February 7, 2023

Obama-care all grown up: UK NHS in Crisis, WSJ 2/7/23

Filed under: Econonics, finance, Illegal Aliens, Political Commentary — justplainbill @ 4:39 pm

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The U.K.’s Government-Run Healthcare Service Is in Crisis

The NHS is struggling under the effects of budget cuts, Covid delays and an aging population

An ambulance crew moves a patient outside the Royal London Hospital in London. TOLGA AKMEN/EPA/SHUTTERSTOCK

By David LuhnowFollow and Max ColchesterFollow

Feb. 6, 2023 10:35 am ETSAVESHARETEXT

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For more than a decade, the British government has run its National Health Service, the world’s largest government-run healthcare system, on a tight budget. The NHS prided itself on being one of the leanest healthcare systems in the developed world, spending less per head on average than its large European neighbors—and far less than the U.S.

Now the state-funded service is falling apart. People who suffer heart attacks or strokes wait more than 1½ hours on average for an ambulance. Hospitals are so full they are turning patients away. A record 7.1 million people in England—more than one in 10 people—are stuck on waiting lists for nonemergency hospital treatment like hip replacements. The NHS on Monday faced the biggest strike in its history, with thousands of paramedics and nurses walking out over pay.

The NHS’s woes are an extreme example of issues playing out across the developed world. Healthcare systems, hit hard by Covid, are under pressure as people live longer and have a wider range of treatment options. Aging populations mean costs will keep growing. The U.K.’s experience is a warning of what happens when supply in healthcare provision can’t keep up with demand.

“The healthcare system in the U.K. is facing a crisis like no other I have seen in my career,” said Nigel Edwards, the retiring chief executive of the Nuffield Trust, a healthcare think tank, and former chief executive for the NHS. “The U.K. has mistaken cheapness for efficiency in its approach to health, and it’s coming home to roost.”

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The NHS has lost thousands of hospital beds in the past decade in its drive for efficiency. Covid delayed treatments for patients, resulting in a vast waiting list. Hospitals in England were already at 98% capacity in December when the brutal flu season began to take hold. The mass of sick patients gummed up the system to devastating effect.

An NHS hospital ward in London, Jan. 18.PHOTO: JEFF MOORE/PA WIRE/ZUMA PRESS

Delays in treating people are causing the premature deaths of 300 to 500 people a week, according to estimates from the Royal College of Emergency Medicine, a professional association in London. One in five British people were waiting for a medical appointment or treatment by the NHS in December, according to the U.K. Office for National Statistics (ONS).

The NHS said those excess death figures are likely too high but acknowledged delays are costing lives. In late January, the U.K. government announced funding to provide more ambulances, call handlers and 1,000 extra hospital beds to relieve the strain on the health system.

Fixing the service will take time, said NHS chief executive Amanda Pritchard. The NHS said that over the next year it aims to cut the average time a heart attack sufferer waits for an ambulance to 30 minutes.

“No one should be waiting longer than necessary for treatment,” said Will Quince, a minister of state for health, adding that the government is spending up to $17 billion over the next two years to address issues facing the NHS and social care services.

Just before 5 p.m. on Nov. 18, the family of Martin Clark called 999, the U.K. equivalent of 911, after the 68-year-old father of five began having chest pains. After waiting half an hour, the family said, they called again and pleaded for an ambulance, saying Mr. Clark’s condition was getting worse. In another call 15 minutes later, they told the dispatcher they were going to drive him to hospital themselves, according to the family, even though the dispatcher encouraged them to wait for the paramedics.

Twenty minutes after the family had left for the hospital, the dispatcher left a voice mail to say the service still didn’t have an ambulance to send. Mr. Clark died shortly after arriving at the hospital.

About a week later, 5-year-old Yusuf Mahmud Nazir died from what began as a throat infection. His family said they had taken the boy, who was having trouble breathing, to the emergency room at their local hospital in Rotherham, which gave him some antibiotic pills after a six-hour wait and sent him home. The family said it pleaded with the hospital a few days later to let Yusuf be admitted and given further tests, but were told the hospital was full.

By the time the family got Yusuf by ambulance to another hospital, he had severe pneumonia. He died days later from organ failure and cardiac arrest.

