Money makers the world go round
Late one night some time in 1991/1992, in the depths of the recession, an economics-y friend and I were having one of those silly-serious conversations. There was an awful lot of forged currency making its way into circulation, some of it so good it was hard to spot. We speculated that it was not in fact the work of ordinary criminals, but direct action by highly principled neo-Keynesian desperadoes - entirely shut out of the monetarist-dominated Tory Government, but still committed to inflating the money supply to end the recession, by any means necessary.
And now, a similar thought has come up, in the FT, of all places. Cast your mind back to 2008. A massive financial shock has very nearly caused total economic meltdown, and pretty much the entire world economy has plunged in to the worst economic slowdown since the 1930s, and is still sinking fast. Monetary policy has been loosened as far as it can possibly go: interest rates have plunged to zero (or very-nearly-zero). And the recovery is not happening. Now what?
Neo-Keynesian economics says you need to increase the money supply even further to fix the problem, but there are serious practical problems in having negative nominal interest rates. (If the bank proposes to charge you -7% on your savings, the mattress suddenly looks very attractive.) Central bankers thrash around desperately for unconventional monetary policy to fill the gap, and the US and UK embark on an unprecedented programme of 'quantitative easing'.
What the world economy really needs is another bubble, goes the joke. If some group of assets would take off in value, people would feel wealthier and less desperate to hoard cash, and would spend and invest more, the economy would pick up, and the virtuous economic circle would reassert itself. But creating a bubble in real assets causes all sorts of real-world problems - just look at the housing problems we still have. The ideal asset class for a bubble would be a purely virtual one, so when the eventual crash comes, there's nothing left lying around causing problems.
So in 2008, in what will later be seen as the very darkest days of the Great Recession, a person or group of people claiming to be Satoshi Nakamoto release Bitcoin, an electronic 'cryptocurrency'. Over the next four or five years, it explodes in value, with the price of a single Bitcoin rocketing from almost valueless to over $1,000. For a completely virtual asset that has absolutely no use-value beyond what other people are prepared to trade for it.
Is it too much to speculate that Satoshi Nakamoto is in fact the nom-de-guerre-de-l'argent of a bunch of highly principled neo-Keynesian desperadoes, bent on inflating the money supply to save the world economy? Like the NSA with its hand-crafted security breaches, they were sitting on some red hot unpublished computer science, having solved a long-standing seemingly intractable problem in computer science, and they knew they could use this for their purposes. But they knew they would have to cover their tracks well - having more or less lost the argument for fiscal stimulus (or failed to win it wholly in the USA), they knew monetary policy would have to do even more. So what better than to cloak the most spectacular loose-money experiment in history in the language of ultra-hard currency right-wing Austrian economics? A "completely deterministic and irrevocably fixed money supply"! Like gold, only better! Just pay no attention to the exchange rate.
When even a comedy self-avowedly joke cryptocurrency like Dogecoin can go from silly joshing on Twitter to being worth $72m in a month or so, and can raise the money to send the Jamaican Bobsleigh team to the Sochi Winter Olympics in less than a day (man, I love that story), you know there's some serious bubbliness going on.
Which is just the dose the world economy needs. Thank you, Satoshi Nakamoto, stealth neo-Keynesian genius and saviour of the financial world!
(Of course, just as with the forged money in the 90s, we're not actually talking about anything remotely big enough to register as much more than a macroeconomic blip. Bitcoins are currently worth of the order of $12bn (plus or minus 50% daily), but US QE1 was $2tn, and the current tapered rate of purchases is $65bn *per month*. The UK's QE programme is worth about £400bn, and the Bank of Japan's is set to hit $1.4tn over two years. Unless the BTC price climbs another few tens of thousands of percentage points - which can't be entirely ruled out - it must remain just a beautiful speculation.)
This entry crossposted to http://doug.dreamwidth.org/268346.html, where there are
comment(s) not shown here.
And now, a similar thought has come up, in the FT, of all places. Cast your mind back to 2008. A massive financial shock has very nearly caused total economic meltdown, and pretty much the entire world economy has plunged in to the worst economic slowdown since the 1930s, and is still sinking fast. Monetary policy has been loosened as far as it can possibly go: interest rates have plunged to zero (or very-nearly-zero). And the recovery is not happening. Now what?
Neo-Keynesian economics says you need to increase the money supply even further to fix the problem, but there are serious practical problems in having negative nominal interest rates. (If the bank proposes to charge you -7% on your savings, the mattress suddenly looks very attractive.) Central bankers thrash around desperately for unconventional monetary policy to fill the gap, and the US and UK embark on an unprecedented programme of 'quantitative easing'.
What the world economy really needs is another bubble, goes the joke. If some group of assets would take off in value, people would feel wealthier and less desperate to hoard cash, and would spend and invest more, the economy would pick up, and the virtuous economic circle would reassert itself. But creating a bubble in real assets causes all sorts of real-world problems - just look at the housing problems we still have. The ideal asset class for a bubble would be a purely virtual one, so when the eventual crash comes, there's nothing left lying around causing problems.
So in 2008, in what will later be seen as the very darkest days of the Great Recession, a person or group of people claiming to be Satoshi Nakamoto release Bitcoin, an electronic 'cryptocurrency'. Over the next four or five years, it explodes in value, with the price of a single Bitcoin rocketing from almost valueless to over $1,000. For a completely virtual asset that has absolutely no use-value beyond what other people are prepared to trade for it.
Is it too much to speculate that Satoshi Nakamoto is in fact the nom-de-guerre-de-l'argent of a bunch of highly principled neo-Keynesian desperadoes, bent on inflating the money supply to save the world economy? Like the NSA with its hand-crafted security breaches, they were sitting on some red hot unpublished computer science, having solved a long-standing seemingly intractable problem in computer science, and they knew they could use this for their purposes. But they knew they would have to cover their tracks well - having more or less lost the argument for fiscal stimulus (or failed to win it wholly in the USA), they knew monetary policy would have to do even more. So what better than to cloak the most spectacular loose-money experiment in history in the language of ultra-hard currency right-wing Austrian economics? A "completely deterministic and irrevocably fixed money supply"! Like gold, only better! Just pay no attention to the exchange rate.
When even a comedy self-avowedly joke cryptocurrency like Dogecoin can go from silly joshing on Twitter to being worth $72m in a month or so, and can raise the money to send the Jamaican Bobsleigh team to the Sochi Winter Olympics in less than a day (man, I love that story), you know there's some serious bubbliness going on.
Which is just the dose the world economy needs. Thank you, Satoshi Nakamoto, stealth neo-Keynesian genius and saviour of the financial world!
(Of course, just as with the forged money in the 90s, we're not actually talking about anything remotely big enough to register as much more than a macroeconomic blip. Bitcoins are currently worth of the order of $12bn (plus or minus 50% daily), but US QE1 was $2tn, and the current tapered rate of purchases is $65bn *per month*. The UK's QE programme is worth about £400bn, and the Bank of Japan's is set to hit $1.4tn over two years. Unless the BTC price climbs another few tens of thousands of percentage points - which can't be entirely ruled out - it must remain just a beautiful speculation.)
This entry crossposted to http://doug.dreamwidth.org/268346.html, where there are
comment(s) not shown here.