Bitcoin, gold and CBDCs
Gold might protect you from inflation, but at what cost?
Central Bankers love gold
Have you ever stopped to consider why central banks hold gold? If you look at the mainstream narrative, you’ll see some familiar ideas.
Inflation hedge, long-term store of value, lack of default risk and, perhaps most importantly, performance in times of crisis. I think it’s important to unpack a couple of those ideas.
1. Inflation hedge
Many goldbugs hold gold because it has somewhat reliably provided a hedge against monetary debasement. And, this makes sense for a person or a business that is exposed to monetary debasement.
However, for a central bank, the only source of monetary debasement is the bank itself. Turkey, for example, has been one of the largest buyers of gold the last couple of years.
That’s pretty convenient for the Turkish central bank, as their domestic monetary policy has, and continues, to collapse their currency. They’re basically strip mining their entire population by printing Turkish Lira so they can fill the banking coffers with something that actually has value — gold.
Less an “inflation hedge” it seems. It’s rather more a rug-pull at the nation-state level.
2. Long-term store of value
Again, much like the “inflation hedge” idea, the long-term store of value (LTSV) idea also makes a lot of sense if you’re a person or a business forced to trade (legal tender) your home countries’ currency.
But, much like the example above, the same logic cannot flow for a central bank, because the “store of value” properties of gold are only relevant if the currency you transact in is inflating.
The only source of that monetary inflation is, again, the central bank itself. So, for a central bank, it’s not so much about “storing” value as it is about “stealing” value from their people to “store” it in something that has value — gold.
3. No default risk and crisis performance
As I hope you can see, the most commonly cited reasons for central banks to hold gold only make sense by ignoring the stark reality that they are simply stealing.
Which leads us to the ideas above: Default risk and crisis performance. To hear a Modern Monetary Theory (MMT) lunatic say it, a central bank cannot default, because they can always just print more money.
Trouble is, the counter-party to the debt always strongly disagrees with such notions. And, again, the only reason for a central bank to face a default risk is because of the monetary inflation they create.
Which leads us to the real reason central banks hold gold. They hold gold in case they print so much that the currency collapses. Or, as the InvestingNews correctly states it:
Central banks have therefore traditionally held large reserves of gold to safeguard their financial systems. In the case of a system collapsing, gold supply provides the means to recover.
Recover is a nice way to say, “Start over” in case you were wondering.
The gold standard
The goldbugs often say things like, “If we could just go back to a gold standard, everything would be swell.”
This is an error.
The gold standard is not and has never been the way a central bank wants to do business. The gold standard is the way they trick people into using their currency again.
They usually have to trick people because the last currency they made out of thin air has collapsed. It’s usually right around the time that the population is rioting and out-of-control that someone new comes in and promises to fix things.
The first fix they have to do is create new money. Except, since everyone is already bent out of shape about losing everything with the last currency, the only way the new government can bootstrap their “new” money is by promising not to inflate it to the moon again.
Countries that fail to do this very necessary step end up like Zimbabwe, where they just keep making new notes with higher and higher numbers on them.
Over time, it looks like this:
What happens is no one bothers to use them. They just turn to the black market to buy money that isn’t as useless.
Now, Zimbabwe is kind of a dinky country in global terms. Its per-capita GDP ranks 148th out of 190 countries. Meaning, it’s a piss-poor, grossly mismanaged economic slug.
But, if a large economy overprints and needs to “restart,” the only way they can successfully do so is by promising to make their new “restart” currency credit worthy.
So, they peg it to gold.
This assures creditors that the money won’t be squandered again and allows an actual economic recovery to occur. That is, right up until no one’s watching and they start the whole de-peg, inflate, collapse cycle all over again.
This happens with 100% certainty every single time, in every country that issues fiat, for the last 500 years.
Like clockwork.
All hail the new CBDC
You’ve probably heard people warning about the dangers of CBDCs. Surveillance coin, social credit scores, being cut-off from banking for saying the wrong thing, you name it.
