The monetary reset, CBDCs and the Great Italian Robbery. Gold $ 18k, bitcoin $ 650k. PART II of the Sound Money Series

Published on February 7, 2022 on Medium.com and Crypto Stars and The Capital and Coinmonks

 

Introduction

In Part I “The too many fallacies of the fiat currency system”, I have highlighted some of the many fallacies of the post 1971 US$ centered fiat system which has caused huge wealth inequality — via the Cantillon effect and inflation — cronyism, systemic corruption, the death of a pure capitalist system and it has enabled consumerism, environmental disasters and endless wars and color revolutions. In substance, the fake fiat money system is the “mother of all evils” for it distorts all the incentives. This fundamental issue is promptly avoided by every mainstream economist or politician, simply because it is the foundational ground for their power and privileges. Until this system is kept alive their privileges are safe. Of course one cannot expect them to provide a solution to the 99,9% of the population which is the victim of that system. In this Part II we will look at what could be the outcome of a new Bretton Woods and the roles that both gold and bitcoin could play in that “monetary reset”. And why a solution must come from the 99,9% of the base.

A new Bretton Woods? Not too fast, they still need another shock

James Rickards, the author of “The death of Money” and “The road to ruin”, has been advocating for a while that a monetary system reset is unavoidable. And the “shock doctrine” is an essential part of it:

Those who are ready to sacrifice freedom for security will ultimately lose both ~ Abraham Lincoln

CBDCs, the last nail in the Liberty coffin

To further the agenda, the shock doctrine needs to be applied. Events such as the 2008 financial crisis, Brexit and ultimately the Covid pandemic offered exceptional opportunities to do so. And according to the old saying “Never let a good crisis go to waste” the globo-parasitic class did it brilliantly, unbeknown to the masses.

The worship of the state is the worship of force. There is no more dangerous menace to civilization than a government of incompetent, corrupt, or vile men. The worst evils which mankind ever had to endure were inflicted by governments. ~ Ludwig von Mises

Italy´s Great Robbery Prize: € 1.500 billions savings, 2.450 T gold and the digital €uro CBDC

The shock-doctrine event — which will set the final but essential piece of the puzzle in place — is still in full swing as I write. Italy has been cherry picked as an experimental ground for a number of compelling reasons.

You must remember that some things legally right are not morally right ~ Abraham Lincoln

Today, Draghi was sent back to finish the job with a vengeance and a three-fold purpose:

The monetary reset: the SDRs as world currency i.e. the same old same old

When a new Bretton Woods will take place, the globo-parasitic elites will most likely try to camouflage the transition to a new monetary system by selling the same old same old thing: for instance using the SDRs as an anchor for central banks´debt worldwide. This time the objective will be a “global fiat currency”.

A monetary reset means US$ 18.000 gold and US$ 650.000 bitcoin

There is a chance though, as James Rickards has pointed out, that gold might be included in the basket. In his book the “Death of Money”, Rickards pragmatically considers the role of gold in an SDR based world currency system. Rickards´forecast for gold was US$ 9.000 x ounce in order to back up the monetary system with a 50% gold reserve. But that was back in 2014. Since then gold price is up 40% and the monetary supply has gone “to the moon” in the last 2 years. So I will try to run the numbers again. First I will take the M2 money supply for the five countries which form the SDR basket of currencies, USA, Japan, UK, EU and UK. The narrow M2 indicator includes M1 (coins and notes in circulation and other money equivalents that are easily convertible into cash) plus short-term time deposits in banks and 24-hour money market funds. Therefore M2 for the five SDR countries is approximately US$ 90 Trillion. Then let´s look at gold´s current market cap. Gold´s estimated out of ground supply is about 197.000 Tonnes. Of that approximately 75.000 Tonnes is monetary metal which is held in bars and stored as a reserve asset. At the current market price of approx. US$ 1.800 per ounce we have a monetary metal market cap of US$ 4,7 Trillion. If we have to back up at a 50% the current US$ 90 Trillion SDR basket M2 this means that gold price should be revalued at least 10x to cover 50% of the value of M2 (US$ 45 Trillion). Of course, if instead of narrow M2 we take broad money supply M3 or M4 or add up off-balance sheet liabilities and derivatives the numbers go up to Quadrillions and gold should then also rise exponentially. Since currently there are only two monetary assets on the planet which can play a role as a reserve for monetary purposes and which are no one´s liability — physical gold and bitcoin — the other possibility is to use both rather than only gold.

