In the final days of World War II, 44 leaders from all of the Allied nations met in Bretton Woods, New Hampshire in an effort to create a new global economic order. With much of the global economy decimated by the war, the United States emerged as the world’s new economic leader. The relatively young and economically nimble U.S. served as a refreshing replacement to the globe’s former hegemon: a debt-ridden and war-torn Great Britain.
In addition to introducing a number of global financial agencies, the historic meeting also created an international gold-backed monetary standard which relied heavily upon the U.S. Dollar.
Initially, this dollar system worked well. However, by the 1960’s, the weight of the system upon the United States became unbearable. On August 15, 1971, President Richard M. Nixon shocked the global economy when he officially ended the international convertibility from U.S. dollars into gold, thereby bringing an official end to the Bretton Woods arrangement.
Two years later, in an effort to maintain global demand for U.S. dollars, another system was created called the petrodollar system. In 1973, a deal was struck between Saudi Arabia and the United States in which every barrel of oil purchased from the Saudis would be denominated in U.S. dollars. Under this new arrangement, any country that sought to purchase oil from Saudi Arabia would be required to first exchange their own national currency for U.S. dollars. In exchange for Saudi Arabia’s willingness to denominate their oil sales exclusively in U.S. dollars, the United States offered weapons and protection of their oil fields from neighboring nations, including Israel.
By 1975, all of the OPEC nations had agreed to price their own oil supplies exclusively in U.S. dollars in exchange for weapons and military protection.
This petrodollar system, or more simply known as an “oil for dollars” system, created an immediate artificial demand for U.S. dollars around the globe. And of course, as global oil demand increased, so did the demand for U.S. dollars.
As the U.S. dollar continued to lose purchasing power, several oil-producing countries began to question the wisdom of accepting increasingly worthless paper currency for their oil supplies. Today, several countries have attempted to move away, or already have moved away, from the petrodollar system. Examples include Iran, Syria, Venezuela, and North Korea… or the “axis of evil,” if you prefer. (What is happening in our world today makes a whole lot of sense if you simply read between the lines and ignore the “official” reasons that are given in the mainstream media.) Additionally, other nations are choosing to use their own currencies for oil like China, Russia, and India, among others.
As more countries continue to move away from the petrodollar system which uses the U.S. dollar as payment for oil, we expect massive inflationary pressures to strike the U.S. economy. In this article, we will explain how this could be possible.
The Coming Collapse of the Petrodollar System
When historians write about the year 1944, it is often dominated with references to the tragedies and triumphs of World War II. And while 1944 was truly a pivotal year in one of history’s most devastating conflicts of all time, it was also a significant year for the international economic system. In July of that same year, the United Nations Monetary and Financial Conference (more commonly known as the Bretton Woods conference) was held in the Mount Washington hotel in Bretton Woods, New Hampshire. The historic gathering included 730 delegates from 44 Allied nations. The aim of the meeting was to regulate the war-torn international economic system.
During the three-week conference, two new international bodies were established.
- The International Bank of Reconstruction and Development (IBRD, later known as the World Bank)
- The International Monetary Fund
In addition, the delegates introduced the General Agreement on Tariffs and Trade (GATT, later known as the World Trade Organization, or WTO.)
More importantly, for our purposes here, another development that emerged from the conference was a new fixed exchange rate regime with the U.S. Dollar playing a central role. In essence, all global currencies were pegged to the U.S. Dollar.
At this point, an appropriate question to be asking yourself is: ”Why would all of the nations be willing to allow the value of their currencies to be dependent upon the U.S. Dollar?”
The answer is quite simple.
The U.S. Dollar would be pegged at a fixed rate to gold. This made the U.S. dollar completely convertible into gold at a fixed rate of $35 per ounce within the global economic community. This international convertibility into gold allayed concerns about the fixed rate regime and created a sense of financial security among nations in pegging their currency’s value to the dollar. After all, the Bretton Woods arrangement provided an escape hatch: if a particular nation no longer felt comfortable with the dollar, they could easily convert their dollars holdings into gold. This arrangement helped restore a much-needed stability in the financial system. But it also accomplished one other very important thing. The Bretton Woods agreement instantly created a strong global demand for U.S. dollars as the preferred medium of exchange.
