The year is 2040. The progressive democrat party has been in office for 8 years under President AOC and despite multiple efforts during her term to legislate away billionaires, wealth inequality is worse than ever. In a last ditch effort to cement her legacy, a loophole was found in the 2035 "end all billionaires" bill, that gives her executive authority to make everyone a billionaire if billionaires have not been eradicated by 2040. The week before the 2040 election she signs into law "executive order- 12345" which gives the Federal Reserve the authority and directive to create 350 Quadirillion USFedcoins and at 1201am est the morning of the 2040 election to deposit 1B USFedcoins in each citizens FedNow wallet.
What happens next?
Thought experiment curtesy of @grayruby
TL;DR Every American is given one billion dollars of freshly printed fiat.
Beyond the obvious general rise in prices, what are some interesting dynamics that are going to unfold that people don't usually think about?
Prior to this happening, all the actual billionaires would have heard of this coming (probably from AOC herself) and unloaded all their cash holdings for real assets.
Fiat is devalued and becomes worthless. Any chumps holding cash are wiped out. The poor stay poor and the rich get even richer.
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Haha love the first response went to the system is corrupt, politicians are corrupt, everything stays the same with a little chaos in the middle.
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That's a good one. Even if we want to stick with the hypothetical scenario that doesn't involve them getting tipped off, they would have a serious first mover advantage. The wealthy already know how to make all those purchases and have people ready to make them happen almost instantly.
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I have thought about this awhile so I will post my ideas tomorrow. Let's see what other responses you get and then maybe we can both add our 2 sats tomorrow after the post has been up for a bit.
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I've never thought about this exact scenario, but I have spent a lot of time thinking about UBI and that has many similar, but scaled down, dynamics. I'm looking forward to diving into everyone's ideas for a bit.
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I don't think billionaires have a lot of cash holdings, which would make this effect pretty small.
One week's notice probably isn't enough time for pension funds to drop their treasuries, but that's where we would probably see the big dollar dump.
That leads us to another prediction: interest rates would go to the moon during the post announcement week.
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Beyond the likely rapid recalibration of prices, everyone would instantly understand that fiat money is fake and the only real money is commodities (since fiat is just a medium of exchange to grease the wheels between current and future consumption/value exchange).
In either case, I would just plow all of it into BTC I don't really care what other people do haha!
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everyone would instantly understand that fiat money is fake
That's so optimistic.
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I don't think so - I think the act of creating 350 quadrillion FedCoins would reveal to everyone the elaborate long con. It's too bad that compared to the hyperinflation of the Weimar Republic, we won't be able to use FedCoins to stay warm!
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Is the scenario more or less interesting, if people do generally understand what just happened? I'm not sure.
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I think it depends on how you define interesting, and over what timeframe. I think in the short term it wouldn't matter; everyone will be clamoring and falling over themselves to convert that airdrop into real assets. It starts to matter more in the medium-term, with people who understand what has happened likely organizing themselves into more hyper-local communities for safety and value exchange.
I think it also depends on the kind of world we live in within that scenario. Are we already in a movement-restricted, rampant censorship, anti-liberty regime? In that case we may not have access to cash in on real assets if we "own nothing and are happy".
At that point I think the situation would devolve in a pretty linear fashion, with the available consumer goods readily depleted and supply chains shut down either due to overwhelming demand or rampant labor absenteeism.
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Are we already in a movement-restricted, rampant censorship, anti-liberty regime?
Well AOC is president, so that tells us something.
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organizing themselves into more hyper-local communities for safety and value exchange
The pricing mechanism would be so broken that barter would resume for some transition period? That seems pretty likely.
rampant labor absenteeism
That's one I was thinking about. We discussed it somewhere in this thread.
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This is a great question. Some thoughts:
  • How long would re-pricing actually take in a situation like this? Given that you know very precisely how much inflation there's going to be, and it's going to happen all at once, the grocery store could immediately re-price all the stock. The prices would be "wrong" but it's not like they would sell out instantly to Cantillon beneficiaries. Everyone would have a plan in place.
  • But there would be dead zones! E.g., if I know that the new price for an apple is going to be $500k on the assigned date, do I sell apples for $1 on the day before that? Seems dumb. So I stop selling anything in advance, unless the thing will go bad. So there's this dead zone...
  • Related: how much can current-billionaires accomplish in the time before the billions arrive? If the airdrop is in three months, how much wheeling and dealing can happen before then?
  • And, given that the whole world knows that this is coming, it's the same issue w/ the 'real' billionaires who are trying to offload dollars for assets? It would set in motion the highest of high time preferences, where billionaires were trying to spend at scale and almost everyone resisting selling to them at scale.
  • Some people would probably gamble on the deal not going through, though.
  • It would be interesting as a kind of reset: all but the richest of the rich basically become equivalent from a purchasing power perspective. It's like money would be starting over, with some caveats. But a lot of the people who had no money before had no money for a reason -- how long before the amount of money people have re-differentiates, and we have stratification again?
  • In some key ways, though, it still wouldn't be a reset. Assuming the government didn't collapse in the chaos, people would still own property that they owned beforehand; and a lot of people who had no property, and who had always wanted to (e.g., people who couldn't afford a house), will suddenly be on an equal footing with everyone else in purchasing it, at least at first. So relative demand goes up? And prices get even more expensive? I'm less sure about this one.
