The Rise of Bitcoin, Another Indication of a Failed System
The new year opened with a record high for Bitcoin (aka the new “tulip bubble”), which reached a peak of $40,000 on Jan. 9, to then lose 20% the next day. The growth of investments in the highly speculative cryptocurrency, which is now traded to the tune of 68.3 billion euros daily, is one of the many symptoms of the severe pathological state of the financial system, where liquidity pumped by central banks is steadily enlarging the zombified section of the economy, destroying savings and cutting credit to the productive sector.
Some results of the central banks’ monetary policy: 1/ negative-yield assets have reached a record of over $18 trillion globally; 2/ liquidity printed under the pretext of keeping government re-financing costs low have kept megabanks alive, but the latter have cut loans to companies and families, while investing the liquidity in the stock market and derivative bubbles; 3/ money saved by the more well-off section of the population has increased by 500 billion euros under pandemic-related conditions, but has either been kept idle in bank accounts or has gone into high-risk, high-yield investments such as Bitcoin.
As the government and private sectors accumulate unprecedented volumes of debt, and economic recovery is nowhere in sight, continuing the same monetary policy will make the problem worse. Contrary to the illusions of the neokeynesians and modern monetary theory followers, monetization of government debt cannot go forever; sooner or later it will generate hyperinflation. To deny that just because current reality is dominated by a deflationary spiral reminds one of the man jumping off a 100-story building and jubilantly claiming that “things look great” as he passes the windows of the 90th floor.
When the 2008 financial crisis broke out, our campaign for a reform of the financial system on the Glass-Steagall model of bank separation gained steam, and it looked like a broad consensus was being created. But governments believed in the “we are in control” mantra of central banks, and adopted fake reforms, such as the Dodd-Frank Act or “ring-fencing”, which were not able to prevent a second crisis. In September 2019, the system was again on the verge of collapse, but central banks intervened by taking over the repo-market and flooding the system with all the liquidity demanded by the bankrupted banks. Meanwhile, the speculative bubble grew and grew and grew.
Now, the illusion is that central banks can prevent a meltdown by introducing top-down digital control of the system, eliminating bank intermediation altogether and establishing a Central Bank Digital Currency (CBDC) aimed at replacing the dollar as reserve currency, and taking over government fiscal policies directly. In that way, the “everything bubble” that threatens to burst is supposed to be refinanced by the creation of a huge, new Green Bubble.