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Bitcoin: Addressing the Ponzi Scheme Characterization

By Lyn Alden, Updated January 31, 2021

One of the concerns I’ve seen aimed at Bitcoin is the claim that it’s a Ponzi scheme. The argument suggests that because the Bitcoin network is continually reliant on new people buying in, that eventually it will collapse in price as new buyers are exhausted.

So, this article takes a serious look at the concern by comparing and contrasting Bitcoin to systems that have Ponzi-like characteristics, to see if the claim holds up.

The short answer is that Bitcoin does not meet the definition of a Ponzi scheme in either narrow or broad sense, but let’s dive in to see why that’s the case.

Defining a Ponzi Scheme

To start with tackling the topic of Bitcoin as a Ponzi scheme, we need a definition.

Here is how the US Securities and Exchange Commission defines one:

A Ponzi scheme is an investment fraud that pays existing investors with funds collected from new investors. Ponzi scheme organizers often promise to invest your money and generate high returns with little or no risk. But in many Ponzi schemes, the fraudsters do not invest the money. Instead, they use it to pay those who invested earlier and may keep some for themselves.

With little or no legitimate earnings, Ponzi schemes require a constant flow of new money to survive. When it becomes hard to recruit new investors, or when large numbers of existing investors cash out, these schemes tend to collapse.

Ponzi schemes are named after Charles Ponzi, who duped investors in the 1920s with a postage stamp speculation scheme.

They further go on to list red flags to look out for:

Many Ponzi schemes share common characteristics. Look for these warning signs:

High returns with little or no risk. Every investment carries some degree of risk, and investments yielding higher returns typically involve more risk. Be highly suspicious of any “guaranteed” investment opportunity.

Overly consistent returns. Investments tend to go up and down over time. Be skeptical about an investment that regularly generates positive returns regardless of overall market conditions.

Unregistered investments. Ponzi schemes typically involve investments that are not registered with the SEC or with state regulators. Registration is important because it provides investors with access to information about the company’s management, products, services, and finances.

Unlicensed sellers. Federal and state securities laws require investment professionals and firms to be licensed or registered. Most Ponzi schemes involve unlicensed individuals or unregistered firms.

Secretive, complex strategies. Avoid investments if you don’t understand them or can’t get complete information about them.

Issues with paperwork. Account statement errors may be a sign that funds are not being invested as promised.

Difficulty receiving payments. Be suspicious if you don’t receive a payment or have difficulty cashing out. Ponzi scheme promoters sometimes try to prevent participants from cashing out by offering even higher returns for staying put.

I think that’s a great set of information to work with. We can see how many of those attributes, if any, Bitcoin has.

Bitcoin’s Launch Process

Before we get into comparing Bitcoin point-by-point to the above list, we can start with a recap of how Bitcoin was launched.

In August 2008, someone identifying himself as Satoshi Nakamoto created

Two months later in October 2008, Satoshi released the Bitcoin white paper. This document explained how the technology would work, including the solution to the double-spending problem. As you can see from the link, it was written in the format and style of an academic research paper, since it was presenting a major technical breakthrough that provided a solution for well-known computer science challenges related to digital scarcity. It contained no promises of enrichment or returns.

Then, three months later in January 2009, Satoshi published the initial Bitcoin software. In the custom genesis block of the blockchain, which contains no spendable Bitcoin, he provided a time-stamped article headline about bank bailouts from The Times of London, likely to prove that there was no pre-mining and to set the tone for the project. From there, it took him six days to finish things and mine block 1, which contained the first 50 spendable bitcoins, and he released the Bitcoin source code that day on January 9th. By January 10th, Hal Finney publicly tweeted that he was running the Bitcoin software as well, and right from the beginning, Satoshi was testing the system by sending bitcoins to Hal.

Interestingly, since Satoshi showed how to do it with the white paper more than two months before launching the open source Bitcoin software himself, technically someone could have used the newfound knowledge to launch a version before him. It would have been unlikely, due to Satoshi’s big head start in figuring all of this out and understanding it at a deep level, but it was technically possible. He gave away the key technological breakthrough before he launched the first version of the project. Between the publication of the white paper and the launch of the software, he answered questions and explained his choices for his white paper to several other cryptographers on an email list in response to their critiques, almost like an academic thesis defense, and several of them could have been technical enough to “steal” the project from him, if they were less skeptical.

After launch, a set of equipment that is widely believed to belong to Satoshi remained a large Bitcoin miner throughout the first year. Mining is necessary to keep verifying transactions for the network, and bitcoins had no quoted dollar price at that time. He gradually reduced his mining over time, as mining became more distributed across the network. There are nearly 1 million bitcoins that are believed to belong to Satoshi that he mined through Bitcoin’s early period and that he has never moved from their initial address. He could have cashed out at any point with billions of dollars in profit, but so far has not, over a decade into the project’s life. It’s not known if he is still alive, but other than some early coins for test transactions, the bulk of his coins haven’t moved.

Not long after, he transferred ownership of his website domains to others, and ever since, Bitcoin has been self-sustaining among a revolving development community with no input from Satoshi.

Bitcoin is open source, and is distributed around the world. The blockchain is public, transparent, verifiable, auditable, and analyzable. Firms can do analytics of the entire blockchain and see which bitcoins are moving or remaining in place in various addresses. An open source full node can be run on a basic home computer, and can audit Bitcoin’s entire money supply and other metrics.

With that in mind, we can then compare Bitcoin to the red flags of being a Ponzi scheme.

Investment Returns: Not Promised

Satoshi never promised any investment returns, let alone high investment returns or consistent investment returns. In fact, Bitcoin was known for the first decade of its existence as being an extremely high-volatility speculation. For the first year and a half, Bitcoin had no quotable price, and after that it had a very volatile price.

The online writings from Satoshi still exist, and he barely ever talked about financial gain. He mostly wrote about technical aspects, about freedom, about the problems of the modern banking system, and so forth. Satoshi wrote mostly like a programmer, occasionally like an economist, and never like a salesman.

We have to search pretty deeply to find instances where he discussed Bitcoin potentially becoming valuable. When he did talk about the potential value or price of a bitcoin, he spoke very matter-of-factly in regards to how to categorize it, whether it would be inflationary or deflationary, and admitted a ton of variance for how the project could turn out. Digging around for Satoshi’s quotes on the price of value of a bitcoin, here’s what I found:

The fact that new coins are produced means the money supply increases by a planned amount, but this does not necessarily result in inflation. If the supply of money increases at the same rate that the number of people using it increases, prices remain stable. If it does not increase as fast as demand, there will be deflation and early holders of money will see its value increase.


It might make sense just to get some in case it catches on. If enough people think the same way, that becomes a self fulfilling prophecy. Once it gets bootstrapped, there are so many applications if you could effortlessly pay a few cents to a website as easily as dropping coins in a vending machine.


In this sense, it’s more typical of a precious metal. Instead of the supply changing to keep the value the same, the supply is predetermined and the value changes. As the number of users grows, the value per coin increases. It has the potential for a positive feedback loop; as users increase, the value goes up, which could attract more users to take advantage of the increasing value.


Maybe it could get an initial value circularly as you’ve suggested, by people foreseeing its potential usefulness for exchange. (I would definitely want some) Maybe collectors, any random reason could spark it. I think the traditional qualifications for money were written with the assumption that there are so many competing objects in the world that are scarce, an object with the automatic bootstrap of intrinsic value will surely win out over those without intrinsic value. But if there were nothing in the world with intrinsic value that could be used as money, only scarce but no intrinsic value, I think people would still take up something. (I’m using the word scarce here to only mean limited potential supply)


A rational market price for something that is expected to increase in value will already reflect the present value of the expected future increases. In your head, you do a probability estimate balancing the odds that it keeps increasing.


I’m sure that in 20 years there will either be very large transaction volume or no volume.


Bitcoins have no dividend or potential future dividend, therefore not like a stock. More like a collectible or commodity.

Quotes by Satoshi Nakamoto

Promising unusually high or consistent investment returns is a common red flag for being a Ponzi scheme, and with Satoshi’s original Bitcoin, there was none of that.

Over time, Bitcoin investors have often predicted very high prices (and so far those predictions have been correct), but the project itself from inception did not have those attributes.

Open Source: The Opposite of Secrecy

Most Ponzi schemes rely on secrecy. If the investors understood that an investment they owned was actually a Ponzi scheme, they would try to pull their money out immediately. This secrecy prevents the market from appropriately pricing the investment until the secret gets found out.

For example, investors in Bernie Madoff’s scheme thought they owned a variety of assets. In reality, earlier investor outflows were just being paid back from new investor inflows, rather than money being made from actual investments. The investments listed on their statements were fake, and for any of those clients, it would be nearly impossible to verify that they are fake.

Bitcoin, however, works on precisely the opposite set of principles. As a distributed piece of open source software that requires majority consensus to change, every line of code is known, and no central authority can change it. A key tenet of Bitcoin is to verify rather than to trust. Software to run a full node can be freely downloaded and run on a normal PC, and can audit the entire blockchain and the entire money supply. It relies on no website, no critical data center, and no corporate structure.

For this reason, there are no “issues with paperwork” or “difficulty receiving payments”, referencing some of the SEC red flags of a Ponzi. The entire point of Bitcoin is to not rely on any third parties; it is immutable and self-verifiable. Bitcoin can only be moved with the private key associated with a certain address, and if you use your private key to move your bitcoins, there is nobody who can stop you from doing so.

There are of course some bad actors in the surrounding ecosystem. People relying on others to hold their private keys (rather than doing so themselves) have sometimes lost their coins due to bad custodians, but not because the core Bitcoin software failed. Third-party exchanges can be fraudulent or can be hacked. Phishing schemes or other frauds can trick people into revealing their private keys or account information. But these are not associated with Bitcoin itself, and as people use Bitcoin, they must ensure they understand how the system works to avoid falling for scams in the ecosystem.

No Pre-Mine

As previously mentioned, Satoshi mined virtually all of his coins at a time when the software was public and anybody else could mine them. He gave himself no unique advantage in acquiring coins faster or more easily than anyone else, and had to expend computational power and electricity to acquire them, which was critical in the early period for keeping the network up and running. And as previously mentioned, the white paper was released before any of it, which would be unusual or risky to do if the goal was mainly about personal monetary gain.

In contrast to this unusually open and fair way that Bitcoin was launched, many future cryptocurrencies didn’t follow those same principles. Specifically, many later tokens had a bunch of pre-mined conceptions, meaning that the developers would give themselves and their investors coins before the project becomes public.

Ethereum’s developers provided 72 million tokens to themselves and their investors prior to any being available to own by the broader public, which is more than half of the current token supply of Ethereum. It was a crowdsourced project.

Ripple Labs pre-mined 100 billion XRP tokens with the majority being owned by Ripple Labs, and gradually began selling the rest to the public, while still holding the majority, and is currently being accused by the SEC of selling unregistered securities.

Besides those two, countless other smaller tokens were pre-mined and sold to the public.

A case can be made in favor of pre-mining in certain instances, although some are very critical of the practice. In a similar way that a start-up company offers equity to its founders and early investors, a new protocol can offer tokens to its founders and early investors, and crowdsourced financing is a well-accepted practice at this point. I’ll leave that debate to others. Few would dispute that early developers can be compensated for work if their project takes off, and funds are helpful for early development. As long as it’s fully transparent, it comes down to what the market thinks is reasonable.

When defending against the notion of being a Ponzi scheme, however, Bitcoin is miles ahead of most other digital assets. Satoshi showed the world how to do it first with a white paper months in advance, and then put the project out there in an open source way on the first day of spendable coins being generated, with no pre-mine.