Conclusion

However, the transition to a more equitable monetary system based on hard money is unlikely to happen until the adoption of truly paradigmatic changes such as Bitcoin is forced from the base up. This is why its adoption from the base is essential. Microstrategy, Amazon or Wall Street are not key to this process. Yes they are beneficial to some extent, but they bring also downsides such as too large centralized custody and bitcoin financialization. Rather though, developing nations like El Salvador are by far more important. Each developing economy can bring millions of citizens who learn to self custody their life savings and escape the perils of dollarization or eurization. Every new municipality which joins the bitcoin ranks such as Miami or Rio adds to the base. The “plebs” become the “elite” of a future monetary system. Their savings will not be confiscated by rapacious governments nor they will be stolen with a click of a keyboard through monetary inflation. They will be free.


Is Bukele good or bad for Bitcoin?

Why — for the good of Bitcoin — one should side with the IMF.

Published February 1, 2022 on Medium.com and Data Driven Investors and Coinmonks

 

This is not a political opinion on El Salvador´s President Bukele. Most of us know very little about El Salvador and we cannot properly evaluate Bukele´s policies. So far his fellow citizens have granted him widespread support and that´s enough. Nor should the Bitcoin community blindly applaud Bukele´s bitcoin stanceThe key issue here is whether the strategy adopted by President Bukele is good or bad for Bitcoin. And I mean for the long term, for a long term adoption of bitcoin as the global reserve asset which lubricates a renewed economical renaissance fostered by a decentralized, scarce, uncensorable asset which is no one´s liability. The road to becoming a global reserve asset is still a long one and acquiring a small % of the many trillions which make up the global financial system will still represent a minor drop in the financial ocean. By no means bitcoin represents a risk to gold. Nor it will be a threat to the US Dollar reserve currency status.

The real threat to this system — as even Lenin pointed out — is the abuse of the printing presses and the privileges that derive from it. Those attacking bitcoin are the culprits, the same parasites who benefit from the fiat system are themselves killing their golden goose. Bitcoin is just a technology which finally empowers the people to opt out of an abused system of privileges and store their wealth like never before was possible. If anything, it is the canary in the coalmine that the financial establishment and the politicians should listen to. Paradoxically bitcoin can bring back some semblance of discipline in the fiat currency system. A politically motivated attack on Bitcoin — as proposed by the Biden administration — either through arbitrary restrictions to its use or by implementing a disproportionate taxation regime with the clear purpose of damaging it— will be equivalent to Roosevelt´s infamous 1933 EO 6102 on gold. A disguised attack on basic freedom rights and the essence of a capitalist system.

Back to El Salvador´s law, I must say that so far I am rather unimpressed with Bukele´s bitcoin strategy. Moreover, I am openly against the bitcoin legal tender law. So, for once, I side with the IMF though clearly for completely different reasons. I am worried about El Salvador, I am worried about Bitcoin being dragged into an unnecessary geopolitical fight it does not need.

Picking up a fight with the IMF — which is a proxy for the whole financial establishment and the US Dollar reserve status — does not make sense for tiny El Salvador. For what? For simply making a political statement that Bitcoin is now legal tender and stir up a dangerous hornet´s nest? Who cares? Really, it does not make any practical difference for Salvadorans who want to use bitcoin whether it is legal tender or not. They use it anyways. Being legal tender is against all that Bitcoin stands for. It is against all its libertarian foundations, freedom, non-coercion, non-censorship, decentralization. Forcing the legal tender law equals (more less than more) making bitcoin a semi-fiat currency. All that the force of law achieves can be better achieved by building the right incentives to use bitcoin. After all that´s what Bitcoin teaches us right? So, if it does not practically benefit the Salvadorans, nor the relationship of El Salvador with the financial legacy establishment, who benefits then?

I cannot answer yet. But unless Bukele is playing a bigger game or he is picking up a proxy fight with the IMF with someone on his back, confronting the international financial establishment at this delicate junction for the country seems like a suicidal tactic. Since the summer, the Salvadoran bonds have sold off and the yield is sharply up.

