As stated in my first Bitcoin blog (#291), it took time for me to process and fully embrace this conference. I had to gain an understanding of the group of people and get a grasp of the culture. I have shared my observations of the culture and how I see an opportunity for leadership and strategic planning skills for this young group. Below are some economic points to consider with this movement.
Much of the economic information I gathered at the conference is pretty dismal, but I have some positives to pass on as well.
- FACT: According to Bloomberg, the total global debt is $281 trillion and the total global GDP is roughly $84 trillion. In other words, we are all screwed. In my arrogant American way, I thought that a major financial crisis was mostly an issue in our country. The reality is the entire world appears to be in a complete debt spiral. Hearing this ratio explained in depth helped me to understand that the only way this crisis will persist is if the governments of the world continue to manipulate interest rates down and print more money. However, with this sort of global rationale, folks are unsure of how to get out of this global debt spiral. Hyperinflation on a global scale, here we come.
- FACT: Thirty-nine percent of all dollars ever created were created in the last 12 months. Yeah, that should scare the pants off of you. Can you say “Venezuela”? At the Bitcoin conference, there was a huge construction dumpster filled with Venezuelan 50 Bolivares, and people could take as many as they wanted because the Bolivares are worthless…and a direct result of hyperinflation. Another scary fact is that Bill Gates recently became the largest owner of farm ground in the USA. If the American oligarchs are starting to get out of traditional financial investments, maybe that is something to ponder.
- PERSPECTIVE: One of the speakers completely shifted my thinking about how inflation is currently measured. He used music CDs and the technology around them as an example. In 1999, a CD cost around $20; today, that same CD costs around $10 and is available cheaper in other formats. The speaker’s argument was that technology has universally been driving down costs for decades and, as a result, maintaining the same standard of living is much cheaper than 10, 20, even 30 years ago. With the exception of commodity-driven products, everything else has been consistently getting cheaper. The speaker offered a complex explanation and formula I did not keep up with – he estimated that the true baseline inflationary rate should actually be closer to a negative 2%-3%, and when combined with a reported inflationary rate of 2%, a more accurate baseline inflation rate is about 4%.
Returning to Fact #1…the total debt to GDP (total revenue) is three times. The total GDP times three is the total current global debt. When this number is multiplied with the current inflation rate of 4%, it indicates that a 12% annualized growth rate will be required in order to come close to even covering the cost of the debt. This is alarming…it is scary stuff and has not ever happened.
Even with all this doom and gloom, I believe there is a glimmer of possible hope. I have no doubt that the governments of the world will shift to a coin/e-currency. There will be all sorts of attempts to regulate, tax, and control the cryptocurrency space. Some of this will be successful and some of it will not work. Personally, I believe there may be ways to regulate the entry and exit points, but even with my rudimentary knowledge, I understand that it may be impossible to fully stop, lock down, and control Bitcoin. That horse is out of the barn.
It is possible that there will be some form of technological efficiencies that empowers us to look at economies differently (and/or complete changes), as well as paradigm shifts regarding how our banking and finance industry works. I believe these will be heavily involved with the next iteration of what global commerce and finance will look like. I feel as if the governments of the world have inadvertently (or purposefully) painted the entire financial system into a corner. I also think it is highly unlikely they have any idea how to fix it; as a result, they may be willing to look at outside solutions.
At the end of the conference, the current president of El Salvador came on via video and announced he will be proposing that Bitcoin become the country’s currency. This is a huge step towards mainstream integration.
Seeing how young the blockchain space really is, but also seeing the culture of the movement, the brilliance of the entrepreneurs, and the overarching desire to make things better, I have an excited, yet queasy feeling about the future. The only guarantee is that tomorrow will be different than anything we have seen. The solutions are out there. I am guessing we will figure it out and that it will be something we never even considered. I think where we land will be wonderful.
However, looking at what is to come in our immediate future, we could be in for a hell of a ride. So, buckle up and let’s see where it goes.