Cryptos are the antidote to repressive Central Bank Digital Currencies

Yesterday I wrote up why I don’t think any kind of China-style ban on Bitcoin and cryptos would be tenable in (so-called) liberal democracies here in the West. It referenced an earlier piece that described the threefold governance structure I see competing for relevance over the coming decades.

Somebody linked to those in the comments from a Tom Luongo piece (which I rather enjoyed enough to subscribe to his newsletter) but when I read through some of the other comments around Bitcoin, how it’s a globalist Trojan horse for surveillance capitalism and social credit I realized I needed to get a piece out to speak specifically to this aspect of future governance.

I cover this a lot in The Crypto Capitalist Letter, in fact it’s a pillar of our macro economic thesis (which you can download free here). It all comes down to the differences between real crypto currencies like Bitcoin, Ethereum, Dash, Monero, et al and coming Central Bank Digital Currencies (CBDCs), like China’s Digital Yuan, like the coming FedCoin, and anything else that will be issued by central banks, directly from governments or even in conjunction with Big Tech platforms.

There are the two main types of digital money that will co-exist in the future.

Each type of digital money corresponds to a governance mode of the future. Which type of this money you make your own or your business’ financial centre of gravity will have an outsized impact on whether you live in the future as a neo-Feudal serf or as a sovereign individual.

Each one has its own fundamental architecture, and the governance and economics that result from those architectures reflect the governance models of the mode that is built on them. This is critical and builds on what I’ve been writing about for  years now, drawing on the work of relatively obscure commentators like Vincent Locascio and Steven Zarlenga. The latter who wrote in his Lost Science of Money, whoever controls the monetary system, controls society.

“a main arena of human struggle is over the monetary control of societies and that control has been and is now exercised through obscure theories about the nature of money. If it had to be summarized in one sentence, it is that by misdefining the nature of money, special interests have often been able to assume the control of society’s monetary system, and in turn, the society itself. ”.

It is because of how fundamentally the monetary architecture is reflected in the governance stack that sits atop of it that I can make the case with rather high confidence that Bitcoin and cryptos are not Trojan horses for globalist control. They are the opposite – they are the mechanisms through which people, all people, any person, the masses – can reclaim their own economic autonomy and become self-ruling and free.

The defining feature that makes them so is simply that a liberating crypto-currency is designed such that

• the blockchain is decentralized
• anybody can take part in validating the blockchain
• the possessor controls the private keys to the units he or she owns

This is Bitcoin. These are cryptos in general. They may also contain other features that confer a “sound money” status on them, like Bitcoin’s 21 million unit hard cap or Ethereum’s EIP 1559 protocol. But it is these three attributes, especially the last one, of holding one’s own private keys, that make them emancipatory monetary technologies.

The crypto folks have an expression: “Not your keys, not your coins”.

I expect this to be the defining feature that demarcates the difference between a bona fide crypto currency that empowers its holders and centralized digital cash (tokens) that governments and central banks run to control the populace.

Those skeptical of Bitcoin, who suspect a globalist, Davos-inspired regimen of surveillance and social credit are correct about digital cash being the conduit for those, but they’ve simply conflated all forms of digital money and view Bitcoin as typical or a test-run of them.

This misconception arises simply from not knowing or understanding the differentiators between a crypto like Bitcoin and a Central Bank Digital Currency (CBDC), like a coming “FedCoin”.

CBDCs will very much be tools of elitists to implement top-down command-and-control economics and even Great Reset-style social management through monetary policy.

CBDCs will in all likelihood not be designed to put the private keys over the currency units into the hands of its possessor.
Digital “cash” under CBDCs will be centrally programmable and implemented without end-user consent across all national governance and Davos-inspired initiatives.

CBDCs will be the rails of all manner of economic programs (like UBI and MMT) and social policy objectives which simply are not possible, or desirable under cryptos:

• Expiry dates on “cash” in your wallet
• Negative interest rates if you try to save any of it
• Social credit objectives (no jab / no stimmie)
• Instant taxation on transactions and payments
• Social justice pricing (cup of coffee costs 10X if you’re in a higher tax bracket)
• Built-in climate tariffs
• Capital controls
• Infinitely inflatable, issue on demand

If you thought the Federal Reserve was suffering from mission creep now that they’ve decided to tackle climate change and social justice, just wait until they get the ability to program what you can do with the money that’s already in your wallet.

That is what we’re looking at with CBDCs and if that’s your dystopian vision of what digital cash means, you’re not wrong. You’re just misdirecting your apprehensions if you think that’s what Bitcoin means. This is because it and most of the other digital currencies are the antidote to CBDCs. Which is why they are subject to such hostility from policy makers, the corporate press and elites.

This will be a battle. A never-ending tension between these two digital money systems – crypto currencies, which are actually fungible, inelastic, deflationary (purchasing power increases over time) and which gives their holders economic autonomy in this new era.

On the other side we’ll have these centrally issued, programmable digital tokens.

Which side of the ledger the majority of your economic activity happens on will govern your future status as a Neo-Serf or an autonomous Sovereign Individual. If the dynamic becomes extreme it could even result in a kind of monetary Apartheid.

The good news is that today, at this moment in time, it’s still largely self-selecting.

I’ve written many times, that crypto’s (real cryptos, not CBDCs or even stablecoins) are all about optionality. Crypto’s like Bitcoin confer options on their holders (HODL-ers), while the coming CBDCs will be all about limiting them.

I cover this dynamic extensively in The Crypto Capitalist Letter, a long with a tactical focus on publicly traded crypto stocks. Get the overall investment / macro thesis free when you subscribe to the Bombthrower mailing list, or try the premium service for a month with our fully refundable trial offer.

It means they set the rules, and you get to follow them any way you want.

#Davos2021 starts today.

We’ve all been hearing a lot The Great Reset lately, new slogans abound such as Build Back Better, the New Normal, and what seems to be a “new” model called “Stakeholder Capitalism” is being espoused (although it is not new, I wrote about the pendulum swinging from stakeholder supremacy to shareholder supremacy back in the days of Milton Friedman in the inaugural post for this site).

Recently I decided it would be helpful challenge my own reflexive inclination to suspect that we were all being collectively screwed by our institutions, yet again.  I wondered if these momentous shifts were simply one of those tectonic phase shifts that occur throughout history and that I shouldn’t leap to the conclusion that it’s some disingenuous and ultimately malevolent  pseudo-reality being imposed from above.

It is fitting that on this  first day of #Davos2021 I outline my arc in which I tried to suspend disbelief around The Great Reset narrative, forcing myself to pose the question:

What if The Great Reset was getting a bad rap?

Maybe it’s true that the world has changed irrevocably, and that change hasn’t been driven or captured by a razor thin scab of elites at the top of the socio-economic pyramid who are setting the agenda. The idea of a reset may be well founded, after all when I first started writing about wealth inequality and crony capitalism over a decade ago, I called it “Rebooting Capitalism”.

So I started going through Klaus Schwab’s books: The Fourth Industrial Revolution (2016), COVID-19: The Great Reset (2020) and most recently, Stakeholder Capitalism. (2021).  It started out as s a curious blend of nodding one’s head in agreement, underlining numerous passages, musing that maybe this is just descriptive, not prescriptive. By that I mean, maybe Schwab is simply trying to make sense of the shifts occurring, and not really offering frameworks around what should happen next, but just trying to parse what is happening and possible trajectories of the future.

This former case is similar to Warren Mosler’s description of Modern Monetary Theory (MMT). It describes how Mosler and other MMT-ers think the system actually works and why the outcomes will not be as conventional economics generally fears. In Stephenie Kelton’s more recent book The Deficit Myth, she builds on this theme that MMT is more descriptive with some prescriptive policy recommendations. But my overall sense of it is that these books about MMT were more about trying to articulate a new way of looking at the existing system and not trying to drive a completely overriding agenda (even if that’s what would happen if policy makers seize on MMT as a rationalization for destroying their currencies).

I mention MMT here specifically because we touch on it again when I contrast it to Charles Hugh Smith’s concept of Community Labour Integrated Money Economy (CLIME), a little later.

With Schwab, he spends a lot of time in a descriptive mode, talking about the what is happening in the world, although we do see some of his assumptions creeping in and for awhile, I am cautiously optimistic that if everything Schwab outlines as a policy response to global issues like global poverty, and of course now, the pandemic, maybe it’s just the way of the world and this is the direction things are going without there necessarily being a SPECTRE-like entity in the WEF driving a self-serving agenda.

When Schwab talks about how a grand ideal of a standard issue One World Government model, what he calls the Neoliberal Utopia simply will not work, I breathe a sigh of relief,

“Consider  a global government [that] regulates multinational companies in global markets, and people gather in a global democracy and global unions. It is an unrealistic an undesirable goal, as it increases the distance between individuals and the immediate social ecosystems they are a part of. It also decreases their feeling of commitment to the people and the environment closest to them…Though the 20th century neoliberalists once may have seen such a global model as a Utopian ideal, it would inevitably end in the political disenfranchisement of local communities. When the center of power is too far removed  from people’s everyday realities, neither political governance nor economic decision-making would have popular support.”
— Stakeholder Capitalism p.181

But then, the more I read, the more I couldn’t shake the sense that when a guy like Schwab uses the word “commitment, what he really means is “obedience”. Schwab understands that people aren’t really going to accept decisions from on high, especially if on high is a centralized world government.

What we really need is “Subsidiarity”

Schwab goes on to introduce with a flourish one of the core pillars of Stakeholder Capitalism: Subsidiarity (the other is “Value creation and sharing”):

A primary principle for the implementation of Stakeholder Capitalism is therefore that of subsidiarity. It is not an untested or purely theoretical principal. Applied most famously in the governance of the European Union..it asserts that decisions should be taken at the most granular level possible, closest to where they will have the most noticeable effects. It determines, in other words, that local stakeholders should be able to decide for themselves, except when it is not feasible or effective for them to do so.

Subsidiarity is supposed to mean “whatever can be done at lower levels of government should not be done at higher levels”, but my guess is the devil would be in the details. Like in that last sentence of the quote, when it is not feasible or effective for the “stakeholders” in Stakeholder Capitalism to decide certain matters for themselves, those will have to be decided for them.

What would those sorts of issues be?

Well for starters, there’s climate change. That’s one of the things that’s already been decided…

“It makes sense to coordinate this challenge first at the global level.” but then the second level is at the national level, where countries can take different approaches, a limit on auto travel would have significant effect in the United States, where cars are the primary mode of transportation. Taking a different approach, such as limiting air travel, would affect certain groups of people more than others. Subsidiarity supports a national or local level of decision making for countries to determine which path will work best for them to effectively address the global goal”.

As Schwab blithely bandies about various limitations and curtailments on everybody else’s range of motion and economic choices, there is never any treatment of climate change as anything but a global crisis that justifies the complete re-ordering of everybody else’s lives.

And yet, the same level of drastic reimagining  of your life is proffered in Schwab’s other book, COVID-19: The Great Reset, even though by his own admission in that same book, COVID-19 is a not civilization ending plague:

“Even in the worst-case horrendous scenario, COVID-19 will kill far fewer people than the Great Plagues, including the Black Deaths, or World War II did”
— COVID-19: The Great Reset p. 17

Albeit one that provides an excellent opportunity to reorder everybody else’s lives,

changes that would have seemed inconceivable before the pandemic struck, such as new forms of monetary policy like helicopter money (already a given), the reconsideration/recalibration of some of our social priorities and augmented search for the common good as a policy objective, the notion of fairness acquiring political potency, radical welfare and taxation measures, and drastic geopolitical realignments.

The broader point is this: the possibilities for change and the resulting new order are now unlimited and only bound by our imagination, for better or for worse. Societies could be poised to become either more egalitarian or more authoritarian, or geared towards more solidarity or more individualism, favouring the interests of the few or the many…

You get the point: we (as in the WEF) should take advantage of this unprecedented opportunity to reimagine your world.