Given enough time and enough acceptance, I think the chances are very good that those things will happen…eventually. Not right at first, of course.
Central bankers are thieving, conniving vultures, but they’re not stupid. They know that implementing things like that right out of the gate will cause people to not use the currency.
In fact, there is so much fear and opposition to CBDCs, I think the likelihood of any major central bank rolling one out at full-scale is very low.
Very low that is, without a major crisis, like a world war, or a global sovereign debt collapse, or both.
In case you haven’t been following along, both of those scenarios are very much on the table. In fact, it appears that the “leaders” of the world are doing everything they possibly can to make both happen simultaneously.
That’s not very nice, now is it?
What do you think might be driving these “leaders” to push so hard and keep making such seemingly dumb decisions that will inevitably lead to global chaos and destruction?
If you just step back a bit, the answer is pretty obvious. The central bankers of the world printed WAY too much money.
Take a look:
To put that chart into perspective, in the fifty years from 1959 to 2008, the US central bank increased the M1 money supply by 750%. From 2008 to 2020, they doubled the money supply.
From 2020 to today, they quadrupled it. That’s a 4x increase. And, so did every other bank on planet earth. All at once.
In case you were wondering, that’s a problem.
We did not become 4x more productive since 2020. We did not increase exports by 4x. We did not increase jobs by 4x.
In fact, if you priced the S&P500 as a percentage of the money supply, the S&P500 would have to be 4x higher than it was in 2020 just to be at parity. For perspective, right before the 2020 debacle, the S&P was trading at 3400.
Which means, for the S&P to be at parity — as a percentage of the money supply — it would need to be trading at 13400.
It’s not.
That’s why this chart of the S&P as a percentage of the money supply looks like this:
As you can see, as a percentage of the money supply, the S&P500 is actually below what it was in 1974! If you recall, I mentioned earlier that central banks are buying gold at a record pace.
Here is what that looks like:
Now what, if anything, stands out to you about that chart?
I’ll tell you what stands out to me. You’ll notice a massive increase in gold buying by central banks right after 2008. Then, there’s another YUGE spike after 2020.
Surely a coincidence, right?
Keeping the discussion above in mind, I say the reason they are hoarding and buying so much gold is because they know they have no plausible way out of the mess they created.
Which is precisely why our dear “leaders” are seemingly doing everything they can to push global conflict, encourage social decay, and allow unchecked immigration.
Remember, a country won’t “reset” and launch a new currency until everyone is basically rioting in the streets and the current occupiers of high-offices are being hauled out of office by their necks.
Meaning, the clueless rubes in high-offices have every incentive in the world to try and keep their little game going for as long as possible. This is because when the monetary system collapses, their heads are always the first on the block.
The wrinkle today is, this is about to happen in every country on the planet all at once. That has never happened in the history of the world.
Since it is so unprecedented, I think it will be a shock similar to World War II. In WWII, developed economies suffered the greatest, endured the most hardships, and were eager to accept the first monetary fix that ended the suffering.
After WWII, that fix was Bretton-Woods and the global dollar, bootstrapped by — you guessed it — gold.
As outlined above, the next global crisis will likely be war, a global monetary system collapse, or both. The next “fix” is almost certainly going to be a global CBDC backstopped by that same yellow demon — gold.
Bitcoin fixes this
The saying, “Bitcoin fixes this” is popular among Bitcoin enthusiasts. It’s popular for a reason. It’s because Bitcoin is the world’s first zero-trust egalitarian access monetary system.
Zero-trust, egalitarian access means, no one can prevent you, or anyone else from accessing using this monetary system. As such, no one can control the monetary system, so everyone has to play by the same rules.
Even our dear “leaders.”
Such a thing has never existed in the history of the world. Meaning, we live in a very unique time. One in which the people of the world do not have to go along with whatever new monetary scheme the dear “leaders” come up with after whatever self-induced crisis inevitably comes along.