And along with this growing demand for U.S. Dollars came the need for… a larger supply of dollars.
Now, before we continue this discussion, stop for a moment and ask yourself this question: Are there any obvious benefits from creating more dollars? And if so, who benefits?
First, the creation of more dollars allows for the inflation of asset prices. In other words, more dollars in existence allows for a rise in overall prices.
For example, imagine for a moment if the U.S. economy had a total money supply of only $1 million dollars. What if, in this imaginary economy, I attempted to sell you my home for $2 million dollars? While you may like my home, and may even want to buy it, it would be physically impossible for you to do so. And it would be completely absurd for me to ask for $2 million because, in our imaginary economy, there is only $1 million in existence.
So an increase in the overall money supply allows asset prices to rise.
But that’s not all.
The United States government benefits from a global demand for U.S. dollars. How? It’s because a global demand for dollars gives the Federal government a “permission slip” to print more. After all, we can’t let our global friends down, can we? If they “need” dollars, then let’s print some more dollars for them.
Is it a coincidence that printing dollars is the U.S. government’s preferred method of dealing with our nation’s economic problems?
Remember, Washington only has four basic ways to solve its economic problems:
1. Increase income by raising taxes on the citizens
2. Cut spending by reducing benefits
3. Borrow money through the issuance of government bonds
4. Print money
Raising taxes and making meaningful spending cuts can be political suicide. Borrowing money is a politically convenient option, but you can only borrow so much. That leaves the final option of printing money. Printing money requires no immediate sacrifice and no spending cuts. It’s a perfect solution for a growing country that wants to avoid making any sacrifices. However, printing more money than is needed can lead to inflation. Therefore, if a country can somehow generate a global demand for its currency, it has a “permission slip” to print more money. Understanding this “permission slip” concept will be important as we continue.
Finally, the primary beneficiary of an increased global demand for the U.S. Dollar is America’s central bank, the Federal Reserve. If this does not make immediate sense, then pull out a dollar bill from your wallet or purse and notice whose name is plastered right on the top of it.
Have you ever asked yourself why the U.S. Dollar is called a Federal Reserve Note?
Once again, the answer is simple.
The U.S. Dollar is issued and loaned to the United States government by the Federal Reserve.
Because our dollars are loaned to our government by the Federal Reserve, which is a private central banking cartel, the dollars must be paid back. And not only must the dollars be paid back to the Federal Reserve. They must be paid back with interest!
And who sets the interest rate targets on the loaned dollars? It’s the Federal Reserve, of course.
To put it simply, the Federal Reserve has a clear vested interest in maintaining a stable and growing global demand for U.S. Dollars because they create them and then earn profit from them with interest rates which they set themselves. What a great system the Federal Reserve has for itself. No wonder it hates oversight and intervention. No wonder the private banking cartel that runs the Federal Reserve despises all attempts to actually audit its books.
In summary, the American consumer, the Federal government, and Federal Reserve all benefit to varying degrees from a global demand for U.S. Dollars.
The Bretton Woods Breakdown: Vietnam, The Great Society, and Deficit Spending
There is an old saying that goes, “He who holds the gold makes the rules.” This statement has never been truer than in the case of America in the post-World War II era. By the end of the war, nearly 80 percent of the world’s gold was sitting in U.S. vaults, and the U.S. Dollar had officially become the world’s undisputed reserve currency.
As a result of the Bretton Woods arrangement, the dollar was considered to be “as safe as gold.”
A study of the United States economy in the post-World War II era demonstrates that this was a time of dramatic economic growth and expansion. This era gave rise to the baby boomer generation. By the late 1960’s, however, the American economy was under major pressure. Deficit spending in Washington was uncontrollable as President Lyndon B. Johnson began to realize his dream of a “Great Society.”With the creation of Medicare and Medicaid, American citizens could now, for the first time, earn a living from their government.