If COVID-19 is a comparatively lightweight pandemic to be opportunistically seized upon to drastically reorder everybody’s lives, one cant help but wonder if the climate “crisis” isn’t yet another global softball. Perhaps in the cold light of day, it could turn out that climate change is either out of our hands (if it is driven largely or even partially by solar cycles) or that climate alarmism is in itself more toxic and destructive than the direct effects of climate change itself, as Michael Shellenberger asserts in “Apocalypse Never”,

Apocalypse Never explores how and why so many of us came to see important but manageable environmental problems as the end of the world, and why the people who are the most apocalyptic about environmental problems tend to oppose the best and most obvious solutions to solving them.

Shellenberger, Michael. Apocalypse Never (p. xi). Harper. Kindle Edition.

Shouldn’t there be some sort of process or governance structure in there to protect the world’s citizens from being overly regulated by somebody else’s idea of what is important? Should there be some counterbalance to these unilateral assessments of when drastic measures are required, especially when those measures would supersede our own agency in directing  our own lives?

But there isn’t, not in Schwab’s Stakeholder Capitalism after the The Great Reset.

What we get instead is “subsidiarity”:

Another example around climate change, conspicuous in its lack of coverage in Schwab’s books is the idea of nuclear energy.

If the entire world is headed toward an eventual transition off of fossil fuels (if for no other reason than Peak Oil) then shouldn’t the safest, cleanest, efficient energy source be featured prominently? The next generation pebble bed reactors and micro-reactors are safe to the point of being effectively riskless when compared to other forms of energy generation and the number fatalities those other forms cause when accidents do occur:

The worst energy accident of all time was the 1975 collapse of the Banqiao hydroelectric dam in China. It collapsed and killed between 170,000 and 230,000 people. It’s not that nuclear energy never kills. It’s that its death toll is vanishingly small. Here are some annual death totals: walking (270,000), driving (1.35 million), working (2.3 million), air pollution (4.2 million). By contrast, nuclear’s known total death toll is just over one hundred.

Leading Shellenberger, an environmental activist of 30 years to assert that,

Nuclear is the safest way to make reliable electricity. In fact, nuclear has saved more than two million lives to date by preventing the deadly air pollution that shortens the lives of seven million people per year….

Nuclear’s worst accidents show that the technology has always been safe for the same inherent reason that it has always had such a small environmental impact: the high energy density of its fuel.
–Shellenberger, Michael. Apocalypse Never (p. 151). Harper. Kindle Edition.

And then there’s also  Thorium, which can’t meltdown and the radiation half-life is measured in weeks, not years. There is no mention of any of this in any of Schwab’s books.

Under subsidiarity, local governments across the world will be tasked with addressing problems Kraus Schwab and the Davos crew (the wealthiest 0.01% of humanity that own somewhere north of $36 trillion of the global assets) deem to be problems, and reorder the world according to how the WEF thinks things should be prioritized.

What are the priorities?

We get some insight by looking at the list of “Deep Shifts” Schwab predicts in his earlier book: The Fourth Industrial Revolution, where he posits what the big changes are that are coming at us in terms of tipping points, positive outcomes, negative outcomes and “unknown / cuts both ways”.

Shift #1: Implantable Technologies (p. 121)

“Digital tatoos not only look cool but can perform useful tasks, like unlocking a car, entering mobile phone codes with a finger point or tracking body processes”

(or implementing immunity passports).

Shift #10: Smart Cities (p.144)

Shift #11: Big Data for Decisions (p. 145)

Shift #22: Designer Beings

Tipping point in for this one will be when “The first human whose genome was directly and deliberately edited is born” (which I will point out, has already happened with the CRISPR babies in China).

Shift #23: Neurotechnologies (p. 170)

Tipping point: “The first human with fully artificial memory implanted in the brain”.

Together, they coalesce to usher in an impetus toward transhumanism ordered by Big Data and AI that will probably, in lieu of any honest debate or public consultation around these shifts, result in a type of social credit system.

And that’s what is missing from Schwab’s books. There is nothing in the framework where local communities can identify and define what they see as problems for themselves and work toward solving them. There is no mechanism for asserting their own priorities of types of things the communities themselves may value above the WEF’s “Deep Shifts”, such as full or meaningful employment, privacy, or self-sovereign health care.

Directionality matters

In other words, what is missing from Stakeholder Capitalism is that, despite paying lip service to inclusion and community, there are no actual mechanisms for priorities coming from the bottom up.

What I’ve been realizing is that you can take two systems that have outwardly similar mechanics, like  MMT and Charles Hugh Smith’s CLIME. Both systems describe an economy from which money is created ex nihilo to fulfill or generate economic activity. But from those two frameworks one can envision two very different outcomes: hyper-inflation and a two-tier society on one, and a robust community of involved economic actual stakeholders getting stuff done in the other. Why?

Because one is a top-down framework where the incentives are set by policy makers removed from the economy they attempt to fine tune, while the other is a bottom-up ecosystem where actual economic activity is a direct result of market signalling and community needs.

Conclusion

After reading through the Schwab material having initially forced myself to suspend judgement,  I now am now firmer in my initial suspicions that The Great Reset, Stakeholder Capitalism and Build Back Better  slogans that come out of these annual Davos circle jerks are blissfully oblivious to what they themselves actually are.

They believe that the role they are ostensibly to serve is as the “enlightened stewards” of society, taking the liberty of reimagining everybody else’s lives.

In reality, they are the living embodiment of uber-woke super wealthy elites , so tacitly sure that their belief systems are the product of their own personal enormous material success that they can’t really be beliefs but self-evident truths. After all, if they were wrong, they wouldn’t be super rich, right?

What is being proposed however, what The Great Reset and Stakeholder Capitalism is, isn’t just benignly wrong-headed or egregiously presumptive: it is chilling.

It doesn’t specifically call for social credit, or an AI-driven authoritarianism, yet that is what its tenets and incentives will produce. It aspires toward transhumanism, and so far all indications are that governments, and global elites seem to be buying into it and singing the “Build Back Better” mantra of Stakeholder Capitalism in concert.

If The Great Reset comes about, and I think it’s already here, it will lead to that two tier society where the world’s underclass are governed algorithmically via smartphones, digital, programmable scrip (UBI) and well ordered dopamine hits. Meanwhile the far smaller populace that actually owns all the assets globally live in a parallel universe where they retain agency, freedom of movement, diet, and thought.

On my mailing list I talk about what we can do as individuals to try and get clear of The Great Reset. Because even if we loathe this with every fibre of our being, find it oppressive and tyrannical, anti-human, anti-spirit and soulless, we won’t be able to do anything about it from the wrong side of the impermeable membrane that will very soon cordon off the haves from the haves-nots.

We have to defend our liberties, our civil rights and our assets in the New Normal. In a worst case scenario it’ll require forming an underground network a la Isaac Assimov’s Foundation. The Foundation’s stated purpose was to survive the onset of a Galactic Dark Age and preserve the accumulated culture and wisdom of a civilization that had irrevocably embarked on a path that would trigger its own demise.

Now more than ever it is important we all try to improve things from the grass roots level as the Stakeholder Capitalism rubric may be the last gasp of a system about the come off the rails completely or after a prolonged period of disruption and tyranny.

Charles Hugh Smith and I are working on a base framework for CLIME that will empower communities to create their own local exchange currency and take control over their own community economies.

• Join my mailing list to be notified about that and get other advice on surviving The Great Reset.
• Start setting up on alternative communications channels like Telegram, Signal and Keybase (we’re setting up a Bombthrower Telegram here)
• Support third-party political parties like the Greens if you’re left-of-center or the Libertarians or PPC if you’re on the right; withdraw your financial support and votes from incumbent political parties everywhere, at all levels (more on this in another post).

Hold your ground where possible, but prepare for a type of Samizdat communications culture for awhile. We may have to keep in touch with each other from the underground. The mainstream media will be no help and Big Tech is part of the problem.

With all due respect to the people arguing this one way or the other – many of whom are super intelligent. This argument is a self-defeating doom loop that can only be resolved via an act of faith.

Introducing your Economic Apocalypse Toolkit

With both Bitcoin and gold (and stonks, for that matter) at or recently off of all time highs the age old debate of whether gold is better than Bitcoin or vice versa is everywhere. I finally sat down and mapped out the Economic Apocalypse Toolkit after listening to Grant Williams and Bill Fleckenstein’s End Game podcast episode with Fred Hickey, who writes The High Tech Strategist.

In it they hit on the perennial question of “gold vs Bitcoin” and Hickey laid out his objections to it. I’ve been a subscriber of The HTS for several years now and think it’s absolutely fantastic, and of course I also subscribe to Grant Williams TTMYGH and Fleck’s newsletter as well. All great stuff, well written, from extremely intelligent people. I do get the sense that Williams is somewhat open to Bitcoin and he wants to talk about it and explore the idea that it may be something more than the usual tropes: a ponzi, based on nothing, Tulipmania, etc, but maybe he’s hesitant at prospect of taking heat for suggesting it.

I just find the entire debate pointless because people who invest in either asset class are doing so for the same reasons. They are reacting to the same threat, they see the same unsustainability, they are preparing for the same End Game, if you will.

Given that many of the people who see the underlying issues are of a capital allocator, long term mindset, why is this being thought of in terms of either/or and not in terms of probabilities and scenarios?

If the job at hand is to protect one’s wealth from systemically rigged and disintegrating monetary regime, arguing for one over the other feels like trying to defend against it with only half the available toolkit. Is there a mechanic who wouldn’t be caught dead with a screwdriver in his toolbox because he can give you a list of reasons why every problem can be solved with a wrench? “Screwdrivers for suckers!”

The entire gold vs crypto argument goes away when one realizes that there is more overlap in the objectives of each asset than there are differences. And if you can get your own biases out of the way, then even the differences when looked at objectively seem to have uncanny parallels

Gold has a 5,000 year track record, and has never failed to hold its value, which is quite impressive and has to count for something….
Bitcoin has broken out of nowhere and taken the world by storm in an astonishingly small amount of time, which is quite impressive and has to count for something…

Bitcoin is backed by nothing.
Gold is just a shiny rock.

Without electricity, Bitcoin is useless.
You can’t eat gold.

Quantum computing will eventually destroy Bitcoin’s encryption.
Asteroid mining will eventually make gold abundant and cheap.

Bitcoin is a ponzi.
What’s the definition of a gold mine? A hole in the ground with a liar standing beside it.

I could go on….

Since the future is unknowable and certainty elusive, aligning with one aspect of the above over the other has to be a choice not a fact. It’s an act of faith. So why not embrace agnosticism and make use of both sets of tools in your financial survival toolkit?

The Toolkit

Let’s just step briefly through some of the items in the mindmap. We have metals on one side, cryptos on the other.

On the cryptos side, I just think Bitcoin is the crypto-reserve currency and will continue to be for the foreseeable future. My preferred way to accumulate BTC is to earn it via my businesses. easyDNS has been accepting Bitcoin since 2013 and we’re developing a payments service for clients that will be based on BTCPayserver.

I put Litecoin and alts in there to trigger the maximalists. As per the Supersuckers song, “I like it all man. (All or nothin’ I’m all in even when I’m bluffin’)”.

Ethereum is different animal, I think the Bitcoin vs Ethereum schism is every bit as fucking stupid as Gold vs Bitcoin. They do different things, and while they overlap in some aspects, that doesn’t mean there should only be one path forward.

The way I think about it, Bitcoin is the value, Ethereum is the execution. When I hear people dismiss Bitcoin because “there is as yet no ‘killer app’ that anybody has come up with for Bitcoin” I like to ask them “what is the killer app for the money in your wallet?”. Do you want to be able to play video games on your money? Collaborate on a document with your coworkers before you spend it? Dollars or  euros aren’t dismissed as useless because nobody has come up with a compelling use case for them. You just spend it. That’s the use case.

Ethereum on the other hand, well that’s a whole different ball game. Smart contracts, DeFi, even Dao’s (despite early setbacks) will completely transform our lives. Ethereum, and other projects like it (Cardano, EOS, and even Ravencoin, which is actually a Bitcoin fork)  are going to provide ways to code parameters and instructions around value and wealth that will be guaranteed to execute and can outrun government overreach.