This very much includes any notions of a CBDC, global or otherwise.
Now, I would point out that gold markets have been intentionally suppressed for years. While market “regulators” fixed the blame on finance bros, the real culprit appears to be central banks.
Why would central banks want to suppress gold prices? And, why would that manipulation have started right around 2009? Maybe it’s because they were very worried after the 2008 bailouts that their currencies were about to collapse.
So, they started hoarding gold. Hoarding gold is a lot easier to do in bulk if every time you buy, the price doesn’t budge.
While goldbugs keep scratching their heads, wondering why all the asset inflation in the world has not trickled down to their precious metal, the real reason is that the game is rigged against them.
I will say, if you start to see gold prices rising to where they really aught to be, that will likely be a strong indicator that the monetary system is about to collapse.
This is because, once the central bankers lift whatever backdoor price controls they’re implementing, it will be so the nominal value of the gold in their vaults will more accurately reflect the amount of currency actually floating around.
This way, when the whole works goes ‘kaput,’ they’ll have a reasonable estimation of what value to assign to their shiny new CBDC.
Bitcoin has a non-zero, non-trivial chance of being able to interrupt this whole diabolical scheme. And, if we’re all just a little lucky and the world can stave off war and destruction for just a little longer, it might actually be a relatively smooth transition.
It will be rocky for sure. There is so much malinvestment in the broader global economy, unwinding a lot of that is going to be uncomfortable. Governments will have to print more and more money to try and stave off the inevitable collapse.
But, if Bitcoin is being used to absorb that monetary inflation instead of needed assets like houses, for instance, then the price of housing can gradually come down without collapsing everything else tied to it.
In fact, most things won’t have to collapse, because there is a rapidly appreciating asset that anyone can use to protect themselves from the toxic fix the central bankers have no choice but to use.
That highly toxic fix is monetary debasement and it can now be safely shunted to the one asset on planet earth that is decentralized, immutable, and has no need for revenue, or profit margins, and has no seizure risk, no counter-party risk and no depreciation risk.
Provided the Bitcoin network remains secure and decentralized, Bitcoin can serve as the inflation escape valve the central bankers so desperately need to prevent sticky, runaway inflation.
Moreover, because EVERYONE can use it, it benefits ALL who are losing purchasing power to the insane amount of monetary debasement to come. Small holders, like you and me can keep up with purchasing power destruction.
Medium and large holders can continue operating their businesses without need to take on massive leverage and cost-cutting, because their balance sheets also grow with inflation, through a Bitcoin reserve hedge.
Even central banks can provide the liquidity necessary to keep our amazing modern world operating without starving all the little guys to do so. With Bitcoin on their balance sheets, instead of vapor bonds and treasuries, even their balance sheet will keep up with the inflation they have to create.
Conclusion
I don’t blame you if it sounds too good to be true and I steadfastly think and believe it is a very viable path forward that avoids mass suffering. Bitcoin truly offers something for everyone that holds it.
The reason I mention gold here is not because I have anything against gold. I present it here because the more people that hold gold, the more likely it is that the central banks of the world will keep seeing that as a viable option to bootstrap their next fiat scheme.
But, if the goldbugs would wake up and realize the gold they hold gives more power to the bankers they fear. If every gold investor dumped their gold tomorrow, the nominal price would plummet.
And, if gold demand sank to its industrial and ornamental value, then the central bankers may just pause and rethink their destructive plans. But, if those same gold investors simply replaced their gold with Bitcoin, then the answer for the bankers would become much clearer.
It’s Bitcoin or bust. Whether you see it or not.
These are just my opinions. I’m not a financial advisor, this isn’t financial advice, and always DYOR. Following any of these ideas might cause you to lose all of your money. I am 100% serious about that. I like tinkering with this stuff, but I’m on record acting like a total baboon. Invest accordingly.
Until next time, be safe, be smart and be sure to tie the camel.
