This is an opinion editorial by Dan, cohost of the Blue Collar Bitcoin Podcast.
A preliminary note to the reader: This was originally written as one essay that has since been divided into three parts for publication. Each section covers distinctive concepts, but the overarching thesis relies on the three sections in totality. Much of this piece assumes the reader possesses a basic understanding of Bitcoin and macroeconomics. For those who don’t, items are linked to corresponding definitions/resources. An attempt is made throughout to bring ideas back to the surface; if a section isn’t clicking, keep reading to arrive at summative statements. Lastly, the focus is on the U.S. economic predicament; however, many of the themes included here still apply internationally.
fiat money, massive debt and prevalent currency debasement, the hamster wheel is speeding up for the average individual. Salaries rise year over year, yet the typical wage earner often stands there dumbfounded, wondering why it feels harder to get ahead or even make ends meet. Most people, including the less financially literate, sense something is dysfunctional in the 21st century economy — stimulus money that magically appears in your checking account; talk of trillion dollar coins; stock portfolios reaching all-time highs amidst a backdrop of global economic shutdown; housing prices up by double-digit percentages in a single year; meme stocks going parabolic; useless cryptocurrency tokens that balloon into the stratosphere and then implode; violent crashes and meteoric recoveries. Even if most can’t put a finger on exactly what the issue is, something doesn’t feel quite right.
The global economy is structurally broken, driven by a methodology that has resulted in dysfunctional debt levels and an unprecedented degree of systemic fragility. Something is going to snap, and there will be winners and losers. It’s my contention that the economic realities that confront us today, as well as those that may befall us in the future, are disproportionately harmful to the middle and lower classes. The world is in desperate need of sound money, and as unlikely as it may seem, a batch of concise, open-source code released to members of an obscure mailing list in 2009 has the potential to repair today’s increasingly wayward and inequitable economic mechanics. It’s my intention in this essay to explain why bitcoin is one of the primary tools the middle class can wield to avoid current and forthcoming economic disrepair.
Nixon Shock and the suspension of dollar convertibility into gold, mankind embarked on a novel pseudo-capitalist experiment: centrally-controlled fiat currencies with no sound peg or reliable reference point. A thorough exploration of monetary history is beyond the scope of this piece, but the important takeaway, and the opinion of the author, is that this transition has been a net negative to the working class.
Without a sound base layer metric of value, our global monetary system has become inherently and increasingly fragile. Fragility mandates intervention, and intervention has repeatedly demonstrated a propensity to exacerbate economic imbalance in the long run. Those who sit behind the levers of monetary power are frequently demonized — memes of Jerome Powell cranking a money printer and Janet Yellen with a clown nose are commonplace on social media. As amusing as such memes may be, they are oversimplifications that often indicate misunderstandings regarding how the plumbing of an economic machine built disproportionately on credit1 actually functions. I’m not saying these policymakers are saints, but it’s also unlikely they are malevolent morons. They are plausibly doing what they deem “best” for humanity given the unstable scaffolding they are perched on.
Global Financial Crisis (GFC) of 2007-2009. The U.S Department of the Treasury and the Federal Reserve Board are often maligned for bailing out banks and acquiring unprecedented amounts of assets during the GFC, via programs like Troubled Asset Relief and monetary policies like quantitative easing (QE), but let’s put ourselves in their shoes for a moment. Few grasp what the short and midterm implications would have been had the credit crunch cascaded further downhill. The powers in place did initially spectate the collapse of Bear Stearns and the bankruptcy of Lehman Brothers, two massive and integrally involved financial players. Lehman, for example, was the fourth-largest investment bank in the U.S. with 25,000 employees and close to $700 billion in assets. But what if the collapse had continued, contagion had spread further, and dominoes the likes of Wells Fargo, CitiBank, Goldman Sachs or J.P. Morgan had subsequently imploded? “They would have learned their lesson,” some say, and that’s true. But that “lesson” may have been accompanied by a huge percentage of citizens’ savings, investments and retirement nest eggs wiped out; credit cards out of service; empty grocery stores; and I don’t feel it extreme to suggest potentially widespread societal breakdown and disorder.
Please don’t misunderstand me here. I am not a proponent of inordinate monetary and fiscal interventions — quite the contrary. In my view, the policies initiated during the Global Financial Crisis, as well as those carried out in the decade and a half to follow, have contributed significantly to the fragile and volatile economic conditions of today. When we contrast the events of 2007-2009 with the eventual economic fallouts of the future, hindsight may show us that biting the bullet during the GFC would have indeed been the best course of action. A strong case can be made that short-term pain would have led to long-term gain.
monetizing debt and inserting liquidity when prudent are attempts to keep the world from potential devastation. Centrally-controlled money tempts policymakers to paper over short-term problems and kick the can down the road. But as a result, economic systems are inhibited from self-correcting, and in turn, debt levels are encouraged to remain elevated and/or expand. With this in mind, it’s no wonder that indebtedness — both public and private — is at or near a species-level high and today’s financial system is as reliant on credit as any point in modern history. When debt levels are engorged, credit risk has the potential to cascade and severe deleveraging events (depressions) loom large. As credit cascades and contagion enters overly-indebted markets unabated, history shows us the world can get ugly. This is what policymakers are attempting to avoid. A manipulatable fiat structure enables money, credit and liquidity creation as a tactic to try and avoid uncomfortable economic unwinds — a capability that I will seek to demonstrate is a net negative over time.