How long till the next big crash? Because it's definitely coming

The year 2008 seems an eternity ago, but given what is going on today in Washington, what happened that year is coming into sharp relief. There was a massive stock market crash. A major investment bank, which had been around for more than a century and a half, imploded. The U.S. government, then run by the Democratic president Barack Obama, came to the rescue of an economy in free fall.

New guardrails were put in place to prevent such a thing from ever happening again. Banks that had been massively over-leveraged were required to maintain larger cash reserves. Restrictions were placed on what bankers could do with depositors’ money. 

But even with all the corrections put into place, there has been a lingering question ever since that disastrous year: Could it happen again?

In the midst of Donald Trump’s blizzard of executive orders, directed at  everything from rounding up undocumented immigrants to ending government DEI programs to firing or reassigning government employees to stripping U.S. agencies of the protections provided by independent inspectors general, our new president gave his answer when he ordered a complete overhaul of government policy on cryptocurrencies. The answer is yes. In brief, Trump gave every indication that he’s going to let crypto be crypto, freeing the already free-for-all market in imaginary money to do whatever it wants to do. 

The first and most important thing Trump’s order did was to protect banking services for crypto enterprises and markets. This will allow crypto exchanges and marketers to use regular banking services to store their real money while they scheme to create new kinds of fake money to sell to those who have fallen for the libertarian dream of a system of payments for goods and services that’s free from the highly regulated American dollar. 

Trump also ordered the creation of a handpicked crypto “working group” to study the feasibility of creating what, on the campaign trail, he called a “strategic reserve” of cryptocurrency. The notion of a strategic reserve is not a new one. The U.S. maintains such a reserve of petroleum created after the 1973-74 Arab oil embargo to calm the oil market and ensure that the country has enough oil to face shortages or to use during a national emergency such as a war.

The strategic petroleum reserve is a real thing: Hundreds of millions of barrels of crude oil are  stored in a series of underground caves along the Gulf of Mexico (er, ah … the Gulf of America). But what would a crypto reserve look like? Talk among Trump’s crypto-bro supporters, who backed his campaign to the tune of hundreds of millions of dollars, is that the reserve would begin with as many as 200,000 bitcoins which have been seized as part of law enforcement action against crypto fraud. Right now, those bitcoins are held, if a crypto token can be “held,” by the Department of Justice. The bitcoins seized by the DOJ are worth about $21 billion at current market value, and would be supplemented, it is thought, by the government buying more bitcoins on the open market.

Aha! Now we begin to see the outlines of what is going on in Trump’s crypto-addled brain only days into his rule. Bitcoins would increase in value simply because that the U.S. government has decided they are a viable investment, and cryptocurrencies in general would no doubt gain value and prestige even more when the government goes into the market and buys more of it.

But while you can actually visit the strategic petroleum reserve, or at least its surface access point, cryptocurrency is not a financial commodity backed by something real, like oil or coffee or soybeans. It is said that cryptocurrencies like Bitcoin exist in the digital ones and zeroes of  “blockchain” storage and are accessible, in effect, only through passwords. There are crypto storage facilities of sorts out there, actual buildings where blockchain storage consumes massive quantities of electricity to run the machines that maintain the blockchains. You may own a bitcoin, which is worth something like $102,000 in today’s crypto market, but it doesn’t exist except on faith that you can trade it or sell it in exchange for its cash value, denominated in dollars (or euros or some other actual currency), which you can then deposit in an actual bank and use however you see fit.  

So what’s really going on here with Trump’s dive into the world of crypto? First of all, he is lending legitimacy to the entire idea of this imaginary digital currency. Before Trump’s order allowing cryptocurrencies access to the banking system, the crypto marketplace has existed, for the most part, off to the side of conventional banking and investment vehicles such as stocks and bonds. While there are well-established exchanges through which stocks and bonds can be traded and exchanged for dollars, crypto exchanges are unregulated marketplaces that exist because someone says so, as with Sam Bankman-Fried and his high-flying FTX crypto exchange. But what happened to FTX? It was there, and then it wasn’t there. Bankman-Fried was there too, hobnobbing with world leaders and living in the Bahamas. But now he’s in prison and his exchange is in bankruptcy.

