The global economy is in horrific shape. This is not due to the pandemic although that did hot help things. In fact, the global economy was only sputtering along since the Great Recession happened more than a decade ago. In the United States, during the Obama years, the recovery was historically low. Things got a bit better under Trump but still below the historical trend.
In short, the world is affected by a terrible growth rate.
Politicians and bankers all over the world decided to replace production with stimulus. This is a model they followed, basically, for the last 4 decades. While there was a burst in innovation during the 1990s as we transformed into the information age, the results, overall, are lackluster.
The problem with this model is the fact that stimulus is actually debt. Central banks all over the world compensated for this by reducing interest rates to record lows. Today, more than 1/3 the global debt is actually negative. This means people effectively pay to hold the debt. According the Keynesian theory, the idea of negative interest rates acts as a stimulant, pushing people to spend money instead of saving it.
Of course, when we look at the velocity of money, the time a unit of currency will go through the economy in a given period of time, we see a different story.
This is going in the opposite direction of how the chart should look. If the central bank policies were working, we would see the velocity accelerating, not decelerating. Notice how this is a long term trend, far pre-dating COVID-19.
The challenge is that stimulus is actually debt. Ultimately, as more debt is printed, more money is required to service said debt. This fact ends up suffocating the economy since money is taking away from productive opportunities and, instead, used to pay the interest accrued. It is a fact that is taking place despite the record low interest rates.
Now consider what the situation will look like if interest rates start to increase. Even if the economy does get some traction, interest rates will jump, requiring more of the economic pie to head towards debt servicing, eventually sabotaging the economy again.
Here is where we see cryptocurrency offering the opportunity to save the global economy.
Using the line of thinking laid out here, the biggest advantage to cryptocurrency is that it is not debt. Many attack crypto saying it has no intrinsic value. Leaving that debate aside, since electricity usage powering computation does have value, at least, under this thinking, we can put crypto at zero. Fiat currency is actually less than zero since it is debt. Thus, for every unit "printed" there is interest owed.
Here we see how the ability to fund production without the pie being eroded due to debt servicing is possible. The totality of funds available can increase production as opposed to just making the rent seekers richer.
At the same time, this entire industry is technological in nature. It exists in the digital world. Therefore, we see the ability to innovate in ways that were not present the last few decades. The physical world is hindered by physics. In the digital world, most of those limitations are removed.
We are now in an environment where the only cap is electricity and computation. Fortunately, both of those seem to be increasing at an exponential rate.
Few are aware of how powerful the peer-to-peer concept truly is. This is a way to finance debt that is really going to alter the entire economic model.
Obviously, not all debt is bad. When debt is used for productive purposes, i.e. expand a business or build a new plant, that offers a larger payout as production increases. The challenge we have now is that much of the debt that is created is parasitic. Whether it is corporate "welfare" that ends up keeping zombie companies alive or rent seekers who bilk the system providing very little value, we see that most of the debt creation does not equate into an increase in productivity.
Peer-to-peer lending is going to alter that. When people have the individual choice as to what they will fund, the parasites are ended up with nothing. Under this scenario, people are likely to only be drawn to those opportunities that truly increase production. In other words, they want a return.
Of course, we saw the downside to this already with the yield farming games that took place over the past year. However, in spite of those hiccups, a true financial platform is forming. Over the next few years, we will see lending applications created that truly fund innovative projects, not just putting out together massive token payouts with nothing behind them.
The other major difference with cryptocurrency is the number of people involved. Fewer people are taking part in the benefits of the global economy. In other words, it is not working for the majority of the people. They are effectively falling further behind.
However, with crypto, we are going to have 7.5 billion partaking by the middle of this decade. It is a fact that will allow the funding of projects both globally and locally. This is a much different situation than what we presently see.
The ability to create money is a powerful mechanism. Governments and central banks know this. Unfortunately, they abused it for their own means. Now, anyone in the world with an internet connection can create their own currency. This is important for those areas that were excluded from the present system.
As the crypto industry gets larger, the ability to radically increase the global growth rate will expand. We see an industry that is roughly $1.5 trillion in terms of its market cap. When that number hits $10 trillion, we are going to see a much different world. The ability to innovate and increase production sans debt will be astounding.
Ultimately, it will be what saves the global economy and reverses the decades long trend that it is on.
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