End of Tightening

September 12, 2022

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Political Tail Risk

September 06, 2022

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Hack Away

August 05, 2022

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Hamers Like Nails

July 29, 2022

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digital daily: Too Big to Fail, Too Small to Succeed

Macro Mondays - Too Big to Fail, Too Small to Succeed: It’s no secret that rich countries have a debt problem. The Congressional Budget Office is required to publish a long-term projection of US government debt where policy is presumed unchanged. Starting from war-time debt ratios today, the US situation explodes higher with worsening demographics. It’s obviously not sustainable. What will change? Some are reasonably attentive to a US dollar downturn. Others take a more optimistic view, focused on growth policy. On any hint of downside financial risk in the past three decades, macro policies have been eased rapidly. First rate cuts, then QE, and finally QE plus fiscal. These derailed competitive spirits, evident in the secular upward trend in corporate profit margins. Decentralization is restorative. It brings competitive spirits back to industrial activity – companies must strive to survive. Naturally, competition breeds creative destruction. Good. Xerox and IBM evaluated the “Byzantine Generals” problem germane to distributed consensus in the 1980s, deemed an impossibility. Researchers at Bell Corporation created hash functions in anticipation of internet adoption to avoid the fragility of a single, centralized entity being responsible for the integrity of records. Both were utilized by Satoshi in the creation of the Bitcoin protocol. Neither is a dominant force today because of competition. Yet, today’s innovators still stand on the shoulders of those giants. Their work didn’t extinguish – it evolved, as we all must to survive. Financial socialization has reached its limits. Banks are too big to fail and too small to succeed. Decentralization is a transformative industrial policy. And it’s going to change banking forever – one bad bank at a time.