Should the subscription of the Volcano bond not go as expected, it would be prudent to assume that El Salvador would sooner or later need again the support of the IMF and the World Bank to refinance the expiring bonds at a much higher interest rate. This would be very damaging for its economy. Also, in order to reduce the interest rate now demanded by the international bond markets Bukele will have to show international creditors that bitcoin adoption is improving its economics. This will take a long time simply because it takes time to implement all the steps that I mention below in order to really foster economic development by adopting a bitcoin standard. It cannot be done miraculously by simply enacting a legal tender law. In the meantime the financial markets will have squeezed all the air out of El Salvador´s lungs, unless — risky bet — Bukele plans to use the bitcoins that they buy now to breath some fresh air in case they will be worth much more within a reasonable timeframe. But betting on the price appreciation of a treasury asset is very different from fostering sustainable productivity growth. And it will not reassure international lenders. El Salvador is not Microstrategy. A sovereign nation cannot simply copy paste a corporate treasury playbook. It needs more, it needs sustainable long term policies for economic development.

So while the apparently suicidal stand-off with the IMF remains a mystery to me, there is a much better way to foster Bitcoin adoption without pissing off the world´s financial establishment in a geopolitical game which is far bigger than Bukele and El Salvador.

How?

Easy, just do as the IMF says and remove the Legal Tender Law. And not because the IMF says that, but simply because it is not necessary for the adoption of Bitcoin, at least not for now.

More importantly, Bitcoin adoption as a reserve asset — upon which an economic system to foster sustainable growth and avoid the pitfalls of dollarization or eurization needs to be built— is much more complex than its simple use as a currency for remittances or paying bills. This is rather the last step of a long adoption cycle. First comes protecting the Salvadorans´ savings from imported inflation via the US$ hard currency which they do not control. Then comes building a Bitcoin based banking infrastructure, services and rails. Then comes attracting investors. Then creating bitcoin offshore services. Then, in the end, the seamless and frictionless use of bitcoin as a store of value and possibly as a currency will be the automatic consequence of all the above. At that point bitcoin would be substantially legal tender without any law to declare it. Slowly, slowly then suddenly. All this without pissing off the IMF and their cronies.

To the contrary, banks can largely profit from using bitcoin as a reserve digital asset for their banking services while also the US Dollar reserve status is not at stake since bitcoin does not circulate as a currency but as a reserve asset just like gold did until 1971. Let´s see in more detail which are the practical steps that El Salvador and any other developing economy should take:

A Whitepaper titled “ Regulatory policies to foster cryptocurrency/blockchain related innovation and investments in Emerging Economies” can be freely downloaded from www.bianconiandrea.com

This article is also about El Salvador´s legal tender law.

1. The first step is to adopt a minimally invasive regulatory framework to leave ample room for businesses to innovate with little restraint. In particular new technological applications — such as digitally tokenized assets (i.e. stablecoins and tokenized securities) — must be recognized within the local legal framework. Whether Bitcoin is legally considered a property, an asset or a unit of account is irrelevant. What is relevant is that its exchange with fiat currencies should not be taxed and be as frictionless as possible.

2. The second step would be to implement an agile crypto bank charter to regulate mainly the issue and the custody of crypto assets, like the one implemented in Wyoming for the SPDIs (Special Purpose Dep. Institutions). Banks must be encouraged to plug and play into the Bitcoin protocol to build a new banking infrastructure. In this El Salvador could really be at the forefront of a new wave a free banking backed up by bitcoin. The reason is simple. By holding bitcoin as a reserve asset, commercial banks can start developing a new wave of free banking services both onshore and offshore which could dramatically transform El Salvador into the Switzerland of South America. Because bitcoin bank´s reserves are fully auditable at any moment (proof of reserve) a very dynamic and competitive system of banking services could emerge without the need of governmental controls, restrictions and minimum reserve ratio obligations which are rather needed in a non transparent non-auditable fiat system or even in a gold based standard. A reliable network of bitcoin banks is fundamental to attract crypto capitals. See “Bitcoin and the lost art of Commercial Banking”.

3. Custodial applications and services are needed. Local regulations must take that into account. Laws must distinguish between custodial and non-custodial services and applications. Money transmission laws must take this into account and must be updated if needs be. This is key to position the country as a hub of cryptocurrency activity.

4. Incentivize the establishment of crypto exchanges with an agile licensing process.

5. Grant incentives to attract both crypto capital/investors and talented human capital. Tax incentives are very important. Money flows where it is treated better. But also human capital relocates where business opportunities and living standards are better or at least where better prospects are offered. Programs such as the residency and citizenship for investment are very important. A new bitcoin E-residency program, similar to Estonia´s E-residency program can be a smart option.

