Category Archives: Money

Libra: Facebook’s Crypto Trojan Rabbit, by Tom Luongo

Anyone with half a brains knows to beware Zuckerbergs bearing gifts, so the announcement that Facebook is getting into cryptocurrencies should be greeted with immense skepticism. From Tom Luongo at tomluongo.me:

Cryptocurrencies are winning. If you need proof look no further than Facebook’s proposed Libra stablecoin. While the details are scant, the salient point is Libra is another attempt by the current banking establishment to slow the flow into the world of hard money.

In this respect Libra is no different than Ripple or dollar-settled Bitcoin futures contracts. These are products designed to slow the exodus out of the shadow banking system. Ripple is a way to lower foreign exchange fees and off-chain futures settlement is a way to control Bitcoin prices and exacerbate volatility to slow crypto-adoption by so-called normies.

Now we have Facebook and Libra. As Caitlin Long points out in her excellent Forbes’ article, Libra will get major financial players backing it. The goal is to become a standard creator in the vein of the Dow Jones Committee or the IMF since it will determine the basket weighting of Libra.

It won’t, however, be a cryptocurrency in the traditional sense. It won’t have a limited supply, defined inflation rate or any commodity character whatsoever.

Proof-of-work? Phsaw! Every good Friedmanite knows that opportunity cost in creating new monetary units is simply wasted capital!

Only mouth-breathing rubes stuck in the 19th century think that’s important.

Instead Libra’s supply will be regulated just like every other fiat currency, by a central authority. Facebook already wants all your data, whether you’re an account holder or not.

Now they want to control your currency as well.

The Central Bank of Facebook

When you extrapolate out the power of Facebook’s platform to where this coin will be marketed to, emerging markets, Libra is looking for all the world like Facebook’s application into the cartel of price-setting central banks.

Ms. Long even hints at this in her article. In fact it’s her first of six important points about Libra.

1. Facebook’s cryptocurrency will be a powerful force for good in developing countries, which is where Facebook intends to market the product.

Why? Because central banks in developing countries are notorious for their lack of discipline in maintaining the value of their fiat currencies, which too often lose purchasing power. The best example among many is Venezuela, which is experiencing hyperinflation worse than that of Germany after World War I. By providing citizens of developing nations with access to a store-of-value that is more reliable than their government-backed currencies, Facebook’s cryptocurrency will indirectly exert fiscal and monetary discipline on developing nations—which will improve the lives of many people globally.

Leaving aside the fact that much of Venezuela’s hyperinflation stems from the U.S. sanctioning and cutting Venezuela off from the global banking system, she has a strong point.

Governments are terrible at managing the value of their currencies for all the reasons Austrian economists have laid out in painstaking detail for decades.

Think this through for five seconds and you get to the obvious conclusion. Facebook and the Wall St. banks which actually control it are creating a coin to do away with national currencies in the countries most vulnerable to the Fed’s control over the global monetary system.

This is the next step in the quest to create a world currency.

And if the current system’s long-term health is threatened by, oh I don’t know maybe, the implosion of a bunch of SIFI banks like Deutsche Bank sparking a global sovereign debt crisis, then a stablecoin like Libra to replace a discredited dollar/euro/yen/pound makes some perverse sense.

If the plan has always been, as Jim Rickards has been saying for years, that the response to a collapsing monetary system would be national currencies replaced with IMF SDR’s as the reserves of the banking system, then having a ‘cryptocurrency’ Trojan Horse to bait and switch with has to be part of the plan to maintain confidence in the institutions that fomented the crisis in the first place.

And what better platform to do that with than Orwell’s Panopticon itself, Facebook?

The Crypto-Antibody

As I pointed out at during last year’s meltdown in cryptocurrencies, Bitcoin was needed to replace these Ponzi schemes masquerading as money.

… Bitcoin was born out of the extreme fraud of the financial system under Greenspan and Bernanke.

They used leverage ratcheted up post-Y2K to levels which could only be supported through legislative fiat to wall off capital fleeing the system.

