Bitcoin: A Revolution for Middle and Lower Classes
Inflation and deflation are market phenomena, effects of previous courses of action, which are free from any morality whatsoever. They are triggered. In a market economy, they are a voluntary and genuine determination. Problems arise when both occur in a manipulated economy, or worse, a command/control one. In this case their existence is artificial and, just as day follows night, the forcing of one phenomenon will subsequently trigger the appearance of the other which has been deliberately suppressed.
In the current economic environment, inflationary pressure is mainly linked to supply-related factors. If we think about the last two years in particular, we notice a certain acceleration: on the demand side we have had closures, logistics problems and consumer panic; but on the supply side we have an ECB balance sheet of €8 trillion, profuse money through the welfare state, significant shifts in the figures of larger money offerings and skyrocketing public debts. Bottom line: it was inevitable that prices would have risen.
Preventing a healthy squeeze of its counterpart phenomenon, pushing even more on the pedal of deficits and central banks printing money, is the smoking gun of a precise will to artificially favor one of the two phenomena mentioned above. But is it the fault of a subsequent deflation? No. It would mean blame the day/night cycle for one’s failures. It is the push for one or the other phenomenon by a market maker, in our case States and central banks, the real cause behind imbalances and economic errors to be cleaned up, in addition to the growing damage we observe today.
Between 1985 and 1990 the FED let rates rise by 325 basis points and meanwhile the S&P 500 index rose by 45%, before the raising rates cycle brought down emerging economies in Mexico and States like California. Then the Fed reversed course. Between 1993 and 2000 it let rates rise by 325 basis points and the stock market in the meantime jumped 225%, before the recession of the early 2000s broke out. Then the Fed reversed course. From 2003 to 2007, the Fed left rates at 375 basis points and the market in the meantime grew by 30%, before the raising rates cycle led to the bursting of the housing bubble. Then the Fed reversed course. Between 2015 and 2020, rates rose by 200 basis points and in the meantime the market rose by 65%, before the Fed reversed course after a slight market correction.
History shows us that central banks are more concerned with financial assets than with consumer price prices. In early 2016, the S&P500 index faced an 11.3% correction and the FED only let rates rise once that year despite announcing four more hikes. In December 2018, the US stock market fell by 9% and in January 2019 by another 3.5%. Immediately thereafter, the Fed announced the interruption of its rate hike cycle.
To date, although a new round of rate hikes has been announced, it has not yet been implemented. In the event that it is pursued, the room for maneuver is somewhat limited: 150 basis points. But it will be reversed if the stock falls “enough”. In the last 30 years central banks have become progressively more aggressive in defending the markets, precisely because their interventions have corrupted them more and more. And in the wake of these distortions, the noose of the “Inflate or die” trap has been put on central banks’ neck.
The central banking system is the best example of how socialism is prevalent today and of its hypocrisy. Advocated by Marx/Engels in their 1848 work, we note today how quick it is to intervene when Wall Street is in trouble, but it is slow to intervene when Main Street is. The FED, for example, immediately reversed the course when a danger of continued declines slightly scared the financial markets (i.e. 2013, 2020, etc.); on the other hand, it continues to chatter about rate hikes and to make excuses (i.e. “transitory”) despite the fact that prices continues to rage.
This is a system that cannot be reformed, anyone who takes such a position is calling for more socialism. This system cannot be abolished, central planners who run it have built upon it a scaffolding of privileges that they strenuously strive to support with anti-market actions. This system can only be bypassed and led to obsolescence, a task that Bitcoin is currently carrying out with exquisite efficiency. Over time it has become clear that the primary means by which States take and maintain control is through money. Weapons help, authority too, but in the end it is control of money that keeps people in serfdom. Bitcoin was initially only for nerds, now it has become a tool to save the middle and lower class from economic/social annihilation by the hands of governments. The “workers’ revolution” is taking a different path than anyone in the 19th century could have ever imagined.