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A Brief American History Lesson
When America began, it is common knowledge that money and taxes were one of the primary reasons, if not THE primary reason that moved the colonists to rebel against Britain. To explain, America was being taxed by a nation that had no intention of granting any reasonable degree of self-government. If you disagree, a quick read the full Declaration of Independence will support this claim.
Following the French and Indian war, the British had deployed standing troops and taxes began to be levied to pay for the British troops along with the expenses from the French and Indian war. With each additional tax, many of those who came to America in search of greater freedom began to see their freedoms waning. In May 1769, George Washington visited the Virginia House of Burgesses and protested the idea of taxation without representation.1 His pleas fell upon deaf ears. From that moment on, the founding fathers explored different avenues to try to achieve some degree of self-government without a revolution, but to no avail.
As America defeated its enemy in the Revolutionary War, one would have hoped that this would solve fledgling America's problems with money and taxation. Unfortunately, it didn't. During the Revolutionary War, the states created a currency known as Continentals that eventually became worthless just a few years later. And in 1781, Robert Morris started the first central bank that was commissioned by the states called The Bank of North America. When the war was over, Morris held enough influence to get his understudy and central bank advocate Alexander Hamilton to become the first treasury secretary. As you continue in the study of America's banking system, it becomes apparent that this has been one of the primary issues in American politics since the very beginning in 1776 all the way until today. It has never been a problem that has truly been solved and has only been getting noticeably worse since 1913 when the Federal Reserve began and then in 1971, when America went off the gold standard.
But in 2009, a revolution quietly began. It started slowly and under the radar. In fact, if you knew anything about bitcoin prior to 2011-2013, then you were one of the chosen few. As time continued, bitcoin plodded along, experiencing incredible price increases and equally impressive price declines. Almost right on schedule, the revolution began at the very same time that a scheme known as the "Too-Big-To-Fail" banking scheme began. The terminology "Too-Big-To-Fail" goes back much further in time, however, in 2009 the United States government convinced its citizens that if certain financial institutions were left to fail, the entire system would fall like a house of cards. Of course, it is likely true that the banking system would have collapsed, however, I expect that the fall could have been much more swift and the recovery much more aggressive than we can all imagine. That is, if only the system were allowed to go through the cleansing process without government intervention however, this is just my opinion and wishful thinking to boot. Nonetheless, the timing of it all was very "ironic and coincidental" because at the very same time that the recession reached its worst in 2009, a new solution to the world's monetary problem arrived. . .bitcoin.
Despite politicians claiming that bitcoin and cryptocurrency more generally should be made illegal, bitcoin operates with greater transparency than any currency in the earth's history. However, the difference between it and all the money that came before it is. . .it cannot be very easily controlled.
A Deflationary Currency In A Swiss Bank Account
In 2009, Bitcoin introduced an idea that had never been tried before, and only a few dreamed it was even possible. Few dreamed of it because how could it be possible to create a monetary asset that has a definite fixed supply, that releases new supply/mining rewards on a precise schedule, and is made secure by energy. The answer, until 2009 was, "you can't." But technology never ceases to push forward to the next limit, and now we have the answer. And if a the US Dollar, which is a currency that is the opposite of bitcoin in every way, has detrimental affects on society in that it centralizes wealth and allows and even encourages corruption, then a currency that behaves in the polar opposite fashion of the US Dollar will hopefully and likely have the polar opposite affect. What this means is that wealth will be redistributed to the masses, slowly over time, as bitcoin adoption increases and its deflationary impacts take effect. I would propose that this is the primary, pragmatic way in which Americans will experience societal restoration. I believe the days when the ballot box could make such a sweeping change take place are in the rear view mirror. Today, the citizens of the world must vote with their time, efforts, and of course, their money.
So I like bitcoin...but please understand I'm not saying that bitcoin is the only place to invest your wealth. I think those who believe investing in bitcoin only, will do very well for themselves over the coming years and decades, however, I still believe it is good to be diversified. But if you own zero bitcoin, then I think that's also a problem. Bitcoin's investment thesis, like many things, can be as simple as it is complex. In addition to what has already been shared, here's a simple version. Right now bitcoin sits with a market cap of around $500 billion. Think of all the markets in the world, and then think about the largest ones. Real Estate? Gold? The stock market? What about money? We often don't think about money as an actual "market," because when the term "money markets" is used, we think about a place to put dollars that earns very little return. But money markets are one of the largest markets in the world. And although you may not believe me today, I believe that one day bitcoin and other digital proof-of-work currencies(proof-of-work definition at bottom of page) will prove themselves as the best form of money. You might be thinking, "Did he say other digital proof-of-work currencies?" Yes, I also believe there will be other proof-of-work currencies that share this responsibility. But if I'm correct in that prediction, then think about how large the market caps for bitcoin and proof-of-work digital currencies can become. Larger than Apple? Larger than Amazon? Larger than Microsoft? Yes, I believe their total market caps can one day become much larger.
Unfortunately, thanks to the FTX debacle in November 2022 as well as other events, some are turned away by digital proof-of-work currencies. However, one should understand that bitcoin can be self-custodied in the same way you can self-custody gold. It is what is known as a "bearer asset." If you think this fact isn't a big deal, consider this statement from former President Barack Obama when he was speaking unfavorably about bitcoin in 2016: "[Bitcoin] is like having a Swiss bank account in your pocket." Here is an article discussing his comments.
