Financial, Economic and Social Mood Update (November 1, 2020)
Real US GDP has now fallen as low as USD $5 TRILLION per year according to economist Larry Summers (75 percent less than before the pandemic began). The Federal Government budget eats up all of this – sad proof that none of the real US economy still survives. Annual deficit spending has reached USD $4.235 TRILLION, which equals an actual annual inflation rate of 85 percent………….the loss in purchasing power of the US Dollar (the 44th highest rate of annual currency inflation in world history). 75 percent of the American population will experience a drop in nominal income (thus an even bigger drop in real income) this month due to the expiration of stimulus, relief and other welfare programs. Once again – “printing” or creating more worthless currency is never a good long term policy. No economy will ever recover unless its people return to work, and no economy will ever create new jobs unless small “mom and pop” businesses survive and thrive. Government (public sector), nonprofit organizations and large companies have never created net new jobs in any economy in the history of the world. The report of a “record” 33 percent increase in US GDP in the 3rd quarter of 2020 (which would take the USA “back” to USD $6.65 TRILLION) is meaningless in that this is still within the realm of the federal government creating yet more money out of thin air………………..this is federal government “pumping” in the form of government contracts and “grants” to state and local governments across the USA.
PayPal (spun off from E-Bay) will allow its vendors and customers to buy, sell, store and pay in major cryptocurrencies before the end of 2020 – specifically with Bitcoin, Etherium, Bitcoin Cash and Litecoin. PayPal has 346 million customer accounts, 26 million of which are vendors (retailers).
I believe that the digital electronic encrypted currencies will eventually be backed by physical assets. If you look at Bitcoin in particular, it already “behaves” much like a precious metal in the market – especially like gold and silver. The number of actual cryptocurrencies is far, far too high – 7,567 and counting as of October 31, 2020. There is no way that all of them can and will thrive and survive. At this point, entrepreneurs are going absolutely crazy launching new currencies. Let’s look at Bitcoin yet again (64 percent of crypto market capitalization and rising – Bitcoin has risen 16.4 percent since October 11 alone). It and its many directly related derivatives (related to it specifically by its founders – the biggest examples thereof are Bitcoin Cash, Bitcoin SV, Wrapped Bitcoin, Bitcoin Gold and Bitcoin Diamond) comprise 90 percent of all cryptocurrency market capitalization. The 100 largest coins put together with Bitcoin (those with circa USD $100 million or more in total market value) comprise 99 percent of total cryptocurrency market capitalization. Tether (USDT) is directly tied to the US Dollar, which is of course a paper fiat currency not backed by any physical assets. Both Digix (DGX) and Paxos Gold (PAXG) are backed with physical gold bullion. “Petro” is a Venezuelan electronic digital encrypted currency backed by gasoline, crude oil and diamonds. Decentraland (MANA), PROPY and Bee Token (BEE) are backed with real property, but as I have said many times, the optimal solution is for currency to be backed with physical assets such as mineral and natural resource reserves – i.e. precious metals such as gold, silver, copper, platinum, diamonds, gems and/or resources such as crude oil, natural gas, water, forests, etc.
The European Union (EU) central bank wants to “strictly” regulate stablecoins in particular. Such coins are deliberately tied to existing fiat currencies such as the Dai Stablecoin DAI is tied to the US Dollar. This tells me that both they and the governments trying to regulate them will likely fail. Governments are the largest entities on the plant and much like nonprofit organizations operate through “consensus.” This means that they are the slowest and the last people to act upon anything, always getting into things after it is already far too late. Any government CBDC (“Central Bank Digital Currency”) is merely an electronic version of paper or physical “fiat currency” – many or most countries already have some form of this today, and this is certainly no better than paper or physical fiat currency in terms of real value…………………….particularly when a government behaves like the US government – “printing” or creating new money backed by nothing.
Total cryptocurrency market capitalization is still very low – USD $402 Billion as of October 31, 2020. Total money throughout the world including financial derivatives “created” by money center banks (with the “blessing” of national central banks) is USD $4.521 QUADRILLION. I would expect that the surviving cryptocurrencies will eventually balloon to encompass 100 percent of the latter figure.
Furthermore, high technology has been on a relentless march since the beginning. I suppose we can say it began with IBM after World War 2, took another big jump with Apple and personal computing in 1976 (a strong tie to Silicon Valley due to Stanford University/IBM and the south San Francisco-San Jose, California Bay Area due to Apple Computer), invaded global retail with Amazon.com in 1994, invaded Hollywood, the television and movie industry with Netflix in 1997, invaded the Internet with Google in 1998 and cornered social media with the likes of LinkedIn (2002), Facebook (2004), Twitter (2006) and Instagram (2010). The current phase of this onslaught is in the form of Artificial Intelligence (AI), Blockchain & related cryptocurrencies and in companies such as Tesla & Nikola (autonomous driving). Cryptocurrency exchanges are in the process of killing commercial & investment banks, much like Amazon, E-Bay, Craigslist, Alibaba, Walmart and Target have killed most of global retail. Or like Uber and Lyft have killed the taxicab business. Or like real estate companies are in the process of being killed by real estate Apps. The number of cryptocurrency exchanges (banks) is up to 372 as of October 31, 2020. The total number of banks (commercial banks, investment banks, mortgage banks and cryptocurrency exchanges) is down to about 4,400 institutions – the lowest number in hundreds of years………………this number will continue its downward spiral as this “dinosaur” industry continues to die out. Crypto banks will eventually displace the old commercial and investment banks.
My point is that there is no stopping this process, regardless of whether or not we love it, like it, dislike it or hate it. Bitcoin will likely balloon 40 to 100 fold from its “secondary” market value today (circa USD $125,000 per coin as opposed to its primary market value of USD $14,000) and the few surviving “altcoins” (i.e. “alternative” to Bitcoin) will likely balloon by 1,000 fold or more.
Mainland China has already reached what the best business schools would call a “critical mass” of world power, much like dominant companies have done in their respective industries – think of companies like Facebook, Amazon, Apple, Netflix, Google (Alphabet) or Volkswagen. How is this quantified? Facebook has a 70 percent share of social media in the world today. Alibaba of China has 50 percent of the global retail market, Amazon has 20 percent and Walmart has 10 percent. Volkswagen has 41 percent of worldwide motor vehicle liquidity, Toyota has 16 percent, Tesla & Hyundai have 7 percent each and Daimler, BMW & BYD of China have 5 percent each. Mainland China and her very many global partners in the massive Belt Road Initiative (the “BRI” or the new Silk Road for the 21st Century) include 90 percent of the earth’s population and 87 percent of its GDP. The only parts of the world not yet partaking in the BRI include the USA, most of Central America, some of the Caribbean, Paraguay, part of Central Africa, Syria, Taiwan, Japan, North Korea and some of the smaller island countries primarily in the Pacific Ocean.
I expect everything to reach a critical point even before the end of 2020. Not merely the demise of specific companies and industries, but the demise of specific governments, economies, currencies, people, cities, states, provinces, regions and countries.