We’re now coming out of that “Trough of Disillusionment” I wrote about back in 2018 and we have actual companies, actual businesses and ways to derive income now in crypto. We can invest in miners, in crypto based publicly traded companies, we can stake our assets or lend them and earn a return on them. Multiple income streams available here so we actually have some ability to compound whatever wealth we’ve managed to port to the crypto-economy separate from any nominal gains garnered in fiat terms.

And of course, with crypto we have the ability to move capital, in figurative terms, simply by thinking about it. If Actual Communism comes to your habitat and the best you can manage is to get out with your skin and some pass phrases you’ve remembered in your head, you can retrieve some of your assets wherever you come up for air (read “We The Living”. Take it to heart. This is the fate we seek to avoid, and large chunks of the world are barreling straight at it).

On the precious metals side you have your physical metals which, if all goes well, you simply keep vaulted in various places and your currency never collapses and you teach your kids that they should preserve the hoard and only use it in extreme emergencies down the road. And to teach their kids the same. You have junk silver in case there is a currency crisis and you don’t want to have to carve off a piece of a Krugerrand in order to buy some food at the market.

You have some gold tucked away in international vaults like Bullionvault and Goldmoney. My cousins run TrustableGold.com which rates these places.

All of this stuff, especially on the crypto side, has to be set up in advance, and you have to know how to navigate these systems before TSHTF. When a mob of mostly peaceful democratic socialists are tearing through your town and burning down your homes and businesses, or when the government is hanging both goldbugs and HODL-ers from lamposts, you do not want to be learning how to set up a Monero wallet and frantically converting as much as you can into it, nor do you want to be just then opening your Goldmoney account and trying to wire in some funds.

It has to be ready now, so  when the inevitable Financial Repressions intensifies, or God forbid, the Financial Tyranny occurs, you can focus on executing your exit plans and coming out on the other end with enough capital and wealth to rebuild.

The missing link

What we really need are bridges between crypto-currencies and gold. Not metaphorical “can’t we all be friends” bridges, I mean gateways, tokenized/staked storage and transfer of precious metals. Conversion into or out of crypto from metals. This is not easy.

There have been attempts in the past, Roger Ver, in Sal the Agorist’s recent “Gold vs Bitcoin” podcast mentioned e-gold. easyDNS was the only domain registrar to accept e-gold back in the day and that’s how we amassed our physical gold which remains on our balance sheet even now. But contrary to Ver’s assertion that the government’s shutdown of E-gold speaks to gold’s inferiority to Bitcoin – that’s not entirely accurate. E-gold turned a blind eye to governance and it really was a wild west of ponzi schemes and criminal activity. Contrast with other DGCs of the day, like Pecunix or Goldmoney, the latter of which still exists. Goldmoney had far more stringent KYC and governance protocols, self-enforced, and here they are – still up and running.

In fact it was Goldmoney who had one of the more recent attempts at Bitcoin to vaulted gold convertability under their incarnation as Bitgold. They’ve since discontinued this precisely because of the governance hurdles.

I won’t trivialize how hard this is, but for people droning on about the need for a ‘killer app’, this one would probably do well.

It’s all about optionality

Both metals and crypto tribes look at the financial system and our legacy institutions as entering some form of breakdown and decline. Because the future is inherently unknowable, what makes more sense?

A) Betting on one half of a toolbox that may pay off huge in some scenarios but be worthless in others, or

B) Having a full toolbox that can give you some good outcomes under most imaginable circumstances?

If you’re a goldbug, would it kill you to have a fraction of your liquidity in Bitcoin, knowing that from past events crypto superspikes tend to 10X or 100X or more with stubborn repetitiveness and increasing magnitude?

If you’re into Bitcoin, buying the right gold miners now with a fraction of your capital may very well set you up with an increasingly fat, cushy dividend stream in a few years that you can use for living expenses while you continue to HODL.

Now there are many End Gamer luminaries out there who are invested in both even though they prefer one or the other.

But there are too many out there who are not only completely dismissing the other side, they are going even further and acting under an assumption that their preferred asset will prevail so totally that it will in the fullness of time become the world reserve asset.

In part 2 I’ll discuss why the odds of that happening in either case are near infinitesimal. For anybody paying attention to how governments actually function, it is not even desirable.

If your thesis is one that of these assets will form the basis of a new global statist monetary system and you’re an extreme skeptic of gold or Bitcoin, you should be hoping that the other guy’s favourite asset is the one that gets used.

Get on the list or follow me on Twitter if you want to know when Part 2: Careful What You Wish For, is available.

Further Reading:

• Gold vs Bitcoin Part 2: Careful what you wish for

This is part 4 of the Jackpot Chronicles: Four Post-Coronavirus Scenarios. Read the series here, or sign up for Out Of The Cave here.

“In the future there will only be one occupation: managing one’s wealth. And the majority of the population will be unemployed.”

– Me.

The original working title for this installment of The Jackpot Chronicles was “Mandatory Pollyanna”. That’s the one where central planners and bureaucrats manage to “save” the global financial system yet again, but at a cost of undertaking an LBO of the entire economy and running it as a centrally planned utility.

I’ve decided to rename this scenario “The Great Bifurcation”, because should it come to pass,  I think the the inevitable result  would be the emergence of an even more pronounced and starkly divided Two Tier Society.

It is arguable that the groundwork for TGB was laid as far back as the adoption of central banking and fiat currency, which gave asymmetric advantages to the class of elites closest to the monetary spigots: This was known as far back as the late 1700’s when Richard Cantillon wrote his treatise on Economic Theory…

“An 18th century French banker and philosopher named Richard Cantillon noticed an early version of this phenomenon in a book he wrote called ‘An Essay on Economic Theory.’ His basic theory was that who benefits when the state prints a bunch of money is based on the institutional setup of that state. In the 18th century, this meant that the closer you were to the king and the wealthy, the more you benefitted, and the further away you were, the more you were harmed. Money, in other words, is not neutral. This general observation, that money printing has distributional consequences that operate through the price system, is known as the “Cantillon Effect.”

Why Wall St. Gets a Bailout and You Don’t, by Matt Stoller

Today it’s not the King’s courtiers who benefit, it’s who is in closest proximity to The Fed: primary dealers, investment banks, hedge funds, private equity, venture capitalists and corporate monopolists. Even in Cantillon’s day, when he enumerated the various ways new money could come into the kingdom, it was all the result of actual money entering via conquest, trade, mercantilism, or taxation. The choke point then under any scenario was the sovereign, and those in court tended to do well whenever the money supply increased.

Now, imagine having the ability to print “value” out of thin air, and then exchange it for equity stakes in the means of production, the way central banks can today. Imagine being able to do that for the world’s reserve currency. Then try to imagine that power and wealth diffusing through society equally and proportionately. You can’t, because it doesn’t. It won’t. It never has.

So today we’re hit with this pandemic, which I’ve said before isn’t the cause of the economic dark age we’re now entering but a catalyst of it. This unidirectional wealth transfer has to be spun in a way that the marks (the subjects) don’t understand they are being robbed blind. They have to want to be leached into poverty. They have to demand it.

This is the underlying logic of ideas like Universal Basic Income, and descriptive rationalizations like Modern Monetary Theory. To the rabble, it looks like the government finally set aside any silly notions of fiscal prudence in order to further build out the welfare state for the good of society. There is an entire segment of the population who is now taking home more money from government stimulus and bailouts than they were when they were “working” for a living.

What is really happening however, is that the fiat currencies which are being printed into existence and distributed to the underclass in the form of various stimulus and aid packages are essentially being transformed into a kind of “company scrip”.

Company script of yore was only redeemable for living essentials at the Company Store. In our era, it’s more of a company platform: a fast emerging, digital, ubiquitous, cashless banking system, where all purchases and transfers are tracked and logged. With the digitization of  this next generation company scrip, (“smart scrip”?) which has the veneer of a currency, policy makers will have much needed ability to fine tune economic activity under extenuating circumstances. Consumer behaviour can be tightly monitored, modified, coupled with “immunity passports”and other parameters deemed necessary, including having purchases curated or rationed.

All the while the elites, the financiers, the political class and the kleptocrats continue to inexorably accumulate the lion’s share of the equity and productive assets of the global economy.

On the other end of the scale are the corporate behemoths, who have shifted their business models from normal course operations to financialization:

Companies today are borrowing money at artificially low rates to buy back their own shares, which are trading at or near all-time highs. The value investor in me finds that kind of stupid.

When I wrote this, the major indices were putting up a string of all-time-highs (but the underlying technicals like the advance/decline and insider selling look awful). But what a lot of people don’t realize, because the media doesn’t give it very much coverage, is that most of the earnings gains in the S&P (said earnings gains supposedly driving the p/e multiple expansion which is propelling it to new highs) are coming from stock buybacks.

In Q2 2016, share buybacks accounted for 72.9% (!!!!!) of the trailing 12 months net income of the S&P.  Read that again. That’s not 72.9% of the earnings gains; it was 72.9% of the earnings. 72.9%! That means nearly ¾ of the earnings are all financially engineered, and most of the funds used to buy back all those shares are borrowed because of these ultra-low, artificially suppressed interest rates and credit expansion.

Out of the 500 companies in the S&P500 in 2016, 146 of them spent more on buybacks than they actually made in “earnings”.

That’s financial engineering. It cannot go on forever, but it will “work just fine” until eventually, it doesn’t. When that moment comes, it will be disorderly and there will not be enough chairs to go around when the music ends.

I wrote that back in 2016, in the inaugural post for Out Of The Cave. Now that eventually has finally arrived, we’ll see how corporate welfare plays out in the Jackpot. For those companies that blew their wads on buybacks over the last decade, the Great Bifurcation scenario would see their bail-outs come with conditions that they restructure their operations in alignment with the imperatives of The New Normal: such as enhanced pre-flight screening for the airlines, and sundry social justice initiatives that bring  a centrally planned economy, controlled by the State closer to reality.

What will the Great Bifurcation look like?

Aside from permabulls pining for a V-shaped recovery in stonks, the subtle drumbeat being relentlessly pounded by policymakers and corporate media is that things have changed forever and there will be no return to normalcy as we would have understood it just a few short months ago. Nor should there be, if you take the advice of super rich celebrities softly singing “Non á un Retour á la Normale”

Under this scenario’s new rules, which will include enhanced tracking and surveillance, monitoring, government interference into every aspect of our lives and necessary restrictions on free speech to curb “misinformation”, we will notice one thing over and over again:

The New Rules for The New Normal will only apply to the rule followers, not the rule makers or the rule tellers.

Spot the difference:

• When Shelly Luther, a Texas salon owner defied a court order to close down her hair salon, citing that she had to keep working in order to feed her family, she was sentenced to 7 days in jail.
• When Almeda County, CA issued workplace shutdown orders, Elon Musk simply ignored it and the county “entered into negotiations”. with Musk in order to garner compliance.

The difference here, other than one is one is a self-employed solopreneur trying to keep her head above water and the other is a self-absorbed solipsist douchebag with a private jet, is that the former gets paid in company scrip (fiat coupons called “dollars”) while the latter is a lynchpin in the financialization juggernaut that makes its return on funding rounds, IPOs, secondary offerings and any other transaction that generates fees for underwriters.

For everybody else, how many of us will be able to simply refuse to comply with government ordinances when they are decreed from on high? Whether it comes to receiving mandatory vaccines, rolling travel bans, permanent restrictions on social distancing and assembly, or to close down our businesses again, will we then be able to enter into “negotiations” with our respective authorities regarding the finer points of whether we actually have to comply? Somehow I doubt it.

