The Central Banks around the world, especially the United States Federal Reserve, is backed into a corner. They are operating on a very slippery slope, hoping to threat a needles which they found in a haystack. That is the likelihood of them pulling this maneuver off.
Some time ago, the Fed passed the Rubicon where they entered into a liquidity trap. This is not recent, it happened more than 2 decades ago. The printing of money, mild in comparison to today, created economic turmoil of great proportions. In short, the global economy saw the overall growth rate plummet while financialization went through the roof.
Since the Great Recession, Central Banks have been printing money in the wild hope that their Keynesian models would finally world. Decades of decreasing money velocity evidently told them nothing. Instead, they keep printing, praying that it will eventually stimulate the economy.
In all actuality, what the Central Banks have been doing is keeping everything from collapsing. The low interest rate environment is essentially filling in for the absence of true growth. This is a major issue since the world is now dependent upon that money.
The major problem comes in when the Fed loses "control". A couple years back the policy switched from easing to tightening. Interest rates were slowly moved up which the markets did not like. The Fed quickly reversed this course of action, realizing that it was going to collapse things within a year.
Fast forward to 2021 and we see things are no better. The economy was smashed due to the lockdowns from COVID-19. Nevertheless, the markets are still riding high, pushing many to call this the "Bubble of Everything".
We are already seeing interest rates creep up. This will be catastrophic if it continues. One of the reasons the Fed kept interest rates at historic lows is because of the servicing of debt. With so much paper out there, the costs are feasible with low interest rates. However, if money starts to cost more, that will really affect things like real estate.
The challenge starts when defaults begin. With so many zombie companies out there (those who servicing of debt obligations exceed their net income), the markets become vulnerable if they cannot keep rolling said debt over. When that stops, defaults take off, causing investors to want more money when lending since they are taking on additional risk.
This is the situation the Central Banks find themselves in. Of course, they are aided (coerced) by politicians who are about as bright as a dead lightbulb. These individuals, when they aren't playing politics, simply seek to buy votes. Everything is about their next election.
Throughout this entire process, the wealth and income inequality numbers went through the roof. Even the last year, the top tier excelled while the rest of the world suffered. Couple this with the explosion in technology, read automation, and we can see how this scenario only gets worse.
In short, the Central Banks or governments will not get out of this mess. The lack of willingness to "cleanse" the system through bankruptcy and default means the pain, which inevitably comes, will be that much worse.
Enter cryptocurrency.
When you have an economic and financial system that is so sick, there is really no cure from within. Believe it or not, the major challenge becomes having enough money to help the economy grow. In spite of the money printing, from the USD perspective, there is a shortage.
How can this be with trillions printed?
There are a number of reasons for this:
To start, not all the money gets into the economy. Much of what the Fed does goes through the banking system. The only way it gets into the economy is through lending. When things suck, banks are not willing to lend without assurances. Thus, during those times when Congress passes a spending bill, the money is distributed since the banks are not on the hook. However, when it is the banks money on the line, suddenly lending standards increase.
On an individual level, with economic uncertainty, many people change their behavior. Right now, the stimulus that is sent out basically replaces wages. Thus, the economic impact is not great. We are seeing basic necessities holding up yet other areas are dying. People tend to save more as things get iffy.
The final piece is the percentage of the pie that is allocated to debt servicing. With such massive debt loads at the government, corporate, and individual levels, the cost to keep the payments up, even at record low interest rates, is growing. That means less money for productive purposes.
Here is where cryptocurrency is the elixir that the economy needs.
Like Central Banks, the ability to print money exists. In fact, that is now in the hands of every individual with an Internet connection. This provides the potential to provide the liquidity that is needed for growth.
However, unlike the existing system, the distribution can occur in a manner that helps the ailing economy. Instead of new tokens going into the hands of banks, it is put into individual wallets. This increases the incomes and, hopefully, the wealth, of average individuals. Here we see where money actually gets into the economy as opposed to a large percentage of it either being held back or going to debt.
At the same time, investing can take a different path. Cryptocurrency does not have the debt obligations that the traditional system does. Hence, those involved have the potential to allocate the resources to more productive means. There is no funding of zombie projects. In crypto, the Network Effect is always in action. If a project is in a zombie state, it simply dies out. Attention is one of the key currencies in this realm.
Crypto has the elasticity, overall, that is required to grow economies. However, it is not just endless money creation. Each token has a distribution schedule that is coded in. This, for the most part, is not changed. Here we see the ability to have confidence in a currency based upon that.
However, as was stated, more can be created in an instant. Another currency can show up immediate with a few clicks of a mouse. This provides the ability to expand when needed.
Of course, that does not mean the market (environment) will be able to digest it. If too many tokens are created without a use case (value), then they will die. Sure they exist but they are basically nothing. With nobody using them, it is as if they are not there.
The industry is still in its infancy, especially when it comes to DeFi. Nevertheless, this funding mechanism is what will allow for the salvation of the global economy. While the Central Banks and governments play their games, doing whatever they can to try and keep things afloat, financial power is shifting. An economy based upon activity and the Network Effect is being constructed.
Cryptocurrency has the ability to provide a 15%-20% annual growth rate in the global economy. This is something that the present system cannot even envision. Heck, the United States, in spite of its reserve currency status and technological might cannot even sustain 3%.
Why is such an elevated level possible with cryptocurrency? Simply put, when you look at the totality of the system we have the ability to create whatever money is required and back it through activity. If we pull enough people into the mix, the value of the currencies will be there. Also, this all takes place without gatekeepers or rent seekers. Those entities tend not to add value, only extract it. Too much of the present economy is locked up by institutions that take money without adding any value.
The holistic nature of economies is what is providing the opportunity described in this article. With so much disruption taking place, we are seeing a major shift. The present economy was unprepared for it even before it got sick. Now, it is completely out to lunch.
Cryptocurrency will enable us to transition to a place where more of our economy is based upon the virtual. It will leave behind those zombie industries, since funding of them will not take place. After all, would anyone buy a Sears token? Of course not.
This shift is what will kickstart the economy. In totality, crypto has the answer that the world is seeking. It all adds up.
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