6. Possibly channel bitcoin capital invested in the country into a bitcoin fund held by the central bank to finance infrastructure and development projects in the country (think about bitcoin mining using residual and renewable energy sources). This might encourage the local central bank to allocate a portion of its reserves to bitcoin.

7. Incentivize the use of bitcoin to pay for administrative fees and taxes and ensure free and full convertibility between cryptocurrencies and the local fiat currency. Business adoption is also important, specially for expensive items such as paying for real estate . All this will bring sound money reserves into the government modern digital coffers. Favour (not compel) bitcoinization to slowly reverse the dollarization of the economy.

8. Mobilize bitcoin investors to create a Bitcoin Adoption Playbook and a Task Force with qualified professionals to help onboard developing countries. Put resources together to invite neighbouring South American countries and other developing countries to see first hand what can be done by adopting the bitcoin standard as a country. Create a Bitcoin League of Free Developing Nations. The objective here is to extend bitcoin banking from national borders to international borders creating the basis for bitcoin based international trade. Again, bitcoin does not need to be the currency of trade but it can be the lubricant of a better international trading system. Think about how arbitrary sanctions in this politically controlled financial system affect the trade and the development of many nations.

If Bukele does that, there is no reason to make bitcoin legal tender in the country. Bitcoin will become the foundational ground of El Salvador´s economy and society. In addition, it may well back up the issuance by El Salvador of a new CBDC. Contrary to the global trend inspired by the Chinese Communist dictatorship — which has built the digital Yuan as an instrument of control, coercion and oppression — the Salvadoran CBDC could be inspired by libertarian principles and be built more akin to electronic cash. Ultimately bitcoin can peacefully coexist with gold and fiat currencies. Free market forces and good incentives shall determine its future and not the force of law.

All this to ask President Bukele to be very careful. To listen to reliable and prudent advisors (not certainly the impulsive twitter frenzy crowd which populates the bitcoin festivals) because true Bitcoin adoption needs careful planning. Most importantly we, bitcoiners, care very much about El Salvador´s people and wish this to be a real success which can bring economical development and wealth to its citizens. If President Bukele and El Salvador succeed in this project we will all succeed. If not, we will all lose.

 


The too many fallacies of the fiat currency system. PART I

Published January 25 on Medium.com and The Capital and Coinmonks

 

The first of a series of articles to look at how a purely fiat-based currency system distorts incentives and damages us all in the long run. Part II looks at what a new Bretton Woods monetary reset would look like. The 1.500 billion and 2.450 Tonnes Gold Italian Great Robbery and how the elites plan to introduce the €uro CBDC to save their privileges at the expense of your liberties.

The study of money, above all other fields in economics, is one in which complexity is used to disguise truth or to evade truth, not to reveal it. The process by which banks create money is so simple the mind is repelled. ~ John Kenneth Galbraith

Introduction

The narrative goes that “we live in extraordinary times and we need extraordinary measures”. The “extraordinary” is however not what they tell us it is. It has nothing to do with the “invisible enemy” with which they have been “at war” for two years and which is rather cleverly being exploited as a “weapon of mass distraction”. Indeed no.

The natural tendency of government, once in charge of money, is to inflate and to destroy the value of the currency. ~ Murray Rothbard

The evils of a purely fiat-based monetary system.

Incentives, the Cantillon effect and the increasing wealth inequality

More importantly though, this system skews all the incentives in one direction, mostly the wrong one. To the privileged few who are close enough to the spigots of credit i.e. so called “elites” — though they have nothing of the positives that the term suggests if not their privileges for one should rather call them the “parasitic class” — this grants them what De Gaulle defined an “exorbitant privilege”. By profiting from the Cantillon effect the parasitic class can buy real assets on credit before prices will raise for all the others. This lifts wealth inequality and makes savers and workers poorer. As an example, in 2020 LVMH acquired Tiffany in a US $ 16 billion deal which was financed by issuing corporate bonds. The bonds were partly bought by Lagardes´ ECB thereby bringing down the overall financing cost under 0 in negative rate territory. This is certainly an excellent text book case of the Cantillon effect and crony capitalism. Europe´s richest man, buys a real asset with freshly printed fiat money lent by the central bank (which monetizes the corporate bond at the expenses of the society and to the benefit of his crony). LVMH will pay back nominally less than the 16 billion borrowed because of (i) negative rates and (ii) inflation. Simultaneously, the real asset bought (i.e Tiffany) will raise in value at least in lockstep with the inflation rate.

