The world is currently sitting on a massive ticking debt bomb. Can crypto defuse it and help to recreate a more sustainable monetary system?

Just two weeks ago, the International Monetary Fund (IMF), led by crypto friendly Christine Lagarde, published a global debt report. A staggering number was highlighted in the report — $182 trillion worth of debt exists worldwide.

On Dec 13, 2018, the IMF updated the report and the number grew by another $2 trillion for a grand total of $184 trillion.

To put things into perspective, that’s $86,000 debt owed on average by every single individual on our planet. More interesting is the fact that each of us earns on average two and a half times less than what we owe — over $30,000.

Keep in mind these numbers are not up to date, as the IMF statistics do not take into consideration the 2018 data. Therefore, it is safe to assume the global debt in Dec 2018 is even higher.

Behind The Numbers: A Huge Money Printing Machine

How in the world did we reach this stage? What has actually happened?

The simplest answer is that the governments or, more specifically, the central banks, kept printing more and more money — and they still do to this day.

To answer more methodically, we would have to go back way in the 20th century, after World War II. More specifically after 1971, when the Bretton Woods gold standard — pegging dollar to gold — was abolished and the current fiat system was born.

Yet, to explain most debt accumulation, we do not have to travel that much further in time. The debt problem spiraled out of control after the 2000s when Keynesians — those who followed the school of economic thought defining the economy as a never-ending sequence of boom-and-bust cycles — took hold of the world’s major central banks.

To pull the economy out of recession, the central banks applied the Quantitative Easing or QE monetary policy. Put simply, they printed more and more money year after year to buy financial assets that nobody wanted anymore, just like the toxic US subprime securities. This is how most of the banks survived — the governments bailed them out.

QE encourages lending and it all starts at the top level with central banks, escalating ‘down’ to private banks, companies, and consumers.

In just five years, between 2009 and 2014, the US Fed alone accumulated $4.5 trillion in financial assets. The current official US debt is over $21 trillion with reports signaling another $21 trillion ‘missing.’

The Future Is Bleak

Obviously, the central banks cannot inflate this huge bubble forever. To keep inflation under control, they plan to revert their policy to Quantitative Tightening or QT and shrink the money supply, as more money in circulation unavoidably leads to inflation.

In fact, monetary policymakers have been trying to stop QE for quite some time, but at a very slow pace as not to trigger another recession. A new recession would force them to apply QE again and that could wake the ‘stagflation’ beast — high inflation coupled with very little economic growth. With stagflation comes currency devaluation and ultimately the government’s worst nightmare: a currency crisis.

Either way, given today’s economy and massive debt problem, the governments have little-to-no choice in stopping the next recession. They can continue to pump the economy with more paper money, but this will only make things worse by devaluating the fiat system in the medium-term. Alternatively, they can stop — but, like a crack addict, the economy will soon enter the withdrawal phase. Another ‘hit’ of QE could be fatal for all fiat systems.

Just imagine: whole countries defaulting one by one — rendering fiat currencies obsolete.

Decentralizing The Monetary System

The solution just may be at hand. Unfortunately, the economy must go through withdrawal first. Afterward, the governments must implement a completely new monetary system — one envisioned by Satoshi Nakamoto ten years ago when he first created Bitcoin and hard-coded a clear message in the genesis block: Jan/2009 Chancellor on brink of the second bailout for banks.

Nakamoto thought of a system with no central bank at its core, and no printing machine waiting to be manipulated by the few to control the many. A decentralized system managed by the many with no single point of failure. A deflationary system issuing a fixed amount of sound money with no possibility of abolition. An exciting prototype that can and probably will change the way we think about wealth.

Do you agree?

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Will crypto and the blockchain replace today’s monetary system? In what way and how will this change occur? Let us know your thoughts in the comment section below.