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Modern Economic Nonsense — An engineering recession

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There is a difference between a recession and a slowdown. A recession is when the economy contracts for two straight quarters, not just one. A slowdown happens when the economy grows slower than usual. An engineering recession is when the central bank purposely slows down the economy to fight for issues such as inflation. It’s not that economy has any problems caused by any factors but a political movement to sustain the economy through battle inflation caused by the ongoing war. And the further question is how long this can be sustainable until? It is a tricky question because it depends on how long the war can drag on and what outcome both sides of the country will accept.

How does the central bank slow down the economy?

The central bank can slow down the economy by raising interest rates. When the economy is growing too quickly, the central bank will raise interest rates to slow down the pace of growth. Raising interest rates makes it more expensive for businesses to borrow money, making them less likely to expand. Conversely, when the economy is too slow, the central bank will cut interest rates to make it cheaper for businesses to borrow money. Making it more affordable for companies to borrow money makes them more likely to expand and hire more workers. The central bank can also buy government bonds from banks to make more cash available for businesses to borrow. 

In this current market, the central bank forces the economy to slow down and fight against inflation. A purposely slowing down the economy causes the market to sell off and reduce debts. But fewer people are caring about where that money goes? Instead, they are pumping into the war zone. The war is costly and wasteful. It can bring down the country’s economy. But is it fair to make the global recession because one government wants to expand its political goal into another?

Why is an engineering recession necessary?

There are various reasons why there’s an engineering recession. These include government spending, business investment, and consumer spending. Additionally, the engineering recession may result from a trade war between the US and China. Government spending is declining due to the political climate in the US. Businesses are paring back on their capital spending because of the trade war and the overall business environment. Consumer spending is slowing down, especially on big-ticket purchases. Government spending is at the lowest level since the 1940s. The growth of the US economy has been at its lowest since the financial crisis. The development of the world economy is at its lowest since the financial crisis, with only a modest expansion rate.

The effects of an engineering recession

There are no positive impacts of an engineering recession. The economy of the country will go into a slowdown. The GDP of the country will go down, and unemployment will go up. As a result, the government’s tax revenue will also go down. The government will have to spend more money on social security and other entitlement programs. All of this will put a lot of strain on the government’s finances. The government will have to cut spending, which will hurt the businesses. The businesses will have to lay off workers, and the employees will be not able to make ends meet. Thus, the businesses and the government will be at the receiving end since there will be less money to spend. The construction companies will have to cut down on their spending. The oil and gas companies will also have to cut down on spending. This will affect the supply chain in the country. The supply chain will be broken due to the lack of spending. The engineering recession will also hurt the local business. And such engineering recession may go out of control if the central bank is not able to fully control it. When the recession comes, the central bank then has no choice but to lose the monetary policy by cutting the interest rate again, which companies will react on it. Such a mess will trigger people to wonder why we are doing the interest rate hike in the first place.

The end of the fiat currency domination era

The back and forth of hiking and dropping rates will lose people’s confidence about the fiat current. As a result, it will further push dollar domination away and weaken the dollar. People will seek other currencies to replace the dollar when the trust deteriorates. That is why Bitcoin and other cryptocurrencies can help transition from dollar to digital currency. The central bank will have no choice but to issue CBDC to compete with cryptocurrencies and further weaker dollar power. 

Conclusion

If a recession is on its way, that means the economy will slow down. When the economy is growing too slowly, it’s often called a recession. This usually happens when there’s less demand for goods or services. When a recession is expected, central banks can try to prevent it by taking action. One way to do this is by reducing the interest rate. By lowering the interest rate, the central bank hopes to make it more attractive for people to save money rather than spend it. This will cause the economy to slow down. The central bank can also buy government bonds from banks. This makes more cash available for businesses to borrow. The goal of these actions is to prevent a recession from happening. But either way, the central bank is in a dilemma that costs the trust of the fiat currency. The dollar domination era is ending from now on.

