Finance and the Real Economy Can’t Stay Out of Sync Forever

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Jill Carlson Finance and the Real Economy Can’t Stay Out of Sync Forever Jill Carlson, a CoinDesk columnist, is co-founder of the Open Money Initiative, a non-profit research organization working to guarantee the right to a free and open financial system. She is also an investor in early-stage startups with Slow Ventures. Have you ever been to a place where time had a different quality? Maybe you grew up in a rural area of the Midwest and upon moving to New York were struck, like many before you, by its whirlwind cadence. Maybe you grew up in a bustling capital city but, upon visiting a coastal seaside town, you fell in love with the slower, sleepier pace of life. I have spent most of my life residing in places where time moves pretty quickly, kept ticking along by semesters, quarters, deadlines, bills to pay, money to make and errands to run. When traveling, I have often wondered at the relaxed pace of the cities and towns I had the privilege of passing through. Places where a morning coffee could be a 90-minute experience. Places where middle-aged men sit in lawn chairs outside their homes on sunny Thursday afternoons and sip a beer. Places where the afternoon nap is still a fixture. Places where children play in the streets until dusk or dinnertime. Over the last three months, since the shelter-in-place order was issued in response to the COVID-19 pandemic, I have noted a shift in the pace of mainstream life where I live in San Francisco. While the West Coast economic hub never rivaled the frenzy of its East Coast equivalents, the city as I experienced it always kept a brisk rhythm. The San Francisco I have known has always been a city of entrepreneurs on a grind, from coffee shop owners to startup founders. History tells us the same, dating back to the days of the California Gold Rush. Now the pace is slower. Morning coffee isrelished in a new way. Neighbors who met for the first time six weeks ago take hours out of their mornings to catch up from the social distance of their front stoops. Families pause their evening cooking to go to the windows for the nightly cheer. Entrepreneurs are spending evenings tending to their sourdough loaves. Parents and their teenage children slowly stroll the streets at night, masks on, headed nowhere in particular. See also: Jill Carlson – How I Learned to Stop Worrying and Love the Money Printer I do not mean to romanticize the slowdown, though there are elements of it that feel refreshing – healthy even. I cannot romanticize this shift because I know why we have slowed down and that reason is worrying indeed. Like something out of a “Twilight Zone” episode, economic time has stopped. Economic time and financial time “Economic time has been stopped but financial time has not been stopped,” said Lawrence Summers in an interview on Bloomberg about a week before San Francisco’s shelter-in-place order was announced. Like all good prophecies, the meaning of Summers’ pronouncement was, at the time, both obvious and also difficult to fully grasp. But in the months since the former U.S. Treasury secretary uttered these words, most of the world has experienced an economic slowdown or standstill. With local shops shuttered and global supply chains disrupted, the great economic machine has now ground to a halt. It is no wonder that people are taking time to savor their coffee. What else is there to do? But financial time ticks on. Rents must still be paid. Debts continue to come due. The tax man will still want his share come July. A wrinkle in time The financial world, like the physical world, operates in the dimension of time . The “time value of money” is a familiar topic to anyone who has taken an introductory economics course or applied for a mortgage. This is the idea that money today is worth more than the same amount of money tomorrow due to that money’s earning potential. Generally, money, even when simply held in a low-risk savings account, earns interest as it gets lent out. Lending and borrowing enable a sort of financial time travel. Borrowing enables tomorrow’s consumption to happen today. The lender gives up today’s spending but is compensated for it in the form of interest tomorrow. In a functional credit market, borrowers and lenders find each other and agree upon the reasonable duration of time and rate of compensation. Those looking to skip forward through financial time shake hands with those content to slow down its passage.
More than anything – more even than a solution – we long for a crystal ball to gaze into the future. For the borrowers, though, time always catches up. The debt always comes due. As long as the borrower’s journey through economic time has kept pace – that is, as long as the borrower has been sufficiently productive – then this dance of borrower and lender can be positive-sum. The borrower can generate an excess return with their leverage and return some of that to the lender in the form of interest. When economic time is halted, the borrow...