Can Bitcoin Kill the Fed and Central Banks?
There comes a time when the present Fed Chairman will resign or retire. If I became President of the United states and had to appoint a new Chairman of the Federal Reserve I would choose somebody who has enough knowledge of the economic situation to implement changes that would be beneficial to the nation.
The key characteristic required for my appointee would be the ability to think without emotion and make decisions based on data alone.
They would also need knowledge of market theory, inflation, unemployment, the Phillips Curve and other important concepts in macroeconomics in order to make difficult decisions regarding monetary policy. His or her job would be to increase or restrict the money supply, generate jobs to lower unemployment, and avoid out of control inflation.
However, no matter how intelligent or robotic, it is difficult for a human being to remain calm in a market panic. It is difficult for a human to make purely data informed decisions when the President of the United States is tweeting orders to lower the Fed funds rate or devalue the dollar to match China’s currency manipulation.
Mainstream economists today think that a bank or federal reserve has the power to help stabilize the economy during financial crises like that in 2007–2008. Often the government can cause the financial calamity it is trying to avoid. During the financial crisis, Ben Bernanke made decisions that are still affecting us today. From his monetary policy and the decision to bail out the banks, the Occupy Wall Street movement was born.
There was another important revolution that started quietly on January 3, 2009 — the day the first block of bitcoin, the Genesis Block, was mined. On that block was inscribed a headline pulled from the day’s London Times front page — “Chancellor on brink of second bailout for banks” On that day triple entry accounting was introduced to the world which allows the self-sovereign holding of money for transactions without a central authority or intermediary. No more bailouts.
Instead of appointing a new Fed chairman, I suggest we don’t appoint one. The choice to bail out the banks may have temporarily saved the economy. But I firmly believe there comes a point where printing more money for bailouts doesn’t work anymore.
Since Nixon took us off the gold standard in 1971, inflation has run wild and killed the purchasing power of the dollar. Increasing inflation made has made the dollar more and more worthless. No amount of Fed policy has changed that fact. Many times, the Fed has actually created the crises it was tasked to solve and avoid.
In July 2019, the Fed cut rates for the first time since 2008. This has been followed by a stock market decline. Is the market telling us something about the Fed’s monetary policy? You would think the stocks would rise with cheaper rates and therefore cheaper lending to expand the economy. Yet around the world, markets are responding negatively to quantitative easing. This to me precludes the realization that central banking is obsolete.
Could Bitcoin be an alternative to the Fed? I want to use this think piece to explore the question, could Bitcoin replace the need for Central Banks?
Bitcoin makes the argument that government manipulation and interference in monetary policy is unnecessary. It is supported by the Monetarist view that a free market economy (with intelligent regulation) is the most efficient way to keep the economy at equilibrium.
With a free market and self-sovereign money, we may be able to maintain stability without interference from a central bank. Since 1913, when the Federal Reserve was created, we have still had recessions and market panics. The Great Depression came with unregulated stock market speculation. Perhaps now we have regulations in place that make market panics harder to create and make the Federal Reserve unnecessary.
Perhaps the solution isn’t cleanup by central bank, it’s just regulation that eliminates the need for cleanup. The Fed uses bond buyback and open market operations to artificially prop up the economy. The way I see it, the artificial control of the economy causes artificial booms and busts. It is difficult to say how to avoid busts but perhaps they will happen with or without the Fed. Since we know they are happening even with the Fed, maybe it is time for them to relinquish their control of the money supply and allow the market to operate with a truly scarce asset like bitcoin. That combined with some intelligent regulation might do a better job at stabilizing the economy than the federal reserve.
Without a Fed chair, I would still have need for an economic adviser. I would appoint someone that has the skillset mentioned above. There would be times when government regulation is necessary. With intelligent regulation I think the economy would remain stable with or without the Fed.
The current Fed chairman accurately pointed out ‘no one uses Bitcoin’ (https://cointelegraph.com/news/fed-chairman-no-one-uses-it-bitcoin-a-speculative-asset-like-gold). Perhaps by abolishing the Fed and introducing Bitcoin as a global reserve currency, if people were competing for a scarce resource like bitcoin, innovation might be greatly encouraged to earn it. Competition would lead to job creation and low unemployment. Dollars on the other hand become less scarce and less valuable when the Fed prints them out of thin air without limit. This could lead and has led to hyperinflation and may end in crisis like the one in Venezuela where the currency becomes worthless. People would not want to work for such a worthless currency. Bitcoin by nature is deflationary and scarce. This would make competition for this currency fierce, naturally driving innovation and creating jobs.
With bitcoin it may be possible to have a more natural, organic way to stabilize the economy than having a Fed chair.
Instead of appointing a new Fed chairman, I would offer an alternative solution. A solution which has policy written in code and as such is not subject to manipulation. It is a solution that avoids inflation. It is a solution that Donald Trump cannot intimidate via tweet. It’s based on math and computer code and consensus. It aligns incentives to create a secure network. It is finite. It does not lead with emotion. It doesn’t do bail outs. It is self-sovereign. It is Bitcoin.
Informational Links
- https://www.investopedia.com/articles/investing/050715/can-bitcoin-kill-central-banks.asp
- https://www.google.com/search?client=safari&rls=en&q=how+would+bitcoin+end+the+fed&ie=UTF-8&oe=UTF-8
- https://www.investopedia.com/articles/forex/042015/why-governments-are-afraid-bitcoin.asp
- https://cointelegraph.com/news/fed-chairman-no-one-uses-it-bitcoin-a-speculative-asset-like-gold
- https://www.forbes.com/sites/billybambrough/2019/05/15/a-u-s-congressman-is-so-scared-of-bitcoin-and-crypto-he-wants-it-banned/#5d6d849e6405
- https://www.ccn.com/pro-bitcoin-ron-paul-its-time-to-abolish-federal-reserve-embrace-tax-free-crypto/
Published at Thu, 08 Aug 2019 18:24:47 +0000
Bitcoin Pic Of The Moment
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By trendingtopics on 2019-04-03 14:26:59