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Crypto Research

What if you regret your crypto transaction

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Defi hacking is a pandemic now. We lost $2.2B this year, which marked the worst year of the crypto losses despite the fact that we are at the bear market, in which the market capital has shrunk to $1 trillion.

There are a few solutions that can prevent hacking. One of them is creating reversible transactions on Ethereum.

Ah, it goes back to the debate on blockchain trilemma.

If you ever noticed the old debate on blockchain trilemma, you realize these three elements control how a perfect blockchain works: security, decentralization, and scalability.

https://www.ledger.com/academy/what-is-the-blockchain-trilemma

Lacking one of the three elements will make blockchain unusable.

The idea of decentralization is providing an option to give power to people by using computer governing and to reach a fair and square consensus.

The characteristics of decentralization include:

  • transparency
  • immutability
  • accessibility
  • trustless

The reversible transactions are challenging the decentralization assumption of the blockchain, which sparks debates on sacrificing decentralization to prevent hacking losses.

Is preventing theft more critical than permissionless immutability?

Of course, the proposal is just a suggestion of one possible solution, but I shared some of my ideas about such a proposal.

Utilitarianism

If we only focus on what will work for us, that reversible transactions feature is preferable and can prevent hacking from damaging the crypto project.

Defi hacking is a pandemic now. We lost $2.2B this year, which marked the worst year of the crypto losses despite the fact that we are at the bear market, in which the market capital has shrunk to $1 trillion.

There are a few solutions that can prevent hacking. One of them is creating reversible transactions on Ethereum.

Ah, it goes back to the debate on blockchain trilemma.

If you ever noticed the old debate on blockchain trilemma, you realize these three elements control how a perfect blockchain works: security, decentralization, and scalability.

https://www.ledger.com/academy/what-is-the-blockchain-trilemma

Lacking one of the three elements will make blockchain unusable.

The idea of decentralization is providing an option to give power to people by using computer governing and to reach a fair and square consensus.

The characteristics of decentralization include:

  • transparency
  • immutability
  • accessibility
  • trustless

The reversible transactions are challenging the decentralization assumption of the blockchain, which sparks debates on sacrificing decentralization to prevent hacking losses.

Is preventing theft more critical than permissionless immutability?

Of course, the proposal is just a suggestion of one possible solution, but I shared some of my ideas about such a proposal.

Utilitarianism

If we only focus on what will work for us, that reversible transactions feature is preferable and can prevent hacking from damaging the crypto project.

Liberalism

If we focus on individual freedom rather than preventing losses, we will not trade off from the immutability feature of blockchain to a centralized governing function to reverse transactions.

Virtue Ethics

Of course, stealing is universally wrong. But what if hackers stole funds to save local people from starvation? Then such stealing may not seem so wrong after all.

But if hackers stole funds to get themselves rich and purchased luxury goods, such action would be prevented.

Moral Absolutism

But if you believe stealing is universally wrong, no matter the circumstances, reversible transactions seem an excellent idea.

Moral Nihilism

We may go extreme that moral is no matter in crypto whatsoever, then implementing reversible transactions simply changes nothing.

Theory of Justice

If you think fairness is more important than utility, implementing reversible transactions is an excellent choice to ensure the ecosystem is fair.

Majority Rule

You may also not decide but ask consensus to vote on such changes and implement them upon the majority vote agree upon.

So which one would you like to choose from?

But no matter what you choose, I think crypto is more toward to Majority Rule that consensus will decide what moves forward with decisions everyone votes.

Of course, who controls the voting power is another debate in the crypto ecosystem—this question we will discuss the next time.

Support writer here or join Medium here

Photo by lucas clarysse on Unsplash

If we focus on individual freedom rather than preventing losses, we will not trade off from the immutability feature of blockchain to a centralized governing function to reverse transactions.

Virtue Ethics

Of course, stealing is universally wrong. But what if hackers stole funds to save local people from starvation? Then such stealing may not seem so wrong after all.

