The Crypto Cleansing

CryptoCleansing

A few months ago, as I was having a conversation with another crypto advocate, these words escaped my lips: “I hate to say it, but maybe we need a price crash.” As I said them, I had a slightly sick feeling of “Be careful what you wish for.”

Now, the price has crashed. But in spite of all the pain that has caused, it was probably necessary. Why? Because it chased away the scammers and the people who were only in cryptos for a fast buck. “Bitcoin will get you a Lambo” was a pretty damned juvenile idea, after all. It was certainly nothing worth building upon.

So, whether we’ve enjoyed it or not, the fire has raged, the forest has been pretty well cleansed, and those who remain can build without ridiculous distractions.

A few days ago I reran the numbers on the market cap of world currency (about $200 trillion) and all cryptocurrencies (about $400 billion). So, crypto = 0.2% of government currencies… meaning that fiat currencies are worth 500 times what cryptos are worth. And that makes the choice in front of us nice and clear:

If you think cryptocurrencies aren’t worth one five-hundredth of fiat, sell now and go back to your Life Before Bitcoin.

If you think cryptos are worth more than one five-hundredth of fiat, get back to work.

We have a full crypto economy to build, and the worst obstacles have just been removed. Let’s get busy.

* * * * *

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Paul Rosenberg
www.freemansperspective.com

Bitcoin Is a Revolution, Not an Investment

bitcoin revolutionIt has been interesting to see large numbers of people pay attention to Bitcoin in the past year or so. The reason for that attention was the exchange price of Bitcoin, which made a lot of early adopters wealthy. (One of the few times when the right guys got rich.)

The idea of getting rich quick always sells, and it did this time too. Along with it came a lot of investment talk, complaints about volatility, well-publicized government raids, central bank reports, and threats from tax men.

What most of these people missed was that Bitcoin is not a traditional financial instrument and doesn’t fit into the categories of traditional finance. Bitcoin – cryptocurrency – is a new thing. It’s a radical, revolutionary thing. As long as you try to categorize Bitcoin with traditional financial tools, you’ll never really understand it.

Bitcoin Comes From Outside

Lots of people talk about “outside the box,” but many of them would run from anything that was truly outside of the box. Such people may be interested in Bitcoin because of price gains, but only because they don’t understand how radical it really is.

Bitcoin, you see, is not an adaptation based on existing currencies, nor can it be understood that way. Bitcoin is from outside – from the realm of anti-establishment radicals.

In particular, Bitcoin comes from the cypherpunks, a group of crypto-anarchists and anarco-capitalists. They began to flourish in the early 1990s, as cryptography merged with the new Internet and they realized they could “wall-off” areas of cyberspace from the coercive intrusions of governments. Here are a few quotes from these folks:

We don’t much care if you don’t approve of the software we write. We know that software can’t be destroyed and that a widely dispersed system can’t be shut down.

Governments of the Industrial World, you weary giants of flesh and steel, I come from Cyberspace, the new home of Mind. On behalf of the future, I ask you of the past to leave us alone. You are not welcome among us.

Encryption, digital money, anonymous networks, digital pseudonyms, zero knowledge, reputations, information markets, black markets, collapse of governments.

A specter is haunting the modern world, the specter of crypto anarchy.

Arise, you have nothing to lose but your barbed wire fences!

These are not financial people trying to invent a new kind of currency that’s going to make them rich – these are radicals who want to build a new world. And that’s exactly what Bitcoin is: a radical tool for building a new world.

Bitcoin was birthed on the cypherpunk mailing list, by the way. One of the list members, someone named Wei Dai, outlined the structure of cryptocurrencies in 1998, ten years before Satoshi Nakamoto wrote his program.

What’s so interesting about the current moment is that the concept of cryptocurrency is challenging people to think about what they truly believe. Do they really love the status quo? Or is it just something they accepted because they saw no alternative?

Because once people really understand Bitcoin, they also understand that it is built on the opposite principle of the status quo. Bitcoin has no place for a central controller, no tool allowing an enforcer to override anyone’s transactions, no mechanism of coercion at all. That makes cryptocurrency anathema to the current monetary regime and to every ruling regime.

People who come to understand Bitcoin also learn this, and it can be a real challenge for them.

And What Now?

Well, several things are going on now, all at the same time. Here’s my list:

  • The old regime – banking, law enforcement, tax-gatherers – are trying to harness Bitcoin and build tools of control into or around it.
  • Military and intel agencies are figuring out how to shut down Bitcoin traffic without killing the Internet altogether. The big tech companies have become their sycophants and are following their masters’ will.
  • Certain financial operators (“reasonable” types) are trying to subvert Bitcoin and make it acceptable to the powers-that-be.
  • People outside the G20 financial monolith are beginning to see the utility of Bitcoin. It is much cheaper, easier, and faster than Western Union, bank wires, or credit cards. It’s also far easier to transmit over distance than cash. A cab driver in Zaire doesn’t give a hoot whether the Western banking cartel hates Bitcoin; if it works for his customers, he’ll use it.
  • New projects like Ethereum, Dark Wallet, BitWasp and many others are popping up regularly. The innovations are not stopping.

