(DLacalle)—The main central banks have been deliberating on the concept of introducing a digital currency. However, many citizens fail to grasp the rationale behind it when the majority of transactions in major global currencies are carried out electronically. Nevertheless, a central bank digital currency is much more than electronic money. I will explain why.
Central banks are raising interest rates and enacting restrictive monetary policies as quickly as governmental regulations allow because they are aware that monetary factors are the primary cause of inflation. Central banks have recently lost credibility by initially disregarding the inflation danger, then attributing it to transitory factors, and finally responding belatedly and gradually.
In a world where there is an excess in money supply growth, there are mechanisms in place to prevent a significant rise in consumer prices caused by the destruction of the purchasing power of the issued currency. Quantitative easing is subject to some constraints that partially prevent inflationary forces. As the banking channel serves as the transmission mechanism of monetary policy, credit demand acts as a constraint on inflationary pressures.
Now, consider if the transmission mechanism was direct and utilizing only one channel, the central bank. It is not the same to have a police officer walking down your street than to have a police officer in your kitchen watching your every move.
A central bank digital currency would be directly issued to your account held at the central bank. At best, it is surveillance masquerading as currency. The central bank would have precise information of your currency usage, savings, borrowing, spending, and transactions. It can enhance the fungibility of money to prevent the common but unfounded problem of “excess savings.”
Moreover, as central banks become more politically involved, they might impose penalties on individuals who spend in a manner they consider unsuitable, while rewarding those who follow their recommendations. The entire privacy system and monetary limit mechanism would be removed. Moreover, if the central bank makes a mistake and creates an excess of money supply, as shown in 2020, it would immediately make consumer prices rocket. If the money supply increases dramatically in a year, we would experience massive inflation levels as the existing constraints of the transmission mechanism are eliminated.
Consider a scenario where you have a single account, a central bank, and the government. Guess what would happen? Full monetary financing of government spending leading to elevated inflation within a few years and the destruction of the private sector. Central bank digital currencies are likely to be a computerized rendition of the French Assignats. High inflation, complete government control, and financial repression.
Central bank digital currencies are unnecessary and dangerous. You cannot initiate an experiment pf such magnitude when the autonomy of central banks has been questioned for years and there is abundant evidence of mistakes made with policy measures that do not acknowledge the danger of increased inflation and economic stagnation. Central banks have never successfully prevented bubbles, high levels of risk-taking, excessive debt, or identified inflationary pressures.
Given such history, no one should support a proposal that would grant them complete authority and control over the financial and monetary system. What do central banks mean when they discuss a novel digital currency? It is a further advancement in the ongoing process of eroding the purchasing power of the currency, disguised under the objective of enhancing oversight of payments and facilitating the tracking of specific payment methods.
The primary arguments for considering a central bank digital currency are efficiency and enhancing the transmission mechanism of monetary policy. However, none of them make sense. Central banks often claim the need to enhance the transmission mechanism of monetary policy, but many of their statements are founded on an inaccurate belief that there is an excess of savings that requires a change in behaviour.
By manipulating the cost and quantity of the currency issued, central banks aim to correct what they perceive as imbalances. However, monetary policy rarely addresses the largest imbalances, which are the ones created by government deficits and debt accumulation. Disguising risk in sovereign debt leads to more imprudent fiscal policies and adds to the risk of bubbles in financial markets as perceptions of risk are clouded by low rates and high liquidity.
A digital currency does not enhance the transmission mechanism of monetary policy unless the word “enhance” is used to hide a desire to boost the size of government in the economy through the erosion of the purchasing power of the currency and the constant monetary financing of public deficits. Another aspect to consider is efficiency. Central banks appear to prioritize the regulation of monetary transactions and encourage spending regardless of the risks involved. Creating a central bank digital money system is not more efficient. It is another form of financial control. If negative interest rates are ineffective in stimulating economic agents, some believe that implementing negative rates and devaluing the currency faster using a digital currency may be more successful. They are wrong.
The economy does not strengthen by making the currency a disappearing reserve of value. Introducing a central bank digital currency is unlikely to reduce economic risks or stimulate productive investment but will encourage short-term malinvestment. Central banks are unable to compel economic agents to spend and invest, especially when their strategies continually focus on encouraging debt and prolonging government imbalances. The process of any asset becoming a widely used currency is highly democratic.