“They killed Yusuf—it’s as simple as that,” said Yusuf’s uncle, Zaheer Ahmed, who accompanied the boy’s family at the hospital. “A 5-year-old boy has died of tonsillitis in a rich, industrialized country. It shows the entire system has serious issues.”

Zaheer Ahmed holds his phone showing a photo of his nephew Yusuf Mahmud Nazir.PHOTO: MARY TURNER FOR THE WALL STREET JOURNAL

Mr. Ahmed pleaded with the hospital to admit Yusuf.PHOTO: MARY TURNER FOR THE WALL STREET JOURNAL

The Rotherham hospital said in a public statement it had met with the family, apologized and launched an independent investigation into what happened. It declined to comment further.

Almost every day, media reports allege new horror stories: An 83-year-old woman in Leicester with a suspected stroke waited more than 18 hours in a makeshift tent outside a hospital emergency room. A 90-year-old woman with suspected sepsis waited three days. A man in Wales with diabetes lost his toe after it turned blue and then black after he sat waiting for treatment for three days.

The NHS is Europe’s biggest employer, with around 1.2 million staffers, and has a budget this year of about $188.6 billion, funded through taxes. It now has 2.9 doctors per 1,000 people, compared with a European average of 3.7. The U.S. has slightly less, at about 2.6 doctors per 1,000, according to the Organization for Economic Cooperation and Development.

Aging populations will add to the demand. The elderly consume between three and five times the amount of healthcare compared with younger people, according to an estimate by the OECD. The number of people in the U.K. aged 85 and above is expected to double to more than 3 million by 2041. The U.K.’s current population is around 67 million.

Until 2010, governments of all political stripes kept funding for the NHS growing faster than both population growth and inflation—with annual increases from 2% to nearly 6% per capita, adjusted for inflation. But from 2010 to 2020, per capita, inflation-adjusted funding declined very slightly.

The Conservative government has sharply increased funds to the NHS since 2020, but most of the money has gone toward the pandemic, including for vaccines. Inflation is now eating away at about half the additional yearly funding. Overall, the inflation-adjusted increase in funding amounts to a 2.9% yearly increase, still below the historic average of 3.4%, according to the Institute for Fiscal Studies think tank in London.

Striking nurses picketed outside University College Hospital in London, Feb. 6.PHOTO: ISABEL INFANTES/SPA/SHUTTERSTOCK

Healthcare expenditures, both public and private, amounted to around 11.9% of the U.K.’s gross domestic product in 2021, according to the ONS. That compares with 18.3% of GDP in the U.S. that year, according to government data.

For the first time since the Industrial Revolution, Britain’s ill health is acting as a brake on economic growth, said Andy Haldane, a former chief economist at the Bank of England. The growing number of sick people is exacerbating a productivity crisis within the British economy, he said. The number of long-term ill people in the U.K. has shot up by half a million in the past two years, to a record 2.5 million, something economists say is due in part to the NHS’s inability to quickly treat sick people.

The NHS was created after World War II to offer free healthcare to a war-hit population. Every hospital was effectively nationalized and put under government direction. It was a more sweeping overhaul than in any European country. Some countries, such as Denmark, adopted a similar system, while others have varying degrees of private care and publicly funded insurance.

The NHS has long been a point of pride for many Britons, who have generally received quality care and can simply walk out of hospital without paying a bill. Yet seven in 10 now describe the NHS service as bad, compared with 21% who describe it as good, according to a YouGov poll.

People can pay to access private healthcare in the U.K., and according to the ONS, one in eight adults in Britain said they paid for private healthcare in the past year because NHS waiting lists were too long. Several private healthcare providers have reported a jump in demand.

Still, the overwhelming majority continue to support the NHS’s basic model of a government-run system. Just 3% said they wanted the system totally privatized, according to the YouGov poll.

The government started constraining the NHS’s budget in 2010, at the same time it launched an effort to make the system more efficient, such as adding more internal competition between different parts of the NHS for government funds.

These changes proved a distraction for management, former and current officials say. As part of the drive for efficiency, NHS managers were pressured to keep bed vacancies low. Recruiting and training was given less priority, and salaries for doctors and nurses steadily fell behind inflation.

When the pandemic hit in early 2020, the NHS’s centralized system helped it weather the crisis. The service delayed non-urgent treatments, and successfully rolled out a mass vaccination program.

