Ever since the Great Recession of 2008, central banks, by traditional standards, have been acting weird. Really weird.
Interest rates fell to their lowest points in literal centuries while central banks began what has been dubbed “quantitative easing” — when a central bank buys large amounts of government bonds or other financial assets in order to inject liquidity directly into the economy.
The reason: central banks want to ensure that a recession on the scale of 2008 doesn’t take place again.
One prominent Silicon Valley investor, Chamath Palihapitiya (who notably admits that Bitcoin will eclipse $1 million at some point in the future), has even said that the aforementioned measures have allowed central banks to effectively eliminate recessions. He told CNBC earlier this year:
“We have completely taken away the toolkit of how normal economies should work when we started with QE. I mean, the odds that there’s a recession anymore in any Western country of the world is almost next to impossible now.”
Though, one of the most powerful people in finance has recently come out and said that modern monetary policy, especially negative interest rates aren’t working. And Bitcoin may just fix this.
A Flailing Economy
If you look at the stock market, it would seem that the economy is doing better than ever — stocks are trading near or at new all-time highs, eliciting positive quips from fund managers and, of course, President Donald Trump.
But the “economy is in a great state” quips might be misguided, according to the president of the 17th largest bank in the world, Deutsche Bank.
At the “Future of Finance” conference hosted by Bloomberg in Frankfurt, the prominent finance executive, Karl von Rohr, took to the stage. During his speech, he asserted that not everything is sunshine and rainbows. A reminder: this assertion came from the president of a company effectively 100% invested in the success of the traditional economy.
Rohr said that “recession bells are ringing” in major economies — something that said economies’ leaders would likely deny — before adding that central banks’ monetary policy is becoming ineffective:
“With fears of a downturn mounting, we have reached a level where monetary policy is at serious risk of running out of means to cushion a real economic crisis,” he said. Touching specifically on negative interest rates, Rohr continued: “With inflation factored in, the result is a creeping erosion of our European customers’ assets.”
#DeutscheBank President Warns "Recession Bells Are Ringing. Negative Interest Rates Are No Longer Likely To Be Effective. Monetary Policy Is Running Out Of Means To Cushion A Serious Economic Crisis." pic.twitter.com/8N1R5A8FnF
— Ben Rickert (@Ben__Rickert) November 12, 2019
Rohr’s comments come shortly after legendary hedge fund manager Ray Dalio said in a jaw-dropping LinkedIn post that he thinks the “world has gone mad and the system is broken.” Like Rohr, Dalio claimed that the monetary policy of today isn’t working, and may be unable to prevent a paradigm shift in the economy.
Is Bitcoin a Solution?
According to another Deutsche Bank executive, Bitcoin is a potential solution to the fact that central banks are not implementing an effective monetary strategy. Per previous reports from Blockonomi, Jim Reid, Head of Global Fundamental Credit Strategy at Deutsche Bank, said that he thinks the leading cryptocurrency may be becoming attractive.
He specifically stated that if central banks are aggressive with their monetary policy, then alternative currencies and investments, like Bitcoin and gold, become somewhat tantalizing.
Reid’s comment makes fundamental sense. When a large portion of sovereign debt bonds carry a negative interest rate, it makes sense for investors to allocate their capital to an asset that produces better yields, like the 0%-yielding Bitcoin or gold. Also, some think that monetary policy will eventually lead to rampant inflation in sovereign currencies, validating the need for something like Bitcoin, which is disinflationary and non-sovereign.