When the Federal Reserve chairman Powell said:” inflation could be higher and more persistent than expectations”, it started to raise my concerns.
Why do we need the Fed?
The Federal Reserve System is the central bank of the United States. Its purpose is to stabilize the economy through various tools such as supplying money (credits), control interest rates, control quality of loans from banks and some other financial engineering to control inflation according to Modern Monetary Theory (MMT).
What is Modern Monetary Theory (MMT)?
The theory pretty much says that the government can print money as much as they want to!
It allows the government to justify its spending of any kind without any restrictions.
COVID-19 Induced Financial Crisis:
Remember in March 2020 when the market crashed suddenly and the Fed announced that they would buy anything they can to support the market? So MMT allows the Fed to do that and the economy is safe!
The Real Consequences of MMT:
MMT suggests that the only constraint of printing more is the real resources like workers, construction materials, foods and so on. The money printing will likely cause inflation because you have limited real resources with abundant cash circulation in the country. When the country enters into hyperinflation period, there is no way back to the previous fiat system.
Summary of MMT:
Money is not a problem of the government as it can alway create its own money but it may inflation will destroy the economy. So the government needs to print a way to prevent inflation.
So, are you confused?! Because I am. The Fed pretty much shrugs the shoulders and says we can do nothing because inflation is going to be higher resulting from printing too much money.
Parallel Universe of Current Economy System:
Remember I mentioned the MMT constrained by real resources, what about when the real resources become virtual?
Since the real world economy continues slowing down, earnings will become smaller for the newcomers and average players because of inflation. We need a system to support the shrinking economy.
The Birth of Tokenomics:
Think about tokenomics like a small economy system operated as a “virtual country” that lives in a virtual world that has its “central bank” to operate and conduct business.
Different tokens have their own value because some can do business better than others. It allows people to work for each “virtual country” to earn its currency and you can exchange one “virtual currency” currency to another.
Of course, some “virtual countries” may have better economies than others.
When world inflation rises, you can have your “virtual currency” as stable to prevent devaluation. Also, in the virtual world, the resources become unlimited.
This is basically an idea that Bitcoin (or potentially any cryptocurrencies) hedge inflation!
In Conclusion:
The Fed is unlikely to do anything about inflation even if the market hopes they can. In virtual world, we may find an opportunity to create a safe haven for average people to dodge the coming turbulence.