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
Part II of a series of articles to explain how a purely fiat-based currency system distorts incentives and damages us all in the long run and how Bitcoin fixes that. 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. Stay tuned for all the articles.
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:
“ The shock doctrine is an essential concept for understanding how power elites work behind the scenes to advance their agendas.
It’s also how today’s world could quickly turn into the dystopian 2024 scenario I’ve penned. This is not conspiracy mongering or science fiction; this is fact. Shock doctrine is simple. Political leaders use crises to ramrod policies into place no one would accept in normal times.
When the shock occurs… People begin to value order above liberty.
Power elites have agendas that take decades or even centuries to implement. These agendas include things like world money, global taxation, control of physical gold, population control and other plans intended to increase the power and wealth of the few at your expense.
They know that their agenda is highly unpopular. They also understand that democracy empowers everyday citizens and makes their unpopular plans hard to implement. This is where the shock doctrine comes in useful.”
Sounds familiar?
The agenda included the following objectives:
- Capture the banking system (2009–2010)
- Redistribute gold reserves to China (2009–2016)
- Redenominate, print and distribute SDRs (2015–2018–2021)
- Destroy accumulated debt by inflation (2018–2025)
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.
But in order to arrive well prepared at the new Bretton Woods event they still need to do some work, put the finishing touches. Without this, the entire agenda risks falling apart.
The final but essential fixes needed are:
1. implement CBDCs. I have described in Part I why CBDCs will soon arrive, particularly the digital €uro. Essentially, it is all about the automatic enforcement of capital controls and therefore preventing the exit from that specific currency or exchanging that currency for real assets which grant protection against monetary debasement and inflation (such as gold and bitcoin). Substantially this will prevent the risk of currency hyperinflation. Once CBDCs are implemented it is redundant to impose capital controls or ban certain assets like China, Turkey and Russia are still trying to do today with bitcoin (with little success btw.).
From Part I “ Since “Your” wallet is not really yours, it might be easily and discretionally frozen by the issuer. Similarly, since cash will also be banned, negative interest rates can be easily applied to your positive wallet balances. Therefore you will be taxed multiple times. First with negative rates and then via monetary inflation. Since you will not have a way out of this system and the doors will be automatically shut by programming capital controls into the digital protocol, you will not be able to allocate your funds to blacklisted assets such as gold or bitcoin. They will dictate what you can or cannot buy and how you would spend.”
2. tighten the surveillance and control over the population to prevent and reduce the possibility of money riots. The Covid Pass — to be incorporated with a digital ID together with all your personal data and your CBDC wallet — is part of that strategy. As it will be the adoption of an individual social credit score system communist china style.
3. slow down or stop altogether bitcoin adoption. Again, bitcoin is the wrench thrown in the monetary system wheel, so any propaganda or tool will be used to penalize, criminalize or make it socially unacceptable.
However, in order to fulfill point 1 above they will need to make sure that the population will gladly accept the introduction of CBDCs, just like they gladly accepted the ban on cash, the lockdowns, the vaccines and the Covid Pass surveillance tool because they were scared, because it was for the people´s “greater good”. Thanks to an abundance of fake free fiat money thrown at the corrupted MSM (see Part I), fear could be cleverly instilled and the population manipulated to the point that fearful people just disconnect the brain and act irrationally. Another objective of the Covid pandemic has been to induce — via restrictions to the activities and business lockdowns — a widespread impoverishment of the population, mainly targeting the middle-small-entrepreneurial class. Once poverty increases to a level which starts generating social conflicts, then the governments will “rescue” the needing population with massive fiscal stimulus injections via free money loaded into their CBDC new wallets. Then, even those who are in principle contrary to CBDCs today, will gladly accept them since — once forced into poverty — the government´s fake money will make the difference between eating or starving.
The above photo was not taken in the DDR or in the 80s communist Russia but today in neo-communist Italy, where newly poor people queue up for kilometres for some free food.
In no other country in the world the parasitic globalist elites have been able to carry out the agenda with more criminal determination and efficiency than in Italy thanks to the total control of the local puppet governments. The Italian experiment will go down in history for its success as the text book application and enforcement of shock doctrine, behaviour control techniques, mass formation psychosis and Goebbels´ Nazi Propaganda playbook, against its oblivious and terrorized population.
