What I call the Legacy Financial System is what most people call the Financial System. It’s a Fiat Currency system, which is been divorced from being gold-backed for many decades. Which means it’s been entirely under the control of government spending, lending, and borrowing.
It is subject to the influence of governments borrowing, governments inflating and governments deflating their currency through trade, and all sort of methods.
Central Banks and the Legacy Financial System
Central Banks have a lot of leavers to try to control the inflation or deflation of their currency. But they are bound within some constraints. For example:
- Keeping interests rated low keeps people from saving money, and money keeps being spent.
- If interest rates are high; people stop spending money, and they start saving and investing, because they know if interest rates are high; Inflation is going to happen, and your money will lose value if not invested in something.
So, every year they say right now they are trying to target about a 2% inflation. And, the truth is: nobody really knows what the true amount is.
They rely on a basket of goods that people are buying in a grocery store, and other elements too, to try to calculate what the actual inflation rate is.
Central Bank and Control
Apart from all that complexity, my main point is:
Central Banks have a way of controlling how currencies are inflating and deflating. However, those controls are bound by certain constraints, and those constrain are what I want to talk about.
Because of this little event that happened in March of this year: I’m definitely not going to name it, because we are not looking to get banned, or blacklisted, so…
He Who Shall Not Be Named (or Voldemort, for connoisseurs lol)
That thing happened, WORLD WIDE. And precisely, world wide there have been shotdowns in businesses, perhaps even more than what is necessary.
If we look back, a hundred years or so, there was a method developed called: The Circuit-Breaker Method, that was quite effective in breaking the spread of He Who Shall Not be Named or his predecessors 100 years back.
And, I don’t see that happening right now, this Circuit-Breaker Methodology, it’s just a long bleed.
Regardless of the reasons for that, there’s a lot of theories about it (but, we are not going to get sucked into that debate at the moment).
Impact on the Legacy Financial System
I want to talk about the Financial System’s impacts of such a long drawn out experience of He Who Shall Not Be Named.
And that is, that governments have to pay people.
For example, I have several businesses, one of which is a Micro-greens Business and it has government support:
- Support for rent
- Support for Wages (up to 75% in some cases)
We lost 90% of our revenue… Our customers were high end restaurants; they are not doing so well right now, so they have been cutting back on their menus.
All that government money has to come from somewhere. The way the Legacy Financial System works, with respect to how governments borrow, lend, and spend is:
- When times are good and the economy is running really well, governments should be paying down their debt loads, governments should be paying debt loads because the economy is doing well, and not giving big handouts to big corporations and such.
- When times are bad, governments borrow to keep the economy from contracting too much, this is called stimulus.
Guess which one hasn’t been happening in the past few decades?
Legacy Financial System in the past 20 years
Paying down the debt load during good times hasn’t happened in over 20 years; we’ve had some ups and downs, and in the ups and in the downs the governments have been borrowing.
The debt loads of Global Governments
The debt loads of Global Governments have been going up and up. And part of the reason for that has been this artificially depressed interest rates.
Now, we won’t get into the reasons for that, it’s rather complex. Let’s say interest rates have been at historical lows for a long long time now.
In a sense, it makes sense not to pay off debt, because it’s cheap, money is cheap. The problem is that so many countries have been increasing their debt load for so long that even the province of Manitoba, Canada have their credit rating reduced… Twice, because the debt:GDP ratio is so high, and that means that they are at higher risk of defaulting.
The Federal Government’s Perspective
Now, look at this from the Federal Government’s perspective: they also have one of the highest debt load ratio they’ve ever had.
And, guess what? They are now dramatically increasing their debt load because of: He Who Shall Not Be Named, all of these businesses are shut down, and they are having to support all of these businesses. And to make matters worse, income tax, and business taxes will be at an all time low this year.
Basically without this government support, 80% of small businesses (please note that I pulled that number out of my ass) in Canada are going to get wiped off of the map, and I’m sure this is the same worldwide.
