Unlocking the Essence: From Financial Repression to NFTs' Metaverse Vision

In our recent blog, we delved into the crucial need for a portable store of value, particularly considering the growing likelihood of financial repression.

To elaborate, we turn to the insights of Edward Chancellor at Reuters, who draws upon the wisdom of Russell Napier to succinctly explain the concept of financial repression, its historical context, and its potential resurgence:

Edward Chancellor: Beware financial repression’s return

(https://www.reuters.com/breakingviews/chancellor-beware-financial-repressions-return-2021-09-02/)

"High debt levels require permanently low interest rates. This is the political and economic logic behind the policy of keeping interest rates well below the rate of economic growth. After 1945, this state of affairs, which economists call financial repression, effectively liquidated a large chunk of American and European war debts."

Chancellor highlights that this policy, when attempted after the global financial crisis, saw debt levels continue to rise. Now, in the aftermath of the Covid-19 pandemic, markets are anticipating decades of financial repression, but the potential costs and necessary measures have not been fully factored in.

Navigating Financial Repression: Historical Perspectives and Future Implications

Chancellor outlines the historical context, pointing out that after World War II, the U.S. successfully employed financial repression, keeping short-term rates below 1% and the yield on 10-year Treasuries just over 2%. This led to a reduction in public debts by nearly 3% of GDP annually between 1945 and 1980.

Post the 2008 financial crisis, financial repression returned. Chancellor observes that ultralow interest rates helped households reduce debts, but corporations and the federal government increased their debt burdens. The pandemic accelerated this trend, resulting in U.S. non-financial debt reaching a record high of nearly three times GDP by the end of last year.

Chancellor references Russell Napier, who predicts that rates will be kept below economic growth for years, accompanied by higher inflation. Napier forecasts a 10% growth in the money supply in the U.S. and Europe this year, resulting in around 4% inflation. If governments control spending and inflation remains at this level, financial repression could, in theory, liquidate public debt.

However, Chancellor emphasizes that financial repression is not a free lunch. It acts as a stealth wealth tax, with government creditors being the most affected. He highlights historical instances where U.S. Treasuries and UK gilts experienced significant losses during periods of financial repression.

Chancellor concludes by cautioning investors, suggesting that given the current high prices of Treasuries, bondholders may face greater losses this time around. Napier recommends replacing fixed-income securities with gold, which tends to perform well when interest rates trail below inflation.

Beyond Financial Repression: The Role of NFTs in the Metaverse Vision

As we explore the landscape shaped by potential financial repression, there's a parallel narrative evolving in the digital realm. NYU professor and entrepreneur Scott Galloway sheds light on the importance of portability in the context of NFTs:

"One of the keys to NFTs will be portability across mediums. A Twitter blue check can’t exist on Instagram, but the NFT equivalent of a Twitter blue check can — and deliver credible authenticity, thanks to that NFT deed."

Galloway emphasizes the metaverse vision of interoperability, wherein digital belongings gain a sense of similarity to physical ones. This concept, combined with the quest to perfect smart contracts, fuels the journey of companies/projects seeking to offer groundbreaking solutions in the development of digitalized (NFT) collectibles and the platforms supporting their trade.

A New Horizon: Crypto-Based NFTs as Portable Stores of Value

In essence, the above narratives highlight why a digitalized real-world portable store of value, in the form of crypto-based NFTs, is both important and necessary. Linking crypto to real-world assets not only enhances its utilities but also shapes the crypto-verse for the collective benefit.

As we forge ahead, our commitment remains: our products, our markets, our way!