Global Debt, Ethereum, and the Open Financial System

This article comes fromMedium, original author: Anthony Bertolino

Odaily Translator |

Odaily Translator |

No matter you are an investor, a trader, or just an ordinary person, you have to cheer up and read this article now.

First a question for you guys: What do Ray Dalio, bitcoin minimalists, conspiracy theorists, gold fanatics all have in common?

Without going around in circles, the answer is:

They all believe that the current global financial system will undergo major changes in the near future.

Ray Dalio, founder of well-known investment fund firm Bridge Water Associates, has been doing his best to remind the market of one thing: a major change in the financial system is coming. In fact, Ray Dalio has been so active on the global stage and has experience in the media that he even released a book for free just to remind others of the impending paradigm shift in investing.

Recently, Ray Dalio presented at the 2019 IIF Annual Conference, during which he asked a few questions:

1. What is currency?

2. What is a reserve currency?

4. A major change is coming, are you ready to deal with a huge debt crisis?

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Do you know the answers to the above questions?

In fact, in the history of modern financial development, one of the most important changes is the end of the Bretton Woods system and the gold standard. Since 1971, the US dollar has become the legal currency of the world. Overnight, the U.S. dollar changed: from being anchored by gold reserves, to relying solely on the trust and endorsement of a central authority, the Federal Reserve.

Since then, the U.S. government has shown an unimaginable appetite for debt. The following picture illustrates the trend of U.S. government debt over the past seven decades:

However, the United States is not the only country in the world that is "sinful", because in the past 50 years, almost all economies around the world have fallen into a debt frenzy. The following picture fully demonstrates the global credit market debt Trends in arrears:

Typically, once debt reaches excess levels, the economy experiences deleveraging. Depending on the monetary policy tools the U.S. government chooses to deploy, they may implement a "beautiful" deleveraging strategy to burst the bubbles "blown out" in the past.

At the 2019 IIF Annual Conference, Ray Dalio explained that the most powerful tool of monetary policy in the past (lowering interest rates) is no longer effective because interest rates are now close to zero. The question is, what will happen to the future economy when interest rates are close to zero? Perhaps we can see the answer in the 10-year government bond yield chart below.

Ray Dalio further explained that due to the current economic environment, the second most powerful monetary policy tool (money printing, or more academically: quantitative easing) is also unlikely to have much meaningful impact. While quantitative easing did give a huge and positive boost to economic recovery in the past, it doesn't seem to be doing the same thing anymore.

Since becoming a global fiat currency, the value of the US dollar (including purchasing power) has dropped significantly, don't believe it? The following "U.S. Dollar Purchasing Power" analysis chart will allow you to find out for yourself.

Ray Dalio believes that for people all over the world, now is the time for a whole new monetary policy tool and Modern Monetary Theory (MMT) to deal with the coming paradigm shift. In this regard, he elaborated:

“During a paradigm shift, most people get stuck doing something that is overly popular and get hurt. On the other hand, if you can understand these paradigm shifts very acutely, then you can steer yourself very well. , or at least protect yourself from being negatively affected by the paradigm shift.”

According to Ray Dalio's analysis, the upcoming paradigm change is mainly caused by three reasons:

1. Interest rates close to zero;

2. Aggressive monetary easing (too many dollars are printed);

3. Debt monetization.

If you are a smart investor, you first need to gain a better understanding of your existing portfolio allocations. Assuming all portfolios remain the same, it will definitely make you uncomfortable if the paradigm changes. Ray Dalio added:

"After the new paradigm, it may not be safe to store your money in fiat currency and bonds, which are a form of money ownership, and in order to pay off debts, the government may continue to print money to devalue the currency, although this is One of the easiest ways to reduce the debt burden without raising taxes is also one of the most controversial."

Ray Dalio further explained that digital currencies will have greater value, and depositing cash in a vault may now be an outdated method. In this case, the vast majority of people will consider Bitcoin, in Ray Dalio's own words:

There is no doubt that Ray Dalio's views and the coming paradigm shift confirm one thing: we need to build a new financial system.

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Welcome to Ethereum and the new open financial system

This open financial system will provide a brand new native currency on its own base layer. For Ethereum, their underlying currency is Ether (ETH). Due to the superior monetary policy, the value of Ethereum’s native tokens will increase. Gradually exceed the value of the dollar.

The Ethereum financial system is open to global citizens regardless of nationality, age, race or gender, and provides many of the same functions as traditional financial systems, including credit, stocks, commodities, bonds, gold, real estate, stablecoins , exchanges, insurance, and even identification systems, you can access these services as long as you can connect to the Internet.

One of the biggest benefits of this new open financial system is complete transparency. The existing financial system allows banks, financial institutions and regulators to control the flow of information, and doing so can easily lead to catastrophic events, such as the 2008 financial crisis, because these entities will choose to disclose the information they want to disclose, and not just anyone You can audit it, like you can't walk into a bank and say, "Hey, I'm here to see your books."DeFi Pulse、 DeFi PrimeThe case of open finance is different, because in an open finance environment, all data is publicly available to everyone on the chain. The open financial system hopes to rebuild things from the ground up through the two advantages of transparency and real-time data. If you're interested in tracking Open Finance activity, check outETHHub。

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