Albeit with new wrapping and new jargon, crypto has been infected by the same old problems of insider finance
The four most dangerous words in the English language: "This time it's different".
Once again I am reminded by George Carlin and his bit about religion being one of the greatest bullshit stories of all time. If he were alive today, he would remind us that there has never been a concerted effort to democratize finance for the people and cryptocurrencies are no different.
Think about the balls it takes to tell ordinary people, to trust this vault of coin that anyone can own and track via technology, and time stamping, but is stored in technological netherworlds, has massive swings in valuations, regulation, and the feeble ability to cash out during a meltdown? It's like a new world order bullshit story of epic proportions for people who play the lottery or take on massive student just to belong to a profession.
Lastly, the fact that the powers that be, who control finance, media, and technology companies, have not killed it out right means that the empire has found it useful in some way -- so this alone is enough to be wary of the product. And we should be vigilant in NOT forgetting that the world's reserve currency (the dollar) is under massive pressure in the future by our own hand (Ukrainian foreign policy - Multipolar world order economic arrangements in other parts of the world). One quick look at this (https://www.usdebtclock.org/) - $30 Trillion should indicate that we have a massive debt, currency, and military spending problem in the future. And considering our history in the world of finance (Theft, World Trade extortion, Massive inequality in the wealthiest country, and pursuit of perpetual dollar dominion), the 2008 Fin Crisis may turn out to be a walk in the park to what happens next.
The rot in this country is unbelievable.
If you can get rich quick, you can go broke even quicker.
I have had the pleasure of working on banking industry efforts where Maxine Waters was seated at the table. She is neither knowledgeable nor bright. I have met Larry Fink. He is very knowledgeable and very bright.
This example is ubiquitous and explains much of the danger to the economy and country in general related to the Wall Street corporatism games being played at the multi-billion dollar level. It explains the Great Recession. It explains why the root causes to the Great Recession have not been eliminated.
It is the professional looter hive of quid-pro-quo. Big government politicians and bureaucrats that lack the capabilities to start and grow a business but needing high income and wealth to meet their social hierarchy expectations, and get it from other people's money. And private sector brains that note the easier path to great wealth by gambling other people's money instead of producing real products that generate returns (because that path is more difficult).
This stuff has been going on since the federal government gained enough tax revenue to loot. During the Gilded Age is was off the rails... politicians and government employees transparently demanding cash from the wealthy for favorable policies and projects from government. Then over time controls were put in place by new politicians with stronger morals and seizing the opportunity in response to media-reported scandal.
Historically it has been the media that has provided some counter control of this getting out of hand. But check it out now. Blackrock, Vanguard, State Street, etc... together they own the controlling interest in the large media companies that own all the media content. They also own controlling interest in much of big tech. Wall Street wants the favors from the Biden Administration, and so in return, Wall Street directs the media that it owns to attack the Biden Democrat opponents while propping up the Biden Democrats. When the GOP takes over the national legislature (made more difficult if Wall Street thinks it is not in its best interests and directs its corporate media concerns to push voters for Democrats and against Republicans), Wall Street will just shift in its offers to help GOP politicians for quid pro quo.
I have no doubt that the owners of Substack have a business plan with an exit strategy to sell the business. And I have no doubt that Larry Fink has it on his radar. So get these articles out while you can!
“The world of finance hails the invention of the wheel over and over again, often in a slightly more unstable version.”
John Kenneth Galbraith, “A Short History of Financial Euphoria”
BTW, seems that auto financing loans are another bubble ripe for popping.
Seems hard to believe in an inflationary environment, but apparently prices are rising even faster than wages, leaving car debtors who were once flush with cash having to decide between paying the rent and paying the car note.
edit: apparently there is also a lot of garbage auto loan paper out there, the Tahoe equivalent of NINJA loans.
Thanks once again Matt! This is the meat my man. The protein. More meat!! (pounds table with knife and fork clutched in clenched fists 😉
Taibbi's article is nominally about cryptocurrency, but it's really about how trust gets farmed out rapidly and evaporates like a vampire in direct UV light. If the "communications revolution" accomplished anything, it was speeding up the con. There are no long cons any more, only the shortest of short cons. Welcome to three-card monte world.
Fiat currency runs on trust in institutions, which is all but dead.
Would be nice to mention to absurd environmental impact of cryptocurrencies. That alone should make it illegal.
Crypto was a scam from it's inception, it was simply packaged differently and of course the "brain trust" of the world ate it hook, line and sinker.
Tomorrow is often promised yet many never see it.
Quick and dirty: Vitalik Buterin is right to blame the crypto bubble on the housing bubble, and perhaps a lack of trust in the authorities was causal, but these entirely miss the underlying issue. Economic growth stinks because assets and income are horribly maldistributed benefitting wealthy entrenched powers and the Government is doing stupid things to try to keep things rolling. It's like inflating a leaking bicycle tube every five years. You're going nowhere and it's a bumpy ride.
