The System of the World

It will unmake you

This is John Jameson from Pretty Bang Bang.

It was 10 years ago in 2015, and I can't believe it's that long since I first noticed the change. Subtle, but definitely there, just under the radar, gaslit by a shift in social patterning. And like all new things, it took me a little while to understand the message. Back then I was living in London, in what I now call ‘The Last Summer of Love.’ But by the fall of 2017, I realised what I was noticing was not only real, but sticky, and it was not going to stop. If I was right, it would drive the societal trend for at least the next decade. Maybe longer, until it hit a stopping point.

A couple of weeks ago, I made a few calls. I couldn't hold off any longer. One number still worked, so I took a flight to Los Angeles. An hour ago, I had a meeting on a roof garden in North Hollywood with a cyber security expert from a previous life.

I get out of an Uber and walk a couple of blocks through unnamed streets, Neon Hangul all around me. If you’ve been to Los Angeles in the summer, you know it has a smell. And a taste. Atmospheric compression, smog and pollution under a baking sun. The hazy air thick with gasoline and reheated meat, jacarandas prettifying back streets and back alleys. Danger, just a wrong turn away.

It’s late. It’s busy, and I’m heading into a Korean ramen shop for another meeting.

At the back of the restaurant, next to the rest rooms there’s a door marked ‘No Entry.’ I push it open and follow the stairs down into a barely lit room.

If I’m lucky, she’ll turn up.

The basement is dark, the bright lights of the restaurant replaced by a single light bulb, 40 watts serving double duty, which is good, because from what I’ve been told, the person I’ve come here to meet does not like attention. Think loud social media influencer. Then think the polar opposite.

There’s a single table over against the far wall. Two chairs. I take the one facing the stairs. My meet and greet isn’t the only one who doesn’t like their back to the wall. Cardboard boxes are stacked either side of me, layers of lacquered paint are peeling from the walls, on top of a stack of boxes laminated menus, gathering dust.

I’m not armed.

The door at the top of the stairs opens and I hear footsteps. Then silence. Then footsteps again. Someone’s coming down the stairs.

A girl walks in. She’s about 5’6”. Lean. Late twenties. Unexpectedly good looking, her hair scraped back under a baseball cap. No makeup. Her boots are half laced. She’s wearing black jeans, and a t-shirt.

‘Rey, good to meet you.’ I stand and hold out my hand.

‘You called the meet. What do you want?’

No small talk. No chit chat. She’s straight down to business. My contact was right.

‘Rey, for a lot of people, the world seems upside down, that right now it’s not working. It’s like everything they trusted and believed in can’t be trusted anymore.’ She looks me up and down. God damn. This woman has presence. I can’t put my finger on it. It’s like the feeling you get staring up at a $180 million Modigliani. The wall power, it vibrates. Except this isn’t oil on canvas. She’s real, and she’s here. I’m actually nervous. I sit back down.

She reaches into her back pocket and pulls out a crumpled pack of Marlboro Lights. She looks at me, judging. ‘The weapon’s in the left boot.’ She smiles and takes a seat. Rey takes a cigarette out of the pack, then pulls a lighter from the front of her jeans and places it on the table.

‘I don’t think...’ I cut myself off from the smoking speech. But she catches it, I’m sure.

She puts the cigarette in her mouth, picks up the lighter, and flicks it. The blue flame releases the sweet smell of naphtha as it mixes with burning tobacco. Rey takes a long, deep drag and exhales, smoke swirling through the still, humid air. ‘Don’t worry Johnny. I know the owners of this establishment. Everything is not what it appears to be.’

‘Some people don’t care. They just pretend everything is ok and ignore it. But others, they really care. And hate that you don’t see it their way. Why does nobody trust anyone anymore? Who is behind the hatred and lack of trust?’

‘They’re lame ass questions, Johnny boy.’

I try to reframe it. ‘I want to talk to you about the system of the world.’

‘Better, Johnny. But that’s not the right question.’

She’s playing with me.

Rey takes another drag on her Marlboro and gets up.

She tips the brim of her baseball cap. ‘Johnny.’ And walks towards the stairs.

‘Cui bono Rey. Who benefits?’

She stops, turns around and sits back down. ‘Most people don’t pay attention. They’ve noticed the change, and they know something's wrong, but they pretend it’s not happening.’

