Nobody knows the future.

Is the economy recovering?

At present, many countries around the world have on paper seemingly recovered from the economic collapse that occurred last year.

For instance, unemployment rates are getting closer to normal, the number of bankruptcies has hit a two-year low and stock market is at an all-time high.

Like this, on the surface it seems pretty good, but in reality we are actually going thorough the biggest and scariest economic experiment in history.

In this essay, I would like to introduce which the economy will get into a golden age or new dark age that the world has never seen before.  

Birth of promissory notes in China

In the 7th century in China, copper coins were utilized as the main currency for Chinese merchants.

However, this system was inconvenient because these coins were quite heavy and a lot for a single transaction.

In order to combat this problem, Chinese merchants came up with deposit system using a promissory note.

In this way, the primitive form of paper money and fiat currency was born and later on the entire currency system of China was implemented.

Chinese government tried adjusting the circulation of money along with a copper shortage and then, the government noticed the economy allowing for its own to spend more on things like military and infrastructure.

After that noticing this, it would become very important to what we are experiencing today.

For a couple hundred years the government's ability to print money on command and control inflation worked pretty good, but emerging of Yuan dynasty would change the course of history.

Collapse of the Yuan dynasty

Yuan dynasty was formed by Chinggis Khan ,who had united the Mongol tribes and led the largest military conquest in human history in 1271.

He and new Mongol government decided to just manufacture more and more paper money in order to fund their military campaigns instead of limiting their spending or worrying about their government debt.

As a result, the economy of the Yuan dynasty began to collapse due to inflation and debt crisis.

That was why the government's theory on how printing money could solve the economic problems came crushing down and now that brings us to today.

Modern Monetary Theory

Currently governments around the world have compiled record levels of debt in order to keep their economies afloat during this pandemic.

They've printed money at not only record levels for modern history but levels that are very comparable to that of what the Yuan dynasty did.

We haven't really seen any immediate impacts of having added 40% to the world's money supply within the last 13 months.

That leads us to what some are calling "Modern Monetary Theory" (MMT).

To simplify it a ton, it is said that as long as a country owns its currency as a public monopoly, it can operate like a public monopoly and print much money as necessary to avoid an economic collapse.

Definitely we are living through the most dangerous economic experiment in history right now.

Germany after World War Ⅰ

There hasn't been sudden inflation up to today.

In a sense, every single economic collapse in history is not an event that occurs within a few weeks or months.

For example, occurrence of a high revel of inflation and economic collapse in Germany after world war Ⅰ took five years after the government began printing more money.

We have a risk that we may go thorough the exact same predicament this time around.

Will future be a golden age or new dark age?

Our generation may have lived through a golden age since 1950's.

Specifically, we have less than 6% of the world living in severe poverty with no electricity, a high disease burden and multitude of other things.

It is possible that a golden age of economics ended thanks to the collapse of a currency similar to Yuan dynasty, Roman empire and Germany.

Perhaps we could just enter the new period like Japan where we enter a lost decade without economic collapse.

Lastly maybe this is the start of a new golden where modern monetary theory actually does work and we are able to rewrite the economic rules.

One thing I can say for sure is that there are valuable lessons to be learned from history.

Reference link

2021.04.13.Thu.(Last modified)