Bitcoin was the first money in history invented by the private sector and based solely on trust, for example, it is not backed by gold deposits. The initial scepticism about bitcoin was in fact due to the fact that since no one had seen anything like that previously, there were doubts about its viability. No one believed bitcoin. Its creation opened the road for the geniuses of the future to construct a monetary system that works much better than the one currently in place, while providing cutting-edge technology in its services.
Printing money is a monopoly of the government. And it is one of its most precious monopolies and since the government is one of the least innovative operators in the market, we should not be surprised that the structure of the monetary system is far from ideal.
the US has spent more overseas than what foreign countries buy from it, the difference currently being USD 40 billion per month. This raises two questions. Why indeed does the US not run out of money if it only flows out of the country? Why indeed do foreigners accept the dollar, and why do they participate in unsustainable processes?
I argued that instead of asset purchases or boosted lending, we could much more successfully avoid deflation and stimulate the economy by means of a monetary basic income financed from newly printed money. There are two principal problems with this idea.
The Fed would be much more efficient and it could achieve its target by printing much less money if it made its purchases of enormous value in the market of real goods rather than on capital markets. That is, by purchasing goods rather than bonds. In good measure, the central bank will go to the baker’s to fetch its donuts, to the pub for the regular pint, and to the hairdresser’s to get its hair trimmed, and will use newly printed money to pay for all that. That would be real economic stimulus and job creation, and we could say goodbye to deflation.
Not long ago, there lived an American economist who thought that it would be best to close down the Federal Reserve, the US central bank. A rather drastic view. What makes it particularly interesting is that it wasn’t voiced by some extremist, sidelined, unrecognised scholar. On the contrary. This view was held by Milton Friedman, one of the most influential economists that ever lived, a Nobel Prize winner economic counsellor to President Reagan.
Despite a zero interest rate the threat of falling prices is imminent, which hurts the economy rather badly. In a famous 2002 speech, former Fed chair Ben Bernanke proposed a conceptual solution to this very situation: as the printing press is a monopoly of the state, newly printed money should be injected into the economy, which will prevent deflation. Later on he also had the opportunity to do the stunt in practice.
I have a problem with the concept of a monetary system driven by interest rates. My problem is that it will work well only in a certain range of the parameters describing the state of the economy. Interest rates may only be an efficient means of influencing inflation where debt, foreign currency debt, wealth inequality, etc. are not excessively high, but people’s expectations for future inflation also make a difference. That’s what I call the working range of the system. Outside that range, risks and side effects will increase radically.