Former President Obama accidentally said the quiet part out loud. Yes, you can have a Swiss bank account just like many of the so-called "elites" already have. You can store your monetary savings in a way that I would argue far exceeds the benefits of a Swiss bank account thanks to bitcoin's deflationary properties. Its almost as if bitcoin restores the ideals of the Declaration of Independence to the monetary order. "That all men are created equal with certain unalienable rights." And yes, I believe bitcoin started a quiet and peaceful revolution.
Bitcoin and Taxes
Now, let me say that the tax code is also broken. Why do I think this? I believe it is broken because there is a tax code that extracts wealth from each of us without asking for our consent. This is done via the institution known as the Federal Reserve. As many investors are aware, this occurs through monetary debasement which causes inflation. And so if people learned to store their wealth somewhere where only you have access to it, and the quantity of that money is on a fixed supply, the problem of government monetary debasement via counterfeit money printing would cease to occur.
I know there are some objections to this idea but yes, I believe that this is the way forward. Although we can't take responsibility away from the government in every respect, I believe bitcoin has provided a way for citizens of the world to take back responsibility for how they store their time in the form of money. Therefore, learning how to use bitcoin is one small step we can all take to begin taking back responsibility. When we take back responsibility, we take back votes. One of the points is, as I've already mentioned, voting isn't just something you do every two or four years. Its something we all do everyday.
When we take back responsibility, at the very least, we can change the tax code of money printing and inflation that is implemented by the Federal Reserve. And I believe that this will even eventually revert the tax code back to what it used to be when it didn't tax incomes or property, but was more of a tax tied to sales and tariffs on imported goods. If you think this is too good to be true, then study American history prior to 1913, when the Internal Revenue Service began. Call me optimistic, even idealistic, but I believe bitcoin makes this a realistic hope.
Bitcoin and Interest Rates
Which one of you voted for the Fed Funds Rate to go from zero to nearly six percent in just two years? Which one of you voted for the Fed Funds Rate to be near zero from 2009 to 2021? Answer: none of us did. For nearly twelve years, from 2009 to 2021, the Federal Reserve told us that interest rates must remain low, or it threatens to undermine the entire economy. Keynesian ideology was pushed on society like never before in a generation and Modern Monetary Theory, which is simply Keynesianism and Quantitative Easing by a different name was coined. Then, magically following 2021, all of this amazingly changed on a dime. Monetary authorities had found a reason to double the money supply. After doubling the money supply, interest rate hike after interest rate hike has ensued. And unfortunately, many Americans had just FOMO'd into real estate as housing prices seemed like they would never quit rising. Today, real estate prices are still rising slightly, but between prices remaining steady and mortgage rates increasing, housing has become out of reach for many Americans. Generation X's hope of ever owning a home is getting smaller with each passing year. In fact, we recently reached new all-time lows for housing affordability according to one index.2
Unless responsibility is one day taken back, interest rates will continue to swing ever more wildly until we stop letting the government tell us what money is and we start choosing what real money looks like. We are not living in a free market, capitalistic society. The most basic of all markets is money markets and their associated interest rates. And when they aren't allowed to move freely, it is impossible to call your economic system capitalism. In order for there to be true capitalism, there must be a free-market rate for the cost of "capital."
I love America and I want the American people to thrive, but unfortunately, true capitalism has left the party. What is left is a distant cousin...only a remnant of what could be and what once was. This sounds pessimistic, but there is a way to get back to true capitalism...where interest rates float freely based on everyone having a vote. And that is to assume responsibility over what we call money or capital. As long as we continue to agree with our governments that 2x6 inch pieces of paper represents money, interest rates will continue to swing wildly, making business and personal finance decisions much more difficult to weigh.
Bitcoin Restores Capitalism - Economics 101
Right now we are facing some big challenges in America and around the world. There is no quick fix to curing what ails us. It is going to involve everyone doing their part and I believe bitcoin can play a small(or maybe a big) part in that.
To conclude and leave you with one more point that may drive it home, do you know the root meaning of the word "economics?" Its the combination of two Greek words..."oikos" meaning household and "nomos" meaning law. "Household law."
Here's the point. Some of us have been convinced to believe economics is this grand, macro picture that must be managed by the state. And there are those who would very much like you to believe that. But I believe nothing can be further from the truth. Adam Smith, known as the "father of capitalism," believed that true economics is driven by an invisible hand and I hope we can one day let the invisible hand govern our economy once again. True economics by the strict definition of the word is "household law" or household management.3 Each of us should strive to restore the true meaning of the word "economics" in our own lives and in our households. I believe owning bitcoin is one small way that we can all do that, and put the "capital" back into capitalism.
Sources:
“Washington Protests ‘taxation without Representation,’ May 17, 1769,” POLITICO, May 17, 2012, https://www.politico.com/story/2012/05/this-day-in-politics-076397#.
“Housing Affordability Index,” www.nar.realtor, October 2, 2017, https://www.nar.realtor/research-and-statistics/housing-statistics/housing-affordability-index.
Dotan Leshem, “Retrospectives: What Did the Ancient Greeks Mean by Oikonomia?,” Journal of Economic Perspectives 30, no. 1 (February 1, 2016): 225–38, https://doi.org/10.1257/jep.30.1.225.