The Coronavirus And The Coming Recession Prove The Need For Digital Money On Blockchain

The History Of Money - Reader's Digest version

According to historians - the idea of money can first be traced to the Mesopotamian civilization as early as 3000 BC. The Sumerians - who controlled Mesopotamia for nearly 2,000 years - were the first people to transition from a barter economy to a new innovation called "commodity money". Commodity money was made of gold and precious metals and its value was viewed as intrinsic. And as described in the The Emergence of Financial Innovation and Its Governance - a Historical Literature Review - the innovation of commodity money became an important financial infrastructure for other economic innovations that allowed for a more dynamic form of commerce:

This ability to trade led to the development of the most primitive form of financial arrangements, personal loans, typically compensated with interest which made the “intertemporal transfer of value through time”, a key foundation for finance, possible. Over time, more sophisticated financial arrangements sprang up; and banking firms were developed in the Mesopotamian Valley leading to the creation of the first two financial instruments, bank deposits and bankers’ acceptances. A few centuries later (i.e. between 1700 and 1100 BCE), early forms of annuities were recorded to have been traded in Egypt.

Like so many other innovations in history - innovations were built on innovations. And while so much has changed over the past 5,000 years - distilling commerce down to its most simple form ... it's the same: I give you something, you give me something. That's how commerce has worked since the invention of time. And still - we keep innovating.

The Central Banking Model For Dummies

Part of that evolution of money and commerce has led to the creation of entire monetary systems firmly enshrined with the power of government via a Central Banking system. The first Central Bank - Sveriges Riksbank - started in Sweden in 1668. Having been beaten badly by France's Navy in 1690 and being unable to raise sufficient capital to rebuild England's military - the Bank of England was issued a Royal Charter when parliament passed the Tonnage Act 1694 - just 26 years after the world's first Central Bank was established.

The expediency of becoming a global military power mixed with the greed of private, corporate interests worked not unlike a covalent bond - where two atoms join together inseparably to form an atom. And for the past 326 years - the English state was inconceivable without the Bank of England or vice-versa.

Historian John Brewer explained how important the Bank of England was to the rise of the English military strength in his book The Sinews of Power:

Victory in battle relied in the first instance upon an adequate supply of men and munitions, which, in turn, depended upon sufficient money and proper organization ... thanks to a radical increase in taxation, the development of public deficit finance (a national debt) on an unprecedented scale, and the growth of sizable public administration devoted to organizing the fiscal and military activities of the state. (source)

And over the past 350 plus years - the Central Banking system in society is so deeply immersed into the foundation of our every day lives that most people can't even comprehend a different kind of financial system. The role of the Federal Reserve Central Bank is intended to better massage, manage the inevitable cyclical and non-cyclical crises, panic, recession or depression that this country has experienced in every single decade since its Founding minus 2010 to 2019. Well - a few months out of the last decade - here we are with the red lights flashing and the realization that our ship just hit an iceberg and its cold as f***.

Despite being very complicated overall (notice I refrain from calling it modern) - the Central Banking system used in the United States today can be distilled down into a fairly simple concept as shown in this chart below:

Maybe you noticed and maybe you didn't - but I've not been writing only about the Central Bank itself; I've been speaking of Central Bank systems. The banking system was developed in a way that was intended to impact the economy ... the people. The Central Bank has used commercial banks - sometimes to great effect and sometimes to extreme horror - as a mechanism for distribution to the broader economic ecosystem which is made up of your common man from a farmer in Nebraska or to a VP at manufacturer in Los Angeles or to a Fortune 500 company in Atlanta. There is no product or service that's produced, financed or purchased in this country where the FED and multiple commercial banks weren't involved somehow in its story of origin.

The FED lends money to certain commercial banks with very low interest rates. The commercial banks then lend that same money (and money they don't even have but have access to) to people, businesses or other banks. The FED has the authority but it uses the system of banks as it's mechanism for distribution.

