Steem for the win! I don’t care who wins the white house.

You probaly think I am crazy. Let me explain.

It is election year in the US. There are many debates and online fights going on between the candidates and many of our friends who are on different sides of the debate. I am sure your Facebook wall is full of evidence of these quarrels.
Watching how the front runners came to be and who will win is certainly interesting, maybe even entertaining, but I don’t really care who wins.

The reason: I don’t think it matters. Nothing fundamental is going to change one way or another.

There are many challenges the US and the rest of the world is facing. In my opinion the biggest ones are not even a topic in these political contests and they are the same everywhere.

I think they are:

- Our financial system
- Our governments

Pretty much all other problems are derived from the above or could be solved by fixing those two. As an example our wealth inequality is simply a design outcome inherent from fiat money. All the promises our candidates are making are not going to fix any of it. The big wall is not going to help anyone, because it's not the fault of the evil Mexicans (they are not eviler than you and I) and increasing taxes on the rich will simply destroy the economy more. The reason of our unnatural wealth inequality results from our financial system, which is designed to move money from poor to rich. Any solution either side is proposing to fix it is just applying a bandage to slow the bleeding without fixing the wound. And this is just one example.

In this series I am going to explain what is wrong why our system and how blockchains like bitcoin, ethereum but particularly steem allow evolution of these technologies that will ultimately fix all of it.

In part one today, I will focus on the financial system.

Our financial system sucks:

Money is one of the most important technologies we humans have. Right now I am writing these sentences on a computer that has been made for me by thousands of people collaborating and doing work just so I can have this thing. It is possible because I gave Apple money which they use first and foremost to make a profit from - they are a well run company after all. The rest is forwarded to thousands of people and organizations, that I don’t even know exist. Apple (and other companies) do this via their development and production processes and by making sure everyone profits a little in addition to the resources they need, thus charging me a markup. This way all the thousands of people that work on my mac are motivated to invent, manufacture and distribute this wonderful machine to me. We might take it for granted but it is truly amazing.

Humans are the only species that have money on this planet. We are also the only ones where thousands of people actively and by choice can work together, without knowing each other. Because we have money. Societies without money are usually restricted to groups smaller than 60-100. Below is a picture of a masai village which break up once these thresholds are reached, because they have no money and thus rely on personal relationship for economic exchange.

So the purpose of money is to allow us to work together in a society so that we can be more productive overall. Thus money is a key reason why humans are so effective and dominant on this planet. And within our human society, money is probably the most important aspect for us to be successful, which is the same as dominating. One amazing aspect of money is that we can play the game of life without physically hurting or killing each other.

So money has above all a social purpose, specifically:

- Transfer value
- Store value
- Measure value

In order to do that well, two key things are important.

1. Stable value. If I make a contract with you today about a price in 3 years, the value of this price should be the same at that time from today else there is a problem. The reason? If the value is not stable one of us wins and the other loses. That distorts the purpose of money and turns it into a game of domination (only the side who wins should participate in the contract). Volatility also creates risk for both parties as they need to account for the fact that the price may change. This makes the transaction more expensive and inefficient as each side has to charge for this risk, compensate somehow or lose; all of which are bad. So in short changing value is really horrible. It does not matter which direction the value bends (deflation or inflation) both sides are literally counter productive. Nash has outlined this in his lecture about ideal money.
   
2. Fairness: Money should be useful to everyone in a similar way. Specifically, it should not benefit or harm anyone or any group within the society. If it benefits one group over another that other group should avoid using it or will hurt from it. But we want everyone to use money so that we can work together better. As a society we collaborate for mutual benefit, that’s why the society has formed in the first place. Money as a social tool works best if it is not made to benefit certain parts of a society. Money should be moved by economic activity (which does naturally lead to inequality) but the financial system must be neutral to be effective.

