Trump2's cryptocurrency policies (part 2 of n)

I think I don't understand the US federal reserve system yet, but these prep notes should get me enough leads to study over the next week.

1. US gov wants to spend money. US gov issues debt (treasuries), then spends that money, sending it to the US private sector (mostly).

2. US private sector lends part of that money, via money markets and deposits, to arbitrageurs (e.g. banks) who then lend that money out at a higher interest rate.

3. Investors obtaining money from (1,2.) use it to buy assets for speculative returns.

3a. With US originated assets, the money mainly remains in the US private sector. The strength of the USD versus other-state currencies is unaffected.

However, as more spending occurs at (1.), the increase in domestic money fuels domestic inflation, weakening US domestic purchasing power, which eventually trickles into increased export prices, thereby reducing US trade competitiveness, moving jobs, technology, and knowledge to other-states, thus further weakening US security versus other-states. The USD is also weakened against other-state currencies, due to reduced USD demand from reduced exports.

3b. With other-state originated assets, the money is exchanged for other-state currency, and moves to other-state private sectors. The forex activity weakens the USD, and strengthens other-state currencies.

4. In both cases, the weakened USD makes US imports more expensive, reducing the purchasing power of the US, both its public and private sectors. To strengthen its purchasing power, the US can then make policy to tighten its monetary supply (raise interest rates, sell USD-denominated securities [QT]), or make policy that forces other-states to loosen their monetary supply (lower interest rates, buy other-state-denominated assets [QE]).

The latter might include 

- making US-denominated assets more attractive to other-state investors, 

- making US exports more desirable to other-state consumers,

- making other-state assets less attractive to global investors, or

- making other-state goods and services less desirable, by any means whatsoever, including slander, sabotage, war, theft, or distraction.

5. Cryptocurrency currently, mostly originates from NGOs which are neither the US nor other-states. Thus the purchase of cryptocurrency with USD does not immediately strengthen other-state currency, while it immediately reduces USD supply. 

If a cryptocurrency originator invests USD proceeds to other cryptocurrencies only, then the USD has effectively been removed from the US domestic economy, so long as cryptocurrencies are not admitted as legal tender within the US.

If USD proceeds from the sale of cryptocurrency are spent in the US or another state, then the flow of USD roughly follows as in (3a,3b). However, the trail of money may take longer to be publicly accounted for, due to the pseudonymous and often unregulated transfer of monies through non-state NGO networks in the present. This accounting lag allows money to temporarily disappear from state documentation of capital flows, thus resulting in a lag of reaction from economic observers who rely mainly on state documentation.

Thus the US gains a little utility, over short-terms, to use cryptocurrency as a buffer or reservoir of excess USD supply. ** The policies of avoiding a US CBDC, and of not banning cryptocurrency within the US **, thus benefit the US, at least over short terms.

6. ** The additional policy of encouraging USD-denominated digital stablecoins that trade against non-state cryptocurrencies beyond state regulation (regulator oversight), to be issued by entities incorporated within the US **, benefits the US financial account by adding the equity and debt securities of those issuers to the list of assets denominated in USD, which may attract portfolio investments and capital flows from other-state investors.

7. ** The further policy of requiring USD-denominated stablecoins to be backed by US treasuries **, effectively turns compliant stablecoin issuers into an extension of the US banking system, due to the multiplication of money by issuers. An issuer that buys a US treasury is lending money to the US government for spending, and the issuance of a corresponding amount of stablecoins is ...

7a. ... when issued in exchange for USD from buyers, is simply the taking of USD deposits, under a contract with interest, and

7b. ... when issued without the taking of USD deposits (for example, when the issuer issues stablecoins to itself, and spends them in treasury operations), is effectively a multiplication of money : the same USD lent to the US government for spending, is simultaneously spent to buy something else. That something else may well be another cryptocurrency, which is subsequently traded for USD or other-state currency and spent in the US or other-state economies.