The Scary Thing About Bitcoin’s Amazing Rise
by KEVIN D. FREEMAN on DECEMBER 11, 2017
There are many reasons to marvel at the remarkable ascendance of Bitcoin. The technology behind it is amazing. The idea that a crypto currency even exists is pretty impressive. Yes, there are lots of issues associated. But one thing is for certain. The price of Bitcoin has skyrocketed this year. From pennies per coin to over $16,000 in a few years as shown in the chart from CoinDesk.
Rather than concentrate on what Bitcoin is and how it works (a primer on the technology can be found here), or whether it is too expensive or just getting started, this Blog will address one very scary thought. Bitcoin has become a darling not simply because of its remarkable attributes. It has also emerged because people around the world are less than satisfied with the existing monetary system.And the dramatic rise in Bitcoin has shown some deep cracks in the architecture of the way we view money. This point was made powerfully by James Kunstler and highlighted by ZeroHedge on December 8:
Whatever else Bitcoin is — and I would suggest a “Ponzie,” a “mania,” a “con” — this thing is a message.
The message is that financial circulatory system of the global economy is in some kind of distress. Another take-away is that the rush into Bitcoin represents a loss of faith in matrix of rackets that world banking has become, and a flight to perceived safety in a putative financial instrument beyond the clutches and the lying propaganda of nervous, self-interested governments.
For the moment, Bitcoin is doing the job that gold used to do: indexing the loss of value in paper currencies and the things that affect to represent them. Except that Bitcoin has no material reality. It is a figment of mathematics. The vaunted blockchain “technology” is just a formula for packaging information and assigning it to live in various places. It appears to have some worth as a ledger system, for keeping track of accumulated value in an allegedly transparent and honest mode. But the thing it is toting up and sending chits around the world for — Bitcoin — has no value in and of itself.
If “money” can be said to represent a future claim on work, or energy, or things that they produce, then Bitcoin is not money at all because it only represents energy burned in the computer exertions necessary to “mine” the Bitcoins. In other words, it costs a lot of energy to create Bitcoins, and there’s no claim on future energy, or work — it’s already gone. That energy use is catching the world’s attention and is beginning to look pretty profligate. Like, if Bitcoin happened to shoot up over $100,000-per-unit, it would hog an unseemly portion of the worlds electric power.
Anyway, that’s only one interpretation of the Bitcoin rush. In the end, I believe it’s simply telling us that the global financial system is headed for some serious trouble.
There are many who would violently disagree with Kunstler’s initial characterization of Bitcoin. Few, however, can disagree with the second. Bitcoin is a message and it is a loud and clear one. People are dissatisfied with the global monetary system.
We know that Russia and China are dissatisfied. In Russia’s case, they appear ready to embrace Bitcoin or equivalent, especially if it rids the world of the American dollar and American economic hegemony.
Here are two articles from today:
RT: Russia May Turn to Cryptocurrencies in Oil TradeDecember 11, 2017–Russia reportedly may be among some oil producing nations to ditch the U.S. dollar in crude trade in favor of cryptocurrencies.
Russia, Iran and Venezuela are major oil producing nations dependent on the dollar since the global crude market is traditionally dominated by contracts denominated in U.S. currency.
However, as RT.com explains, all three also face U.S. sanctions; penalties which are proving effective since the sanctioned countries are dependent on the U.S. dollar to sell their crude.
“A decentralized currency – allowing anonymous transactions along with blockchain technology support to facilitate oil contracts – may be the ideal tool to allow the oil producing trio to turn their back on the greenback,” RT.com reported.
To be sure, one analyst told CNBC bitcoin mania could prove to be the flashpoint for some of the world’s largest oil producing countries to make a major move against the dollar.
“The advent of cryptocurrencies, therefore, represents a fresh catalyst for commodity-producing countries wishing to abandon the dollar as a means of payment for oil,” said Stephen Brennock, oil analyst at PVM Oil Associates, in a research note seen by CNBC.