She smiles and looks around for somewhere to put out her cigarette.

The Last Summer of Love. ‘You mean the societal change since 2015.’

‘Yes. But it’s been going on long before that. That’s when it became noticeable.’ She stubs her cigarette out on the table. ‘Are you paying attention Johnny?’

She pauses. She’s hesitating and deciding if I’m worth her time.

‘What’s wrong. What is eating away at the middle and lower classes is they feel better informed. They feel like they understand, but in reality they don’t. They’ve been shepherded. Nudged into their own private Idaho, their own bubble. Overwhelmed by information. Where nothing is true, and everything is permitted.’

‘It’s psychological isolation.’

‘Yes, but it’s more. It’s perfect obfuscation.’

‘Lies framed around half truths.’

She smiles.

‘You see, Johnny, most people think they know how the world works. But they don’t. Let’s begin with something simple. Simple, yet misunderstood. Let’s begin with the budget myth.

Households are constrained as to what they can do by the availability of money and they can only get the money by earning it or by being given it by way of government benefits or by borrowing it or by winning it. But they can't create money.

However, the government can. It creates all the money it needs to spend without exception. Tax funds nothing. Borrowing funds nothing as far as the government is concerned. Tax reclaims the money that the government has spent to control inflation and bonds are issued to take additional money out of circulation if it is necessary to control inflation. Bonds also have a secondary function. They provide a mechanism for the elites to park their money. At scale.’

‘You’re saying whenever you hear a politician say that the government can’t afford to spend on healthcare or education, it’s a lie.’

‘Yes, that’s what I’m saying. The government can always create more money and it can never go broke. Ever. Anytime you hear any politician from any political party tell you the government can’t afford it, it’s a lie.’

‘But what about the national debt? What about the $37.2 trillion?’

‘Johnny, do you think the public asks the right questions?’

‘No. Almost never.’

‘What’s the right question?’

I’d better not fuck this up. ‘If the $37.2 trillion on the government’s balance sheet is on the liability side of the ledger, on whose balance sheet is the asset?’

Rey reaches over and pulls a cigarette out of the pack, lights it and sits back in her chair.

‘You just earned yourself some more time. Where’s the asset Johnny?’

‘Fuck me. It’s on the private sector balance sheets.’

She takes a long deep drag and exhales.

‘Cui Bono, Johnny Boy.’

‘The owners of the private sector companies and therefore the assets.’

‘You got it. Basic double entry accounting. When you are told there’s $37.2 trillion of government debt, rewire your mind to understand that means that about 56% of this debt is on private sector balance sheets as assets. It’s around $21 trillion. 20% of the national debt is held by intergovernmental departments with the balance of around 24% held by foreign governments and their central banks. If it helps, think of the private sector as a collective single entity.’

‘So, whenever you hear a politician tell you that they can’t afford it, they are lying. It’s not a funding problem. It’s a political decision to withhold spending.’

‘You’re a Brit, right Johnny.’

I nod.

‘What public service generates the highest emotional response amongst the general public in the UK?’

‘Without a doubt, the National Health Service and the media’s reporting of the constant mismanagement of it due to lack of funding.’

‘That’s the lie.’ She leans in. ‘It doesn’t matter who is in charge. When you hear a politician or government economist tell you they can’t afford it, it is a lie.’ Period. The myth you are being force fed is that governments are like households that they have a budget. They don’t. But they do have constraints. And we’ll get to that in a minute.’

‘You’re saying governments use the budget myth, which said another way is the scarcity myth, to blindside the public into believing it can’t afford it, and this is used because the vast number of the population understands through direct experience that if you have no money, you can’t pay your bills or buy food or pay your mortgage.’

‘Exactly.’

‘But what about taxes? What about government bonds?’

Rey looks at me. ‘Go on...’

‘Oh my god. What about tariffs? What about Quantitative Easing?’

‘Most people think taxes pay for government services. That’s the line. You hear it from every politician, every pundit, every so-called economist with a camera in their face.

Spending, we’re told, comes from revenue. You earn, you tax, you spend. Like a household. Like a family on a budget. But it’s all a lie.

In a sovereign fiat currency system, the government spends money into existence. It doesn’t need to collect before it can spend. It spends first. Taxes come later, to remove that money from circulation, not to fund services.

