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.Musings Report 2018-5 2-3-18 Cryptocurrencies and the 4th Industrial Revolution
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Cryptocurrencies and the 4th Industrial Revolution
The 4th Industrial Revolution refers to the networked technologies of the 21st century: intelligent software (machine learning, deep learning, AI, etc.), 3D fabrication, bio-engineering, advanced robotics, drones, etc.
These technologies have been around for decades, but what's changed is that they're now networked and powered by low-cost computing. This greatly leverages their real-world applications and abilities, and enables their distribution: not only has the price of these technologies declined to the point that they are affordable to a much larger population of enterprises and households, but in the case of software, the costs are near-zero or zero (free) for many digital tools.
The conventional focus on the impact of this 4th Industrial Revolution is two-fold:
1. The impact on the production of goods and services
2. The widespread replacement of human labor by robots, software,self-driving vehicles, etc.
These are important impacts to track and analyze, but what's mentioned far less often than the technological impacts on the production of goods and services is the social impact of the job losses and the reduction of profits as these powerful technologies become commoditized, i.e. interchangeable units manufactured in large quantities globally.
Leading conventional economists don't have any answers to these world-changing social impacts; they either retreat into the faith-based myth that "technology always creates more jobs than it destroys" (once true, no longer true) or they punt the topic, noting that the social order will have to change in some unspecified process.
The design of alternative social/economic structures that address widespread, permanent losses of conventional jobs is my bread and butter--it's the focus of my work. I see no evidence that society will generate new social systems out of thin air; rather, the existing order clings blindly to models of the past and denies the obvious reality that these technologies are obsoleting our centralized, debt-based models of "how the world works."
Into this mix come cryptocurrencies, widely touted as changing the way we create, distribute and manage currencies and financial transactions, or dismissed as the greatest bubble of all time that's finally bursting. There is very little middle ground between these two sets of believers, which is why I have suggested the cryptocurrency sector feels like a replay of the religious wars in 1600s Europe.
My interest in cryptocurrencies is their potential to support a new social contract and social order, one that accepts the technologies of the 4th Industrial Revolution but that no longer depends on the market or the state to create paid work.
There are cryptocurrencies that have been designed to support economic/social communities that generate value: for example, SteemIt creates and distributes a cryptocurrency in exchange for content that is deemed useful by the community of users. There are other models that are being tested or developed.
My interest is in developing ways to monetize work that is currently undervalued or dismissed by the profit-driven market and the central state. It seems self-evident that the way to encourage productive labor in our communities is not to take money from others (via taxes) that is then distributed according to the interests of centralized elites, but by creating and distributing new currency within the communities.
If the communities have the power to issue currency in exchange for work that is deemed useful and valuable by the members of the community rather than a centralized elite, then we have the outlines of a system that is localized, decentralized and sustainable without borrowing trillions of dollars, yuan, yen and euros from future generations.
Summary of the Blog This Past Week
Political Correctness Serves the Ruling Elite 2/2/18
The Rowboat (Wages) and the Yacht (Assets) 1/31/18
Rising Social Disorder Is Inevitable: Here's Why 1/30/18
The Pie Is Shrinking for the 99% 1/29/18
Best Thing That Happened To Me This Week
Home-made Portuguese sweetbread. The difference is the eggs--traditional bread has no eggs.
Market Musings: Risk-on, Risk-off and the US Dollar
The central banks have done a remarkable job of reflating global "risk-on" assets, tripling stock valuations and boosting global assets to the $300 trillion range (estimates vary; Credit Swisse reckoned $250T in 2015):
Global Wealth Report 2015.
I think it's much larger: $200+ trillion in real estate and $150 trillion as a conservative estimate of traditional "financial assets" such as stocks and bonds. Toss in the shadow banking system (private debt and off-balance sheet loans) and exotic "financial instruments" such as CDOs and $500 trillion seems more realistic.
That's a lot of "money" sloshing around, and in comparison the central bank balance sheets are relatively modest; "only" $4 trillion for the Fed. Clearly, the markets can overwhelm central bank policy. As stocks/bonds start losing value, roughly $150 trillion is at risk of shrinking dramatically.
Much of the real estate "wealth" is buried in housing that is illiquid/the family home etc.,but a substantial % is held as "wealth" and managed as "wealth" that must be traded /rotated into other assets as the bubble starts bursting, i.e. risk-on goes to risk-off.
The case for precious metals as the ultimate risk-off asset is well established. I've made the case here that the bitcoin family, being intrinsically limited to 21 M coins, will also become a risk-off asset for global wealth. (Others disagree, of course).
The USD has traditionally served as a risk-off currency and I think it will serve this role going forward in the first phase of the meltdown. There are no really sound explanations for the USD's recent slide IMO; we're told it's risk-on money flowing into emerging market currencies, it's the rising US deficit, it's euphoria that Europe is "growing again" (everything's wonderfulness again, whew) , etc.
What few mention is the $10 trillion in USD denominated debt that is a "put" on the USD, as all the borrowers need USD to service their debts. Few if any mention that the Fed is not creating new currency at the same rate as other central banks. Eventually, this might matter.
As I've noted here many times, currencies are used as means of exchange and as reserves. The two shouldn't be confused. That people use yuan to settle an oil trade doesn't automatically make the yuan a reserve currency.
All of which is to say that the USD is setting up for a risk-off revaluation in my view. There's no fundamental reason for the euro to have gained 20% against the USD that I can discern, ditto the flows into risk-on emerging market currencies. These can reverse over night as hot money reaps profits and returns to risk-off assets such as the USD.
From Left Field
What Makes Some Happy in Their Older Years and Others Not So Much
We examined Julian Assange, and he badly needs care – but he can’t get it (The Guardian stands up for Assange)
Social Media's Junkies and Dealers -- paging Facebook and Google...
3 Lessons for Building a Great Community: From a Very Small Town
Trace Mayer: Bitcoin "Is A Geopolitical Weapon... Can Become Reserve Asset" -- which is what I wrote in 2013...
Bob Shiller Warns World's "Priciest Stock Market" Could "Absolutely Turn Suddenly"
A Recession-Era Economic Myth Goes Up In Smoke -- the supposed shortage of workers....
Global Economy’s Stubborn Reality: Plenty of Work, Not Enough Pay
Tax Incentive Puts More Robots on Factory Floors (via Mark G.)
Davos: Inequality Rocks the Magic Mountain (via LaserLefty)
The Global Risks Report 2018 -- from the Davos set...
The view from the top of the power pyramid (via Steve S.)
"Everyone wants to live at the expense of the state. They forget that the state wants to live at the expense of everyone." Frédéric Bastiat
Thanks for reading--
charles |
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