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.
First, Italy is one of the richest — in terms of accumulated savings — of all EU countries. Over € 1.500 billion sit in Italian banks at zero or negative interest. Just to put this in perspective this unproductive liquidity together with annual GDP at € 2.000 billion pre-covid far exceed public debt (€ 2.800 billion). Therefore Italy — which is always depicted as being on the verge of insolvency — is rather solvent. So solvent that Italians could leave the €uro tomorrow and be much better off using this money to self-finance their public debt without being blackmailed by the ECB and their globo-parasitic cronies. This is clearly something Italians should never understand and it represents the proverbial Damocle´s sword for the EU bureaucrats. Therefore this wealth must be expropriated at all costs.
Second, the Bank of Italy (privately owned by the globo-parasites) holds the third worlds´ largest gold reserves with over 2.450 Tonnes, at todays´ gold price worth approx. US$ 155 billion . This too must be expropriated at all costs.
Third, Italy is like someone showing off expensive jewels strolling down a shady part of town, an unprotected prey easy to rob. This is essential for the plan to succeed. To their advantage they can count on the statistically proven ignorance of the population, and a generally strong selfish attitude. Unfortunately, Italians also lack patriotism and a feeling for the common good. This character was forged by a history of foreign domination since the fall of the Roman empire and internal fratricidal struggles. Moreover, all the governmental administrative machine and its organs (such as the Judiciary) is run by a class of highly ideologised post-communists and mediocre bureaucrats. Finally, Italian politicians have been historically disloyal, corrupted and accustomed to serving the interest of a foreign dominus. They have always betrayed their own people since time immemorial. The unelected Conte and Draghi puppet governments were splendidly qualified to serve the globo-parasites´ agenda. And they did an egregious job for which they will be handsomely repaid.
Mario Draghi was essential to that end and he was cherry picked by the EU and by Davos to continue the Conte job at a critical moment to push the plan through the final phases. He was indeed the best qualified for the task. Since the 90´s he´s been a well respected civil “servant” — literally — in the sense that he has egregiously served his foreign and domestic masters and completed the largest privatizations and the sale of the country´s crown jewels. To borrow John Perkins´ words he has been a true “Economic Hitman”.
So much that Francesco Cossiga — a former Italian President who was known for his patriotic and anti-communist stance — defined him well as a “vile bargainer”, a puppet without morals nor loyalties if not to his money masters.
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:
1. sell the few remaining valuable pieces to his cronies for peanuts.
2. artificially raise the level of the debt to GDP ratio by lowering the GDP with lockdowns in order to (a) expropriate the €ur 1.500 billion in savings sitting in Italian banks via interest repayments and increased taxation, (b) guarantee additional fake fiat credit from the ECB (PNRR) by pledging real assets such as the Italian gold reserves.
Nothing new, this is the well proven script implemented in the last 60 years by the IMF and the World Bank in developing countries and by the EU and the troika in Greece: corrupt local politicians to accept credit and exchange worthless counterfeit paper currency with valuable real assets/resources.
3. the additional benefit of the arbitrary Covid lockdowns and restrictions was to decimate the middle class and thereby make a large portion of the impoverished population willing to accept subsidies and grants (always financed by the ECB). Once a large part of the population will become dependent from governmental subsidies and grants, then they will easily submit and accept a digital currency CBDC with all its downsides. When that is accomplished they will say forever goodbye to their freedom.
As I write the Italian experiment is proceeding very well and with very little resistance from the populace.
The globo-parasites now wish to pull this same trick (3 above) in other countries which are essential for the transition to the digital €uro CBDC.
Indeed also Austria, Germany and Holland are not far down the same path (there is a very disturbing similitude here with the Triple Alliance which does not bring back good memories).
But thanks god the French and the Spanish are putting up a far stronger resistance than expected and the Portuguese are also in a better position, probably because there is not much wealth to steal there and they are also marginally relevant for holding together the EU. The Swedish are also out of the €uro and have already adopted the digital Krona, therefore they have been spared the Covid terror propaganda and the lockdowns. As for the Brits — lucky them to have exited in time the perils of the EU/Davos regime — they seem to be returning to normal life, while the eastern Europeans — headed by Czech Rep, Hungary and Bulgaria — are also putting up a fierce fight which should give us some hope.