What comes of this is anyone’s guess, but one thing is clear: The genie is out of the bottle;  everyone knows that cryptocurrencies work, and work well. Even if Bitcoin is brought down, new adaptations will follow it in a steady stream.

The revolution is here, now. Fight it, join it, dance, mourn, or just play dumb; it’s your choice.

Paul Rosenberg
FreemansPerspective.com

Why the Founding Fathers Made Their Own Money

rebellion moneyIt is an interesting historical fact that people who take part in rebellions tend to coin their own money – not when the rebellion concludes, but as it starts.

There is good evidence that silver half shekels, like the one pictured above, were actually minted on the Temple Mount during the Jewish Rebellion against Rome in 66-70 AD. (The wonderful Biblical Archaeology Review ran an article on the subject.)

And this case is hardly unique; there have been many rebellions that promptly issued their own currency. Here is Massachusetts currency from 1776, issued early in the American Revolutionary War:

rebellion money

The primary reason that rebels create their own currency is that monetary control is far more of a force than people realize. Baron Rothschild was not being overly flamboyant when he said, “Give me control over a nation’s money supply, and I care not who makes its laws.” Being able to manipulate a money supply is a fantastic power, affecting every part of an economy. If you know in advance that the money supply will go up (diluting its value) or contract (concentrating its value), you immediately gain a massive advantage over everyone else – and you can target this advantage to help or hurt almost any group you choose.

Because of this, a rebel group that is tied to their opponent’s money has nearly lost before the battles begin. Serious rebels learn this quickly.

The Modern Rebellion

The rebellion that we’re all part of is not an armed rebellion, but a moral rebellion. And, interestingly enough, our rebellion understood very early on that money was a primary factor in our enslavement.

The roots of our rebellion go back as far as the first oppressed man or woman who thought clearly about morality, whenever that was. In modern times, however, we can trace our rebellion back to the 1940s – a time in which Mises had already been examining the foundations of money, Hayek was interested in competing currencies, and Rand was examining the morality of money.

(I’m passing over very many good people in the above paragraph. May they forgive my brevity.)

In our lifetimes, we’ve had David Chaum’s work on digital cash, Orlin Grabbe’s work (both theoretical and practical), e-gold, Pecunix, networks of exchangers, subsidiary services, and, most recently, crypto-currencies, beginning with Bitcoin. Our moral rebellion is not slowing down.

What matters about all of these currencies (and many more I haven’t mentioned) is that they are all rebel currencies. Sure, a few criminals and Ponzi operators have made use of our technologies, but that’s simply unavoidable. How many crooks use government money? (Answer: all of them.)

Rebel Morality

I think it’s important to make a few points about this moral rebellion of ours:

  1. This is not about attacking anyone or even attacking the current systems of oppression. Yes, every individual has the right to self-defense, but what we’re after here is not to lord it over anyone else, but being left alone to live as we wish.
  2. We must treat our fellow men and women with respect, even if they are wrong. If they want to be ruled by a state, that’s their choice, and we have no right to rip it away from them. (If it crashes without our coerced “support,” that’s not our problem.) If we think that people are being stupid to choose state serfdom, we should convince them that other ways are better, but we cannot force them to live our way and still call ourselves moral.

Our rebellion money has actually done a fine job of supporting these two moral points. The supposed failures of these currencies were primarily that they couldn’t withstand coercive and violent attacks. In other words, they worked very well; their “problems” were attacks from the status quo: a system of coercion and violence, masquerading as justice.

What we are now seeing is a moral awakening. Young people are questioning the systems that supposedly sustain them but actually use them as slaves.

When people begin to see the world in moral terms, they quickly perceive the deep immorality of the status quo – a system that is utterly dependent upon coercion and deception. If there is a root to the continuance and success of honest, rebel money, this is it.

In the end, our battle is this: morality versus coercion and deception.

Paul Rosenberg
FreemansPerspective.com

Two Ways the Bitcoin “Crackdown” Could End

crypto currencies bitcoinI read a story recently about a group of dandies who want to “help regulate Bitcoin, for its own good.” The thing about these guys is that they don’t really care about Bitcoin as a beautiful, disruptive technology or even for the great benefit it brings to mankind. Instead, they see Bitcoin as their ticket into the halls of the elite.

These people are not the agents of a new age. Rather, they’re trying to get into the upper levels of the old, hierarchical system.

When Charlie Shrem of BitInstant was arrested, these people jumped in on the side of the ruling elite, saying things like:

We were only passive investors in BitInstant, and we’ll do everything we can to help law enforcement. We fully support any and all governmental efforts. We want to ensure that money laundering requirements are enforced, and look forward to clear regulation being implemented on the purchase and sale of bitcoins.

First of all, none of these people – Bitcoin investors or government regulators – care anything about money laundering. When HSBC and Wachovia were caught red-handed, laundering hundreds of billions of dollars for violent drug cartels, no one was arrested. No one even lost their job! This talk about money laundering is nothing but theater for suckers.

Yet now, after holding no one accountable for laundering half a trillion dollars for the cartels, they found themselves with a chance to hurt Bitcoin – over a few million dollars of drug sales to peaceful users. So, they sent their goons to arrest poor Charlie Shrem (very publicly), who was positioned a full two steps away from the drug transactions in question.