Bitcoin Will be Legal, Mining to See Regulation: Russia’s Finance MinisterDecember 11, 2017–Russia’s deputy finance minister Alexei Moiseev has reportedly stressed that buying bitcoin and other cryptocurrencies will be legal in the country.
The Russian government will not outlaw nor punish buying or selling cryptocurrencies, Moiseev revealed according to RT.
Our government has been taking a very different position. For one thing, the idea of buying or selling large amounts of Bitcoin without a specific license is viewed as illegal. The Federal Reserve Vice Chairman has publicly stated that “Bitcoin is a serious risk to financial stability.” Deutsche Bank is predicting a boom then crash in Bitcoin that could send shockwaves into the real economy:
Could the market’s new darling become its next black swan event ?
The bitcoin craze could pose a real risk to the broader market next year, Deutsche Bank warned last week, ahead of the cryptocurrency’s launch on futures exchanges, scheduled to take place Sunday.
Torsten Slok, the firm’s chief international economist, sent to clients a list of significant risks to the market in 2018. Included on that list: A crash in the price of bitcoin, higher inflation and the threat of North Korea.
A global banking regulator recently called Bitcoin “dangerous.”
What is important about all of this is that those in favor of and those opposed to Bitcoin really represent a tug-of-war regarding the global system. And, it’s not the only stress on the Western-based financial system that has been in place for decades. The Chinese have developed a fully integrated system that now has commercial applications catching on globally. In addition, the cancer of negative interest rates continues to erode global confidence.
The bottom line is that while many question whether or not Bitcoin is in a bubble, perhaps the better question is whether or not Bitcoin’s rapid rise is a canary in a very dangerous coal mine called the global monetary system. We may see fireworks in 2018 with the dollar-based global monetary system under serious attack.
The Next Financial Attack
by KEVIN D. FREEMAN on NOVEMBER 13, 2017
Three separate news items of the last week point to the serious trouble we may face in the next financial crisis. At present, all things seem pretty good. The stock market is at record highs. The President just returned from his Asia trip with multiple promises of new business for American companies. Tax cuts are (hopefully) on the horizon.
Before we rush to extravagance this Christmas, we should at least pause to consider a few cracks underneath the celebration trophy. There are some serious global and domestic issues that highlight our vulnerability. All of them can and should be addressed. Unfortunately, very few have shown the sobriety to properly examine, let alone deal with them.
News Item #1: Total Federal Debt Now Exceeds 100% of our GDPWhile the economic horizon does indeed look brighter (thanks in no small part to regulatory reform), we still have a massive Federal debt problem. [For the sake of this discussion, we will conveniently ignore the even more serious problem of unfunded entitlements and focus on the much smaller reported Federal debt. But it is important to recognize that this is simply the tip of an extremely large iceberg. We have discussed the entitlement problem and will do so again.] But the big pronouncement recently was that our Federal debt now exceeds 100% of GDP. The total is well above $20 trillion.
It has long been held that the 100% of GDP mark reflected a serious debt problem. It is made more serious if the debt seems to be accelerating. It is even worse if the acceleration happens in a period of very low interest rates. It is even worse to accelerate debt when the economy is not in recession. Finally, it is understandable if the debt is building when a nation is at war or undertaking some massive programs like infrastructure development.
The problem is that we aren’t in the midst of a major war. In fact, defense spending is below what it should be. Add to that the fact that the infrastructure needs a lot of repair and none of that has been covered in current budgets. And, the economy is growing and tax revenues are at all-time high levels. And interest rates are low so interest expense is not busting the budget. The reality is that we are living with the massive bloat created by the Obama Administration after the last financial crisis coupled with historically lower rates of economic growth.
