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“To ready set crypto this is your brain on blockchain and the time of recording recording global markets were holding on to a small gain for the day signifying a start for the week. So what s going on have we started to get the virus under control globally and a word. No not even close. But there are promising signs.
The growth rate of new coronavirus cases and fatalities slowed over the weekend in. The us the new case growth rate slowed to 82 percent from 123 and the fatality rate slowed in both italy and spain with every passing day the world gets closer to the infection. Inflection point. At which point.
The number of new cases will start slowing down aggressively and yet. Let s not dismiss the reality of this the damage has hardly even begun. We have never experienced such a thing on this scale before this is the nightmare scenario that keeps central bankers up at night. Many of their tools from preventing deflation.
When people would rather hoard currency than spend it are simply ineffective for combating fear. Who cares what the interest rates are if they re afraid to leave your home even after lockdown send if you re a central bank. This is very very bad their primary goal is not keeping the economy afloat rather keeping the currency stable. You know sure they re intrinsically linked.
But so long as no one is using the currency. The economy will go right down the tube as a result so they re doing what they think is best firing up the money printers and stuffing checks under pillows in the night. Like some sort of magnanimous fairy. Creature.
Right now over a million us dollars. Is being printed every single second. Think about that some may argue that saving the economy through massive fiscal stimulus is the most prudent measure. We can take right now given the collective damage of recession or depression will do on a nation.
If allowed to go on for years. This rationale is based on the keynesian economic theory. That during recessions. The government should offset the decrease in private spending with an increase in public spending in order to save jobs and stop further economic deterioration.
The thinking goes that money in an event or a crisis like this is a social fiction. It s a public good who s used we must rapidly and radically and dramatically. Expand and maximize so that massive life saving social scale. Investment can happen immediately.
The government has to borrow artificially limited resources from itself. Right now tomorrow for everyone. And do so today or else. We don t have much of a tomorrow.
Now think on that perspective what you will i certainly. See flaws with it. But what is odd is that despite money printer s going ber and how usually when you add a huge supply of something to the market in this case trillions of us dollars the value of it goes down. But not in this case.
You see the us is flooding. The market with dollars and yet the dollar remains strong why is that well there s one quick and easy answer for this us treasury bills and bonds are still considered the safest investment in the world there are obviously denominated in us. Dollars. So you need to buy dollars to buy them for years.
The us has enjoyed something called exorbitant privilege. What this basically means is that because most global transactions are done in us dollars. The us economy automatically has an advantage over the rest of the world. Which is almost always in the position of being forced to buy us dollars for instance oil prices are almost always quoted in dollars regardless of whether the oil is coming from texas or the north sea or the persian gulf.
So what i wonder is if the coronavirus crisis will flip this convention of the world economy on its head. We ve heard lots of chatter about china emerging from this with stronger global influence. Certainly they made a huge deal about how they ve gotten the crisis under control even if it meant sweeping some human rights violations under the rug the world is simply not going to applaud your response no matter. How bold when you ve jailed and suppressed those who first spoke up about the virus.
What i think is also the case is that the chinese currency regarding trying to user the us dollar as the global world currency oh. The chinese currency could never be the de facto global currency at least as long as it s not free floating. Which it isn t and if people can t trust. The chinese government not to manipulate the value of it which they do all the time so again.
I think we have to look at how this crisis will change the order of things and instead of looking externally from the us. We could also look internally amidst the chaos and uncertainty stemming from the corona virus. Pandemic at least one thing became clear a few powerful american policymakers are seriously considering the idea that the federal reserve should have the privilege to issue digital dollars. Well how are these two things related.
The pandemic and digital dollars of course in some ways the dollar is already digital the digits in your bank accounts. Stanford dollars and you can pay with dollars by swiping your credit card. But those digits in your bank account are debts that the bank owes you a true digital dollar would be a debt that the us government owes you that s also what physical cash represents. But outside of china which appears to be on the verge of issuing a digital you on the discussion of so called central bank digital currencies or cbd sees as thus far been mostly theoretical let s certainly true in the us.
Where officials from the fed have repeatedly said that the central bank has no plans to create a digital dollar. But with the pandemic and the economic crisis. The conversation maybe getting more practical and the draft version of the stimulus bill passed two weeks ago. We saw it outlined a concept called fed accounts today.
The fed offers accounts only to banks. But under fed accounts. It would offer them to all americans now because the us doesn t require commercial banks to offer an account to anyone who wants one the banking system finds a way to exclude people who simply aren t profitable of course. Launching fed accounts should be nowhere near the top of congress s priority list.
Right. Now. And this language is thankfully removed from the stimulus bill. But in theory.
It could work better than the tools. The government has now for distributing cash payments during economic crises like this one ultimately however even if it s true that the system of economic crisis. Response could be improved with fed accounts such a change would cause significant disruption to the banking system in the us and some of the potential implications are hard to predict. The fed doesn t have experience.
Providing retail services to millions of people would people be inclined to use these services. If so how would that change. What the fed is and how would that change what commercial banks are more importantly. How would this inspire other central banks around the world to act in response.
And simply where does this trend start to go you know these are the questions. We must ask even in the midst of a crisis or there are those who would use this crisis to obtain power or to solidify. It now let s not forget that the fed exists today because of a reaction to an economic crisis. So we must stay vigilant speaking of vigilance and in the meantime.
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