And then, these elite wannabes – supposedly pro-Bitcoin – sucked up to the hypocritical ‘enforcers’ with everything they had. And I quote:

There are certainly a handful of folks that are hardcore libertarians (some anarchists) that believe that bitcoin should be completely unregulated, but I believe they are in the minority and, as a percentage of bitcoin believers, is shrinking very quickly.

In other words, “Please don’t think of us as anything but your faithful companions, our overlords.” It’s disgusting.

New or Old?

The people who are grasping for prestige from the old system are making themselves enemies of the new. This is not about money, you understand – the people I’m talking about are already wealthy. This is about their desire to stand in the highest levels of the ruling hierarchy. Once their heart has gone there, anything that threatens the old system threatens them, and they will end up fighting it.

What these people are trying to do, as best I can tell, is to form a new “smart wing” of the hierarchical elite, then to enlighten the world from that position. It seems like they still imagine themselves to be libertarians. But to get their new “smart wing of the elite” way, they have to minimize, discourage, or fight the authentic new way.

In an email, one of these dandies said that the crypto-anarchists who dominated Bitcoin were “getting left behind.” In fact, however, I think the truth will be just the opposite.

Cryptocurrencies Will Survive; Fiat Currencies Will Not

It may seem very flamboyant of me to say that the dollar, the pound, the yen, the euro, and all the others are doomed, but it’s quite a very safe comment to make. Every fiat currency has crashed and burnt within a century or two, with no exceptions that I can point to. They’re all built upon a flawed model, and they all eventually go away.

Government money requires a large number of accountants, apologists, promoters, cooperative bankers, and supplemental players. It also requires violence – forcing people to use it. That is the essence of “legal tender” laws. If people don’t use the mandated currency, violence is applied.

Cryptocurrencies, on the other hand, are based upon mathematics, something that will never go away. Beyond that, all that’s necessary are computers (which don’t seem in any danger of going away) and people who wish to make money by running them. This desire to make money is also rather unlikely to vanish.

So, on the one hand we have government money – a complex, expensive system that requires violence in order to survive. On the other, we have cryptocurrency, a distributed system that operates just fine on a completely voluntary basis.

As a practical matter, cryptocurrencies are more durable and more profitable for more people.

The War on Cryptocurrencies

Make no mistake: “Team Violence Money” is making war on “Team Voluntary Money.” Those of the old way either want to turn Bitcoin into a tool of their system or simply to kill it outright. Here is how those scenarios will likely play out:

The old way captures Bitcoin:

If the wannabe elites get their way, they will turn Bitcoin into a decentralized version of PayPal – a currency that requires full customer information in order to use. A fully controlled currency.

But if that happens (and it looks like it will take some time), there will still be a Bitcoin underground. Black-market Bitcoin will find a variety of ways to thrive beneath official Bitcoin.

The old way kills Bitcoin:

If the old way decides to use a lot of actual and coordinated violence, they may disrupt the Bitcoin market badly. They will have to do this more or less worldwide, which will not be easy – but if they cage enough people, they can probably pull it off.

There are electronic-based ways of hurting Bitcoin badly, but these will succeed only if Bitcoin users choose not to adapt.

That said, if Team Violence Money goes full Stalin, the weak and the cowardly will flee Bitcoin. The brave and the desperate will continue, of course, but Bitcoin will remain a shadow of its former self.

But even if that does happen, the idea of cryptocurrency will remain, and new currencies will keep popping up.

Why? Because the genie is out of the bottle. At this point, anyone who has paid any attention knows that cryptocryptocurrencies work. That will never again be in doubt while history is recorded.

Furthermore, creating new cryptocurrencies is almost trivial. And since mining these currencies can be highly profitable, there will be no shortage of hungry boys and girls willing to take a little risk.

In order to keep their fiat money systems intact, the operators of the old way will have to keep people very confused while making sure they never get interested in questions of truth or morality. Because if they do – and if they ever examine violence-based money – they will rebel against it.

So, even if they seem to win, the old way will never truly get past cryptocurrencies.

Cryptocurrencies are here to stay.

Paul Rosenberg
FreemansPerspective.com

Why Gary North Is Wrong About Bitcoin (Part 2)

bitcoin threatI guess Gary North and I have a public disagreement underway. I respect the man’s work, so I’ll try to avoid this becoming personal.

Gary’s new piece is entitled Bitcoins: The Road to Investment Hell Is Paved With Good Intentions. In it, his primary argument is that Bitcoin doesn’t pass muster as “money,” according to Austrian economic theory.

Here We Go…

I’ll start by responding to a few of Gary’s assertions, and then I’ll delve into the economic arguments. Again I’ll quote Gary in italics and respond in a plain font.

I can say this: nothing in his defense of Bitcoins [sic] as money is even remotely Austrian. It ignores the market.

Bitcoin is nothing BUT market. There are no legal tender laws enforcing its use, there is no 5000 year tradition behind it. Without the market, Bitcoin would be inert computer code.

What I am waiting for is a detailed defense of Bitcoins [sic] from an Austrian school economist or economic historian. I want to see how the Bitcoins [sic] market corresponds with the Austrian school’s thesis of the regression theorem: money as a market product that has come in response to the transition of a widely used commodity into money.

