Connect with us

Crypto Research

Modern Economic Nonsense — What if the Fed gets inflation all wrong

Published

on

There’s a lot of news about the Fed getting inflation wrong, but what if they really are wrong 😱? People should be asking themselves as the Fed begins its new meeting cycle. The central bank raised interest rates aggressively for the first time since 1994 and signaled more hikes could be coming soon. But that doesn’t mean we are set to see an end to high inflation. It just means that we need more aggressive policy measures to help bring it down again. Why are higher prices such a big deal? A strong economy runs on capital; businesses require money to grow, and consumers spend money to spur demand. So why do we struggle so hard to keep our costs under control this time?

Why do we struggle to keep our costs under control? Lower inflation means more money for investors

Inflation is essentially how central banks try to keep the cost of living down. If the cost of an item goes up, then your money is worth less. But if it goes down, then it’s worth more. But inflation is a double-edged sword. When it’s too high, it essentially means that you’re losing money. And when spending is high, it erodes the real value of savings and makes debt repayment more difficult. So when we have low inflation, and people can actually see the value of their savings go down, we tend to rein it in and rein it in quickly.

Robust economy means robust spending

When people have more money in their pockets, it spurs demand. When everyone spends money, more businesses are created. There’s an economic boost to the whole thing. Inflation also affects spending because the purchasing power of your money goes down when inflation goes up. So while the $5 bill may have seemed like a lot of money when you first got it, by the time you’ve got a family to feed with it, it’s not worth much at all.

The real value of savings is eroded by inflation

If you got $1,000 in your bank account today, by tomorrow, that amount might only be worth $900. The only way to make your original $1,000 last longer is if you spend it. And if you spend it, you don’t have any money to save. See how inflation can erode the real value of savings?

Inflation also erodes the value of debt

One of the big benefits of having a debt repayment is that it’s a way to make regular payments to someone who’s loaned you money. If inflation is low, then the real value of your debt repayment is also low. It’s there every month, and it’s just not worth as much as it could be. And that can make it harder to repay. Plus, if you miss a repayment, then you start accruing interest. That interest is a cost, and it’s a cost that’s added on top of the real value reduction.

How crypto can fix inflation

Cryptocurrencies are digital assets that are not tied to any central bank or government. They’re decentralized, meaning no one person, bank, or institution controls them. They’re also inflation-proof because the only way to create more is for people to use them and make purchases. The total supply of crypto has been capped, such as Bitcoin. However, inflation has tanked the price of Bitcoin and other cryptocurrencies in the current high inflation environment. Despite the drop, many retailers joined the crypto wagon and built the blockchain infrastructure. People are preparing for the next boom to come.

So why are higher prices such a big deal?

If inflation is just a sign that the economy is doing well and that demand is high, then why should we care? Because rising prices also mean rising prices. That’s right. Everything you buy is going up in price from when you wake up in the morning until you go to bed at night. High prices are the only constant in life.

Conclusion

Inflation is the natural consequence of high economic growth. The only way to make the dollar last longer is to spend money. And the only way to spend money is to earn it. If you earn $1,000 in earnings, you can only spend $1,000 on things. If those things’ cost rises to $1,100, then you only have $100 left for future expenses. That’s why high inflation indicates that the economy is doing well. But if the Federal Reserve were getting inflation wrong, the economy would get out of control. That is why the market is volatile to determine what is right. We shall see how it will go.

Continue Reading
Click to comment

Leave a Reply

Your email address will not be published.

Crypto Research

The Future of Machine War II

Published

on

In late 2021, I wrote an article about A.I. vs. Blockchain. I realized it was closer than I expected.

https://medium.com/@xuanling11/artificial-intelligence-vs-blockchain-the-future-of-machine-war-b685d208ba20?sk=874af90c7acbe857fa004c0ebe0d5e28

Web2 is leading a future of technological centralism. 

The way we see the world in ancient is what we saw became what we believed. Later, the enlightenment process helped humans realize what they had seen was disguised by the nature principle. Once we tested our assumption and received accurate results, we thought we had mastered the nature principles. Yet, we did not make the world better than we thought we could. 

We are living in a world in which companies know more than you than yourself. Companies can likely tell you what you should believe without letting you know. 

The secret weapon that companies like Google invented is A.I. or Artificial Intelligence. 

If A.I. can think like a person, it can easily replace you! Since companies got all your data, you freely offer them by using their free services, and they can replace you one day without you realizing it. 

Without all conspiracy theories behind what Google may or will secretly develop, A.I. reaching consciousness is … impossible.

If it does, Google has successfully made a human – dumb!

The most advanced A.I. – Tesla Autopilot Program cannot distinguish objects between humans and other moving objects during driving.  

Using technology makes people dumber than they think because it takes away your consciousness – the ability to think uniquely!

Blockchain is the future of decentralization.

We need a peer-to-peer system to regain consciousness and break the chain from Web2. 

It gives individuals the power to rethink information.

Think about today’s media; all information is filtered to offer readers without any surprise. News is data that Web2 selected specifically for you to read. 

We need a decentralized system so that you can receive unfiltered information and gives you a surprise that sparks ideas of imagination.  

Web2 is afraid of the blockchain because they are too big to fail. 

 They mimic the blockchain by creating a centralized node system – social media network. 

