We all know about the wealth and income divide that exists in the developed countries. This is something that is not a big secret. Over the last few decades, the gap between rich and poor spread enormously. Today, there are CEOs making thousands times what the average worker makes.
There are many theories as to why this happened. Most probably have validity and played a part in the overall situation we are facing. That said, there is one aspect of things that does not garner much attention yet is a valuable lesson in the development of an alternate system. The cryptocurrency industry would do well to take heed of what took place.
In the United States, the Nominal GDP has been falling. Before COVID-19, we were facing a situation where it was around 4%. This is pathetic and shows how out of touch the central bank and politicians really are. We should be seeing a rate of near 7%.
One of the biggest challenges in all of this is the financialization of the economy. This is where the focus went from production to financial maneuvering. It is a situation that created a great deal of fallout, much of it irreversible.
Here we have a chart from the Fed depicting financial versus non-financial assets held by corporations.
As we can see, up until the late 1990s, American corporations were split. Since that time, we see a massive accumulation of the financial assets as compared to the other. What is happening is that companies stopped investing in organic growth. Instead, they used financial tools to produce the returns they were seeking; returns that favored stockholders and corporate executives.
This is evidenced by this chart which shows corporate fixed investment as a percentage of GDP has consistently declined.
Not surprisingly, the output capabilities dropped a great deal.
Since corporations engaged in financial engineering as opposed to growing their companies organically, the amount of money being spread around is isolated to a certain few. The long-standing debate about Wall Street versus Main Street is summed up here.
The next two charts show how workers are taking home a smaller piece of the pie while corporate profits are going through the roof.
As we can see, this all is a trend that spans many decades. This is why it is a mistake to blame any one political party or single politician. Notice this spans many sessions of Congress and Presidential Administrations. The trend is the same whether the White House is red or blue. It is also why any politician that says he or she is going to change it is misleading.
What we are witnessing is systemic. The idea of financial engineering has infiltrated Corporate America. Here the wealthy found a way to basically print money and there is really nothing anyone can do about it. Stock buybacks, dividends, and other financial tools that reward shareholders are the norm. Companies simply find the returns they are getting from these methods to be better than investing in their own businesses.
Apple spent more than a decade being one of the leading innovators in the world. It went on an enormous run of success with the IPod, IPhone, and finally IPad. However, it is close to a decade since they had a successful product introduced.
You would think that a company that is mired in an innovation funk would be doing all it could to get out of it.
That is obviously not the case.
Tim Cook found his golden goose and keeps feeding it to Wall Street. Even after the dividends it paid out and stock that it bought back, the company is still sitting on close to $200 billion in cash (or cash equivalents). On its own, this would be a decent sized hedge fund.
Of course, netting a few percent without much effort on $200 billion begins to add up after a while.
This is the financialization of the economy. Apple is far from the only player who is operating this way. In fact, all of the major companies are doing the same thing. They are buyback their stock and engaging in other forms of financial engineering while bypassing the investment in organic growth.
Why would they do this?
The answer lies in the fact that the returns come easily. When we are dealing with that much money, financial maneuvers offer a greater return with a lot less headaches as compared to building a new plant or spending billions in R&D to bring out a new product.
Which brings us back to cryptocurrency. This industry has the opportunity to create an alternate to not only the present financial system but also redesign the economy. Of course, this is only possible if we adhere to the lesson that are overtly before us.
There is no doubt financial is imperative to all economies and has its place. Financial institutions are vital to keeping the engines of the economy turning. For all the attacks we levy, the truth is that economy shut down when financing dries up. Without lending, homes, cars, factories, and raw materials are not purchased.
However, we are at a point now where the inversion has stalled economic growth on a global basis. When the United States is floating at a 4% NGDP rate, you know things are terrible. All the chest pounding about a great recovery (since 2009) is obviously nothing more than cheerleading 101. The reality is economic activity was poor for some time and only getting worse.
Cryptocurrency, or more accurately, those involved in cryptocurrency, need to alter this reality. Here is where the focus on "mooning" and "lambos" is dangerous. It is falling into the same trap that executives at all major public companies experienced. Concentrating on money for the sake of money is a dangerous path.
Naturally, that is hard to do when we are the ones without the money. Due to income and wealth inequality, most reading this are on the wrong side of that scale. We are all struggling to get by, facing difficult financial situations at every turn. Job security is non-existent and certain expenses like housing, medical insurance, and education keep going up.
Nevertheless, approach to returns is vital. If we are always looking for the ROI, then when does it stop? Perhaps the mooning does hit and the crypto wealth is created; what then? Is that the time one starts to focus upon building something? Or is it a more likely scenario where the habit is already ingrained in us and we will simply become one who seeks a greater ROI?
In this way, we simply become the CEOS and other executives we find so appalling.
Will cryptocurrency be just another game for Wall Street types to play? Are we joining the party simply by looking at how much money we can acquire? Will this continue through our seeking of compounding out returns through financial methods?
Or will we take the approach that our bags are to grow so that we can fund things that the world truly needs?
Cryptoholders have a distinct advantage. Overall, the technological capabilities are off the charts. Even if we are not very technical ourselves, we do not have to hit up too many people on discord before we find someone who is. There are a lot of techies in the space, a number that is growing each day.
Thus, we have the ability to innovate and create. This means addressing real world problems with viable solutions. Cryptocurrency offers the financial resources to those who presently are unable to acquire them. The question is are we going to make those resources available?
Of course, for this to happen, projects need to be put together with this in mind. We are at a point in the development of the crypto world where DeFi is the big attraction. Certainly, this was a vital phase of crypto evolution. However, when we think about it, is yield farming the answer to a great deal of what plagues the world? Is it providing a mechanism to eliminate the income and wealth inequality we presently find ourselves in?
Bear in mind I believe DeFi to be a wonderful step forward and feel the growth is a major benefit to the entire industry. Nevertheless, what are we going to do about the production shortfalls that the world is presently experiencing?
Here is where I feel those involved in cryptocurrency have the ability to radically change things. Since we know people who are innovative, we can help to finance those endeavors. Certainly, from a funding perspective, those providing the resources are going to be looking at a return. This is only natural. That said, if we can help those who are seeking to build something, either physical or digital, we will be much better results across the board.
It is the point where I feel that cryptocurreny needs to bridge with the real world. When that happens, we will see this industry making a serious impact upon society. At present, we are not there yet. However, if we maintain our focus, we can get there.
This is where I believe we will see the explosion of users. Developing an alternate system that actually holds greater benefit to the masses will be appealing. When that happens, I do not believe it will be very difficult to get people to switch over.
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