Now, think about this for a second: WORLDWIDE?
Worldwide, countries are borrowing money like it is going out of style, and their debt load is going up, and interest rates are still at an all-time low, but they’re not going to be able to pull much money out, there’s going to be a limit.
How do Governments go out of this conundrum?
So, how do Governments solve this? Well, there are a couple ways:
- They have to increase taxes by increasing business, by increasing the economy
- They have to increase taxes by increasing the rate at which people are taxed
- And, they have to print more money
With the increasing taxes by increasing business option, they don’t actually have control over. Especially, if they are not putting more money into the economy, as to increase the amount of work and productivity that is been done, and that is kind of hard.
With the increasing taxes by increasing the rate at which people are taxed option if you’ve already increased the marginal tax rate to the hilt, as they have in Canada, there is not much room for growth there.
They most likely are going to try to increase taxes… I just don’t think that’s going to go very well, because I think that is trying to squeeze blood out of a rock story. Thus they must print more money.
So, what’s going to happen?
You are probably going to see interest rates dropping even more, and you probably gonna see a lot of destabilization happening with the Legacy Financial System.
What just happened that supports my theory that this is going to become the big reset of the Legacy Financial System?
What happened is that you’ve seen that in the last two months, Billionaires and Global Financial Institutions like HSBC, Continents like Europe, Countries like China, Australia… And, even the US are starting to look into cryptocurrency.
And they are starting to think about how to regulate and use it.
There has been more money pouring into Cryptocurrency by Big Financial Institutions and Billionaires in the last month than it ever has historically.
Historically when crypto has popped up has always been because of advertising and small investors getting excited and putting their life savings into it. Generally this hasn’t gone well for them because these investors are looking for quick money, and pull their gains out crashing the market and causing chaos.
Banks and Billionaires tho……
What’s different now?
Now? Now, it’s Big Movers, as far as who is going into cryptocurrency.
- We are seeing companies like PayPal making it easy to buy crypto
- We are seeing all sort of companies popping up who are allowing people to borrow against their cryptocurrency without selling it
- Companies competing to hold people’s crypto, by paying interest rates anywhere from 4.5% – 12% per annum for deposits
- We are seeing world-class deposit insurance being used to protect your investments
- We are seeing over-regulated companies like PornoHub beginning to use crypto to ensure the viability of their enterprise
- Seeing countries subject to financial embargoes like Venezuela switching to crypto to pay their trading partners
- We are seeing crypto companies coming out with Visa and Mastercards that will allow users to spend their crypto on the legacy financial system
Bye Legacy Financial System?
Seeing that there are credit cards that are starting to allow you to borrow against your cryptocurrency and spend money, is huge.
Traveling the world with a crypto bank account that it’s not in a bank.
You can start to see that little by little, all the things that we used to do with the Legacy Financial System are starting to be possible using crypto.
And that says to me, that the combination of everything we used to with the Legacy Financial System is now possible with crypto:
- Saving (I’m getting around 8% on all my crypto assets and I have quite a lot now, as everything has been going up. So I’m getting 8% interest + the appreciation of the asset)
- Credit Cards
- Bank Account that are not really bank accounts
At the top of it is that we see Billionaires and Big Financial Institutions dropping so much of their wealth there: hedge funds, pension funds… Everything is starting to lean into it.
For a long time now, I’ve kept this to myself and decided now to share with the world. Hey, I’m not giving you advice, I’m giving you information.
Everything spare cent that a have, I’m putting into crypto. Actually, I’m putting at least 5% of my income in crypto every day.
I don’t have a savings account anymore paying 1% or 2%, which is ridiculous. Like, what’s the point of that?
I’ve already made like 30% this year on my crypto assets. I’m quite happy about that.
Central Banks are freaking out right now and the Federal Reserve is trying to make it so people can’t make cryptocurrency that’s pegged against the US dollar, because now people are buying and selling that cryptocurrency that has the same value as the US dollars and the Federal Reserve can’t track those transactions. That’s bad for US control over who gets to trade with whom, which they’ve had a lock on for decades and decades.
