by From Dean Baker The Republicans and Donald Trump seem set on establishing a strategic crypto reserve. They are claiming this will somehow be an important source of economic security for the country. It’s clear that establishing the reserve will be an important way to give tens of billions of dollars to Donald Trump’s campaign contributors, but it is much harder to see how it will provide any economic security to the country. To better understand the logic of a strategic crypto reserve, it is useful to consider a strategic baseball card reserve. Instead of the U.S. government investing 0 billion in crypto, imagine Donald Trump announced plans to put 0 billion into a strategic baseball card reserve. Now just to quell those skeptics saying that the entire stock of baseball cards is
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Dean Baker considers the following as important: Bitcoin, crypto, economy, Finance, politics, Uncategorized
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from Dean Baker
The Republicans and Donald Trump seem set on establishing a strategic crypto reserve. They are claiming this will somehow be an important source of economic security for the country. It’s clear that establishing the reserve will be an important way to give tens of billions of dollars to Donald Trump’s campaign contributors, but it is much harder to see how it will provide any economic security to the country.
To better understand the logic of a strategic crypto reserve, it is useful to consider a strategic baseball card reserve. Instead of the U.S. government investing $100 billion in crypto, imagine Donald Trump announced plans to put $100 billion into a strategic baseball card reserve.
Now just to quell those skeptics saying that the entire stock of baseball cards is not worth $100 billion, you’re ignoring the price of effect of the government committing itself to spend $100 billion on baseball cards. If the government wants to spend $100 billion on baseball cards, you can be sure that the price of many cards will rise astronomically so that there will be supply to meet the demand.
But beyond the question of how much we can pay for baseball cards, it is worth asking what it would mean if we actually had a $100 billion strategic baseball card reserve (SBCR)? This can tell us what we can expect from having a large strategic crypto reserve.
If the government held a $100 billion SBCR it would support a much larger private market in baseball cards. People would presumably be buying up cards, knowing that the government was always there as a buyer of last resort. If prices started to plunge for any reason, the government would be prepared to step in to sustain the value of its $100 billion SBCR.
And this commitment would support an industry of people engaged in the buying and selling of baseball cards, authenticating the cards, possibly issuing futures and options on the cards, and of course offering investment advice on baseball cards. Who knows, this industry could easily support tens of thousands of workers, maybe even hundreds of thousands.
Anyone who thinks that’s a good thing needs to think a bit harder. There are productive things in society that we need workers to do. We need more and better housing. That means we need workers in a wide variety of construction trades. We need workers in health care, we need workers in teaching. We need people to fight fires, and we need honest cops.
There are plenty of productive tasks that we need workers for, which would make our lives better and make us richer as a society. But our $100 billion SBCR will pull some people away from these productive jobs and instead employ them in various aspects of the baseball card economy.
It’s possible that some people, other than those directly profiting, may feel better knowing that the government holds a large quantity of baseball cards, but it is hard to understand why that would be the case. If the United States has a strong healthy economy, where workers actually engage in productive tasks, the U.S. government should have little problem meeting whatever financial obligations it faces.
The strength of the U.S. economy is ultimately the reason that investors, both foreign and domestic, are willing to hold U.S. dollars and U.S. government bonds. However, if we divert our resources from productive uses to shuffling baseball cards, or crypto, we will be weakening our economy. In a $30 trillion economy, $100 billion for a SBCR or crypto reserve is not an especially big deal, but from the standpoint of providing economic security, it goes in the wrong direction.