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July 13, 2019 - Freedomain Radio - Stefan Molyneux
17:25
The Hidden Dangers of Bitcoin
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Fantastic.
Well, welcome everybody.
I'm sorry I can't be there in person, but it's fantastic to see so many people out there enjoying and being curious about and explaining the Bitcoin experience.
So you know that there are speakers who are going to come to a gathering like this and give you the rousing speech designed to make you wildly enthusiastic, charge the ramparts of entrenched financial interests and bite the heads off anyone who stands in your way.
I'm not going to be that speaker.
I've done that before and I strongly believe in it, but I think that there's another side to the Bitcoin future that really, really needs to be explored.
That basically is recognizing the size, economic strength, and political power of the entrenched interests that Bitcoin directly threatens.
And I just wanted to go over a few facts about that.
Which is to say we should continue to do what we're doing, which is I think to spread horizontally through the economy, but recognize that at some point there is going to be A conflict of biblical proportions between decentralized encrypted currency mechanisms and dispute resolution third-party trust mechanisms and the entrenched financial interests.
So just a few days ago the Bank of England has Sounded off or weighed in on the issue of Bitcoin, and this is what they say.
Digital currencies such as Bitcoin could threaten the economy if they become widespread, the Bank of England has warned.
In the most extreme case, Bitcoin's decentralized payment system and finite supply could make central banks obsolete.
Should we take a moment to mourn their passing?
Not me.
They could also create huge economic risks.
And as you well know, I'm sure this audience more than most, risks is just a synonym for opportunity.
And Bitcoin and related currencies could trigger Deflation.
Have you ever heard this bugaboo?
It's just supposed to scare people.
Because they don't want to use lowered prices.
Because lowered prices is actually quite a good thing.
But they say deflation.
Now, why is deflation considered to be such a bad thing?
I mean, if you go to the petrol pump and the price is lower, you're like, yay!
And the price of computers and software and related hardware is all going down.
We are paying virtually nothing to have this call, whereas I remember having a long-distance relationship with a girlfriend in the 90s and basically having to give up half a kidney to the phone company for long-distance calls.
Now you get, you know, two-way high-quality audio video pretty much for free.
So what is the problem with deflation?
Well, deflation fundamentally is a problem for governments, not for private citizens.
I'm not sure this is the very first time in history where the interests of governments and the interests of private citizens have not perfectly coincided.
I'll have to think of if there are any other examples.
Maybe you can help me out in the Q&A period.
But what's the problem with deflation?
Deflation lowers prices.
Lowered prices put downward pressure on wages.
Lowered wages means less tax revenue.
And of course, if you've ever faced a government union saying that you need to lower their wages, Not really the first thing on the politicians' happy-go-go, joy-joy-juice agenda for the morning.
They really don't want to do that.
And there's a lot of other reasons, but governments dislike lowering the prices, whereas private citizens really, really like it.
The other thing they say is, well, if prices are going down, in other words, if your money is becoming more valuable by you not spending it, then they say, well, people will hoard their money, like that's a really bad thing.
But that's ridiculous.
I mean, if you hoard money, so what?
It just means that there's less of the environment destroyed through useless consumerism.
I can't think that that's a terribly bad thing.
And banks, which used to only sit on a couple of billion dollars of reserves, are now sitting on over a trillion dollars of reserves.
They're not lending it to anyone, and you don't see the government's being too bothered by that.
See, again, it's only the private citizens sitting on money that is a problem.
Because if private citizens sit on money, they can afford to challenge the status quo, because they've got some savings.
So also, the bank has warned, the English bank has warned, the Bank of England has warned, that people could be defrauded.
They could be defrauded through cryptocurrencies.
I guess that's a bit different from the defrauding that occurs through the inflation that is created through the endless creation of money through central banks.
So I guess they're really concerned about you losing monetary value, which is why they want to keep a central bank and keep jigging inflation and money supply to the point where you don't know which way is up economically anymore and you have the basic direction sense of a hamster in a tumble dryer.
Governments, says the bank, would have to address issues of, quote, taxation, money laundering, and the possible use of new payment systems in financing terrorism or other crime.
Well, there's a little hobby that governments developed.
I mean, they've really had it throughout all of human history, but they really refined it to a fine dark art in the 20th century, that little hobby called war.
And war, in its current form, is completely impossible without fiat currency.
And I've done a speech on this in Toronto, Bitcoin vs. War, which you can check out.
But funding even the war on terror would require more gold than has ever been mined in human history.
In other words, you'd run out of money long before you ran out of bullets.
And so it's really fascinating that they're concerned about people losing economic value through Bitcoin, so we should give them the power of central banking to maintain that value, which has never happened.
The US dollar has lost 98% of its value since the creation of the Federal Reserve in 1913.
And they're really concerned that Bitcoin might be used to finance physical aggression, terrorism.
They're concerned about how fiat currencies are used to finance, say, the war on terror appears to be notably absent.
So it's important to recognize that it's a big enough issue that banks are talking about it and I think that We'll provide a link to this to the conference organizers to share as well.
Where they really get into the nitty-gritty though, the bank acknowledged Bitcoin's disruptive potential by describing the technology underpinning it as, quote, a first attempt at an internet of finance and a genuine innovation that could be used to shake up traditional banking.
So basically, their concern is that it is a genuine innovation.
Boy, that's absolutely terrible.
Now, they say if Bitcoin use becomes widespread, the Bank of England's levers to manage the economy through interest rates and quantitative easing would no longer work because both the supply and price would be out of its control.