And while that's not likely to change - I'd like to focus on the term "mechanism for distribution". As historian John Brewer explained about the value of the Bank of England - it was good at "organizing the fiscal and military activities of the state". A Central Banking system organizes and creates efficiencies, but as history has shown us - there's always a newer and better way. It's time for a new "mechanism of distribution".

We're All Socialists Now - Taking The Scenic Path There

In case you've been to the grocery store, the airport, driven on the freeway or turned on the television - apparently ... the world is coming to an end. Sardonic commentary aside - it's a big f****** deal and we're experiencing it all in real time.

First it's important to understand that money is a fiction that we created as explained here by Yuval Hariri:

 "Money in fact is the most successful story, ever invented and told by humans, because it is the only story everybody believes. Not everybody believes in God, not everybody believes in human rights, not everybody believes in nationalism, but everybody believes in money."

~Yuval Hariri

My grandfather was a merchant marine in WW2 - a pretty dangerous job in 1942; I remember he used to tell me this popular saying "There are no atheists in foxholes." Plato is attributed with having said something similar "there are few Men so obstinate in their Atheism, that a pressing Danger will not reduce to an acknowledgment of the Divine Power. . ." (source). Same thing.

So when the economic system comes crashing down as it has over the past 10 days - there is no capitalist who doesn't call for government intervention and socialism to protect the status quo of middle men and intermediaries .... to protect the "system". Our President has threatened to fire the Chair of the Federal Reserve Bank and chastised him publicly for not doing more to shore up the economy that's imploding on itself.

But things are escalating quickly from former Republican Presidential Candidate just 8 years ago and now Utah Senator Mitt Romney calling for giving every American adult $1k. Mitt Romney - a guy worth more than $250 million and former CEO of Bain Capital. Mitt Romney is to capitalism what Ron Jeremy is to pornography.

And not to be outdone - Senator Tom Cotton (R-AR) - is now calling for giving American adults $1,000 or as much as $4,000 for a family of four.

Tom Cotton is the same guy who recently said, "The Democrats’ “Green New Deal” brings to mind an insight from Churchill: Socialism may begin with the best of intentions, but it always ends with the Gestapo." He isn't a fan of socialism, but neither are most of the members of Congress who voted for a bill to bail out Wall Street and the Big 3 car companies. And another non-socialist George W. Bush signed the bill.

In normal times - when "things go according to plan" - we see the demonization of poor people having access to free healthcare, free lunch programs or any number of social safety net programs. It reminds me of this scene from Batman.

And just like that use of English vernacular - the word "welfare" is almost exclusively used with the poor ... often disaffected people of color. It's a whitewashed way to deny assistance to people who need it in a socially acceptable way based on some sort of often subconscious and deep seeded racism or discriminatory worldview.

After all - who wants to believe that they're a racist asshole? Nobody. So people tell themselves something like, "It's not that I hate black people and quietly murmur racial epithets behind their back - it's because I just believe THOSE people should pull themselves up by their own bootstraps instead of being lazy and depending on welfare."

I did say this was the scenic path.

But - when the system implodes on itself - everybody's a socialist. Even before the Coronavirus - the Federal Reserve had cut interest rates multiple times and purchased hundreds of billion of assets to shore up an economy that was already teetering over like the end of a Jenga game. In addition - the FED has cut the overnight window rate to 0% and offered an additional $1.5 trillion in funding for banks. Well before the Coronavirus hit our shores creating a panic among all my neighbors that has led to empty shelves at Kroger - the FED was injecting over $500 billion in money to the repo markets (source).

House Speaker Nancy Pelosi (D-CA) has come to an agreement with the White House over a bill to provide some form of fiscal stimulus that will cost hundreds of billions most of which is focused on protecting people's health or providing sick days etc. It does a lot but it doesn't call for giving people free money. Of note - the deficit was projected to end with $1 trillion this fiscal year and I wouldn't be surprised if it's likely to reach $2 trillion.