From mid-2021 to mid-2022, more than 34,000 nurses left their role in the NHS.PHOTO: VICTORIA JONES/ZUMA PRESS

The ripple effects are being felt now. By December, a total of 401,537 people in England were waiting more than a year for hospital treatment. The total was 1,613 just before the pandemic.

Struggles in the U.K.’s elderly care system, which has major staff shortages and is funded separately from the NHS, has also meant that many patients who would normally be looked after at home or in a retirement home instead languished in hospital wards.

In December, an average of 13,439 beds a day in England out of the roughly 100,000 available were taken up by elderly patients medically fit for discharge—up almost a third from the previous year, according to the NHS.

The lack of space at hospitals this winter, when the flu began to take hold, had a cascading effect. Ambulances began to form lines outside of hospitals, waiting to discharge patients because of a lack of free beds. That delayed the time it took for ambulances to attend to other people in need.

Patients in England admitted to hospital and waiting for a bed

More than 4 hours

More than 12 hours

200 thousand patients

150

100

2011

’15

’20

Source: National Health Service
Rosie Ettenheim/THE WALL STREET JOURNAL

By this winter, half of all patients in an emergency ward waited four hours or more to be seen by a doctor, and a further four hours on average to get a bed, according to NHS data.

A study of more than 5 million patients published in early 2022 by the U.K.’s top medical journal, the BMJ, found that for every 82 people forced to wait beyond four hours for emergency care, one additional person died who otherwise would not have. The longer the wait, the worse the outcomes.

“Every day, I wake up thinking, how much harm is going to occur to patients that we are responsible for,” said Simon Walsh, head of emergency-room services at a London hospital. “It’s not if harm is going to occur, it’s how much.”

The stress of the pandemic and funding squeeze is exacerbating a staffing crisis in the U.K. As of September last year, there were 133,000 staff vacancies in the NHS, compared with 83,000 before the pandemic, according to government data.

The average fully qualified family doctor in England is now responsible for 2,300 patients on average, compared with 2,100 in 2018, according to government statistics. Average pay has fallen by more than a third since 2008, adjusted for inflation, according to the British Medical Association, a union for doctors. The number of doctors who are retiring early has tripled in the past 13 years.

While the overall numbers of nurses have remained stable, turnover has grown. From mid-2021 to mid-2022, more than 34,000 nurses left their role in the NHS, an increase of 25% from the previous year, according to the King’s Fund, a healthcare think tank.

Rotherham Hospital, where Yusuf initially went for a throat infection.PHOTO: MARY TURNER FOR THE WALL STREET JOURNAL

Demands for increases in spending are coming up against economic pressures. The Bank of England projects the U.K.’s economy will shrink this year, potentially lowering tax revenues. And as changes in demographics and medical technology continue to weigh on the NHS, ever-higher funding risks crowding out state spending in other areas, such as education and infrastructure.

Money alone may not solve the problem, some in the industry warn. In Wales, the regional government has for most years since 2000 spent more money per capita than any region in the U.K. Yet nearly every indicator from waiting times to health outcomes are still worse. One explanation: Wales is both poorer and has the oldest population in the U.K.

Focus is turning to whether the system needs to be revamped. In Scotland, which runs its own NHS, officials have discussed ideas including further rationing of care or having wealthier residents pay for care in order to fund free care for the rest—an option that officials say was discarded.

One former U.K. health secretary recently said patients should pay to see a doctor. The idea was quickly dismissed by the government.

Just over a year ago, Akshay Patel, an IT professional in northern England, made five calls to 999 when his mother, Bina Patel, developed breathing problems. Initially the call handler told him an ambulance would be there soon, Mr. Patel said. His mother’s health quickly worsened and she became too sick to be loaded into a car. He watched his distressed 56-year-old mother gradually go pale and die. The paramedics arrived after an hour and were unable to resuscitate her. The local hospital was a 2-minute drive away.

“We always believe that the NHS exists for us when we’re in need,” said Mr. Patel. “But personally if I had to call an ambulance. I wouldn’t. I don’t trust them. I can’t.”

Write to David Luhnow at david.luhnow@wsj.com and Max Colchester at max.colchester@wsj.com

Corrections & Amplifications
An earlier version of the graphic on patients in England admitted to the hospital and waiting for a bed incorrectly added the numbers of those who waited more than 12 hours to the portion of those who waited more than four hours.