And the response was a group of folks applied the teachings of Austrian Economics and Ludwig von Mises’ Regression Theorem to create a digital asset which became more resistant to fraud the more it was adopted.

The result was Bitcoin.

Bitcoin was a catastrophic mutation.  A thing born out of necessity to free human beings from a central issuing authority of new monetary units.  That relationship needs to be broken if we are going to free ourselves from the cycle of tyranny of the few at the expense of the many

In short, Government ineptitude and/or fundamental evil created Bitcoin.

This is the essence of what Ms. Long talked about around the same time as that post in her Mises Weekend talk “Will Blockchain Free Us from Wall St.”

It’s a wonderful talk that focuses on the domestic reasons why the dollar is yet to collapse and why Bitcoin provides the framework in which we can craft money that isn’t controlled by a central issuing authority.

This is the key point that she mentions but doesn’t emphasize in her talk. For the first time in history we have been presented the option to choose money whose new units are not subject to the whims and corruption of humans.

That’s set by math. And math both determines the rate of inflation and the rate of trust developed by the money itself. This continues to be Bitcoin’s biggest advantage as long as the economic incentives to maintain the network remain positive and are not perverted.

A Farewell to Kings

It means no philosopher kings deciding the rate of inflation or deflation. It means minimizing rent-seeking behavior. It means an end to counterfeiting as we have experienced in the past.

But as I said earlier, things like off-chain settled futures contracts create ‘Paper Bitcoins’ which suppress its exchange rate versus the U.S. dollar. They are an attempt at counterfeiting through through leverage. So are stablecoins like Tether, if not managed properly and, don’t kid yourself, Libra.

Facebook and Wall St. are banking on Facebook’s pervasiveness to drive mass adoption to build an adjunct to the existing financial system which slows the growth of the real cryptocurrency marketplace.

They value blockchain to lower costs and replace antiquated clearing systems of increasingly opaque ledgers, as Ms. Long points out in her talk. But they still want to retain control over the value of the money itself and what that money represents.

They want to retain the system of perverse incentives they have created which rolls up the wealth of the world to them.

It was, as I said earlier, these perverse incentives that created Bitcoin in the first place. And with each new attempt to co-opt the technology and/or suppress its usage through ridiculous laws they validate cryptocurrencies all the more.

Which is Ms. Long’s conclusion in her recent article:

6. Facebook’s cryptocurrency will turn out, in the end, to be a Trojan horse that benefits Bitcoin.

During a period of monetary upheaval, one in which the faith in the Institutional Order tends towards zero, there will be a fundamental shift away from public-issued money as trusted media of exchange.

If Martin Armstrong is correct and we are approaching the end of a mega-cycle in Public trust and a massive shift in consciousness to Private assets as stores of wealth, then it again makes sense for the powers that be, those I like to call The Davos Crowd to create a private-in-name-only “cryptocurrency” to co-opt that shift and remain in control.

But it also means that these same people, who have fed at this trough for so long, aren’t any more capable of managing it successfully than they were the dollar and the euro.

So we really do have little to fear from Facebook and Libra in the long run, because as we know from the Trojan Rabbit, it came back to land squarely on their heads.

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Counterfeiting Money Is a Crime — Whether Done by the Fed or A Private Individual, by Patrick Barron

The Federal Reserve probably counterfeits more money than anyone else. From Patrick Barron at mises.org:

A few years ago, shortly after the 2008 subprime lending disaster, the Fed sent a public relations team around the country to conduct supposedly “educational sessions” about how the Fed works and the wonderful things it does. The public was invited, and there was a question and answer session at the end of the presentation. One such session was held in Des Moines, Iowa. At the time I was teaching a course in Austrian economics at the University of Iowa, so I lusted at the prospect of hearing complete nonsense and having a shot at asking a question. I was not disappointed.

The educational part of the session lasted about an hour, and it became clear to me that the panel of four knew almost nothing about monetary theory. They may even have been hired especially for this grand tour, because all were relatively young, well scrubbed, and very personable–let’s face it, not your typical Fed monetary policy wonks or bank examiners! The panelists discussed only one of the Fed’s two remits–its remit to promote the economic advancement of the nation. Its other remit is to safeguard the monetary system. However, the panelists did touched upon the Fed’s control of interest rates and ensuring that money continued to flow to housing and other high profile areas of the economy.