What have they done?
What they’ve done is, they’ve instituted this global financial regime for countries:
Which are good things, because regulation is good, however, it’s just showing how real the cryptocurrency is, that the Federal Reserve and Central Bank are trying to figure out how to regulate this; Trying to figure what parts to make legal, what parts to make illegal, so they can maintain the same control they have.
Guess what? They can’t. It has become so real, that Congress is talking about it, apart from every other Central Bank.
What about the assets people store in the Legacy Financial System?
Meanwhile, all this money that is going into crypto, it’s value it’s going to appreciate against the value of the currencies that are dropping.
That is the whole point of buying assets (arts, collectible cars, stock, etc), these assets maintain their value while governments have these leavers to increase decrease inflation, their GDP and manage interest rates
The leavers can only flatten the curve, so when there is a macroscopic event like He Who Shall Not Be Named, they just can’t control it anymore.
And inflation goes shooting up, as we’ve seen in places like Venezuela, where you can’t even use the currency, which is why I pay my staff who live in Venezuela in cryptocurrency or USD, because to pay them in their money doesn’t make any sense because they can’t use it; You pay them on Monday and by Wednesday it’s worth like 5% of what it was.
This is a problem. When governments are digging themselves out of a hole, people savings evaporate; any wealth that you’ve built up, evaporates when governments have to pull these leavers. Your pension fund? Unless it was a Defined Benefit (aka golden) pension, you’re screwed too.
What’s surprising to me, is that nobody it’s talking about this in this context for the people. The fact that people are not hearing that their life savings could be reduced in value is insane.
It’s ok, you don’t have to worry about your houses and other assets, because the reason people buy houses, or stores of value gold is because assets maintain their value and governments don’t have as much control over it.
With Fiat Currency, because it’s not pegged to anything real, governments can increase and decrease their value as it suits them and their monetary policy and their goals and objectives: Which are often at odds with the people.
And that is why cryptocurrency is so important to me. Because it gives people the ability to put their money into something the governments can’t actually control.
Cryptocurrency = Safe-Haven Store of Value
You can’t just create more Bitcoins at a whim, there is an algorithm that governs the amount of Bitcoins that can be created and the ceiling (I think it’s about 21M Bitcoins, the total amount that will ever be created), and that makes a very predictable store value.
There won’t be anyone just printing more and more bitcoins to deflate the value.
Now, don’t get me wrong, there are cryptocurrencies out there that work exactly like fiat currency, so don’t get trapped into the idea that all cryptocurrency is good.
Out of the good ones, I can mention:
Go ahead and do some research on the other stuff. Any coin that has a predictable increase and a ceiling in the amount of coins that can ever be created, its what you want to look for.
Because that means nobody can arbitrarily say: “Well, we are going to make more of this, so… Guess what? All your value disappears”
The only way your value is going to disappear is that everyone all of a sudden loses faith in it. And that is always a risk, as far as any asset. If people were to lose faith in gold, its value would plummet (guess what is literally happening right now??). The same goes for art, collectible cars, etc.
Meet the Author
“What you get by achieving your goals is not as important as what you become by achieving your goals…” - Henry David Thoreau
Cian Kenshin is an MBA (Finance), a consultant for 32 of the top sports franchises in the US, and founder of multiple successful startups including a Vertical Farm company, is a certified teacher of Yoga and Zen, a Certified Virtual Coach by Eben Pagan, soon to be author, and a sought after Executive Coach for start-ups and boardroom executives alike. Known for his unique perspective on productivity, this serial entrepreneur and investor is a wealth of fresh ideas, constantly seeking new ways to ‘do business better’.
He's now taken his skills in entrepreneurship, and professional performance and created a system of personal performance and growth that can help you succeed in both life and business. He has recently partnered with GFIT Wellness to offer these unique sessions to the corporate world.
Check Cian out at mindhacker.com and at his podcast
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