Spot the difference:

• Various jurisdictions around the world are imposing jail terms and fines for violating lockdowns, including numerous US states , Canada, India, Saudi Arabia (mildly surprised they’re not beheading them) and others too numerous to mention,

vs

• Canada’s Prime Minister traveled to his vacation home for Easter after lecturing Canadians to stay home over Easter
• Ontario Premier Doug Ford traveled to his cottage while advising everybody else not to
• NYC Mayor Bill Di Blasio, who set up a snitch line encouraging citizens to report each other for not social distancing, had no compunction about hitting the gym in Brooklyn
• Neil Ferguson, the man behind the botched computer model that factored into the global lockdown, breaks quarantine for a dalliance with a married climate activist, gets off with an “awww shucks” and a  slap on the wrist.

https://twitter.com/DowdEdward/status/1257545327080427520

The difference here is between mere rule followers and the rule makers. Imagine these same disconnects across every aspect, every social strata, every economic sphere of society.

The Great Bifurcation will be baked in so that:

The underclass will be under the never-ending spectre of lockdown and quarantine, social distancing rules, restrictions on travel, events and diet, while the elites jaunt about in private jets, holding emergency sessions aboard super yachts and convening at Davos to reimagine the (your) future.

Wealth inequality will be even more starkly exacerbated as global currencies wither into money-like coupons and food stamps, redeemable within approved digital ecosystems on curated transactions.

Contact tracing, immunity passports and other “health initiatives” will morph into social credit frameworks worthy of China, from which the political class will almost certainly be exempt.

The people who decree and implement these measures will enjoy a life of comparative plenty and freedom.

And yet, it all has a certain logic to it…

Why should you have any liberties left?

If the Savior State is going to incentivize you to not work and eventually ends up paying you a basic income every month for staying home, then the logic does follow that they should be able to protect their property investment by setting the allowable parameters within which you should be permitted to operate. After all, you’re living your life on their dime scrip.

Under The Great Bifurcation scenario, humanity drifts apart, H.G Wells style, into two separate races. The capstone class will be our patrician overseers who have The Science, the models and the economic toolkit to deftly guide society through The Jackpot. The other will be a much larger underclass of comparatively childlike simpletons who believe #fakenews, have negative equity and no assets, and generally can’t be trusted to be left in a room alone with sharp objects. They’ll need shepherding, and the newly ascendent  social credit system will give them the right dopamine hits at the right time to do it.

Between these two races will exist an impenetrable membrane of norms, culture, narrative and even law that enforce a social divide reminiscent of a Dickensonian steampunk tale. Normally I would posit that were this scenario to prevail, it would take generations to dumb down the populace to the point required to pull it off. However given the exigencies of The Jackpot, and what I expect to be a never-ending state of compounding emergencies, the timeframe may be greatly accelerated.

Remember the recurring theme of The Jackpot: The next 20 years will not be a linear extrapolation of the previous 20.

In the next edition of The Jackpot Chronicles, our final post-crisis scenario looks at The Deglobalization Scenario. That’s the one where reality sets in and is not only acknowledged but embraced. Businesses and policy makers get religion and realize that financialization and globalization have ultimately failed and in order to achieve long term viability, the entire paradigm has to be “reimagined”. I also discussed this recently in the AxisOfEasy podcast with Charles Hugh Smith and Jesse Hirsh.

Sign up for the Out Of The Cave list here or follow me on Mastodon or Twitter if you want to be notified when that publishes.

(My fledgling audiobook company just released an audio version of Eugen Richter’s 1893 work “Pictures of the Socialistic Future”. In order to have an audiobook version of a public domain work accepted into Amazon’s Audible store, you have to first make a kindle version and add some unique original content to it, such as a foreword. What follows is my foreword to the 2019 audiobook edition of this work).

This remarkable little novella posits a fictional socialist sweep into power in Germany towards the end of the 19th century, anticipating the Bolshevik and Marxist revolutions of the subsequent decades. It follows the arc of a family as narrated by its patriarch as he initially enthuses over the socialist ascension to the seat of government.

Quickly, however, he progresses through various stages of disenfranchisement that inevitably ensue: first tempering his expectations, then ratcheting them downward, followed by grappling with cognitive dissonance brought about by the internal contradictions of the new system. When those conflicts are inescapable,  he finally spirals into angst and despair as he comes to fully comprehend the horrors of socialism.

Realizing it is too late for himself, with his family and livelihood largely destroyed, he commits one final act of repudiation against the socialist future.

In writing this warning, the author, Eugen Richter, a politician, journalist and a leading liberal (in the classic sense of the word), transmits to us a highly plausible, credible account of where socialist experiments unwaveringly go under their own volition.

Richter died in 1906, but the socialist experiments of the 20th century are a matter for the history books now. Even today in Venezuela we are witnessing a “Mad Max” style collapse in realtime within the country that has the highest proven oil reserves in the world.

Despite overwhelming evidence that the only problem with socialism is that it doesn’t work, this idea is finding new traction in the 21st century. Apologists point at previous failures as “not real socialism”.

Meanwhile they compound that fallacy by mistaking the wealth inequality, recessions, and financial crises as indicators of capitalism and free markets run wild, when the reality is that they are instead a direct consequence of state and central bank interventions. This point is an important one, which we’ll return to shortly.

In another audiobook we’re producing, Dr. Kristian Niemietz, in “Socialism: The Failed Idea that Never Dies” laments that:

“The not-real-socialism defence is only ever invoked retrospectively, namely, when a socialist experiment has already been widely discredited. As long as a socialist experiment is in its prime, almost nobody disputes its socialist credentials. On the contrary: practically all socialist regimes have gone through honeymoon periods, during which they were enthusiastically praised and held up as role models by plenty of prominent Western intellectuals. It is only after the event (i.e. once they have become an embarrassment for the socialist cause) that their version of socialism is retroactively redefined as ‘unreal’.

Richter anticipated this dynamic wonderfully as his protagonist undergoes this arc personally as he narrates his story.

When Thomas Mackay wrote his introduction to the English translation, he observed that when the book was written (1893) it was just an idea and there was no appreciable socialist yearnings within Imperial Germany.  By the time the English translation was ready in 1907, there was a socialist party contingent in parliament. By 1920 it was a full on battle between socialists and fascists for the soul of Germany.

History not only rhymes, it accelerates.

When I came across this novella in the summer of 2018 I had never heard of Democratic Socialism and Alexandra Ocascio Cortez was still a bartender in The Bronx.

I had heard of ideas with names like Libertarian Socialism, Left Libertarianism and Libertarian Communism but like most free market and liberty-minded people, I dismissed these as libertarian in name only and entirely oxymoronic.

In the intervening mere months since I had the good fortune to discover this wonderful little book, the rallying cry around socialism in the US has become deafening, and eerily similar to the enthusiasm experienced in the opening chapters of Richter’s parable.

I am chagrined to report that “socialism” is the new buzzword among my own social circles and in my online media timelines. It is truly astonishing and frightening to see how fast a bad idea is becoming palatable to the populace.

The basic requisites of socialism’s core ideology include confiscation and redistribution of private property combined with enforced collectivism and a strong central planning apparatus that quashes individual liberty. The suggestion that it can be democratic or libertarian is pure propaganda. Although, circling back to Dr. Niemietz’s observation that today the democratic socialism moniker hopes to deflect this reality noting that:

“Contemporary socialists appear to assume that a democratised, participatory version of socialism would not just be more humane, but also economically more successful. Autocratic socialism failed, but democratic socialism would have worked just fine, in terms of economic performance.”

We find yet another stab at socialism that is supposed to look good on paper, however, as I write this foreword we’ve just seen the first iteration of a legislative proposal for a so-called “Green New Deal”, also being dubbed “GreenLeapForward” by people who aren’t actually satirizing the Maoist genocide that took place under a similar label.

Under the Green New Deal, the economy would be transformed utterly, every structure in the USA would be rebuilt or retrofitted, and by the end of it there would be no need for cars or air travel (I suspect, however, exceptions would be made for party elites who need cars and planes to conduct important affairs of state). All jobs created would be unionized, and every family given a guaranteed income, paid vacations, paid retirement, even those unwilling to work.

The stated ideals of the early bill cannot possibly be accomplished, and even if so, they could not be accomplished under any democratized, participatory socialism because many citizens don’t want to be unionized, they don’t want to rebuild their home, or give up their car, or never fly anywhere again; let alone fund the living expenses, vacations and retirement of other people who are “unwilling to work”.

In short, the New Green Deal posits a complete centralized command economy, which is not participatory and certainly not democratic.

But even with the repeated failures of socialism there for all to see…

Where is this impetus toward socialism coming from?

We need look no further than the Global Financial Crisis of 2008, and in particular, the bailouts of the banks who had over-leveraged themselves with bad loans and untenable derivatives.

 This act, of socializing the losses, backstopping the failed “banksters” under guise of saving the global economy, from which they paid themselves exorbitant bonuses for their abysmal stewardship was the single-most damaging act to the credibility of free market capitalism, ever.

It bears emphasizing that what happened was anything but free markets in action or an example of capitalism. Under capitalism, you reap the profits by bearing the risks. That is the entire point. If you are not on the hook for the risk, then it’s not capitalism.

The rationalizations that the global economy was on the verge of collapse have been examined by less hysterical personalities in the aftermath, and found to be lacking in substance.

Former congressman and Director of Office of Management and Budget under President Regan David A. Stockman wrote exhaustively on this topic in his voluminous “The Great Deformation: The Corruption of Capitalism in America” he wrote that:

“A handful of panic-stricken top officials, led by treasury secretary Hank Paulson and Fed chairman Ben Bernanke, proclaimed that the financial system been stricken by a deadly “contagion” that had come out of nowhere and threatened a chain reaction of financial failures that would end in cataclysm.

That proposition was completely false, but it gave rise to a fateful injunction—namely, that all the normal rules of free market capitalism and fiscal prudence needed to be suspended so that unprecedented and unlimited public resources could be poured into the rescue of Wall Street’s floundering behemoths.

And further, that:

The Main Street banks were never in danger.

There was no logical or factual basis for the incessantly repeated claim of Washington high officials that Wall Street’s losses would spill over into the nation’s $12 trillion commercial banking system and from there ripple outward  to infect the vitals of the Main Street economy. Owing to the composition of its asset base,  the Main Street banking system was never remotely risk, and it had no need for capital infusions from TARP.

The actual evidence shows the “run” on the wholesale money market was almost entirely confined to the canyons of Wall Street. During the heat of the fall 2008 crisis, there were no runs on the nation’s eight thousand commercial banks and thrifts,  save for a handful of clearly insolvent higher fliers like Indy Mac and Washington Mutual.

Nor would there have been one in the absence of TARP and the Fed’s aggressive Wall Street bailout actions.

Despite this reality, the mainstream narrative around the global financial crisis was one of panic and within the financial centres from which the panic originated there was an infantile denial of culpability combined with petulant demands for special treatment as personified by CNBC’s Jim Cramer in his now legendary meltdown on national live television.

As I once noted in a previous writing, when some venerable juggernaut from the non-financial sector like General Motors or Kodak hits on hard times and has to lay off thousands of workers, Jim Cramer dismisses it as “the way of the world, folks” and he’ll hit one of his “Mad Money” noisemaker buttons on TV and that company’s share price might even experience a lift.

But if it’s a huge swath of the financial sector that blew itself up selling each other toxic derivatives, and numerous hedge fund buddies of Jim Cramer are going to go bankrupt as a result, then it’s a veritable crime against humanity.

And so, the financial sector was bailed out. They went on to award themselves lavish bonuses and then embarked on a decade long stock market boom supported by ultra-low, artificially suppressed interest rates, rampant money printing and a phenomenon known as “The Cantillon Effect”.

First observed by the 18th century economist Richard Cantillon, who wrote in his Essay on the Nature of Trade in General, the Cantillon Effect states that newly created money is non-neutral, and wholly benefits early recipients at the expense of later recipients. In other words, when the Fed or the ECB or the JCB print money, which they call “Quantitative Easing”, the parties in closest proximity to the central bank, including the money centre banks, the investment banks, the hedge funds and private equity derive the benefits of the expanded money supply first, and experience that as rising asset prices, stock market booms, and everything bubbles. For everybody else, the new money gets to them later, and they experience it as cost of living inflation.