And when it's all said and done - all of these companies who received their $1.5 trillion in tax cuts just 18 months ago ... those same companies like Boeing are now angling for taxpayer funded bailouts as they've seen their financial models shattered and they're on the brink of credit downgrades. Never mind that Boeing has distributed $43 billion in profits to its shareholders in the form of stock buybacks over the past 7 years. Socialism for us, capitalism for them.

"Helicopter Money" on the Blockchain

Conservative economist Milton Friedman first coined the term "helicopter money" to address the most efficient way to push fiscal stimulus measures in moments of recession. He's as much of a "let them eat cake" kind of laissez-faire conservative as you'll see and an icon in conservatism, but he's advocated for just giving people money when the situation requires fiscal stimulus because it's efficient.

Let us suppose now that one day a helicopter flies over this community and drops an additional $1,000 in bills from the sky, which is, of course, hastily collected by members of the community. Let us suppose further that everyone is convinced that this is a unique event which will never be repeated. ~Milton Friedman

Why a helicopter? Because by dropping cash in a helicopter - you're giving it to the people who are most likely to use it at a time where the economy in aggregate desperately needs that stimulus and the helicopter eliminates the intermediaries in the Central Bank system who might otherwise hoard cash or slow its distribution.

So whether you're listening to the former Vice Chair of the FED talk about efficient mechanisms for distribution or Tom Cotton calling for stimulus in a matter of days not weeks, listen closely to the focus on using systems that presently exist as a mechanism for distribution. Whether it's a payroll tax cut or having people pick up money at an employment office - capitalists are trying to figure out how to give money away to people using systems we already have without having to rely on private intermediaries like Chase Bank or Wells Fargo to distribute that money.

And this is where blockchain comes in. Unlike at any point in history - digital money can be distributed without the need of intermediaries like banks. People can act as their own custodian even with billions or trillions of dollars in wealth. Thanks to the creators of Bitcoin - the infrastructure and distribution of money can be decentralized.

In 2018 - US banks processed over $51 trillion in ACH payments and every single one of those over 20 billion transactions totaling over $51 trillion was processed through the US Federal Reserve bank. The reason the FED has to process all that money is because the system requires a central clearinghouse to ensure there is no "double spend". And the one thing that Bitcoin solved for using technology was that it was able to eliminate the issue of double spend thus eliminating the need for intermediaries in transfers.

And while most people incorrectly attribute blockchain or even crypto as being akin to very volatile digital money - most people aren't aware that the world's most traded cryptocurrency is the US dollar. And while Bitcoin and many other forms of cryptocurrency behave like commodities or stocks with volatility - stabletokens are merely digital dollars on the blockchain; let's call them crypto dollars.

And while most digital money is a bunch of 1's and 0's in a computer at a bank that can't be transferred out of the banking system except in the form of a printed dollar bill (meaning the US government would have no option but to use the banking system with our current infrastructure) - crypto dollars are a fast, inexpensive method of distribution that would allow the FED to engage in helicopter money drops digitally to every single American instantly.

And because it's on the blockchain - it's transparent and can be tracked for fraud. It's efficient and fast. It's cheaper than mail and faster too. Literally - one of the options today for the Federal government is just to mail a check to people; that would take weeks and by that time who knows just how many dominoes are going to fall as we find ourselves facing the $19 trillion corporate debt that's on the horizon (source).

Once someone has crypto dollars - everyone will accept them including banks, merchants or they can just make those crypto dollars have use by depositing them to their Blockcard and spending them anywhere major credit cards are accepted.

There is no question that the next crisis is around the corner; there's no question that the faster we respond to the crisis - the better we contain the fallout. If we don't innovate our mechanisms of distribution from the FED - we will not maintain the flexibility that's necessary for a modern economy. If we don't use modern technology as our architecture and instead rely on 50 year old technology - then the problem will persist and we will be much worse off for not having taken action. If history has shown us anything - it's that we must innovate or die. May the odds be ever in your favor.