Is An Economic Crisis Possible With A Currency That Is Free Of Debt?
We are drowning in thousands of billions of Dollar-backed bad debt. Since the end of the Gold Standard in 1971, the world has lost the notion of what money is. We’ve forgotten that this invention was a tool to serve humanity, not to dominate it. Debt has become the shadow of a money that serves the wealthiest 0.1%. The economy unexpectedly slowed down thanks to the COVID-19 pandemic, meaning the system has yet again seized up with no way out. Now we find ourselves, as in 2008, having to bail out the banks with the money of the people. It is a juxtaposition that could be compared to a firefighter trying to put out a fire with water and oil simultaneously.
Why are we witnessing a remake of the 2008 crisis? Why is the taxpayer still going to the checkout? Why would the use of Bitcoin, a debt-free currency, have avoided this umpteenth crisis?
Donald Trump on brink of second bailout for banks
The USA’s central bank (aka the ‘Fed’ or ‘Federal Reserve’) has announced that it will print as much money as it needs: Unlimited Quantitative Easing. ‘Whatever it takes’ – $650 billion have been printed this week alone and some suggest that the total could reach five trillion…
Behind the expression ‘quantitative easing’, which is deliberately made difficult for Joe public to understand, something very simple is being hidden: central banks are essentially printing presses.
In normal times, states/governments finance themselves through commercial banks by exchanging IOUs for fresh money. States then reimburse this debt over five or ten years (sometimes 50 years… crazy I know) with added interest. Otherwise, what good is it to be a banker… By the way, governments never actually repay their debt. They roll it over. To put it another way, states perpetually make new loans to repay past loans – in addition to the interest. This explains why states must borrow more and more under the pain of recession (just look at Greece).
This crazy headlong rush is not possible with Bitcoin. There is no bank that can multiply Bitcoin at will. The blockchain of Satoshi Nakamoto’s currency is a decentralised protocol that has set once and for all the amount of bitcoin that can be created (21 million). Miners are financially incentivised to allow Bitcoin never to devalue via an eccentric ‘fork’ that could betray the very essence of Bitcoin.
In short, when central banks quantitative ease, they are creating new money out of nothing to give to commercial banks in exchange for IOUs. Simple right? So simple that the mind is disgusted… while central banks buy back debts.
Today we’re seeing a 2008 remake with a couple of differences. The 2008 crisis came from the inability to repay mortgages. Why? The FED suddenly raised rates from 1% to more than 5%! Millions of Americans who had taken out variable rate mortgages were caught out. Note also that we reached peak oil prices in 2008 at $140, forcing many companies to start sacking new employees. Many entrepreneurs also found themselves in a spot of bother, unable to pay their bills. There was a chain reaction in the economy. A domino effect or, to put it more precisely, a vicious circle of declining consumption shattering confidence, curbing investment, increasing unemployment and so forth. In short, an economic depression.
However, in our modern system, where every dollar and every pound in circulation comes from debt which must be repaid on time, it means that if just a grain of sand delays repayments, the banking system seizes up. Sooner or later, ailing banks run out of cash to handle day-to-day operations. In order to prevent one or more systemic banks from going bankrupt, central banks flood them with fresh liquidity.
In 2020, the spark was not the criminal hike of rates by central banks, nor the high cost of a barrel of oil, but a break in the supply chain with the shutdown of the factory of the world – China. Just one missing part in this well oiled global machine and everything collapses… Not to mention the non-payment of wages due to compulsory and successive lockdowns. However, the consequences are the same: debts are no longer paid on time, while interest continues to be accrued.
There is something to worry about when we look at Uncle Sam’s recent unemployment stats:
USA weekly unemployment claims
Privatise the gains, socialise the losses
The other difference with 2008 is that quantitative easing is no longer used only to buy government debt, but also to buy the debt of multinationals. However, the Fed does not have the right to buy private debt I hear you ask? Don’t worry, it is the US Treasury which does it on its behalf!
