“Will the Money ever run out?
By Ben Peter Jones, CEO and Founder, Bitwala
Money makes the world go round? No longer! Even the International Monetary Fund’s (IMF) chief economist Gita Gopinath, thinks it won’t be enough to save the world from the biggest depression in a hundred years.
She wasn’t joking on The Daily Show’s Easter Monday edition when she shared her observation that a policy of iterated monetary stimuli eventually faces diminishing returns.
A concerned Gopinath told the public that, while keeping a safe social perimeter, as many as 90 of the 158 IMF member countries have come to the International Monetary Fund (IMF) for help.
On April 17th, 2020 the United Nations warned the world that hundreds of thousands kids will die - not of Corona, but because of hunger in the aftermath of a synchronized depression in many economies.
No doubt: The IMF finds itself at the epicenter of a monetary tsunami. What follows could be a storm, self-induced by Homo Sapiens to bury the Corona fallout under a sea of state-guaranteed liquidity. The aftermath may very well dilute the retirement savings of a generation.
Legal tenders may lose all credibility
Mind you that money supply in western economies has grown rampantly since the accord of Bretton Woods in 1944. That’s when the greenback’s peg to the Gold Standard ended. It means that we live in the age of fiat money, where bucks come in the form of potentially empty government promises. It means to keep a tight lid on money creation, because any additional coin dilutes the spending powers of all others.
But ever since FED Chairman Alan Greenspan flushed financial markets on Black Monday of 1987, central banks became more and more entrenched in a conflict of interest between serving the public and or politicians.
*“Whatever it takes”.
Mario Draghi, 2012
In the aftermath of the financial crisis, central bankers of the likes of former ECB chairman Mario Draghi openly stated to do “whatever it takes”. Draghi went as far as comparing quantitative easing with “Dicke Berta”, a particularly heavy Nazi weapon. What may sound more funny in Italian, meant that Draghi would even deliver the central bank’s mainstay of independence to the European Union governments.
Many central bankers must ask themselves today, if maybe they sold out their independence all too fast. Today, money creation sprees have lost their status as a measure of last resort. It’s seems more like a hair-of-the-dog-type of habit – to laugh about once the headache has passed.
With every additional cash infusion by central banks, the likelihood of central banks soon investing in Bitcoin is growing. Soon enough Bitcoin may advance to a global reserve currency. As opposed to Facebook’s Libra-born Global Coin, Bitcoin is unstoppable.
Central Bank credibility is worn down to a thin veil
When launching Bitcoin (BTC), Satoshi Nakamoto put an end to a vicious circle of liquidity expansion benefitting the few over the many. He launched the Bitcoin Blockchain just after the demise of Lehman Bros at the height of the financial crisis and left his last traces in the public domain in January of 2009. His disappearance is the cornerstone of his unique masterpiece.
To many in the crypto community Satoshi already is the Gutenberg of our age. But forgoing all claim to fame, Satoshi wanted Bitcoin to be detached from human figureheads and build trust between the computers we are using.
Algorithms define Bitcoin as a digital value that can only be sent through the closed Bitcoin network by any holder of a unique cryptographic key. It helps to think of it as a very, very long password that can be stolen, but never cracked.
Typically transferred in exchange for fiat currency, a sender gives up all rights of ownership, much like a payee should. Bitcoin withstands all attempts of forgery, double spending, and even governments have begun to accept its resistance to censorship. There simply is no way to generate more than the21,000,000 Bitcoins Satoshi had in mind.
Presently around 19,000,000 BTC are circulating, boasting a market capitalization that hovers around $180 Billion these days. To provide perspective: The Fed alone created 10 times that in March out of thin air.
And where is all that state-backed money now? What’s not held in cash, lives in the digital accounting systems where storage is measured in bytes not vault space. It’s the essence of all promises legally made between employers and their labor forces, customers and vendors, the state and our retirement provisions… you name it.
Bitcoin Halving coincides with Corona Crisis Mode
Now, a bleeding world economy is setting the stage for the IV. Bitcoin Halving - the world’s only event that cannot be cancelled. Per Nakamoto’s mathematical decree, built into the immutable code, the return of computing power invested in the globally-distributed Bitcoin network is slashed by 50%.
On the day of the halving, the rate of fresh Bitcoin, which are produced in 10 Minute intervals, will decline to 900 BTC from 1.800 BTC per day.It is a historic coincidence that Bitcoin automatically reduces its supply by half just as an already ultra-lax monetary policy is beginning to lose its grip over the economic incentives.
In sum, Bitcoin is more than an interesting experiment. It is a hedge against exuberance of monetary stimulus. It is exactly Bitcoin’s immutable scarcity that makes out its appeal to “Hodlers”, the growing group of long-term investors in Bitcoin. For them Bitcoin is the money they trust as they prefer the incorruptible nature of Bitcoin over short lived monetary policy effects. They believe in a new interconnected tomorrow, where we will use Bitcoin to exchange value on the Web3.
Why Bitcoin and not Gold?
Gold has been the mainstay of central bank credibility. It will certainly remain to be part of their mixed future portfolios. But gold is not fit for the Internet of Value.
Consider this fun fact: Since 2013, Germany’s Bundesbank repatriated as much as 583 metric tons of gold from vaults in New York and Paris. The loads had been “parked” there during the Cold War. The mega operation involved multi-day maximum security transports and is yet to be completed.
With Bitcoin the same could be done by the click of a button. And once Central Banks embrace Bitcoin, they regain control over a sector that is poised to be dominated by Big Tech like Facebook's Global Coin otherwise.
It’s not a stupid question!
With the verve of a Freshman student, The Daily Show’s host Trevor Noah asked the Indian-born Princeton Ph.D. Gopintha: “This maybe a stupid question, but is there a point where money just runs out?”
Noah's question is a reminder that most of us learnt in school that money should -above all- be finite. Money once made the world go round, because it was hard to come by. It needs to be earned - is what we teach the kids, as we set them up to drown in our legacy of debt.
“The economy, stupid!”
Bill Clinton, 1992
But those rules do not apply for the public sector: Central Bank technocrats keep funding fiscal deficits by creating fresh money out of thin air to clean up behind the 1%. Elected officials steer western democracies by way of pork-belly spending.
Mrs. Gopintha’s answer to Noah: “In theory, central banks can put in as much stimulus as they want to. But that’s it. They are limited to what they can also do.” That’s doctors’ code for “printing money won’t make the world whole this time”.