247Bull.com Editor: The simple fact is, fiat currencies do not provide a good store of value. Over a 20 year period from 1992 to 2012 the US dollar has lost 39% of its purchasing power. Meaning that an item that cost $1 in 1992 would have cost $1.64 in 2012, and this occurred during a period of relatively low inflation. Over this same period the British pound lost an even higher 42.9% of its purchasing power, meaning that an item costing £1 in 1992 cost £1.75 last year. Most people observe this phenomenon and conclude that the cost of goods and services is constantly rising. The truth however, is that our money is constantly losing its value. The reason is that governments continually create more of it in order to finance new spending. To quote Alan Greenspan from his 1966 article, Gold and Economic Freedom, “Deficit spending is simply a scheme for the hidden confiscation of wealth. Gold stands in the way of this insidious process. It stands as a protector of property rights. If one grasps this, one has no difficulty in understanding the statists’ antagonism towards the Gold Standard.”
Neil Irwin over at the Washington Post recently set about reminding the unwashed masses that, only the dollar is money, in his piece “Bitcoin is ludicrous, but it tells us something important about the nature of money.” He starts us out with his “givens”.
“We can all agree that the dollar bills in my wallet are money, as are the quarters and dimes in the jar on my dresser” and that “gold isn’t money, but can be readily traded for money, so it can be a reasonable substitute if you’re into that sort of thing.”
What Mr. Irvin fails to point out (or doesn’t understand) is that the only reason gold isn’t money is that the government specifically prohibits its use as such. In fact, gold functions so well as money that free markets have continually chosen it as such for thousands of years. Governments hate gold because it vastly limits their power by eliminating the ability to finance expansion through the stealth tax of inflation.
I suspect that some of these guys are secretly relieved that Bitcoin is now on the radar as it gives them something new to disparage. Who will be the first to tell us that we can’t eat Bitcoins?
“Bitcoin really is a tiny market in the scheme of things, and its recent gyrations mean that the dollar, euro and yen have nothing to fear from the competition. If a currency can lose 75 percent of its buying power in two days, it may not be the best store of value.”
That certainly sounds like an indictment against a competing currency, but I would have to ask, over what time period is a 75 percent loss unacceptable? The dollar has certainly lost more than that since it became a true fiat currency. Some would say that it also is not a very good store of value. Of course the part Mr. Irwin failed to mention is that in the preceding months, Bitcoin had increased its value by over 2000 percent. When is the last time that happened to the dollar?
“Once you accept that money truly is an idea rather than a thing, it becomes clearer that there is no single “right” way to run a monetary system. It is merely trying to figure out, through trial and error what system works best.”
Well if you accept the fact that there is no single right way to run a monetary system then why are we forced to use only one? If ever there was an argument for letting the free market choose its own mediums of exchange, this is it. Why is it left to the government to run the most important part of the economy? When has a government ever run anything and not made it worse?
“the cap on the supply of bitcoins may reassure people that there will be no inflation, but in fact it ensures that it can never go into widespread use. A currency needs to be elastic – that is, its supply has to rise and fall in order to keep prices stable”
Classic central banking skullduggery: How could an economy possibly grow without more money in circulation? And who better to print up that extra money than us central bankers? The misdirection here is to equate money with economic production. Real economic growth is about the increased production of goods and services making them more affordable. In a stable monetary system, deflation is the natural order of things. Technology raises the average standard of living by making goods more abundant and thus more affordable.
The central bankers have purchased the economics profession in order to convince us that deflation is bad and that prices should never fall. But if prices never fall against wages, then the standard of living can never increase. An increasing standard of living of the 99.9% — that should always be present due to the increasing efficiency of production – is continually shifted to the 0.1% by the debasement of the currency.
And finally he quotes some cold, hard truth from Joe Weisenthal:
“the U.S. dollar isn’t just important because other people think it is. The U.S. dollar is important, because the world’s strongest entity, with the full force of the U.S. army, the FBI, the CIA, the NSA, and the various local authorities with guns demands that you pay them in U.S. dollars. That’s not faith. That’s the law.”
All of which means that if Mr. Bernanke decides that he is going to debase your labor, savings and standard of living to the tune of 40 billion dollars a month in order to take fraudulent mortgages off the hands of Wall Street – then you are pretty well going to have to suck it in and cope as Charlie Munger would say.