The Fed lends money to the US Treasury which then buys back the debts of the multinationals! To put it another way, the Trump administration is nationalising the debts of these multinationals. American taxpayers will therefore be on the front line in the event of default.
Now you understand how private enterprises are involved, let’s talk a little bit about the debt of the multinationals, which is scandalous to say the least. Thanks to the accommodative monetary policies implemented by central banks in the wake of the 2008 crisis, multinationals have been able to access bank credit even more easily than in the past – but what did they do with this money? They used it to buy back their own shares… According to Bloomberg, the rise in stock markets in recent years is due exclusively to these share buybacks.
Why do multinationals buy back their shares? Because the salaries (and bonuses) of their managers are of course indexed to the share price of their companies. Redeeming shares (and consequently destroying them) also has the mechanical effect of boosting earnings per share and therefore its value. It’s beautiful…
Share repurchasing has grown exponentially in recent years. Over a trillion dollars in 2018 alone was bought back in the United States. $700bn in 2019!
Let’s sum this up. Multinationals generate debt to buy back their own stocks, artificially fuelling soaring stock markets. These debts are then bought by the US Treasury, which will have to absorb the losses if the aforementioned businesses can no longer repay (which will happen sooner or later: when the oil prices peak, currently forecasted for 2025 according to the IEA (International Energy Agency), production costs will dramatically increase and be the straw that breaks the company’s back).
Share buybacks of American multinationals
Currency-debt vs. Bitcoin
Bitcoin is a debt-free currency. This means that once in the economic circuit, it stays there forever.
There is no need to pay it back. This isn’t the case with today’s money, which is always created from debt. Our monetary system underpins the need to constantly recycle money, that is, to repay it on a regular basis, without fail, and then to re-borrow in an endless and inflationary cycle.
In a world where Bitcoin is the official currency, the criminal game of multinationals borrowing from ‘open bar’ banks that raise the price of their shares would be impossible. You would not have prices completely out of touch with reality or a stock market crash as soon as you stop working for a few weeks.
These stock market crashes are a boon for printing thousands of billions, watering the debt bubble AND, above all, nationalising the debts of multinationals. All this after their leaders and shareholders are paid billions in salaries, bonuses and dividends.
Debt always benefits the same people: those who sit just below the liquidity trap. Those who own stocks get rich from debt. With this enrichment, they buy goods from others who in turn buy goods and, as money spreads through the economy, it creates inflation. The last one to receive this money (the furthest from the sector where the money is first injected) will not benefit from the monetary creation because of the inflation generated in the meantime. This is the principle of the Cantillon effect.
Debt is a source of inflation for the poor and enrichment for those who drink directly from the source. To put it simply: running the money printing press (i.e. inflating the debt bubble) benefits those who own capital (corporate shares) and impoverishes those who don’t (the new generations).
Inflation has caused the dollar to lose more than 95% of its purchasing power over the past century. To illustrate, imagine someone who stashed a dollar under their mattress in 1920. By today, the purchasing power of the same dollar would be just five cents. On the other hand, the one who kept his dollar in the form of Ford shares saw his purchasing power increase to $10, since the Dow Jones has multiplied by ten in the same period of time.
If you had saved the money and inflation was roughly 5% per year, the purchasing power of your savings will decrease by 5% each year. If inflation is 5% a year and your salary increases by only 2%, you still get poorer by 3% every single year.
The trillions of billions of Trump money which is being printed will impoverish the average Joe. Bitcoin corrects this injustice because it is not tied to debt. It cannot ‘depreciate’ (in the long term) because there will never be more than 21 million. It is impossible to create debt with it and make the taxpayer pay the bill once it explodes, for lack of sufficient economic growth (whether that’s a pandemic, oil peak, war or simply an exhaustion of raw materials).
Hi! Привет! Salut ! Je m’intéresse à deux choses : la crypto et les langues. Je suis donc heureux de faire partie de l’équipe multinationale du CoinTribune, où je peux partager mes connaissances de la crypto avec des gens des quatre coins du monde – l’un article après l’autre.