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”.
However this is just a variation of the same old ponzi scheme we have today. This time will be the IMF to digitally print SDRs and credit them to the beneficiary country.
To make it simple and cut though the bureaucratese bla-bla BS, this plan substantially means that the SDRs will be funneled through developing countries so that they can finally buy those vaccines which they did not need in the first instance and today remain unsold. Just another way to throw some more fake money in the pockets of their Big Pharma cronies.
Once the receiving country needs to spend the SDRs they will be exchanged with newly digitally printed US$, €uro and the other currencies which form the SDR basket of currencies. Therefore in the end it will be more monetary inflation for the basket currencies, more inflation for the populations of the basket countries and wealth redistribution from basket countries to — depending on how the SDRs are ultimately spent — developing countries for their needs or, more likely, in the pockets of their Big Pharma cronies for their unsold vaccines. From there they will buy real assets thereby raising prices for their benefit and creating inflation for the rest of us thanks to the “Cantillon” effect, in the same old unsustainable deadly spiral.
I am sure you get the picture by now.
A monetary reset means US$ 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.
Therefore let´s postulate to use bitcoin to back up 10% of M2 in addition to gold at 50% as we have seen. The total back up with reserve assets for this system will be at 60% with only 40% fractional. Bitcoin´s fixed supply at protocol level is 21 million. However many private keys have been lost and a better calculation of the current free floating supply available to the market is approx 14,3 million BTC units. Assuming that bitcoin is used to back up US$ 9 Trillion of M2 (10% of 90T) the price of bitcoin will have to go up 16x to US$ 650.000 to reach a market cap of US$ 9,3 Trillion. This in theory. For bitcoin, unlike gold, does not have a stock of potential supply which might become available on the market at the right price to increase the offer and cap the price. The price of bitcoin is totally inelastic and might have to go up many times more than that for hodlers to sell their bitcoins on the market. Hodling, coupled with strong demand, can squeeze the price up to the moon. Also consider that this simplistic calculation assumes that all of the floating supply (14,3 million) can be accumulated by the IMF and the five SDR basket central banks to back-up 10% of the M2. Quite unlikely.
Rather though, it is far more likely that governments will not use bitcoin but only gold in a monetary reset, after all this is the real asset the biggest central banks own. Bitcoin then will become the preferred reserve asset for all non-sovereign institutions and also small developing nations which have little or no gold reserves. In this scenario, the bitcoin standard will be likely adopted by the legacy financial sector, commercial banks (which can use bitcoin as a reserve asset to offer a new wave of commercial free banking services), corporations and individuals. Basically, the world might be using 2 monetary systems mutually integrated: an upper tier for governments and central banks functioning with SDRs as world currency fractionally backed up by gold reserves and a lower tier for small sovereigns, banks and individuals using national fiat currencies and bitcoin as a reserve asset, frictionless moving between fiat currencies for expenditures and bitcoin for savings. This would be the ideal solution.
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 stance. The 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.
Stirring up an hornet´s nest
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.
Risks in playing with fire
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.
A real strategy to sustainable development and Bitcoin adoption
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.
Conclusion
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 real enemy is different and with sleight of hand they do not want us to see it. In this sense it is true that we live in unprecedented times: never before in history a monetary system has been so entirely based on highly inflating fiat currencies being debased by governments worldwide as if there is no tomorrow.
This all started back in 1971, when Nixon removed the last restraint to discipline the FED and governments. By rescinding the peg with gold the US effectively defaulted and — thereafter — slowly but inexorably the system was exploited and abused just like every other time in history before.
The fiat-currency system — born officially in Bretton Woods 1944 — has lasted almost 80 years of which the last 50 have been an unconstrained wild ride. It had its day.
Economies worldwide are propelled solely by paper credit. There is no underlying real asset with no counterparty risk which could be used to set off liabilities, like gold did in the past. The official world debt will soon reach the US$ 80 trillion figure equaling the global GDP. But this does not take into account the trillions levered in the financial system and the derivatives markets. Then liabilities sum up to almost US$ 2,3 Quadrillion, a figure which is hard to visualize, even more to type on an excel spreadsheet.
