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Economic Collapse: Will Cryptocurrency Save the Financial System?

Public Policy

Where to go from here?

If trust and sustainability were the two conditions that allowed for the transition from physical gold to paper currency, it is from this basis that we must start to analyze where we are going and what effects the next economic crisis could have.

In 2008, confidence in central banks saved the global economy. But as Mario Draghi said, the bazooka of quantitative easing was fired and a second hit during a crisis would have proved ineffective. The reason is complex and must be clearly explained. Most people are paid in a currency deposited in the bank, because that is where one keeps one’s currency, able to withdraw it at any time. But in the event of an economic crisis, priority is given to the banks, whatever remaining liquidity being for the customers. The reason why there was no bank run in 2008, which would have led to the collapse of the global banking system, lies in the trust that ordinary people continued to place in the financial system, courtesy of what the corporate-controlled media told them.

The problem concerns the next financial crisis and how the world population will react. The path already seems to be traced, especially in geopolitical terms. Countries like China and Russia have created their own alternative banking and financial system to escape dollar sanctions; but they have also begun to de-dollarize by accumulating gold and using different payment methods to the US currency. In the same way, the desire to escape from a centrally controlled financial system, and the attendant need to remain anonymous, has produced a technological evolution known as cryptocurrency, much as the need to quickly communicate and globally exchange data in real time produced the Internet. Both evolutions find common roots in the American security services. The Internet stems from a DARPA project, and blockchain was outlined in NSA documents back in 1996.

It is easy to imagine that governments and central banks have been caught flat footed by the birth of the cryptocurrencies, but it would be better not to underestimate nations that have been ruling the world for decades and have their finger on the pulse. Although Washington’s aggressive foreign policy has accelerated de-dollarization, one must consider the reason why cryptocurrencies have not been declared illegal.

Let us go back for a moment to the devastating effects of the loss of the gold standard. Looking at a chart, it is easy to see how the start of world debt coincided with the end of the dollar being linked to gold. This has led to an increase in inflation, calmed only by false economic data and a powerful financial manipulation by central banks in collusion with each other. Purchasing power has plummeted and the average person has as a result become impoverished.

When the ordinary person is overwhelmed by debts and sees his purchasing power steadily declining over the years, while continuously being told by the media that the exact opposite is happening, dissatisfaction and frustration increases to a point of passing a tipping point. In the US in 2008, the burden of the bailout fell on the shoulders of ordinary citizens. Once bitten, twice shy. People are placing less and less trust in the media and the banks.

From Gold to Money to Crypto.

In this sense, we can perhaps understand why bitcoin and blockchain technology have been able to prosper in complete freedom. It is conceivable that the project reflects an evolving world in which paper money disappears in favor of the digital one. How this transition could take place, and why some nations devoted to de-dollarization will find themselves in a privileged position compared to economies entirely tied to the dollar is a matter open to debate. The possible economic-shift must be considered real and probable for the sustainability of many nations, accompanied by the inevitable technological change and the need to anchor the global economy back to real values. The natural passage is a return to physical gold or to virtual gold, precisely the block chain and the value we bring with it.

We should not underestimate the power of central banks and their plans to invent their own cryptocurrency as a mean to perpetuate their Ponzi scheme. What will make the main difference in the future is what backs up these virtual currencies. For example, Russia and China have accumulated many tons of gold and diversified their assets, dumping USD in exchange for tangible goods. A Crypto-Yuan or Ruble will eventually be valued more than an empty crypto-dollar without any counter-value. In a not to long distant future, Yuan and Ruble will be backed with gold or other financial assets like bitcoin while new virtual currencies will continue to perpetuate their empty value as with fiat currency. No surprise that with the next financial crisis, fiat money will pour into gold and crypto market looking for a safe haven from the devaluing dollar.

In the next couple of years we can expect central banks such as those of the US, Europe and Japan develop their own crypto-currency and start pushing conversion from fiat money into their crypto, advancing their project of keeping the system centralized. We should not exclude drastic measures, such as banning non-state-actor cryptos, from governments when central banks start realizing having lost their competitive edge on currency manipulation.

