply was $7.7 trillion, and in 2020 it's roughly $18.7 trillion. It increased by 142%.
But look at what has happened to GDP.
It went from $14 trillion to $19.5 trillion, only an increase of 39%. It's a pathetic increase in GDP if the money supply has increased by 142%.
This would be the complete opposite of the 1990s in the sense that GDP started out pretty darn flat. It does go up, but just barely.
The opposite of what it did in the 1990s. But, the M2 money supply started at a low point and went up dramatically almost to the same point where GDP ended in 2020.
Now our gap isn't getting bigger as it did in the first example, it's actually getting smaller. Since we go back to the equation of GDP/ M2 = velocity, our actual velocity would go down.
Now let's think about the Eurodollar. Let's just assume it started with the same number of $10 trillion so our total money supply is $17.7 trillion.
Then at the end of 2020, since the Eurodollar system has collapsed and it does not function properly anymore, there are only $5.9 trillion Eurodollars. If we add the $18.7 to the $5.9, we get $24.6.
The amount of Eurodollars have decreased dramatically, while at the same time M2 money supply has gone up dramatically, but net balance it may have only increased the overall money supply by 39%.
Which would be exactly the same rate of GDP, making velocity, once again, completely consistent.
Again, I want to be very clear. I'm not stating that this example is what I believe is happening, that velocity is actually consistent. I'm doing this so you start questioning the mainstream narrative.
Not just with velocity, but all of the macroeconomics, the whole core of what you're basing your financial decisions on.
Now we have to start connecting the dots. What if Klaus, everyone's favorite James Bond villain and his cat Mr. Bigglesworth, and all of his cronies at the world economic forum understand exactly what I'm going over in this diagram.
Maybe not to the extent that Snyder understands, no one understands it that well, but they get the fact that the Eurodollar system has collapsed and that's a big part of the global economy.
Also, what if they're putting two and two together and they realized that if the Eurodollars created goes down, just like it went from $10 to $5.9 in our example, they know that the central banks will see this and try to create more money supply to make up for the Eurodollar money supply actually going down.
If the eurodollars go down, the M2 money supply goes up, and if the M2 money supply goes up, the global elites get rich because of the Cantillon Effect. This is the global elite's end game agenda.
The Secret Plan To Create An Economic Collapse
When I say the global elite, I'm referring to the cronies that are close to the central bankers and benefit from the Cantillon effect.
There are no bigger cronies on the planet than those individuals at the World Economic Forum headed up by Klaus Schwab.
This was an individual that I featured in one of my videos about his great reset, and my video was actually featured by the BBC as an example of misinformation.
Is there a connection between Klaus and his cronies at the BBC?
Did Klaus maybe not like my video?
I'll let you be the judge, but if he didn't like that video, he's definitely going to hate this article.
To introduce you to Dr. Evil, or Klaus, and his “great reset plan” here are his own words, not mine. Here is a transcript of a clip on the great reset.
Interviewer: To get us underway, let's hear from the Forum's executive chairman and founder, Professor Klaus Schwab.
Klaus Schwab: Thank you, Adrian. It is obvious that behind the midst of the most severe crisis the world has experienced since World War Two.
75 years ago, countries and people came together to shape the post-war global order, which brought us decades of peace, increased global cooperation, and prosperity to hundreds of millions of people around the world
COVID-19 Kaiser's has shown us that our old systems are not fit anymore for the 21st century. It has laid bare the fundamental lack of social cohesion, fairness, inclusion, and equality.
Now, is a historical moment, not only to fight serious viruses back to shape the system. [foreign language 00:28:16]. In short, we need a great reset.
(End Of Transcript)
Oh boy. I'll let you shake off the creepiness right there.
But let's think this through so we can connect all of these dots. Look at the following whiteboard:
On it, I drew a bank that makes productive loans, that's how they make money.
They're trying to go out there and lend money to the average Joe, to corporations and small and midsize enterprises or businesses.
They do this by simply borrowing, short-term, usually at a low-interest rate, and creating loans at a higher interest rate for a longer period of time.
The easiest way to think about this is they get money to have the ability to expand their balance sheet at a low rate of interest, and they expand money, create the additional money supply, by lending, usually longer-term, at a higher rate of interest.
They're always out there trying to find productive loans, they want to lend to people and entities, obviously, that are going to pay them back.
Look at the left bottom of the whiteboard, that is how dollars and Eurodollars are created. The banking system is in charge of creating the majority of the money supply, at least in a healthy economy.
But if the dollars and Eurodollars the banking system is creating decreases, the Fed and the central banks will most likely try to conjure up funny money out of thin air to replace the amount of money that has been lost by the banking system lending less.