It is no surprise then, that as the stock markets and asset bubbles around the world hit an uninterrupted string of all-time-highs over the ensuing decade, the middle class felt additionally squeezed, and understandably resentful.

The zeitgeist of the post-crisis decade of the politically connected rich getting richer was captured in one short missive by Twitter humorist @RudyHavenstein, when commenting on the 2016 World Economic Forum, whose theme that year was “Mastering the Fourth Industrial Revolution”.

While the world’s super rich where in Davos discussing how to master that shift, RudyHavenstein remarked:

That resentment turned into populism, with figures like Donald Trump garnering votes on a “drain the swamp” message. But as the central bank policies continue to inflate away purchasing power, push up asset prices, and widen wealth inequality even further, populism is now jockeying with socialism, and the early indications are that eventually socialism will win out or absorb the former. To quote Dr. Niemietz’s title, “socialism: the failed idea that never dies” looks to gaining serious momentum in America.

Richter’s novella, albeit a fictionalized account, does correctly anticipate the stages of these socialist experiments, and contains relevant analogs to what appears to be the next attempt.

When socialism comes to America it will be under the well worn banner “this time is different”, because it will be ostensibly democratic socialism, even though we know now from the text of the New Green Deal bill not to hold our breath for the “democratic” part.

But we’ll purport to have new tools in our repertoire to make it work, such as Modern Monetary Theory, which is gaining traction alongside democratic socialism and exists solely to justify unrestrained money printing and increased central planning.

As the comrades of Imperial Germany found, their international trading partners had something to say about it when they debased their own currency and repudiated their debts, so too will the new experiment in the USA fail to anticipate international trading ramifications of democratic socialism and MMT. Not the least of which is that one should expect to see the US dollar lose its status as the global reserve currency.

I urge anybody flirting with an infatuation with “this-time-its different” democratic socialism to set aside 2 hours to read or listen to this book. As you read it, compare the mechanics of how socialism unfolds in Richter’s Germany with the tenets of the The New Green Deal, for example. I think one will find the resemblances, striking, if not chilling.

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Lately, we’ve suddenly been hearing a lot about Modern Monetary Theory (“MMT”) in the mainstream media. It could be that with the election of Alexandra Ocasio-Cortez to congress, MMT’s star will rise with hers as she is reportedly an adherent and possibly views MMT as a means to fund her Green New Deal.

As we see below, MMT has been around for some time, having come out of the Chartalism school in the first half of the 1900’s and was made into MMT in the early 90’s by Warren Mosler, apparently after a “long steam” with Donny Rumsfeld, who then referred him to Art Laffer (creator of the Laffer Curve). MMT mostly flew under the radar until around the time of the Global Financial Crisis and is now clearly spiking into public awareness.

To the casual onlooker, MMT may sound a lot like standard-issue Keynesianism, the idea that the Government can and should run deficits to smooth out the business cycle.

The big difference is this: Keynesians believe that the deficits should be run to stimulate our way out of a recession or financial crisis, after which there will be some kind of return to normalcy, when deficits will matter again .

To MMT-ers there is no return to normalcy, this is the The New Normal. Deficits don’t matter and the Government can’t go broke because they can issue money in any amount required. We’ll look at how they rationalize this below, but suffice it to say now that Keynesians and MMT-ers are not synonymous and even Paul Krugman has had his criticisms of it:

it would be quite likely that the money-financed deficit would lead to hyperinflation.

The point is that there are limits to the amount of real resources that you can extract through seigniorage. When people expect inflation, they become reluctant to hold cash, which drive prices up and means that the government has to print more money to extract a given amount of real resources, which means higher inflation, etc.. Do the math, and it becomes clear that any attempt to extract too much from seigniorage — more than a few percent of GDP, probably — leads to an infinite upward spiral in inflation. In effect, the currency is destroyed. This would not happen, even with the same deficit, if the government can still sell bonds.

We’ll revisit his point that if the government attempts to extract too much from seigniorage that it will ignite an inflationary spiral. For now let’s make sure we know what we are dealing with when it comes to Modern Monetary Theory…

How to Understand Modern Monetary Theory

When I was in high school I had a physics teacher once tell me how when he was a kid he thought he should be able to hook up the outputs of a generator and a motor to each other and have himself a perpetual motion machine. For some reason it didn’t work and trying to understand why was what got him into physics.

The more I learned about MMT the more it seemed to be the same thing, in an economic sense and I have frequently made this quip expecrting MMT-ers to call it a strawman or point out some fundamental element that I’m missing but instead they usually confirm that I have it correct in broad strokes.

MMT-ers believe that currency is nothing more than an economic scoreboard or tally, and any government that denominates it’s own currency can never go broke because they can always create more currency. Of course, as Weimar Germany, Hungary, Yugoslavia and more recently Zimbabwe and Venezuela have all found out, you have to watch out for hyperinflation.

The MMT magic bullet for this is… taxation. Through taxation the government can drain excess liquidity from the system while printing as much currency as it needs to fund its projects and as long as the total value of currency printed doesn’t exceed the productive capacity of the economy as a whole. Thus:

This diagram is from “Diagrams and Dollars: Modern Money Illustrated” by J.D. Alt. After methodically taking the reader through how the old monetary system works, where the government has this HUGE untenable debt burden and is constrained by budgetary limitations, we arrive here.

The national debt is still present, but it has, through philosophical transmutation, been transformed by Alt into a “Net Spending Achievement” as measured by the “National Savings Clock” (formerly known as the “national debt clock”, or “Doomsday Clock”):

“the difference between what the FG plans to spend in a given budget-year, and what it plans to drain away in taxes, is “Net Spending Achievement”….imagine, for a moment, how our political discourse might change if everyone understood the discussion was no longer about the size of our national “budget deficit” but, instead, was about the concrete goals of our annual “Net Spending Achievement”….

We do NOT want a “balanced” budget—or, even worse, a budget “surplus”! What we want (as long as price inflation is under control) is the largest and most effective “Net Spending Achievement” we can envision.

“Entitlement” and “Discretionary” budgets do NOT have to compete with each other for a fixed pot of Dollars. As long as price inflation is under control, whatever Dollars are necessary can be allocated to the “Net Spending Achievement.”

MMT-ers believe that since our currency is actually comprised of debt obligations that government deficit is required to form net private savings:

Therefore:

• government spending creates private goods and services
• taxation drains excess liquidity and controls inflation
• the government can never go broke

For this to work, it would posit a pretty powerful central planning government that knows all (and if so, why can’t the government control inflation via price controls and eliminate taxes altogether?) and has the inhuman self-discipline not to overissue currency in a crisis (I guess, under MMT, there will be no further financial crises).

Oh, I almost forgot, under MMT there is also the jobs guarantee. So anybody who wants a job would be guaranteed to have one, at a living wage, by the government.

That’s MMT in a nutshell.

It’s ascent into its newfound economic fashionability is simply the latest episode of a long history of the pursuit of alchemy.

The Holy Grail of Government: Unlimited Spending With No Restraint

Government being overwhelmed by debt and constrained as a result is as old as history itself. In the 14th century King Philip of France was so indebted to the Knights Templar, and absent some clever rationalization that would transform his debts to them into money itself; he did the next best thing. He suppressed the order and had their leaders burned them at the stake. His debts were thus cleared but he had also disincentivized future borrowing. Another way would have to be found…

What governments really want is a way to either A) bribe the populace to keep voting for them or B) as this Epsilon Theory article laments, fund one or another of their incessant wars from an inexhaustible supply of credit or funding:

Modern Monetary Theory – which is neither modern nor a theory – is a post hoc rationalization of political expediency and power-expanding action.

It makes us feel better about all the bad stuff we’ve done with money and debt for the political efficacy of Team Elite.

And all the bad stuff we’re going to do.

At its core, Modern Monetary Theory is an argument that would be wonderfully familiar to every sovereign since the invention of debt. It is essentially the argument that significant sovereign debt is a good thing, not a bad thing, and that budget balancing efforts on a national scale do much more harm than good. Why? Because there’s so much to do and so little time for the right-minded sovereign. Because it is fundamentally unjust for the demands of private lenders to thwart the necessary ends of the sovereign, and it is politically difficult to finance those ends through tax levies on a fickle citizenry.

MMT is the sovereign-friendly justification for deficit spending without end.

Historically, this argument has been used by sovereigns to support wars without end.

(emphasis in original)

When you take a step back and comb through financial and economic history, amongst the wreckage of worthless fiat currencies from our past (note that 100% of all previous fiat currencies became worthless), we find hints and precursors of what is being rebooted as Modern Monetary Theory

Bear in mind that “Net Spending Achievement” neologism as we follow the rise and fall of the Austrian fiat regime in the 1700’s…

Unlimited National Debt?

A new phenomenon was occurring throughout Europe. Royal debt was being transformed into national debt. What had been the personal debt of the monarch was becoming the burden of the nation, payable by the people. And many central banks were created to administer this debt through paper money.

Austria provides one of the best examples of this new way of thinking. The First Bank of Austria was founded in 1703, with the express purpose of funding public debt by issuing paper money in exchange for deposits. With too few deposits, and too many notes, the bank and its currency failed.

In 1759, Count Sinzendorff, a prominent Austrian official and renowned financier, went a step further and suggested that government debt be brought to all the people, not just the depositors. He issued Austria’s first paper notes for general circulation, as a loan instrument with interest coupons attached. The new money was well received. Impressed by the expansion of commerce when more credit was made available, the government authorized a second issue of paper bills in 1769, and a third in 1771. Yet this prosperity did not last long. As excessive new issues were printed, they provoked a panic in 1797. The next decade was no better. Austria became embroiled in wars, spent heavily and ended up with a currency that lost over 90% of its value.

— (from Fiat Paper Money by Ralph T. Foster, emphasis added)

The idea that money is nothing more than an economic scoreboard or tally was advanced by John Law when he was trying to devise a method for Scotland to stave off bankruptcy, which he expounded upon in his book “Money and Trade” (“Money is the Measure by which Goods are Valued, the Value by which goods are Exchanged, and in which Contracts are made payable” – quoted in Fiat Paper Money).

Scotland never adopted Law’s ideas, and in their own currency machinations went bankrupt and ceased to be an independent country 1707 (ibid). Law moved onto France, continuing to promote his monetary theories, at one point declaring to an astonished room of aristocrats that he had discovered the secret of alchemy: “I can tell you my secret. It is to make gold out of paper” (ibid).

Even the MMT proposal to use taxation to control inflation is nothing new and was tried in New York in the late 1700’s, stability seemingly achieved by the New York Assembly having strict laws on their books limiting the amount of paper notes that could be issued. It’s not really clear what happened to this currency as it overlaps with the period when British laws were barring the colonies from issuing their own paper currencies and the subsequent segue into the revolutionary war, and the advent of the Continental (which eventually collapsed in a hyperinflation).

The Ascent of the MMT Narrative Today

I first became of aware of MMT when I used to read Business Insider back around 2010 or so and Joe Weisenthal, one of the most vigorous proponents of Cullen Roche’s “Pragmatic Capitalist” site, and he would unfailingly repackage anything Roche wrote on BI. Fast forward to today, and Roche seems to have backed off his MMT evangelism, or is at least a lot more nuanced and rigorous in his examination of it. 

The next time I came across MMT was in David Golumbia’s book “The Politics of Bitcoin”, wherein he seemed to think that what we have today is MMT. I can see why people would make that mistake, and Roche notes that as well in the article I just linked. Golumbia’s book (which I deconstructed in detail here) also criticizes the economic truism that inflation erodes purchasing power as wrong, and an example of right-wing conspiracy theory.

I mention that here because that is an idea that  Weisenthal also glommed onto back in his BI days, and while it isn’t yet, I fully expect this notion to be embraced by MMT adherents as this ideology is relentlessly pushed mainstream (the TL,DR of this idea is that a dollar doesn’t lose purchasing power when you issue more dollars if you put it into a bank account and earn interest on it. I debunked this thoroughly in my review of PoB. It’s one of those “not even wrong” notions in that  it’s economically incoherent).