But if hackers stole funds to get themselves rich and purchased luxury goods, such action would be prevented.

Moral Absolutism

But if you believe stealing is universally wrong, no matter the circumstances, reversible transactions seem an excellent idea.

Moral Nihilism

We may go extreme that moral is no matter in crypto whatsoever, then implementing reversible transactions simply changes nothing.

Theory of Justice

If you think fairness is more important than utility, implementing reversible transactions is an excellent choice to ensure the ecosystem is fair.

Majority Rule

You may also not decide but ask consensus to vote on such changes and implement them upon the majority vote agree upon.

So which one would you like to choose from?

But no matter what you choose, I think crypto is more toward to Majority Rule that consensus will decide what moves forward with decisions everyone votes.

Of course, who controls the voting power is another debate in the crypto ecosystem—this question we will discuss the next time.

Support writer here or join Medium here

Photo by lucas clarysse on Unsplash

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Crypto Research

The core reason why Defi is not working

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Defi or decentralized finance is an alternative way to traditional finance. It sounds fancy, but it does not work in reality. Here is why:

Securitization

You cannot ignore the innovation of securitization that gives banks a further push on their asset management and expand their operation into more risky asset management in modern finance.

In the past, banks heavily relied on deposits from users, but with securitization, banks can turn illiquid assets into liquidated assets while raising more cash to make more loans.

In theory, a bigger pool with more loans can reduce default rates and make such financial instruments more secure.

In reality, it will trigger a chain reaction and melt down the entire finance in a second.

What makes security secure?

It is a way to make the default rate as accurate as possible, giving a higher security grade than the lower ones.

A lower grade of loan means a higher potential of default because there are not as straightforward as of default rate whoever originated can be calculated. 

There are many ways to calculate loan grading however, there are some factors, include:

  • The borrower’s credit history.
  • Quality of the collateral.
  • The likelihood of repayment of the principal and interest.
  • Cash flow of borrower that can sustain

Defi’s assumption

The loan grade is automatically low when you allow everyone to get loans from the smart contract without sharing financial background because there is no information about how likely the loan will be the default.

Also, the pool is open to all who can get in and out quickly, which makes it even harder to provide sustainable management of such loans.

Defi is very similar to subprime Morgage-backed securities.

The digital finance product is like a shell company with fake value stocks that attract investors to buy in with the high return rates and risk of defaulting at any time.

There is no innovation in preventing default rates but in speeding up cash flow transactions.

Defi only conveniences the money pooling process but has not improved the prevention of possible default and provided sustainable solutions for long-term gains. Instead, it just repackaged the bad loans and sold them for liquidity.

And even worse, Defi will have no mechanism to force investors to repay loans.

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Photo by Akinori UEMURA on Unsplash

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Crypto Research

When fiat currency is volatile

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Cryptocurrency may not promise you to become rich immediately, but it did foresee the worst scenario of the fiat currency – uncontrollable inflation that makes fiat currency unstable. 

We knew it would happen, but it just did not happen as quickly as we imagined dating back to 2008.

Inflation is climbing into the most dangerous zone in decades:

These types of inflation usually will never occur unless we were:

✅ at war

✅ at the trade war

✅ at the political turmoil

✅ at the economic crisis

✅ at the energy crisis

✅ at the challenge of new power

✅ at the currency transition

In the meanwhile, governments are doing a business-usual.

While the currency crisis intends to repeat itself, it will get worse,

Or maybe not…

Or maybe yes…

Okay, the point is, why is the currency in crisis mode?

It is unresponsible for massive spending that gets out of control from central banks.

Who is paying the bill after the math?

Do you want to guess it?

What is the bright side of the development of the currency crisis?

I have seen no light in the tunnel in the coming years, but it does not mean we are out of any solutions. I just have not yet seen anything.

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Photo by Breno Machado on Unsplash

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