The last straw will be related to US military power trying to enforce the use of USD. In a scenario of steady economic and military decline of power, the US will find itself unable to force certain countries to use their currency, therefore losing its main weapon to create chaos in the world to advance its geopolitical goals. Without the dollar as the main world reserve currency, Washington will be forced to reconcile with the rest of the world, understanding that the unipolar moment is over and the neoliberal hegemonic planes to rule the world are forever gone.

Strategic Culture Foundation

15 Comments on "Economic Collapse: Will Cryptocurrency Save the Financial System?"

  1. Mad Kat on Tue, 30th Jan 2018 9:12 pm 

    “Economic Collapse: Will Cryptocurrency Save the Financial System?”

    Short answer: NO!

    Long answer, still no, but the reason is that the internet is subject to disruption and destruction. It is no more safe than the electronic bank account you have. If it is not physically in your hand, it can go “poof” with the punch of a key.

    If you live in the US, you have no paper pass book with your current bank balance in it. (The Philippine banks still use passbooks. lol) Cash and physical preps are real. Digital is pretend and TOTALLY under government/banking control.

  2. I AM THE MOB on Tue, 30th Jan 2018 10:05 pm 

    Over the last year about 9k retail stores, AT&T, IBM, Microsoft, Capital One, Kleenex, Toys R US, Comcast, Wal Mart, Sam’s Club, Lowes, Nike, Siemens, CSX, Lord and Taylor, Carrier, GE, Ford, GM, Chrysler, Lego, Sears, Caterpillar, Macy’s, K-Mart, Dish Network, Pfizer, Eli Lilly, Radio Shack, Yahoo, Hershey, Under Armor, Harley Davidson, Applebee’s, I-Hop, Kellogg, Subway, Outback, Go Pro, National Geographic, ESPN, State Farm, Chesapeake Energy, Snap, Dole’s, DuPont, Northrop Grumman, Hess, Firefox, Coca Cola, Boeing, Westinghouse, Dunkin Donuts, Allergan, Fidelity, all laying off thousands of workers and closing thousands of stores..

    If this isn’t collapse then what do you call it?

  3. Davy on Wed, 31st Jan 2018 5:04 am 

    “The last straw will be related to US military power trying to enforce the use of USD. In a scenario of steady economic and military decline of power, the US will find itself unable to force certain countries to use their currency, therefore losing its main weapon to create chaos in the world to advance its geopolitical goals. Without the dollar as the main world reserve currency, Washington will be forced to reconcile with the rest of the world, understanding that the unipolar moment is over and the neoliberal hegemonic planes to rule the world are forever gone.”

    What a joke. The US does not force countries to use its currency. This was the case a few times in the Middle East long ago like with Saddam Hussain. That was a different time. Today we have a multipolar global economic world. Besides the US does not have to force the dollar on the world it is a de facto reserve currency without replacement. China likely can’t do it until it changes drastically its economic foundation. This is because of the “Trilemma”
    “The impossible trinity, also called the Mundell-Fleming trilemma or simply the trilemma, expresses the limited options available to countries in setting monetary policy. According to this theory, a country cannot achieve the free flow of capital, a fixed exchange rate and independent monetary policy simultaneously. By pursuing any two of these options, it necessarily closes off the third.”

    It is more likely the dollar will experience a slow decline like is discussed in this great summary of the dollar by Kevin Muir: “US DOLLAR – UP THEN DOWN?”

    “Do I think that a decade from now that the US dollar will be as dominant as today? Not a chance. With technology making transactions easier, I don’t see why commodities need to be predominantly priced in one currency. Capital is increasingly becoming more mobile. Financial transactions are converted into various currencies with remarkable ease. Why does there even need to be a reserve currency? Often US dollar bulls, when pushing back against this idea, will counter and say – if the US dollar loses its reserve currency status, which currency will take its place? I would argue none. Who wants the exorbitant privilege? But… but… but… I can hear it already – America funds enormous deficits at rates that the market only accepts due to its reserve currency status. To which I respond with a resounding – BS! If that was the case, then both Japan and Europe would be punished with sky-high interest rates. Instead they are funding their monster deficits with near zero interest rates. But… but… but…. they are pegging their rates, so that argument isn’t fair. Yeah, to that I would retort – the unholy trinity means you can’t control interest rates, have free capital movement, and not have it show up in the foreign exchange rate. Yet neither Japan and Europe is experiencing some massive decline in their currency, so I don’t buy that argument. The US dollar reserve currency status is not the reason the US is able its fund massive deficits. All reputable countries are able to fund their way-too-large deficits, so losing the reserve currency status is not going to result in some spike in US interest rates.”

