If you lived in the 1920s and knew what would happen in the 1930s, you would be scared. You would prepare for the coming Great Depression. If you knew sometime in the 1920s that you would lose your job sometime in the 1930s, and that it would take years to regain any job, you would have bought a small farm and planned to move your family there when the economic calamity finally struck in the 1930s. Less than a century later, we now find ourselves in a similar situation. If you looked closely you would be scared too.
For starters, we all know that the major economic powers have been trying to devalue their currencies. Only the U.S. Fed is starting to talk about raising interest rates, but even the Fed can't do it without risking a major stock market collapse. All the other major economies (China, Japan, and Europe) are still pushing interest rates down, trying to reduce the value of each of their currencies with respect to all other currencies. The result has so far been that the U.S. Dollar has increased in value with respect to all other fiat currencies, even though the Fed has gone through several rounds of massive monetary easing since Obama became president.
Despite all the inflationary policies pursued by major central banks around the world, inflation remains non-existent in the currencies of the largest economies, just like in 1929. And just like in 1929, nobody really understands what is going on in the world economy. As some economists have lamented, we are in uncharted waters.
Worldwide oil production, contrary to "peak oil" beliefs, increased to a level that precipitated the oil price collapse. This singular phenomenon is making it even more difficult to fight deflation. The value of each unit of fiat currency keeps increasing relative to commodities in major economies.
Oil energized much of the productivity increase prior to the Great Depression. When viewed with long term horizons, however, the oil effect is at the tail end of a historical chapter in which the industrial revolution provided the main engine for progress. This time around, more important than the oil effect is the effect of cheap technology. The industrial revolution amplified productivity by providing raw muscle power in motorized cars, farm implements, factories, and other industries. Likewise the current computer, internet, and other technological revolutions amplify productivity by providing digital logic and network effect in all aspects of the economy.
The last Great Depression was exacerbated by waves of bank failures. People lost trust in banks, but an economy without a well-functioning currency proved to be even more catastrophic. This time around, however, there are alternative currencies, and we can console ourselves with the thought that, when the coming economic calamity finally does happen, I think we will be prepared, at least with regards to alternative forms of money. There is one technology that will be key to our survival. This technology is crypto-currency.
A number of central banks are seeing the writing on the wall, and are starting to act. There are now a number of central banks that are looking into starting their own crypto-currencies. As with any revolutionary disruption however, the crypto-currency revolution is unpredictable, and its total effect cannot be fully understood until after it has happened. The key is decentralization, which is antithetical to the raison d'etre of central banks. When a central bank starts its own crypto-currency, the existence of that currency would be predicated on the existence of that central bank, just like the fiat currency it currently controls. It may cede some control of that crypto-currency if it cannot inflate, but the fact remains that trust in such currency would be predicated on trust in the central bank that issued it, and not on any network effect. Once fiat currencies start failing by either hyper-deflating or hyper-inflating, will the people continue to put their trust in central banks?
We have witnessed the answer to the question of trust in central banks. When Cypriot banks started collapsing in 2013 and government stole money from depositors, bitcoin trade in Cyprus increased dramatically. In 2015, when Greece banks were closed for some time, bitcoin ATMs started popping up and people started buying daily necessities using bitcoins.
I have decided to buy bitcoins, ethers, and steem regularly from this point forward. I encourage everyone to do the same.