This is another spell for my Grimoire.
Sometimes it is very difficult for me to understand how there are still many people, many of whom are very educated, who ignore the perversity of the banking system that has governed us for many years, enriching very few people and impoverishing the rest of the world population. And all this endorsed by Central Banks, made up of bureaucrats who issue papers that lose value almost immediately after leaving the machine.
About 200 years ago, after the French Revolution and later with the Industrial Revolution, a global oligopolistic system began to develop in which various corporations manage the whole world consumption (food, energy, pharma, medicine, education, entertainment, transportation, religion, mass media, textiles, "science"), fed by banks that load fuel into their tanks, endorsed by Central Banks that sign the outrages that these banks commit inventing money in circulation, and all supervised by a series of so-called International Organizations that act as the " last word” on issues related to how it should be consumed, where and when. Above all, the BIS, Bank for International Settlements, which originated after the First World War, shines immaculately, approving or disapproving of what its lackeys at higher levels do.
Apocalypse now ?!
Image by Pete Linforth from Pixabay
In this post, I am going to refer only to banks. My only intention is to show as clearly as possible how the invention of cryptocurrencies has come to get us out of the jaws of the seven-headed monster that, all of us who are alive at this moment, have received as "normal" and "legal", in regarding the handling and custody of the payments we receive from third parties for our work.
Wealth is not destroyed: it is transferred. Between 2020 and 2030, the largest transfer of wealth in the history of mankind will take place. Almost all of the fiat money created by the so-called MMT, Modern Monetary Theory, is going to be transferred to an ecosystem that supports a new class of asset that humanity did not know until now, which are cryptocurrencies.
In reality, fiat money issued by a centralized administration is a tool used, in this case, by governments, to steal our freedom and our time. Instead of storing value, it steals it.
Governments hate gold because they can neither issue nor control it.
For that they invented the fiat impression, to have control and to be able to anesthetize the herd with a huge hallucination, like those produced by prohibited substances.
Since governments can discretely print their currencies, there is a permanent transfer of wealth from your bank account to the government and to the financial/speculative sector in general.
The vast majority of people believe that a fiat note is backed by an amount of gold in a bank vault and that the government, in its capacity as administrator, holds the amount of gold in direct proportion to the amount of money in circulation.
We all participate in a huge shared hallucination that tells us that tomorrow that paper with the face of a supposed hero that we call a bill, will continue to have value, and that if we go to the supermarket and present it, someone will give us a dozen eggs.
THE MOMENT WE STOP BELIEVING IN THAT NAIF PROMISE, THE SYSTEM CRASHES.
In the modern economy, money is made up of three components: Currency, Bank Deposits, and Central Bank Reserves. Most of the money on the planet is made up of bank deposits, created by commercial banks for themselves.
On the other hand, in the modern economy, all money moves between three groups: Central Banks, Commercial Banks, and Households/Companies. All woven into a kind of carnival that hardly anyone understands.
The currency of an economy (fiat money) is made up mostly of banknotes, specifically between 90% and 95%. Of this amount, almost everything is in the hands of households and companies and only a small amount is in the possession of commercial banks. The currency is an asset for households and companies, and, in return, a debt for central banks.
The currency is a debt of the central banks with all of us, with all the characters that interact in an economy. But cash is a very small amount of money in circulation, in fact, it is a tiny amount.
Where is the rest?
In bank deposits. When you deposit cash in the bank you are in fact reducing the debt/risk of the Central Bank by the same amount as the cash you deposit. The currency is "guaranteed" by the Central Bank, it is a debt for it, therefore, if you return cash, you reduce its risk. And when you take money out of your checking account to pay something, you reduce the risk of the commercial bank where you have the account.
When a bank grants a loan, it is creating a deposit with the final recipient, and in the end, it is creating money in circulation.
“The bank does not have the money it claims to be lending you, it is creating it and you are going to have to pay it back. “
Commercial banks create money because the deposits (your checking account) are only a promise of payment and with that promise of payment they create other deposits through credits.
The most difficult currency to see with the naked eye is that constituted as central bank reserves. It can be said that they are the bank deposits of commercial banks with the central bank. They are the deposits that the Central Bank requires from the banks to be able to opérate, plus that the banks wish to save. The liabilities of a Central Bank are its reserves, which, in turn, are an asset for commercial banks. The asset of a Central Bank is the debt of the national governments.
HOUSEHOLDS AND BUSINESSES NEED THE SUPPORT OF THE CENTRAL BANK FOR THE CURRENCY, AND THE COMMERCIAL BANKS NEED THE SUPPORT OF THE CENTRAL BANK FOR THE DEPOSITS
There are two preconceptions about the creation of money that are wrong:
1) That banks act as simple intermediaries, between savers and those who demand credit.
2) That the Central Banks are the ones that determine the amount of money in circulation.
Let's briefly discuss these two misconceptions.
First, more than 95% of the money in circulation is made up of bank deposits. The moment a commercial bank grants credit, it is creating a deposit. Since this money is not transferred, it is a debt in private hands. Do you see the difference between this and a DeFi liquidity pool?
Second, the money that Central Banks issue is that demanded by commercial banks. The only thing that the Central Bank decides is the interest rate and depending on this, the commercial banks decide what amount to ask for, based on market interest rates, the final demand for loans, and the profit they can get. The reserves issued by the Central Bank are established based on the deposits that commercial banks want to create based on their profit expectations.