Verbose as hell: while cryptocurrencies are a massive problem and stablecoins are particularly interesting trees to study, there is a broader forest here. The title of the piece could not be more apropos, because the American economy has become entirely dependent on financial chicanery to function. Like, literally. That's because of poor return on actually meaningful investment.
In order to get any economic growth to happen in the midst of the secular stagnation most eloquently championed by Larry Summers, real interest rates have to be incredibly low. Very low or negative real interest rates lead to bubbles. Real interest rates, even with the Fed's recent tightening, have been deeply negative. Canada has negative real interest rates. Most of the world does.
This leads to inflation more generally, and cryptocurrencies were a vector for that. They're clever undergrad computer science projects bound to a post-doctorate social studies program that had a metaphorical lab leak. Bitcoin has a structurally very negative real interest rate, as do all proof-of-work cryptocurrencies, as miners must sell coins for machines and electricity, but real currencies are actually giving it a race for its money into negative territory.
Indeed, it's not clear that we can achieve high enough nominal interest rates to break inflation in any meaningful way without first causing a significant recession, and secondarily breaking the Treasury. The mean duration on Treasury liabilities is relatively short, so it has been a huge beneficiary of the lower-for-longer interest rates that we've had recently.
But we're also running a double-digit budget deficit with government debt levels that range from "nauseating" to "kerosene" depending on what you count as government and what you count as debt. Social Security will become a net seller of Treasury securities soon. We are running highly expansionary fiscal policy, yet *still* falling into a recession as we speak if the Atlanta FRB's GDPNow Tracker is to be trusted -- and it's pretty good.
Why have we needed such deeply negative real interest rates for the past decade or two? The most handy explanation is because productivity growth is also low and the labor force has shrunk due to demographics and, most recently and severely, long COVID, which I suspect is the real fear driving Beijing's "dynamic zero-covid" policies.
Indeed, if you tried to smooth it, one might claim that we're on the brink of an actual secular decline in productivity, something that has not been seen for eons. The data is very lumpy, but smoothed, it's ugly and looks to be on the brink of going below zero.
The Great American Bubble Machine is a tremendous problem. However, we have lacked alternative solutions since at least 2002, when Krugman suggested the deliberate engineering of a housing bubble to save us from the Dot Com bubble's bust. That is the only bubble that formed organically.
"To fight this recession the Fed needs…soaring household spending to offset moribund business investment. [So] Alan Greenspan needs to create a housing bubble to replace the Nasdaq bubble."
It's good to have you back, Matt.
p.s. One correction: "stocks for companies like Bitcoin and Ethereum surged to record highs" -> "currencies like Bitcoin..." or something similar. It was the market capitalization of all the coins that reached $3t, like if you summed the USD value of owning all of the shiny things, nothing to do with companies or stocks. Sorry if someone already got it.
Stop being blinded by “get the man” narratives. This is about GREED and idiocy by the people who BOUGHT the crap and the inability of regulators to focus on mission…see Supreme Court W. Va. If the SEC stopped wasting time on 500 pages of bullshit climate crap and said, hey maybe Mark Cuban et al touring this bs to 20k Mav. fans every two 2 nights is essentially selling an unregulated investment in violation of every securities law..things might be a little better? Like every craze before it..the fault lies not in the “man”…but EVERY Alan down the food chain. We simply cannot help our reptilian brain need for immediate satisfaction. Sad fact…
Maybe I don’t understand crypto, but it seems to me to be just a digital form of fiat currency. It only has value if everybody agrees it has value. The job, then, is to convince everybody that a Bitcoin, for example, is actually worth something. So far, not everybody is convinced, and more and more it’s looking like crypto is just another swindle.
The '34 Act limited US regulated broker-dealers ability to rehypothecate securities, that is, to use securities as collateral that the BDs themselves held as collateral.
There was no such limitation under English law, which is why US BDs would "sweep" their securities holdings overnight to English affiliates, then sweep them back again the next day. Wall Street bitched about this mightily.
This is also why Lehman was damaging to the US financial services industry, but it was absolutely catastrophic in Europe. Last I checker, they are still litigating over who owns what and how much of it and whose claims trump whose.
Decades ago a friend told me "If you don't understand the deal, don't put any money in it." I watched as people financed their lives bouncing from one credit card to another. A high interest way to kite checks. The idea of paying interest on a savings account disappeared along with S&Ls. It's probably time to go back to Social Clubs and neighborhood groups for banking and financial services. Wall Street and Uncle Sam are bankrupt and run by the same band of pirates.
Government regulation will not work because government is inefficient, incompetent, lazy, and most of all concerned only about CYA.