Monetary expansion is a massive scheme of hidden redistribution. ~ Murray Rothbard

Negative geopolitical effects, wars, economical colonization, color revolutions

Fiat currencies — especially the US$ and the other currencies sharing the IMF global reserve status — have allowed the issuer to be politically aggressive and to finance at no or negligible cost wars, economic colonization, sanctions and the fostering of ever so “democratic color revolutions”. More recently — since the fall of the communism — fiat credit has fuelled NATO expansion to the borders of Russia by corrupting politicians in the Baltics and other eastern European nations . Such politicians — who have fostered a war of attrition with Russia against the interest of their own fellow countrymen — have conveniently cashed in western bribes to buy themselves mansions in safe places as well as foreign passports to grant them a safe escape in case this very same war of attrition and provocation with Russia would suddenly turn real with flesh and blood spilled on the ground. The “Russia terror narrative” is so strongly enforced that even a well respected German Navy Chief Commander had to immediately resign for not conforming and speaking out in more peaceful terms about Russia.

Nervi belli pecunia infinita— Endless money forms the sinews of war ~ Marcus Tullio Cicero

The true environmental disasters

The fiat-system is equally responsible for the environmental disasters on the planet. A consequence of artificially low interest rates is the increase in time preference and the increase of consumption and consumerism. If your low time preference is discouraged and you cannot invest your capital for the future with adequate returns, you are incentivized to spend it for immediate gratification (remember the 2008 meme “go out and spend your money/credit to fight the crisis”). This increases short-termism and incentivizes the industry to lower the quality of the products to a point in which they last just one day longer than the statutory product warranty. The consequence is unsustainable. A counterfeit GDP growth and an environmental disaster. Then comes the “green revolution” agenda. Of course, also this is financed with fake money which flows again in the pockets of the same owners of the plastic and chemical industries which pollute the environment.

Lobbying and special interest groups are just corruption and cronyism made legal and systemic

Fake money has financed the virus MSM narrative and a “mass distraction war” so that people will not notice what happens in their pockets. As one keeps the head above the daily noise and reads behind the lines of the MSM propaganda in several languages, one notices an indisputable correlation between the flow of news and data regarding the economy and inflation together with the waves of virus terror propaganda in the countries which are fundamental to holding the €uro and the EU together, such as Germany, France and Italy.

The rise of cronyism, the death of capitalism and the future of CBDCs based on the Chinese communist model

Fiat currencies have destroyed true capitalism and promoted cronyism. They enabled the economic aberration of negative interest rates which has eaten up our capital savings. It has destroyed time-preference theory, manipulated all markets, erased meritocracy and kept the willing and hard working people from elevating themselves while uplifting a class of mass thinking mediocre individuals to “elite” levels.

More of the same is the usual solution

Therefore the clear and present danger today lies with the central banks which will continue doing the only practicable monetary policy in the final stages of a collapsing fiat-system. Ray Dalio pointed out in his “Principles for navigating big debt crisis” that there are four levers that can be used to reduce excessive debt: 1) Austerity 2) Debt defaults/restructurings 3) The central bank “printing money” and making purchases 4) Transfers of money and credit from those who have more than they need to those who have less.

There is no means of avoiding the final collapse of a boom brought about by credit expansion. The alternative is only whether the crisis should come sooner as the result of voluntary abandonment of further credit expansion, or later as a final and total catastrophe of the currency system involved. ~ Ludwig von Mises

Bitcoin is part of the solution but we lack Leaders who understand it

By now it is clear that it all starts with fake credit creation, fake money. This unleashes an unstoppable vicious circle based on the wrong incentives. Bitcoin is technology, it is neither good nor bad intrinsically. It is just an instrument in our hands which can right many of the wrong incentives of a purely fiat system.

People of privilege will always risk their complete destruction rather than surrender any material part of their advantage. ~ John Kenneth Galbraith

While I truly hope that a new Bretton Woods could bring — for the good of humanity — a return to honest sound money, a return to conditions which favour low time preference and investment, rather than immediate consumption and consumerism, I believe that such a change must be somehow forced from the base rather expected from the top.