A situation where the founder gave himself virtually no mining advantage over other early adaptors, sure is the “cleanest” approach. Satoshi had to mine the first blocks of coins with his computer just like anyone else, and then never spent them other than by sending some of his initial batch out for early testing. This approach improved the odds of it becoming a viral movement, based on economic or philosophical principles, rather than strictly about riches. Unlike many other blockchains over the years, Bitcoin development occurred organically, by a revolving set of large stakeholders and voluntary user donations, rather than via a pre-mined or pre-funded pool of capital.

On the other hand, giving yourself and initial investors most of the initial tokens and then having later investors start from mining from scratch or buy into it, opens up more avenues for criticisms and skepticism and begins to look more like a Ponzi scheme, whether or not it actually is.

Leaderless Growth

One thing that makes Bitcoin really interesting is that it’s the one big digital asset that flourished without centralized leadership. Satoshi created it as its anonymous inventor, worked with others to guide it through the first two years with continued development on open forums, and then disappeared. From there, other developers took the mantle in terms of continuing to develop and promote Bitcoin.

Some developers have been extremely important, but none of them are critical for its ongoing development or operation. In fact, even the second round of developers after Satoshi largely went in other directions. Hal Finney passed away in 2014. Some other super-early Bitcoiners became more interested in Bitcoin Cash or other projects at various stages.

As Bitcoin has developed over time, it has taken on a life of its own. The distributed development community and userbase, (and the market, when it comes to pricing various paths after hard forks) has determined what Bitcoin is, and what it is useful for. The narrative has changed and expanded as time went on, and market forces rewarded or punished various directions.

For years, debates centered around whether Bitcoin should optimize for storing value or optimize for frequent transactions on the base layer, and this is what led to multiple hard forks that all devalued compared to Bitcoin. The market clearly has preferred Bitcoin’s base layer to optimize for being a store of value and large transaction settlement network, to optimize for security and decentralization, with an allowance for frequent smaller transactions to be handled on secondary layers.

Every other blockchain-based token, including hard forks and those associated with totally new blockchain designs, comes on the coattails of Bitcoin, with Bitcoin being the most self-sustaining project of the industry. Most token projects are still founder-led, often with a big pre-mine, with an unclear future should the founder no longer be involved. Some of the sketchiest tokens have paid exchanges for being listed, to try to jump-start a network effect, whereas Bitcoin always had the most natural growth profile.

Unregistered Investments and Unlicensed Sellers

The only items on the red flag list that may apply to Bitcoin are the points that refer to investments that are unregulated. This doesn’t inherently mean that something is a Ponzi; it just means that a red flag is present and investors should be cautious. Especially in the early days of Bitcoin, buying some magical internet money would of course be a highly risky investment for most people to make.

Bitcoin is designed to be permission-less; to operate outside of the established financial system, with philosophical leanings towards libertarian cryptographic culture and sound money. For most of its life, it had a steeper learning curve than traditional investments, since it rests on the intersection of software, economics, and culture.

Some SEC officials have said that Bitcoin and Ethereum are not securities (and by logical extension, have not committed securities fraud). Many other cryptocurrencies or digital assets have, however, been classified as securities and some like Ripple Labs have been charged with selling unregistered securities. The IRS treats Bitcoin and many other digital assets like commodities for tax purposes.

So, in the early days, Bitcoin may have indeed been an unregistered investment, but at this point it has a place in tax law and regulatory frameworks around the world. Regulation changes over time, but the asset has reached the mainstream. It’s so mainstream that Fidelity and other custodians hold it for institutional clients and J.P. Morgan gives their price targets for it.

Many people who have not looked deeply into the industry lump all “cryptocurrencies” together. However, it’s important for prospective investors to look into the details and find important differences. Lumping “cryptocurrencies” together would be like lumping “stocks” together. Bitcoin is clearly not like the others in many attributes, and was launched and sustained in a way that looks more like a movement or a protocol than an investment, but that over time became an investment as well.

From there, folks can choose to look into the rabbit hole of thousands of other tokens that came in Bitcoin’s wake and make their own conclusions. There’s a big spectrum there from well-intentioned projects on one side, to outright scams on the other side. It’s important to realize, however, that even if real innovation is happening somewhere, doesn’t mean the tokens associated with that project will necessarily have durable value. If a token solves some novel problem, its solution could end up being re-adapted to a layer on a larger protocol with a bigger network effect. Likewise, any investment in those other tokens has an opportunity cost of being able to purchase more Bitcoin instead.

Section Summary: Clearly Not a Ponzi Scheme

Bitcoin was launched in the fairest way possible.

Satoshi first showed others how to do it with the white paper in an academic sense, and then did it himself months later, and anyone could begin mining alongside him within the first days as some early adopters did. Satoshi then distributed the development of the software to others and disappeared, rather than continue to promote it as a charismatic leader, and so far has never cashed out.

From the beginning, Bitcoin has remained an open source and fully transparent project, and has the most organic growth trajectory of the industry. Given available information, the market has priced it as it sees fit, out in the open.

The Broader Definition of a Ponzi

Because the narrow Ponzi scheme clearly doesn’t apply to Bitcoin, some folks have used a broader definition of a Ponzi scheme to assert that Bitcoin is one.

A bitcoin is like a commodity, in the sense that it’s a scarce digital “object” that provides no cash flow, but that does have utility. They are limited to 21 million divisible units, of which over 18.5 million have already mined according to the pre-programmed schedule. Every four years, the number of new bitcoins generated per ten minute block will be cut in half, and the total number of bitcoins in existence will asymptotically move towards 21 million.

Like any commodity, it produces no cash flows or dividends, and is only worth what someone else will pay you for it or trade you for it. And specifically, it is a monetary commodity; one whose utility is entirely about storing and transmitting value. This makes gold its closest comparison.

Bitcoin vs Gold Market

Some people assert that Bitcoin is a Ponzi scheme because it relies on an ever-larger pool of investors coming into the space to buy from earlier investors.

To some extent this reliance on new investors is correct; Bitcoin keeps growing its network effect, reaching more people and bigger pools of money, which keeps increasing its usefulness and value.

Bitcoin will only be successful in the long run if its market capitalization reaches and sustains a very high level, in part because its security (hash rate) is inherently connected to its price. If for some reason demand for it were to permanently flatline and turn down without reaching a high enough level, Bitcoin would remain a niche asset and its value, security, and network effect could deteriorate over time. This could begin a vicious cycle of attracting fewer developers to keep building out its secondary layers and surrounding hardware/software ecosystem, potentially resulting in quality stagnation, price stagnation, and security stagnation.

However, this doesn’t make it a Ponzi scheme, because by similar logic, gold is a 5,000 year old Ponzi scheme. The vast majority of gold’s usage is not for industry; it’s for storing and displaying wealth. It produces no cash flows, and is only worth what someone else will pay for it. If peoples’ jewelry tastes change, and if people no longer view gold as an optimal store of value, its network effect could diminish.

There are 60+ years of gold’s annual production supply estimated to be available in various forms around the world. And that’s more like 500 years worth of industrial-only supply, factoring out jewelry and store-of-value demand. Therefore, gold’s supply/demand balance to support a high price requires the ongoing perception of gold as an attractive way to store and display wealth, which is somewhat subjective. Based on the industrial-only demand, there is a ton of excess supply and prices would be way lower.

However, gold’s monetary network effect has remained robust for such a long period of time because the collection of unique properties it has is what made it continually regarded as being optimal for long-term wealth preservation and jewelry across generations: it’s scarce, pretty, malleable, fungible, divisible, and nearly chemically indestructible. As fiat currencies around the world come and go, and rapidly increase their per-unit number, gold’s supply remains relatively scarce, only growing by about 1.5% per year. According to industry estimates, there is about one ounce of above-ground gold per person in the world.

Similarly, Bitcoin relies on the network effect, meaning a sufficiently large number of people need to view it as a good holding for it to retain its value. But a network effect is not a Ponzi scheme in and of itself. Prospective investors can analyze the metrics of Bitcoin’s network effect, and determine for themselves the risk/reward of buying into it.

Bitcoin vs Fiat Banking System

By the broadest definition of a Ponzi scheme, the entire global banking system is a Ponzi scheme.

Firstly, fiat currency is an artificial commodity, in a certain sense. A dollar, in and of itself, is just an object made out of paper, or represented on a digital bank ledger. Same for the euro, the yen, and other currencies. It pays no cash flows on its own, although institutions that hold it for you might be willing to pay you a yield (or, in some cases, could charge you a negative yield). When we do work or sell something to acquire dollars, we do so only with the belief that its large network effect (including a legal/government network effect) will ensure that we can take these pieces of paper and give them to someone else for something of value.

Secondly, when we organize these pieces of paper and their digital representations in a fractional-reserve banking system, we add another complicated layer. If about 20% of people were to try to pull their money out of their bank at the same time, the banking system would collapse. Or more realistically, the banks would just say “no” to your withdrawal, because they don’t have the cash. This happened to some US banks in early 2020 during the pandemic shutdown, and occurs regularly around the world. That’s actually one of the SEC’s red flags of a Ponzi scheme: difficulty receiving payments.

In the well-known musical chairs game, there is a set of chairs, someone plays music, and kids (of which there is one more than the number of chairs) start walking in circles around the chairs. When the music stops, all of the kids scramble to sit in one of the chairs. One slow or unlucky kid doesn’t get a seat, and therefore leaves the game. In the next round, one chair is removed, and the music resumes for the remaining kids. Eventually after many rounds, there are two kids and one seat, and then there is a winner when that round ends.

The banking system is a permanent round of musical chairs. There are more kids than chairs, so they can’t all get one. If the music were to stop, this would become clear. However, as long as the music keeps going (with occasional bailouts via printed money), it keeps moving along.

Banks collect depositor cash, and use their capital to make loans and buy securities. Only a small fraction of depositor cash is available for withdrawal. A bank’s assets consist of loans owed to them, securities such as Treasuries, and cash reserves. Their liabilities consist of money owed to depositors, as well as any other liabilities they may have like bonds issued to creditors.

For the United States, banks collectively have about 20% of customer deposits held as cash reserves:

Bank Cash Reserves

Chart Source: St. Louis Fed

As the chart shows, this percentage reached below 5% prior to the global financial crisis (which is why the crisis was so bad, and marked the turning point in the long-term debt cycle), but with quantitative easing, new regulations, and more self-regulation, banks now have about 20% of deposit balances as reserves.

Similarly, the total amount of physical cash in circulation, which is exclusively printed by the US Treasury Department, is only about 13% as much as the amount of commercial bank deposits, and only a tiny fraction of that is actually held by banks as vault cash. There’s not nearly enough physical cash (by design), for a significant percentage of people to pull their capital out of banks at once. People run into “difficulty receiving payments” if enough of them do so around the same time.

As constructed in the current way, the banking system can never end. If a sufficiently large number of banks were to liquidate, the entire system would cease to function.

If a single bank were to liquidate without being acquired, it would hypothetically have to sell all of its loans and securities to other banks, convert it all to cash, and pay that cash out to depositors. However, if a sufficiently large number of banks were to do that at once, the market value of the assets they are selling would sharply decrease and the market would turn illiquid, because there are not enough available buyers.

Realistically, if enough banks were to liquidate at once, and the market froze up as debt/loan sellers overwhelmed buyers, the Federal Reserve would end up creating new dollars to buy assets to re-liquidity the market, which would radically increase the number of dollars in circulation. Otherwise, everything nominally collapses, because there aren’t enough currency units in the system to support an unwinding of the banking systems’ assets.

So, the monetary system functions as a permanent round of musical chairs on top of artificial government-issued commodities, where there are by far more claims on that money (kids) than money that is currently available to them (chairs) if they were to all scramble for it at once. The number of kids and chairs both keeps growing, but there are always way more kids than chairs. Whenever the system partially breaks, a couple more chairs are added to the round to keep it going.