Commercial banks create money when they lend money. When your bank lends you money so you can buy a house or a car, it is creating money, it is not acting as an intermediary between you and a saber, it is creating money at that moment.
It is the spell of creation.
Image by Enrique Meseguer from Pixabay
The sequence is as follows:
- 1st The commercial bank lends you money to buy your house.
- 2º In his assets you appear as a debtor (you owe him that amount) and in his liabilities appears as a counterpart a bank deposit. Money created with the spell of creation.
- 3rd The money it has lent you is transferred to the seller's bank as a bank deposit in its liability (it owes it to the one who has sold you the house).
- 4th The seller's bank has to cover this liability with reserves from the Central Bank.
- In summary: a deposit has not been transferred from one person to another. What has happened is that a deposit and a debt have been created in the market. A monetary aggregate has been created without the Central Bank has intervened or altered its monetary base reserves. How about?
Let me repeat an image.
Commercial banks have no problem with reserves. If they are lacking, other banks lend them at the end of the day and, if in an exceptional situation they do not want to lend them, the Central Bank goes. In practice, there is no limit to the creation of money and debt by commercial banks. There are no limits to the speed with which banks can create money because even if they do not have Central Bank reserves to make their payments, they know that they will receive money from other banks and even the Central Bank itself.
We are one step away from beginning to understand the power of commercial banks. This power not only affects us but also the States that live off the issuance of debt through these banks themselves. We are also one step away from understanding why commercial banks are so violently opposed to Bitcoin and any cryptocurrency.
The banking system is conceived as a control system for the transfer of value. The MMT "legalizes" the issuance of promissory notes by a Central Bank that, in this way, gives value to the money in circulation every day. The common man and woman are unaware of the pernicious manipulations of this system and have no idea how they have been manipulated for centuries. The whole apparatus is mounted on debt. The fundamental premise is to go into debt, so that, that way we can never get out of the trap and have to spend our lives feeding the machine.
Substituting centralized electronic money for cash, governments have full knowledge of all transactions of all individuals and businesses, and therefore this information is used for financial supervision, political repression, and discrimination.
But the funny thing is that seeing that they are losing the game, they pretend to get on a desperate cry from FOMO. We see these days corporations buying Bitcoin rampant as if their livelihood depended on that. It looks like a Corporate Black Friday.
Not only that. We see banks developing crypto asset “custody” services for their clients. Would someone in their right mind give their crypto assets to a bank in custody?
We see Central Banks making plans to issue their cryptocurrencies. Would anyone in their right mind buy a cryptocurrency issued by the most centralized institution a country has?
These guys didn't study anything. They have no idea that the P2P operation is totally decentralized and that it does not need any intermediary.
We see the BIS and the IMF "authorizing" the Central Banks to do this. We see VISA accepting cryptocurrency operations.
And what about Dr. Doom's gloomy statements? "Bitcoin has a value of 0, and if they apply the carbon tax, it will have a negative value."
Madonna Santa! This statement is totally invalid. First of all, do you really believe Dr. Doom that Bitcoin has a value of 0? Of course, you are analyzing it with the premises of the MMT, which says that money has no value in itself, but rather has the "legal" value that a government gives to it. Well, I have bad news for you: MMT is a dinosaur thing. Do you understand what is a network of thousands of interconnected computers that record each transaction in a decentralized way as banks used to do?
Secondly, the song that ignorant journalists sing like parrots throughout the mass media that mining Bitcoin consumes "as much energy as the Netherlands" is a sophism. Why don’t you count how much hundreds of thousands of bank branches consume of electricity and energy for at least 10 hours per day throughout the world? Why don’t you count the energy consumed by the hundreds of thousands of employees of banks, Central Banks and International Organizations? To that, we would also have to add the salaries of all those employees, the energy consumed by the banknote printing machines, the gasoline that the hundreds of thousands of employees of all the banks and centralized organizations spend to go to fulfill daily with their sad jobs, and various other things that you can imagine (coffee, toilet paper, etc.). They would be in for a surprise if you compare that figure to the figure used by Bitcoin mining.
I know it is not very pleasant to say that when mass adoption arrives and we all operate P2P, the entire banking industry will disappear, creating a huge conflict over unemployment that this will lead to. But someone has to say it. It is not that the energy expenditure that occurs with Bitcoin mining is going to be added to the current expenditure of the banking industry for MMT, but it is that the latter is going to disappear completely.
I would suggest to Dr. Doom that he study a little before speaking. We are in the presence of a new class of assets that humanity did not know, much fewer graduates with Ph.D. degrees from the largest universities. We all have to start over.
Fiat money is a" debt ", Bitcoin is an" asset
This is the difference Dr. Doom, which neither you nor any pessimistic banking dinosaur seems to understand.
But of course, I feel sorry for you, I imagine how difficult it must be to be a spokesperson for the banks in these times ...
In the midst of this circus, hardly anyone remembers the MMT anymore. 2021 may come to be considered by historians the turning point of the centralized bureaucracy and the implementation of the next system of value transfer between people, without intermediaries, based on mathematics and not politics, without permits or censorship. The Cryptosphere.
Do not hesitate anymore. We are on the right way.
I end up with the message pinned on my Twitter account.
In future entries of this blog, I will describe what fundamental analysis is, technical analysis, inflation, the operation of the banking and financial system, the role of a Central Bank, personal finance, in short, everything that we are interested in achieving financial relaxation.
As usual, none of the things written in this post are financial advice and are not intended to replace personal research.
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