The Changing World of Banking

If you want to make money, get involved in money. Money attracts money. Where are the centres for money? At the moment the answer to that question is Banks. That is about to change.

In the past I have found banks very useful for borrowing money. And I never borrow to spend, I borrow to invest. Money begets money, so use it to beget money. Spend it and you no longer have it. That’s silly.

So let’s totter down to the bank and see what we can usefully find.

Actually, as of now, pretty well nothing. Banks are not keen to lend these days because they have imprudently lent so much they now have too many non performing loans on their books.

So where else can we look?

If we start to look at banks one thing stands out starkly. They are just as subject to disintermediation as any other business.

If I get into blockchain technology I can set up my own banking wallet. I can keep that wallet in a safe place, and most certainly keep it offline except when I want to make a transfer.

There aren’t many of us who currently have such wallets, but over the course of the next few years that number will grow.

I already use online banking, and most people do. I do use Visa or Mastercard, but they have to be linked to one’s home bank. Suppose you bypassed those behemoths. Visa can charge rather high rates for transactions and Visa is a middleman. The future is concerned with getting rid of that class of individual or company. Who needs middlemen? They slow things down, complicate things, and add cost rather than value.

Let me look at two aspects of this to show you what’s happening in the world of money, and where you should be looking to make a profit from these changes.

Let’s start with public monies.

The greatest threat to the value of money is your government. They dont have any money of their own so they have to take it from you and me. They dont invest any of it, instead they spend it all, which is why they keep asking you for more. In terms of taking care of the public finances, they are a total disaster. They do everything, and I mean everything, they shouldn’t do to make the best use of the money placed in their care. This means they quickly run at a loss and borrow to make up the difference. This means they not only have to pay for services, and they now have to pay for the money as well. Or rather, you as tax payer are in hock for those loans. That is not a good place to be.

A devastating example of this is the way the US taxpayer is on the hook for a trillion dollars a year in interest charges, all because the government cant balance the books. Not only does the tax payer have to pay for services, but for the incompetence of those spending the money.

Up until now there has been no legal way round this. I’m not sure that things are going to stay that way.

Let me explain.

I keep saying that the important things to keep in mind with regard to investing well is to understand where things are heading.

A decade ago I could see that with the way governments spend money they dont have, and the way the money they spend does not make money, that there was a situation developing that was heading into what can best be described as a black hole. I wanted to sidestep that probability as best I could. That was what sent me in the direction of bitcoin. I was not seduced by the non-sensical rubbish about bitcoin not being worth anything. Your dollar bill, or five pound note is not worth anything either. That doesn’t stop people accepting wages denominated in those currencies. It’s just paper. It isn’t even an IOU despite what UK notes have written on them. You try going to the Bank of England and asking for the equivalent in gold. You’ll be laughed at. In fact things are even more absurd than that. 98% of all currency currently used in buying and selling is digital. Excuse me, but isn’t bitcoin digital? What’s the difference?

If some people need an answer to that supposedly rhetorical question, here it is: There is no difference. It’s all numbers in a digital spreadsheet.

With bitcoin, there cannot be any printing of further quantities than what is set down in the original code. That means the value has to be deflationary as more people buy bitcoin. Way back, several bitcoin were famously used to buy a couple of pizzas. Now just one bitcoin could be used to buy a cheap apartment in the UK. That’s deflation with a vengeance.

Excuse me, but where is the best place to put your wealth? In fiat currencies, or in gold and/or bitcoin?

First, let’s move away from governments and look at businesses.

Let’s start with Meta, otherwise known as Facebook.

First a few salient facts. This company has in the region of three billion worldwide users. That means more than a third of the population of the planet. That is insanely huge. It’s twice as many people as live in the most populous country in the world. That’s India. It is therefore not surprising to know that Facebook has twice tried to introduce its own currency for use by its clients. And why not?

It will introduce a third currency in the not too distant future, and just maybe that version will succeed.

It is the logical next step for the company. Why not have currencies tied to business arenas rather than countries?

I can store dozens of different tokens in my digital wallet, so why cant I store dozens of different currencies, and if I want to do business with Facebook (I do use their advertising platform) why shouldn’t I use Libra or Diem to pay for that service? Those currencies are not going to slide in value, or suffer from inflation. The currency value will be tied to the requirements of the running of the company. If the company maintains a profit then the currency will stay stable.

Apple is a trillion dollar company, so is Microsoft, and a few others. These companies’ activities span the world, so why shouldn’t they do business using a pan-world currency of their own making?

Where is this going to lead?

Initially it is going to deal yet another blow to the dollar in its guise as reserve currency.

It is going to leave countries struggling to act like companies and maintain proper accounting principles, or their currencies will go under.

It is also going to mean that badly performing currencies will be sidelined.

It will also mean that the financial investments of the future will be those that cater to this new scenario. We aren’t there yet, but that is where we are heading. I dont do predictions, and I have no crystal ball. In fact I cant remember the name of the play, but it started with a woman staring into her crystal ball while someone was creeping up on her, and she was clearly unable to see her own impending murder in her silly little glass ball. That’s the trouble with crystal balls.

What I do see is a big change coming in terms of currencies, and banking in general. If countries have to cope with pan-global alternative money systems then governments will need to start acting like profitable companies. I think that is going to spell the end of socialism in its present form.

Some time before the end of this decade the kind of banking I have described above will be with us and you will be able to invest in the companies involved. Only successful companies are going to go down this line initially, so investing in the companies that enable these developments will be the ones to make you money.

It also might be a good idea to park your savings in one of these new currencies because they should be stable in value, which is more than can be said for the existing fiat currencies. That does not mean they will be like the current batch of stable coins, which are linked to the value of a single fiat currency, and so have all the disadvantages of the underlying fiat currency.

Maybe I will dig further into that topic next week.