We accept this as normal, because we assume it will never end. The fractional reserve banking system has functioned around the world for hundreds of years (first gold-backed, and then totally fiat-based), albeit with occasional inflationary events along the way to partially reset things.

Each individual unit of fiat currency has degraded about 99% in value or more over the multi-decade timeline. This means that investors either need to earn a rate of interest that exceeds the real inflation rate (which is not currently happening), or they need to buy investments instead, which inflates the value of stocks and real estate compared to their cash flows, and pushes up the prices of scarce objects like fine art.

Over the past century, T-bills and bank cash just kept up with inflation, providing no real return. However, this tends to be very lumpy. There were decades such as the 1940s, 1970s, and 2010s, where holders of T-bills and bank cash persistently failed to keep up with inflation. This chart shows the T-bill rate minus the official inflation rate over nine decades:

Real Interest Rates

Chart Source: St. Louis Fed

Bitcoin is an emergent deflationary savings and payments technology that is mostly used in an unlevered way, meaning that most people just buy it, hold it, and occasionally trade it. There are some Bitcoin banks, and some folks that use leverage on exchanges, but overall debt in the system remains low relative to market value, and you can self-custody your own holdings.

Frictional Costs

Another variation of the broader Ponzi scheme claim asserts that because Bitcoin has frictional costs, it’s a Ponzi scheme. The system requires constant work to keep it functioning.

Again, however, Bitcoin is no different in this regard than any other system of commerce. A healthy transaction network inherently has frictional costs.

With Bitcoin, miners invest into customized hardware, electricity, and personnel to support Bitcoin mining, which means verifying transactions and earning bitcoins and transaction fees for doing so. Miners have plenty of risk, and plenty of reward, and they are necessary for the system to function. There are also market makers that supply liquidity between buyers and sellers, or convert fiat currency to Bitcoin, making it easier to buy or sell Bitcoin, and they necessarily extract transaction fees as well. And some institutions provide custody solutions: charging a small fee to hold Bitcoin.

Similarly, gold miners put plenty of money into personnel, exploration, equipment, and energy to extract gold from the ground. From there, various companies purify and mint it into bars and coins, secure and store it for investors, ship it to buyers, verify its purity, make it into jewelry, melt it back down for purification and re-minting, etc. Atoms of gold keep circulating in various forms, due to the work of folks in the gold industry ranging from the finest Swiss minters to the fancy jewelers to the bullion dealers to the “We Buy Gold!” pawn shops. Gold’s energy work is skewed towards creation rather than maintenance, but the industry has these ongoing frictional costs too.

Likewise, the global fiat monetary system has frictional costs as well. Banks and fintech firms extract over $100 billion per year in transaction fees associated with payments, serving as custodians and managers for client assets, and supplying liquidity as market makers between buyers and sellers.

I recently analyzed DBS Group Holdings, for example, which is the largest bank in Singapore. They generate about S$900 million in fees per quarter, or well over S$3 billion per year. Translated into US dollars, that’s over $2.5 billion per year USD in fees.

And that’s one bank with a $50 billion market capitalization. There are two other banks in Singapore of comparable size. J.P. Morgan Chase, the largest bank in the US, is more than 7x as big, and there are several banks in the US that are nearly as large as J.P. Morgan Chase. Just between Visa and Mastercard, they earn about $40 billion in annual revenue. The amount of fees generated by banks and fintech companies around the world per year is over $100 billion.

It requires work to verify transactions and store value, so any monetary system has frictional costs. It only becomes a problem if the transaction fees are too high of a percentage of payment volumes. Bitcoin’s frictional costs are fairly modest compared to the established monetary system, and secondary layers can continue to reduce fees further. For example, the Strike App aims to become arguably the cheapest global payments network, and it runs on the Bitcoin/Lightning network.

This extends to non-monetary commodities as well. Besides gold, wealthy investors store wealth in various items that do not produce cash flow, including fine art, fine wine, classic cars, and ultra-high-end beachfront property that they can’t realistically rent out. There are certain stretches of beaches in Florida or California, for example, with nothing but $30 million homes that are mostly vacant at any given time. I like to go to those beaches because they are usually empty.

These scarce items tend to appreciate in value over time, which is the key reason why people hold them. However, they have frictional costs when you buy them, sell them, and maintain them. As long as those frictional costs are lower than the average appreciation rate over time, they are decent investments compared to holding fiat, rather than being Ponzi schemes.

Section Summary: A Network Effect, Not a Ponzi

The broadest definition of a Ponzi scheme refers to any system that must continually keep operating to remain functional, or that has frictional costs.

Bitcoin doesn’t really meet this broader definition of a Ponzi scheme any more than the gold market, the global fiat banking system, or less liquid markets like fine art, fine wine, collectable cars, or beachfront property. In other words, if your definition of something is so broad that it includes every non-cashflow store of value, you need a better definition.

All of these scarce items have some sort of utility in addition to their store-of-value properties. Gold and art let you enjoy and display visual beauty. Wine lets you enjoy and display gustatory beauty. Collectable cars and beachfront homes let you enjoy and display visual and tactile beauty. Bitcoin lets you make domestic and international settlement payments with no direct mechanism to be blocked by any third party, giving the user unrivaled financial mobility.

Those scarce objects hold their value or increase over time, and investors are fine with paying small frictional costs as a percentage of their investment, as an alternative to holding fiat cash that degrades in value over time.

Yes, Bitcoin requires ongoing operation and must reach a significant market capitalization for the network to become sustainable, but I think that’s best viewed as technological disruption, and investors should price it based on their view of the probability of it succeeding or failing. It’s a network effect that competes with existing network effects; especially the global banking system. And ironically, the global banking system displays more Ponzi characteristics than the others on this list.

Final Thoughts

Any new technology comes with a time period of assessment, and either rejection or acceptance. The market can be irrational at first, either to the upside or downside, but over the fullness of time, assets are weighed and measured.

Bitcoin’s price has grown rapidly with each four-year supply halving cycle, as its network effect continues to compound while its supply remains limited.

Ponzi Bitcoin

Chart Source: St. Louis Fed

Every investment has risks, and it of course remains to be seen what Bitcoin’s ultimate fate will be.

If the market continues to recognize it as a useful savings and payment settlement technology, available to most people in the world and backed up by decentralized consensus around an immutable public ledger, it can continue to take market share as a store of wealth and settlement network until it reaches some mature market capitalization of widespread adoption and lower volatility.

Detractors, on the other hand, often assert that Bitcoin has no intrinsic value and that one day everyone will realize for what it is, and it’ll go to zero. Rather than using this argument, however, the more sophisticated bear argument should be that Bitcoin will fail in its goal to take a certain percentage of persistent market share from the global banking system for one reason or another, and to cite the reasons why they hold that view.

The year 2020 was a story about institutional acceptance, where Bitcoin seemingly transcended the boundary between retail investment and institutional allocations. MicroStrategy and Square become the first publicly-traded companies on major stock exchanges to allocate some or all of their reserves to Bitcoin instead of cash. MassMutual became the first large insurance company to put a fraction of its assets into Bitcoin. Paul Tudor Jones, Stanley Druckenmiller, Bill Miller, and other well-known investors expressed bullish views on it. Some institutions like Fidelity were onboard the Bitcoin train for years with an eye towards institutional custodian services, but 2020 saw a bunch more jump on, including the largest asset manager in the world, BlackRock, showing strong interest.

For utility, Bitcoin allows self-custody, mobility of funds, and permission-less settlements. Although there are other interesting blockchain projects, no other cryptocurrency offers a similar degree of security to prevent attacks against its ledger (both in terms of hash rate and node distribution), or has a wide enough network effect to have a high probability of continually being recognized by the market as a store of value in a persistent way.

And importantly, Bitcoin’s growth was the most organic of the industry, coming first and spreading quickly without centralized leadership and promotion, which is what made it more of a foundational protocol rather than a financial security or business project.

Lyn Alden website

In Gold we Trust Report

2020 Report by Incrementum AG

Ronald-Peter Stoeferle has written the annual In Gold We Trust report for well over a decade. Since 2013 it has been co-authored by his partner Mark Valek.

Over the years, the gold study has become the industry standard publication on gold, money and inflation.

It provides a “holistic“ assessment of the gold sector and the most important factors influencing it, including real interest rates, opportunity costs, debt, central bank policy etc.

Download the report

Time to learn about money

By By Alasdair Macleod of  May 07, 2020

An unexpected destruction of fiat currency has been advanced by the monetary and fiscal response to the coronavirus. Financial markets have yet to discount the possibility of such an outcome, but in the coming months they are likely to awaken to this danger.

The question arises as to what will replace fiat currencies. In the past the answer has always been gold but today there are cryptocurrencies as well, whose enthusiasts are more aware than most of fiat money’s failings.

This article describes the basics about money, what it is and the role it plays in order to understand what will be required by the eventual replacement for fiat. It concludes that gold will return as the world’s medium of exchange, and secure cryptocurrencies, unable to provide the scalability and stability of value required of a medium of exchange will be priced in gold after the demise of fiat. But then the rationale for them will be gone, and with it their function as a store of value.

The destruction of fiat money

These are strange times. Circumstances are forcing governments to destroy their money by debasing it to pay for their obligations, real and imagined. If central bankers had a grasp of what money really is, they wouldn’t have got into a position where they are forced to use their seigniorage to destroy it. They are so ignorant about catallactics, the fundamentals behind economics, that they cannot see they are destroying the means of exchange they have imposed upon their citizens with far worse consequences than the abandonment of the evils they are trying to defray.[i]

Unless you believe in a financial form of perpetual motion you will know that all else being equal if you double the quantity of money you approximately halve its purchasing power. It is therefore an incontestable fact that if a central bank doubles the quantity of a circulating fiat currency, it is taking to itself half of the value of everyone’s cash, currency deposits, profits and salaries. It makes everyone poorer and it is simply a travesty to promote monetary inflation as a costless form of economic rescue. Yet the major central banks are now unashamedly admitting to a policy of deploying an infinite expansion of circulating currency.

The effect on capital allocation is equally destructive, because it undermines economic calculation. The suppression of interest rates and increasing quantities of currency tempt businessmen into unprofitable investment decisions which only appear profitable. But inflationism periodically fails as any follower of credit cycles will attest. And the more extreme the policy of inflationism, the more capital is misallocated, and the worse the periodic failures. Today, we can add to these woes monetary and interest rate policies intended to prevent any and all businesses from going to the wall in a final act of capital misallocation.

We now stand on the edge of a global monetary crisis brought about by a new, rapid acceleration of money-printing. Never before have we seen our own governments and those of all our trading partners embark on the same policies of monetary destruction. Never, therefore, will we have seen the scale of global wealth destruction that we about to experience. Unless governments change their inflationary policies, they will lead to the miseries we read about in countries such as Venezuela and Zimbabwe being visited upon us all.

It is extraordinary that modern economists are blind to the true effects of inflation, which have been known since the dawn of money. Nicolas Oresme, a French bishop in the fourteenth century and a notable translator of Aristotle, warned of debasement:

“I am of the opinion that the main and final cause why the prince pretends to the power of altering the coinage is the profit or gain which he can get from it… the amount of the prince’s profit is necessarily that of the communities’ loss but whatever loss the prince inflicts on the community is injustice and the act of a tyrant and not of a king, as Aristotle says. And so, the Prince would be at length able to draw to himself almost all the money or riches of his subjects and reduce them to slavery and this would be tyrannical, indeed true and absolute tyranny as it is represented by philosophers, and in ancient history.”[ii]

As a description of inflation, it was a continuity statement of what was known from classical times. In Oresme’s day and before, the principal form of debasement was of the coinage. It is no different from issuing any form of money or credit unbacked by a valuable metal. Apart from alchemists dreaming of creating gold out of something else, the principal deniers of the true purpose of inflationism have been John Law in eighteenth century France, Geog Knapp and his chartalists in Bismarck’s Germany, and Lord Keynes the consequences from which we are suffering today. Oresme was spot on. The whole purpose of debasement is to fund the state, and the state licences banks for that purpose, extending monetary favours to big business as well. Forget the flummery about stimulating us; that amounts to a cover for statist robbery of our wealth.