Now that Modern Monetary Theory and Democratic Socialism have found each other, we have to look at why it’s such a dangerous combination.

The Problems with Modern Monetary Theory

Most of the articles I’ve seen decrying MMT hone in on it being inflationary, full stop. Which is true. No government has the discipline to not bribe the populous with either other people’s money or “made up” pixie dust that they convince everybody to pretend is money.

Beyond that, there are numerous failings with MMT including the fact that calling debt something else, like “national spending achievement” doesn’t make it not debt,  but does lose sight of what debt actually is. 

When you think about it, all debt is the pulling of future value into the present. If it wasn’t, if you had present value on hand and the willingness to trade it for what was desired, there would be no debt incurred.

As I observed recently, when you rack up debt you are either borrowing or stealing from the future. The difference is whether you plan to pay off the debt (borrowing) or if you plan to perpetually roll it over (stealing). MMT is structurally and by design, the latter.

MMT says debt  (err, sorry, National Spending Achievement) can expand perpetually and inflation will not occur provided it doesn’t expand faster than the value in the private economy (which assumes central planners can actually measure that accurately ) and any excess liquidity is drained off via taxation.

Like all fiat monetary schemes, you can make a theoretical case for it working. I once called MMT the elevation of circular reasoning to an art form, and Austrian economist Bob Murphy emphasizes that MMT relies upon “accounting tautologies”.

In practice, governments will always promise entitlements today at the expense of consequences tomorrow, so the monetary base will always expand and as each crisis is postponed, over time this dynamic will accelerate. If the monetary base happens to be credit (read: “debt as money”) then remember what we said debt is: future value, consumed today.

Under MMT however, when things go bad, they will get very bad. Here’s why:

Money started as hard currency, so it was near impossible to lose faith in it, and it would only happen as coinage was debased or replaced with fractionally backed paper notes.

After Bretton Woods, money, or the worlds reserve currency was “backed by the full faith and credit of the US government” and for a few decades at least, that seemed “good enough”. Although there have been panics and the overall trend is toward less confidence in the current monetary regime and the USD as world reserve currency is openly acknowledged to be in its waning days. It’s a matter of “when” not “if” even in polite company.

Under MMT there is no more pretence that the currency has any intrinsic value – it’s an economic scorecard and nothing more. The system would work as long as confidence held for the system itself, not any faith in the currency. If any cracks appeared in the system, i.e. inflation accelerated or taxation crept too high, I submit that any speed-wobble in confidence would lead to a dramatic and sudden, disorderly reassessment. A panic. It would be a genuine “life imitates The Onion” moment.

Everything that’s wrong with “The Politics of Bitcoin” book but were afraid to ask.

“It is not only those who see themselves as libertarians who, through the adoption of Bitcoin and the political communities around it, routinely distribute political and economic views that are grounded in conspiratorial, far-right accounts of the Federal Reserve and the nature of representative government…”

David Golumbia, “The Politics of Bitcoin: Software as Right-Wing Extremism”

(Note: It has come to my attention that David Golumbia passed away on September 14th, 2023. I posted my reflections on the matter here and extend condolences to those he left behind.)

The Cryptocurrency / Blockchain revolution is the second technological seismic shift to occur within the past 40 years.  The first was of course, the Internet, and once that achieved critical mass the detractors and those who feared the erosion of centralized power that the net signalled began subtly promulgating the memes of  The Four Horsemen of the Internet Apocalypse to warn off the population and justify centralized control (those were: terrorists, drug dealers, pedophiles, and organized crime. I recently dubbed “Fake news” the fifth horseman of the Internet Apocalypse).

It is no surprise then, with Central Banks and governments unable to control the uptake of cryptocurrency and further decentralization a new set of existential threats is being advanced. Let’s call this the “focus group” stage where all kinds of hyperbole will be floated to see what will stick.

The harbingers of the Bitcoin Apocalypse frontrunners are currently:

1. All four horsemen of the Apocalypse plus
2. Global Warming
3. Energy Crisis

and if we are to take Virginia Commonwealth University associate professor of English David Golumbia seriously:

4. Right Wing Extremism

Right-wing extremism, also known as “far right” politics is described in Wikipedia as…

often associated with Nazism, neo-Nazism, fascism, neo-fascism and other ideologies or organizations that feature extreme nationalist, chauvinist, xenophobic, racist or reactionary views. These can lead to oppression and violence against groups of people based on their supposed inferiority, or their perceived threat to the nation, state or ultraconservative traditional social institutions

In his book “The Politics of Bitcoin: Software as Right-Wing Extremism“, Golumbia attempts to make a case that “[these] political values are very literally coded into the software itself.”

The book was published in 2016 and appears to be an expansion of an earlier paper published in 2015. A colleague of mine made me aware of it before the holidays. It was admittedly a tough slog and I had to read it concurrently with Dave Collum‘s year-end review in order to stay sane.

Left unchallenged, we run the risk that this book could eventually attain a simulcrum of academic credibility, from which it could be used as a basis for future fallacious criticisms of the crypto-space. Think “Bitcoin is racist, everybody knows that. (Golumbia, 2016). The end.”

Golumbia himself is somewhat active, publishing articles for Vice and others in which his bio always features a reference to this book among his credentials. He also has another paper entitled “Code is not Speech”:

“Advocates understand the idea that “code is speech” to create an impenetrable legal shield around anything built of programming code. When they do this they misunderstand, or misrepresent, free speech law…The idea that government cannot regulate things because they are made of code cannot be right.”

His core thesis in “Politics of Bitcoin” is that:

in the name of this new technology, extremist ideas were gaining far more traction than they previously had outside of the extremist literature to which they had largely been confined. Dogma propagated almost exclusively by far-right groups like the Liberty League, the John Birch Society[* see update about JBS at end of article – markjr], the militia movement, and the Tea Party, conspiracy theorists like Alex Jones and David Icke, and to a lesser extent rightist outlets like the Fox media group and some right-wing politicians, was now being repeated by many who seemed not to know the origin of the ideas, or the functions of those ideas in contemporary politics. These ideas are not simply heterodox or contrarian: they are pieces of a holistic worldview that has been deliberately developed and promulgated by right-wing ideologues.

This passage sets the tone for the rest of the book, the premise follows this basic line of reasoning:

• Bitcoin was created out of a reaction to current monetary policy (The Fed / Central Banking / fiat money)
• Previous critics of The Fed were racist, far-right extremists such as John Birch Society and Eustace Mullens

Therefore… and this may sound like I’m exaggerating to make my point, but I’m not:

• any criticism of Central banking, the current monetary structure or “conventional mainstream economics” is right-wing extremism. And…
• This extreme right-wing ideology is “very literally coded into the software itself”.

There isn’t a lot to unpack in this, but for a short book there certainly an abundance of problematic material to address.

By the time you finish this review you’ll understand that this book can’t be considered a work of scholarship by the most generous reader as much as it is a piece of academic negligence. It’s a rant, chock full of fallacies and flat out factual errors. I’m astounded that the book passed through editorial review and (presumably) fact checking and made it to press in its current form. I had to check my quoted material several times to make sure I wasn’t reading it incorrectly.

Here we go:

Golumbia’s book has three big problems:

1. 1. It is predicated on logical fallacies: poisoning-the-well, invalid inferences, ad hominem characterizations skirting the edges of defamation, lack of supporting citations, this book has it all.
   2. Doesn’t show his work. Ever find yourself reading a book for what seems a long time and you catch yourself thinking “when is the guy going to put a point to some of this?”…and then you flip the page and you’re at the end? That exact thing happened to me here. Golumbia spends the entire book calling every heterodox opinion tantamount to right wing extremism, that it’s “literally coded into the software itself” and yet, never actually shows this to be the case. Even if I wanted to believe the core argument of this book, I would be nowhere closer to knowing just how “right-wing extremism is literally coded into the software” after reading it.
   3. It’s missing the errata section. The book contains key factual errors. Statements that are proveably incorrect and then proceeds to use them as scaffolding to build his case.

The Logical Fallacies (i.e Eustace Mullens was not Satoshi Nakamoto)

The recurring theme throughout the book is to wildly and spuriously designate any idea or premise that is orthogonal to conventional mainstream economics, especially any criticism of the U.S Federal Reserve, as by definition “right wing extremism” and “conspiracy theory”.

To wit:

that central banking such as that practiced by the U.S. Federal Reserve is a deliberate plot to “steal value” from the people to whom it actually belongs; that the world monetary system is on the verge of imminent collapse due to central banking policies, especially fractional reserve banking; that “hard” currencies such as gold provide meaningful protection against that purported collapse; that inflation is a plot to steal money from the masses and hand it over to a shadowy cabal of “elites” who operate behind the scenes; and more generally that the governmental and corporate leaders and wealthy individuals we all know are “controlled” by those same “elites.”

If you de-sensationalize Golumbia’s above quote, you can find all kinds of credible sources who both historically and in contemporary times have repeatedly warned on many of the above points who are demonstrably not right-wing, not extremists who have been tirelessly trying to make the dangers of the current system more widely known – at great personal expense.

But  according to Golumbia, these are the kinds of views that make one a right-wing extremist idealogue (The phrase “right-wing” occurs 78 times, “extremism” and “extremist” occur 32 and 21 times respectively. The book is 62 pages long).

He lays the case by cherry picking a few racists from yesteryear, quoting their arguments against The Federal Reserve or in favour of gold-backed money and drawing an inference from those cases around all criticisms of the current monetary system – a logical fallacy known as “poisoning the well”.

One of the numerous examples of this practice is illustrated below:

The idea that inflation is a “destruction of value” and that the U.S. dollar has lost most or all of its purchasing power over the course of a hundred years has long been a staple of conspiracy theories, in no small part used by demagogues like Alex Jones to drive the unsuspecting toward purchases of gold and other precious metals

Why even mention Alex Jones here? Why not Kyle Bass, Ray Dalio, hell even Steve Jobs or some other credible, noteworthy and successful luminary who are also vocal critics of Fed policy as well as espousing allocating a portion of one’s wealth in gold and precious metals to protect against inflation?

Because it is clear by the time a reader gets to this passage that Golumbia has an agenda to stigmatize any criticism of the current monetary system and to delegitimize any action the citizenry undertakes to protect themselves from it (we’ll return to this quote below when Golumbia makes a rare attempt to actually debunk the notion that “inflation is bad” in an actual economic terms and fails spectacularly).

The reality is that we can entirely dispense with the likes of Eustace Mullens, Alex Jones or the John Birch Society and still have an overabundance of credible criticisms of the current banking system, with some pretty frank descriptions of what it does and how it adversely impacts the populace and from people well positioned to have a profound understanding of it.

Non-right-wing Critics of the Federal Reserve and central banks.

The idea that the Federal Reserve has an adverse effect on the economy and the population at large has been harder to ignore over the past 10 years. Since the Global Financial Crisis the Fed and central banks worldwide have:

• artificially repressed interest rates, penalizing savers, pension funds and other fiduciaries
• imposed negative yields on sovereign debt. Peaking at 17 trillion, there is currently roughly 12 trillion USD of negative debt sloshing around the world. Negative debt is a signal from the central banks, it means “we’re totally trapped”. My personal theory is that once you cross the Zero bound on interest rates, it’s like an event horizon – you can’t normalize without crashing the economy.
• massively expanded their balance sheets. This is a non-conspiratorial way of saying “printing money” (that’s what “Quantitative Easing” means)
• buying equities. Central banks pick winners and losers, buying equities of select companies with money created out of thin air. Example, the Swiss National Bank is now one of the largest shareholders of Apple, owing to their “Swiss franc stabilization programs” – where they create Swiss francs, sell them against the Euro to keep the franc down, then buy equities with the Euros. Nice work if you can get it (except I think any of us tried this at home, we’d go to prison).
• somewhat beyond their mandate to “stabilize prices and maintain full employment” the Fed was recently revealed to be shorting volatility, yet again an unprecedented intervention into market functioning.