In the year 2013, the government warned that our total Federal debt might exceed 100% of GDP by the year 2024. They were right, of course, but the excess happened sooner than projected. Now, we know that some observers will want to exclude the intra-government debt (debt the government owes itself). Yes, it is true that the Social Security Administration holds a lot of U.S. Treasury bonds and many argue that’s not real debt. But it is, especially if we are ignoring future government promises because those who depend on Social Security really do expect to be paid. That debt better be good. In addition, some argue that foreign holdings of our debt shouldn’t count because foreigners use our debt as their permanent currency reserves. This argument also fails, however, because foreign holders don’t view these holdings as reserves as much as they consider them IOUs from us to them. And they fully expect to be paid and may plan to call the IOU sooner than we’d like. Or, they might use the debt as a weapon against us.
Any business person understands that our Treasury debt is real debt. A perfect example is mentioned in this week’s BARRONs:
Triggering a Debt BombWith U.S. debt as a percentage of GDP above 100%, there’s a risk that we might try to inflate our way out of it, which would boost bond yieldsNovember 11, 2017
… Richter says that debt as a percentage of gross domestic product stands at 105%. He adds that Fitch Ratings has estimated that the figure will rise to 120% in 10 years. One corporate leader who opposes adding to this national burden is Howard Schultz, executive chairman of Starbucks. “It’s insanity. It’s not right,” he said at The New York Times Dealbook conference last week …
Estimates are that our total Federal debt will exceed $25 trillion in 10 years and that is wildly optimistic. Total debt was just above $10 trillion when President Obama took office in 2009. In other words, we added $10 trillion in debt, basically doubling the amount in less than a decade with low interest rates and a growing economy. So it shouldn’t be at all difficult to imagine a $5 trillion jump over the next 10 years. In fact, that is very likely a serious understatement, especially if we experience a downturn with higher interest rates. Every 5% increase in rates on a $20 trillion debt equals an extra $1 trillion per year in deficit.
This is not simply an academic worry. A debt crisis will hammer every American, especially those who depend on either the government or pensions. We will cover the pension crisis in detail in a future post but the risks are very high.
On the positive side, renewed private-sector economic growth based on tax cuts and regulatory reform could greatly help offset some of the serious debt risks we face. But we will need to act soon or the explosion of the debt bomb could prove catastrophic. The Bible teaches that “A prudent man foresees danger and prepares while the fool goes blindly on and suffers the consequences.” [Found in both Proverbs 22:3 and 27:12.] Now, while things seem okay is the time to prepare.
News Item #2: The Leak on a Plan for UAE to Attack Qatar Using Financial WeaponryThe Intercept is an online news publication made famous by publishing the national security leaks of Edward Snowden. Last week they published another significant document with global security implications. It is purportedly a presentation of a plan taken from the email of the Ambassador from the United Arab Emirates (UAE) to the United States that outlines a plan of attack against Qatar.
We’ve already explained how Egypt, Saudi Arabia, Bahrain, and the UAE have lined up against Qatar to force an end to support for the Muslim Brotherhood. We have also discussed Qatar’s role in the 2008 financial collapse via an ownership stake in Barclays Bank. This document, however, shows the tables turned with Qatar on the potential receiving end of a severe form of Economic Warfare.
The basis of the alleged plot was to destroy Qatari credit and currency, ultimately removing the World Cup from the nation. As you read the 3-stage plot, you will recognize the use of many of the things we discussed in the book Secret Weapon: How Economic Terrorism Brought Down the U.S. Stock Market and Why It Could Happen Again. There are lots of similarities including the spreading of rumors, the use of a European bank, the role of Credit Default Swaps, and the attacks on currency.
Here is a quick description from today’s edition of The Nation:
DOHA : Qatar is investigating an alleged attempt to manipulate its currency during the early weeks of a Gulf political crisis, now in its sixth month, a government spokesman said Sunday.
The director of Qatar’s government communications office said an unnamed global financial institution — partly owned by United Arab Emirates investors — had been instructed to stop trading Qatari riyals across Europe and Asia. Saif al-Thani’s claim is the latest development in an increasingly complex and bitter crisis. Since June 5, Qatar has been diplomatically, politically and economically boycotted by the UAE, Saudi Arabia, Bahrain and Egypt over charges Doha supports terrorism. Doha denies the accusations. “If this financial warfare is true, it is disgraceful and dangerous not only to Qatar ‘s economy but the global economy,” Thani told AFP. “One of the financial institutions stopped trading in riyals for a few days and it was only when we reached out to them” that it resumed, he said.
