Centralization of Finance
Here we are, a couple weeks after the second-largest bank collapse in US history. Three banks, named Silvergate, Silicon Valley and Signature were taken over by the FDIC and are now being sold off. Their shareholders have been wiped out. In the meantime, it is not clear whether depositors will be made whole, only receive up to $250,000, or something in between. The FDIC has historically had far less money in its fund than the deposits it insured, so further bank collapses might change the calculation.
Centralized decisions by the people in power have increased instability in their economies. In 2020, the Federal Reserve reduced to zero the reserve requirements of banks, allowing them to issue massive amounts of loans subject only to their own underwriters. Trillions of dollars in stimulus were pumped into the economy. The Congress could have used this opportunity to raise taxes on negative externalities, such as carbon or plastic pollution, removing money from the economy and creating environmental incentives in the process. Instead, it was left to the Fed to rein in inflation. Not being able to control fiscal policy, the Fed’s only tool was monetary: raising interest rates. In the last year, the Fed raised interest rates from 0.5 to 5 percent – as a result, banks like SVB which bought treasuries at lower yields last year ended up effectively insolvent. All it would take was a run on one of these banks to expose it.
The Global Situation
Underpinning the world’s monetary system are sovereign debts backed by the “full faith and credit” of large countries like the United States, and China. These have been, in essence, the financial tools of central planning. Ever since the paper “greenback” was issued by the US Treasury to finance the Civil War, and later made legal tender by the US Congress, the ability for the government to “print money” has expanded. Now every government does the same. USA and China, heading up G7 and BRICS, have begun to vie for control of the world’s economy. Both countries are setting up to issue CBDCs (Central Bank Digital Currencies), further consolidating power in the hands of centralized decision makers.
In the meantime, countries like Sri Lanka and Pakistan have gone bankrupt. Whether it’s China or the US holding the leash, these countries experience collateral damage when the centralized hegemon externalizes its costs to them. As countries basing their economy on US or Chinese debts start to experience crises, the world will need an alternative model.
Hopefully people are connecting the dots on the impact of situations like this…if they’re not they don’t have to look back too far to see how the Bank Crash of 2008 impacted LIFE as we know it.
You have a great point there! I wonder if people will make the connection this time around, or if history will repeat itself. Last time around, no one was using cryptocurrency. It seems that the first banks to fail are also the largest ones to provide a gateway for crypto exchanges. Could there be a pattern?
As a general rule there are always patterns…but the percentage of folks who have the aptitude to even discern what the patterns even mean are very low. Those of us who pay attention to the details…Statistic’s and Math types or those who work with numbers are the most likely to see these correlations between what is happening and how it may affect other things.
I couldn’t agree more with this post on the centralization of finance. The recent bank collapses in the US only serve to highlight how unstable and fragile our current monetary system really is, especially given that depositors may not even receive their full funds back. It’s clear that centralized decision-making has increased instability within economies worldwide, as evidenced by government policy failures such as a lack of incentives for environmental initiatives despite trillions being pumped into economic stimulus packages. Instead of placing all financial power and responsibility solely in the hands of major governments like China or America through CBDCs (Central Bank Digital Currencies), we should strive towards decentralized alternatives such as cryptocurrency which are built upon peer-to-peer networks rather than relying solely on centralized systems controlled by banks and large institutions.
One possible solution to this problem could be blockchain technology, which would allow people around the world access to secure digital currencies without needing permission from any single entity or authority figure - making it much harder for unreliable sovereign debts to cause collateral damage when externalized costs hit countries based off them who can least afford those consequences! Additionally introducing taxes aimed at negative externalities resulting from plastic pollution or carbon emission directly could also act an effective way ‘drain’ money out economy preventing devaluation currency while encouraging industry green practices landing support against climate changes issues faced today globally.
To sum up then: let us work together towards creating new models rooted in greater individual autonomy where everyone can have equal say regarding what happens with regard finances so no one country holds excessive leverage over another nation causing ripple effects wherever they deal financially-- ultimately striving toward decentralizing finance altogether!