Appeared in the February 7, 2023, print edition as ‘U.K.’s Healthcare Crisis Sounds An Alarm for Aging Countries’.SHOW CONVERSATION (1105)

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September 18, 2021

War on Currency and your savings, by Daren Fonda (Barron’s reporter)

Filed under: Econonics, Elections, finance, Foreign Affairs, Global Intel, Political Commentary, PRC — Tags: civil rights, Secession, tea party — justplainbill @ 4:50 pm

[With stablecoin, my position on blockchains has changed. The following is why everyone with more than $600 in savings should be subscribing to both The Wall Street Journal and to Barron’s. Bill]

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Inside the Coming War Over Digital Currencies—and What It Means for Your Money

Daren Fonda

Updated September 18, 2021 / Original September 17, 2021

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The war over money is heating up: For the first time in more than a century, the dollar’s supremacy is being challenged. The rise of cryptocurrencies and “stablecoins” has spurred a rethinking of what a currency is, who regulates it, and what it means when it’s no longer controlled by a national government. The dollar itself may be getting an overhaul, transformed into a digital currency that can travel instantly around the world, holding up against Bitcoin or any other token.

The old battle lines between national currencies are being redrawn by an onslaught of crypto insurgents. These privately issued currencies are fragmenting monetary systems, banking, and payments. The landscape calls to mind the “wildcat” money era of the mid-1800s, when a scrum of banks supplied their own notes—prompting the Federal Reserve to establish a national currency. Commerce doesn’t run as efficiently without a “no questions asked” currency, and governments risk losing control over fiscal and monetary policies if multiple currencies vie for economic activity.

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What kind of upheaval will the new currencies wreak? No one knows. And there are plenty of legitimate use-cases for cryptos and applications built on top of blockchain networks. But the technology is so disruptive that it’s triggering calls for a cascade of new regulations, and it’s spurring governments around the world to think about digitizing their currencies, at least partly to remain relevant and maintain control over their economic interests. The Fed itself is expected to weigh in with its own report in coming days.

“The advent of digital currencies may allow people and businesses to get around banks,” says Thomas Hoenig, a former president of the Federal Reserve Bank of Kansas City. “If cryptos become a substitute for the dollar, they could create a separate money environment that would make monetary policies more difficult to implement.”

Cryptos are now worth $2.1 trillion, doubling in value this year alone. Bitcoin, worth nearly $900 billion, recently became legal tender in El Salvador—a controversial monetary shift in the country, but one that may pave a path for other developing nations. Capital is flooding into companies that are building everything from trading platforms to exchanges for trading new digital assets like non-fungible tokens, or NFTs. Investors are also trading tokens on decentralized exchanges like Uniswap, and they’re earning high yields by “staking” their tokens to network operators.

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Cryptos and other tokens aren’t (yet) close to denting the $19.4 trillion U.S. money supply or the 50% of international trade that’s invoiced in dollars. One measure of the dollar’s hegemony—its share of central bank reserves—has been declining for 25 years, but at 60% it remains three times that of its closest rival, the euro. Vast markets of global commodities are priced in the dollar. Trillions of dollars in sovereign and commercial debt are pegged to the “risk free” rate of Treasuries.

But challenges to the dollar posed by blockchain technologies aren’t so easy to dismiss.

Cryptos, stablecoins and NFTs are becoming the native tokens of gaming and e-commerce platforms. Virtual-reality platforms are being designed to incorporate NFTs or other private currencies. As economic activity shifts to these walled gardens, banks and government-backed money could wind up on the outskirts.

The Trillion Dollar ClubCryptocurrencies have surged in value, led by Bitcoin and EthereumMarket Value of CryptosSource: CoinMarketCap

billionOct. 2019Sept.05001000150020002500$3000

Challenging the Incumbents

Big money is at stake, especially for banks and other companies that effectively charge “rents” for moving dollars around. North American banks, card networks, and nonbank “fintechs” earn huge sums for payment and credit-card services—$500 billion a year, according to data from consultancy McKinsey. That amounts to an estimated 2% toll on U.S. gross domestic product—much of it in credit card fees.

