Global Debt, Ethereum and a new Open Financial System
It’s time to pay attention. Ray Dalio, Conspiracy Theorists, Gold Bugs, Bitcoin Maximalists and even the Chinese Government all have one thing in common. They believe that the existing Global Financial System is in for a paramount change in the near future.
Ray Dalio, the Founder of Bridge Water Associates, has been trying his best to alert the broader market about this coming major change. He has been on the biggest global stages, media stations and even went as far as releasing an entire book for free just to warn others about the imminent paradigm shift.
Recently, he was at the 2019 Institute of International Finance Annual Meeting, where he was quoted saying:
I think we are in the last stages of the cycle where we ask:
What is currency?
What is a reserve currency?
How does our fiat monetary system work?
A major change is coming, are you prepared to navigate the Big Debt Crisis?
One of the most major changes in recent history was the end of the Bretton Woods System and the Gold Standard which saw the United States Dollar turn into a Fiat Currency in 1971. Overnight, the United States Dollar went from being backed by the world’s largest Gold reserve to being paper, backed by trust in a central authority.
The United States government has since shown an unquenchable appetite for debt as can be seen by the following United States Government Debt chart.
The United States is not the only guilty one, as nearly all global economies have been on a debt binge during the past 50 years which can be seen by the following Global Credit-Market Debt Owed chart.
Typically once excess levels of debt are reached, economies will experience a deleveraging. This can come as a Beautiful Deleveraging or a Bubble Burst depending on what monetary policy tools are deployed.
During his talk at the IIF, Dalio explained that Monetary Policy Tool #1 — the lowering of interest rates — is no longer effective because interest rates are already near zero. These near zero interest rates can be seen in the 10 Year Government Bond Yields chart below.
He further expanded saying that Monetary Policy Tool #2 — the printing of money (and quantitative easing) — is also unlikely to have a meaningful effect due to our current economic climate. While using this tool used to have tremendous positive effects, it’s now akin to “pushing on a string”.
The United States Dollar has seen its value (purchasing power) drop substantially since turning into a fiat currency, which can be seen in the Purchasing Power of the US Dollar chart below.
Ray Dalio believes that we need a Monetary Policy Tool #3 and a new Modern Monetary Theory (MMT) for the coming paradigm. He states:
“in paradigm shifts, most people get caught overextended doing something overly popular and get really hurt. On the other hand, if you’re astute enough to understand these shifts, you can navigate them well or at least protect yourself against them.”
He believes the coming paradigm is likely to be categorized by near zero interest rates, the aggressive printing of dollars and debt monetization. This should cause any intelligent investor to take a good look at their existing portfolio allocations and if left unchanged, feel very uneasy with the prospect of these things coming true. In this new world, Dalio mentions that
“storing one’s money in fiat currency and bonds will no longer be safe. Bonds are a claim on money and governments are likely to continue printing money to pay their debts with devalued money. That’s the easiest and least controversial way to reduce the debt burdens and without raising taxes”.
He further explains that Digital Currencies will be of much more value and that “holding cash in a vault” is seemingly archaic. While most people will think Bitcoin, even Ray Dalio has been quoted saying:
“Bitcoin could be like the blackberry phone,
you could have Ethereum come along
and everything change”
These comments and the coming paradigm shift perfectly aligns with the creation of an entirely new financial system.
Welcome to Ethereum and the new Open Financial System
This open financial system has a new native money at its base layer. This new money, known as Ether (ETH), will continue to gain value over the US Dollar due to superior monetary policy.
This financial system is open to all global citizens regardless of nationality, age, race or gender. It provides many of the same luxuries you would see in the traditional financial system with access to things like Credit, Stocks, Commodities, Bonds, Gold, Real Estate, Stable Coins, Exchanges, Insurance and even Identity Systems. An internet connection is all you need to access these services.
One of the greatest benefits of this new open financial system (Open Finance) is complete transparency. The existing financial system allows banks, financial institutions, and regulators to control the flow of information, causing cataclysmic events like the 2008 financial crisis. These entities choose what information gets disclosed to the public. It’s not like you can walk into your bank and say, “I’m here to perform an audit.”
Things are different with Open Finance, which makes all the data publicly available on-chain for everyone to see. Transparency and real time data are two major advantages Open Finance has gained by rebuilding things from scratch. If you are interested in tracking Open Finance activity, head over to DeFi Pulse, DeFi Prime and ETHHub.
We are at the very early stages of this new global financial system and it’s likely it will see growing pains as it matures. Rest assured that a legion of dedicated developers and a thriving community are doing their best to ensure the world has a new, more fair and accessible way to conduct their financial activities.
About the Author
Anthony Bertolino is dedicated to educating the world about Ethereum and the future of finance. He studied Blockchain Technology at U.C. Berkeley and currently lives in Los Angeles, California. If you want to learn more or have any questions, reach out to him on Twitter.