The current financial system as we know it is broken. If everything was ticking along as it should the central banks of the world wouldn’t have to start helping the private banks which have been acting with impunity with other people’s money. Bitcoin again is shaping up to be the answer, especially where the future of fiat is concerned.
The Printing Money Cycle
A recent report by Bridgewater Associates founder, Ray Dalio, explores the failings of the current financial system. Lenders are handing out money without consequence because they have a lot of it to give. This is largely because central banks are pushing it on to them and buying financial assets in their futile attempts to push economic activity and inflation up.
Dalio adds that prices of financial assets have increased but future expected returns have fallen as economic growth and inflation remains sluggish. Companies can sell dreams without clear profit plans because investors are flush with borrowed money. The system is clearly flawed.
My below piece “The World Has Gone Mad and the System is Broken” explains some of the crazy things that are happening, why they are happening and why I believe that they are unsustainable. I’d be interested in knowing what you think about them. https://t.co/daUdsw0XLy
— Ray Dalio (@RayDalio) November 5, 2019
The piece continues to add that large government deficits exist, and these will increase substantially, which will require huge amounts of more debt to be sold by governments. Increasing interest rates during an economic downturn is not an option so the central banks will print more money to buy up the debt. This process is likely to accelerate especially in the reserve currency countries namely the US, Europe and Japan.
He adds that at the same time pension and healthcare liability payments will be due but there will no longer be the money to cover them. Pension funds that have investments used to meet their obligation use assumed returns which will be way higher than the reality.
“Since there isn’t enough money to fund these pension and healthcare obligations, there will likely be an ugly battle to determine how much of the gap will be bridged by 1) cutting benefits, 2) raising taxes, and 3) printing money,”
The third option is the easiest path according to Dalio because there are no limitations made on the amounts of money that can be printed or the value of that money. The risk of this path is that it threatens the viability of the major world reserve currencies as viable stores of wealth.
This will ultimately increase the wealth gap as only the creditworthy will have access to borrow more money and those without will fall deeper into financial despair while the value of those reserve currencies will continue to plummet.
Bitcoin Solves This
Bitcoin, with a predetermined supply, immunity from central bank cash printers, and decentralization from any nation or political movement, makes it the perfect solution for this problem. In theory Bitcoin demand will increase as it becomes the world’s currency giving the control back to the people, not the banks.
Shapeshift CEO Erik Voorhees concurred;
“I don’t even need to say Bitcoin here… but it’s just so obviously the escape hatch for those paying attention. It is really tragic how many people willfully remain tied to fiat and government money systems,”
A massively flawed banking system and the 2008 financial crisis was the catalyst that spawned Bitcoin in the first place. Unfortunately at the moment it is still used as a vehicle for speculation but that paradigm is likely to shift as the financial system crumbles and fiat becomes worth less than the paper it has been printed on.
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