Ok. Listen in: Taxes don’t fund spending. They create demand for the currency. You can’t pay your taxes in euros or gold or dollars. HMRC won’t take those. And that means everyone in the economy ultimately needs pounds. Taxes create baseline demand for sterling.

And they shape behaviour. I’d be bankrupt if I paid the taxes your government puts on the price of cigarettes. And talking of shaping behaviors, bespoke carbon taxes are coming. They can already shape your meta data so get ready.

I looked you up. A tech who became a writer who speculates for a living. If you’re smart Johnny Boy, there’s always a place for you on my side of the fence. Anyway, taxes enforce hierarchy too. Think about who pays, and how much. The elites use corporations, while employees can’t escape. Remember, regardless of class, working to upper middle, if you’re employed, you can’t escape. You earn, are taxed, then spend. The elites don’t do that. They earn, spend, then pay tax.’

‘But Rey, what you’ve just said collapses the austerity lie.’ She’s looking right at me. Measuring. ‘And worse, this means money exists in two places simultaneously.’

‘There you go Johnny, the lights are on.’ She’s laughing out loud. Now follow that logic. Grab that White Rabbit by its ears and hang on for the ride.’

‘If money exists simultaneously as both a liability and an asset, then...

Government Total Debt = Someone Else’s Asset

It means when the government spends a dollar or a pound or whatever currency into the economy it’s a liability on the government’s balance sheet but it’s an asset on the private sector’s balance sheet, a private sector mostly owned and controlled by the elite.’

‘That’s correct, Johnny. In accounting terms total government debt equals someone else’s asset. Always. Never forget this.

And this means that physical money is just a powerless token moving from hand to hand. The real power of money is as an entry in a ledger. On the government’s books a payment is a liability but on the recipient’s books it’s an asset. And whoever controls that asset on the ledger, controls the power.’

‘But what happens when a government does not spend or spend enough as is the case in the NHS in the UK?’

‘Think it through. Every dollar of debt adds a dollar to the private sector as a whole, but unless you own the companies or have the contracts, you probably won’t see a cent of it. The elites capture most of the flow. But if the government doesn’t spend, the elites still capture the money.’

‘Wait. So, using the NHS. The service gap through lack of spending forces households to spend their own money. Except this time, it’s not the government funding the asset side of the elite’s balance sheet, it is the public.’

‘Yes. The public makes up the shortfall because they are forced to pay for private sector providers.’

‘And this is the mechanism that transfers money into the hands of the elite.’

‘Through government spending or a lack of it Johnny Boy. This is how it's done.

And it’s not just the NHS or the UK. It’s everywhere. Systemic. NHS underfunding increases the public’s use of private GPs, surgery, and dental care. Reduced school funding forces parents to pay for private tutors or private schools. Cuts to legal aid, cuts to underfunded mental health services, closure of public care homes, reduced spending on social housing. And on and on. Lack of government spending means the public are funding the elites.’

‘But Rey, if people understood all this... really understood it, then the whole budget and by extension the austerity myth would fall apart. There would be blood on the streets.’

‘That’s right. Remember, taxes are never used to fund services, but for inflation control, and bonds are used to add or remove cash from the system, which controls interest rates. As a reminder, banks and investors hold cash in the form of reserves or deposits. When the government sells bonds, it takes some of that cash out of their hands and swaps it for bonds. With less cash in the system, banks have to pay more to borrow from each other so interest rates rise. But when the government or central bank buys back bonds, it gives the cash back to banks. And with more cash in the system, banks compete less for funding so interest rates fall. Bonds also have the secondary function of providing the elite with a safe place to store their wealth at scale.

Now we’ve covered the basics, let’s talk about the real levers of power. Quantitative Easing, tariffs, and how the elites get paid. Let’s start with this: Where does the government do most of its spending?’

‘Defence contracts and outsourced IT projects come to mind.’

‘In fact, most of US government spending, around 60%, is on health programs, social security and mandatory benefits, which includes pensions, disability payments and automatic welfare programs. Let’s begin there. On paper, Social Security, Medicare, and Medicaid look like poor people’s benefits, but if you follow the money Johnny Boy, you’ll find out the money flows straight back into elite-controlled systems.