The cumulative effect of this widespread and systemic intervention, and permanent mangling of, the financial markets has been to utterly and completely destroy the signalling and discovery mechanisms. Any defensive action market participants have taken to guard their capital against the inevitable drawdown these policies will produce were systematically undermined by yet more interventions.

It’s no wonder then, that capital would necessitate the creation of some manner of escape hatch to put itself beyond the reach of this institutionalized economic solipsism.  

Does that mean that these documented facts are “Conspiracy Theory” or anyone who has issues with all this is a right-wing extremist?

Would that include Ralph Nader, who wrote this open letter to Janet Yellen on behalf of the “Savers of America”?

Please, don’t lecture us about the Fed not being “political.” When you are the captives of the financial industry, led by the too-big-to-fail banks, you are generically “political.” So political in fact that you have brazenly interpreted your legal authority as to become the de facto regulator of our economy, the de facto printer of money on a huge scale (“quantitative easing” is the euphemism for artificially boosting the stock market) and the leader of the Washington bailout machine crony capitalism when big business, especially a shaky Wall Street firm, indulges in manipulative, avaricious, speculative binges with our money.

Former head  economist at the World Bank and Nobel laureate Joseph Stiglitz?

“If we [i.e. the World Bank] had seen a governance structure that corresponds to our Federal Reserve system, we would have been yelling and screaming and saying that country does not deserve any assistance, this is a corrupt governing structure.“

John Kenneth Galbraith?

The process by which banks create money is so simple that the mind is repelled.

who also cautions us:

Almost every aspect of its (Federal Reserve) history should be approached with a discriminating disregard for what is commonly taught or believed.

(Except if you go ahead and question the Fed you’ll earn a “right-wing extremist / conspiracy theorist” label from Golumbia).

There is also the lesser known Stephen Zarlenga, who was a registered Democrat and the co-founder of the American Monetary Institute and author of the exhaustive opus “The Lost Science of Money“. In 2010  Rep. Dennis Kucinich  introduced Bill HR2990 which aimed to remove the money creation function from the Federal Reserve and revert it to the US Government which was based on an AMI blueprint for monetary reform.

Zarlenga summed up his life’s work in one sentence:  “Over time, whoever controls the money system, controls the nation.” And his book documents how that repeatedly happened over recorded history:

Our Thesis

is that a main arena of human struggle is over the monetary control of societies and that control has been and is now exercised through obscure theories about the nature of money. If it had to be summarized in one sentence, it is that by misdefining the nature of money, special interests have often been able to assume the control of society’s monetary system, and in turn, the society itself.

(emphasis added)

Zarlenga captures the crux of it here. I’ve written about him before  and it bears repeating here. The Lost Science of Money is broken out into four main sections:

• The Main Obstacle is The Mystification of Money
• Monetary History Has Been Ignored
• Monetary History Has Been Censored
• Monetary Data is Often Misinterpreted

Golumbia’s book is guilty on at least 3 out of 4 of these points.

(Those interested understanding the historical basis of our current system would also do a service to themselves by reading Vincent LoCascio’s “The Monetary Elite vs Gold’s Honest Discipline” and “Special Privilege: How The Monetary Elite Benefit at Your Expense“. )

Errors of Fact

These numerous fallacies aside, the rare occasions throughout the book where Golumbia tries to build his thesis on something specific he actually gets it wrong to degree which can only be called “cringeworthy”.

Inflation is a “Conspiracy theory”

For example, in the chapter “Central Banking, Inflation and Right-wing Extremism” he again tries to assert that “inflation is actually good” and anybody who thinks it isn’t is a right-wing extremist / conspiracy nut:

These ideas are not simply heterodox or contrarian: they are pieces of a holistic worldview that has been deliberately developed and promulgated by right-wing ideologues. To anyone aware of the history of right-wing thought in the United States and Europe, they are shockingly familiar: that central banking such as that practiced by the U.S. Federal Reserve is a deliberate plot to “steal value” from the people to whom it actually belongs; that the world monetary system is on the verge of imminent collapse due to central banking policies, especially fractional reserve banking; that “hard” currencies such as gold provide meaningful protection against that purported collapse; that inflation is a plot to steal money from the masses and hand it over to a shadowy cabal of “elites” who operate behind the scenes; and more generally that the governmental and corporate leaders and wealthy individuals we all know are “controlled” by those same “elites.”

Whenever I try to explain to people what inflation really does, I – and many others – usually like a graph depicting the purchasing power of the US dollar since the inception of the Fed in 1913:

When you look at this graph you should also be aware of what happened with the dollar’s purchasing power in the 100+ years leading up to the creation of the US Federal Reserve. That was the era of the Classical Gold Standard it was mildly deflationary. The graphic below captures the 200 year span from 1800 to 2000. Also look at this table, which shows CPI (Inflation Rate) and the purchasing power of a dollar, year by year from 1800.

 

Golumbia unsuccessfully tries to debunk this reality:

The comparison of the value of US$1 between 1913 and 2009 is extremely deceptive, because it fails to take into account critical factors such as wage rates, the interest rate on savings, and the possibility of investing that US$1 in capital markets or in industry. A much less conspiratorial take on economic history would point out that US$1 invested in something as simple as a bank savings account using compound interest will typically be worth much more than the simple rate of inflation would provide by 2009; even slightly more aggressive investment would produce even more gains.

I don’t really know how to treat this assertion. “Wrong” doesn’t quite capture it. Economically speaking it’s incoherent, a non-sequitur.

He didn’t invent this, however. A few years ago some guy on twitter tweeted this exact idea and Business Insider, as they are wont to do, cobbled it and wrapped a “story” around it. I wrote about it at the time. I’ve seen similar arguments from proponents of Modern Monetary Theory (MMT) – more on that below, a rather fringe economic school of thought that elevates circular reasoning to an art form.

Today I can do a better job of articulating the problem with this premise: It confuses the purchasing power of a unit of currency with the nominal return of some asset or investment vehicle.  By this same logic when one invests $1 into some stock and that stock goes to zero, does that mean the purchasing power of the $1 has declined? Certainly not. The same thing holds if the stock goes up.

Further, if you really do try to infer anything about the purchasing power of a currency unit in relation to investment gains from investing it, the relationship is inverted. If the asset goes up in value then the purchasing power of the currency relative to it is declining. This is what purchasing power actually measures: how much “stuff” a unit currency can, you know, purchase.

In other words, the returns earned on investments and assets (this includes savings accounts) tell us about the assets themselves and almost nothing about the purchasing power of the unit used to acquire them. I say “almost” here because those times when the return on assets do reflect on purchasing power of the currency unit it is because said purchasing power is in decline, perhaps rapidly – and capital is fleeing into assets, away from the currency. This is what happens in high inflation or hyper-inflationary events.

In 2007 the  Zimbabwe had the highest performing stock market in the world in nominal terms while their currency collapsed.  There is no difference between what happened there (or in any other hyper-inflationary event) and what Golumbia is trying to call the preservation of purchasing power of a currency unit, other than the speed and time horizon over which it is happening.

Golumbia expands on this premise that purchasing power hasn’t gone down if wages have gone up (an idea promulgated by MMT proponents such as Cullen Roche):

“Labor that earned US$1 in 1913 is likely to have earned around US$21.67 in 2009; and US$21.67 in 2009 buys about what US$1 did in 1913. This is no disaster, “hidden tax,” or “destruction of value”; but viewed in isolation and taken out of context, it can provide a completely distorted view of both labor and economic history.

I’m not sure where people like Golumbia and Roche think wages actually come from. Maybe out of a money unicorn’s ass or something. Everybody’s wages are somebody else’s cost. If it used to take $1 to purchase a unit of labour and it now costs $21.67 then your currency units have lost purchasing power. The idea that wages rise at the same pace as inflation is a nice try by progressives and politicians to make it all seem “cost neutral”, but according to pretty well everybody keeping tracking of this, wage growth is chronically lagging both inflation and productivity gains. Just go out on the street and ask anybody if their wages are rising as fast as their cost of living. For the most part, no, which is why household debt is precipitously rising across most Western countries.

 

If there is still any doubt that inflation erodes purchasing power, let’s take a revered, orthodox central bank at its word, such as the Bank of England, which routinely refers to this erosion in their white papers:

“Real spot and forward rates The return on a nominal bond can be decomposed into two components: a real rate of return and a compensation for the erosion of purchasing power arising from inflation. “

Kansas City Fed chief Esther George said rather bluntly

I am not as enthusiastic or encouraged as some when I see inflation moving higher, especially when it has been driven by a sector like housing. Inflation is a tax and those least able to afford it generally suffer the most.

Or maybe that right-wing extremist Ben Bernanke, quoting that other demagogue, Irving Fisher

“As first pointed out by the economist Irving Fisher, interest rates will tend to move in tandem with changes in expected inflation, as lenders require compensation for the loss in purchasing power of their principal over the period of the loan”

(emphasis added)

Or even Alan Greenspan who as we all should know formerly ran the Fed…

In the absence of the gold standard, there is no way to protect savings from confiscation through inflation. There is no safe store of value. If there were, the government would have to make its holding illegal, as was done in the case of gold. If everyone decided, for example, to convert all his bank deposits to silver or copper or any other good, and thereafter declined to accept checks as payment for goods, bank deposits would lose their purchasing power and government-created bank credit would be worthless as a claim on goods. The financial policy of the welfare state requires that there be no way for the owners of wealth to protect themselves.

Make no mistake: Inflation debases a currency. Everybody knows it, from pension managers and fiduciaries over to FOMC committee members and leftist heroes like Ralph Nader. The only difference is the degree to which those in the know are willing to discuss this in polite company. It takes an act of willful cognitive dissonance to believe otherwise.

I am belabouring this point ad nauseum because Golumbia doubles down on his premise later in the book when he states that:

“Nakamoto seems not to have realized that his belief that Bitcoin would be immune to “debasement” was based on a flawed monetarist definition of inflation”

(emphasis added)

But as we’ve seen, it is not the definition of inflation that is flawed, it is Golumbia’s attempt to rationalize it. Profoundly so.

Wikileaks is illegal

Golumbia then tries to build a case depicting how Bitcoin is used to undermine the legitimate authority of the government by recounting it’s role in helping Wikileaks circumvent a blockade against its payment processors in 2010 (my company, easyDNS, was tangentially pulled into the blockade when Wikileaks’ DNS provider, Dynect, succumbed to pressure to yank the Wikileaks website offline and we ended up helping Wikileaks get a few of their sites back up.)

Widespread interest in Bitcoin first emerged from its utility as a means to bypass the “WikiLeaks blockade.”  Bitcoin made it possible for individuals to donate to WikiLeaks despite it being a violation of U.S. law to do so.

(emphasis added)

The accusation here is that Bitcoin helped subvert the law. The only problem here is that it isn’t a violation of U.S law to donate to Wikileaks and it never has been. 

When U.S politicians and institutions pressured private companies to sever relationships with their customers and then commended them for “breaking their contract” with Wikileaks (exact words of Senator Lieberman) , they were applauding behaviour which should normally get you sued in a court of law.

The fact is, there has never been a single legal finding or decision against Wikileaks in any jurisdiction. The closest thing one can find to one is when the Icelandic Supreme Court ruled in favour of Wikileaks and  against Mastercard subsidiary Valitor. Finding that Valitor had illegally terminated their contract with Wikileaks when they blockaded their donations, the court fined them $6,000USD per day of the blockade.

In light of the actual facts, who acted illegitimately? The members and institutions of the US Government? Or those using Bitcoin to circumvent a extrajudicial financial blockade to make perfectly legal donations using their own money?

The monetary system in use today is called MMT

“…the majority of expert economic theory simply defines money as currency that is issued by a sovereign government. This theory is known as “Modern Monetary Theory” (MMT) or “neochartalism” and has its roots in economics going back at least to John Maynard Keynes, whose views have perpetually been a major target for every sort of attack from right-wing thinkers.”