Finally, at the end of the presentation, those with questions were asked to form a queue and advance one at a time to a microphone. I was last in a line of about a dozen. Here’s my recollection of what followed:

Me: You say that you (the Fed) have the power to increase the money supply. Is that right?

Fed: Yes.

Me: And you have indeed increased the money supply. Is that right?

Fed: Yes.

Me: And the money that you create was generated out of thin air. It wasn’t there before, but it’s there now. Is that right?

Fed (Getting nervous): Yes.

Me: And you say that creating this money out of thin air is beneficial to the economy. Is that right?

Fed (Now nervous as a cat on a hot tin roof): Yes.

Me: Then why do you prosecute counterfeiters?

(The audience, after a few seconds’ delay,: Yeah, why DO you prosecute counterfeiters?)

Fed: This meeting is closed.

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The Federal Reserve: A Failure of the Rule of Law, by Alexander W. Salter

Most of the Federal Reserve’s powers did not come from its statutory authorization—the law. From Alexander W. Salter at aier.org:

“Money is power.” We’ve all heard this aphorism many times before. Too often it’s a lazy shorthand dismissal of the finding of mainstream economics, which show that the pursuit and possession of money often entails innocuous or even beneficial consequences for society. Dr. Johnson was right after all: “There are few ways in which a man can be more innocently employed than in getting money.”

But there are some contexts in which the saying is apt. An obvious case is the Federal Reserve. The Fed has a monopoly on the creation of base money, the fundamental asset underlying the banking and financial system. And over decades, with each instance of financial turbulence, the Fed has become less constrained in how, when, and why it creates base money. Since the Great Recession, the Fed has been able to bestow purchasing power, liquidity, and solvency on just about any financial organization it pleases. If that isn’t power, there’s no such thing.

The Federal Reserve System was created in 1913. It was intended to be a formalization of the interbank clearing system that then existed in the National Banking System. It was not intended to be a central bank. Even in the early 20th century, economists and politicians had some idea of what central banks did and how they behaved, and the existence of such an institution was widely regarded as inherently un-American, in the sense that it could not be reconciled with a self-governing society. That’s why so many proponents of the Federal Reserve System bent over backward to insist they were not advocating the creation of a central bank. And at the time, their repudiations were reasonable; there was no reason the Federal Reserve System had to acquire the powers it did.

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Fake Money’s Face Value Deceit, by MN Gordon

The Federal Reserve has destroy about 96 percent of the value of the dollars since it was entrusted with preserving the value of the dollar back in 1913. From MN Gordon at economicprism.com:

hane Anthony Mele stumbled off the straight and narrow path many years ago.  One bad decision here.  Another there.  And he was neck deep in the smelly stuff.

These missteps compounded over the years and also magnified his natural shortcomings.  Namely, that he’s a thief and – to be polite – a moron.  Recently the confluence of these two failings came together like a sewage spill to a river draining through the center of town.

Mele made a dishonest mistake.  He failed to recognize that he’s not the only dishonest soul operating in a dishonest world.  That is, he failed to comprehend the difference between face value and real value.

So it was, with dishonest intentions, that he burgled a rare coin collection with no clue what it was that he’d taken.  To his soft and greedy mind all he saw was a hoard of coins with a face value of One Dollar.  Thus, he redeemed them for cash.  Zero Hedge offers the details:

“After stealing a rare coin collection from an elderly and disabled retiree, Shane Anthony Mele, dumped what their owner said was at least $33,000 worth of collectible coins down a Coin Star machine at a Florida supermarket and collected their face value, receiving about $30 – enough for a couple of 12 packs.”