See below.

Here it is, in no uncertain terms. The Menger-Mises regression theorem was good for its day, but we live in a New World Order, a world of digits. Now we must abandon the old Menger-Mises theorem.

I did not say that Menger or Mises should be abandoned. I think that would be foolish. But we are dealing with a new type of currency, and it needs to be judged against the real world.

But, perhaps I wasn’t clear enough. One point for Gary.

He says that “Bitcoin is nothing but the operation of market forces – there is zero coercion involved.” True. But it is not money.

“Bitcoin is utterly decentralized – there is no center at all.” True, but it is not money.

“Bitcoin is utterly unplanned – it involves a million people, all doing their own thing.” True, but it is not money.

The argument here is over the definition of “money,” and it has nothing to do with how Bitcoin is used in real life. Again, more below.

[Bitcoin] is in the midst of a mania – the desire to hold digits, in order to make money in dollars. Digits are the asset. The dollar is money. It is not the other way around.

Not to be rude, but when an advocate of sound money holds up the dollar as real money, it’s time for that person to take stock of him or herself.

Is Bitcoin a mania? I don’t see it that way; but honest observers may disagree. There have been several “crashes,” and very few bitcoiners panicked. The reason, as I see it, is that they want to use the currency. It’s simply better money.

It is clearly an investment. It is in a mania stage. He can close his eyes, clap his hands, and say “Tinkerbell is not an investment,” but she is.

Tinkerbell aside, Bitcoin is not an investment in any proper sense. (It doesn’t produce, has no income, expenses, etc.) If people treat it as one, as some must be doing, that’s their problem.

Mr. Rosenberg calls himself a cryptohippie. He runs a cryptography service called Cryptohippie (www.cryptohippie.com). My assessment: its name targets a narrow audience: hippies who are interested in crytography and privacy. This is not the average Joe.

Our customers do value privacy, but they come from all across the spectrum, including many investors and even a surprising number of grandmothers.

This is Austrian school monetary theory. Accept no substitutes!

I like the Austrian School too well to treat it as an idol.

The crucial economic issue is the imputation of value by investors and owners of Bitcoins [sic]. What motivates them? A fast buck! A lot of fast bucks! Bucks are money. Bitcoins [sic] aren’t.

The people I see in Bitcoin (and I suspect that I see more of them than Gary does) are in it for the long term. They USE Bitcoin. When they find that their bitcoins buy more goods than before, they spend some of their Bitcoin on those things but continue to accept it as payment from others. They USE it.

And none of this proves anything about Satoshi’s intent.

Bitcoins [sic] did not go from a price of $50 for 10,000 in 2009 to the price of an ounce of gold in late November 2013 based on what the mysterious Mr. Nakamoto thought he was doing.

Precisely! The market did that. No coercion was involved. Tradition wasn’t involved. People had to WANT Bitcoin, and they had to overcome plenty of intimidation along the way.

Economic Analysis

Gary writes:

To the cryptographers who want to be Austrian school economists, I say this: begin with Menger and Mises on the origin of money. Do not begin with Mr. Nakamoto.

That is a very good point. Let’s look at that for a moment.

  • The Menger-Mises Regression Theorem is first and foremost an observation of how money came into being historically, without coercion.
  • It should also be noted that there’s a big difference between what people treat as money and what should be money from an Austrian perspective. Confusing those two is to go from an is to an ought.
  • There are two components to valuing something as money. One is through its perceived usefulness as a commodity; the other is the perceived usefulness as a medium of exchange.
  • It could be argued that Bitcoin lacks any perceived usefulness as a commodity (which might be misguided) while at the same time increasing in perceived usefulness as a medium of exchange, which increases the price. This is true of other “monies” as well – the USD, EUR, and specifically for the Chinese currency, where we can see a spread and price increase because of it is increasing usefulness.
  • It isn’t suitable to fall back on the regression theorem. It would be of value in a coercionless world, but that is not where we live. We live in a world where currencies are used as money and are backed by coercion.
  • The real game changer is that Bitcoin is useful as a medium of exchange without coercive protection.
  • As some people come only for the price increases, two price components are created: perceived usefulness as a monetary instrument, and speculating for price increases.
  • Speculation may be a misguided approach, but as Austrians, we assume that the market will find a price that satisfies the market.
  • Speculative price increases create problems for Bitcoin’s use as a monetary instrument, but these problems are symmetric, very much like they are in deflationary periods of currencies. When the Swiss franc rises due to EUR or USD issues, it does not become less ‘money.’
  • Price adaption for products sold for bitcoins is the reaction. Prices in Bitcoin fall more dramatically than the price of Bitcoin increases, because the speculative view of Bitcoin holders can also be found in Bitcoin seekers.
  • At some point, we will have a price overstep and a correction. That’s exactly what we see everywhere else. The difference is that the Bitcoin market is still small, and that uncertainties (regulation, etc.) are still looming.
  • From a “properties of money” perspective, Bitcoin qualifies in more ways than the dollar. And it is more useful than gold in the current environment, at least in the West.

One more question: Did the dollar stop being money when the gold window was closed and it escaped the Austrian regression theorem?