Uh, no. One would be hard pressed to find a “majority of expert economic theory” that agrees on anything, but whatever the conventionally accepted norms are in this respect, they certainly don’t call the current monetary regime “Modern Monetary Theory” or MMT. I’m a bit surprised Golumbia didn’t go with its closely related cousin, Modern Monetary Realism (MMR) because that sounds less like a theory and more like “reality” (I said “sounds like”, not that it is).

In any case, he makes it sound like MMT is the name for the modern day monetary system and forms the basis of conventionally accepted economics, another factually incorrect premise. MMT is rather fringe, with among others, none other than mainstream economic apologist Paul Krugman being skeptical about it.

In a rather curious admission, Krugman cedes that MMT is in harmony with his own theories around monetary policy, but that when he thinks through how MMT as posited works “it would be quite likely that the money-financed deficit would lead to hyperinflation.“ (We’ll just leave that right there).

MMT is economically analogous to hooking up the outputs of a generator and a motor to each other and hoping for a perpetual motion machine. The TL,DR version is that a government that denominates its debt in its own currency can print as much money as it wants because it can make the taxes payable in only that currency. The taxation sucks up any excess inflationary pressures from the money printing, ad infinitum. That’s MMT in a nutshell.

In any case, MMT isn’t a majority consensus . Even most mainstream economists at least pretend that the central banks can’t print forever and that someday they’ll have to unwind their balance sheets …somehow.

Golumbia also invokes the name of Keynes to somehow confer more legitimacy on the premise and reiterate that disagreeing with Keynes of all people amounts to still more far-right heresy.

Keynes played an enormous role in modern economic thought but in my mind his work is largely misunderstood. His tenets have been grotesquely mangled and I suspect that were he to see what economic policies have occurred in his name he would be appalled.

Over the course of his life Keynes substantially modified his investment approach and economic beliefs. Gradually eschewing the idea that  superior macro economic knowledge could give him an advantage in the hunt for investment returns, he ended his career as a prototypical value investor.

Economists love to cite Keynes for calling gold “a barbarous relic” (in 1924) yet later, in 1934, after his transformation he had fully two thirds of his net worth invested in South African gold miners. Interesting fact: Keynes was on the Board of the British Eugenics Society from 1937 to 1944 which gives me a certain schadenfreude from pointing out to any progressives who revere Keynes that this in fact made him a rrrrrrrracist!

Misuse of “literally” makes me figuratively insane

Stylistically, Golumbia tends to hold all these “right-wing extremists” to a different level of accountability than he does himself. On Andreas Antonopoulos’ “Mastering Bitcoin” he laments that the book:

“includes several substantial economic discussions in which extremist views are proffered, without attribution, as if they are simply commonsense analyses of relatively uncontroversial subjects. Antonopoulos offers matter-of-fact accounts of Bitcoin technology that incorporate conspiratorial theories about the Federal Reserve: [examples cited:] ‘bitcoin mining decentralizes the currency-issuance and clearing functions of a central bank and replaces the need for any central bank with this global competition [to mine for bitcoins]’ (2); ‘mining creates new bitcoins in each block, almost like a central bank printing new money'”

I don’t really see what’s “extremist” about those statements. He’s simply describing how bitcoin issuance of unit of currency contrasts to how the Fed does the same thing.

But Golumbia himself saturates his book with “substantial economic discussions in which progressive / leftist views are proffered, without attribution, as if they are simply commonsense analyses of relatively uncontroversial subjects”.

That includes a rather terse and matter-of-fact connection of goldbugs to conspiracy theory (again) and racism:

“[Ron] Paul claims to want the abolition of the Fed and a return to the gold standard, as if this would result in the kind of absolute economic freedom libertarians demand, which is itself a line of argument with deep connections to racist conspiracy theories in which Paul has long been implicated (see, e.g., “Ron Paul Sites” 2011).”

The citation of (See, e.g. “Ron Paul Sites” 2011) is where I would expect to see some kind of footnote or documentation of Ron Paul’s longstanding racism. There is no endnote which matches this citation. Of the book’s 10 endnotes, none of them speak to this. Are you supposed to google “Ron Paul Sites 2011 “? No idea.

Let me help you. The idea that Ron Paul is racist is frequently trotted out during his many presidential runs yet traces back to a single event, that some of his newsletters in the late 80’s or early 90’s allegedly contained inflammatory material. The letters in question weren’t even written by Ron Paul. They were ghostwritten – some theorize by Murray Rothbard or Lew Rockwell. The point is, from a guy decrying the lack of citations and attribution it’s an example of borderline defamation delivered as fact.

In multiple sections of the book when Golumbia attempts to delegitimize some aspect of criticism against the monetary orthodoxy he doesn’t actually address the dissenting ideas head-on, but cherry picks web comments left in response to some posting, or a discussion forum, leaving the source material alone and simply dismissing it as a cornerstone of right-wing extremist conspiracy theory.

The equivalent here would be if instead of  isolating some of the innumerable fallacies and factual errors in this book and offering specific refutations of them I rather offered criticisms of the more sycophantic and adoring Amazon reviews. But then I would not have proven anything. And neither has Golumbia.

In a closing crescendo Golumbia cites somebody I’ve never heard of  who floated an idea for an assassination marketplace that never launched, completed his flourish adding:

This is not to say that Bitcoin and the blockchain can never be used for non-rightist purposes, and even less that everyone in the blockchain communities is on the right. Yet it is hard to see how this minority can resist the political values that are very literally coded into the software itself.

(emphasis added)

I almost audibly exclaimed “finally!”, thinking we had at what seemed like long last, gotten to the part in the book where Golumbia was going to now show the reader exactly where the right-wing extremism was “very literally coded into the Bitcoin software itself” …and I eagerly turned the page…whereupon I reached the end of the book.

Closing Thoughts

Let’s face it, Bitcoin is a movement born from protest. If the people behind it thought that the monetary system was fairly structured, that those who control it exercise legitimate power to the benefit of wider society and that an egalitarian democratic ideal was at work, functioning largely as intended; then nobody would have bothered to invent it.

The opposition to Bitcoin and the wider crypto-space is following a predictable arc, very similar to the early Internet days: it facilitates criminality, it will destabilize everything, and in a plot twist peculiar to this specific point in history, it is, like anything else progressives and self-appointed social justice warriors disagree with: extremism and racist:

“Many of these debates over new technologies are framed in context of risks to moral values, human health and environmental safety. But behind these concerns often lie deeper, but unacknowledged, socioeconomic considerations”.

Calestous Juma, “Innovation and its Enemies, Why People Resist New Technologies“

The reality however, the driver behind the hostility is the existential threat a technological innovation such as a decentralized extraterritorial monetary system poses to entrenched vested interests:

“The face-off between the established technological order and new aspirants leads to controversies…perceptions about immediate risks and long-term distribution of benefits influence the intensity of concerns over new technologies”.

(Ibid)

Given the stakes, it’s not uncommon for a book like this to appear, but it is important that it be widely known that the book itself offers no substantive rebuttal of the emerging paradigm and is, consciously or not, a smear campaign proffered under the veneer of scholarship:

“One of the most favored propaganda tactics of [the establishment] is to relabel or redefine an opponent before they can solidly define themselves.  In other words, [they] will seek to “brand” you (just as corporations use branding) in the minds of the masses so that they can take away your ability to define yourself as anything else….

Through the art of negative branding, your enemy has stolen your most precious asset — the ability to present yourself to the public as you really are.

Negative branding is a form of psychological inoculation.  It is designed to close people’s minds to particular ideas before they actually hear those ideas presented by a true proponent of the ideas. ”

Brandon Smith,  alt-market.com

He is absolutely correct in diagnosing this phenomenon. In particular, Golumbia’s “Politics of Bitcoin” has said absolutely nothing about Bitcoin itself, merely throwing fallacious strands of “racism”, “conspiracy theory” and “extremism” at the proverbial wall and hoping that something will stick.

A recurring theme throughout Golumbia’s book is around the accumulation of excessive power in private hands, something he sees the State as the counter-balance and his concern is that crypto-currency, given its general refutation of the orthodox monetary regime, is aligned to upset that dynamic; pushing more power unchecked into private corporations.

We might say that right-wing politics sides emotionally and practically with power—it identifies with power, and via this identification works to ensure that nobody interferes with the concentration and exercise of power. On this view, left-wing politics is specifically focused on the limitation of power, on mechanisms for distributing power equitably, and on the excesses that almost inevitably emerge when power is allowed to grow unchecked.

This is an old debate, which concentration of power is unchecked and out of control? Private companies, no matter how large they get will still always be subject to the vagaries of competition. The bureaucratic monolith of the State, not so much.

I too worry about the influence of Google, Facebook, Amazon (that was the impetus behind Guerrilla-Capitalism in the first place), but I don’t see the government acting to limit the reach of these behemoths as much as  allowing them to  operate quasi-monopolies in exchange for their capability to  assist the state in their quest for wholesale surveillance of the citizenry and the obliteration of privacy.

There are legitimate criticisms of the Bitcoin / crypto spaces. Even Brandon Smith, whom I just quoted above, is somewhat skeptical.

As I’ve written before about easyDNS’ involvement in Ethereum Name Service development, “there will be governance”. The grand experiment of the crypto space will succeed or fail to the degree that it can create governance structures, perhaps competitive decentralized ones, that can function effectively before the world governments do it for us.

We’ve been here before. In the early 2000’s there were Digital Gold Currencies (DGCs) like E-gold, pecunix and goldmoney. I went on record that e-gold’s  lack of governance would be its downfall and I was right. E-gold was soon gone, while Goldmoney – under the stewardship of James Turk and his brother, operated with an even handed, rigorous governance structure.  Surprise: Goldmoney still exists to this day and has merged with Bitgold, actually fusing DGCs with Bitcoin, while e-gold is dust in the wind.

The crypto-currencies that successfully create a governance structure around their ecosystems will succeed, those that don’t won’t. There is a very specific Achilles Heel to the current crypto space and I’ll be writing about it next time in my final Bitcoin piece before I return to the core mission of Out Of The Cave (which is how the small to medium sized business can successfully compete with 800lb gorillas within a wave of centralization and consolidation).

Golumbia however, seems to be playing his role within this debate along well known and easily anticipated lines. A self-described “nocoiner” and “Lawful Good Elitist Priest class” brings the obvious historical parallels to mind:

“Vested Interests

One vivid historical account of the tensions over innovation is illustrated by the case of the Luddites in England. In fact, concerns about mechanization predates the Luddites. The popular narrative portrays Luddites as machine breakers who were simply opposed to change. But the situation was more complex than just opposition to new technology –it represented a clash of competing worldviews and moral values. In many cases responses to new technologies depend on the extent to to which they transform or reinforce established wordviews, values or doctrines.”

(Juma)

Speaking of legitimate criticisms of the crypto space,  there are far more credible critics than Golumbia. Jim Rickards comes to mind – a trained economist who actually understands finance and history, Rickards hasn’t been shy about his misgivings around Bitcoin. But he keeps those criticisms on point and has the background, knowledge and experience to do so without the need to put on that broken record of the social justice repertoire: “extremism” and “racism”.

In closing, to those who would be dedicated to delegitimizing crypto-currency, Golumbia’s book follows the progressive playbook:

• demonize the phenomenon through spurious linkages ✓
• arbitrarily define all dissenting opinion as right-wing extremism ✓
• fallaciously link in racism ✓
• build the narrative on a foundation of factual errors ✓
• avoid specific refutation or examination of target material ✓

Bitcoin Magazine’s Giulio Prisco called this book “A masterpiece of sophistry” but I think he’s being charitable. It’s not even very good sophistry. I think Saul Alinsky would have graded it a C minus.

Update:

* In this article I cited John Birch Society as among examples of far-right extremist groups without being familiar with them. After listening to this Tom Woods interview with John F. (“Jack”) McManus about the JBS I realize that I simply unquestioningly accepted Golumbia’s designation of JBS (and others) as “far-right extremists” despite my own criticisms of his book that his definitions of such were arbitrarily sweeping and misused to nullify legitimate criticisms of central banking and the Fed. I should have known better. 

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