Most In Crypto Do Not Understand Money So Ignore Them

in #hive-1679222 years ago

The Internet is a wonderful thing. It gives everyone an opportunity to express their opinions, even if is based in naivety.

Unfortunately, it also can mislead people. There are hundreds of thousands who follow many of these people only to be led astray.

One who is at the top of the list is George Gammon. Watching his videos is guaranteed to take you off course. Hive views of money are so varied that it is scary.

Half is stuff contradicts the other half. He also stated a USD CBDC is coming due to the upcoming release of FedNow. Obviously the guy didn't even bother to read what is on the website since it is using existing bank accounts. This is a payment network for the banks to have instant settlement. It has nothing to do with the CBDC.

Of course, not that it would matter much since the US Dollar is digital already, a point evidently missed by people like George.

So, in keeping with the Holiday Season, it is time to pull out a brand new Louisville slugger (baseball bat) and go to town.

Here is a lit of people you should never listen to when it comes to money.

Gold Bugs

Since I graduated from college, these people have a perfect track record. They have been wrong for 30 years running.

What is it that gets the gold bugs so worked up? Quite frankly it tends to be their misunderstanding of money. These people believe some fantasy in their minds similar to a kid believing in Santa Claus.

We were told by this ilk that gold is the only true form of money. For this reason, it is best to have. People like Peter Schiff have been preaching that gold will hit $5,000 an ounce for 15 years.

The problem is they believe that gold is a hedge against inflation and the collapse of the dollar. We saw the past couple years how this is false.

Since 2020, we saw a skyrocketing CPI, reaching level not seen in 40 years. What happened to gold? Did it take off to preserve wealth? Nope. It is actually down about 10% from its highs.

How about the USD? We were promised that would collapse. Once again, this did not happen. It continues to move higher.

At the core of this view is that commodity backed money is immune from inflation. This is akin to the Keynesians believing they can eliminated the business cycle. History shows it to be completely false.

There are plenty of instances throughout history where "sound" money-based economies expereince inflation. Looking at this through the monetary lens is as insane as the Fed believing it can maneuver the global economy by moving interest rates.

If this was the key to success, how come the Soviet Union/Russia, rich in gold, oil, and diamonds, has failed economically while China, Japan, and Germany took off? The latter are countries with few precious resources yet they are #2, #3, and #5 economies in the world.

Keep in mind Japan and Germany were blown to bits, literally by the end of WW2.

Printing Press Go Brrr

We saw a lot of this last year.

Here again we get the same misguided notions. These people believe that quantitative easing is adding liquidity. At the same time, they believe the Fed is printing dollars.

Neither is true. In fact, if one truly understands money, it is easy to see how easing is really tightening.

Why is believing in the printing press go brrr absoultely foolish? Because it is akin to espousing the reality of a typewriter in a smartphone world. That is how out of date this notion is.

The Fed does not print dollars. They are responsibile for the banknotes; that is the only liability that is legal tender. Whatever else they create is not legal tender.

Some claim that the reserves can be claimed against banknotes, hence the money supply is being increased. That is true, they can be. However, banks are not asking the Fed to print $4 trillion in banknotes. The last thing they want to deal with is cash.

To start, the US banking system couldn't house all that cash. The vaults aren't big enough. At the same time, we do not settle with pieces of paper. Why would a bank want to deal with cash when it can settle in a few seconds electronically? The answer is it wouldn't.

The Printing Press Go Brr crowd ignores the idea of fractional reserve banking. USD, as most major currencies, are numbers on a screen. The money supply is increased when commercial banks lend. This is the idea of fracitonal reserve banking.

Hence the Fed can beg, plead, bribe, and do whatever it wants to get banks to lend. However, it will be fruitless if the commercial banks are against it. The Fed cannot force them to make loans.

If the Fed doesn't print dollars, what does it create? The answer is a bank instrument that can only go on commercial bank balance sheets. This is not broad economy money. To have it, one needs a master account at the Fed.

At the same time, the banks cannot use it for stock buybacks, rent, raises, or even stationary. This is not legal tender which means it can only be sent to another depository institution.

