It’s been such a long since we’ve used a gold standard capitalist system that we have forgotten its problems.
We switched to the uncollateralized fiat currency debt system way back, and now we’re starting to see its endgame.
I propose a compromise.
My proposal is for a meta balance sheet that bridges both systems to reduce risks and gain profits.
One Side of the Barbell: The Uncollateralized Fiat Debt System
Analog Balance Sheet: Uncollateralized Fiat Debt System
Ludwig Von Mises’ “Fuhrer Principal” describes the growing centralization and authority needed to support an uncollateralized fiat debt system:
-It either collapses under its own weight of debt or requires extreme authoritarianism to function.
A balance sheet from this system reflects highly liquid currency (fiat), asset inflation and leverage (debt).
To illustrate my point:
-a 2022 US fiat $100 is equal to a 1914 gold backed US $1.
So when you heard the song “Brother, Can You Spare a Dime” from 1932, today you would have to sing a lot louder, “Brother, Can You Spare $10?”
Key characteristics of the Uncollateralized Fiat Debt System:
- uncollateralized fiat currency
- currency debasement
- asset inflation and leverage (debt)
Other Side of the Barbell: A Fully Collateralized Capital System
Digital Balance Sheet: Fully Collateralized Capital System
Williams Jennings Bryan’s “Cross of Gold” speech in 1896 described the plight of the common man under gold standard capitalism.
His famous speech noted the good and bad under gold standard capitalism:
The good? Nations could not raise war chests.
The bad? The common man could not purchase a house or education.
The gold standard caps economic inflation to the amount of gold that can be mined in any given year, roughly 2%, which is similar for Bitcoin mining by design.
Economic liquidity is always a problem in gold standard systems. Bitcoin/Ethereum are no different, it’s just masked by the enormous inflows from fiat currencies. The perceived value of fiat currencies is quickly giving way to the absolute Bitcoin.
Fiat currency collapses are occurring all over the world. At some point in the future, Bitcoin will cause the collapse of most fiat currencies and all the global problems of the 19th century may return. Let’s not forget that these problems brought us two world wars, socialism, communism, and fascism.
Key characteristics of fully collateralized capital systems:
- collateralized currency
- currency inflation
- asset deflation and no leverage (capital)
Meta Balance Sheet: Balancing the Barbell
How to balance the barbell?
Maintain two balance sheets:
- one for fiat (analog) which is inflationary with high liquidity and leverage
- one for cryptocurrencies (digital) which is deflationary with no leverage.
A meta balance sheet carries the weight of both analog and digital, and bridges risks between the two in order to maximize profits.
Here’s An Example:
A meta balance sheet could store its value in both performing real estate (analog) and cryptocurrencies (digital). Raising capital from DeFi DAO markets (digital) to finance performing real estate (analog) will provide dividends and capital gains back to DAO token owners. This liquidity inflow from real estate may not seem exciting now, but when liquidity dries up in a digital market, it will become very valuable.
DAO token owners provide capital to purchase performing real estate. DAO tokens act both like bonds and stocks, providing the token holders a repurchase price (like bonds), dividend income, and in addition, asset appreciation.
In conclusion, I believe the Meta Balance Sheet bridges liquidity from the analog economy into the digital economy in exchange for value returning to the analog economy. The owner of the meta balance sheet profits from the flows, asset accretion and appreciation, with excellent hedges in both economies.
Stay tuned for more of my thoughts on this subject…I specialize in deciphering the elements that work collectively towards progress – and building a roadmap for successful execution. In other words, I help bankers make more money.
Schedule a call here & we’ll chat about how I can assist your organization.