Bitcoin: The Next Generation Money (part 2 of 4)

Genuine vs Biased Money

Fundamental needs of people

1. Good standard of living
2. Healthcare
3. Education
4. Safer community

And those who possess the above do not easily get exploited or suppressed by others.

Economic system to obtain these needs

Having an economic system that yields 100% perfect outcome for everyone at all times is not practical. But a better system that unleashes and harvests the human potential is possible and it can support the fundamental needs of people as soon as possible.

Goods and services that provide the fundamental people needs at low cost is possible only when all people work to the best of their potential. When people work at their best potential, new innovative products and services will be created that improves people’s quality of life.

Both employers and employees work at their best potential only when either they are directly benefiting from their effort, or when they fear punishment from a powerful authority (so basically out of self interest or fear). The fear driven approach fails in most of the cases and in more dangerous ways. Self-interest based ecosystem has worked as a better system so far.

In real world, all this turns out like the following. More investment and larger business ecosystem leads to more number of competitively salaried jobs for more people. This also leads to more basic and innovative goods and services at low cost. This ecosystem also stops the dangers of corporate monopoly and oligopoly by letting competitive entrepreneurs fight evil corporate practices.

When and how will more investors and entrepreneurs emerge to play a role?

Only when an ecosystem where running businesses and trading goods and services can be conducted at low cost and without legal and illegal barriers. Simply put, when there is minimal risk and greater profit opportunity. Good infrastructure is an added advantage.

To address illegal barriers, police and defense are important for both individuals and businesses. But when one thinks about it, when we reach a scenario where most people in the world have a good standard of living, healthcare and education, there will be minimal need for police and defense.

The misplaced faith of people

Many people put their faith in politicians demanding them to create rules and regulations to protect from malpractices of evil corporations and dangers of criminals and terrorists. But in most of the cases, it is hard to find such honest and skilled politician who would fulfill that promise.

Power tends to corrupt; absolute power corrupts absolutely.

— Lord Acton

In reality, most politicians are corrupted with bribes and lobbyism from mobs and corporates to support them through both legal (unjust laws and regulations) and illegal means. These will cripple the confidence and effectiveness of investors and business community to succeed.

What does Bitcoin or any other good (sound) money have to do with the above?

Because a good money strictly restricts the politicians and powerful banks from engaging in the following malpractices.

● Stealing people’s hard earned money through inflation and unjust taxes

● Spending on freebies to buy votes

● Increasing wealth inequality in the society

● Waging wars for profit of politicians, corporates and banks

● Discouraging investments and business

● Discouraging employment opportunities

● Discouraging innovations that would have uplifted people’s life

● Creating and bending laws and regulations to favor their supporters — families, friends, party members, corporate donors and mobs

Sounds like a magic bullet?

Give me control of a nation’s money and I care not who makes it’s laws.

— Mayer Amschel Bauer Rothschild

There are many other greater benefits good money can offer to the world. Few of them are discussed in the upcoming sections.

Why is all the fuss around the financial industry?

Financial industry provides the following four critical services to their customers:

➢ Safely storing their customers’ money

➢ Providing loan to their customers for interest

➢ Offering services to transact money between different parties

➢ Playing intermediary and advisory role for investments to their customers. These customers are individuals, businesses, and governments.

In other words, financial systems are like the veins of our economy and money is like the blood. If the financial industry takes control over blood supply as well as its creation, they would be controlling and directing the blood circulation to the parts, and in directions which would be beneficial to them.

Whoever controls the volume of money in any country is absolute master of all industry and commerce.

— James A. Garfield, 20th president of the US

They can also steal certain amount of blood and contaminate the blood (inflation). The problem is not just the stolen blood but also the numerous negative effects of it. The contaminated blood impacts all organs like businesses, politics and individuals. Maybe for a while the organs believe that this is real blood, so they may work hard in their job fueled by the contaminated blood, but eventually fail. Let’s see how these play in the real world in following sections.

What about the democratic systems we already have to stop the above fall?

The solution from the government is a central bank in most of the nations. Federal Reserve (Fed ) is the central bank of the US which was established in 1913.

Fact 1: Fed is not a US government organization. Fed’s shares are mostly held by big banks of the world.

Source: Federal Reserve Bank of St. Louis

The Fed is an institution which is controlled by a few powerful private banks. It is not a government institution that controls the financial industry but vice versa.

Many central banks of the governments in the world are directly or indirectly controlled by the big private banks of the world through different means like international loans and investments. For their own benefits, politicians always employ this central banking system irrespective of big private banks’ backup.

But what is the benefit for government in central banking model?

People love freebies, so corrupt & incompetent politicians always use this public tendency to buy votes — “Using small Fish to Catch Big Fish”. To fund these freebies, governments can either use its revenue from collecting tax & tariff, or borrow money from banks and other institutions for interest (which has to be paid back to the bank using government’s revenue). Raising taxes for more revenue will backfire. Banks and institutions do not give loan to a government, if they have no confidence in the government’s ability to return the debt with interest. To bypass these constraints, governments allow the central banks to inflate money and give debt to the government.

With low interest rates, easy credit access and flexible financial policies, governments can control the flow of money to different industries and different classes of people, so certain wealthy people can enrich themselves at the cost of others. In this process, politicians get their cut through lobbism and corruption.

Also politicians earn huge sum of money in the name of lobbism from war profiteers — corporates and banks. How? Wars require huge amounts of weapons and goods & services from corporates. To buy them, the government requires huge amount of money for which they take inflated loans from banks.

How was the Federal Reserve created?

Powerful banks (power of money) and government (power of legislation) created this central bank together to control and inflate the money to provide more debt to government and others. To justify the need for a central bank in the US, government and banks accused the gold standard for the 19th century recessions. They also claimed they can control recessions by monetary control. But the root cause of most of the recessions was temporary inflation by the US government to fund the wars. To do this, the US government printed more currency with limited gold in their vaults which backfired.

To get rid of gold standard (it is hard to inflate in gold standard) completely, they also projected it as a cause of the great depression’s disasters. But the root cause of the great depression was Fed’s policy. The Fed made public access to credit cheaper, which accelerated the 1920s stock market bubble and then was followed by its crash in 1929. During this panic phase of the crash, the Fed again introduced another policy in which people were not allowed to withdraw money from banks, causing the economic activity to collapse further and lead to more unemployment.

But finally the power of money and legislation won, and they eventually abandoned the gold standard in 1933 by not letting people to exchange their USD for gold. After 1944, the gold exchange system was practiced in most parts of the world until the birth of the fiat money system in 1971.

Fact 2: As of June 30, 2011, the largest six financial institutions have assets that are the equivalent of 65 percent of US GDP (a broad measurement of a nation’s overall economic activity and it is the monetary value of all the finished goods and services produced within a country’s borders in a specific time period).

1. Bank of America Corp., $2.264 trillion
2. J.P. Morgan Chase & Co., $2.246 trillion
3. Citigroup Inc., $1.957 trillion
4. Wells Fargo & Co., $1.260 trillion
5. Goldman Sachs Group Inc., $937 billion
6. Morgan Stanley, $831 billion

Together, the top six companies’ assets were $9.495 trillion.

Source: National Information Center and U.S. Commerce Department’s Bureau of Economic Analysis

Part 3…

In part 3, we will discuss the consequences of this manipulated system.