Many banks and financial companies, including Visa (ticker: V) and JPMorgan Chase (JPM), are working to integrate cryptos and stablecoins, aiming to capture fees on brokerage, custodial, and payment services. But they face technologies that threaten their revenues—and, perhaps more important, access to data.

Solana, for instance, is a relative newcomer in crypto. Developed by a former software engineer at Qualcomm, the network claims to handle 65,000 transactions per second at a cost of $0.00025 per transaction, making it far faster and cheaper than bigger rivals like Ethereum. It’s taking off for stablecoins and NFTs—new digital playthings for art, video, and music. Solana’s blockchain network is also attracting high-frequency trading firms that see it as a platform for ultrafast data feeds and trading applications for cryptos, stocks, and other securities.

BTIG analyst Mark Palmer calls Solana the “biggest blockchain breakout of 2021,” noting that it’s powering a much-anticipated “metaverse” game called Star Atlas that uses NFTs for in-game assets. “The speed that Solana’s architecture facilitates is a literal game-changer in the NFT gaming world,” he wrote in a recent report. The network crashed this past week as usage surged, pulling its token down. But its fall may also reflect some profit-taking after a 9,166% rally this year, pushing the token from $1.50 to $139, giving it a $41 billion market value.

The Battle for a Digital Dollar

One of the biggest financial-policy battles that’s shaping up in Washington is over digitizing the dollar—turning it into a token that may be issued directly to consumers by the central bank. A much-anticipated report is expected soon from the Fed, outlining its perspective on a central-bank digital currency, or CBDC. Other countries, led by China, have already launched CBDCs in pilot programs, putting pressure on the Fed to develop a rival.

A digital dollar could take many forms. The basic idea is that the central bank would issue a new digital instrument for transactions and deposits, alongside physical cash or entries on a bank ledger (essentially deposits). Payments could settle in real time, proponents argue, and fees could fall sharply since the Fed doesn’t have a profit incentive. That could be a huge win for the 6% of the population that’s “unbanked” and pays steep fees for check-cashing. People sending money overseas could also pay much lower fees for “remittances,” cutting out middlemen like Western Union (WU) and MoneyGram.

International pressure is building as China and other countries take the lead in CBDCs. “The time has passed for central banks to get going,” said Benoît Coeuré, head of innovation at the Bank for International Settlements, in a speech in September. “We should roll up our sleeves and accelerate our work on the nitty-gritty of CBDC design.”

Fed officials seem split on the idea, however, let alone the specifics. Governor Lael Brainard, who may be in line for Chairman Jerome Powell’s job next year, has indicated support for a CBDC. But governor Christopher Waller is a skeptic, describing a digital dollar as a “solution in search of a problem.” As he sees it, commercial banks and the Fed are already developing real-time settlement; stablecoins may put pressure on banking fees, he argues, and most of the unbanked don’t even want accounts, according to surveys. “The government should compete with the private sector only to address market failures…and I don’t think that CBDCs are the case for making an exception,” he said in a speech last month.

Politicians, not Fed officials, are likely to have the final word. A bill backed by Sen. Sherrod Brown (D., Ohio) envisions the Fed offering “digital dollar wallets.” Commercial banks would maintain the wallets, entitling owners to a share of the bank’s reserves held at the Fed. For consumers without access to branches, he sees the Postal Service turning into a digital-dollar bank.

None of this appeals to bankers, of course, who worry that the Fed could siphon away their deposits and undermine lending. “The drawbacks appear to be more pronounced than the benefits, at least in the U.S.,” says Rob Morgan, a senior vice president with the American Bankers Association.

JPMorgan is calling for “minimally invasive CBDCs,” according to a recent report by Joshua Younger, head of U.S. fixed-income strategy. CBDC deposits that are limited to $2,500 would mitigate the potential for the Fed to “cannibalize” deposits, he argues. He also says that U.S. banks are already “partially nationalized,” with 15% of their assets held as Fed reserves and Treasury securities, levels that may increase if the Fed got into commercial banking.

Taming the Crypto Wild West

Regulators aren’t sitting idly as digital currencies plant roots. Federal and state agencies are working on rules to keep tabs on the industry. Gary Gensler, the new chairman of the Securities and Exchange Commission, laid out an expansive agenda to regulate crypto tokens, trading, and lending platforms in a Senate hearing this past week. “Large parts of the field of crypto are sitting astride of—not operating within—regulatory frameworks,” he said. Automated exchanges could be in for more scrutiny, along with lending platforms like BlockFi, where investors can earn high yields on crypto deposits.

