With less than three weeks to go until the presidential election, all eyes are on the United States–and on the country’s economy.
Indeed, throughout this COVID-ridden year, the financial steps that the Federal Reserve has taken may have pumped some life into the economy in the short-term, the long term effects of quantitative easing (QE) and other stimulus efforts are yet unknown; some analysts believe that QE could have saved America’s economy. For others, the outlook is not as optimistic.
In the cryptosphere, it seems that the overall consensus may be that while QE could have disastrous consequences for the dollar over the long term, the stimulus efforts may have an inversely positive effect for Bitcoin and other cryptocurrencies.
But is what’s good for Bitcoin also good for the world? That remains to be seen.
Recently, Finance Magnates spoke to Alex Mashinsky, chief executive and founder of Celsius, as well as Miko Matsumura, founder of Evercoin exchange and general partner at Gumi Ventures, about the possible consequences that the presidential election could have on the economy, and what continued Federal spending means for the future.
(And, of course, about Bitcoin.)
”The Trump administration is definitely a form of centralization.”
The financial stress that COVID has put on the US economy and the world’s financial system has led to a wide variety of serious consequences–some more bizarre than others.
“The thing that’s so strange about what’s happening is that we’re seeing these layers of the historical economy,” Miko said. “One of the ways to look at the layers of the economy is through Abraham Maslow’s hierarchy of needs: you can see that there’s a primary layer, and then there are layers above that as you get further north.”
“One of the things that’s so crazy about this point in human history is that decentralization is a response to authoritarianism”–in other words, extreme centralization of power, Miko said.
“The thing that’s so interesting,” though, “is the social readiness for something that is effectively ‘leaderless’,”
“In times of uncertainty, people tend to look for authorities rather than looking for things that are fully-decentralized and open-source and run by a bunch of ‘ethereum hippies’ or whatever it might be–not to be pejorative, by the way; I consider myself to be an ethereum hippie,” he added.
Alex Mashinsky also said that “the Trump administration is definitely a form of centralization,” and that “I think in crypto, we are all fighting for decentralization.”
“Capitalism is not alive and well.”
Still, the election of either US presidential candidate into office seems to point to financial problems down the road. “Biden is not much better,” Alex said, “because Biden will bring new taxes and new healthcare policies and things like that, which is more spending on stuff that we just can’t afford.”
“In theory, what we’re supposed to be doing is saving during the good times and spend during the bad times, but now, we’re spending during the good times, and spending even more during the bad times.”
In other words, “capitalism is not alive and well,” Alex said. “That’s really the opportunity for decentralization–to reinvent capitalism, to reinvent the financial infrastructure.”
He said that this reinvention is key to the future of the financial world: “if you add COVID [on top of the current economic infrastructure], the economy is in a vice–it doesn’t matter what every central bank in the world does,” he said. “It’s like the economy is in a straight jacket–the central banks are trying to inject adrenaline into the world economy,” but COVID has the economy completely surrounded and under huge amounts of pressure.
The Fed “wants to go on a spending spree, but there’s nothing to buy.”
Miko added that while the US election is certainly about more than the economy–and that the election of each candidate could have very different implications for the American people and the world–when it comes to the economy, “there isn’t a magic wand.”
“Unless you consider infinite quantitative easing (QE) to be a magic wand,” he added.
But even the Fed’s decision to continue with QE has met some bumps along the road: “it turns out that the Fed doesn’t really have any treasuries left to buy,” Miko said.
“If you look at what Fed economist Michael Kiley has stated, he actually wants $3.5 trillion more in QE–but the problem is that there isn’t actually $3.5 trillion in treasuries that are just hanging around; it’s like he wants to go shopping, he wants to go on a spending spree, but there’s nothing to buy.”
If elected, both US Presidential going to spend money that doesn’t exist,
Part of the problem is that “the Fed already owns about 30 percent of all of the mortgage [debt],” Miko continued. “So, they can’t just buy other things too–obviously, they’ve already started buying corporate bonds, which is extremely terrifying.”
In other words, the Fed is running out of options. Miko compared Fed’s efforts to save the economy to save the economy to the Dutch parable of a boy who plugs a hole in a dam with his finger: trying to stop a potentially catastrophic situation from getting out of control–but it may already be too late.
“If you look at the impact of this kind of expansion, the Fed’s balance sheet increased by $3 trillion between February and June,” Miko said.
And indeed, while the two presidential candidates are very different across many categories, including social justice, “in terms of the economic macro spending plans, they’re both going to spend money that doesn’t exist, and print more, and do QE things.”
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Goldman Says Weaker Dollar as Odds Firm for Biden Win, Vaccine — and therefore stronger Bitcoin https://t.co/G9E6OjtnMz
— Miko Matsumura (@mikojava) October 12, 2020
Alex Mashinsky compared what’s currently taking place in the United States to what happened in the Japanese economy a couple of decades ago.