It is beyond the jurisdiction of governments and cannot be enforced. When governments and central banks implement financial repression and devalue their currency, citizens may turn to other forms of payment that are considered genuine money. Cryptocurrencies have emerged due to a lack of trust in fiat currencies and the ongoing efforts of central banks and governments to devalue currencies in order to conceal underlying fiscal imbalances.
A central bank digital currency is a contradiction in terms—an oxymoron. Citizens demand cryptocurrencies because they are not controlled by central banks that seek to grow the money supply and induce currency depreciation through inflation. Central banks should prioritize safeguarding the purchasing power of savings and salaries rather than seeking to destroy them. Using new means of financial repression may lead to a loss of confidence in the local currency. Once central banks acknowledge that they have exceeded the appropriate limits of their policy, it will already be too late.
Central bank digital currencies are unnecessary and dangerous.
The benefits of technology, digitalization and ease of transactions are already there. There is no need to create a currency issued directly to an account at the central bank. They are unnecessary as well because there is absolutely no need to compete with a digital yuan or bitcoin. China is moving closer to sound monetary policy and its central bank is purchasing more gold, not the opposite.
If central banks want to compete with other currencies or cryptocurrencies there is only one way: Make it absolutely clear that you will defend the reserve of value status of your currency. There is no need for the euro or the US dollar to compete with bitcoin or a digital yuan if the Fed and the ECB truly defend their reserve of value and purchasing power.
However, it looks like central banks want to behave like a monopoly that sells bad quality products but demands to remain the main supplier by eliminating the competition. The Fed and the ECB do not need to compete against cryptocurrencies if they show the world that they will defend the purchasing power of the US dollar and the euro.
The world’s financial challenges are not solved by imposing total control implemented by a monetary monopoly whose independence is seriously questioned, but by increasing competition and independence.
Five Things New “Preppers” Forget When Getting Ready for Bad Times Ahead
The preparedness community is growing faster than it has in decades. Even during peak times such as Y2K, the economic downturn of 2008, and Covid, the vast majority of Americans made sure they had plenty of toilet paper but didn’t really stockpile anything else.
Things have changed. There’s a growing anxiety in this presidential election year that has prompted more Americans to get prepared for crazy events in the future. Some of it is being driven by fearmongers, but there are valid concerns with the economy, food supply, pharmaceuticals, the energy grid, and mass rioting that have pushed average Americans into “prepper” mode.
There are degrees of preparedness. One does not have to be a full-blown “doomsday prepper” living off-grid in a secure Montana bunker in order to be ahead of the curve. In many ways, preparedness isn’t about being able to perfectly handle every conceivable situation. It’s about being less dependent on government for as long as possible. Those who have proper “preps” will not be waiting for FEMA to distribute emergency supplies to the desperate masses.
Below are five things people new to preparedness (and sometimes even those with experience) often forget as they get ready. All five are common sense notions that do not rely on doomsday in order to be useful. It may be nice to own a tank during the apocalypse but there’s not much you can do with it until things get really crazy. The recommendations below can have places in the lives of average Americans whether doomsday comes or not.
Note: The information provided by this publication or any related communications is for informational purposes only and should not be considered as financial advice. We do not provide personalized investment, financial, or legal advice.
Secured Wealth
Whether in the bank or held in a retirement account, most Americans feel that their life’s savings is relatively secure. At least they did until the last couple of years when de-banking, geopolitical turmoil, and the threat of Central Bank Digital Currencies reared their ugly heads.
It behooves Americans to diversify their holdings. If there’s a triggering event or series of events that cripple the financial systems or devalue the U.S. Dollar, wealth can evaporate quickly. To hedge against potential turmoil, many Americans are looking in two directions: Crypto and physical precious metals.
There are huge advantages to cryptocurrencies, but there are also inherent risks because “virtual” money can become challenging to spend. Add in the push by central banks and governments to regulate or even replace cryptocurrencies with their own versions they control and the risks amplify. There’s nothing wrong with cryptocurrencies today but things can change rapidly.
As for physical precious metals, many Americans pay cash to keep plenty on hand in their safe. Rolling over or transferring retirement accounts into self-directed IRAs is also a popular option, but there are caveats. It can often take weeks or even months to get the gold and silver shipped if the owner chooses to close their account. This is why Genesis Gold Group stands out. Their relationship with the depositories allows for rapid closure and shipping, often in less than 10 days from the time the account holder makes their move. This can come in handy if things appear to be heading south.