It is a net growing outward through a single point. Only the problem is that connection is facilitated by technology. And the biggest failure is such technology has a single point of failure problem. 

And they cannot escape the law of economics – the law of diminishing. So we will see Web2 grow slower due to the law of diminishing that they require more data with few increments of advancement through A.I. without any breakthrough because A.I. is a deterministic system that works with a lack of randomness. 

In Web2, they assumed everyone was stupid, and they offered solutions to everyone.

In Web3, everyone is good and should anticipate solving a problem together.

If you enjoy reading my articles, buy me a coffee here.

Photo by Aideal Hwa on Unsplash

Continue Reading

Crypto Research

Financial sanction to mixers

Published

on

Have you heard about financial sanctions from the US on virtual currency? At least, I have not yet. But the US Department of Treasury has issued sanctions on two crypto services: Blender.io and Tornado Cash.

To clarify, the US sanctions on tools but not target specific entities or groups of people.

So why bother to sanction something that the government probably won’t be able to sanction in the first place?

What is a mixer?

A cryptocurrency mixer, sometimes referred to as a tumbler, is a tool for money laundering. The sole purpose of the invention is to make transactions untraceable.

How to mix?

Even crypto is pseudo-anonymous, but it is traceable through your wallet address. A mixer is a black box service to filter your traceable wallet address into the untraceable wallet address.

How to wash your money clean in the traditional way?

https://dimensiongrc.com/the-stages-of-money-laundering/

The assumption is you will not get caught at each stage, and then you place your dirty money in a bank through companies and use the funds to purchase legal goods like houses or luxury goods.

There are mature regulations and rules to stop you from putting your dirty money into banks.

Digtial money landury

https://www.eurospider.com/en/know-how/compliance/211-what-is-a-cryptocurrency-mixer

A Crypto mixer or tumbler is a service to pool dirty digital currency in their favor and redistribute it into designated wallet addresses or addresses randomly generated. 

It is a challenge to stop transactions because there is no entry point for law enforcement to stop at each stage. 

https://home.treasury.gov/news/press-releases/jy0768

Ultimate Mixer

Tornado Cash is the king of the mixer. Unfortunately, there is just no way to trace transactions anymore. It is a smart contract with zk-SNARKs (zero-knowledge proofs) that does not require revealing a wallet address during transactions and ghostly distributed funds without leaving any traces.

This tool is the ultimate weapon that the government has to shut down, or there is no way to prevent transactions.

In Conclusion

Let’s change the future – legally. 

If you enjoy reading my articles, buy me a coffee here.

Photo by Espen Bierud on Unsplash

Continue Reading

Crypto Research

Why there is not crypto banking exist

Published

on

We have always heard about cryptocurrencies, crypto exchange, banking, and trading platforms, but we do not really grasp the idea of crypto banking. Crypto banking is a contradicted idea. If crypto is to replace banks and give users full control of digital money, why do you put your crypto into the bank? The new research paper argued that there are risks for banks to adopt crypto, but they did it anyway.

Banks want crypto

Cryptocurrency has a rough road at the beginning and continues to experience a bumpy road ahead. The institutional investors were watching its performance. In early 2017, institutional investors had opportunities to adopt crypto, but they found out the return of the investments was less than traditional financial assets. Regulations were not a concern for some individual institutional owners, but banks were conservative at the time. As a result, some investors adopted it in early 2018 than banks did. Then suddenly, the crypto market took off in 2020, leaving many banks to regret their decision in 2017. Many banks set up their digital investment group to rush into the market and increase prices. Of course, many of their investment positions are instead of shadow positions. It is unclear how much they have been invested in and what vehicles they took to invest in cryptos.

Crypto Exchange

Crypto exchange is a bank-like platform for crypto. Banks offered a place to purchase fiat currency. Crypto exchange did the same duty as traditional banks did. Since there was a gap between the crypto and banks, the crypto exchange took responsibility and offered crypto services. The crypto exchange took off after 2020, and they left banks in the dust. Then, crypto winter came in early 2022, and banks again hesitated to enter the crypto and started denouncing crypto usage, particularly in the Defi area. But interestingly, they tried to find ways to get into crypto without being directly exposed to cryptocurrencies—hint: through hedge funds.

How much banks exposure to crypto

We do not know how much banks have been exposed to crypto. We learned that the big Wall Street players were exposed to the services of the digital asset through State Street of their $41.7 trillion assets. Some have been exposed due to Luna’s collapse and 3AC bankruptcy. But again, no specific dollar amount was provided. 

Survivors

Since the crypto winter, institutional investors have been cautious about crypto exposure. However, crypto exchanges are the winner again. They are exposed to crypto and take risks more than banks do. As a result, they likely will weather the uncertainty. Furthermore, there is no need for crypto banking to handle your crypto assets since many such services will not survive long in the crypto environment. 

Crypto is resilience

Despite its fluctuating price and unsecured assets, crypto is resilient to phase out any bad business ideas and bad actors in the economy who wants to or try to dominate the market but who transfers risks to users to believe they are the one who should take responsibility for their carelessness. Unfortunately, those business models will not survive long.

If you enjoy reading my articles, buy me a coffee here.

Photo by Luke White on Unsplash

Continue Reading

Trending