What are the four properties of money? What are the four primary functions of a currency?
A system of control. What? I don't remember learning that. It turns out we've had money for thousands of years. Potentially tens of thousands of years, it's really hard to tell how far back money goes, but the money we have today is very different from the money we've had in the past, because something changed in the last 50 years that has fundamentally altered the course of money, of currency, of this system of communicating value to other people.
We have the 3 components: Medium of Exchange, Stored Value, Unit of Account, those have been around for millennia. Then, something happened. In 1970, Richard Nixon signed The Bank Secrecy Act and turned money into a system of control.
A system of control that attempts to use money as a political tool in order to control who is able to send and receive it, who they are able to send money too, and aims ultimately to the complete surveillance of all financial transactions worldwide. Complete. Total. Totalitarian. Financial surveillance.
This change 50 years ago has gradually percolated through every country in the world, every financial service in the world, every bank in the world. In 1970, Richard Nixon, deputized the financial services field to turn them into a branch of law enforcement. Law enforcement beyond borders, law enforcement beyond jurisdiction, and more importantly, law enforcement beyond due process, beyond political and democratic control, beyond recourse. A cop can confiscate your money. A judge can sign a warrant to freeze your accounts, and a bank can do both of those things without any authorization from anyone and there's nothing you can do about it.
This applies worldwide. Money as a system of control supersedes all other functions of money.
When money is turned into an enforcement tool, the other functions start getting eroded. It is no longer the best medium of exchange because it functions as a medium of exchange is subordinate to its function as a system of law enforcement, a system of control. At that point, the system of control aspect starts corrupting everything. We are now 25 years into the internet revolution. Cell phones, smartphones, dumbphones, data connections have propagated out to more than two and half billion people that have never had these technologies before. Where's finance? Lagging. Fifteen to twenty years behind. It does not reach. Two and half billion people completely unbanked.
Four billion people underbanked. Really? Only a billion and a half, have the full, privileged, elite form of banking that we enjoy in most western liberal democracies and even there, there are tiers of access and control. How many people reading this are accredited investors?
That puts you in the one-tenth, of one-tenth, of one-tenth percentile of the world. There are tiers within the financial system, some people that have better access. Some people that who have better recourse and some people that have complete immunity. Some people can commit crimes against millions, robo' foreclosures, Lieb or fraud, rigging the gold markets and no one will ever go to jail. Why? Because when money becomes a system of control, financial services companies become deputies in this system of enforcement and control and as deputies, they get some perks. One of the perks is they never go to jail. Well, with a few exceptions.
There are some fundamental rules that always apply to our society. Bernie Madoff went to jail. He made the fundamental mistake of stealing from rich people. Don't do that. Foreclose on 10 million poor people? No problem. Create 3.5 million fake accounts on Wells Fargo? No problem. Lose 143 private records of individuals at Equifax? Let's take some bets, how many executives are going to jail? None.
A system of control corrupts the very basis of money until it can no longer function as a medium of exchange. It breeds economic exclusion. We are now 25 years in the age of the internet and we are reaching fewer people with economic inclusion. We actually backtracking historically because increasingly entire countries are being cut-off from the world financial system. You don't act in the best interest of the United States? You lose your swift code.
You are no longer part of the wire transfer network. You submit to the universal jurisdiction of American courts like Switzerland had to do, or you lose access to international banking. You lose access to the reserve currency. You lose access to the life-blood. This devils bargain has made financial services unassailable from a point of competition. They are surrounded by a thicket of regulations and these regulations are not about consumer protection.
Consumers are most certainly not protected. They are most certainly about the system of control of money. They are about the law enforcement and policy enforcement and sometimes straight up politics enforcement that comes with money. Money does not flow freely. There's some bad news. Those gold bars surrounding the banks and protecting them from competition, are a gilded cage, a cage that keeps them inside a system of regulation, that prevents competition from the outside but also prevents them from acting with innovation in free markets, expanding their business unless they make all of that subordinate to a system of political control. Store of value no longer works.
You cannot store value in a currency that can be confiscated at whim, frozen by any bank at any point in time, that is not a stable store of value. You cannot use it as your currency reserve to buy oil with, as your foreign exchange reserve if you're country because if you cross the superpowers, they will cut off your access and you will not be able to use oil. You cannot use money as a medium of exchange if you cannot exchange it freely with whoever you want and gradually the corruption spreads, and spreads, and spreads.
Now, something new arrives on the horizon. A system of money that works on a network, that is first and foremost a medium of exchange, a store value, a medium of exchange and one day potentially a unit of account, but will never become a system of control. It refuses to become a system of control. In fact, it's designed principle is neutrality, openness, borderless access, censorship resistance and now the banks can't play in that place. They're stuck inside their gilded cage, playing cop to the world's superpowers, offering economic services to a tiny fraction of the human population. Sacrificing four billion people on the alter of poverty, in order to create a nice, fake, bourgeois sense of security among the middle class, by selling them lies. FDIC.
Don’t worry, your money is insured. How many people that are reading this have FDIC or equivalent insurance on their bank accounts? How many Greeks do you think had insurance on their bank accounts? All of them. What happened to that? POOF. In one afternoon. Vanished. 20% haircut. Whose insurance? Does it insure you? Or does it insure banks? And what does it insure against? Small failure. Not big failure. Big failure? Uninsurable.
Out of 194 countries, this model of turning money into a system of control has taken off like wildfire, because it's every dictator's wet dream. Because it ensures that political descent can be snuffed at the bank very effectively. It is one of the most effective systems of control that exists and now it has to face competition from a system that will not do that, that cannot be made to do that, that will not yield, that will not be co-opted and what's the response? "Ha! Bitcoins a joke! Cryptocurrencies are outside the system. Nobody wants to be outside the system." Guess what?
There are 6 billion people out there. They don't want to be outside the system, they'd much rather be inside but they haven't been invited, and they probably won't. Many of them can't do the things that are necessary to be invited to the system and guess what. There's an entire generation that has now discovered the 2 forms of power that come to people, the first form is a voice. The second form is exit. You either speak up with your voice. Express your political will and force change and if that doesn't work, you get to the second most important power that all humans have, and that's exit. Now borders have been erected for millennia to prevent exit, to slow down exit. You can't easily emigrate, opt-out, colonize, depart, exit. But what happens when exit is not a physical act?
But a virtual act? What happens when people decide to exit from the financial system in a virtual way. You can keep the inside of the gilded cage. It is demographically stagnated, it's over-leveraged, it's swimming in debt, it's out of control and it serves a tiny slither of the population. You can keep it, an entire generation of millennials no longer believes in that fiction, of bank security, of future possibility, of deferred earnings, of interest rates, of mortgages. They will exit. They are exiting, in droves.
Not just here, even more so in the countries where the existing system of inside finance of the system of control, is used despotically, is used oppressively, China is exiting in droves and it's barely started. Bitcoin has been around for 9 years and so what does the insider group do? What do the regulators do in response to a system that cannot be regulated? They regulate the bits they can, they regulate the exchanges, they regulate the bank accounts, they regulate the national currency side of things, they shut down the on-ramps and off-ramps. They say we will not let you take your money with you.
September 19, 2018
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