Is This the Future of Monetary Policy?

Econ goes big data

What is your outlook on your ability to build wealth right now? 

Are you excited, optimistic, and enthusiastic? 

Or, are you pessimistic, negative, and dejected? 

Building wealth will always be a much different conversation than what’s happening in the economy right now. 

Every conversation around the economy turns to stimulus, government intervention, and higher taxes. But, why is nobody talking about helping everyone build more wealth? 

We’re watching the financial power structure of our world going through a death process.

There’s too much debt, there’s too much political baggage, we have an aging population that won’t cede power, wages are deflating, assets prices are skyrocketing, and unrest is brewing.

Therefore, all of our conversations around wealth right now are around how to stop, prevent, react, and rearrange. Very few are talking about building. 

I don’t mean that everything will die an eternal death and we’ll be sent back to the Stone Age. But, that the parts of our financial system built pre-digital technology (let’s call it pre-1990’s) are going to be sucked into the supermassive black hole of innovation and never come back out.

In America we’re witnessing the transfer of power from the Boomer generation to the Millenials. Another phrase for that has been popularized by William Strauss and Neil Howe. They call it “The Fourth Turning” and it’s the inevitable cycle of life, like the phases of the Moon.

Everything is coming together right now. Macroeconomics, Politics, Debt, Crypto, and now even Art and Culture. We’re entering one of the most exciting experiments that I believe I might ever witness in my lifetime.

That also means it could be, and likely will be, one of the greatest times to build wealth in my lifetime. Change creates opportunity, and, as Bob Dylan sang, “The Times They Are A-Changin”.

But it’s important to know the foundation we’re resting on today to forecast where we might go tomorrow. 

Today, it’s estimated that around 80% of global transactions are settled in dollars. But, the United States accounts for only 25% of global GDP.

But, when the world goes into an economic contraction dollars become scarce and these countries struggle to get US dollar funding. And, many times these countries cannot get access to any dollar liquidity provided by the Federal Reserve. In recessions, it makes sense that the majority of the dollars printed in America and stay in America. 

Therefore, dollars become scarce in Brazil, South Africa, Chile, Mexico, Indonesia, Philippines, you name it. They all need dollars to settle their international transactions. And the United States controls the tap. So much of the rest of the world gets hurt by the dollar reserve system in this way. 

With Main Street hurting and the economy still climbing out of the COVID recession it’s an easy bet that more stimulus is coming. 

“Money Printing” goes into the banking system and then the banks need to lend the money out into the economy. But during recessions and difficult periods the banks hoard the money. That money that gets printed never makes it into the economy.

But now we have direct cash payments. These are a new experiment for central bank stimulus across the world. The checks, however, are slow to get out, difficult to means test individuals, but they are a powerful tool.

The central banks will find ways to send more checks to the people. The cat is out of the bag on this. This is the seed of universal basic income.

This is a new world for how stimulus and monetary policy can work. What if we all had different monetary policies depending on our income, age, occupation, or location?

You, the retired baby boomer with a million in cash savings, get charged a negative interest rate on your savings. While my neighbor down the street, the pizza delivery guy who makes minimum wage gets a monthly stipend from the government.

Individualized monetary policy is coming. And, digital assets built on the success of Bitcoin and other crypto assets are inspiring action from central bankers to create centralized and sovereign digital currencies.

These are the natural next step in evolving monetary policy.

This would be the start of cashless society. This would be the beginning of having the government monitor all of your financial activity. If we all receive digital dollar wallets from the Fed, they will be able to see every transaction we make. They could tax us at the transaction level.

Loss of anonymity and freedom, yes. But we could eliminate bureaucracy and the IRS.

My bet is that this move is the signal for the beginning of the end of the dollar-centric reserve currency system. What could be coming to replace it?

Moving currencies onto a digital network will allow for baskets of currencies that are trade-weighted. No one currency dominates any of the others like to dollar does today.

This allows for coordinated monetary policy across nations. Which debases the entire fiat money system at the same time.

Fiat currencies are already getting debased when looking at a chart of gold, even more so when looking at bitcoin.

There is only one way out of the mountain of debt weighing down our economies today... debase our currencies and attempt to inflate away the debt.

If you remember from my last newsletter, it’s going to take exponentially more debasement to create the inflation needed to move the needle on our debt.

Bitcoin is our way out of this mess. It’s our way to own an asset that will appreciate exponentially as governments do the only thing they know how to do... debase their currencies.

We’re in the end game now.

Watch out for a much stronger dollar. If dollar goes up it creates more expensive debt and increases chances of a large deflationary shock to the economy.

The dollar will get sacrificed at the end of all of this.

So, how do we avoid getting screwed by all of this?

Savers and investors are getting a fork stuck in them right now. Zero percent interest on savings (unless you’re in crypto), all-time expensive equities, stagnant wages, and the only solutions our central banks have exacerbate all of this.

Their only way out is more control over our monetary system and on boarding all of us onto their sovereign digital currency networks.

All roads lead to bitcoin.