I’ll close by repeating my primary point in this discussion:

What’s important about Bitcoin is NOT the price but that it bypasses coercion.

Bitcoin is Freedom Money.

Paul Rosenberg
FreemansPerspective.com

Is Bitcoin More Dangerous than “Cartel Money”?

bitcoin cartel moneyI’m going to use a couple of passages from the Bible (the original set of moral standards for our Western civilization), followed by an examination of both Bitcoin and cartel money, to see how they hold up in comparison.

As for my use of the term “cartel money,” it’s the best short description I know for the dollars, euros, yen (and so on) that we use in our daily commerce. They are produced by secretive and monopolistic groups of private banks. That rather precisely matches the definition of cartel.

Principle #1: For wherein you judge another, you condemn yourself; for you who judge practice the same things.

I think by now we have all heard the big accusation against Bitcoin – that it is used for “money laundering” – made especially by the money cartels (the European Central Bank first).

First off, that doesn’t make sense to me. A currency is supposed to be neutral – that is its purpose. So, accusing a currency of money laundering is like jailing a knife for murder. But, that’s not precisely the point we’re addressing here.

Rather, the question is: do the cartels do the same thing that they condemn?

You bet they do!

Read this story on HSBC. Then read this one on Wachovia. These banks laundered hundreds of billions of dollars – knowingly – for violent drug lords. And it gets worse: No one from either bank went to jail. Neither bank was shut down. Neither bank suffered more than a minor fine.

So, how much of a concern can money laundering really be to the cartels and their politician partners? Clearly none, or very close to none.

And, since the cartels accuse Bitcoin of being used for bad things, let’s be clear about the situation: Every mafioso on the planet uses cartel money. So do all the drug smugglers, terrorists, and pornographers.

Does Bitcoin accuse the money cartels? Nope. Bitcoin has no official operators to speak for it at all.

It is true that many Bitcoin users accuse the cartels of being manipulators, but, at least for now, there is no Bitcoin cartel that is even capable of manipulating the currency.

So, round one goes to Bitcoin: The cartels very clearly condemn themselves, and Bitcoin clearly does not.

Principle #2: Everyone who does evil hates the light, and does not come to the light, lest his deeds should be exposed. But he who does what is true comes to the light.

When Bitcoin creator Satoshi Nakamoto posted his Bitcoin paper in 2008, he laid everything open for all to see. Then he wrote the Bitcoin program and left it “open source,” so anyone could see the programming.

The process of creating cartel money, on the other hand, is mostly hidden, purposely confused, and isn’t even taught to most Econ majors. And if you think that’s just my opinion, here’s one from the esteemed economist John Kenneth Galbraith:

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 argument is made, of course, that the process of creating dollars, etc. is very complicated, and that people don’t understand it because of that.

I don’t think that’s true, but even so, let’s compare it to Bitcoin: Making bitcoins is also complex, but Bitcoin enthusiasts have been working night and day to explain their new currency and how it works. I’ve seen them cornering people at birthday parties, trying to make them understand.

Round two goes to Bitcoin also. Bitcoin wants to be seen and known, and the cartels surely do not.

It all comes down to the reason “why.”

Satoshi Nakamoto began the original Bitcoin document by saying that he wanted to, “allow online payments to be sent directly from one party to another without going through a financial institution.” He goes on to say that he was creating,

an electronic payment system based on cryptographic proof instead of trust, allowing any two willing parties to transact directly with each other without the need for a trusted third party.

In other words, Satoshi wanted to remove the necessity of one man ruling another in the area of money. Furthermore, he did it, then went away.

As for the motives of the cartel, we can’t really tell. The visible heads of the Federal Reserve are certainly not the owners of the Federal Reserve, and the US government refuses to reveal the names of the owners.

Perhaps the closest real examination of their motives comes from a renowned professor who worked for them for a few years. Professor Carroll Quigley of Georgetown – and a major influence on none other than Bill Clinton, wrote this in his book Tragedy & Hope:

The powers of financial capitalism had another far-reaching aim, nothing less than to create a world system of financial control in private hands able to dominate the political system of each country and the economy of the world as a whole. This system was to be controlled in a feudalist fashion by the central banks of the world acting in concert, by secret agreements arrived at in frequent private meetings and conferences. The apex of the system was to be the Bank for International Settlements in Basle, Switzerland, a private bank owned and controlled by the world’s central banks which were themselves private corporations. Each central bank… sought to dominate its government by its ability to control Treasury loans, to manipulate foreign exchanges, to influence the level of economic activity in the country, and to influence cooperative politicians by subsequent rewards in the business world.

So, was Quigley right? I have no solid proof that he is, but he would be an awfully hard witness to impeach. One substantiation that comes to mind is a recent comment by Illinois Senator Dick Durbin. In the midst of a political fight, he complained, “The banks own the Senate.”

That’s not really proof either, but it is interesting.

You can make up your own mind on the banks, but Satoshi’s motives are fairly well beyond question.

I think it is clear that from a moral standpoint, Bitcoin is far, far better than cartel money. (As are silver and gold.)

So, the next time you hear someone calling Bitcoin dangerous and evil, don’t let them get away with it!

