The need for clarity in Washington – not just on crypto

So, will the Federal Reserve raise interest rates again at its next meeting?

May be. Maybe not. But again, it depends. I mean, Fed Chair Jerome Powell seemed like he sounded more dovish. Or maybe it was that the FOMC’s statement felt less hawkish. Right? A little, no?

I look at these moments, where markets must dissect the cryptic signals of these 12 people to determine what price to pay for financial assets, as a reminder that our financial lives depend on the decisions of small groups of fallible people. It’s an interesting situation for an AI age where we are surrounded by digital technologies that can review, interpret and program responses to massive amounts of data in seconds. Now, more than ever, we should demand more clarity and transparency in policy-making.

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All of this probably sounds like I’m making a “trust in math” argument for replacing our flawed human institutions with predictable, decentralized, censorship-resistant cryptographic monetary systems like Bitcoins. But I actually think the sheer complexity of our global economy – made up of people with different needs, political views, incomes, wealth and debt scenarios – requires a certain flexibility and uncertainty in policy-making. A rigid, deflationary monetary policy is not always the best; we need a human kill switch.

Nevertheless, given the repeated central bank failures of recent crisis years—not to mention all the mistakes our elected officials and regulators have made—shouldn’t we at least demand that our leaders activate some of these new tools to guide their and our decisions?

There is a wealth of valuable data in blockchains that sheds light on human behavior. There are cryptographic verification systems such as proof-of-reserves that can provide real-time confidence in the liquidity of banks and other vital institutions. With hedge funds and other market heavyweights using powerful AI tools to outrun all other market participants, decision makers are going to need powerful analytical tools of their own.

Instead, officials are increasingly reverting to opacity, deliberate ambiguity and ambiguity. Asked during his press conference on Wednesday if he thought monetary policy was too restrictive right now, Powell said: “It’s going to be an ongoing assessment. We’re going to need data to accumulate that. Not an assessment 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 fair, obfuscation is not a new practice among central bankers. The standard-bearer was Alan Greenspan, who occupied the powerful Fed chairmanship for 19 years before stepping down in 2006, two years before the global financial crisis provided the ultimate legacy of his “new economy” position that encouraged big banks, low interest rates and financial innovation such credit default swaps: the financial crisis of 2008. Greenspan’s meandering, obtuse comments created the term “Fedspeak”.

There is strategic logic in the cryptic approach. Central bankers want to guide markets to an appropriate balance; they don’t want them to misinterpret their intentions and give an exaggerated response in either direction. But there’s also some CYA going on: the less you can commit to taking a clear stand, the less you can be blamed for being wrong when the odds turn against you.

This tendency towards the opaque is not just for central bankers.

Consider the now-famous exchange between House Financial Services Committee Chairman Rep. Patrick McHenry (RN.C.) and Securities and Exchange Commission Chairman Gary Genslers during the latter’s appearance before the committee two weeks ago. McHenry repeatedly tried to get Gensler to give his opinion on whether ether is a security, and the SEC Chair kept reverting to a stock line drawn from the Howey test. Sensing, each time he tried, that Gensler was avoiding the question, McHenry interrupted him and asked the question again, pointedly. The effect was to expose the SEC’s lack of clarity on these issues as a counterpoint to the chairman’s repeated claim that “the law is clear” for crypto companies.

Gensler was between a rock and a hard place. Just like Jerome Powell, he had to be ambiguous because any statement would trigger a mass overreaction in either direction in crypto markets. But McHenry is still right: the crypto industry deserves much more clarity from its regulators.

Part of what is happening is that Congress itself is unable to provide clarity. It cannot overcome its differences and legislate in a way that will set the right ground rules for the SEC, the Commodities Futures Trade Commission and other agencies that regulate crypto.

That, again, is a function of how divided it is—actually, how divided the American population is. The result is the opposite of the empty word salads used by Powell and Gensler: we get very pointed, unequivocal, conflicting statements from influential lawmakers on either side of the political divide. The lack of clarity on this matter comes from their inability to come together, find compromises and make laws. Just look at the debt ceiling standoff.

Regulators and policymakers like Gensler and Powell must operate within this broken political environment, one characterized by the lowest trust ratings in government in history. Their own lack of clarity is a survival mechanism to cope with this greater uncertainty and discomfort.

As I mentioned, blockchain and crypto have tools that can be useful to cut through all that BS.

But unfortunately, the US government is currently canceling that technology rather than supporting it.