Central banks.
We all are somewhat familiar with them. They are in the news a lot. Many believe these entities have the power to maneuver the economy. Heading by financial wizards, they take control in an effort to save us all.
Unfortunately, the mystique around central banks far outpaces their reality. These entities are failed and beyond repair. There are a number of reasons that go into this, none having to do with what most people espouse.
Instead, the primary reason is the limitations were exposed more than half a century ago. Since that time, they were basically dead on arrival.
The end of the second World War ushered in a new era. This was one called globalization. Due to an alignment of most of the world (the Soviets, N. Koreans and Cubans being the exception) and advancements in transportation, communication, and technology, the world got smaller.
Once this happened, we saw international trade exploded. No longer were the economy based mostly on national trade. Commerce was going global.
This was a problem for central banks. Their powers stopped at the national borders. For most currencies, this wasn't a problem since they were local anyway.
The one exception was, perhaps, the Federal Reserve, Since this was behind the US dollar, it was able to influence things globally, at least in theory.
Unfortunately, this entity was no more adept at navigating the global waters. In fact, the Fed was spared facing what other reserve currencies did, an idea that became known as Triffin's Dilemma.
Why was it spared? Because a new system was set up by the banks (and other financial institutions) that make the central bank redundant. This was established on top of the eurodollar, a fact that aided the Fed greatly.
The Eurodollar System is a global network of borrowing and lending all designed to facilitate global trade. Essentially, it got money to where it was required, on a timeline needed.
It was the defacto system. That meant, for the past 60 years, the posturing by central banks was nothing more than theater. Since the 1960s, this system was fully in control.
Today, we find ourselves in a sticky situation. The Eurodollar System is sick and there is little chance of recovery. This is bringing Triffin's Paradox back to life.
We see the Fed trying to rescue the global economy. Over the last decade, the number of alphabet programs it put together to address issues is stunning. Credit lines were opened with every decent sized central bank in an effort to get dollars out to the world.
The results are less than stunning.
In fact, it is safe to say the Fed failed. We are watching things crack and, sadly, the policy makers have no clue as to why. Phrases suck as balance sheet constraint are thrown around without people realizing what it means.
Ultimately, the way is being paved for cryptocurrency. The central bank system died long ago. It was taken over by the Eurodollar System. Policy makers did a lot of posturing but most of it was for show.
Now, we are reaching the end as the collateral supply across the world dries up. That means we are going to see a tightening regardless of what the central banks do. When the primary dealers are confined, there is no place for the system to go.
That is exactly the point we are at. To be, the next evolution will be based around digital assets. Here we can capture value at different economic levels and collateralize that across the world.
It is the only way forward. Central banks are done. This was the case for a long time.
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