On the 2% interest minimum, I presume you are talking about 2% real interest. I though it was thought to be three percent. Quite obviously people have money in savings accounts with negative interest rates or are in risk assets that, when adjusted for risk, probably will earn many of them just as low returns when the speculative bubble bursts.
The problem I see is that the Fed got pulled into talking on additional roles because Congress and the Exec branch refuse and refused to use its fiscal policy tools at all. Bernacke decided QE was to prevent a 30’s style collapse but he created a monster in that companies were now focused on earning returns through financial engineering not operations. It created an country addicted to low rates.
By reducing the Fed’s role, I don’t see who is going to be the guardian against inflation because politicians are wont to juice the economy so much that it busts. The core problem is that the Fed has too few tools, all which are clumsy and indirect. I fail to see how without some control over bank lending, we would not just lurch from boom to bust to boom. Bankers are human, and the AI they are going to use is based on human experience, so there is no chance of the price of money creating a equilibrium that would lead to a stable economy. What is worse, given the large amount of wealth and income inequality it’s quite clear the powerful will enact policies that protect their capital, not particularly caring about those who earn income.
Therefore, I think just taking monetary policy and setting to the side, will never occur because it is about power and control. The central banks mess up because they never could guess the magnitude of the impact of their action and they fail to understand the extent of the collateral damage. Extending QE after the first tranche was a huge mistake that has created an enormous bubble. It will burst and the FED will step up to try to save the world, which is of the reason they exist. It would be nice, if they weren’t both the cause and the solution.
All three models assume it is architected, though in fact the market decides. So the banks may think that the indirect model keeps them alive, though protocols such as Compound are an order of magnitude higher in capital efficiency and with an order of magnitude lower running costs. So if you want a loan, you'll get a better rate in crypto than you will from those banks in the indirect model.
I think the analysis is incomplete anyway... Smart contracts can and will replace the banks or payment providers in all of the models above. It appears to assume a CBDC stablecoin... Though stablecoins don't make much sense in the first place.
More likely I think the technological revolution that programmable money provides; namely that the capital is kept in the protocol layer rather than the application layer as at present. Think twitter, facebook etc... Built on the internet and they add the bulk of the value. Dapps built on Ethereum on the other hand provide value to Ethereum.
More broadly though is a simple choice between Catholic style centralisation as pursued by China, or Protestant style decentralisation. The latter has always won and by a considerable margin, hence dreams of centralised control in a CBDC are a pipedream I think. Whilst businesses could and maybe should be forced to use one, no private citizen should allow their finances to be an open book. One could even argue it is the accountancy firms rather than the banks which are corrupt.
All that said the crypto industry isn't doing itself any favours. Either too naive or stupid to play the game, they don't lack resources they merely lack the nouse to use them in a political or wider social way. They act like a cottage industry, and are therefore treated as such.
Don't forget that a CBDC legitimises other crypto currencies. Or would bitcoin not be exchangeable for Britcoin? You can't really stop it. So the way I see it playing out... The banks are currenly trying to stop capital flowing into crypto, unsuccessfully of course. Too late they will realise the only way to attract deposits is to provide yield, and the only place they can get yield is the crypto markets by offering crypto savings accounts. Frankly the next big crash ( soon? ) might spell the beginning of the end anyway. Tax avoidance has already put the lid on the coffin.
And the wondrous politicians will realise they can get more tax from the little people who have access to highly efficient banking and lending than they do currently from the banks.
Well, it's either that or China, social credit and dystopian bastardry. Sorry bit longer than I expected.
On the 2% interest minimum, I presume you are talking about 2% real interest. I though it was thought to be three percent. Quite obviously people have money in savings accounts with negative interest rates or are in risk assets that, when adjusted for risk, probably will earn many of them just as low returns when the speculative bubble bursts.
The problem I see is that the Fed got pulled into talking on additional roles because Congress and the Exec branch refuse and refused to use its fiscal policy tools at all. Bernacke decided QE was to prevent a 30’s style collapse but he created a monster in that companies were now focused on earning returns through financial engineering not operations. It created an country addicted to low rates.
By reducing the Fed’s role, I don’t see who is going to be the guardian against inflation because politicians are wont to juice the economy so much that it busts. The core problem is that the Fed has too few tools, all which are clumsy and indirect. I fail to see how without some control over bank lending, we would not just lurch from boom to bust to boom. Bankers are human, and the AI they are going to use is based on human experience, so there is no chance of the price of money creating a equilibrium that would lead to a stable economy. What is worse, given the large amount of wealth and income inequality it’s quite clear the powerful will enact policies that protect their capital, not particularly caring about those who earn income.
Therefore, I think just taking monetary policy and setting to the side, will never occur because it is about power and control. The central banks mess up because they never could guess the magnitude of the impact of their action and they fail to understand the extent of the collateral damage. Extending QE after the first tranche was a huge mistake that has created an enormous bubble. It will burst and the FED will step up to try to save the world, which is of the reason they exist. It would be nice, if they weren’t both the cause and the solution.
All three models assume it is architected, though in fact the market decides. So the banks may think that the indirect model keeps them alive, though protocols such as Compound are an order of magnitude higher in capital efficiency and with an order of magnitude lower running costs. So if you want a loan, you'll get a better rate in crypto than you will from those banks in the indirect model.
I think the analysis is incomplete anyway... Smart contracts can and will replace the banks or payment providers in all of the models above. It appears to assume a CBDC stablecoin... Though stablecoins don't make much sense in the first place.
More likely I think the technological revolution that programmable money provides; namely that the capital is kept in the protocol layer rather than the application layer as at present. Think twitter, facebook etc... Built on the internet and they add the bulk of the value. Dapps built on Ethereum on the other hand provide value to Ethereum.
More broadly though is a simple choice between Catholic style centralisation as pursued by China, or Protestant style decentralisation. The latter has always won and by a considerable margin, hence dreams of centralised control in a CBDC are a pipedream I think. Whilst businesses could and maybe should be forced to use one, no private citizen should allow their finances to be an open book. One could even argue it is the accountancy firms rather than the banks which are corrupt.
All that said the crypto industry isn't doing itself any favours. Either too naive or stupid to play the game, they don't lack resources they merely lack the nouse to use them in a political or wider social way. They act like a cottage industry, and are therefore treated as such.
Don't forget that a CBDC legitimises other crypto currencies. Or would bitcoin not be exchangeable for Britcoin? You can't really stop it. So the way I see it playing out... The banks are currenly trying to stop capital flowing into crypto, unsuccessfully of course. Too late they will realise the only way to attract deposits is to provide yield, and the only place they can get yield is the crypto markets by offering crypto savings accounts. Frankly the next big crash ( soon? ) might spell the beginning of the end anyway. Tax avoidance has already put the lid on the coffin.
And the wondrous politicians will realise they can get more tax from the little people who have access to highly efficient banking and lending than they do currently from the banks.
Well, it's either that or China, social credit and dystopian bastardry. Sorry bit longer than I expected.