Paul Rosenberg
FreemansPerspective.com

The Era of Fiat Currency Capitalism

fiat currencyI have worked long and hard to gather a broad perspective on history. I don’t doubt that there is value in specialization. In fact, I would have great difficulty doing what I do without good specialists.

Nonetheless, my particular set of abilities suits me to play specialist for short, intense periods, and then to integrate my gleanings into a larger whole.

One of my general conclusions has been that if we were to give a name to the last 40 years of Western history, we’d have to call it the era of fiat currency capitalism. There is a contradiction built into this term, of course, since fiat currencies and capitalism are oppositional, but such an inherent contradiction is also highly representative of this period.

Having been inside of this contradiction most or all of our lives, it can seem almost permanent and inevitable to us. Nonetheless, it will end, and probably before terribly long. As Robert Louis Stevenson once wrote:

Sooner or later, everyone sits down to a banquet of consequences.

For the last 40 years, things that should have crashed and burned have not crashed and burned, and it was fiat currency that permitted the consequences to be scorned. Western culture and millions of minds have been bent in the process.

Fiat versus Reality

Fiat currency is money based upon nothing at all. The Monopoly money shown above has the same actual value as the Dollars, Euros or Pounds in your pocket. For the moment, the paper in your pocket will buy you food and furniture, but not because it has any real value.

Our daily money is created by politically-favored groups who have been granted monopolies on the creation of currency. (They are referred to in polite company as central bankers.) They create our money, from nothing, and all others are forbidden from doing so. If that sounds crazy, it’s because it is.

The only people with any authority over these currency monopolists are politicians, and that isn’t terribly strong. (In the case of Great Britain, the monarch has some control as well.)

I won’t bother trying to list the ways this astonishing privilege could be abused. Feel free to play with the possibilities on your own. And do remember that more or less every dirty trick that people could get away with, they have eventually used… and bankers have never been exceptions.

This new era began in 1971, when the previous international monetary arrangements, the Bretton Woods system, fell apart. On May 5th 1971, US dollars flooded the European currency markets and threatened the Deutsche Mark. The central banks of Austria, Belgium, Netherlands and Switzerland stopped all dollar trades. Who was behind this flood of trades is unknown to me but it was apparently someone with inside knowledge. At about the same time, the French were, via complex arrangements, redeeming their dollars for gold from the US Treasury, as Bretton Woods allowed. (It was gold that kept the system honest. If you thought games were being played, you could turn in your paper for actual gold.)

If the US had allowed redemptions to continue, they would have lost all their gold reserves. So, on August 15th 1971, the US pulled out of their monetary agreements and refused to redeem any more dollars for gold. (This was called closing the gold window.) Bretton Woods fell apart and, very shortly, no major currencies were redeemable; everything became fiat currency, based on government edicts alone.

This change from redeemable money to fiat currency has affected Western life immensely. For more than 40 years, life in the West has been based on money with no value, which has spawned a lot of other things that have no value.

Quigley’s Chart

The chart below is my modernization of a chart used by Carroll Quigley, one of the best generalist historians of the 20th Century. The chart displays his seven primary factors of Western Civilization, and how they have varied over the last thousand years or so. You’ll notice that I’ve circled our era in red and called attention to the form of economic organization with blue.

fiat currency

As I’ll illustrate below, fiat currency has had significant influence, not only within the ‘Economic Organization’ category I have highlighted, but also over ‘Political’, ‘Economic Control’, ‘Dominant Group’, and even ‘Intellectual’. It has more or less defined our era. So, if I am correct that the reign of fiat currencies is ready to end… big, big changes lie in our future.

Horrific Debt

Fiat currencies allowed politicians to spend money without raising taxes. They did this by creating debt. I won’t spend time on the complex process involved, but every new Dollar, Pound or Euro that is created also creates more than its own value in debt. The currency is spent immediately but the associated debt can be pushed back indefinitely.

Faced with this situation, politicians asked their central bankers to create more and more money, which they quickly spent. Whether on social programs or wars, sensible or not, politicians spent money like there were no consequences attached.

But by spending in this way, the politicians also spent the tax receipts of future generations. Every new dollar requires the central bankers to sell more than a dollar’s worth of bonds, which are debt. This debt has been pushed endlessly toward the future… to the point where American children are now born $70,000 in debt, with five times that much promised.

All bonds are claims against future earnings. The children of the West have had decades of taxes pledged to bondholders they will never know, for money that was spent years before they were born. And, yes, it really is that bad.

The Welfare State

The debt of the Western states was spent on something, obviously, and the most notable destinations for that money were “welfare state” programs. This worked in the favor of politicians in the old, reliable way: by promising voters free stuff. And, more importantly, fiat currency allowed them to make good on those promises without raising taxes.

The most crucial fact about debt-funded welfare, however, is that it made it seem that politics could produce magic. Government was able to give massive streams of money to groups that placed ideals above reality. “Wishing makes it so” seemed to work. This corrupted the reasoning of millions of people and punished those who did hold doggedly to reason. And, this corrupting influence has continued for a long, long time.

Wall Street Contributed to the Damage

The people who work on Wall Street, and in the other financial capitals like London, tend to be aggressive and competitive. On top of that, the big financial firms place them into highly competitive situations like “the top producer gets a double bonus.” It should then be no surprise that such people would want to get in on the central banking game, and to create their own money from scratch.

