Have you noticed how most economists are completely against cryptocurrency? It seems that it is the one thing that binds economists together. They seem to disagree on everything yet on this they are united.

Why is that the case?

When it comes to what is being created here, this is outside the scope of our present economic understanding. In fact, we are dealing with something that is not known to the majority of people.

This, sadly, includes economists.

Unfortunately, many people still listen to these ivory tower warriors who hold their theories near and dear, even when they do not work. The financial media is more than willing to parade them out, all the while passing along FUD.

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Outside Their Scope Of Understanding

The biggest problem economists have is the simple fact that cryptocurrency is completely outside the scope of their understanding. When it comes to something like this, it is completely foreign to them.

Economists involves a lot of modeling. This is how they arrive at their conclusions. While they might differ on what data is inputted, varying based upon the school of thought, the fact is they all model.

Here is the challenge: cryptocurrency operates completely outside their models. There is no way to get cryptocurrency to fit into their equations they are using.

For this reason, it only stands that cryptocurrency has to be nonsense since they cannot make it work.

Once again, this creates a challenge since the media uses these people for their expertise. Unfortunately, as anyone who is around this industry for any length of time knows, this is a radically different arena.

Economics Of Abundance

The challenge that this is all presenting is we are not dealing with a realm present day economists are accustomed to. They are, after all, schooled in the realm of scarcity. That is what their entire discipline focuses upon.

Of course, there is good reason for this since most of our global economy is based upon this same premise. We know there are limitations to resources, labor, and capital. Or so we are taught.

This is not a novel situation. Digitization creates a host of issues for the masses. Understanding the transformation taking place, especially from an economic standpoint is rather difficult to wrap one's mind around.

It is why someone like Elon Musk is baffling them also. His idea about a Humanoid is going to drive the economics profession over the edge. How are they going to model an abundance of labor? This is something unfathomable to most. Naturally, until it becomes a reality, we are left with the same old paradigm. Yet, if he is successful, it will instantly change the entire foundation of all economic thought.

Abundance Of Money

What we are taught about money is also completely wrong. Here is where the economists find themselves drowning in their own ignorance. The most noted economists, including the 600 or so working at the Fed are completely oblivious to what is taking place. In fact, they are lost as to what money is.

This is not a new situation. It was clear to the Fed starting in the early 1970s. Yet it wasnt until the 1996 when Alan Greenspan gave a speech where he admitted the Fed didn't know what money was. Hence, by virtue, the Fed doesn't do money.

What? How can this be?

It is rather simple really. The Fed's power stops at the borders of the United States. Thus, since the 1950s, the banking system operating outside the United States was developing all kinds of money. This was nothing more than an extension of the US banking system that told the Fed to pound sand in 1937 when it tried to convince the banks to back their vault holdings with reserves. After the fumble earlier in the Great Depression, the banks decided they couldn't count on the Fed.

This led to an entire system which completely changed money. How often do you hear economists discussing this? Were you taught this in business school by those professors with their PHDs?

Not likely.

Yet here we have the guy who served 4 or 5 terms as Fed chair openly admitting the Fed has no idea about what money is. This was the heart of the "irrational exuberance" line.

Here is the line in the full context of what he was saying:

But how do we know when irrational exuberance has unduly escalated asset values, which then become subject to unexpected and prolonged contractions as they have in Japan over the past decade? And how do we factor that assessment into monetary policy? We as central bankers need not be concerned if a collapsing financial asset bubble does not threaten to impair the real economy, its production, jobs, and price stability. Indeed, the sharp stock market break of 1987 had few negative consequences for the economy. But we should not underestimate or become complacent about the complexity of the interactions of asset markets and the economy. Thus, evaluating shifts in balance sheets generally, and in asset prices particularly, must be an integral part of the development of monetary policy.

Notice the last line: evaluating shifts in balance sheets generally
...

Why would the Chairman of the Federal Reserve, and one of the leading economists of the 20th century, be talking about balance sheets and monetary policy? What do they have to do with each other unless he is talking about balance sheet banking?

The reality is this is exactly what Greenspan was saying. He was well aware, by this time, that the international banking system took over the role of money creation, operating completely outside the reach of even the Federal Reserve.

Not only could they not touch it, figuring it out is almost impossible.

Thus, no matter what the Fed did, the commercial banking system has other ideas. To them, reserves were not money. Sorry Alan, we have this one covered.

That was the mantra since 1937.

Cryptocurrency Is The Same

Guess what cryptocurrency is? It is nothing more than ledger banking. Thus, the system that started in the 1970s is now being upgraded to the 21st century. No wonder economists are clueless about it. Most of them are, at best, stuck in the 1970s.

This type of banking completely lost "The Maestro", so what do we think it will do to the average economist out there?

For this reason, do not expect any of them to follow cryptocurrency in the slightest. Most of them live in a theoretical framework that has no basis in reality. The only ones who have a clue are those who managed money. Here we see the economic models quickly validated, or discarded, based upon market feedback. After all, when there is money on the line, one can't be tied to a theory. The bottom line is one either made money or didn't.

So do not expect the economics profession to jump on board with cryptocurrency. Most of them are still trying to fit the internet into their models.

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