Productive lending goes down, and unproductive money printing goes up.
If this unproductive money printing that distorts the economy and misallocates resources goes up, that means the Cantillon Effect comes into play, and Klaus, Mr. Bigglesworth, and his cronies at the BBC get rich because they're the ones that are cozy with the Fed and the central banks.
One thing the global elite has been pushing for lately is negative interest rates.
What does negative interest rates do to the retail banking system that makes money by having a steep yield curve?
Meaning the money they're getting is cheaper than the money they're actually lending.
What happens if the central banks are actually able to take the entire yield curve negative?
That means it's not profitable anymore for banks to lend money.
Less lending equals less productive money being created, which means more central bank money printing, more unproductive money printing is financially beneficial for the global elite.
Negative interest rates make the global elites rich. But, let's say they're not able to push rates negative. Remember the banking system needs to find productive loans, which means a healthy, vibrant, private sector economy. But they can put speed bumps in front of the private sector economic growth.
That means, again, the Fed is going to have to come in, print more money, which is going to go right into their back pocket. They want money printing or anything that is potentially going to produce inflation long-term.
I would argue that's not just an increase in the money supply, but also a decrease in the amount of goods and services produced by the XYZ economy.
This is why, in my opinion, they really lean towards socialism and away from free-market capitalism. It's not because they're altruistic, it's because they want to pad their own back pockets.
Don't take my word on it. Here is the World Economic Forum's own website and their agenda. I'll let you determine whether or not you think this would destroy the economy.
I want to start by pointing out to the BBC, who I know will be reading this, that I'm pulling this directly from the World Economic Forum's own website.
Hopefully, the BBC will get it through their heads, do a little homework, and realize that when I do an article I'm taking data directly from the source.
In this case, Mr. Klaus Schwab himself. Look at the following quote:
“The pandemic represents a rare but narrow window of opportunity.”
Interesting choice of words.
“To reflect, reimagine, and reset our world.”
What does this great reset include?
Well, it has things like…
- Shaping the economic recovery
- Redesigning social contracts, skills, and jobs
- Restoring the health of the environment
- Developing sustainable business models
- “Revitalizing global cooperation”… Whatever that means.
- Strengthening regional development
- Harnessing the fourth industrial revolution.
But when you dive into the nitty-gritty, these platitudes just don't make any sense whatsoever.
As an example, they want to shape the economic recovery through gender parody. I have no idea how that can contribute to a faster economic recovery.
They want taxation, which of course means higher taxation. So I'm not sure how that would lead to an economic recovery either.
Then, their fourth industrial revolution is going to be driven by everybody's favorites: drones, and digital identity. Even better yet, they want to govern the internet.
What could possibly go wrong there?
I'm not going to read all of those, but I'd strongly suggest you go to their website and check out this diagram for yourself.
What will become blatantly apparent after just reading this for a couple of minutes is that this would completely destroy the economy.
If it was implemented…
- It would destroy the amount of goods and services created
- It would most likely create massive amounts of inflation
- It would facilitate the need for the central banks to come in and print a ton of money. At least in their Keynesian minds.
In fact, we see the Fed's balance sheet go from $4 trillion to $7 trillion.
This type of green deal, new economy, or great reset, whatever you want to call it, would be trillions and trillions of dollars.
We're talking $50, $75, a hundred trillion dollars while at the same time, destroying a lot of the current economic activity.
When you think about the many new currency units being created and pumped into the system, and then layer over the Cantillon Effect, it all starts to make a lot of sense. From a financial standpoint, it would benefit all of these individuals at the world economic forum.
But that's not all. Of course, when we read what Klaus wrote about the great reset agenda, again, his words, not mine, there are three main components.
The first would steer towards fairer outcomes.
I want to point out, he always talks about outcomes. He doesn't talk about opportunities. Even in the second paragraph, “Governments should implement long-overdue reforms that would promote more equitable outcomes.”
Let's remember what Milton Friedman said about equality of outcome:
A society that puts equality in the sense of equality of outcome, ahead of freedom, will end up with neither equality nor freedom. The use of force to achieve a quality will destroy freedom, and the force, introduced for good purposes, will end up in the hands of the people who use it to promote their own interests.
– Milton Friedman
I'm not saying this is exactly what's happening. I am saying there's more than a 0% probability. That's for sure.
The main thing I want to point out is the incentive structure so you can start thinking these things through for yourself.
In the future, whenever you're seeing any of these global elites, cronies, financial and political insiders talk about their policy prescriptions, always remember that it's through the lens of the Cantillon Effect.