Vitalik Buterin and the US inflation survey - The Cryptonomist
The creator of the Ethereum (ETH) project, Vitalik Buterin, opened a survey on the possible increase in dollar inflation in the upcoming years, inviting users to express their views.
What is the probability that total inflation in USA according to http://www.thebillionpricesproject.com/datasets/ will exceed 10%/year avg over any 5-year period (ie. price level at end of period / price level at beginning of period > 1.1^5) before 2040?
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As can be read, the survey includes 4 response options regarding the percentage of probability that inflation may increase in the coming years, given that according to some studies the rate will rise to 10% per annum over a period of 5 years.
These data take into account the annual inflation rate for Argentina, Brazil, China, Germany, Japan, South Africa, England, America and the global aggregators of the eurozone and, also analysing the prices of goods, we can see that the trend is not at all positive.
In fact, the data for the years prior to 2019 show that over time and over a period of five years, it was exceeded by 10% annually, for example in the period 1976-1981, where those values were followed, hence very high values.
Vitalik Buterin himself agrees that between 2040 and 2100 a probability of 50% could very well be exceeded.
Ladislav Stejskal@ladislavtweet
· 11h
Dont know but between 2040 and 2100 I would say more than 50%
I am inclined to agree. I would be surprised if we reach 2100 without some form of serious social/economic/political disruption (way more serious than anything in the last 4 years) happening in some major economy.
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The word of the experts
With regard to Vitalik’s words, we asked a number of crypto and monetary policy experts what they think about inflation and how crypto could help people save their purchasing power.
According to Christian Palusci, founder of Bitcoin Facile, to avoid financial collapse banks can only continue with expansive monetary policies.
“The Federal Reserve is injecting hundreds of billions of dollars into the financial system every month through repo operations, a clear return to Quantitative Easing”.
According to Angelo Ciavarella, Head of Global Market at Infox Capital, this scenario is a bit too catastrophic.
“10% of inflation annually? At present, 5-year swap rates in Europe are suffering from almost historically low inflation well below 2%. In America, inflation is a bit higher than in Europe, but still not close to the rate desirable by the FED, i.e. 2%, which is why Powell, instead of raising rates in 2019, has been able to lower them three times from 2.25% – 2.50% to 1.50% – 1.75%. Inflation in the years mentioned by Buterin has flown because of the oil crisis and not because of endogenous factors. However, I honestly find it difficult to understand how it cannot rise from these values, considering all the money in circulation, so I think it can increase significantly in the medium term but I do not think it can reach excessively high levels unless there are external factors (oil crisis, geopolitical crisis)”.
Crypto as a response to inflation
Many countries are trying to use cryptocurrencies to counteract inflation, for example, Argentina and Venezuela with bitcoin. Worth mentioning is als Petro which is trying to impose itself as an alternative to traditional fiats in Venezuela.
According to Paolo Barrai of TerraBitcoin, money will be worth less and less compared to assets such as crypto and raw materials.
“What has happened is that we have been through 30 years, let’s say since 1990, of deflationary policies due to many phenomena, first and foremost China with its low labour costs and globalisation. We saw the end of globalisation with the arrival of Trump, who put up barriers that will never be completely overcome. We also see this with Brexit and everything that follows: more and more barriers and duties are being imposed. This creates a number of problems because until now the whole system has been supported by central banks through monetary policies that allow for the creation of huge amounts of debt that will never be repaid, although the money is not distributed sufficiently to people to create inflation. We have thus reached the end of monetary policies. Fiscal policy is also gaining ground thanks to Japan, which has put on the market a huge amount of money to give to citizens. As a reaction, interest rates have returned to parity. Europe, on the other hand, has negative rates, so the only solution here is fiscal policy as well, and so Germany is releasing macro data to pump money into the economy. The US has a massive debt but with positive rates, so rates are expected to go to 0 but there is still time. So while Europe will raise inflation, perhaps for a few more months in the US there will be no major inflation”.
As such, if until now we have been accustomed to renting goods instead of buying them, this behaviour will not be rewarded in the future. In the meantime, large groups are taking over many assets that will probably be tokenised and distributed to the population at high prices.
“The economy is moving forward and the rate of inflation, which I don’t know if will be 10%, will be enough to penalise those who do not have assets or those who remain with bonds. The markets have also noticed this since BTC, although depressed, is worth twice as much as a year ago and gold is at the peak of the period,” continues Barrai.