Posted 11 months ago | by Ben Armstrong
Central Banks are Buying More Than $1bln in Assets Hourly – Hello Fiat Firestorm!
Global central banks are in to some new ideas in a big way. While the global crisis of 2008 saw central banks up their asset purchases over a number of years – the mega crisis of 2020 is being used as an excuse to buy more than $30bln in assets on a daily basis.
Since March of this year – on average – global central banks have been buying just about $1.4bln every hour of everyday. Pretty wild times. There is a good reason why the central banks (central planners) are taking these massive risks – the global economy is shuttered, and the fiat currency game is almost over.
The USA has been especially hard hit, as many nations are no longer investing their surplus income in US assets – as they need to spend them at home. China is also shunning US assets, largely do to the fact that the US and China are headed for armed conflict.
Bankers Can't Print Wealth – But They Can Drive Cryptos Higher
Modern money is basically meant to be three things (you can go and read Aristotle if you want to dive deeper into this – but it was written some time ago...)
ONE – Scarce
Money can't just grow on trees – or be printed up in your neighbor's basement. If money is to have value, it has to be limited in supply. If banks just make up more money whenever they want, the result will eventually be inflation (the value of existing money drops).
TWO – Fungible
Cash isn't special. One dollar is the same as any other – no matter who is holding it.
While this point might seem simple, in an increasingly politicized world, money is becoming weaponized. The USA may (sooner rather than later) make the Western financial system difficult for China and its allies to use.
The value of the money that non-US approved entities would drop, and one dollar would no longer be the same as the next one.
THREE – Freely Transferable
Much like #2, money has value because it is largely free from political influence. For this reason gold was used for thousands of years – as just about anyone would take it. Fiat currency is not freely transferable – governments control who can use their money, and where it can be sent.
The free flow of cryptos may be one of their greatest selling points – and what really puts them into an asset class of their own (sorry precious metals – you are heavy and show up on x-rays).
Fiat Looks Pretty Bad – and its Getting Worse
If you take even a short dive into how central banks are 'managing' the monetary system, it is pretty easy to see that it would be a better idea to let a bus full of career alcoholics 'manage' a commercial whiskey distillery.
As banks create more fiat to buy every greater amounts of debt (the Bank of Japan now owns 40% of Japanese government bonds) more people will want to hold and use assets that are limited in number – unlike fiat currency.
Of course, gold, silver, and the price of toilet paper will go up. The real issue is that all of these things are physical – and can't be sent easily between nations without the involvement of governments.
Cryptos, on the other hand, can be transferred in huge amounts across the planet, and governments can't stop them. Even if the governments found a way to 'hack' the Bitcoin blockchain, we would find another way to establish a hands-off international monetary system (likely – more than one).
Remember that the COVID-19 lockdown destroyed global economic productivity, so all that fresh fiat is chasing a lot less in the real economy...which means that angry mobs will just keep getting more pissed off.
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