Seen with the perspective of time, it is quite evident that the Fed is clearly late. There are several factors to take into account:
A. Almost flat inflation in the last decade.
B. Bullish cycle in financial markets, in general.
C. Expansion of the Fed’s balance sheet.
D. Economic stimulus packages.
E. Public deficit that did not worry too much.
Leaving aside such shocks as the oil price increase and supply chain disruption, the deeper pathology is the attitude to debt. It has not been a concern, nor have efforts been made to reduce public spending. So the path has been to raise wages, raise prices, raise taxes and raise public spending again by means of deficit spending to avoid a recession. Inflation was already brewing and has exploded when central banks have difficulty to react.
Conclusions and connection with cryptocurrencies
Layoffs and wage reductions will end up being the stabilizers of productivity. Is innovation going to save us? In part, yes, it is already saving us, but my view is that this situation can only be achieved by increasing productivity and cryptocurrencies can play an important role because they are a relevant driver of innovation and their ability to increase productivity can give them the breathing space that companies need so much. In addition to empowering regions with greater capacity to adapt to the circumstances required by the economic cycle: tax cuts and moderate deficits.
Dan Brown’s Origin helps to see the connection between people as one of the most basic drivers of human advancement. And for this reason, cryptocurrencies and innovation can help make the downturn much lighter. Although the impact will be profoundly asymmetric, there will be people and entities that adapt and others that do not.