Meanwhile, an expensive and unpopular war in Vietnam funded by record deficit spending led some nations to question the economic underpinnings of America.
After all, the entire global economic order had become dependent upon a sound U.S. economy. Countries like Japan, Germany, and France, while fully on the mend from the devastation of World War II, were still largely dependent upon a financially stable American economy to maintain their economic growth.
By 1971, as America’s trade deficits increased and its domestic spending soared, the perceived economic stability of Washington was being publicly challenged by many nations around the globe. Foreign nations could sense the severe economic difficulties mounting in Washington as the United States was under financial pressure at home and abroad. According to most estimates, the Vietnam War had a price tag in excess of $200 billion. This mounting debt, plus other debts incurred through a series of poor fiscal and monetary policies, was highly problematic given America’s global monetary role.
But it was not America’s financial issues that most concerned the international economic community. Instead, it was the growing imbalance of U.S. gold reserves to debt levels that was most alarming.
The United States had accumulated large amounts of new debt but did not have the money to pay for them. Making matters worse, U.S. gold reserves were at all-time lows as nation after nation began requesting gold in exchange for their dollar holdings. It was almost as if foreign nations could see the writing on the wall for the end of the Bretton Woods arrangement.
As 1971 progressed, so did foreign demand for U.S. gold. Foreign central banks began cashing in their excess dollars in exchange for the safety of gold. As nations lined up to exchange their dollar holdings for Washington’s gold, the United States realized that the game was over. Clearly, America had never intended to be the globe’s gold warehouse. Instead, the convertibility of the dollar into gold was meant to generate a global trust in U.S. paper money. Simply knowing that the U.S. dollar could be converted into gold if necessary was good enough for some — but not for everyone. The nations which began to doubt America’s ability to manage their own finances decided to opt for the recognized safety of gold. (Historically, gold has been, and will likely remain, the beneficiary of poor fiscal and monetary policies, and 1971 was no different.)
One would have expected that the large and growing demand by foreign nations for gold instead of dollars would have been a strong indicator to the United States to get its fiscal house in order. Instead, America did exactly the opposite. As Washington continued racking up enormous debts to fund its imperial pursuits and its over-consumption, foreign nations sped up their demand for more U.S. gold and fewer U.S. dollars. Washington was caught in its own trap and was required to supply real money (gold) in return for the inflows of their fake paper money (U.S. dollars).
They had been hamstrung by their own imperialistic policies.
Soon the United States was bleeding gold. Washington knew that the system was no longer viable, and certainly not sustainable. But what could they do to stem the crisis? There were only two options.
The first option would require that Washington immediately reduce its massive spending and dramatically reduce its existing debts. This option could possibly restore confidence in the long-term viability of the U.S. economy. The second option would be to increase the dollar price of gold to accurately reflect the new economic realities. There was an inherent flaw in both of these options that made them unacceptable to the United States at the time… they both required fiscal restraint and economic responsibility. Then, as now, there was very little appetite for reducing consumption in the beleaguered name of “sacrifice” or “responsibility.”
Goodbye, Yellow Brick Road
The Bretton Woods system created an international gold standard with the U.S. dollar as the ultimate beneficiary. But in an ironic twist of fate, the system that was designed to bring stability to a war-torn global economy was threatening to plunge the world back into financial chaos. The gold standard created by Bretton Woods simply could not bear the financial excesses, coupled with the imperialistic pursuits, of the American economic empire.
On August 15, 1971, under the leadership of President Richard M. Nixon, Washington chose to maintain its reckless consumption and debt patterns by detaching the U.S. Dollar from its convertibility into gold. By “closing the gold window,” Nixon destroyed the final vestiges of the international gold standard. Nixon’s decision effectively ended the practice of exchanging dollars for gold, as directed under the Bretton Woods agreement. It was in this year, 1971, that the U.S. dollar officially abandoned the gold standard and was declared a purely “fiat” currency. (A “fiat” currency is one that derives it value from its sponsoring government. It is a currency issued and accepted by decree.)