The entire world of crypto, along with its “coins” and “exchanges,” has existed apart from the real world of banking and the New York Stock Exchange and the NASDAQ and the commodity markets. It was designed that way by the libertarian masterminds who came up with cryptocurrencies to set themselves free from what they considered government interference in their business.

The market they created was basically a bunch of guys trading stuff and trying to make money by outwitting each other in their private marketplace. But there was a problem: For the most part, they didn’t have access to the enormous pool of money maintained by banks and the other investment marketplaces. 

Now Donald Trump wants to open up that pool of trillions of dollars to the crypto lords who supported him. As with everything else he’s ever done, he’s paying off his loyalists for their huge donations that helped put him in office.

Like everything associated with Trump since he first put his name on a building in Manhattan and began selling Trump-branded garbage of every description, it’s all about greed. Money is why Donald Trump rode down that golden Trump Tower escalator and threw his hat into the presidential ring in 2015. Money is why his daughter and son-in-law did whatever they did in the White House for four years: Jared Kushner and Ivanka Trump collected billions from Saudi Arabia after Trump left office, and have continued to profit ever since. The same goes for Trump’s adult sons, who are out there announcing new deals to build Trump-branded hotels and golf courses and whatever else they’re selling. They will do everything through the Trump Organization. Who owns the Trump Organization? Donald Trump does. They have also established a crypto company called World Liberty Financial, which sells crypto tokens branded as $WLFI. Trump is an owner of that company too, along with his children, including his youngest son, Barron, who now bears the title of “DeFi Visionary” in Trump’s latest scam to suck dollars from the pockets of people who love him.

For Donald Trump, politics has never been about policy or fixing problems or building stuff like roads and bridges with federal dollars. Remember “infrastructure week,” his four-year promise that tomorrow, or the next day, or next month, he would get  a big infrastructure bill and build things all across America? Who actually passed the infrastructure bill? Joe Biden and the Democrats. And what has Trump done? Issued an order shutting down all federal grants and loans, which is how those federal dollars were spent to build things like roads and bridges under Biden’s infrastructure law.

Trump’s Silicon Valley “broverse” — Elon Musk and Peter Thiel and the rest of them — already have their hands in the immensely lucrative  world of defense contracts up to their armpits. But is that enough for them? Is it enough for Trump, with his World Liberty Financial scheme?

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Of course not. They want the banks to do more than hold the real dollars they accrue though their crypto schemes. They want the big money. They want the banks to invest in their crypto schemes. They want banks and financial markets to trade crypto-backed securities. 

Basically, Trump and his crypto-lords want to force the rest of us to join their scams by allowing banks to use our money to buy stuff we don’t want and do not understand, the crypto equivalent of credit default swaps. They want to “invest” our real money in their imaginary currencies. 

If you thought the housing market of the early 2000s was a bubble, backed as it was by worthless subprime mortgages, wait until you see the crypto bubble. At least mortgages were tied to real property that human beings could live in or rebuild or sell, even at a prodigious loss. What is crypto backed by? Literally nothing, except the misguided faith that there’s a “there” there.

This could well be 2008 all over again, or worse. World markets that depend on the U.S. banking system will be crippled. The whole house of digital bits and bytes will come crashing down. The strategic crypto reserve will be empty, or worthless.

Four years of “look over here! A trans person!” distraction and disinformation and lies will have paid off. All the real money will flow toward Donald Trump and his crypto lords, who will almost certainly have gotten out when the getting was good.

Donald Trump’s America will be great again, all right. For the few, not the many. The rich will get richer, the poor will get poorer. We’ve seen it before and we’re about to see it again.