This is really cool. Would love to see this war-gamed in detail by people who really know what they're talking about. Which makes me wonder: would an Austrian economist and a mainstream economist disagree about what would happen in a scenario this extreme?
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This is the kind of thought processes I was hoping we would get.
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The hypothetical here is that there is a one week lead up, so there's limited time for people to adjust in advance.
However, you're right to point out that there would be price hikes in anticipation. Probably, prices would get so crazy that no normal person would be able to buy anything during that week.
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Ah, I missed the one-week.
It's interesting to play it out across multiple timescales. Different effects unfold by twiddling that one parameter.
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I missed the one-week too, and it's my post. I thought it was overnight.
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I would imagine the government would institute some controls on what people can and can't do in regards to pricing and hoarding with the one week lead time. I think it is better than overnight for the thought experiment. Waking up with a billion dollars and knowing you are getting a billion dollars a week from now are two very different things. What controls would gov need to put in place, what are the geopolitical consequences (other countries own a lot of treasuries and dollars), if controls were in place in US but not other countries would people be flooding out of the US the week before trying to purchase every desirable good and property possible in other nations?
I think it makes it more interesting that people know it's coming.
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I think everything grinds to a halt for that week.
Why would you go to work for your normal wage when you're going to get a billion dollars in a few days?
Why you sell anything for a normal price when you could wait a few days and sell it for thousands of times more?
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Some people would probably gamble on the deal not going through, though.
Good point. There would be people who expect the courts or congress to shut it down. In this scenario, they get totally wiped out.
That gives us another prediction: there will be an enormous transfer of wealth from people with confidence in "checks and balances" to everyone else.
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One that just occurred to me is that a huge share of low wage workers would quit their jobs and many basic services would stop existing until prices and wages adjusted and drove them back to work.
The labor force dislocation would be pretty extreme.
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Along those lines, covid style supply chain breakdowns. Truckers, longshoremen, all quit.
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I shouldn't have said "low wage". I had in mind that whole set of people who do pretty unpleasant, or difficult, but necessary jobs.
The correction will be slow too, because all the HR and payroll people who know how to do hiring will have also quit.
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Now we are getting to where my thought process was going. Demand for goods would skyrocket, while prices took time to meet demand but many would not understand they aren't rich and believe they didn't have to work. Supply chains would be a disaster. Businesses wouldn't open because they don't have enough employees. Everyone has a billion in their wallet but there would be rampant looting and theft.
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I just made the related point above, but this is a bigger problem than people not understanding that they aren't rich. If I'm only going to get paid a normal wage, say a couple hundred bucks a day, there's no reason to go to work with this billion dollars looming.
The problem is that there's also no way to adequately scale prices/wages during the week, because no one has enough money yet to pay them.
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When everyone is a billionaire, no one is
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That's AOC's reasoning in this hypothetical, but as @SimpleStacker pointed out, the rich would take measures to still be rich.
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First thing I would consider in this thought experiment is that we have a lead time before the deposit takes place. One would imagine the government would need to put strict price controls and hoarding rules in place to prevent everyone from trying to front run the event. What consequences would that have? How would it be enforced? (not possible to enforce the actions of millions of businesses and 350M people I would think so their enforcement likely fails). What are the geopolitical ramifications. The US is essentially rug pulling foreign treasury and currency holders. But also essentially providing a debt jubilee to US debt denominated holders. This will create significant tension between the lottery winners and the bag holders, in my opinion, all over the world.
Completely rug pulling foreign bond holders like China seems untenable and could lead to extreme retribution so they will need to make some sort of deal with large foreign treasury holders beforehand. Even if they manage to avoid significant front running of event and somehow strike deals with foreign treasury and currency holders to make them somewhat whole, maybe they accomplish this through federal land swaps, maybe military equipment, maybe the US gold holdings, or other assets etc, chaos is inevitable in my opinion.
Regardless of how well this is strategized, planned, organized, even with superpowered AI (it's 2040) it is not possible to map out every possibility in a complex dynamical system with hundreds of millions of actors making thousands (if not more) of potential decisions. Once the deposit hits, prices begin to rise but not at the rate of money supply growth as it likely takes weeks or even months to find market price equilibrium. Existing inventory of pretty much everything gets bought up almost immediately and now we have a major problem because most people have a misunderstanding that all that has changed is the amount of currency they own, not the value of it- in fact the value has significantly declined because the currency is no longer trustworthy, so most people quit their jobs and the supply side of economy grinds to a halt while there is red hot demand. Now this is 2040 so maybe we have a breakthrough in AI, robotics by this point and can make this up in some parts of the economy but there is likely a major resource shortage globally to make all the stuff consumers are now demanding. People have the money to buy the things they need and want but can't get it which has them completely losing faith in the system. Then begins the riots, looting, civil unrest, inevitable military intervention to keep the peace.
Eventually the government can no longer fund itself other than through taxation, asset liquidation and expropriation. This creates more chaos and civil unrest, forcing the government to grow ever more authoritarian using AI to surveil everyone and the military to enforce the "law". The US quickly devolves into a third world country.
Maybe we get a happy ending and Bitcoin fixes it.
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Beyond the obvious general rise in prices, what are some interesting dynamics that are going to unfold that people don't usually think about?
Ever heard of Venezuela or Zimbabue?
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No. Are those movies or something?
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under horror section
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