Congress sees plenty of opportunity to raise revenue by taxing crypto. Democrats in the House have included “digital assets” in their $3.5 trillion reconciliation bill, including a provision that would subject cryptos to “wash sale” rules, which prevent investors from claiming a tax loss if they buy the same security within 30 days (before or after) of the sale. That measure alone could raise an estimated $16 billion over a decade.

Still, it won’t be easy for regulators to tax or police the entire industry. Crypto brokerages outside the U.S. handle much of the trading volume. Exchanges like Uniswap use protocols and “smart contracts” to process transactions, operating independently of any centralized entity like a bank or brokerage firm. “The underlying protocol is operating on its own, and users can still trade the assets, irrespective of the SEC,” says Anthony Georgiades, a crypto investor with Innovating Capital. “It’s sufficiently decentralized so that even if they try to delist the assets, they couldn’t.”

Tokenizing the WorldThe number of cryptos has jumped almost140% in the past two years.Source: CoinMarketCapNote: In Oct. 2020 CoinMarketCap removedinactive cryptocurrencies from the totals.

2020’21200030004000500060007000

Washington still can’t agree on whether to classify cryptos as a currency, security, or commodity. The Internal Revenue Service calls cryptos “property,” while the Commodity Futures Trading Commission has oversight over the crypto futures market, and a patchwork of agencies oversee the banks and exchanges.

A few states aren’t waiting around for more federal rules. BlockFi is in trouble with regulators in New Jersey and Texas, states where it could soon be illegal for residents to open an account with the company. BlockFi CEO Zac Prince says uniform federal banking rules are needed. “It’s gonna come down to federal regulators…creating a path for this type of activity to happen,” he said at a conference this past week.

Stablecoins pose perhaps the biggest regulatory conundrum. The tokens have a fixed value of $1, typically pegged to the dollar. More than $110 billion are in circulation, primarily in Tether and USD Coin. Investors use the coins as dollar substitutes to transact on exchanges; they’re also gaining traction for international payments and peer-to-peer, or P2P, transactions.

A game-changing “stablecoin” may be coming from Diem, a consortium of 26 companies, originally conceived by Facebook (FB). Diem is trying to launch a “regulatory friendly” version, says Christian Catalini, chief economist of the Diem Association. Its underlying network, backed by companies including Uber Technologies (UBER), Coinbase Global (COIN), and Spotify Technology (SPOT), will levy fees expected to be less than 0.10% per transaction, far below what banks and card networks now charge.

Diem could be a blockbuster. The token could quickly gain traction for things like Uber fares, Gucci bags on Farfetch (FTCH), or subscriptions on Spotify—cutting out payment middlemen with lower transaction fees. The network is also designed for P2P transactions, including remittances, and the underlying blockchain technology could move programmable digital assets in the future. The Diem coin itself, however, might be short-lived if a digital dollar launches. “We’ve committed to phasing out the token when there is a digital dollar,” Catalini says.

Diem has pledged to hold high-quality assets as reserves for its coins, backed at least one-to-one by cash or Treasuries. It might not have much choice: Regulators are starting to view stablecoins as a source of financial instability, and they may be close to issuing new rules on capital and reserve requirements for issuers.

The concern is that coin issuers aren’t backing their tokens with 100% cash reserves, using proxies like commercial paper, bank “repo” agreements, and other securities. That might be fine in normal market conditions, but it could be destabilizing in a crisis. Money-market funds have experienced runs that spilled over into other areas, prompting the Fed to stabilize the market, most recently in March 2020. “It’s a central problem that the Fed worries about from a stability point,” says Morgan Ricks, a law professor at Vanderbilt University and former Treasury official.

Tether, the largest stablecoin, has run into legal trouble over its reserves, agreeing last February to more disclosure in a deal with the New York attorney general. But its reserve composition remains opaque. Tether, backed by the Bitfinex exchange, holds only 3.9% of the coin’s reserves in cash and 2.9% in T-bills, according to its latest disclosure, with 65% in commercial paper. Tether says its tokens are “always 100% backed by our reserves.”