Yes, the checks go to retirees, but the money quickly flows back in forms of rent, mortgages, credit cards, insurers and consumer goods giants which are all owned by the elite. Medicare and Medicaid payments don’t go directly to patients. They go to the hospitals, Big Pharma, and insurance companies. Remember, public health programs are awarded contracts by the government and the money flows via the magic of double entry from a government spending liability to a private sector asset, in this case Big Pharma.’

‘What about defence? What about IT projects and AI?’

‘It’s the same system, Johnny. Which I’m sure you know. The government spends, adding a liability on their side of the ledger, which simultaneously becomes an asset on the balance sheet of the private sector. In this case, the top five military contractors, Lockheed Martin, Raytheon Technologies, now RTX, Northrop Grumman, Boeing, General Dynamics and one of your bets, Palantir.’

I look at her. How does she know about that.

‘I do my homework, Johnny.’

It’s like I’m playing with my cards face up.

‘Rey, following your logic. Quantitative Easing wasn’t a stimulus. It was a wealth transfer.’

‘Yes. QE did inject money into financial markets, but not households or workers. It was sold as a stimulus, but in reality, yes. It was a massive wealth injection for the elites. In fact, it worked so well, when COVID arrived, they put it into overdrive.

QE works like this: The central bank buys financial assets (usually government bonds) from the private sector. But who owns these bonds? Banks, hedge funds, insurance companies, pension funds. The wealth holders is who.

The central bank pays for those bonds by adding reserves to commercial banks. But this is not spent into the economy. It just added liquidity in the banking system. And the recipients, the asset holding elite, don't spend the new money on wages, jobs, or factories. Instead, they reinvest the money. You’re a speculator Johnny. You know where.’

‘Into stocks, property, crypto, commodities, luxury assets, and art is where.’

‘And you know why.’

‘Because interest rates were near zero, and bonds were returning next to nothing. So, they chased yield.’

‘What was the result?’

‘A massive stock market boom in what should have been the mother of all recessions. But the elite and people who understand economics, finance, and geopolitics, got rich speculating on the inevitable result. Ordinary people, the non-speculators of the world, got nothing.’

Rey picked up her cigarettes, shook one out of the pack, lit it, and leaned forwards towards me. ‘In fact, all they saw was a reduction in their standard of living. No wage rises, crumbling public services, and a higher cost of living, paying more for rent, house prices, and food. QE replaced fiscal policy, spending on people, with financial policy.’

‘Buybacks for the rich.’

‘Exactly. It was like giving a parachute to those in 1st class leaving the crew and everyone else to pray to their gods.’

‘You mean QE was just a massive asset swap for the elites. Bonds out, cash in.’

‘Yes, and remember, Johnny. Wealth does not trickle down. Only debt does that.’

‘By design.’

‘By design.’

‘But the central bank decides on QE, Rey. Not the government.’

‘Government via the Treasury issues debt through auctions, but yes QE is entirely a central bank decision, a monetary policy tool.

The central bank announces QE. They say: ‘We will buy $X billion of Treasuries and Mortgage Backed Securities from the market.’ The central bank’s primary dealers, big banks, are obligated to participate so they contact their clients (funds, insurers, pension managers, elite high net worth investors who hold those bonds and incentivise them to sell. Remember, the central bank is a guaranteed buyer. This pushes up bond prices and pulls yields down, so it’s profitable to sell now and reallocate capital. The primary dealers buy the bonds from clients at the now higher market price and pass them to the central bank. Then the central bank creates reserves out of thin air and credits the dealers’ accounts and the dealers in turn credit their clients’ deposits in cash for the bonds.’

‘I get it Rey.’

‘Cui Bono, Johnny. But who benefits?’

‘The elite clients win because they get liquidity (cash) at an inflated price for their bonds and they can use that cash to buy other assets.

The dealers win because they earn the spread as middlemen.

And the central bank wins via the effect. QE lowers yields, so borrowing is cheaper, and floods the system with liquidity, which inflates asset values because the money flowing out of bonds, a massive market, has to go somewhere and that somewhere has to absorb the huge inflows of capital causing demand to outstrip supply.’

