Tyler Winklevoss recently published a report pleading the case for a $500,000 Bitcoin value. The report begins with mentioning that Gold and oil have historically been reliable stores of value. Because they are scarce commodities, they make dependable hedges to the inflation of fiat currencies. As a result, they have commanded price premiums above and beyond the demand for their consumption alone.
For the last 75 years, the U.S. dollar has also been a reliable store of value. This is a result of its comparatively good management by the Federal Reserve and the strength, resilience, and reputation of the U.S. economy. In fact, it is the most widely held fiat currency in the world and recognized as the global reserve currency, denominating and settling the majority of international trade.
The report further looks at problem with US Dollar. Economic cycles are notoriously hard to predict, but, over a long enough time horizon, they do happen. The Keynesian tools that governments can avail themselves of to soften down cycles are well understood.
Spending money, lowering taxes, and “printing money” (i.e., cutting rates, quantitative easing or “QE”, and/or adjusting cash reserve ratios for banks), are the major levers that governments can pull to counteract an economic contraction. These strategies, however, have diminishing returns and their ability to stimulate an economy depends upon how novel they are at the time they are being summoned.
Traditional wisdom dictates that during pro business cycles, a government should run a budget surplus — either by spending frugally, saving prudently, or some combination thereof — and print money sparingly. The idea is to have enough dry powder lying around to help jumpstart the economy if, and when, it starts to go into a tailspin. In practice, however, the U.S. government has been taking an entirely different tact.