Qatar’s intelligence agencies are carrying out an investigation and “have engaged with law enforcement officials in the relevant jurisdictions”, he said. The Qatari claim comes just days after The Intercept, a US-based investigative website, said it had uncovered a UAE plot to “wage financial war” on Doha. It claimed leaked emails belonging to the UAE’s ambassador in Washington, Yousef al-Otaiba, revealed a complex plan to attack the riyal through bond and derivatives manipulation. The plan allegedly aimed to destabilise Qatar ‘s economy to the extent that it would have to give up the right to host the football World Cup in 2022. Al-Thani said Qatar had become aware of the currency issue in July but was revisiting the issue following recent media reports. “Definitely they are attacking 2022 in one way or another,” he said.
Rather than explain all the details, just read The Intercept article. Here is the Qatari perspective from al Jazeera.
Let’s be clear. This is a real plot with huge implications. Most of the world has ignored just how serious this really is. Ignoring this would be like ignoring aircraft carriers before Pearl Harbor. The reality is that this is a new form of warfare and most of the world knows it.
News Item #3: China and Russia Explain Why They Plan to Dethrone the DollarOn November 9, a hardline Turkish news outlet favored by Erdogan, Yenisafak.com, published an article that describes a looming currency war between Russia and China on one side and the United States on the other. Clearly, the Turkish position is pro-China/Russia. Here are some critical excerpts (emphasis added):
China-Russia currency settlement and the dollar systemThe Peoples’ Bank of China has announced a payment-versus-payment (PVP) system for Russian ruble and Chinese yuan transactions to reduce currency risks in their trade. The most likely risk these days of course would be from the U.S. Treasury, for financial warfare to damage Russian-Chinese trade which is becoming very significant in volume and value. By December it should reach a 30 percent rise over 2016. Yet there is more to this seeming technical move by China and Russia than meets the eye.
China plans to introduce similar PVP systems for yuan transactions with other currencies based on China’s Belt and Road initiative (BRI) . . .
The fact that the dollar remains the most significant foreign central bank reserve currency, still 64 percent of all world reserves, gives the U.S. government an extraordinary advantage. Since 1971, the U.S. has run budget deficits for 41 of 45 years. In 2009 the U.S. deficit was $1,400 billion! In 1970 the U.S. deficit was $74 billion.
For other countries this is an enormous disadvantage. Their U.S. dollar treasury bond investments for their own central bank reserves are becoming worthless paper.
China and Russia, as well as Turkey, with their dollar reserves, finance the U.S. military budget by buying U.S. bonds and bills that allow the Treasury to finance that deficit without raising interest rates. The cynical irony is that the U.S. military budget is financed by other nations’ need to hold dollar reserves against potential currency wars by Washington.
If countries of Eurasia including Turkey and Iran turn to bilateral arrangements like China and Russia to settle trade, bypassing the U.S. dollar, the dollar domination as world reserve currency will decline. Other currencies will rise, with the gold-backed Chinese yuan and gold-backed Russian ruble leading the way . . .
What China and Russia are doing is not about attacking the U.S. dollar to destroy it. That is highly unlikely and would benefit no one. It’s rather about creating an independent alternative reserve currency or currencies for other nations wanting to protect themselves from the ever-more frequent financial attacks by the U.S. Treasury and Wall Street banks and hedge funds–a gold-backed alternative. [The entire article can be found at yenisfak,com.]
Basically, this is an attempted moral justification for China and Russia to go after the dollar. It is clear that our adversaries view their holdings of U.S. dollars as supporting our military. It is a direct linkage between our currency and our ability to wage war. It is also a connection between Turkey, Iran, Russia, and China. All that’s missing is North Korea from the list, although they don’t have the currency reserves to really participate.
