Ensuring Clarity in Washington: Why Crypto Isn't the Only Issue?

Will the Federal Reserve increase interest rates in its upcoming meeting?

It's uncertain at this point. Fed Chair Jerome Powell's remarks appeared more dovish, and the FOMC's statement had a less hawkish tone. However, it's still unclear and open to interpretation. Do you agree?

The Federal Open Market Committee's messaging from this week's meeting was unclear, with a committee statement and comments from Powell suggesting a possible monetary easing but lacking a definitive stance. This proved frustrating for markets, but it is typical of the modern practice of central bank policy-making.

Observing the moments when markets attempt to decipher the enigmatic signals of just 12 individuals to determine the value of financial assets serves as a stark reminder that our economic well-being relies heavily on the actions of a small group of imperfect humans. This reality is particularly intriguing in an age dominated by advanced AI technologies that can rapidly analyze, interpret, and respond to vast amounts of data. It is now more crucial than ever that we push for greater openness and transparency in the process of policymaking.

At first glance, my argument may appear to advocate for replacing our imperfect human institutions with predictable, decentralized, censorship-resistant cryptographic monetary systems like Bitcoin as a way to promote trust in math. However, I am of the opinion that the intricate nature of our global economy, which is composed of individuals with varying needs, political beliefs, income levels, and debt situations, necessitates some level of adaptability and uncertainty in the policymaking process. A rigid, deflationary monetary policy may not always be the best approach, and we require a human "kill switch" to intervene when necessary.

Despite this, considering the numerous failures of central banking during the crisis-laden decades we have experienced, as well as the mistakes made by our elected representatives and regulators, shouldn't we be pushing our leaders to adopt some of these innovative tools to inform their decision-making processes and improve our own financial security?

Data and tools

Blockchains contain a treasure trove of valuable data that can offer insight into human behavior. Cryptographic verification systems, such as proof-of-reserves, could instill real-time trust in the liquidity of banks and other critical institutions. As hedge funds and other dominant market players continue to leverage sophisticated artificial intelligence tools to gain an edge over competitors, policymakers will require equally powerful analytical resources of their own.

Instead, officials are increasingly reverting to opacity, deliberate ambiguity and equivocation. When asked during his Wednesday press conference if he thought monetary policy was too restrictive right now, Powell said, "That's going to be an ongoing assessment. We're going to need data to accumulate on that. Not an assessment that we've made – that would mean we've reached that point. And I just think it's not possible to say that with confidence now."

Forty-two words. Nothing said.

To be equitable, the tactic of deliberately concealing information is not a novel practice among central bankers. Alan Greenspan was the prime example, having held the influential position of Fed Chair for 19 years until his departure in 2006, two years before the onset of the global financial crisis. Greenspan's advocacy of a "new economy" approach that encouraged large banks, low rates, and financial instruments like credit default swaps produced the ultimate legacy of the 2008 financial crisis. His verbose, circuitous statements spawned the term "Fedspeak."

There is a strategic rationale behind the cryptic approach adopted by central bankers. They aim to guide markets towards an appropriate equilibrium and avoid misinterpretation of their intentions, which could lead to an excessive response in either direction. However, there is also an element of self-protection at play: the less they commit to a clear position, the less they can be held responsible for making a mistake when circumstances turn against them.

Other officials

The inclination towards opaqueness is not exclusive to central bankers.

The Chairman of the House Financial Services Committee, Rep. Patrick McHenry (R-N.C.), and Securities and Exchange Commission Chair Gary Gensler had a noteworthy exchange during Gensler's recent appearance before the committee. McHenry persistently attempted to elicit Gensler's viewpoint on whether ether qualifies as a security, but Gensler consistently relied on a standard line from the Howey Test. Each time McHenry pressed the question and sensed Gensler evading it, he would interject and ask again, in a pointed manner. This exchange effectively revealed the SEC's lack of clarity on such matters, countering the Chairman's repeated assertion that the "law is clear" for crypto companies.

Gensler found himself in a difficult situation, similar to that of Jerome Powell, where he had to be cautious with his response because any clear statement could cause a significant overreaction in the crypto markets, whether positive or negative. However, McHenry's point remains valid: the cryptocurrency industry requires greater transparency from its regulators.

One of the contributing factors to the lack of clarity in the cryptocurrency industry is the inability of Congress to provide clear guidance. The legislative body is currently unable to bridge its differences and pass laws that would establish appropriate regulations for agencies such as the Securities and Exchange Commission and the Commodities Futures Trade Commission that oversee the crypto sector.

This issue is a reflection of the deep-seated division within Congress, and more broadly, within the American population. As a result, instead of vague statements like those given by Powell and Gensler, we witness influential lawmakers on opposite sides of the political spectrum make clear and often opposing statements. The lack of clarity in the cryptocurrency industry stems from the inability of these lawmakers to come together, find common ground, and pass legislation. This trend is exemplified by the ongoing debt ceiling stalemate.

Regulators and policymakers such as Gensler and Powell are forced to navigate a flawed political environment characterized by historically low levels of trust in the government. Their own lack of clarity can be seen as a survival tactic, as they attempt to deal with the broader uncertainty and apathy that permeate the current political climate.

As previously stated, the blockchain and cryptocurrency industries possess technologies that could potentially assist in cutting through the misinformation and noise.

Unfortunately, the US government is currently suppressing the potential of this technology rather than encouraging its growth.

Source Coindesk