The coronavirus is not the cause of this folly. It has only shortened timescales, the likely time before we discard fiat currencies entirely. It has brought forward the time when homo economicus anticipates the total loss of the government currency’s purchasing power. From that moment, those of us unwilling to descend into barter will seek a new medium of exchange. In desperation, governments are likely attempt to provide alternatives. If so, it almost certainly will be a variation on the fiat theme, which they find impossible to abandon for lack of finance. They will then discover that a lasting money is not to be chosen by the state, but by the people.

This has been the lesson of history. Those who think economics as a science started with Keynes, and preceding theories were thereby invalidated, are in for a primal shock. It is time to relearn the basics about money so that we can anticipate what form of money will endure as a replacement for the failure of government fiat currency.

Defining money

There are two incontrovertible facts that underlie economic analysis and the role of money. The first is that the division of labour is more productive than the work of isolated individuals. That is to say, individuals maximise their productivity by deploying their individual skills, relying on their enhanced output to acquire all their other needs and wants from other specialising producers in their community. Not even Marx denied this, nor all the other socialists who emerged on the economic and political scene from his time onwards. Only Keynes denied it in order to impart validity to his General Theory.[iii]

Socialist economists even agree with the second incontrovertible fact, that, ascetics aside, individuals prefer a higher productivity of their labour to a lower one. Socialist arguments were not against these facts but dispute which way of dividing labour is most productive. Marxists have argued that the division of labour should be harnessed for the benefit of the state, and that instead of being exploited by employers, labourers would become happier and more productive. Less extreme socialists simply believe that there is little or no difference of production output in a business controlled by the state, compared with one in private ownership.

It therefore follows that to facilitate the division of labour, the role of money is to facilitate an exchange of goods. It enables people to choose between goods and services, and therefore for people to exercise their judgement of the relative values they place on different goods. It enables them to choose.

Value is not to be confused with prices. Value is an expression of a graded preference between goods, the assessment of one against another. Money is the commodity whose sole function is to facilitate the transfer of production into needed and desired consumption in order to satisfy individual scales of value. The difference between value and its realisation as a price in a transaction devolves into subjective values placed by different individuals for goods and services being exchanged and into a common objective value for money.

Separately from money’s objective transactional value, transacting individuals have different values for money itself relative to a particular product within money’s objective context. In a transaction it follows that one party will value a given quantity of money more than the good at the point of exchange, while the other party will value the good more than the quantity of money demanded; otherwise an exchange cannot take place. The exchange is recorded as a price expressed in money terms.

This description crams into a few paragraphs the relationship between value and money. It is a topic rarely addressed by modern economists, which is one reason the catallactic role of money is poorly understood. A second, and no less important reason is the defining literature on the subject originated in Austria in German, with the unfamiliar names to the Anglo-Saxon ear of Menger, Böhm-Bawerk, Wieser and Mises amongst others. Instead, the neo-classical economics of today ignores all subjectivity and has evolved into an inflexible mathematical macroeconomic certainty, eliminating unpredictable human action, melding value with prices.

But from these basics all other roles of money are derived. Clearly, while one party wants the money more than the item being exchanged and the other prefers the item to the money, both parties in a transaction will require a medium of exchange that is stable. They can then agree an objective value at the time of the transaction. But when an individual or business sells his, her or its production, the money gained is not immediately exchanged for other goods. Money must therefore have more than an objective value at the time of a transaction, because it is also the temporary storage of labour or of a business’s output.

It is fundamental that all economic actors are confident that the purchasing power of money does not alter for the time they are likely to possess it in lieu of the goods and services yet to be acquired, else they will either dispose of the money more rapidly than they would otherwise, or alternatively hoard it to a greater extent than they would normally require. And when the division of labour is organised into a cooperative system, such as a business involving numbers of people, rewarding them for production by paying fixed salaries, it is a fundamental assumption of all employment contracts that the salary does not alter in its purchasing power.

The stability that qualifies money as the medium of exchange over time is also fundamental to related functions, such as the ability of transacting parties to agree deferred payment terms and the facility of money to permit adjustment for risk factors between a transaction and its final settlement. Other than deferred payments based purely on trust, deferred settlements will reflect a level of time preference agreed between acting parties. This is the measure of the difference between values of immediate possession and deferred possession for the period agreed.

The greatest value for transacting parties is for possession sooner, with future possession valued less. All commodities are subject to this rule. Furthermore, money’s time preference is also subject to this rule and will reflect money’s own characteristics as well as those of goods being exchanged.

Instead of being expressed as a discount to current possession, the time preference of future possession is expressed as an annualised interest rate. Assuming a current valuation of a future value, a time preference value of 95 per cent of current ownership in one year’s time is the same as an interest rate of

(100-95)/95 = 5.26%.

Time preference can only be agreed between transacting parties, and it is impossible for outsiders, such as the state, to know what that value is. With respect to money, this is commonly termed the originary rate of interest, shorn of other considerations, such as transactional risk and anticipated changes in the prices of future goods, which are additional factors.

It should be apparent that a medium of exchange discharges its functions most effectively when the transacting public has the greatest confidence in the money’s stability, leading to a relatively low level of time preference. Policies of state inflationism undermine this condition and, if continued, inevitably leads to the loss of confidence in fiat money altogether. Recent events, the combination of a downturn in the credit cycle and the economic consequences of the coronavirus, have committed central banks to an unlimited increase of monetary inflation, which in addition to the suppression of all time preference, by imposing zero and negative interest rates on economic actors, will bring forward the day when faith in fiat currencies is lost entirely.

We can therefore anticipate the death of today’s fiat currencies. It is a mistake to think it will be a gradual process: it has already been gradual since the late 1960s, when the remaining fig-leaf of gold convertibility was finally abandoned with the failure of the London gold pool. Since then, measured in gold the dollar has lost over 97% of its purchasing power compared with gold. Given this latest acceleration of monetary debasement, it is likely to be the nail in the coffin for the fiat dollar. Instead of a continuing decline, the outcome is likely to be a final collapse, not just through its over-issuance, but because fiat money will have lost all its derivative functions. The only thing missing is public awareness.

The end of fiat money can be defrayed by reverting to a gold standard, turning it from pure fiat to a representative of gold. But that will only be a lasting solution if the state stops intervening in the economy, runs balanced budgets and embraces free markets. Unfortunately, inflationism in the form of neo-Keynesian economics is so ingrained in political thinking that many central banks will look to invent new forms of fiat money instead of returning to a gold exchange standard.

One of the alternatives being experimented with is state-issued cryptocurrencies, but it is not yet clear what purpose they are intended to serve. Crucially, they are sure to differ from bitcoin and similar cryptocurrencies by having a centralised ledger under state control. Apart from the questions raised by wider uncertainties surrounding the durability of a cryptocurrency’s use-value, unless the state version is backed convincingly by gold, it will be no more than a dressed-up fiat currency, a successor to failure unlikely to obtain enduring public trust. For the moment, we must dismiss state issued cryptocurrencies as irrelevant to our analysis, because independent cryptocurrencies are better stores of value due to their distributed ledgers.

Gold as money

The inflationists deny that gold should play any monetary role, for the simple reason that it hampers inflationist policies. Being the most likely way of securing a currency, for a gold exchange standard to work will require strict rules-based monetary discipline.

A gold exchange standard is comprised of the following elements. The new issues of state denominated currency must be covered pro rata by additional physical gold, and it must be fully interchangeable at the public’s option. The state is not required at the outset to cover every existing banknote in circulation, but depending on the situation, perhaps a minimum of one-third of the issue should be covered by physical gold at the outset when setting a fixed conversion ratio. The point is that further note issues must be covered by the issuer acquiring physical gold.

Banknotes which are “as good as gold” are a practical means of using gold as the medium of exchange. Electronic money, being fully convertible into bank notes must also be convertible into gold.

A gold exchange standard also requires the state to radically alter course from its customary inflationary financing. The economy, which has similarly become accustomed to future flows of apparently free money, will have to adjust to their future absence. Consequently, the state has to reduce its burden on the economy, such that its activities become a minimal part of the whole; the smaller the better. It must privatise industries in its possession, because it cannot afford to absorb any losses and inefficient state businesses detract from overall economic performance. At the same time, the state must not hamper wealth creation and accumulation by producers and savers as the means to provide investment in production. Government policy must be to stop all socialism, allowing charities to fulfil the role of welfare provision, and let free markets have full rein.

Broadly, this was how British government policy developed following the Napoleonic wars until the First World War, and the proof of its success was Britain’s commercial and technological development, entirely due to free markets. But the British made one important mistake, and that was in the Bank Charter Act of 1844, which in England and Wales permitted the expansion of unbacked bank credit. For this reason, a cycle of credit expansion developed, punctuated by sharp contractions, the boom and bust that led to a series of banking crises. A future gold exchange standard must address this issue, by separating deposit-taking into a custodial role and the financing of investment into an agency function.

It is a common error of neo-Keynesian economists to believe gold is an unsuitable medium for financing modern trade and investment, because, it is often alleged, it lacks an interest rate. Since interest rates existed throughout gold standards, the confusion arises from assuming an interest rate attaches to paper currency. But if a paper currency is fully convertible into gold, then interest rates are effectively for borrowing and lending gold, and do not apply to the currency. The best measure of what savers may gain by lending their gold savings risk-free is the yield on government debt, repayable in gold and realisable in the market at any time. This is illustrated in Figure 1.


Shortly after the introduction of the gold sovereign in 1817, the yield on undated government debt gradually fell to 2.3% in 1898. This reflected a natural decline in time preference as free markets delivered increasing benefits and accumulating wealth for the British population. Following the gold discoveries in South Africa, between the early-1880s and the First World War global above-ground stocks of gold doubled, and the inflationary effects led to a rise in government Consols yields to 3.4%.

The encouragement to investors to provide financial capital for investment in industry and technology was two-fold. A family’s investment in 1824 rose in value due to the long-term fall in Consols yields. By 1898, invested in Consols it would have appreciated by 65%. At the same time, the rise in the purchasing power of gold-backed sterling increased approximately 20%. Saving and family inheritance were rewarded.[iv]

Importantly, above ground gold stocks have grown at approximately the rate of that of the global population, imparting a long-term stability to prices in gold. For this reason, it is often said that measured in gold the cost of a Roman toga is not much different from that of a modern lounge suit. Other money-related benefits of gold and gold exchange standards compared with those of pure fiat also follow from this stability.

Between countries that use gold and gold substitutes as money, except for short-term settlement differences covered by trade finance, balance of payments imbalances only existed to adjust price levels between different nations. If a country exports more goods and services than it imports, it imports gold or gold substitutes on a net basis. The increased quantity of gold in that country tends to adjust the general level of prices upwards to the general level of prices in countries that are net importers of goods and services, which find the outflow of gold has moved their prices correspondingly lower. The ability to issue unbacked currency has been removed, so net balance of payment flows become a pure price arbitrage. This is in accordance with classical economic theory and has its remnants today in concepts such as purchasing power parity.

In summary, gold retains the qualities that ensure it will always be the commodity selected by people to act as their medium of exchange. It offers long term price stability and is the ultimate fiscal and monetary discipline on governments, forcing them to reduce socialist ambitions, to accept the primacy of free markets, and to permit acting individuals to earn and accumulate wealth. Being fully fungible, gold is suitable backing for substitute coins and banknotes. It is an efficient medium for providing savings for the purpose of capital investment. And the tendency for prices measured in gold to fall over time driven by natural competition and technology ensures a low and stable originary rate of interest.

