Disruption is Brewing: Bring on Bitcoin

Much of the financial press has been abuzz over how well the economy is doing. The stock market is achieving record highs, the VIX (a market volatility gauge sometimes called the ‘fear index’) is low, and we have finally replaced all those jobs lost in the Great Recession. Things are looking up.

Or are they? Looked at through rose-colored glasses, things are indeed getting better. But if you take off those glasses, you can see that the rest of the board is flashing not a rosy pink, but a flaming red. It feels as though the world financial system is tilted to one side. The only thing holding it up is Quantitative Easing, or the printing of new money out of thin air by central banks to bolster the economy.

We at Bitcoin Warrior review a financial news from all over the internet, and quite a lot of it is questionable. There are conspiracy theorists, gold bugs, and end-of-the-worlders. We guess, despite being optimists that things can still turn around, that we are in the end-of-the-world camp. Still, when taking in all this information, we try to look for fundamentals and trends based on evidence rather than ideology. From what we can glean, it’s increasingly looking like the great recession was not a tornado, but a hurricane. And, for the last four years, we have been in the eye of the storm.

When the recession hit, it was my belief that not only was the stimulus package two small, it was misallocated. Much of that money went to prop of the still-too-big-to-fail banks and precious little of it went to reconstruct the crumbling infrastructure of the nation. The big banks are doing better than ever, but we still have bridges that are falling down. Oil companies are doing fabulously, but we still have an unjustified debate about global warming (it’s real and man-made). If we had seen the financial crisis as the opportunity it was to set a ‘to the moon’ type challenge of being completely off fossil fuels in ten years, the massive investment would have revived science education, redirected the resources of industry in anticipation of the change, and got us started thinking about how to not only renew our infrastructure, but to remake it with the next century, not the last, in mind.

That was the golden opportunity, and it’s now past. Quantitative Easing in 2009 was misdirected to prop up failed banks and was continued because each attempt to stop resulted in a slowdown of the economy accompanied by wails of pain from the Wall Street elite. The new Fed chair, Janet Yellen, talks about halting the printing presses, but the reality is, the market is addicted to this free money. Money managers know this, which is why the VIX is so low. For them, the economy is doing fine and looks to continue to be fine. It’s only for the rest of us that things are looking increasingly grim.

Here are some of the indicators we are increasingly worried about going forward:

  • The VIX, historically, has been a counterintuitive tool. It tends to get low when the markets are too complacent and self-satisfied. It indicates that the Wall Street professionals are looking at the charts and thinking that this is the new normal. They are thinking that factors that caused the crashes of the past don’t apply now. Such thinking is always proved wrong. One of the reasons that they can be so complacent is that they did not really learn the lessons from the last crash. The banks were saved, their jobs were saved, and no one of significance went to jail. Rather, they can complain like one trader who felt his 8 million dollar bonus was too small (he had told his mom he would get 13).
  • Quantitative Easing may be great for money movers, but it is hell on the rest of us if not used wisely. One of the effects of QE is that since there is more money chasing after goods, you need more money to get the goods, otherwise known as inflation. There are reports that inflation is below 2 percent (which is the actual target of the Fed), but it’s also important to remember that the formula used to calculate inflation is constantly tinkered with by people who have a vested interest in the result turning out a particular way. If the same formula for inflation was used now as was used in 1980, the inflation rate would be as high as 10 percent. Furthermore, though the papers continue to report that inflation is not a problem, anyone visiting the pump or the grocery store should be able to tell you different.
  • Real wages are declining. Some commentators are pointing to a report showing that nominal wages have been ticking up and claiming this uptick is proof of an improving economy. On the other hand, since real wages are gauged based on how many goods a person can buy with the dollars in their pocket, wages have actually decreased.
  • Unemployment: The number of people un- or underemployed has actually increased. Last week there were reports that we had finally replaced all the jobs that were lost during the recession. However, there are now more people in the workforce chasing those jobs, so the claim that we have replaced those jobs is no indicator that the economy has gotten any better. Rather, many claim that what jobs have been returned to the economy are lower-paying, lower-benefit, lower-prestige jobs. These reports show that the middle-class squeeze is continuing and not easing.
  • Blaming the victim: Just at the moment when people who used to be securely middle class have been pushed into unemployment and/or poverty, the Wall Street owned congress cuts unemployment benefits and other features of the safety net. The reason? There is a misguided notion in the States that we have to pull ourselves up by our bootstraps. However, those at the top, if they did bootstrap it, probably started out with some pretty nice boot straps. Most of the rest of us have to get the straps first. Even Mitt Romney in the midst of his presidential campaign gave advice to college students: “Borrow money, if you have to, from your parents, start a business.” That’s the norm in his world, but not in the real one where retirees are being routinely told not to cosign loans for their children’s houses because of the grave risks to their assets.

Because of these and numerous other factors, it seems like that will be a correction to the stock markets that is going to rock both Wall Street and Main Street. Disruption is brewing. There’s actually no need for Bitcoin to bring it about. Rather, when that disruption hits, Bitcoin is going to become an important factor for how things get reconstituted. This time, there may not be enough economic resources and political will to right the banks. Bitcoin will be there to allow people to take banking back into their own hands. The government will have lost control of the mechanisms to manipulate the economy, but peer-to-peer currency, smart property, decentralized corporations and many as-yet-unthought-of applications will be there to pick up the pieces.

By Mark Norton, editor at BitcoinWarrior.net 6/20/2014