Here’s a brief 2-minute excerpt of the actual televised speech delivered by President Nixon on August 15, 1971 in which he ended the U.S. Dollar’s convertibility into gold.
As all other fiat empires before it, Washington had come to view gold as a constraint to their colossal spending urges. A gold standard, as provided by the Bretton Woods system, meant that America had to attempt to publicly demonstrate fiscal restraint by maintaining holistic economic balance.
By “closing the gold window,” Washington had affected not only American economic policy — it also affected global economic policy. Under the international gold standard of Bretton Woods, all currencies derived their value from the value of the dollar. And the dollar derived its value from the fixed price of its gold reserves. But when the dollar’s value was detached from gold, it became what economists call a “floating” currency. (By “floating,” it is meant that the currency is not attached, nor does it derive its value, from anything externally.) Put simply, a “floating” currency is a currency that is not fixed in value.
Like any commodity, the dollar could be affected by the market forces of supply and demand. When the dollar became a “floating” currency, the rest of the world’s currencies, which had been previously fixed to the dollar, suddenly became “floating” currencies as well. (Note: It did not take long for this new system of floating currencies with floating exchange rates to attract manipulation by speculators and hedge funds. Currency speculation is, and remains, a threat to floating currencies. Proponents of a single global currency use the current manipulation of currency speculators to promote their agenda.)
In this new era of floating currencies, the U.S. Federal Reserve, America’s central bank, had finally freed itself from the constraint of a gold standard. Now, the U.S. dollar could be printed at will — without the fear of not having enough gold reserves to back up new currency production. And while this new-found monetary freedom would alleviate pressure on America’s gold reserves, there were other concerns.
One major concern that Washington had was regarding the potential shift in global demand for the U.S. dollar. With the dollar no longer convertible into gold, would demand for the dollar by foreign nations remain the same, or would it fall?
The second concern had to do with America’s extravagant spending habits. Under the international gold standard of Bretton Woods, foreign nations gladly held U.S. debt securities, as they were denominated in gold-backed U.S. dollars. Would foreign nations still be eager to hold America’s debts despite the fact that these debts were denominated in a fiat debt-based currency that was backed by nothing?
The Iraq and Afghanistan wars were both “resource wars” sold to the American public under false pretenses. America’s empire of 700+ military bases in 130+ nations serves as a global oil protection service, not a national military seeking to protect American citizens. Instead of protecting our nation’s borders, the U.S. military is used by the Washington elites to protect the petrodollar system. The foundations of the American empire are now crumbling as emerging nations are no longer willing to spend their lives and their new found wealth propping up the U.S. consumer. Nor do they have any desire to tolerate the belligerence of the U.S. war machine.
Like all failing empires, America will fall under its own weight as more nimble economies arise in its wake. America’s attempts at regional dominance of Central Asia will lead to further friction with Russia and/or China. This friction will provide the spark for yet another war
In yesterday’s post, I began to tell the tale of how the USA planned and implemented a Global Plan for the world economy, placing the US administration at the heart of a global Surplus Recycling Mechanism. Today, I have two offerings: One is a brilliant paper by George Krimpas which states the case for such a Surplus Recycling Mechanism, as expounded by Keynes during the Bretton Woods conference in 1944. It is called The Recycling Problem in a Currency Union. Secondly, I am continuing today my own story of how the postwar Global Plan unravelled, giving rise to a brand new, terriblyunruly, yet puzzlingly effective Surplus Recycling Mechanism which I call the Global Minotaur (1971-2008). It comes from Chapter 4 of my forthcoming book (also entitled THE GLOBAL MINOTAUR). Enjoy. (As I am about to board a plane for Australia, and then Korea, my postings will be intermittent for a while.)The Global Plan’s Achilles HeelThe Global Plan unravelled because of a major design flaw in its original architecture. John Maynard Keynes had spotted the flaw during the 1944 Bretton Woods conference but was overruled by the Americans. What was it? It was the lack of any automated Global Surplus Recycling Mechanism (GSRM) that would keep systematic trade imbalances constantly in check.