‘You framed your response as a speculator Johnny. Remember, for ordinary people QE doesn’t ‘stimulate’ the real economy. It rewards the elite bondholders with liquid cash, which they then recycle into stock buybacks, property, and other speculative assets, not wages or infrastructure. That’s why it’s an asset swap that transfers wealth into the hands of the elite while bypassing the middle and working class. All sold to a clueless public who believe the austerity lies.’

‘I want to talk about constraints, but before we get to that I want to talk about something that bothers a lot of people. The size of the national debt. The $37.2 trillion.’

‘It only looks scary because people think of it like household debt. But it’s just the stock of dollars the government has already spent into the system that haven’t yet been taxed back. Remember, about 56% of that sits as assets in the domestic private sector in government bonds and bank reserves, all of which are just interest-bearing dollars. That’s people’s pensions, insurance funds, bank portfolios. The other 24% sits with foreign governments and other central banks. And they choose to hold US treasuries because dollars are the global reserve currency. The rest is held by government departments.

It doesn’t matter in the panic sense because the US issues debt in its own currency. It can always pay dollars. There is no solvency risk. Treasuries are not like household debt. Think of them as savings accounts for the private sector. Calling them debt is misleading.

The only real constraint on a government is inflation. If too much spending pushes the economy beyond its productive capacity, prices rise. Productivity is the real risk. The national debt is the accounting record of how many dollars the government has created and left in circulation as someone else’s asset. It matters only for distribution, who holds it, and for inflation risk, too much relative to capacity.’

‘Rey this means the Debt-to-GDP ratio isn’t as important as the media points out.’

‘Johnny, the Debt-to-GDP ratio is just another headline number espoused by the talking heads in the media. Remember, only a handful of corporations control the narrative. You know that. It’s used to justify interest rate policy or talk up the austerity we can’t afford it myth.’

‘Rey, let’s talk about tariffs.’

‘About Trump’s big, beautiful checks flowing into the United States.’ She takes a deep drag on her cigarette. ‘Yes, let’s talk about that. Luckily, for the President of the United States, the vast majority of its citizens do not understand the system of the world. Here’s what really happens when a tariff is paid.

Commercial bank reserves at the US Central Bank are a liability, because the Fed owes those reserves to the banks. When someone pays a tariff, their bank’s reserve account at the Fed gets debited which reduces the Fed’s liabilities.

But there is no money to follow. That debit is not moved somewhere to be spent later. It’s just removed from the system. The dollars are destroyed in accounting terms. Exactly like taxes, but with a twist. Actually, two twists.

Tariff revenue, like taxes, is a deletion of private sector financial assets which is simultaneously the destruction of an equal amount of government liability.

A tax or a tariff doesn’t fund anything. It just deletes dollars from the private sector. On a keystroke they’re gone. The Fed marks down the bank’s reserves, and at the same time marks up the Treasury’s account. It looks like a deposit, but it’s not cash in a vault. It’s a control entry. An internal scorecard.

Then, when the government spends, the process runs in reverse. The Treasury's balance goes down, the Fed creates new reserves, the bank credits a deposit, and a company in the private sector has the money in their account. An asset on their balance sheet. Dollars are destroyed on the way in and new dollars are created on the way out. Nothing gets stored. It’s just recycling through ledgers.

It’s how governments, including Donald Trump's government, collects money and spends. Tariffs are not funding the government. They destroy dollars in the private sector and reduce the government’s liability to the private sector. While at the same time, they add dollars to the Treasury account at the central bank. And by the way, money flows into the Treasury’s account only in one of three ways. When taxes and tariffs delete dollars from the private sector and are re-credited to the Treasury as we’ve just gone through and when the Treasury sells bonds, the private bank swaps cash for bonds, and the central bank credits those dollars to the Treasury’s account. The third way money comes into the Treasury account is from fees and fines, although these are usually smaller amounts.

Taxes and tariffs shrink private sector balances, while bond sales swap one private asset for another. This is how the government’s Treasury account gets topped up using recycled dollars from taxes and tariffs and bond sale asset swaps. It’s all done so the government can spend without adding to inflationary pressure.

And this Johnny is the system of the world, with an important caveat. Recycling through taxes, the occasional tariff, and bond swaps only balanced the books on paper.’