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The Return To A Gold Exchange Standard, by Alasdair Macleod

Unbacked currencies will sooner or later go up in flames, as they always have. The general solution, then, will be obvious: some sort of gold-based monetary system. From Alasdair Macleod at goldmoney.com:

This article makes the obvious point that a return to a gold standard is the only way nations can contain the interest cost of servicing debt, given the alternative is inflationist policies that can only lead to far higher interest rates and currency destruction. The topic is timely, given the self-harm of American economic and geopolitical policies, which are already leading America into a cyclical slump. Meanwhile, American fears of Asian domination of global economic, monetary and political outcomes have come true. The upcoming credit crisis is likely to kill off the welfare state model in the West by destroying their unbacked paper currencies, while China, Russia and their Asian allies have the means to prosper.

The fragility of state finances

In my last Goldmoney article I explained why the monetary policies of inflationist economists and policy makers would end up destroying fiat currencies. The destruction will come from ordinary people, who are forced by law to use the state’s money for settling their day-to-day transactions. Ordinary people, each one a trinity of production, consumption and saving, will eventually wake up to the fraud of monetary inflation and discard their government’s medium of exchange as intrinsically worthless.

They always have, eventually. This has been proved by experience and should be uncontroversial. For the issuer of a currency, the risk of this happening heightens when credit markets become destabilised and confidence in the full faith and credit, which is the only backing a fiat currency has, begins to be questioned either by its users or foreigners or both. And when it does, a currency starts to rapidly lose purchasing power and the whole interest rate structure moves higher.

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Guess how much Britain’s richest man saves on taxes by moving to Monaco? by Simon Black

Governments will propose new and higher taxes, people with large incomes and abundant wealth will dispose, voting with their feet for other jurisdictions. From Simon Black at sovereignman.com:

Bill Gates and I don’t agree on taxes.

He says that he should pay more. And I consider it my moral duty to pay as little tax as possible. I don’t want to fund the government’s destruction, corruption and waste.

But in an interview with Fareed Zakaria, Bill Gates did echo my Universal Law of Prosperity: produce more than you consume.

Bill noted that the government “only collect[s] about 20% of GDP and we spend like 24% of GDP, so you can’t let that deficit grow faster than the economy.”

The US has over $22 trillion in debt, and is adding $1+ trillion of red ink every year. And this is in good times.

Then Bill Gates checked off another Sovereign Man theme: “the promises the government has made like taking care of healthcare and pensions, those will become more expensive, a higher percentage of GDP.”

He’s putting it lightly… Worldwide, pensions are short $70 TRILLION. State, federal and local pensions in the US are $7 trillion short, not counting $50 trillion of unfunded Social Security liabilities. And so far the only solution politicians can think of is more debt.

But as much as Bill would love to see the rich taxed more, he recognizes that you have to be careful.

He understands the rich are the most adept at avoiding taxes. Even when taxes in the US were 70%, the actual collection was only around 40% thanks to deferrals and other maneuvers.

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Crossing Borders with Gold and Silver Coins, by Doug Casey

There are some very good reasons to own gold and silver coins. From Doug Casey at internationalman.com:

It’s well-known that you have to make a declaration if you physically transport $10,000 or more in cash or monetary instruments in or out of the US, or almost any other country; governments collude on these things, often informally.

Gold has always been in something of a twilight zone in that regard. It’s no longer officially considered money. So it’s usually regarded as just a commodity, like copper, lead, or zinc, for these purposes. The one-ounce Canadian Maple Leaf and US Eagle both say they’re worth $50 of currency.

But I’ve had some disturbing experiences over the past couple of years crossing borders with coins. Of course, crossing any national border is potentially disturbing at any time. You might find yourself interrogated, strip searched, or detained for any reason or no reason. But I suspect what happened to me crossing a few borders in recent times could be a straw in the wind.

I’ve gradually accumulated about a dozen one-ounce silver rounds in my briefcase, some souvenirs issued by mining companies, plus others from Canada, Australia, China, and the US. But when I left Chile not long ago, the person monitoring the X-ray machine stopped me and insisted I take them out and show them to her. This had never happened before, but I wrote it off to chance. Then, when I was leaving Argentina a few weeks later, the same thing happened. What was really unusual was that the inspector looked at them, took them back to his supervisor, and then asked if I had any gold coins. I didn’t, he smiled, and I went on.

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