The banks have not ignored reserves since 1937 when the Fed told them to back vault cash with Fed reserves and it was basically told to pound sand.

Deflationary Money

There are those who love the idea of deflationary money. Since inflation is bad, the idea is deflation is good.

Bitcoin maxis are in this crowd. They swear that Bitcoin will take over, replacing the USD and all will be well.

To start, historically fixed money has always pooled. This means those with it do not part from it. The other problem is the complete obscurring of what currency does.

Money is required to expand an economy. If you take money out of a business, what happens? The business contracts. We see the same thing with an economy.

A world with only Bitcoin would see a collapse of the entire economy. Assets would plummet while unemployment would skyrocket. Companies would cut payroll and other expenses since money would regularly get scarcer. Even the gold bugs understood there has to be some expansion of the money supply. The deflationary money people believe less money will somehow lead to growth.

Once again, this is rooted in the idea that business cycles can be averted. The economy is a bigger part of the entire picture. Inflation and deflation resulted throughout history whether the money was coins, fiat, slaves, seashells, or land. It doesn't matter what the mechanism, it all plays out the same.

Understanding Banking

Now that you know who to ignore and why, who should you listen to?

The answer is in do your own research. For this, the starting point is the banking system.

A major problem is people look at what various institutions are doing trying to determine what is going on with money. Here we see the uselessness of this endeaveor since they are often looking at those which do not do money.

For example, people look at the USG and Fed. Neither of them do money. We hear of "government money" which is untrue except in some small countries. As stated, it is the commercial banking system that handles the money supply in the digital world. Since we do not settle in banknotes, that is not relevant. This removes central banks.

To understand money, look to the bankers. These are the ones who truly handle it. One of the key systems to grasp is the Eurodollar system. This is an endeavor that will blow your mind, showing how what we were taught about money is not really the case.

This is from the FOMC meeting in June 2000. It is a direct quote from Alan Greenspan, Fed chair at the time:

The problem is that we cannot extract from our statistical database what is true money conceptually, either in the transactions mode or the store-of-value mode. One of the reasons, obviously, is that the proliferation of products has been so extraordinary that the true underlying mix of money in our money and near money data is continuously changing. As a consequence, while of necessity it must be the case at the end of the day that inflation has to be a monetary phenomenon, a decision to base policy on measures of money presupposes that we can locate money. And that has become an increasingly dubious proposition.

Pg 82 FOMC Meeting

Locating money is becoming a dubious proposition?

How can this be? Basically due to "the proliferation of products".

What is he talking about? We can presume it is not focusing upon what is being offered on Amazon. The proliferation of products is from the banks, i.e. Eurodollar system. Basically the banks have created an entire network based upon their ledgers and balance sheets that fuel the global economy.

Or that was the case until the collateral shortage forced the contraction of the balance sheets. This has caused a 15 year run of deflationary money to the international banking system. It is also why US Tresuries, especially TBills, are going significantly under reverse repo (RRP) rate.

To understand money, it is best to grasp collateral, derviatives, bilateral agreements, off balance sheet transactions, and cross border payments without SWIFT or BIS. Here is where the real action is and it amounts to more than ten trillion dollars daily.

The idea the Fed is printing dollars on a press and distributing them is not the world we live in. Again, picture someone talking to you about typewriters while you are hacking away on your smartphone.

It is equally outdated.

Money is a lot more complex than people make it out to be. It evolved over time as technology changed. This has caused a massive shift from the way things were even 50 years ago.


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Nice one! Rewind 10 years on the gold price... it's done nothing. Factor in inflation over a 10-year period to a flat gold price... long-term investors are getting taken for a ride...

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A lot of people don't really understand the financial system and it's one of the things that I had to learn as well. It's kind of crazy how banking actually works and money is just created/destroyed based on debt. The entire system is based on debt and I don't think there is an easy way to transition off of it.

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Similarly, There are many social media influencers are here who spreading wrong information regarding finance. The problem is people just listen to them and don't do their own research and consume wrong information but later they regret and I hope they will learn from their mistakes.

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