Dear Reader,
After the trials and tribulations of the last two weeks, we have to wonder, where is this all leading to? What’s the solution to this government-induced mess? What’s the end game?
Today, we peer into the looking glass…
We’ll see how this peculiar series of events is likely to unfold.
Yesterday, I referred to a yet-to-be-announced government “Program” that we’ll be told will “stabilize the system, restore trust, and improve efficiencies.” It’s size and scale will be massive to suggest the “dogged determination” and “commitment” that the ruling class has for fixing the system.
We don’t yet know what that will look like, but I’m confident that it will have a snappy name like the “American’s Right to Affordable Housing Act” or the “Right to an Affordable Mortgage Act” or better yet the “Sound Banking for All Americans Act.” Multicharacter acronyms will most certainly follow.
Regardless of what it’s called, it will socialize risk, spreading the cost of malinvestment and bad policy across an entire population. This will be just as true in Europe as it will be in the U.S.
While we may not know the specifics yet, we can be sure it is already under discussion. And the “how” is ironically more certain than the “what.”
I’m referring to the infrastructure, the payment pipes, that are about to be turned on in the U.S. to enable real-time, instant settlement of payments, from one financial institution to another, or from even one individual to another.
Under development for almost a decade, we are months away from the Federal Reserve’s deployment of a new, real-time payments infrastructure known as FedNow. The latest news is that we’ll see the employment of this new system in the May – July timeframe.
At a high level, the system, and its benefits are simple.
Those who are part of the FedNow network will be able to send/receive money in seconds with near-instant settlement. There will no longer be a need to wait for days for funds to clear, or to wait until Monday or until after a holiday before we can access the funds that were sent to us.
That sounds great. And it is.
Once implemented, it will be faster, better, cheaper than what we’re all used to. As a technologist, I know that’s precisely what technology is used for.
And yet the implementation of a system like this confers even more power and control to the Federal Reserve. And it doesn’t come without risks.
As we learned in the last two weeks, smaller regional and community banks are particularly at risk. Some might not be managed well, but even those that are can still find themselves in a liquidity crunch that might not be of their making.
Real-time settlements and instant transfers could result in the kinds of massive outflows of capital from smaller banks to large ones in a matter of minutes. Let’s imagine a massive forest fire in northern California or a huge earthquake in Los Angeles that incites panic.
Depositors rush to move capital out of regional banks that might be negatively impacted by the crisis just by tapping a few buttons on their smartphone app. If the capital outflows are large enough, no regional bank can adjust its assets quickly enough…
And perhaps that’s were FedNow could come into play.
My instincts tell me that FedNow is just the blunt tip of a spear of a much larger command and control policy play. After all, real-time payments can result in real-time liquidity injections at a moment’s notice.
Just imagine, if the Federal Reserve had the power to take risky assets off the balance sheets of smaller banks and immediately inject digital dollars for liquidity. No more bank runs. And as we’ve seen with the Bank Term Funding Program (BTFP), the Fed is happy to do so at par value.
Take back U.S. Treasuries at $1,000 par value when they’re only worth $600? Sure, no problem.
Accept mortgage-backed securities at face value and send dollars in exchange in seconds? Absolutely.
After all, it’s the Fed. It can absorb any default rate on those securities.
This approach may look appealing at face value. It appears that assets of equivalent value are being exchanged…no money printing required. The Fed’s balance sheet may balloon, but it will tell us “don’t worry, we’ll get the money back in the end.”
But as we’ve learned so many times, where there are default rates, there is risk, and when we socialize that risk, we all end up paying in the end.
We’ve been dealing in digital dollars, digital yen, digital euro, and digital pounds for decades. Money in print represents only a small fraction of each central bank’s money supply.
Real-time payments and transfers is what will make these digital dollars look more and more like a central bank digital currency (CBDC).
And whether the Fed calls it the FedCoin or something else is irrelevant. Whether it’s referred to as a CBDC matters not.
It is a digital representation of a U.S. dollar that will soon flow more freely than ever before in history.
And ultimately, we’ll need to prepare for a dramatic devaluation of the U.S. dollar in the years to come.
That is the end game…
Along similar lines…
As we’ve been seeing in The Bleeding Edge recently, the pace of developments with respect to central bank digital currency (CBDC) in G20 countries has been quickening recently. The European Union, the United Kingdom, India, and Brazil have each announced their CBDC proposals.
China has been a standout of the bunch. It was early years ago testing the technology and kept a regular pace of expanding the scope of its work with this technology. And now, China just made a power move in its race to roll out its own CBDC nationwide. It tapped the popular Chinese social networking application WeChat to integrate the CBDC. This is huge.
WeChat is an app that facilitates messaging, video calls, peer-to-peer payments, food delivery, e-commerce purchases, and a host of other services. It even lets users schedule doctor’s appointments.
In other words, WeChat is a combination of WhatsApp, Zoom, Venmo, Amazon, UberEats, and a major telemedicine provider – all in the same app. It’s incredibly convenient for Chinese citizens.
That’s why it has over one billion monthly active users. The scale of adoption is incredible.