‘I get it. The Treasury’s account isn’t filled with new money, it’s recycled cash that’s been pulled out of the private sector and parked there. Taxes, tariffs, and bond sales, all of it is just recycling dollars already in circulation. In this way, the dollars added to the Treasury account at the Fed allows the government to spend more without adding to inflation. Because the dollars are destroyed or to keep economists happy, removed from circulation, and with the amount removed from circulation added to the government’s Treasury account as a control journal entry, fewer dollars are chasing goods and services in the economy which reduces inflationary pressure and allows the government to spend without overheating the economy.’

‘Good, you’re paying attention. The answers are coming.’

‘I noticed you used ‘balanced’ in the past tense, Rey.’

‘In reality, the government almost always used to have to spend more than it took back in through taxes, the occasional tariff, and bonds.’

‘Past tense, again.’

‘Why? Because when the government spends, it creates a liability on its books and at the same time the private sector receives the matching asset. But in the land of the free and home of the brave, if you’re going to have the American dream, companies have to grow, pay wages, or invest, and if they don’t have enough dollars, they borrow. They go to the banks. On their balance sheets their liabilities, their debt, goes up, and the asset, the cash from the loan appears on their balance sheet, but now they owe interest.’

She leans in.

‘And Johnny, to service that debt, companies hold down wages, cut benefits, raise prices, and squeeze suppliers. But now, with their wages not keeping up, Bob and Alice can’t pay down their mortgage or car loans, so they borrow.

When the government spends too little, fewer net financial assets are created and companies borrow to keep growing. This debt is pushed down into the economy forcing households to borrow to keep up with the cost of living. This is how debt trickles down into the wider economy.’

‘But there’s a new sheriff in town. And his tariffs are not occasional, they're massive, almost embargo levels.’

‘And that means what?’

‘It means that more dollars will be removed from the asset side of the private sector's ledger. It means it will reduce the size of the US government's liabilities, and it will increase the Treasury’s balance at the central bank.’

I hesitate and she catches it.

‘Go on.’

‘Rey, if the US Government Deficit is defined as Spending minus Receipts then the deficit shrinks, even if the government’s spending stays the same. It’s an accounting effect.’

She nods

‘Then with huge tariffs, the government’s receipts go up and this reduces the need for net new dollars, which is to say, net new liabilities to fund spending, so on the books, the deficit number falls.

But there’s a problem isn’t there.

The tariffs will delete more of the private sector’s assets and now with fewer dollars in circulation, they’re much more likely to have to borrow more. But this means as the government’s deficit shrinks, private sector debt rises.’

‘That’ right Johnny. Remember, higher tariffs don’t automatically end deficit spending. But they do change the balance sheet math. Higher receipts, because of higher tariffs, reduce the recorded deficit if tariff inflows grow faster than government spending.’

‘And that means the tariffs are sticky and here to stay. That line of thinking explains Trump’s record tariffs. It’s why he wants Powell gone.

Powell saw inflation risk from an overheating economy. Trump’s counter was simple. Tariffs recycle plenty of existing dollars, so Treasury spending from its central bank account wouldn’t be inflationary. In Trump’s eyes, that cleared the way for lower rates. And if you’re a speculator this means get ready for the mother of all bond rallies. But Rey. I know there are constraints.

You’ve debunked the size of the national debt and the debt-to-GDP ratio. But before we get to the real barriers in the economy, a thought just occurred to me. Earlier you explained the money in, money out double entry accounting system used by governments. And that tariffs and taxes destroy dollars in the private sector but leave dollars in the US treasury’s account at the Fed. I assume that account can never go negative?’

‘Congratulations Johnny Boy. You just described the debt ceiling. And you are correct. It can’t. During debt ceiling standoffs, which the media loves to dramatise, the Treasury scrambles to juggle payments because it literally can’t spend if its account at the central bank doesn’t have enough balance. That’s why debt ceiling fights risk default. Not because the US can’t create dollars, but because Congress hasn’t authorised the Treasury to issue new bonds that would refill its account. The whole drama is a legal constraint, not an economic one.’

‘And if I understand this correctly, Congress passes a law that lets the Treasury issue more bonds and refill its account at the central bank. That doesn’t create new dollars out of nothing. It recycles existing private dollars back into the Treasury’s account. It’s the same recycling mechanism. Private banks swap cash for bonds, and the central bank credits the dollars back into the Treasury’s account.