The sustainability of this global fiat system nowadays hangs solely by a thin thread: the peoples´ psychological dependency and trust on governments and their fake currencies. Since money is the foundational ground of economies and societies worldwide, this is a very weak foundation upon which the lives of billions of people are being built. When the masses will finally wake up and look at their wallets, this trust will evaporate and fiat currencies will fall dragging the world economies with it. The weakest first, then all the others. And we are at this tipping point now. This I wish not to happen, for it will be an event of calamitous proportions which will bring unimaginable misery to all of us, but I am afraid that unless something radical is done, it will be unavoidable. This system is simply unsustainable.
The consequences of 80 years of unrestrained credit creation in a purely fiat currency system are for everyone to see. Wealth inequality and wealth concentration are at the highest levels. Poverty increases, the middle classes are being decimated and they end up joining the ranks of the poor. All asset prices are through the roof because of monetary inflation which makes the rich — and those close enough to the spigots of money who benefit from fake credit creation thanks to the Cantillon effect — richer. Consumer price inflation is also exploding.
And of course it is not only the economy that´s being affected. A purely unconstrained fiat-currency system is the mother of all evils for the society at large. All the long term negative effects and distortions of this system are today becoming apparent.
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.
This is how the rich get richer in the distorted world of fake fiat money. This is what propels wealth inequality.
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.
“What Russia really wants is respect. And my God, giving someone respect is low cost, even no cost. It is easy to give him the respect he really demands — and probably also deserves.” Admiral Kay-Achim Schönbach — German Navy — Fired for speaking out for peace
I am afraid that if they want war they will get it and there is nothing we can do to avoid it, except to speak out for peace, defund them and take away the very instrument that enables war: the fake fiat currency.
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.
Indeed, if one looks behind the usual smoke screens, the biggest promoters (and profiteers) of the US$ 4 trillion “green revolution propaganda” are none other than Blackrock, State Street and Vanguard. Those three funds — together with the 20/30 wealthiest families of the globe which stand behind them — are the biggest profiteers of the Cantillon effect. They own and control — via a web of cross ownership— ALL the most relevant global corporations, including the most environmentally destructive and the largest plastic and chemical polluters of the planet.
No wonder that the true environmental problems are hidden from us. They have no interest in solving the problems at the expenses of their investments. But they want us to believe that by driving an electric car — which has a massive environmental footprint in terms of components, rare earth materials used for the battery as well as their disposal as wastes — the planet will be saved. More hypocrisy, more double standards, more corruption, more incentives skewed the wrong way.
Indeed the “green revolution” is the biggest of all scams. Sold relentlessly by the Davos´ crowd as the solution to the environmental problems of the world, it now involves also central banks which are literally throwing hundreds of billions to emission reduction Ponzi schemes. How should one otherwise define hard to audit or at least dubiously audited credit schemes which — just like fiat currency — can be printed at will to “certify” phony emission reductions. If that´s not a Ponzi, what is? And what about selling the same “emission reduction project” to several certifying entities to cash in different credits on different markets? The double spend issue which the Bitcoin protocol has brilliantly solved is rather a feature in that system not a bug.
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.
It is just mind blowing the amount of fake ECB money that the puppet government of Italy has thrown to the state supported MSM to foster terror propaganda, rather than supporting their impoverished people, their bankrupt businesses or their collapsing hospitals and health systems.
Because, if fiat credit would be rather directed — by honest and responsible politicians — to equitable causes, projects or productive investments, that would ultimately benefit society and create true economic growth. Then we would not be in this dire situation.
Unfortunately, as will become clear in the coming articles of this series, some key events have offered the parasites the golden opportunity to manipulate the outcomes in their favour and direct large chunks of the funds deployed by central banks to increase their wealth, power and political influence rather than fixing the world.
Fake money inevitably corrupts and does it in a destructive self feeding spiral. It is all about the power that money can buy with no cost for the beneficiary and at the expenses of the masses. In order to govern the masses, democracies have been sterilized.