Oh boy, wouldn't that be terrible?
Governments through central banks, or central banks through governments, whichever way you want to spin that revolving door, would be unable to manage the economy.
Remember how stable the economy has been since the introduction of central banking in the 20th century?
Remember how stable banking and the economy has been since Nixon uncoupled the U.S.
dollar from the gold standard in 1971?
It's completely mad.
When they say manage the economy, what they really mean is manipulate the economy for the special interests of the 0.0001% who seem to control the vast majority of the world's wealth.
So, the fact that we would be taking out the power to control interest rates and create money From the moneyed classes, I cannot see as anything other than one of the greatest boons that could ever happen to the species at any time throughout history.
Now, how big is the financial sector?
Well, in a word, very.
20% of America's entire gross domestic product is generated by industries whose main function is to act as a trusted third-party entity.
And here I use the word trusted extremely loosely.
U.S.
bank fees alone generate $250 billion a year.
Global payments related revenues exceed $300 billion a year.
Why is that so big?
Why is that so enormous?
And how big is that really?
Well, it's terrifyingly big.
So just think of this size.
So the sum of the US trust-based service sectors, which is directly challenged by Bitcoin, is 3.4, get ready for the T, trillion dollars.
3.4 trillion dollars a year.
Not since the dawn of time, or until the sun goes cold, every single year.
How big is that?
That's the size of Germany's entire gross domestic product.
It's more than half of Japan's gross domestic product, 41% of China's gross domestic product and far bigger than the United Kingdom.
The size of the financial industry in the United States is the size of the entire U.S.
gross domestic product as recently as 1963.
is 1963.
So, big is the key word.
Now, of course, payment transaction fees are directly threatened by Bitcoin.
But, of course, Bitcoin technology, in particular the blockchain asset ledger and the protocol, could also challenge fees on deposit fees, foreign exchange fees, escrow, trust management fees, collection fees, etc., etc., etc.
So I think it's really, really important to understand how big the behemoth is that Bitcoin is facing.
And there will of course be efforts made on the part of the financial government complex to keep the technology at bay.
Now, my guess is that they don't and they won't.
Like if I sort of put on my Dr. Evil hat and imagine if I'm sitting in the enormous titanic chair known as the Federal Reserve Chairman's butt warmer, I would say, well, let's not kill it completely.
Let's not kill it outright.
Because it's big enough now that people will see what we've done and it really disturbs the villagers when a body falls from the sky.
So they don't want to do that.
What they want to do is they want to regulate it.
And what that means, and of course they're talking about this in New York with the licensing for Bitcoin exchanges.
There was just a sting operation in Florida where two men were charged with a variety of crimes because they exchanged bitcoins personally.
One of the fascinating and, I guess, lesser reported aspects of that is that it was Special Agent Ponzi who was involved in this sting operation.
So what they're going to try and do is they're just going to try and not take out the revving engine with an airstrike but just throw little bits of sand in it, little bits of sand in it, little bits of sand in it.
Until most people find it too difficult and cumbersome to use and then say, well, it was an interesting idea, just didn't quite work out the way that people want it.
And I think that is, that is the great danger.
The first Bank or the first government that outlaws it completely I think is basically revealing to the world the weakness of their own currency and that may have negative impacts for them in the long run.
But my concern is that if they make it very difficult, not impossible, But if they make it more and more difficult for honest, law-abiding citizens to use Bitcoin, then it will, of course, displace itself into the black market and the gray market.
And then, of course, they'll say, well, you see, we told you it was going to be used for crime.
Let's get back to fiat currencies, which is never used for anything destructive.
So I think that's an important consideration.
My caution, my advice, my concern is that what I see in the Bitcoin community is quite a bit of optimism and I would also a little bit of political naivete.
The financial sector is the biggest single contributor to politicians at least in the United States.
Obama himself was elected largely because he took so much money from the financial sector.
And what did they buy with that money?
Well, hundreds of billions of dollars of bailouts and zero prosecution for their admitted crimes.
So they are buying themselves governments and all of the associated power that comes with governments.
When you can buy a government, you're pretty much a force to be reckoned with.
And this is occurring throughout the world.
Originally governments were more powerful than banks, but as the logic of late capitalism democracy continues its unsteady march towards the cliff edge, what's happening is governments stay in power by promising more to their citizens than they're collecting in taxes.
They can't do that mathematically, right?
If I'm a politician and I come to you and say, you know, vote for me and I'll give you $500, I just need to tax you $1,000 first, then people will get that it's a money-losing proposition.
But if they say, I'll give you $500 and then they create that money out of thin air, And the effects then slowly ripple through the economy and there's not more than one person in a thousand who can trace 18 months later inflation to fiat currency creation during times of elections.
Then they can give you the illusion of the government adding value or creating value in the economy.
That process is so necessary for politicians to get elected.
They need to promise more than they're collecting in taxes and the only way they can do that is to create money.
And then they have to suppress interest rates to avoid the resulting inflation that comes from, excuse me, the inflation of the money supply.
That process is so far along that I would argue governments are utterly dependent upon the goodwill of central banks.
Which is why they don't prosecute them.
Which is why they bribe them with money that they themselves have created.
The banks themselves have created.
It is an unholy alliance and it is generally invisible to the majority of citizens in the world.
It is a very abstract virus.
We generally get our fight-and-flight mechanism when a saber-toothed tiger jumps out of a cave, but at this point the predation on the general citizen is so deferred through national debts, is so invisible through inflation, Thank you.
Equivalent of the severed head of the noble that they put on pikes in the French Revolution.
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