Lots of Potable Water
One of the biggest shocks that hit new preppers is understanding how much potable water they need in order to survive. Experts claim one gallon of water per person per day is necessary. Even the most conservative estimates put it at over half-a-gallon. That means that for a family of four, they’ll need around 120 gallons of water to survive for a month if the taps turn off and the stores empty out.
Being near a fresh water source, whether it’s a river, lake, or well, is a best practice among experienced preppers. It’s necessary to have a water filter as well, even if the taps are still working. Many refuse to drink tap water even when there is no emergency. Berkey was our previous favorite but they’re under attack from regulators so the Alexapure systems are solid replacements.
For those in the city or away from fresh water sources, storage is the best option. This can be challenging because proper water storage containers take up a lot of room and are difficult to move if the need arises. For “bug in” situations, having a larger container that stores hundreds or even thousands of gallons is better than stacking 1-5 gallon containers. Unfortunately, they won’t be easily transportable and they can cost a lot to install.
Water is critical. If chaos erupts and water infrastructure is compromised, having a large backup supply can be lifesaving.
Pharmaceuticals and Medical Supplies
There are multiple threats specific to the medical supply chain. With Chinese and Indian imports accounting for over 90% of pharmaceutical ingredients in the United States, deteriorating relations could make it impossible to get the medicines and antibiotics many of us need.
Stocking up many prescription medications can be hard. Doctors generally do not like to prescribe large batches of drugs even if they are shelf-stable for extended periods of time. It is a best practice to ask your doctor if they can prescribe a larger amount. Today, some are sympathetic to concerns about pharmacies running out or becoming inaccessible. Tell them your concerns. It’s worth a shot. The worst they can do is say no.
If your doctor is unwilling to help you stock up on medicines, then Jase Medical is a good alternative. Through telehealth, they can prescribe daily meds or antibiotics that are shipped to your door. As proponents of medical freedom, they empathize with those who want to have enough medical supplies on hand in case things go wrong.
Energy Sources
The vast majority of Americans are locked into the grid. This has proven to be a massive liability when the grid goes down. Unfortunately, there are no inexpensive remedies.
Those living off-grid had to either spend a lot of money or effort (or both) to get their alternative energy sources like solar set up. For those who do not want to go so far, it’s still a best practice to have backup power sources. Diesel generators and portable solar panels are the two most popular, and while they’re not inexpensive they are not out of reach of most Americans who are concerned about being without power for extended periods of time.
Natural gas is another necessity for many, but that’s far more challenging to replace. Having alternatives for heating and cooking that can be powered if gas and electric grids go down is important. Have a backup for items that require power such as manual can openers. If you’re stuck eating canned foods for a while and all you have is an electric opener, you’ll have problems.
Don’t Forget the Protein
When most think about “prepping,” they think about their food supply. More Americans are turning to gardening and homesteading as ways to produce their own food. Others are working with local farmers and ranchers to purchase directly from the sources. This is a good idea whether doomsday comes or not, but it’s particularly important if the food supply chain is broken.
Most grocery stores have about one to two weeks worth of food, as do most American households. Grocers rely heavily on truckers to receive their ongoing shipments. In a crisis, the current process can fail. It behooves Americans for multiple reasons to localize their food purchases as much as possible.
Long-term storage is another popular option. Canned foods, MREs, and freeze dried meals are selling out quickly even as prices rise. But one component that is conspicuously absent in shelf-stable food is high-quality protein. Most survival food companies offer low quality “protein buckets” or cans of meat, but they are often barely edible.
Prepper All-Naturals offers premium cuts of steak that have been cooked sous vide and freeze dried to give them a 25-year shelf life. They offer Ribeye, NY Strip, and Tenderloin among others.
Having buckets of beans and rice is a good start, but keeping a solid supply of high-quality protein isn’t just healthier. It can help a family maintain normalcy through crises.
Prepare Without Fear
With all the challenges we face as Americans today, it can be emotionally draining. Citizens are scared and there’s nothing irrational about their concerns. Being prepared and making lifestyle changes to secure necessities can go a long way toward overcoming the fears that plague us. We should hope and pray for the best but prepare for the worst. And if the worst does come, then knowing we did what we could to be ready for it will help us face those challenges with confidence.
