The too many fallacies of the fiat currency system | by Andrea Bianconi | The Capital | Jan, 2022
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. Stay tuned for the coming articles in which I will look at how Bitcoin can help to fix that. What a new Bretton Woods monetary reset would look like. The Italian Great Robbery — how the puppet Draghi government plans to expropriate 2.000 billion savings and 2.450 Tonnes of Gold — and how the EU parasitic elites plan to introduce the €uro CBDC to save their privileges at the expense of 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
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
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 rise 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 textbook 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 expense 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 rise 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
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 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 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 in 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. 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 expense 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.
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 expense 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 have 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 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 does 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.
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 expense 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’s 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 wallets. 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 a need to work for it. “Own nothing and be happy“ is the slogan of the Davos´ socialist parasites say.
This is where we are heading today. Blame the parasitic class. Blame fake fiat money.
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 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
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 a 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 been shouldered by the population while the parasitic class was shielded by stores of value such as gold, farmland, real estate, 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.
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Stay tuned for Part II of the Bitcoin Sound Money series, in which I will look at what could be the most likely outcome of a monetary system reset, what are the steps that the powerful parasitic elites still need to take as a precondition for a monetary reset and why they would need to introduce a communist China-style CBDC which may well be the last nail in the coffin of liberties.
#cbdc #bitcoin #fiatcurrency #euro #ecb #fed #davos #cronyism #corruption #lobbyism #covid #lockdowns #gold
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