A new essay authored by Timothy F. Geithner, Henry M. Paulson Jr., and Ben S. Bernanke explain how prepared the US government is for a new financial crisis. Mr. Bernanke served two terms as head of the Federal Reserve so his opinion in economic matters is considered to be authoritative and chances are that specialists will read the essay very carefully and take it into account, even if they disagree with it.
The authors think that the economy’s health is good in general terms. It seems that central bankers enjoy a regulatory environment much easier to deal with since the Dodd-Frank legislation of 2010 which modernized the financial industry. That translates into enhanced power and influence to administrate financial markets, keep leverage reasonable, and put funds into faltering companies.
The authors praised the Dodd-Frank organigram as the thing that the US economic structure needed since the 2008 financial crisis started. But because it was implemented at least two years too late, the crisis was protracted without any need.
The regulatory environment is not as careless as it used to be. But the authors emphasize that capital is the thing to worry about as we keep moving forward. Congress did away with many of the options that the central bank had to infuse the market with cash thus probably eliminating inflationary pressures but also limiting the federal reserves’ prospects severely to affect recovery upon a new crisis.
The new rules mean that failing banks or other financial institutions will receive no support form anybody should they need it. The loss of capital prompts a loss of confidence. That starts a vicious circle that restrains capital even more. And that ends up destroying economic value and currency stability.
Bitcoin’s role in the next crisis
But economies develop in cycles. That’s one of Economics more basic rules. So every day that goes by only brings the next crisis a day closer, which doesn’t mean it could start tomorrow either. But since the possibility, latent for now is unavoidable for the future, some experts are asking the government to restore some of the Federal Reserve’s former power.
People are sick of the endless amounts of federal money that have bailed out the banks who caused the last crisis out of sheer greed and incompetence. They’re fed up, and now that’s showing through their representatives. While that’s not a bad thing at all, chaining up the institutions that should deal with a situation like that is not the answer either.
The national debt is skyrocketing. Interest alone could absorb all the tax income so, those policies are ludicrous — Bandaids in a patient who has terminal cancer, as the saying goes. So while the next crisis looks impossible for the near future, when it strikes, the new regulations will only impair the authority’s ability to do something about it.
Enter Bitcoin. It was created in 2009, after the last financial crisis, precisely to use decentralization as an answer to the financial regulations that submerged the world’s economic system into the 2008 catastrophe. Bitcoin can’t be affected by any central authority or single player. Instead, it responds to supply and demand alone, which is supposed to be every capitalist’s wet dream. So Bitcoin’s decentralized ledger could hold the secret to getting rid of the financial terror that prevails these days. The key is that it allows for the free transfer of value between parties.
Bitcoin, of course, wasn’t the central idea in the new article as all three authors are representatives of the traditional financial industry and ruling bodies, so their opinions about the blockchain technology’s potential are probably not very favorable. But they’re also irrelevant.
If Bitcoin (or some other crypto coin) achieves widespread mainstream adoption and becomes influential enough, it could really be the key to stop a new global crisis on its tracks. In the end, that was precisely Satoshi’s motivation for creating Bitcoin and blockchains.
Image courtesy of Pixabay.
Disclaimer: The presented information is subjected to market condition and may include the very own opinion of the author. Please do your ‘very own’ market research before making any investment in cryptocurrencies. Neither the writer nor the publication (TronWeekly.com) holds any responsibility for your financial loss.