It’s only if the government runs a deficit, spends more than it takes back in taxes and tariffs does new net financial assets appear in the private sector. And that’s when the inflation risk becomes real.’

‘You’ve got it. Now let’s get to the constraints. It might seem like governments have an accounting strategy for everything, but there’s something they don’t have a fix for in their box of tricks.’

‘Inflation.’

‘And deflation.

The real constraints in the economy are labour, materials, energy, and skills, not money. Understanding this will change everything about how you view government policy, economics, political narratives, and financial markets. Once you get this. You’ll see the world anew. With the scales removed from your eyes.’

‘Are you saying you can use these new skills to make bets in the financial markets?’

‘How do you think I fund my operation, Johnny Boy.

Money is never the bottleneck, real world capacity is. The sweet spot is the Goldilocks band between too much inflation and too much deflation. Too much inflation happens when the government spends heavily into a sector. Heavy spending from its treasury account creates new demand faster than the sector can expand supply. Shortage of labour, materials, or energy in that sector cause higher prices which are inflationary. Prices rise because buyers compete for limited supply. The result is too much money chasing too few goods and services.

And then in the deflation scenario, that's when demand collapses, the private sector completely cuts back on its spending and investment. People and companies hoard cash and they pay off their debt. Businesses face falling sales so they cut wages and lay off workers. Lower incomes mean even less spending in a perfect negative feedback loop. Prices fall as companies slash to survive. Deflation is too little money chasing too many goods and services. They are the big two problems and real constraints for any government.

And that's why the UK government can't spend into the NHS. The lack of investment in it for decades has effectively stripped it, passing off services into the private sector, causing all sorts of efficiency problems. But the real problem is the capacity for it to absorb investment money. It simply can't do it. And that's what the government in the UK will not tell you.

How likely is it that a government will be reelected, if you realised Granny died because of a political decision not to spend because of the risk of inflation. So, they blame it on austerity. They blame it on lack of money. They blame it on the black hole in the economy. But it's a political decision, not a fiscal one. If you understand what we’ve covered today, you'll be able to see behind almost everything a politician or an economist says when wheeled out in the media. And that will give you an advantage. You now know more than 99% of traders and speculators, and probably 95% of economists.’

‘But knowing more than 99% of traders and speculators and 95% of economists is just intellectual masturbation if you can’t use it to your advantage.’

‘And that’s the crux, Johnny, that is the crux.’

‘You learned all this from Julia. I’ve done my homework Rey.’

Her body language changes. It’s instant.

‘Careful, Johnny.’

‘I’ve heard she’s a Romanov.’

I can feel my heart beating against my chest.

Rey reaches for a cigarette, lights it and sits back in her chair. She studies me.

‘What you read on the dark web can be bad for your health, Johnny.’

‘Rey, earlier you said there is no money to follow that tariffs destroy dollars in the private sector in accounting terms. Exactly like taxes, but with a twist. Actually, two twists.’

‘If tariffs destroy dollars in the private sector, does it affect all companies?’

‘No. Only foreign’

‘Those tariffs are targeted at the part of the private sector owned by foreign entities. Most American companies are unaffected or only affected slightly because of components in the supply chain. The tariffs aggressively take money from foreign entities as an extra tax and build in future spending capacity for the government without necessarily causing an inflation risk as long as the capacity is there to absorb it.’

‘And that’s why you don’t hear pushback from Neoliberals who put presidents or prime ministers in power. But, Rey. The size of the tariffs mean there’s going to be a shortage of dollars in the private sector. Not just foreign. But domestic. And that means borrowing on an increased scale to keep up with demand.’

‘Johnny, we’ve covered the basics today, but there’s more. Private credit creation, central bank monetary operations, trade and capital flows, but I know what you’re asking. Watch private debt. You can do a lot with a little.’

‘In the ten years, since The Last Summer of Love, society has been driven by an increasing lack of trust. And Rey...tariffs are the final step before war.’

‘We’re already at war, Johnny.’ She gets up, walks to the stairs and turns. What do you think those tariffs are for?’

‘Wars begin on balance sheets. To build spending capacity without having to print new money so it keeps inflation under control.’

‘Summer of Love no more. Take care, Johnny.’

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