  4. Davy on Wed, 31st Jan 2018 5:25 am 

    “Forget Stocks, Look At EU Bonds – They Are The Real Problem”

    “The real problem is an over-valued European sovereign bond market. Looking at today’s bond market we see technical breakouts on yields to the upside across the continent. And we’re not talking the usual suspects here, like Italy, Portugal or Greece. No, we’re talking about Germany.”

    “The ECB’s quantitative easing program and negative interest rate policy (NIRP) drove bond yields across the board profoundly negative for more than a year. And despite ECB President Mario Draghi’s jaw-boning and assurances, he can no more exit this program than Bitcoin billionaires can exit the crypto-market and get back into dollars without the kind of pain that would stagger, if not break, the industry. But, the ECB is trapped and cannot allow rates to rise in the vulnerable sovereign debt markets — Italy, Portugal, Spain — lest they face bank failures and a real crisis. The problem with that is, the market is scared and so they are selling the stuff the ECB isn’t buying – German, French, Dutch, Swiss debt. In simple terms, we are seeing the flight into the euro intensify here as investors are raising cash. The euro and gold are up. The USDX continues to be weak even though capital is pouring into the U.S. thanks to fundamental changes to tax and regulatory policy under President Trump. In the short term Dow Jones and S&P500 prices are overbought. Fine. Whatever. But, the real problem is not that. The real problem is the growing realization in the market that governments and central banks do not have an answer to the debt problem.”

    “The ECB is flirting with losing the confidence of bond traders and institutional investors who rightly see all European sovereign debt as over-valued, especially as rates in the U.S. begin to rise. We have been in a deflationary cycle since 2008. The Fed printed money to save the banks. The money never circulated because it paid the banks to park the money on reserve with the Fed, interest on excess reserves. However, that interest did, along with government deficit spending, keeping prices for those things with inelastic demand curves — food, electricity, health care, housing — continually rising while real wages contracted. The U.S. economy is about to be unleashed by Trump’s tax cut law. It will be able to absorb higher interest rates for a while. Yield-starved pension funds, as Armstrong rightly points out, will be bailed out slightly forestalling their day of reckoning. And in doing so, higher rates in the U.S. are driving core-rates higher in Europe. An overly-strong euro is crushing any hope of further economic recovery in the periphery, like Italy. The debt load on Italy has increased relative to their national output by around 20% since the end of 2016. This will put the ECB at risk of a massive loss of confidence when Italian banks start failing, Italy’s budget deficit starts expanding again and hard-line euroskeptics win the election in March.”

  5. Davy on Wed, 31st Jan 2018 5:37 am 

    Tales of the “Shag carpet road”
    “China’s Largest Conglomerate Is On The Verge Of Bankruptcy”

    “On December 8, we lamented how every few days we return to the subject of systemic risk in China related to its big four highly-indebted conglomerates, HNA, Anbang, Evergrande and Dalian Wanda. We also noted how our chief source of concern had become HNA, after it issued a bond with less than one year to maturity with the extortionately high coupon of 9%, not longer after S&P downgraded HNA’s credit rating from B+ to B, five levels below investment grade. The reason for our continuing focus on HNA is its $28bn of short-term debt which matures before the end of next June, much of it accumulated during a $40 billion binge of acquisition-driven growth which saw it become a major shareholder in Deutsche Bank, Hilton Worldwide and others.”

    “Meanwhile, fears of a systemic crisis are growing: as Bloomberg cautions, HNA has become massive. The company had $190 billion of assets – more than at American Express – as of June, held nearly $30 billion of shareholdings and owned an estimated $14 billion in real estate properties worldwide.”

    “And the punchline: HNA is now effectively insolvent as its earnings can’t even cover its interest expenses, which according to data compiled by Bloomberg, have soared to levels topping those of any non-financial Chinese company. This is why the company is now a systemic threat to the entire Chinese economy. Meanwhile, its cash and earnings also fall short of the $29 billion in short-term debt that the company faces.”