Bitcoin and similar distributed ledger cryptocurrencies

Now that we have defined money and identified why fiat currency is on an accelerating path to failure, we must look at the much-mooted alternative to gold of cryptocurrencies, the most notable of which is bitcoin. For simplicity we shall comment on bitcoin only.

The principal characteristics of bitcoin are its pre-programmed limited and capped rate of issue, and its distributed ledger otherwise known as the blockchain. The former distinguishes it from fiat currencies, which as we have seen are beginning their final inflation run, and the latter ensures governments cannot gain control or otherwise interfere with it.

While governments can confiscate their citizens’ profits, close down cryptocurrency exchanges and direct their licenced banks not to accept or make payments in connection with cryptocurrencies, they have yet to do so. So far, when authorities have intervened, the reasons given have been to tackle fraud, real and imagined, and alleged money-laundering. For governments to shut cryptocurrencies down would probably require international cooperation by all governments to deny the right to own cryptocurrencies. An agreement on these lines would be almost impossible to achieve and would take many years of intergovernmental negotiation, given the violation of property rights involved and the precedents created. Due to the accelerated timescale of the demise of fiat currencies, intervention of this sort seems unlikely.

Bitcoin will therefore survive government intervention to become a possible replacement for fiat currencies. But there is the practical problem of exchange being broadly limited by users looking for investment and speculation, rather than being used as payment for goods. This is for good reason: in any transaction an acting man will want all the price subjectivity to be reflected in the goods being exchanged and objective values to be confined to the currency. Currently, bitcoin’s volatility is extreme as shown in Figure 2, which compares bitcoin priced in gold ounces with gold priced in dollars.


Gold’s volatility against the dollar approximates to the volatility of any another currency, and its upward trend principally reflects the declining purchasing power of the dollar. Even priced in gold ounces, bitcoin’s volatility has been dramatic, too dramatic to act as the objective value in an exchange for goods.

Unless bitcoin’s volatility subsides sufficiently so that it becomes widely accepted as a medium of exchange, it cannot act as efficient money in the catallactic sense. Furthermore, the blockchain system is too cumbersome for a global medium of exchange, currently limited to about half a million transactions daily when trillions are required.

While accepting that bitcoin’s other monetary features have yet to be developed, volatility would also appear to rule out agreements between lender and borrower on the value of time preference as the basis of using it for deferred settlement. For now, bitcoin appears to be good for buying with a view to selling in return for another form of money, rather than acting as money itself. Undoubtedly, owners of bitcoin, or hodlers as the slang term puts it, are valuing them in dollars, and thinking of taking profits in dollars. It appears that hodlers are speculating on bitcoin’s rise, rather than the dollar’s fall, though that will change as the general public begin to ditch their fiat currencies.

When hodlers finally understand this distinction, in the absence of fiat money and using bitcoin for day-to-day exchanges for goods, what will they sell them for? If we rule out purchases of other cryptocurrencies, the answer can only be for metallic money, gold, or properly constituted gold substitutes.

While we can draw attention to a cryptocurrency’s lack of monetary characteristics, it does not mean we can dismiss them as being merely speculative counters. Circumstances change, and it is likely that when the general public finally understands that fiat currencies are worthless, it will look for alternative stores of wealth. Bitcoin enthusiasts are among the first to understand the benefits of hoarding wealth against failing fiat currencies. Furthermore, technological innovation could provide solutions to bitcoin’s lack of transactional scalability.

Central banks are also running cryptocurrency and blockchain projects, so far with little apparent sense of direction beyond trying to keep abreast of developments. The most advanced state appears to be China, which is trialling a digital version of the yuan. But far from having the characteristics of a cryptocurrency, any version of the yuan digitised or not is, for the moment at least, just a fiat currency.

In the final analysis, whether bitcoin becomes money is down to what the transacting public decides. But for now, it remains a hedge to fiat currency risk, with the potential for the price to rise, not just reflecting the demise of the dollar and other fiat currencies but rising in its own right. The market for bitcoin is potentially huge, far larger than the feed into any speculative bubble in history, with billions of people possessing mobile phones capable of acquiring them.

Concluding remarks

The inflationists, encompassing the entire financial establishment and their epigones, fail to see the ending of fiat currencies. But a rational and objective analysis coupled with empirical evidence tells us that the sudden and rapid escalation of monetary expansion, aimed to ensure financial assets do not fail, will lead to the destruction of the dollar as the world’s principal medium of exchange. And with the reserve currency gone, it is very unlikely the other major fiat currencies will survive.

The question then arises as to what will replace fiat currencies. Government attempts to extend the life of fiat money by issuing new versions imitating cryptocurrencies will fail, only likely to extend the life of fiat by a matter of months, if at all. Existing cryptocurrencies, even the best of them, are not currently suitable replacements due to their lack of scalability and volatility. Furthermore, for now bitcoin is the preserve of investors and speculators, taking a punt on the demise of fiat, without an exit plan other than to measure or take profits in a fiat currency.

The same accusation can be levelled at gold, which is probably even less used in transactions for goods than bitcoin. But gold has the advantage of a track record of always returning as the money of public choice after fiat fails. Together with its suitability for deferred settlements, we can therefore be certain that gold will be money once again, while we cannot be so certain of the future for cryptocurrencies.

This is not to say that cryptocurrencies will not afford protection for individuals as fiat fails, only that an exit route has yet to evolve, other than being spent as money. Consequently, cryptocurrencies might retain investment or speculative value, but it will end up being measured in gold. That being the case, the reasons for using cryptocurrencies as an escape from failing fiat will disappear when gold becomes money again, along with a future role for cryptocurrencies as mediums of exchange.

Get Ready for World Money

MARCH 25, 2020

Since Federal Reserve resources were barely able to prevent complete collapse in 2008, it should be expected that an even larger collapse will overwhelm the Fed’s balance sheet.

That’s exactly the situation we’re facing right now.

The specter of a global debt crisis suggests the urgency for new liquidity sources, bigger than those that central banks can provide. The logic leads quickly to one currency for the planet.

The task of re-liquefying the world will fall to the IMF because the IMF will have the only clean balance sheet left among official institutions. The IMF will rise to the occasion with a towering issuance of special drawing rights (SDRs), and this monetary operation will effectively end the dollar’s role as the leading reserve currency.

The Federal Reserve has a printing press, they can print dollars. The IMF also has a printing press and can print SDRs. It’s just world money that could be handed out.

The IMF could function like a central bank through more frequent issuance of SDRs and by encouraging the use of “private SDRs” by banks and borrowers.

What exactly is an SDR?

The SDR is a form of world money printed by the IMF. It was created in 1969 as the realization of an earlier idea for world money called the “bancor,” proposed by John Maynard Keynes at the Bretton Woods conference in 1944.

The bancor was never adopted, but the SDR has been going strong for 50 years. I am often asked, “If I had 100 SDRs how many dollars would that be worth? How many euros would that be worth?”

There’s a formula for determining that, and as of today there are five currencies in the formula: dollars, sterling, yen, euros and yuan. Those are the five currencies that comprise in the SDR calculation.

The important thing to realize that the SDR is a source of potentially unlimited global liquidity. That’s why SDRs were invented in 1969 (when the world was seeking alternatives to the dollar), and that’s why they will be used in the imminent future.

At the previous rate of progress, it may have taken decades for the SDR to pose a serious challenge to the dollar. But as I’ve said for years, that process could be rapidly accelerated in a financial crisis where the world needed liquidity and the central banks were unable to provide it because they still have not normalized their balance sheets from the last crisis.

“In that case,” I’ve argued previously, “the replacement of the dollar could happen almost overnight.”

Well, guess what?

We’re facing a global financial crisis worse even than 2008. That’s because each crisis is larger than the previous one. The reason has to do with the system scale. In complex dynamic systems such as capital markets, risk is an exponential function of system scale. Increasing market scale correlates with exponentially larger market collapses.

This means a market panic far larger than the Panic of 2008.

SDRs have been used before. They were issued in several tranches during the monetary turmoil between 1971 and 1981 before they were put back on the shelf. In 2009 (also in a time of financial crisis). A new issue of SDRs was distributed to IMF members to provide liquidity after the panic of 2008.

The 2009 issuance was a case of the IMF “testing the plumbing” of the system to make sure it worked properly. With no issuance of SDRs for 28 years, from 1981–2009, the IMF wanted to rehearse the governance, computational and legal processes for issuing SDRs.

The purpose was partly to alleviate liquidity concerns at the time, but also partly to make sure the system works in case a large new issuance was needed on short notice. The 2009 experience showed the system worked fine.

Since 2009, the IMF has proceeded in slow steps to create a platform for massive new issuances of SDRs and the creation of a deep liquid pool of SDR-denominated assets.

On Jan. 7, 2011, the IMF issued a master plan for replacing the dollar with SDRs. This included the creation of an SDR bond market, SDR dealers, and ancillary facilities such as repos, derivatives, settlement and clearance channels, and the entire apparatus of a liquid bond market. A liquid bond market is critical.

The IMF study recommended that the SDR bond market replicate the infrastructure of the U.S. Treasury market, with hedging, financing, settlement and clearance mechanisms substantially similar to those used to support trading in Treasury securities today.

In November 2015, the Executive Committee of the IMF formally voted to admit the Chinese yuan into the basket of currencies into which an SDR is convertible.

In July 2016, the IMF issued a paper calling for the creation of a private SDR bond market. These bonds are called “M-SDRs” (for market SDRs) in contrast to “O-SDRs” (for official SDRs).

In August 2016, the World Bank announced that it would issue SDR-denominated bonds to private purchasers. Industrial and Commercial Bank of China (ICBC), the largest bank in China, will be the lead underwriter on the deal.

In September 2016, the IMF included the Chinese yuan in the SDR basket, giving China seat at the monetary table.

Over the next several years, we will see the issuance of SDRs to transnational organizations, such as the U.N. and World Bank, to be spent on climate change infrastructure and other elite pet projects outside the supervision of any democratically elected bodies. (I call this the New Blueprint for Worldwide Inflation.)

The SDR can be issued in abundance to IMF members and can also be used in the future for a select list of the most important transactions in the world, including balance-of-payments settlements, oil pricing and the financial accounts of the world’s largest corporations, such as Exxon Mobil, Toyota and Royal Dutch Shell.

So the international monetary elite has been awaiting the global liquidity crisis that we’re facing right now. In the not-too-distant future, there will be massive issuances of SDRs to return liquidity to the world. The result will be the end of the dollar as the leading global reserve currency.

SDRs will perhaps never be issued in bank note form and may never be used on an everyday basis by citizens around the world. But even such limited usage does not alter the fact that the SDR is world money controlled by elites.

But monetary resets have happened three times before, in 1914, 1939 and 1971. On average, it happens about every 30 or 40 years. We’re going on 50.

So we’re long overdue.

You’ll still have dollars, but they’ll be local currency like the Mexican peso, for example. But its global dominance will end.

Based on past practice, we can expect that the dollar will be devalued by 50–80% in the coming years.

A devaluation of this magnitude will wipe out the value of your life’s savings. You’ll still have just as many dollars, but they won’t be worth nearly as much.

Individuals will not be allowed to own SDRs, but you can still protect your wealth by buying gold — if you can find any.


Jim Rickards
for The Daily Reckoning

Latest Global Financial News

Fed will launch ‘QE4’ before year-end to stem Street cash crunch.

10th Dec CNBC

I have reported on in the past that central bank “Quantitative easing” policy since 2009 has only caused the financial system to become more fragile and the intended purpose of injecting financial liquidity into “main street” has not worked. Because all the money went into Wall Street and Big Banks making the .1% financial elite wealthier.