The American side vetoed Keynes’ proposed mechanism, the International Currency Union (ICU), thinking that the US could, and should, manage the global flow of trade and capital itself; without committing to some formal, automated GSRM. The new hegemon, blinded by its newfangled superpower status, failed to recognise the wisdom of Ulysses’ strategy; of binding itself voluntarily to some Homeric mast.
Less cryptically, Washington thought that global trade imbalances would favour America in perpetuity, casting in stone the its economy’s status as the world’s surplus nation. Then, the power bestowed upon the United States by the surpluses it extracted from all over the world would be utilised benevolently and efficiently in order to manage the world economy along the lines of an enlightened hegemony. Indeed, this is exactly what the United States did: They recycled graciously the American surpluses in the form of capital injections into Japan, Germany and other deserving regions.
Alas, US policy makers failed to foresee that global imbalances could undergo a drastic inversion, leaving the United States in the unfamiliar position of a deficit country. During the heady days of the late 1940s, the Global Plan‘s architects ostensibly neglected to take seriously the possibility that the lack of self-restraint would lead Washington to codes of behaviour that would undermine their brilliant grand design.
The Global Plan unravels
The Global Plan‘s path was not laid with roses. A series of mishaps marked its evolution, with Chairman Mao’s triumph delivering the first blow. Quite impressively, it reacted creatively to adversity, often as a result of unintended consequences. We have already seen how the Korean War was exploited to shore up the Global Plan‘s far eastern flank. So, when the United States dragged itself into the Vietnam War, a similar wave of ‘creative destruction’ was on the cards.
Though it is a gross understatement to suggest that its persecution did not go according to the original plan, the Vietnam War‘s silver lining is visible to anyone who has ever visited South East Asia. Korea, Thailand, Malaysia and Singapore grew fast and in a manner that frustrated the pessimism of those who predicted that underdeveloped nations would find it hard to embark upon the road of capital accumulation necessary to drive them out of abject poverty. In the process, they provided Japan with valuable trade and investment opportunities which lessened the burden on the US authorities which, before the mid-1960s, had shouldered alone the burden of generating enough demand for Japanese factories in Europe and in the US itself. Years later, the same model was copied by Deng Xiao Ping and delivered the China we know today.
The problem with unintended consequences is that they are not reliably advantageous. Ho Chi Minh’s stubborn refusal to lose the war, and Lyndon Johnson’s almost manic commitment to do all it takes to win it, were crucial not only in creating a new capitalist region in the Far East, but also in derailing the Global Plan. The escalation of the financial costs of that war that were to be a key factor in its demise.
Setting aside the appalling human cost, the war cost the US government around $113 billion and the US economy another $220 billion. Real US corporate profits declined by 17% while, during the period 1965-1970, the war-induced increases in average prices forced the real average income of American blue collar workers to fall by about 2%. The war was taking its toll not only ethically and politically, as a whole generation of American youngsters were marked by the fear and loathing of Vietnam, but also in terms of tangible loss of working class income which fuelled social tensions. Arguably, President Johnson’s Great Society social programs were aimed, largely, at relieving these strains.
As the combined costs of the Vietnam War and the Great Society began to mount, the government was forced to generate mountains of US government debt. By the end of the 1960s, many governments began to worry that their own position, which was interlocked with the dollar in the context of the Bretton Woods system, was being undermined. By early 1971, liabilities in dollars exceeded $70 billion when the US government possessed only $12 billion of gold with which to back them up.
The increasing quantity of dollars was flooding world markets, giving rise to inflationary pressures in places like France and Britain. European governments were forced to increase the quantity of their own currencies in order to keep their exchange rate with the dollar constant, as stipulated by the Bretton Woods system. This is the basis for the European charge against the United States that, by pursuing the Vietnam War, it was exporting inflation to the rest of the world.