Central banking need not be the only way to create money; any trusted debt can be used. Here is what Alexander Hamilton (who created central banking in the United States) had to say about this in his Report on Public Credit in 1790:

It is a well known fact, that in countries in which the national debt is properly funded, and an object of established confidence, it answers most of the purposes of money. Transfers of stock or public debt are therefore equivalent to payments in specie. [“Specie” was silver or gold.] In other words, stock, in the principal transactions of business, passes current as specie.

Hamilton’s formulation in plain words is this: Debt can be used as money, and people will accept it as money.

So, if the clever boys of Wall Street and Fleet Street couldn’t get in on the central banking game, they could nonetheless create a new version of it, by using new types of debt as money. (Though this was probably the result of many small decisions rather than one large one.)

What most people don’t know about Alexander Hamilton is that it wasn’t only American central banking that he created; he also created Wall Street. That his securities dealer descendants pursued an alternate way to create money seems almost fitting.

Wall Street’s new debt money is called derivatives. A derivative is a contract whose value is derived from other quantities. Derivatives have existed for a long time, but in the past dozen or so years the financial centers of the world have pumped out stunning amounts of them in a wide array of new configurations. All of these derivatives have their own value. It was one particular type of these financial products that seems to have started the crash of 2008.

I am not expert enough to reach any conclusion as to what specific fallout can be expected from this but $600 trillion dollars of synthetic monetary instruments have to be significant.

Indeed, it goes far beyond just money. The era of fiat currency capitalism has changed who we are in broad and disturbing ways.

[Editor’s Note: This article is an excerpt from our flagship newsletter Freeman’s Perspective – Issue #07: The Era of Fiat Currency Capitalism. If you liked it, consider taking a risk-free test drive. Not only will you gain immediate access to the rest of the issue (which shares 5 ways in which fiat currency has changed us for the worse), but you’ll also be able to enjoy the entire archive – more than 520 pages of research on topics of importance and inspiration to those looking for freedom in an unfree world. Plus valuable bonus reports and all new issues as well. Click here to learn more.]

Paul Rosenberg
FreemansPerspective.com

The Bitcoin Threat: Real or False?

bitcoin threatAn increasing number of people have complained about governments and central banks in recent years, even using the word “tyranny” to describe them. They are, of course, called names in the establishment press: conspiracy theorists, mainly.

Calling someone a name, however, does not erase their argument (at least not among rational people) and both the governments and the big banks stand accused.

Up till now, however, these accusations were never accepted by the general public. The average guy really didn’t want to hear about the evils of government money. After all, that was the only thing he had ever used to buy food, clothes, gasoline, cars, and so on. He didn’t want to acknowledge the accusations because he feared what might happen to him without his usual money.

Now, however, we have a brand new currency (called Bitcoin) available to us: something radically different. This gives us a new way to directly address the subject of monetary tyranny, providing a clear test for the governments and money masters of the world:

If they are truly NOT tyrannical, they will leave this new currency alone.

If they ARE tyrannical, they will attack the new currency because it eats into their scam.

In other words, Bitcoin is a test for “the powers that be.” The way they deal with this new method of exchange will reveal their true nature.

If they ignore Bitcoin, they refute the charges of tyranny. If they attack it, they verify those charges.

After all, what honest reason could there be to attack an inherently peaceful tool for transferring value?

Prospective Reasons

Reasons to attack Bitcoin have recently appeared in the “public square.” Here are the three most popular ones, each followed with some analysis:

It can be used for money laundering.

Of course it can be used for money laundering — ANY currency can be used for money laundering. Currencies are neutral — that is their purpose! Currencies are valuable precisely because they can be exchanged for anything else — that’s why we use them!

Moreover, dollars and Euros and Pounds are used for money laundering every day. Consider the recent money laundering crimes of HSBC and Wachovia/Wells Fargo. These banks laundered hundreds of billions of dollars for violent drug cartels. And consider that this amount of laundered money is several hundred times the value of every Bitcoin in existence.

No one from either bank went to jail. Neither bank was shut down. Neither bank suffered more than a minor fine. So, how much of a concern can money laundering really be to governments and banks? Clearly not much.

But, since they accuse Bitcoin of being used for bad things, let’s be clear about the situation:

  • Every mafioso uses government money.
  • Every drug smuggler uses government money.
  • Every terrorist uses government money.
  • Every pornographer uses government money.
  • Every criminal of every type uses government money.

They also use the telephone system and the mail and banks and a wide variety of government services. But government money is good and Bitcoin is bad?

The argument fails.

It could destabilize the current system.

A tiny, new currency is a threat to the long-established king of the hill? Comparing Bitcoin to dollars, Euros and Yen is like comparing an ant to a dinosaur. This is a threat?

Please understand also that no one is forcing anyone to use Bitcoin. If you don’t think it’s a great idea, you don’t have to use it. If its price movements (relative to dollars) bother you, you don’t have to use it. How is that destabilizing to the current system? It is entirely separate.

And what of the current system? It was falling apart on its own before the Bitcoin program was ever written. And I could go on at length on the insane levels of government debt, hundreds of trillions in derivatives, rehypothecation, and innocent people being forced to bail-out failed banks.