This is why we have not seen “obvious” inflation or Hyper Inflation because the money did not end up into your pocket, but into the super rich. There has however been huge increases in the average house price in last 10 years and elite assets like paintings, luxury yachts, luxury houses, cars and collectables.

For example a 1962 Ferrari 250 sold for $48.4 Million USD, 1 bottle or rare Scotch Whisky sold for 1.2 million pounds, and Leonardo da Vinci’s Salvator Mundi  sold in Christie’s for $450.3-million in NYC. The inequity between the rich, middle class and less advantaged has now become a gaping chasm.

Coming up to Christmas holidays the JetStar employees are on strike asking for a 13% wage increase. You might think that’s excessive until you realise that the JetStar crew get paid $41 per hour but the CEO of Qantas Alan Joyce (Qantas the owner of Jetstar) gets paid $9000 per hour! The Jetstar CEO is only willing to accept a 3% wage increase, however the real cost of living is much higher.

Back to the FED. You may remember that on Christmas eve 2018 there was a sudden 653 point drop on Wall Street – immediately the US Treasury Secretary called all the top 6 Bank CEO’s to make sure the market had enough liquidity, it was a very strange reaction that spooked the markets even more.

Our financial system has become more un-fair, fragile and much of the blame has to rest with Central Banks, easy credit and deep and systemic corruption in our banking system.

Two interesting facts are that 3 versions of a central banks in USA were rejected by the the founding fathers and US Presidents. Today only two countries remain in the world without central banks controlled by the Rothschild dynasty.

After listening to a new book ” Treasure Islands – Tax Havens and the men who stole the world” I have come to realise that most of the worlds global finances flow through international offshore tax havens. The size of the financial flows are incalculable because of all the secrecy and the fact that global banks and governments are involved.

The Australian Government has recently proposed a $10,000 AUD cash ban legislation to supposedly stop the black economy, however the very accounting firms who have suggested this legislation also help financial institutions and corporations to “legally” avoid tax via these offshore jurisdictions.

On 2nd Dec MP Bob Katter introduced legislation into the house “Australian Bank Government Audit Bill” it is worth reading Mr Katter short intro to the bill. This is one short quote “Ernst & Young gave a clean bill of health to Lehman Brothers in July 2008, two months before its bankruptcy precipitated the global banking crash. The New York Attorney-General accused Ernst & Young of helping Lehman Brothers engage in a massive accounting fraud.

Australian Parliament

The CEC media report recently posted“Westpac is arguing with the anti-money laundering (AML) authority AUSTRAC over whether responsibility for the bank’s money laundering crimes lies with the board and senior executives, or middle management, according to The Australian on 9 December.

The Bank of International Settlements BIS in Switzerland has been warning for some time about the fragility of the banking system. The latest BIS Dec 2019 report says “FX trading returned to its long-term upward trend, rising to $6.6 trillion per day in April 2019. Interest rate derivatives trading departed sharply from its previous trend, soaring to $6.5 trillion.”

Warren Buffet once said “In our view, however, derivatives are financial weapons of mass destruction, carrying dangers that, while now latent, are potentially lethal.”

The encouraging sign in all this mess is that the average person is learning the truth of what has been happening and is starting to look for ways to do something about the problem. The global elite are worried and continue to push forward, but my hope is that Freedom will prevail. Our “Trump” card (pun intended) is that the creator and defender of Truth, Justice and Freedom will defend anyone who wants to fight for these principles.

By Alan Currie

Hard Brexit – What is happening in UK and EU?

Boris Johnson is now Prime Minister

It should also be no surprise Boris will implement Brexit on 31 October, the last date agreed between Mrs May’s government and the EU. Johnson was elected by Conservative constituency members to do just that. His cabinet appointees are fully supportive, including ex-Remainers (that’s politics!) and he has appointed an aggressive rottweiler, Dominic Cummings, as his Brexit enforcer. Already, his influence over Brexit strategy can be detected. There are no compromises to be had, a point which slower minds in the commentariat find difficult to comprehend and accept.

It is likely there will be an agreement on the way forward after Brexit, which could involve a transition period, but nothing like that agreed with Mrs May. If, as seems unlikely, the EU digs its heels in, the UK will walk away. That is the message being given by the new administration.

The establishment media are still wrong-footed on Brexit. The BBC, and others, have been too idle to analyse properly, taking their information from biased pro-remain sources and politicians who are out of the loop. They are still doing it. Disinformation is substituted for truth.

The EU, disinformed by Remainers including a chorus of past ministers and prime ministers, has relied on the divisions within Parliament to put Britain into a political and economic stasis. Their repeated utterances (there will be no new negotiation, the withdrawal agreement stands etc.) reflect the continuation of the EU’s established position. That is likely to change, because the EU will find it is forced to accept the dangers to its own position. 

There is a crucial difference between the new cabinet and its predecessor. In Johnson, as well as ministers such as Rees-Mogg, Raab, Javid and Gove there appears to be an understanding of and commitment to free markets, unlike anything we have seen since Margaret Thatcher. Obviously, the strength of that commitment is yet to be tested.

The new reality and the dismissal of the old socialising compromisers should swing Parliament behind the instructions given to it by the electorate in the Brexit referendum. An advertising campaign to prepare everyone for Brexit without a deal starts now. The strategy is not to go to Brussels (UK-US is being negotiated first) but only when Brussels comes to its senses will a dialog commence. Facing a lost cause, Remainers are likely to melt like midsummer hailstones, and the euro-nuts, like Dominic Grieve, will sink into obscurity.

The electoral consequences are appalling for the Labour Party. By changing from its conditional support for implementing the Brexit referendum to demanding a second one with the intention of overturning the first, they have almost guaranteed that in a general election they will face a wipe-out. This is important, because it means that they have no incentive to table a vote of no confidence in Johnson’s government. They have already gambled and lost.

Because of Labour’s bad call it looks like Boris’s government will get its way and is here to stay, not only through Brexit, but beyond. The EU will have to get used to it. The Europeans have lost control over the negotiations and seem unlikely to get more than a pittance of the £39bn settlement agreed with Mrs May. When Boris refers to our friends in Europe, he actually means our adversaries. When he refers to his preference for a deal against no deal, he means a deal only on his government’s terms. Already, trade negotiations are commencing with America, existing EU trade agreements with other significant nations will be simply novated, and the whole of the Commonwealth, including populous India are ready to sign up.

This is the new reality and Dominic Cummings’s task is to ensure all government departments are firmly on message. There is bound to be a little drift from this black and white, but the process of political destruction now moves from London to Brussels. Having made such a fuss of it, the Irish border is a non-issue. The UK has no need to put in a border. With lower UK tariffs, ownership of the problem is fully transferred to the EU and the Irish government. 

Assuming the Treasury has already made provisions for it, Boris needs the £39bn promised by Mrs May to the EU to be reallocated to a mixture of the health service, education, law enforcement and tax cuts. Then there’s that infamous £350m per week, which was on the side of the Brexit bus. That was gross of the Thatcher rebate, so the actual figure is closer to £275m per week, and there was an amount within that spent in the UK under the EU’s sole direction. That left £181m in 2016, sent to Brussels for the privilege of EU membership, or £9.4bn per annum. How much of that can be diverted for funding government spending depends on the new government’s tariff policies. There is no doubt that from a purely economic point of view they should be removed in their entirety. 

By not paying the planned £39bn divorce settlement and gaining the £9.4bn net annual payments to the EU, Johnson has some wriggle room when it comes to funding his spending plans and tax cuts. Without it, he will have to rely on inflationary financing, and hopefully there are enough wise heads in the cabinet to dissuade him from going down that road. Therefore, if only because of the money, the odds strongly favour a hardball approach on Brexit negotiations instead of compromise.

The EU’s problems are mounting

PM Boris Johnson

There is likely to be an important consequence, and that is a Johnson Brexit could trigger a mounting financial and ultimately political crisis in the European Union.

A study last year by Germany’s Halle Institute estimated a no-deal Brexit would cost 12,000 jobs in the UK, and 422,000 jobs in the other 27 EU members, of which 100,000 are in Germany and 50,000 in France.[i] Yesterday, Ireland’s central bank forecast a loss of up to 100,000 jobs in the medium term in Ireland alone, on a no-deal. Clearly, the EU’s negotiators risk losing the wholehearted support of its two largest post-Brexit paymasters and others. But for Brussels, giving in on Brexit encourages rebellion from disaffected populations in other member states. Rather like the Soviets ruling Eastern Europe in the late eighties, the Brussels establishment finds itself struggling to keep its non-democratic political model intact.

It is increasingly likely Brussels will find events are spinning out of its control. For the UK, this introduces collateral damage, necessitating even more urgent separation from the EU. In a paper published at end-June, Bob Lyddon points out that a Eurozone financial crisis (which is becoming increasingly likely, as argued below) could cause the UK’s contingent liability as an EU member to be as much as €441bn. “This derives from the near-criminal irresponsibility by the UK’s negotiators”.[ii] 

Whatever the numbers, there can be no doubt that this is an extremely serious issue. Furthermore, in the event of a financial and systemic crisis in the Eurozone, the UK will face its own crisis, if only because of cross-liabilities through the two banking systems. And the cyclical economic downturn that always follows the failure of a period of credit expansion is coming up on the inside rail very rapidly.

The EU economy is left badly unbalanced, with Germany dominating production and exports. Other populous member states, notably in the Club Med and France, are in a financial mess. They have relied on Germany’s production to provide for their unproductive profligacy. Her production output is now contracting.

Germany has been hit by three adverse developments at the same time. There is President Trump’s tariff war against China, which has undermined Germany’s largest growing markets at the eastern end of the Silk Road, and the threat he will deploy similar tactics against Germany. There is EU environmental legislation, which is making Germany’s motor production obsolete and forcing manufacturers to put a time-limit on existing production while investing enormous sums in electric technology. The damage this has done extends down the whole production chain, undermining the Mittelstand. 

Then there is the crisis in Germany’s major banks, most publicly seen in Deutsche Bank because of longtail liabilities from its investment banking division. But all German banks, as well as those throughout the EU, face a lethal combination of margin compression from negative interest rates and a legacy of an expensive branch network when customers are migrating to online banking. The slump in German production now provides an additional threat to their loan books.

In the background, there is the turn in the global credit cycle from its expansionary phase into a periodic contraction, usually resulting in a credit crisis. To understand the transition from credit expansion to a tendency for it to contract is to recognise that the expansion of credit as a means of stimulating an economy depends on tricking economic actors into believing prospects are improving. When the evidence mounts that they are not, monetary stimulation fails, and credit begins to contract. Despite the ECB maintaining negative interest rates, despite the ability of highly-rated companies to raise finance at zero or even negative rates, and despite the ECB’s offer to pay companies to borrow (which is what deeper negative rates amount to) economic actors are now aware that it is all deception.

This is why Germany now has all the appearances of being in the early stages of a deepening economic slump, and there is nothing monetary policy can do about it. Brexit will simply add to these problems, not just for manufacturers, but for their bankers as well, as the Halle Institute report implies. 

It is increasingly difficult to see how with escalating budget deficits in member governments Brussels can afford to continue with its head-in-the-sand approach to trade negotiations with Britain. The eurocrats naturally retreat into more protectionism when they see the system threatened. But asking Germany, France, the Netherlands, Austria, Finland, Sweden and Denmark for more money when their tax revenues are slumping is unlikely to cut much ice.

The new Johnson team will know some of this. There may be a temptation to make a portion of the £39bn, promised by Mrs May, available to Brussels to alleviate their pain in return for a quick deal. This goes against the new hard attitude of the Johnson government, exemplified by the presence of Dominic Cummings. But we shall see how this one pans out.