    “In other words, if HNA fails – and the government does not bail it out – the Chinese dominos will start falling. HNA’s overall debt totals about 1 trillion yuan, with China Development Bank being the group’s biggest creditor, according to the people. That’s 56% higher than the 637.5 billion yuan in short- and long-term debt the company disclosed as having as of November.”

    “There is still hope that the local Chinese government will bail the company out: the Hainan provincial government, which called the meeting, expressed its support for HNA, Bloomberg’s sources said, although should China proceed with a bailout of this magnitude it would demonstrate to the world that Xi Jinping’s reform agenda which includes deleveraging and allowing insolvent corporations to fail, has been nothing but smoke and mirrors.”

  6. peakyeast on Wed, 31st Jan 2018 5:39 am 

    Of course, cryptocurrency can save the world.

    It will make oil spring again from old wells, revitalize depleted soil and mines. Fill the ocean with fish. Magically disappear the pollution. Invigorate the aging population. Decrease the nutrients required for a feasible diet.

    All we have to do besides using cryptocurrency is to redefine “success” – as we have so often before.

    It’s all in the mind…

  7. Mad Kat on Wed, 31st Jan 2018 6:02 am 

    True, peaky. “Success” can be as simple as being retired with good health and all you need to be comfortable, without the ‘luxuries’ and the stress they produce.

    Zero debt, and the freedom it provides, is a huge dish of sucess. Few will ever experience that in their lifetime in the US. There is much to be said for downsizing your lifestyle voluntarily before the collapse forces it upon you.

  8. Davy on Wed, 31st Jan 2018 6:09 am 

    “Zero debt, and the freedom it provides, is a huge dish of sucess.”

    Sound wisdom when one is getting ready for the old folks home.

  9. Fred on Wed, 31st Jan 2018 8:08 am 

    Sound wisdom for everyone… really.

  10. Davy on Wed, 31st Jan 2018 8:45 am 

    Tell that to someone starting a business, buying a car or home. People who grudge debt are those like silly billy who are very old without a future. Other people that are drowning in debt long to be debt free. Then there are the wealthy who can go debt free if they like but generally debt can be employed by these people per their tax situation. There is then those who are building a future with good income and skills that can use debt to maximize their efforts.

    There is no rule of thumb on debt. This forum is full of anti-debt people like silly billy that crow about it for personal agenda reasons. Silly billy wants everyone to know he is out of debt and better than others because of it. What silly billy doesn’t tell you is he has nothing really. He gets his social security check which is his own trap. If that check stops silly billy is screwed. He doesn’t do anything but rant on this forum. He has no job. Yes someone like silly billy better be debt free.

  11. q on Wed, 31st Jan 2018 11:57 am 

    Ponzi scam can hardly save economy.

  12. I AM THE MOB on Wed, 31st Jan 2018 1:16 pm 

    Here are five peer reviewed scientific studies authored by top experts that prove beyond any reasonable doubt that global civilization will collapse within the next decade.

    Simple really….when the World Economy Collapses everything shuts down…the end… We’re talking about grids down all over the world and 7.5B people dropping like f*** flies in short order. The collapse will be absolutely horrible..There is no collapse or horror movie ever produced that has even come close to imagining what the collapse of BAU might look like. I’m talking about every corporation and every social program going bankrupt at once. I’m talking about people eating people. I’m talking about the Worst Catastrophe to ever happen in the history of mankind. Nothing has ever, or will ever come close….

  13. Mad Kat on Thu, 1st Feb 2018 6:13 am 

    Mother Nature is limbering up her big guns. “…scientists from the University of Colorado in Boulder are sounding the alarm that the Earth’s magnetic poles are showing signs of reversing. Although the pole reversal, in and of itself, isn’t unprecedented, the solar winds that would take out the power grid and make parts of the globe uninhabitable could cause widespread disasters.”

    I’ve been following this subject for a few years now. It has happened before and will happen again. The question is: will it happen soon? We shall see.

  14. Outcast_Searcher on Thu, 1st Feb 2018 2:17 pm 

    I AM THE MOB: Are you still bleating about the collapse of buggy whip demand too?

    As long as GDP growth continues and internet retail is replacing physical store sales, it’s called “progress”.

    Not that you’d likely recognize or admit it.

  15. _______..... on Fri, 2nd Feb 2018 2:40 pm 

    Cryptos concentrate money in the hands of the few. Only a few will posses everything creating mass poverty and financial collapse

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