“The Japanese central bank is about 20 years ahead of the rest of the world–they’ve already done everything that Miko is talking about. They already bought all the treasuries that were available to them; then, when they ran out of treasuries…they started buying exchange-traded funds (ETFs).”
“Now, they own 70 percent of everything that is securitized,” Alex said.
“I came to this country (the United States) 32 years ago–the land of opportunities; the place where both democracy and capitalism are thriving and living wild,” he said. “But today, really, the Fed and the government are running the US economy.”
The “Zombie Economy”
What does this mean? “When you get to that point, you essentially have a ‘zombie economy’,” he added. “The Fed decides who’s winning and who’s losing. They put a safety net under the US economy, but the problem is that the safety net has all of these giant holes in it, and all of the small businesses fall through, while all of the giant businesses who are ‘too big to fail’ get all of the money, and they will live like zombies, forever.”
“The idea that the central bank needs to save the economy every 10 years is just a false premise; that’s modern economy theory, which is neither modern, nor a theory–it’s just a disaster.”
“For thousands of years, we’ve had cycles,” he continued. “You can read about it in the bible–they know that the cycle is every 7 years, and that’s why you’ve got to save–in the 7th year, you’re going to have a drought. None of that is new. The issue is that if we don’t ‘cleanse’ the ills of the economy of ‘easy money’, we don’t get a new cycle.”
“What we’re having right now is a problem where the Fed is stretching the current cycle for 20 or 30 years; then, you have a depression. You don’t have a recession.”
The hardest choices require the strongest willed.
If we are to take on the Banks and win we need the support of millions of people like you
We have to show a better way and convince all to stop give Banks power by depositing funds with them.
Let’s MOIP the world together.
— Alex Mashinsky ©️ (@Mashinsky) October 18, 2020
Therefore, in order to permanently exit this vicious cycle, Alex believes that a new economy must be built–and that cryptocurrency and blockchain could be the basis.
The “Extraction Economy”
Miko Matsumura pointed to another aspect of the vicious economic cycle that he refers to as the “Extraction Economy.”
“The base layer of extraction has been minerals and natural resources, and this kind of thing; so, we’re hearing a huge ‘sucking sound’ in the department,” he explained. “Obviously, the eventual externality is that there’s no environmental resource left. Half of the Great Barrier Reef is dead; we’re seeing all kinds of crazy externalities regarding environmental extraction.”
But this extraction isn’t limited to natural resources: now, “we’re [seeing] the extraction of attention” with social media and the data mining that results from it.
“That ‘extraction’ layer of the economy is further enhanced by companies like Facebook that are taking the activity of human attention and are extracting the value, essentially by using artificially intelligent (AI) bots that show people advertisements.”
“For the longest time, these things have been done fairly relentlessly,” Miko said. “When you look at the state of the economy, there are some pitiful attempts to sort of mitigate these things–people talk about the ‘sharing economy’; it just sounds so wonderful, like ‘oh! People are sharing! How kind of them to share’–and it’s like, no.”
“That’s just more extraction,” Miko said, only it’s the “little guy’s” version: “they’re not even extracting themselves, because they’re being extracted upon.”
“The idea is: ‘why am I driving an Uber?’,” Miko explained. “The answer is, ‘it’s because the only thing I have on my balance sheet is a car. How can I extract from this thing that I have?’”
Miko also pointed to AirBNB for employing a similar model: “it’s like, ‘I have a house, so how can I extract more value out of my house?’”
“The little guy becomes an extractor rather than an extractee,” he said. “But the thing that’s crazy is that companies like Uber and AirBNB sit on top of them, and extract from them.”
“The thing that is inescapable is what Alex is describing,” Miko said, referring to the “Zombie economy” concept–eventually, there won’t be anything left to extract: there won’t be any more treasuries left to buy; new value will not be created. Instead, the economy will suck the bones of the country (and the world) completely dry.
A crypto economy could be driven by consent
Therefore, like Alex, Miko also sees the need for a new economic system–one that, quite possibly, could be built using cryptocurrency and blockchain technology.
Miko explained In an economy that is based on blockchain and cryptographic assets, “you can’t increase the supply” unless it’s programmed into the protocol.
Why is this? “The reason you can’t isn’t anything other than consent,” Miko said. “People want Bitcoin to be ‘The Bitcoin’: if I launch something called ‘QE Coin’ that just printed itself infinitely, how many people would consent to use it? Zero–people would be like, ‘I don’t wanna use that–it’s terrible. It’s a shitcoin. Why would I do that?’”
Therefore, “the thing that drives the entire [cryptocurrency ecosystem]”–including the Bitcoin network–”is consent,” Miko said. “The point of Bitcoin is that people consent to use it, and they consent to use it because it has rules that they understand, and one of the rules that anyone can understand is the limitation of the supply.”