The UK economy Post-Brexit

Meanwhile, as economist Patrick Minford recently pointed out, a US-UK trade deal could lower prices of goods in the UK by as much as 20%, being the effect of EU tariff protection against global competition, raising prices above the world price level by that amount. [iii] Minford estimates a UK-US trade deal would lead to an overall gain to UK GDP of between four and eight per cent, a markedly different outcome from the project fear propaganda of the old establishment. And in the event of No Deal with the EU, the UK Treasury will receive up to £13bn in tariffs from EU importers, assuming no reduction in EU imports. Obviously, there will be substitution of EU goods for goods from the US and elsewhere, once trade agreements are in place, so this will be a maximum revenue figure.

The point is No Deal is not the disaster promised by the May establishment and its business lobbyists. It is a disaster for the remaining EU. Exiting the EU offers the Johnson government a good start, a clean sheet. Any compromise with the EU on trade and money detracts from this benefit.

It is an opportunity for Britain to reset the approach to political economy, which is our next topic. For attention-deficit politicians, there are two important factors to understand that are central to formulating post-Brexit policy: the reason why trade imbalances arise, and therefore how trade and economic policies should be constructed, and the destructive effects of inflationary financing.

How trade imbalances arise

It is vital to understand the source of trade imbalances, so that the mistake made by President Trump, which is driving the world into a Smoot-Hawley-style 1930s slump, is not repeated by Britain. The common error is to believe that the exchange rate sets trade surpluses and deficits. It therefore follows, the argument goes, that artificially raising the price of imported goods by imposing tariffs achieves the same effect.

The simplest explanation to understand why this is wrong is to start with a theoretical sound money example before progressing to the current fiat money environment. When gold was money and if unbacked currency and credit were not available, imports could only be paid for in gold or fully-backed gold substitutes. The same is true of exports. An individual borrowing to buy an imported good has to source gold or a fully-backed gold substitute, so the provider of money has to defer consumption, which includes that of imported goods. And unless the people in a nation collectively adjust the amount of gold in circulation, imports will always balance exports. 

Compare this with nations trading with each other using unbacked state-issued currencies. These are issued at will by central banks as new money and by commercial banks in the form of bank credit. Therefore, anyone can buy an imported good without having to have the money, so long as a bank advances the credit.

Money and Credit expanded out of thin air replaces the need for imports to be paid for by exports. Now that all countries work their currencies the same way, the trade balance becomes a relative matter. Other things being equal, the country which expands its money and credit the greatest ends up with the largest trade deficit, and the one that expands the least the largest trade surplus.

But national statistics are designed to reflect money spent on consumption (GDP) separating out money spent on capital items. A nation whose population has a savings habit will spend less on imported consumer goods than a nation with a lower tendency to save. This is why Japan’s monetary expansion has not fuelled a trade deficit in consumer goods. In other nations, such as the US and UK, where personal savings are now minimal, credit expansion leads to chronic trade deficits.

The expansion of fiat money to bridge the gap between tax revenue and government spending similarly leads to a rise in imports, because the expansion of money and credit, when they are not saved by the consumers who ultimately benefit, always ends up fuelling consumer imports, often as a second or third order event. This gives rise to the twin deficit phenomenon commonly observed in both the UK and US, where consumer savings are virtually non-existent.

The destruction arising from inflationary financing

The Keynesian policy of stimulating an economy through a temporary budget deficit relied on deceiving economic actors into thinking there was more demand in the economy than existed. Like all confidence tricks, it eventually fails. Governments end up with perpetual budget deficits, which trend larger with every unresolved credit cycle.

Expanding money and credit as a means of funding government spending through the creation of debt has now become central to state finances everywhere, including the UK. The advantage for governments is very few people understand that this form of finance transfers wealth from the producers in an economy to the state. But the government is eating its own seed-corn by impoverishing its tax base, which if continued leads inexorably towards the destruction of its currency.

Any politician who claims to be a free-marketeer is not one unless sound money, devoid of inflationary financing, is embraced. Taking into account the importance of sound money and the reasons trade imbalances arise, a Johnson government that understands these issues will be equipped to fashion economic and monetary policy for the future. It is not enough to merely pay lip service to the necessary objectives, but to grasp the economic theory behind them, so that socialist and neo-Keynesian claptrap can be fully exposed in reasoned debate.

These are two objectives to strive towards, and will necessarily take time, because changes in government policy must steer the electorate along with it. They should be pinned up as mission statements on the notice boards in Downing Street. That being accepted, the following supporting policies must be implemented to re-orientate the ship of state towards economic success:

  • Tax policy. Tax cuts should be broadly financed by reductions in government spending, not through increasing the budget deficit in the hope that the economic stimulus will generate higher taxes. Welfare must only support people in genuine need, not those with just a sense of entitlement.
  • Government spending. Means must be found to reduce the proportion of government spending in the economy as a whole, to reduce the burden on the productive private sector. A financial and economic crisis requires departmental spending to be slashed, not just future planned increases cut, as was the case under Gordon Brown in 2009.
  • Encouragement to save. Taxes should be removed from savings and capital gains. Inheritance tax must be abolished. This is to allow people to accumulate personal wealth and to reduce the need for the state to provide.
  • Trade. Trade agreements with other nations should be viewed as a first step towards wholly free trade. By exploiting the comparative advantage of allowing people to buy what they want from providers of goods and services irrespective of location, capital resources will naturally be redeployed towards their more efficient use. This is why understanding that trade imbalances do not arise from currency differentials is so important.
  • Monetary policy. Steps must be taken to restrict the Bank of England from manipulating the economy through monetary policy. Targeting inflation and employment must be abandoned, and markets allowed to set interest rates. Credit expansion should be curtailed by ensuring that UK banks and branches of foreign banks operate to stricter capital rules. Goal-seeking stress-testing must end. In the longer-term, banks should lose the protection of limited liability, which has allowed bankers to make rash lending decisions without bearing the ultimate cost.
  • Gold. The Treasury must replenish the nation’s gold reserves. The risk of a global currency crisis is increasing by the day, and foreign currency reserves will need to be reallocated at least in line with those of other major nations.


Brexit is an opportunity to reset economic, monetary and trade policies. The implications of getting rid of the EU millstone go far beyond the leaving date of 31 October. Assuming a Johnson government has a good grasp of why free trade benefits the economy and why trade imbalances exist, combined with the courage to steer Britain towards the long-term prosperity offered by free markets, it will derive its future power from a strong economy instead of merely claiming it based on the past.

[ii] See

[iii] See

Perfect Storm for Gold

by Alan Currie

Bank of International Settlements ( The central Bank of central Banks) report recently said this:

“A 0% risk weight will apply to (i) cash owned and held at the bank or in transit; and (ii) gold bullion held at the bank or held in another bank on an allocated basis, to the extent the gold bullion assets are backed by gold bullion liabilities. ” BIS on Basel III

Previously Gold Bullion had a 50% risk weighting meaning if a bank held 100 million dollars in Gold Bullion in their vault they could only show $50 million in gold assets on their balance sheet.

This will now encourage banks and central banks to own and store much more gold bullion. The Perth mint reported recently that they have seen a doubling of central bank purchasing last year from their supplies.

There is an accepted practice that investors should have about 5-10% of their investment portfolio in precious metals like gold and silver. But recently Silver Doctors podcast it was reported by  Jeffrey Christian and the CPM Group that number is quite higher.

In late 2016, Jeff and his firm re-ran those numbers in a backtest from about 1968 to late 2016. What they found was if you took a portfolio of 50% S&P and 50% T-bills and you added gold to it in 5% increments, the optimal gold allocation was actually about 27% to 30% gold depending on whether you used T-bills or T-bonds respectively.

On that same podcast it was reported by Jeff that gold producers are now holding back on about 20% of their annual production in order to start storing the bullion they mine in anticipation that the pricing will go up.

In Australia Gold has gone up on average over 20-30 years about 10% per year. The moment Gold passes $1360 USD then it will have broken a very important trading trend line and most are expecting Gold to enter another long term upward trend.

Further Gold research check out

CPM Group is a commodities research

Forbes report on Central Bank buying

Gold and Silver price manipulation has now been proven!

This was a FBI investigation! CNBC says “13-year J.P. Morgan veteran, said that he learned how to manipulate prices from more senior traders and that his supervisors at the firm knew of his actions”

“As part of his plea, Edmonds admitted that from approximately 2009 through 2015, he conspired with other precious metals traders at the Bank to manipulate the markets for gold, silver, platinum and palladium futures contracts traded on the New York Mercantile Exchange Inc. (NYMEX) and Commodity Exchange Inc. (COMEX), which are commodities exchanges operated by CME Group Inc.”

Check out these reports

Justice Department Press Release

JP Morgan Manipulation CNBC report


Bank “Bail In” Laws – Financial System Inquiry

On the 7th December 2014 the Australian Treasury Department released the “Financial System Report”.

It is a 320 page document that covers many aspects of the Australian financial system and the objective according to the report was to:

“…examine how the financial system could be positioned to best meet Australia’s evolving needs and support Australia’s economic growth. Recommendations will be made that foster an efficient, competitive and flexible financial system, consistent with financial stability, prudence, public confidence and capacity to meet the needs of users.”

The word “Bail in” is used 15 times in the document – but is seems to indicate that the report is not proposing “Bail in” for depositors and reminds the reader that depositors are covered by insurance up to $250,000.

“The Inquiry strongly supports continuing the current Australian framework in which deposits are protected through an explicit guarantee under the FCS, supported by depositor preference. The Inquiry specifically does not recommend the bail-in of deposits” Page 146

You can download the report here:


The Real Story about Syria, Trump, Clinton and how it links to the Bible.

It has become clear in the last few years that the western media is controlled and owned by globalist leaders who have a hidden agenda.

The truth about what is really happening in Syria and the world is opposite to what we hear on the nightly news. Sadly we are all subject to well crafted propaganda designed to promote the agenda of the ruling class.

Is that conspiracy theory?  After doing extensive research on the global financial system and the philosophies of many of the leading economic and political institutions in the world since the 2008 GFC- I have come to realize that the TRUTH has been hidden on purpose.

These three video’s will give you a little glimpse of what is happening. Maybe when the Snowdon feature film is released we will learn a little more? Read more on these issues at this website. Alan

Why Everything You Hear About Aleppo Is Wrong- Vanessa Beeley

2016 Election Code Unveiled: Hillary and Trump Prophetic Parallel–

One World Government & Collectivism – G. Edward Griffin

Serious Financial Correction?

I am hearing that there could be another serious financial correction coming before during October 2016.

Harry Dent in his Sept 2015 book called “What to do when the Bubble Pops” has some concerning and informative research.  Plus many Youtube stories and now more main stream outlets are saying there is a serious correction or worse coming soon .  It does concern me that so many are now using alarming news reports and headlines in order to try to sell their newsletters/books and seminars.

There some important facts and trends appearing – these are the facts:

  1. According to Harry Dent the world is facing some serious ageing demographics (Baby Boomers) that will cause major downturns in many industries – and this is one major reason causing the economic concerns globally.Alan Greenspan
  2. Alan Greenspan has recently come out sounding a warning about the ageing baby boomer trend and that Governments especially in the US are not focusing on the issue, which according to Greenspan – if its not addressed will cause serious economic problems.
  3. APRA – Australia financial regulator has released a report sounding a warning that Australian Banks are at serious risk because of the high private debt levels in average families who have mortgages. The private debt levels are higher than back in 2008, so if another GFC hits jobs then there will be a quick and significant level of mortgage defaults that might bring down a few major banks.
  4. The China stock market is currently down 42% from its past highs, and the Chinese slow down has already been hurting Australian Industry and could have more serious effects in Australia – especially if China continues to slow. Dent believes China will have a major ongoing downward corrections because of all the Malinvestment.Ron Paul
  5. Retired US Congressman Ron Paul – is warning the world that the US Government is getting ready to confiscate large portions of it’s citizens assets, in particular the 7 Tillion Dollars of private super/retirement funds in order to prop up the Government and the Banking system.
  6. China and other BRIC’s countries have been buying up large amounts of gold with the possible plan to establish a new reserve currency – The Chinese Yuan Renminbi will be added to the United Nations/IMF- SDR (Special Drawing Rights) currency on October 1st 2016.
  7. All G20 nations are committed to giving their banking system the ability to legally “Bail in” or recapitalize the failing banks with the savings of their depositors.
  8. The counties that need close attention right now are bond markets in Spain and Italy as they are the next canary in the mine.