The current system has massive problems, but none of them can be blamed on Bitcoin.

This argument fails also.

Bitcoin provides no customer protection.

Well, no, it doesn’t. Bitcoin is a currency, not a legal system.

What is implied by this argument is that the government banking system does protect customers. That is an outright lie. People are ripped-off via the banking system every day. And more than that, consider what happened just a month ago in Cyprus: Thousands of innocent people were ripped-off BY the banking system — purposely — all at once and without recourse. This argument is, really, an insult to one’s intelligence.

And I should add something else: If Bitcoin is used properly, the crime of identity theft (a big problem with government money) vanishes – there is no identity available to be stolen.

So, again, the argument fails. Only those people who believe anything a government says will buy it.

In the End

In the end, it is said, we judge ourselves. Bitcoin has now put governments and banks in the position of judging themselves. They will write their own verdicts.

It should be interesting to watch.

The Bitcoin Threat: Real or False by Paul Rosenberg
FreemansPerspective.com

Westphalia’s End Part 3: Death From a Thousand Cuts

Westphalia's EndIf you have not read Westphalia’s End Part 1 and Westphalia’s End Part 2 of this series, please do that first: You’ll need them to understand properly.

I have thus far made two primary arguments that the Westphalian order of states is in serious trouble. I’ll now continue with a large number of small arguments. The order of presentation is somewhat arbitrary, so the first point may not be more important than the last:

  • Currency traders prevent currency control: Back in the days when exchange rates were fixed, governments could change them to prevent certain fiscal issues. Now, with currencies being trading world-wide, and in massive amounts, that tool no longer exists. A powerful weapon has been removed from the state’s arsenal.
  • The fiat currency game is being understood and exposed: Knowledge is spreading and light is being shined. People who want to know, can know. And worse, fiat currency may have reached its limit. Several articles would be required to explain this properly, but the welfare-fiat system of the past 40 years is failing, and that is very, very significant. Precious metals, digital currencies and other forms of honest money continue to emerge and spread, even though they are viciously attacked by the US government. How this situation will develop is unknown, but is is a significant problem for the nation-state. The day they can no longer deliver on their promises, their spell will break.
  • Regulation: Governments and their sub-organizations survive and thrive, not by creation, but by restriction. To get what they want, their one tool is to restrict things. But, the more they use that tool, the more they constrain commerce, their one source of money. This is “strangling the goose that lays the golden eggs” and has myriad effects, most of them small.
  • Complexity: Again, much space would be required to explain fully, but complex structures breed more complexity, which feeds back upon itself and strangles itself. Over the past century, and especially over the past 40 years, states have reached a tremendous level of complexity; a level that restricts even simple actions. For example: When everything must be approved by a legal team, not much gets done, and that which is done, is done very slowly.
  • The War On…: Be it drugs, terror, or whatever, this phrase points out cracks in the Westphalian structure. Faced with successful criminal strategies, the state reacts in its natural way – by making ‘war.’
  • Mass polarization: This is already happening because of multiplied choices via the Internet, but it may get stronger if ‘free’ news begins to disappear and people must buy their own. If so, people will begin to surround themselves with others of their own opinion. In the worst case, many will become deeply polarized, conceivably leading to civil wars. However, the progression of this may be in a different direction. We’ll cover that next time.
  • Wikileaks: The new fly in the ointment of legitimacy. The broader Wikileaks strategy is exposing the sins of the state, and it is hard to portray yourself as morally superior when someone keeps exposing your nasty secrets. These guys are committed, motivated and obsessive. They will be very hard to stop.
  • Inertia: Huge organizations lack the ability to turn quickly. They are very often incapable of reaction, even in self-preservation. And it is not just the ability to act that is in question, it is also the ability to see. As is said: to the hammer, everything is a nail. Likewise, state agents have come to see themselves in very specific ways, and they have been consistently rewarded for doing so. Their mental filters will not change easily.
  • Infiltration: Criminals and interest groups are paying off politicians world-wide to get what they want. This is a massive business, much of it ‘legal,’ and it is working beautifully for those involved. If some person or group is necessary to get you elected to office, it’s not hard to justify favors for them. This is happening continuously in every government. To be fair, I should add that some of the people involved have no evil intentions. Many wealthy people and firms buy politicians, not really to grab other people’s money, but simply to protect themselves.
  • Frustration: The average citizen has no real way to change anything. Votes don’t matter for many reasons, but firstly because there are party organizations between themselves and their representatives. The Senator cares about (and obeys) the party more than opinion polls. They know that the party will develop strategies in time for the next election, and will provide them with effective advertising. Many people still hold out hope that their party will eventually grow a spine and do the right thing, but that bias may not hold. If it does not (as we may be seeing already), they will begin to identify with non-state or anti-state organizations and ideologies.
  • Nukes: The nuclear bomb created an unbeatable weapon. When fighting an opponent armed with such a weapon, you cannot face him directly; so, you adapt and attack his organizational method instead. The state is designed for face-on attacks, not for systems subversion.

I’ll conclude this series next time by looking at possible outcomes: Westphalia’s End Part 4.

Paul Rosenberg
FreemansPerspective.com