Of course, this isn’t really new. We have been warning that Putin has been plotting this for some time, encouraging China, Iran, and now Turkey to follow suit. The Chinese admitted as much in an edition of Qiushi magazine, the official house organ of the Communist Party.
Putting the Three News Items TogetherGiven our rapidly rising debt, it should be clear that we are vulnerable to a financial attack. And, we must be aware that financial attacks are real and being contemplated. Finally, we have a clear recognition in Turkey that many nations resent the dollar’s hegemony and are plotting against it. Unfortunately, despite the fact that this should be obvious, those pledged to protect are nation appear oblivious to this very clear, very present danger.
The good news is that there are steps we can take to protect our nation IF we recognize the threat as real. The problem is that it is simply too easy to keep going until something breaks badly. Let’s not make that mistake again. That’s why we must get our debt under control and take the necessary eight steps to Make America Great Again.
Economic Strength is the Key to National Security
by KEVIN D. FREEMAN on NOVEMBER 24, 2017
Before anything else, we must express our Thanksgiving for the remarkable gift we have been given of life and freedom. It is a precious gift and an important part of the pursuit of peace, something sorely lacking in this tumultuous world. In fact, the Bible gives us a powerful prayer formula for finding peace and it requires Thanksgiving. From the book of Philippians, Chapter 4 (KJV):
6 Be careful for nothing; but in every thing by prayer and supplication with thanksgiving let your requests be made known unto God.
7 And the peace of God, which passeth all understanding, shall keep your hearts and minds through Christ Jesus.
I share all of this because we face so many global challenges, many of which we have largely ignored. So this Thanksgiving weekend, we should pause and acknowledge the goodness of God, appealing to Him with prayers for peace.
Four and one-half years ago, we made the case that the race for military dominance was a matter of economics. We based the conclusion on a report from the Carnegie Institute for World Peace, a globalist group that promptly disagreed with our conclusions. This set up a most interesting debate inside the Defense Intelligence Agency between two of the most accomplished China experts (one who was senior at the World Bank and the other a head of an important think tank) and myself and a colleague, David Hemenway. They had everything on their side including multi-million dollar research budgets, prestige, doctoral education, and the status of high position. All we had on our side was the truth. Fortunately, the truth won.
Here are links to two of our posts:
The facts presented in the Carnegie report were accurate but the analysis was suspect. Basically, we connected the dots they were unwilling to connect. The global winner militarily would be the global winner economically. That’s what their paper was screaming. What they did not want to admit, however, was that China would recognize this and therefore focus on economic warfare to gain the military advantage. In the debate we demonstrated this repeatedly. They made the argument that China would not move to replace the Western financial system or replace the dollar as the world’s reserve currency. They made quite the case, especially with a Chinese national debating on their side who had also served as the number two at the World Bank. Of course, just a few months later, the official Chinese government policy became to “de-Americanize the world” and to remove the dollar as the world’s reserve currency.
We posted at the time about the debate held but were ordered to remove the information from our Blog by the DIA. We complied, but continued to tell the truth in other posts, speeches, books, and interviews.
Last week, a NATO report was reported on that largely confirms our key point. The race for military dominance is an economic one, to a large degree. From The Hill (emphasis added):
NATO general points to increasing strength of China, RussiaNovember 17, 2017–A senior NATO official said Thursday that the “risk for a major interstate conflict has increased” in recent years, pointing to a shift in military and economic power to countries such as China and Russia.
“China is leveraging its economic power to increase defense spending as a foundation of the growing global power strategy,” NATO Supreme Allied Commander Transformation Gen. Denis Mercier said during an address to the Atlantic Council.
“The neighboring India is following the same path and could reach a comparable status in the medium term. At the same time, Russia is resurfacing with the will to become a major power again, challenging the established order in the former Soviet space,” he said.
The French general summarized the findings of the latest Strategic Foresight Analysis (SFA) report, comparing it to the first SFA report released in 2013. The 2017 report, released last month, identifies 20 global trends and 59 of their policy implications for NATO.