The Rich get Richer according to Oxfam. If we have another GFC2 will “Bail in” laws tip the world into civil revolt?

Oxfam UK released a report in Jan 2016 about what has been happening in the world economy as it relates to financial inequality. I am not a socialist but when you wealthy Wall streethear that “62 people own as much as the poorest half of the world’s population” and 1% of the world’s population owns more 99% of the worlds wealth you realize we have a real problem!

Is it any wonder that Donald Trump is getting so much support from the common man. It’s because the average wage earner and small business owner is waking up that the system is rigged and that a very small % of wealthy elite – eg 62 people are getting control of the world and the peoples governments in every nation.

When this happened in France in 1789 the people revolted in the French Revolution. Now it looks like its a global phenomenon.

When not one top banking executive has been jailed because of all the corruption exposed during the 2007-8 GFC  – it is now obvious that not only are the big banks do big to fail they are now do big to prosecute!

If there is another GFC the Banks now have legal authority to take depositors money (Bail in) to recapitalize their balance sheets.

Its time we move away from what seems a like a Death Economy towards a Life economy. A Preferred Economy that is gives back hope of a better future for all.

If you want to check out the Oxfam report click here

Red Pill or Blue Pill your decide?

Currently I am listening to “The New Confessions Of An Economic Hit Man” by John Perkins

The best way to get through these books is to listen to them – I have a membership at

The second book is “The Creature from Jekyll Island: A Second Look at the Federal Reserve” by G. Edward Griffin

Both of these books will open your eyes to the way the Global Economic System really works! 

Which pill do you want to swallow guys?

“You take the red pill—you stay in Wonderland, and I will show you how deep the rabbit hole goes.”


China’s crude oil futures will be a global benchmark- Where does that leave USD??

This article in Reuters is a major indicator that future Oil contacts will be made in Yuan currency and not in US Dollars.

“Apart from the fairly seismic changes this would herald in this massive market it would have even larger potential effects. The end game for the dollar is when it is no longer the sole or preponderant reserve currency. At the moment the US can carry a mind boggling amount of debt and find buyers for more. But once countries no longer need dollars for buying oil and gas then something will happen to the world’s appetite for US debt and the world’s  opinion of how much debt the US can sustain”. Source

What is happening in our Global Markets – Its time we fight for our countries and our freedom!

These two men are well known for their out spoken position on the mistakes global leaders are making, that may well crash the financial system. They believe that centralized banking is what is causing the problems in our global economies.

David Stockman will take you back to before world war 1 and explain what has happened and how history could have been very different if a few people made a few different decisions. We would have been living in a very prosperous world for ALL people and not just a select few.

David Stockman

David Stockman Talks Historical Dominoes   David Stockman old

He is a former Congressman from Michigan, former Director of the Office of Management and Budget under President Ronald Reagan, and former partner at The Blackstone Group.  Stockman is the author of The Triumph of Politics: Why the Reagan Revolution Failed (1986) and 2013’s The Great Deformation: The Corruption of Capitalism in America.  On the show today we discussed how some of his work traces “historical dominoes.”  It was fascinating to learn how certain events in history led to others and so on, until we wind up with thus and so…  For example: how did the creation of the Fed in 1913 lead to the 2008 crisis?  What was the chain of events?

You will find the direct link to the audio interview here    David’s web site is

Gerald Celente

Gerald Celente Talks Global Collapse

Gerald Celente is an American trend forecaster, publisher of the Trends Journal, business consultant and author who makes predictions about the global financial markets and other events of historical importance.

Gerald can get a little excited in his interviews and this one is no exception – but don’t let that detract – the interviewer gets him back on track and he has some profound things to share including this desire to stay in USA and fight for the freedom of the country through a new initiative called  It seems like a new Revolution is beginning!

You will find the audio interview here  or on political badgers iTunes podcast.  Geralds web site is:


Chris Martenson’s “End of Money” seminar.

Chris Martenson is the founder of Peak Prosperity – you can find his podcast on iTunes. He is an expert on Global Economics and the real state of the financial system. 

He has a practical and well-balanced approach on what might happen and how best to prepare your personal financial situation and how to help your community.

He is not a doomsday prophet, but a sound financial manager who sees what’s happening and attempts to help you navigate through the confusion.

He has prepared a 20 part audio-visual educational series that will explain why the world is in a serious financial and social predicament and how you can best prepare to navigate these storms that are coming.

This series is brought to you by Anglo Far-East a company that specialises in gold purchase and storage (mainly in Switzerland) I don’t receive any commission in providing this series to you but like Chris and AFE, I am concerned that we are all well informed and prepared for what is coming to every person on the face of this earth.

Enjoy the Course at the link below.

Asian Development Bank is end of the US Dollar global reserve currency

The USA has been running the world financial system since the establishment of the IMF -(International Monetary Fund) and the World Bank which was created after the Bretton Woods agreement in 1945.  See Bretton Woods System in Wikipedia

Now after years of US domination, at times bullying and financial irresponsibility of QE (Quantitative Easing ie printing fiat currency)  the BRICS countries have had enough and they have set up a rival financial system that will be operational on 1st of October 2015. see  Asian Infrastructure Investment Bank part of China’s bid for global clout also see the official AII website

The USA tried to stop its allies from signing the AII agreement but on June 27th 2015 – 57 Counties including Australia signed the agreement. see pictures

Larry Summers the former US Treasury Secretary said “This past month may be remembered as the moment the United States lost its role as the underwriter of the global economic system” Bloomberg April 6th  see what Larry says on

So after the 1st October 2015 we might see a significant shift in the value of the US dollar as it will NO LONGER be the world’s reserve currency.

It might be gradual decline or dramatic- no one really knows.

Concerns arising from a 30% drop in Chinese Stock market!

The last 3 weeks the Chinese stock market has dropped by 30% or by $3 trillion dollars.

There are now serious concerns that what is happening in China and in Greece could be a beginning of a major financial correction or worse.

Certainly the Chinese market has been on a steady climb since June 2014 and has more than doubled! So this looks like a needed correction.

For More information check out:

Guess What Happened The Last Time The Chinese Stock Market Crashed Like This?

A RED ALERT For The Last Six Months Of 2015

Chinese Stockmarket Index


Banks Closed in Greece

Special Request for PRAYER for Greece! 30 June 2015 –  Capital controls imposed, Banks closed, Gas stations empty! Report by George Markakis ICCC member.

Evi and I landed in Athens Airport on Sunday 28 June shortly before midnight, from a week of ministry away in Hungary. We found very long lines of people in front of ATMs waiting to withdraw money, empty gas stations, and everyone speaking of the country being on the brink of financial collapse. The news said that in one day more than 1 Billion Euro was withdrawn from the Banks through the ATMs as people are afraid that the Bank Accounts will freeze and the deposits may be confiscated.

atm-lines-2-bpfbtThe head-on collision with Eurozone’s bosses is at hand, and the Greek Government announced the Banks will be closed and Referendum will take place on July 5 for the people to decide on the country’s future. Whether the country stays in the Euro, or, returns to the national currency of Drachmae, the future looks currently grim without any visible prospects of the economy picking up “to save the day” in the face of so much unemployment.

In the face of this current situation, there is an urgent need for prayer like never before. Would you please take at least a few moments to pray for Greece? There is a great need for the Lord’s intervention so that justice may be established. The need to pray for the NOW situation (Mon. 29 June 2015) in Greece is not only because a whole country is confronted by grave dangers, exposing at least 3 generations to lifelong risks and devastation.
The current situation may result in unprecedented effects for the entire Eurozone, as this is not merely a national crisis – it is all about who holds the power over all Europeans, and who controls what happens in each country.

The financial institutions have already exerted powers that eliminate the national constitution, supersede the authority of elected national Governments, and totally disatm-lines-bpfbtregard all common sense and principles of how economic measures serve the good of the nations and the common good.

Their demands are not really aiming at ensuring the repayment of the debt, because their measures guarantee failure to repay. Their real aim is to usurp authority over the national Government. Greece is a testing ground and beginning of what they want to gradually accomplish over all the European citizens.

What is behind the minds and methods of otherwise human leaders, is the power of Mammon who wants to exert control and manipulate the common people.

That is why our PRAYERS are NEEDED, as in 1 Timothy 2; our prayers have the power to establish God’s Justice in the Political institutions of the European Union.


New Financial Order maybe around the corner!

The Greek Government might force a major shift in the global financial system on Monday 11th May.

For those who have been watching the financial system will know that China and others in the BRICS nations ( Brazil, Russia, India China and South Africa) have decided to setup a new World Bank in opposition to the IMF- International Monetary Fund which is controlled by USA and Europe.

“The present, inequitable IMF-World Bank system is collapsing under the burden of hundreds of trillions of dollars of unpayable global debts and derivatives obligations, including the Australian banking system’s derivatives exposure of more than $27 trillion. This is the legacy of decades of reckless financial speculation unleashed by IMF-enforced deregulation, and is the driver of the world’s present strategic tensions which have increased the threat of a thermonuclear world war.

Through such new financial institutions as the $100 billion New Development Bank, the $100 billion Asian Infrastructure Investment Bank (AIIB), the $40 billion Silk Road Development Fund, the $20 billion Maritime Silk Road Fund, and the planned Shanghai Cooperation Organization (SCO) bank, the BRICS nations will direct massive investment in much-needed physical infrastructure projects on which all nations can collaborate, forging a basis for lasting global peace and economic prosperity.” Source :Citizens Electoral Council

On Monday the Greek Government will meet the EU Bankers to discuss the Greek debt issue, if this meeting goes bad then we could see Greece leave the EU totally and it would then default on its debt. That could in a worse case scenario cause a domino effect with other nations causing a systemic failure of the global banking system.

The Australian Banking System is not immune to these developments and are not as financially sound  as we all think!  Australian Net foreign debt has risen since 2008 by over 44 per cent, from just under $600 billion to over $865 billion, $639 billion of it in the private sector.

DERIVATIVES_20130821_web2But 3/4 of One Trillion dollars of debt is nothing compared to 27 Trillion dollars worth of Australian Bank derivative exposure!

This graph shows the Debt Vs Capitalization of the Australian Banks in 2011-12 – now in 2015 the situation is 10 Trillion dollars worse in only 3 years! Only the Yellow are bank Assets! Green are our funds which is a liability to the Bank and Red is derivative liabilities.

What happened in 2008-9 our dollar dropped from .98c to USD to only .60c and the world came to the brink of global financial meltdown according the the CEO of ANZ Bank.  Now since Nov 2014 the G20 nations are quietly setting up the Bail in laws that will legally allow the Banks to confiscate their depositors funds and force their customers ( you and me) to accept Bank shares under the guise of we are “Too Big to Fail”! We have allot of good people who work in the banking system and they are not deliberately seeking to crash the system – but after learning about the history of global banking over the last 300 years it has become clear that there are a small group of people who seem to control to entire system.  These people do seem like they want to own the world and the reason why is actually found in the bible.

Do you want to understand the history behind this monumental swindle and how the global financial system really works?  Then can I encourage you to read or listen to via – The Creature from Jekyll Island by G Edward Griffin.  After this book you will never look at the banking system the same way and it is a must for any serious student of history.