The problem with this kind of "mitigation of disasters" is: in the end it rewards the banks that siphoned away more money through reckless risk assessments than others by bailing them out with state money, so everyone else's money.
If you set up such a reward system you get exactly the shitty financial sector that led to GFC 2008.
> The money supply M0 would be fixed, but the M1, M2, etc. currencies would inflate exactly the way they always have. Only with greater opportunities for bank panics.
I think this is short sighted. Letting people access the M0 pool and putting their savings in it and transacting in it means that risk aversive people use it more. And come some crash, they'll be rewarded for it (by not being as much caught up in it as others). So there's incentive to do so. People who accept more risk would make their bets in the M1/M2 pools and sometimes get burned. Assuming the state weren't able to take hold of people's M0 funds, in the case of some crash, it could only shuffle around the M1/M2 funds amoung those who played riskier there, and they'd maybe learn a lesson.
This way the whole system could settle at some more or less stable dynamic equilibrium (where the financial sector cannot just rely on getting bailed out out of everyone's pockets) with some people holding mostly M0 (never loosing their funds) and some doing risky stuff with M1/M2 and sometimes loosing some funds because of insolvencies.
> So we again watch as the crypto fans recreate 20th century economics on fast-forward.
The senctence sounds nice. But now that Bitcoin exists, the situation now is only comparable to back then to a certain degree.
This is the US' plan to outrun this depression, based on recent cryptocurrency related legislation. Change my view.
The recent cryptocurrency legislation is mostly about trying to get existing securities laws to cover crypto. They spent a century playing whack-a-mole with various scams, frauds, etc. on other things that people invest in. That's always the way: they codify one scheme as illegal, then people find a way to subvert it, repeat.
I don't think they care one way or another about the current recession. (It's unlikely to be a depression, though it's not impossible.) I'm sure they'd be just as happy to be able to get their inch of green from all those crypto transactions going on, but they're a lot more concerned about supply-side issues (oil, chips, gas, grain from Ukraine) than monetary issues.
(There are also monetary issues, and they should have tackled them at least five years ago. But they're handling those in the conventional fashion, and it seems to be working in the conventional way, if very belatedly.)
It works pretty well, as long as people trust the banking system. When people lose trust in the system, they all take their money out at once. So you get bank runs, and everybody gets screwed. It happened a lot in the 19th century -- they called them "panics".
With a fiat currency, the central bank can mitigate the disasters by printing more dollars and loaning them to the banks. Because of that, people don't worry as much about their bank, so the runs don't happen in the first place.
So if we waved a magic wand and replaced dollars with any fixed currency, you'd still get inflation. The money supply M0 would be fixed, but the M1, M2, etc. currencies would inflate exactly the way they always have. Only with greater opportunities for bank panics.
In the meantime, cryptocurrencies are very inflationary. Any one cryptocurrency is fixed, but cryptos as a whole are minted freely. So unless one used a fiat to ban all but a fixed number of cryptos, you get inflation anyway. The only thing preventing that from crashing was a continuous influx of new people trying to buy cryptos with dollars, often misled by fraudulent transactions making them seem viable. Once that crashed, you got a "bank run" on cryptos.
So we again watch as the crypto fans recreate 20th century economics on fast-forward.