Mercier highlighted some of the major trends, including a worldwide shift in economic and military power from North America and western Europe to countries such as China and Russia.
The report notes that China and Russia are major defense spenders, with China spending about $215 billion on defense in 2015. It also mentions that among NATO countries, 22 declared increased defense spending in 2016.
The report predicts that this trend will continue, stating, “Asia-Pacific economies are projected to drive 60% of the total global increase in defence acquisition, research and development and 30% of the total defence acquisition budget through 2020.”
According to the report, the shift in political power will require NATO to develop stronger ties with more countries…. [To CONTINUE READING at The Hill…]
It is important to note that this is a significant change in conclusion from what the same report was saying in 2013 (they are starting to come around):
“The 2013 report acknowledged the complexity of the security environment and identified less potential for major conflict,” Mercier said. “This demonstrates that our starting assumptions will always be challenged.”
Others are beginning to see what we have been saying as well. Basically, Russia and China have been working together to replace our economic dominance in a long-term bid for global power. While many still fail to connect the dots, they are seeing that our conclusions are correct. From a Newsweek article last week. Here are some important quotes:
U.S. War With Russia and China More Likely as World Power Shifts From West to East, NATO SaysBy Tom O’Connor On 11/17/17
Russian President Vladimir Putin and Chinese President Xi Jinping shake hands during a meeting on the sidelines of the APEC summit in Danang, Vietnam November 10, 2017. In addition to empowering their own nations, Putin and Xi have sought greater ties with one another in order to present a united challenge to U.S. and Western interests….
In September, the Joint Chiefs of Staff chairman, Marine General Joseph Dunford, told the Senate Armed Services Committee at his reappointment hearing that, while he considered North Korea the foremost threat to the U.S. “in terms of the sense of urgency,” Russia led “in terms of overall military capability” and he expected China would become “the greatest threat to our nation by about 2025.”
China’s increasingly important role on the international stage was put in the spotlight last month during the quinquennial Communist Party Congress, which made President Xi Jinping’s consolidation of power and influence apparent for the world to see. Xi has rapidly reformed his country’s military, which boasted the largest standing army on Earth, to create a 21st-century fighting force capable of protecting Beijing’s initiative to establish trading routes across Asia, Africa, Europe and the Middle East, as well as countering the U.S. presence in the Pacific.
Meanwhile, Russia’s military rise has been viewed as particularly challenging to Western interests, as the country has already begun to replace the U.S. as the leading power broker in the Middle East and has expanded its influence in Europe. Following Russian President Vladimir Putin’s 2014 annexation of the Crimean Peninsula, NATO assumed a more militant stance toward its rival, and the two have embarked on a major arms race across the region.
Xi and Putin have also sought to establish greater ties with one another in order to provide an alternative to the Western status quo. China and Russia have conducted joint drills across the world, from East Asia to the Baltics, and the Chinese Defense Ministry announced Friday that China and Russia would team up for an anti-missile exercise as both countries express opposition to the U.S.’s installation of the Terminal High Altitude Area Defense (THAAD) system in South Korea, according to Reuters. [To read the ENTIRE ARTICLE at NEWSWEEK…]
If you knew that economic power is essential for military power, why wouldn’t you make every effort to undermine your adversary’s economy while strengthening your own? This is the essential understanding of economic warfare. You’d think our leadership would grasp this simple concept. And yet, we assume that our adversaries will be rational economic actors as we define it, ignoring the larger geopolitical issues. This is willful blindness, leading to the notion that our economic activity should always be for the global good and to maximize global profits. Thus, our American-based companies see themselves as global citizens. As we say constantly, “What we see as a global marketplace, our enemies see as a global battle space.” No wonder we have been losing at chess while thinking we were playing checkers.
The NATO report is an important step in connecting the dots. Now, we must recognize that this is a global economic war and it has been underway for some time. How we respond will determine our future.