[Insight] Biden Has Changed ‘Dr. Doom’
Since Joe Biden, presidential candidate from the Democratic Party, has been elected as the 46th President of the USA, the interest is now focused on the primary economic policies he will release, which can be called “Bidenomics.”
Expansionary Monetary Policy under Biden’s “Big Government” Agenda
Since The Democratic Party has been much more liberal compared to the Republican Party, the party took the idea of a “Big government” that provides direct helps to the people, such as the Affordable Care Act (a.k.a Obamacare) or expansion in supports for the low-income families. The president-elect Joe Biden, who also served as the vice-president in Barack Obama’s executive, is also following the examples of the traditional policies of the Democratic Party.
The idea of a “Big Government” demands to expand the government’s roles, rather than to leave everything to the market and inevitably requires a huge amount of money for its administration, thus the expansionary fiscal policy will be their only option. Biden was no exception for this matter. During the campaign, one of his key-pledges was the expansionary fiscal policies, including the release of large-scale reflation measures in response to the COVID-19 pandemic.
Expectation for Unlimited Money Printing Increased by `MMT Proponent`
After Biden’s election, the expectations toward unlimited money printing have been increased further, especially for Stephanie Kelton, a professor of economics at Stony Brook University who joined his task force team (TFT), is said to be a great believer of Modern Monetary Theory (MMT). The MMT is a non-mainstream economic theory that is gradually gaining its ground since the global financial crisis, saying that if the government can completely control the inflations, there would be no problem in money printing, regardless of fiscal deficit.
But the thing is, if the government releases an unlimited stream of money as a reaction to economic matters, it will be inevitable to see a drop in the value of the currency. Also, if the government tries to finance itself by issuing national bonds aggressively, this will leads to a sudden rise in the market rate. In order to prevent such situations, it will be crucial for the Fed, the Federal Bank of the USA, to take the wheel and try unlimited quantitative easing (asset purchases), but this also means that they are releasing more cash, making situations much direr.
No matter what the forecasted side effects are, Biden has promised the financial expansions, and it seems obvious that the first thing Biden will do as a president will be printing more money aggressively. Under these process, the most beneficiary will be risky assets. One of the well known risky assets is share, and the another one is Bitcoin. In particular, Bitcoin is not only a risky asset but also has its own merit that it can hedge the currency’s depreciation, thus making our expectations even higher.
Change of Dr. Doom Who Had Been Cursing Bitcoin
More interestingly, a few days ago, Nouriel Roubini, a professor of Economics at New York University Stern School of Business and one of the harshest criticizers about Bitcoin, said, “It’s maybe a partial store of value.”
After he earned his reputation by forecasting the housing bubble crash of 2007–2008 that led to the subprime mortgage crisis, Wall Street calls him “Doctor Doom” for his pessimistic points of view. In fact, when he appeared at the Senate hearing in last October 2018, he criticized Bitcoin, saying, “Bitcoin is the mother or father of all scams and bubbles.” Furthermore, he almost cursed it by saying, “(Bitcoin is) destined to end up in the “museum of failed coins” with all the other digital currencies.”
The First Step in Shift of Paradigm for the Concept of Currency
In a recent interview with Yahoo Finance, he changed his mind and said, “ It’s maybe a partial store of value,” He continued, “because unlike thousands of other [cryptocurrencies] that I call ‘shitcoins,’ it cannot be so easily debased because there is at least an algorithm that decides how much the supply of Bitcoin raises over time.” Then he added, “Because for most of those other ones, literally, it is done ad hoc, and they’re being debased faster than what the Fed is doing.”
His insight means that, while the aggressive money printing by the Fed in order to respond to the COVID 19 can leads to an over-supply of the USA Dollar and thus to the deflation of the currency, Bitcoin’s overall supply is very limited, so it could be more effective as a mean for storing values. If the traditional currency cannot function as a store of value, the standing ground for the Bitcoin can be broadened even further. And if Bitcoin can supplement their functions as a means of trade and a measure of value, perhaps the day that Bitcoin partially replaces the traditional currencies would soon come. We are living in the very first stage of that shift of paradigm.
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