So by integrating with China’s CBDC, WeChat is putting it into the hands of its one billion users right away. They will be able to use the CBDC to send each other funds, pay their bills, and even buy items from popular e-commerce sites in China.
And here’s the thing – using the CBDC through WeChat will look and feel just like using any other form of payment or currency. Consumers won’t notice any major difference.
In a sense, WeChat is now a Trojan horse for the Chinese government. It’s going to ensure the adoption of its CBDC, the digital Yuan or eCNY, spreads quickly across the country.
And that means China will be the largest economy in the world to roll out a CBDC to its entire population. They’ve already been piloting the CBDC is over twenty provinces and cities… and this is going to take it nationwide.
Once adoption nears 100%, China will be in the position to remove bills and coins from the market and gain complete control and surveillance over every transaction within its borders.
After that, it is likely that the use of the CBDC will be tied into the social credit scoring system used in China to “incentivize” the desired behavior. Having control over how every individual uses money means powerful control over the population’s way of life.
This is a scary development for those of us who value freedom and autonomy. But it’s absolutely a brilliant move by the Chinese government. We can only hope that other countries don’t adopt this as a model. Sadly, the World Economic Forum (WEF), has been planning for a similar system, but on a global scale.
But aside from these tyrannical implementations of CBDCs, China’s path to mass market adoption makes sense.
It’s not hard to imagine the U.S. Federal Reserve partnering with major financial institutions for CBDC digital wallets, and then expanding to software applications like Venmo, Zelle, and Cash App for peer-to-peer transactions. After that, working with Shopify, Amazon, Walmart, Bolt, Apple Pay, and Google Pay to facilitate e-commerce payments using a CBDC would make perfect sense.
Given the significance of everything happening in artificial intelligence recently, it’s critical that we stay on top of the most significant developments.
Regular readers may remember a company called Inflection AI. This is the company we said could make Microsoft obsolete earlier this month.
As a reminder, Inflection AI was founded by LinkedIn founder Reid Hoffman. He is teaming up with DeepMind cofounder Mustafa Suleyman and one of his key researchers, Karén Simonyan. That makes this a powerhouse team.
Inflection AI raised $265 million in its Series A venture capital (VC) round last April. That was a massive round for such a new company, and this was well before the breakthrough of OpenAI’s ChatGPT last December.
At the time Inflection AI revealed that it planned to build an AI-based operating system controlled by human speech, not keyboards. The company was light on details, however.
Well, the team is already going back to the VC well. They are in to raise a massive $675 million in a fast, follow-on round. This is unusual, and also an indication of how much is at stake. Venture capital firms can already see a clear, and very fast, path towards monetization, so they’re willing to write very large checks so that a shortage of capital is never the reason for slow growth.
And the team at Inflection AI revealed that they plan to release an AI-powered personal chatbot “very soon”. The chatbot’s job will be to interface with the internet on behalf of users. This will be a consumer focused production that could potentially change how we interface with the internet.
I’m sure there will be some similarities related to OpenAI’s ChatGPT. Except it will live on our smartphones and provide us with any information we could possibly want with just a simple voice prompt. And by the sound of it, it will likely be able to personalize its support capabilities around individual users.
When I see a major funding round like this coupled with an impending new product, it typically means that we’re going to see something very exciting within a matter of weeks.
After all, VCs were convinced to invest hundreds of millions of dollars because they saw something incredible that Inflection AI had already developed. I doubt we’ll have to wait long. I expect the formal funding round will be announced in a matter of days and then the new product will be released within a few weeks after that.
We’ll certainly be tracking this one closely.
We’ll wrap up today with another big development in the AI space. This is one that seems to be flying under the radar.
I’d venture a bet that very few of us have heard of a company called Zapier. It’s one of those companies that sits in the background that very few of us see, but it is critically important in information technology. Zapier is a software automation company and part of a major movement in software called “no-code.”
And Zapier just integrated its software platform with ChatGPT… which is a big deal. To understand why, we have to understand what Zapier does.
Zapier built a platform that integrates with thousands of software applications. The list includes major software applications like Zoom, Slack, Shopify, Facebook Ads, Dropbox, Spotify, and many others. In other words, applications that we use every day.
This enables Zapier to automate processes across all these different applications for its enterprise customers. That means businesses can plug into Zapier’s platform… and automatically enable functionality across any of these other applications they want.
Zapier does the hard work integrating with all of the other software platforms so that its customers only have to integrate with Zapier. After that, no coding is required to automate regular tasks. Non-programmers are now able to do tasks that used to be only done by software programmers.
Companies just plug into Zapier, and they can utilize functionalities across all of the applications that Zapier has integrated with. And now ChatGPT is going to be available through Zapier.
That means any small, medium, or large business in the world can enable ChatGPT just by plugging into Zapier. I can’t emphasize enough how powerful this is for adoption.
For this reason, Zapier is a fantastic partner for OpenAI’s ChatGPT. Through one integration with Zapier, it has now become available across more than 5,000 different software applications. ChatGPT is now primed for mass-adoption in both the consumer and enterprise space.
Regards,
Jeff Brown
Editor, The Bleeding Edge
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
The Bleeding Edge is the only free newsletter that delivers daily insights and information from the high-tech world as well as topics and trends relevant to investments.
