Why crypto will pave the way out of stagflation
You could be forgiven for thinking that growth is coming back and all will be well – but, unfortunately, it’s the likes of the IMF who think that is the case. In case you haven’t noticed what’s going on beneath the surface, tiny increments in GDP are being bought by larger and larger sums having to be created by the powers that be.
In the UK, as a microcosm of what’s happening, the NHS costs ever more in terms of inflation-adjusted cash, yet, has arguably never been in more dire financial straits.
At the risk of being shouted down before I can even get the words out, Liz Truss was right. We need growth – real growth – and the way to get that is through letting people keep more of their own money and spend it how they like. The allocation of resources will then take care of itself and – surprise, surprise – cash will end up going a) where it’s needed and b) where people want it to, rather then being diverted by a faceless blob.
My favourite ‘Madman’ – Javier Milei of Argentina – is having a bonfire of elitist economic orthodoxy (bigger state, more spending, more borrowing) by doing the exact opposite. So much so that Argentina recorded a quarterly surplus in its government spending this year – the first since 2008. In fact, in the last 123 years Argentina has only managed this in 10 periods. And whilst we are about it, remember Argentina has its name because of all the nation’s silver.
To pick up on the 'madman' meme, when elected, Milei was widely decried as such and predicted to be out in short order. But he has shown just what a person of conviction and a true believer can achieve.
It’s not easy and in the short term, in fact, it’s quite rough – but the results in just a few months are staggering. Practically on day one he massively devalued the Peso, which, along with other actions, has already reduced inflation by more than two-thirds, with more to come.
Interest rates have been cut three times in as many weeks – though, as this is Argentina, they are still at 50%. Believe it or not, in South American terms this is a huge win, and it appears that ‘green shoots’ of growth are already starting to show. Add the country’s massive natural resources – shale oil, in particular – and you have potential for an economic miracle with all the added benefit of a healthier, wealthier, and happier population.
None of this has come around without pain. Milei has scrapped entire government ministries, which instantly provided huge savings. Rent controls were also scrapped. As a result, rents have dropped 20% in just a few short months, as current and would-be landlords scramble to get more accommodation up and running.
In other parts of the world, rent controls have shown just how damaging they can be in choking investment, making rent more unaffordable, and cutting supply. Why would you rent out a property to earn less than the cash in the bank that you would get when you sell?
Elsewhere, price restrictions have gone, as have state subsidies. And guess what? With a free market, supply increases and prices fall – then neither the restrictions nor the subsidies are required, which means more massive savings for the government.
There is no gradualist approach here – it might almost be described as slash and burn. But whether you like it or not, good results are coming through.
Don’t for one second imagine that the economic establishment – aka Davos Man – is pleased about this, as, at the very least, the control the elitist entities have is seriously eroded. They continue to try to buy their way out of challenges by spending more and perforce borrowing more, despite the evidence accumulating that this is a recipe for disaster.
Inflation means that replacing something costs more in nominal terms than it did to buy it in the first place. So, a widget that costs £1 to make and sells for £2 is great, but if the bits that make the widget go up in price (because this is happening all down the line), the widget maker basically only has two choices.
Option one is to reduce the profit margin and continue to sell at £2, which can only be done for a relatively short period. The alternative is to put the price up and, in doing so, become part of the inflation spiral. And guess what? So do the workers, because they need more nominal cash to pay for what they bought last week.
This is where crypto comes in. As I have argued elsewhere, crypto – and Bitcoin in particular – is inflating at less than 1% now. If inflation country-wide is 4%, for example, the price of Bitcoin will go up over time. It’s not a straight line and it’s not every day or every week, but in time it will. And the same applies to lots of cryptos where the supply is fixed or mandated never to rise.
I would never suggest you ought to buy crypto – as the Financial Conduct Authority now mandates, they are high-risk investments and you should only put in what you can afford to lose. But, you should at the very least think through what all this means – and hope some other ‘madmen’ are ruthless enough to start makings things work again.
Temple Melville, CEO of The Scotcoin Project Community Interest Company (CIC)