The Treasury Department recently convened a task force to develop a framework for regulating stablecoins. Some leading economists say it’s overdue. “Policy makers may view stablecoins as an up-and-coming financial innovation that does not pose any systemic risk,” wrote Yale University economist Gary Gorton in a recent paper co-authored with a Fed attorney, Jeffery Zhang. “That would be a mistake because this is precisely when policy makers need to act.”

The Dollar Won’t Go Away

The dollar won’t go down easily. It has deflected multiple threats since President Richard Nixon ended its peg to gold in 1971, turning it into a free-floating “fiat” currency. A bout of inflation in the 1970s, the rise of the Japanese yen in the 1980s, and the euro’s ascent in the early 2000s all failed to knock it down.

A common marketing case for Bitcoin, the largest crypto, is that it’s “digital gold” with a fixed supply of 21 million tokens; by design, it can’t be increased, unlike fiat currencies that may be depreciated by governments for political or economic gains. Central banks have embarked on a money-printing spree—the Fed’s balance sheet has ballooned to $8.3 trillion from $1 trillion in 2008. Crypto backers argue that the dollar’s purchasing power will diminish due to inflationary forces tolerated by central banks, while cryptos will hold more of their value.

Taking a CutBanks and payment companies reap trillions of dollars for moving money aroundGlobal Payments RevenueSource: McKinsey

trillionEstimateAsia-PacificNorth AmericaEMEALatin America20102014201820192020E0.00.51.01.52.0$2.5

Yet for all the carping about currency “debasement,” or an erosion of purchasing power in the dollar, the economics are far more complex. Inflation hasn’t proved deeply problematic in North America since the early 1980s. Before the pandemic, it was so low that policy makers worried about deflation. Rising labor costs and global supply-chain disruptions pose near-term inflationary threats, but their persistence isn’t assured. The forces that have kept a lid on inflation—including aging populations in developed economies and productivity gains from technology—aren’t going away.

History is also on the dollar’s side in the sense that governments have never allowed rival currencies to usurp their authority. Technologies make the job tougher but not insurmountable, and the greater the success of currencies like Bitcoin, the more governments may try to kill it.

What It Means for Investors

What’s the impact for investors in crypto-infrastructure stocks and currencies? For now, not much. Crypto stocks and prices for digital currencies have climbed for months, despite tighter regulatory scrutiny. Capital is flooding into the industry as use-cases for cryptos, stablecoins, and decentralized-finance, or DeFi, networks expand. New rules will take months or years to be written and implemented by regulatory agencies. A digital dollar could become a partisan battle that gets bogged down in Congress.

Clarity from regulators may be welcomed, since they could open the floodgates to investment products and services, expanding the market with advisors and institutional fund managers that oversee trillions of dollars in global assets. Banks also want a level playing field to cut down on “regulatory arbitrage” that may now give pure-play crypto companies an advantage.

The crypto industry, for its part, is also becoming a lobbying force. The industry exerted its influence in August as lawmakers added tax-reporting requirements on crypto companies to the Senate infrastructure bill. The lobbying blitz failed, but the battle isn’t over—it will probably shift to regulatory agencies.

As for the dollar, the very currencies that are nipping at its heels could help preserve it. Cryptos and other tokens haven’t been tested in a crisis when investors dump anything with a whiff of risk. The diciest currencies fall the hardest during panics, and cryptos could follow precedent. “If there is a crisis, all these parallel currencies will take flight into the sovereign,” predicts Hoenig. Digital or not, the dollar will live to fight another day.

Write to Daren Fonda at daren.fonda@barrons.com

[Explains why gold, silver, and copper haven’t risen as they should. With stablecoins not being supported by trimetalicism or necessary fungible commodities, but by debt and tradable assets, the implication is a currency bubble that may lead to a bust, as all bubbles do, and market downturn, as these assets are sold to redeem stablecoins, but the attack on liberty and freedom, as shown by the Harris/Biden cabal’s pushing the IRS to have complete access to all bank accounts over $600 w/o the restrictions of the Vth Amendment or Probable Cause will lead to a Chinese style of global tyranny. Consider, we will all live in the world of Terese Xu of Beijing (WSJ Weekend 9/18-19-2021 p A8). And, of those who died incarcerated in their apartments in Wuhan to prevent the spread of the PLA-Fauci COVID bio-weapon.

Justplainbill]

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