Our current financial system is a fractional reserve system. Pretty much all countries in the world use this system, meaning they all work the same but may have different parameters such as having different interest rates. Fractional reserve money or currency is complicated to spell out so let me call it fiat money. Fiat money is created by issuing debt. Every dollar, euro, yen etc. in this world has been created by a bank when some entity or person received a loan or bond - which is also a form of debt. When banks create new loans they need to have a fraction i.e. 10% of this loan as reserve, hence the name. The way this works is when someone creates the loan, they commit to pay back the money plus interest at which point the bank issues the money, by mere accounting (that a fancy way to say out of thin air). The interest is how the bank makes a profit.

This system has been in place since 1970 when the USA under president Nixon decided to switch from a US Dollar based on a gold standard to a one that is fiat money. After WW2 all money was based on the USD, so the US basically changed every financial system of the world over night.

Since every new money created comes with interest, more and more money must be created over time to pay back the loan plus interest, else loans have to default. So our money supply constantly grows, which is why prices over time go down, which is called inflation. This is also why debt rises every year. Best seen by the debt accrual of the USA.

You can see how debt has stayed fairly stable after the war and has been increasing exponentially starting in the 70's.

If we don’t have inflation, more and more loans will default and/or all money will end up in the bank. In other words, without inflation our monetary system will implode. This is why the federal reserve bank is so worried about deflation. Only because of our fiat system deflation means that either people are going broke or loans default or both. Inflation means more new money is being created to pay back the old debt.

Debt is costly and re-distributes wealth. It creates risk for the issuer, as the loan may default and the debtor has to pay interest. The interest will usually be higher than the risk, else no debt would be created. Of course the value of having money via a loan may be higher than its cost of interest in individual cases (i.e. if the money is re-invested with higher yield that the loan interest), but for the society overall many people having lots of debt leads to re-distribution of wealth from the people who owe the debt to the people that issue it. As a result, our fiat money is like an additional tax that a large part of our society has to pay to the benefit of debt issuers (banks, investors, asset holders) just so that we have money. This is still better than not having money but it is not ideal.

Inflation is also bad. Some people argue that it is good for the economy to have low inflation, but for the purpose of money, inflation is bad. Nash also argues that inflation in fact is not good in ideal money. It creates unstable prices and it also re-distributes wealth from poor to rich. It does so because rich people have assets (such as bonds, stocks, real estate etc.) and asset prices move with inflation while people who receive money i.e. via wages get less and less value over time.

This is why you should try to make as much money as you can via income from assets. You can see how asset have risen steadily since the 70's.

So basically all the way our financial works leads to moving money from poor to rich via debt and inflation. It does not do its job the way we have defined it well.

In summary all the mechanics of our financial systems are designed to:

• Move money from from anyone that has a wage type income or cash to people who have assets. Or simply from poor to rich.
• Inflate the money supply i.e. change value constantly
• It creates continuously more debt and thereby financially enslaves large parts of society

While fiat money fulfills the purpose of transfer and accounting very well, it is not a good store of value and hurts large parts of society (debtors).

Whether wanted or not, our financial system is designed to create wealth inequality and benefit wealthy at the cost of the less wealthy. At the same time, it is certain, that as long as fiat money exists large portions of the public will be financially enslaved to the benefits of assets holders. The middle class and even wealthy portions of our society are not save from this, as they also have mortgages, student debts and if stupid credit card debt.

Our financial system is designed to hurt many for the benefit of few which is bad for the productivity of society over all. No candidate is going to touch this subject as it would be political suicide.

This is why I think our financial system sucks. It might be great if you manage to play the game right, but for our society as whole it is bad.

Tomorrow I will talk about the second part of the problem.

Before leaving you with this somewhat depressing part today, I want to outline that I believe steemit and blockchains, being a new financial and governance system, for the fist time in centuries can provide the first building blocks for solutions to this problem. I will explain how in my 3rd part of this article.

Please follow me and provide feedback in the comments. The advantage of not being very popular is that I can promise to check out every profile that follows me or interacts with me.