What would a world look like with bitcoin as its only currency? This series of articles does not claim that light is lost. It is above all a question of lines of thought to suggest to all bitcoiners.
Could the fiat currency disappear?
Can single currency be used in very limited quantities. desired? Would this paradigm shift have major implications for society?
Before looking at these questions, it must already be said that it is assumed that such a situation will disappear that fiat currencies will disappear. Can ? Yes. To be sure of this, you have to look at two things:
- How the fiat system works
- Physical limits to growth
Let’s start by defining what exactly a “fiat” currency is. Here are three quotes to get you thinking:
“The only currency is gold, everything else is debt”
“If there was no debt in the system, there would be no money. »
Marriner Eccles, former Fed Chairman
“Every time a bank lends, it’s brand new money. »
Graham Towers, Director of the Bank of Canada
Fiat money is “debt money”. Every euro, every dollar, every yen in circulation originally came from debt. About 60% of the money in circulation comes from mortgages. States and companies are responsible for the rest.
Notes and coins are not actually created from debt, but represent only a very small portion of the money in circulation. Almost 1600 billion euros. To be compared with the total debt of the Euro Zone (State, households, companies) which reached 32,300 billion euros. Or less than 5% of the total money supply.
So, to put it another way, if we paid off all the debt with the wave of a magic wand, there would hardly be a penny left in circulation.
Which brings us to the word ponzi. Fiat currency is a ponzi. The reason is that the debt must always increase for the system to work. It’s math. It is enough to uncomplicate things to achieve it.
Imagine an economy starting from scratch with one banker and two borrowers. The banker creates twice 100,000 euros ex nihilo and lends them. With 4% interest, for one year.
Will both lenders be able to pay this interest? No, for the good and simple reason that the money corresponding to the interests does not initially exist in the economy.
To make interest payments, the third person would have to move in and borrow money accordingly. In that case, it is technically possible that our first two borrowers will receive enough money to pay the interest.
This simple illustration is true in an economy of 2 people, 10 people, 100 people, or a billion people.
In short, since interest money is not initially found in circulation in the economy, if some succeed in repaying their debt AND the interest, mathematically, others will not even be able to repay the principal amount of the loan. If the total debt (the amount of money in circulation) does not grow continuously.
Understand that the interests are nothing. A loan of 100,000 euros at 4% over 30 years means that you will end up paying 71,800 euros in interest! Bankers are therefore forced to increase the duration of loans. The goal is that there will always be enough money in the magma of the economy to ensure the payment of interest. So the real estate inflation.
Except the trees don’t go up to the sky… One day, the new generation will refuse to go into debt over 40 or 50 years. There will no longer be enough money in the economy to easily repay debts. Then will come the time of bankruptcies, unemployment and the bursting of the real estate bubble. If we don’t set a universal income…
Public debt is also a ponzi. Especially since unlike families, States will never repay their debts. They just “roll” them. That is, they get a loan to pay off old debts.
This is terrible, because it means that states are accumulating interest upon interest. And that is an exponential mathematical process that can only end badly. Hence the zero rates.
So to speak, the fiat system carries within it the seeds of its self-destruction. The question of welfare is difficult. It is nothing that the Church has forbidden them for a long time…
This is what John Maynard Keynes said about interest (usury):
“I see, therefore, nothing to prevent our returning some day to some of the surest and least doubtful principles of traditional faith and virtue—that terror is a curse, the practice of administration, a crime, and the love of money, hateful. » – John Maynard Keynes
That said, it is clear that the fiat currency system works quite well if the economy can grow without restrictions. Rising wages faster than inflation can lead to an abundance of energy and material resources as well as moderate and stable public debt relative to GDP.
(This is the case in Russia, for example, with a debt that has fluctuated between 20% and 12% of GDP since 2004. Its huge energy resources allow it.)
But the reality is that physical limits put an end to economic production. Our planet is non-expandable and 84% of the energy we use still comes from oil, coal and gas. This energy IS the economy. Without it, nothing moves, nothing changes. Humans are now the pilots of machines that work with… energy.
The peak of fossil fuel extraction will almost certainly lead to a decline in the production and sale of almost everything. Real GDP will fall. Unemployment will increase. Tax revenues will decrease, forcing the states to take on more debt as they battle real inflation. Until the rationing.
Feeling deja vu? We are here. The growth rate of energy extraction has been falling steadily since the 1970s. The decline is even more obvious if we talk about energy per person.
As Voltaire said, “Paper money always returns to its intrinsic value, which is to say zero”. The next jubilee is near and another kind of currency is already waiting for its time. We hear his heart beating every 10 minutes, block by block, ready to go to work.
Yes, “hyperbitcoinization” is not pure fantasy. We will talk about it in the next article that will be published tomorrow.
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Journalist reporting on the Bitcoin revolution. My papers deal with bitcoin through geopolitical, economic and libertarian prisms.