Electoral outcomes and the people´s will have become totally irrelevant, especially in the EU. Corruption and cronyism has been made not only legal, but erected to a system of governance and control, by masquerading lobbyists and special interest group activists. Through Bruxelles´ lobbying groups, this avalanche of fake money commands a thousand EU bureaucrats and politicians. Once elected they become unaccountable to their constituents. While they have pledged allegiance solely to the power of fake money, now lobbies can control 27 countries and over 400 million people by holding a 1000 bureaucrats in their pockets. No doubt a cheap bargain for controlling and dictating such a big society and market.
Fake money enables a one-way socialism: it socializes the losses of the parasitic elite, while privatizing the profits for their exclusive benefit. It has raised a class of parasitic politicians, bureaucrats and technocrats who do useless things — such as regulating in the EU the rightful length of a banana or dictating people how to wear a mask or mandate a vaccine for kids with a statistical death risk equal to 0 versus an unknown risk for the experimental vaccine.
All those crimes, this irrationality and non-sense cannot be explained in other ways if not with one word: corruption. In the meantime, their billionaire cronies like Gates, Bezos or Zuckerberg, get richer and can use newly minted fake money for their “philanthropic” activities, such as “fostering” widespread experimental vaccination globally. Gates´ candidly admits in CNBC that his vaccine “philanthropic” investment has yielded a 20 to 1 ROI. This FT piece “The Pfizer vaccine: a once in an epoch windfall” tells us everything we need to know. This is clearly not capitalism. Only by achieving a monopolistic position through systemic corruption one gets a 20 to 1 ROI for “philanthropic activities”. More on the Covid related financial incentives disbursed to hospitals to admit, diagnose, put on ventilators and let die Covid patients compared to any other illness one can find here.
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.
It has promoted collectivism at the expenses of exceptionalism and individualism. It is against human nature and the entrepreneurial spirit.
Ultimately, it is against freedom.
It is in fact an essential part of the Chinese state-capitalist communist model. It is the system of social credits tied up with surveillance technology created by state-capitalist oligarchs which is enforced via the digital Yuan CBDC, the central bank digital currency. Following China´s introduction of the digital Yuan, CBDCs will soon arrive here as well. A digital €uro CBDC is particularly advocated by the ECB, since it is the only way to keep the €uro from falling which is essential to forcefully keep the EU together. Have no illusions: it will be programmed, implemented and used as an instrument of control and coercion. We will get our monthly governmental subsidy, IF we fulfill our citizens´ duty and get our social credit score right. If not, we will be fined and money erased directly from our wallet. Since “Our” wallet is not really ours, it might be easily and arbitrarily frozen by the issuer. Similarly, since cash will also be banned, negative interest rates can be easily applied to our positive wallet balances. Therefore we will be taxed multiple times. First with negative rates and then via monetary inflation. Since there is no way out of this system and the doors will be automatically shut by programming capital controls into the digital protocol, we will not be able to allocate funds to blacklisted assets such as gold or bitcoin. They will dictate what we can or cannot buy and how we can spend.
But hey, the good part is that it is free money and there´s not even need to work for it. “Own nothing and be happy”, as the slogan of the Davos´ socialist parasites say.
This is where we are heading today. Blame the parasitic class. Blame fake fiat money.
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.
No doubt they will continue to print money until history will not simply rhyme but it will repeat itself.
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.
It cannot change the world by itself, but it needs Leaders (pls note the capital “L”) who can understand the possibilities which such a technological epochal advancement brings upon us. Leaders who have the courage, the intellectual honesty and the ethics to do what needs to be done and embrace it. New Leaders who are not corrupted and co-opted by the parasitic class. Do you see any?
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.
A monetary reset will not happen suddenly. Such events need to be prepared. Historically the slow transition from the classic gold standard (approx 1870) to the fiat standard (1971) had calamitous events such as WWI, WWII and the Vietnam War as catalyst. Such events provided the excuse for governments to abandon the discipline of the gold standard to run the printing presses to pay for the costs of war. The subsequent bursts of inflation have always being shouldered by the population while the parasitic class was shielded by stores of value such as gold, farmland, real estates and the industries which were manufacturing and selling arms. I am afraid that recent events — such as the tensions with Russia, intentionally escalated by the west, the manipulation of the pandemic terror to fight inflationary bursts with deflationary shocks such as lockdowns and restrictions to economic activity and the ECB rush for CBDC adoption — foretell that the ultimate crisis of the monetary system and more ominous events are looming.