Beyond mere inflationary concerns, the Europeans and the Japanese feared that the build-up of dollars, against the backdrop of a constant US gold stock, might spark off a run on the dollar which might then force the United States to drop its standing commitment to swapping an ounce of gold for $35, in which case their stored dollars would devalue, eating into their national ‘savings’.
The flaw in the Global Plan was intimately connected to what Valery Giscard d’Estaing, President de Gaulle’s finance minister at the time, called the dollar’s exorbitant privilege: The United States’ unique privilege to print money at will without any global institutionalised constraints. De Gaulle and other European allies (plus various governments of oil producing countries whose oil exports were denominated in dollars) accused the Unites States of building its imperial reach on borrowed money that undermined their countries’ prospects. What they failed to add was that the whole point of the Global Plan was to revolve around a surplus generating United States. When America turned into a deficit nation, the Global Plan could not avoid going into a vicious tail spin.
On 29th November 1967, the British government devalued the pound sterling by 14%, well outside the Bretton Woods 1% limit, triggering a crisis and forcing the United States government to use up to 20% of its entire gold reserves to defend the $35 per ounce of gold peg. On 16th March 1968, representatives of the G7’s Central Banks met to hammer out a compromise. They came to a curious agreement which, on the one hand, retained the official peg of $35 an ounce while, on the other hand, left room for speculators to trade gold at market prices.
When Richard Nixon won the US Presidency in 1970, he appointed Paul Volcker as Undersecretary of the Treasury for International Monetary Affairs. His brief was to report to the National Security Council, headed by Henry Kissinger, who was to become a most influential Secretary of State in 1973. In May of 1971, the taskforce headed by Volcker at the Treasury presented Kissinger with a contingency plan which toyed with the idea of “suspension of gold convertibility”. It is now clear that, on both sides of the Atlantic, policy makers were jostling for position anticipating a major change in the Global Plan.
In August of 1971 the French government decided to make a very public statement of its annoyance at the United States’ policies: President George Pompidou ordered a destroyer to sail to New Jersey to redeem US dollars for gold held at Fort Knox, as was his right under Bretton Woods! A few days later, the British government of Edward Heath issued a similar request, though without employing the Royal Navy, demanding gold equivalent to $3 billion held by the Bank of England. Poor, luckless Pompidou and Heath: They had rushed in where angels fear to tread!
President Nixon was absolutely livid. Four days later, on 15th August 1971, he announced the effective end of Bretton Woods: the dollar would no longer be convertible to gold. Thus, the Global Plan unravelled.
Interregnum: The 1970s oil crises, stagflation and the rise of interest rates
Soon after, Nixon dispatched his Secretary of the Treasury (a no non-sense Texan called John Connally) to Europe with a sharp message. Connally’s account of what he said to the Europeans was mild and affable:
“We told them”, he told reporters, “that we were here as a nation that had given much of our resources and our material resources and otherwise to the World to the point where frankly we were now running a deficit and have been for twenty years and it had drained our reserves and drained our resources to the point where we could no longer do it and frankly we were in trouble and we were coming to our friends to ask for help as they have so many times in the past come to us to ask for help when they were in trouble. That is in essence what we told them.”
His real message is still ringing in European ears: It’s our currency but it’s your problem! What Connally meant was that, as the dollar was the reserve currency, i.e. the only truly global means of exchange, the end of Bretton Woods was not America’s problem. The Global Plan was, of course, designed and implemented to be in the interest of the United States. But once the pressures on it (caused by Vietnam and internal US tensions that required an increase in domestic government spending) became such that the system reached breaking point, the greatest loser would not be the United States itself but Europe and Japan; the two economic zones that had benefited mostly from the Global Plan.
It was not a message either the Europeans or Japan wanted to hear. Lacking an alternative to the dollar, they knew that their economies would hit a major bump as soon as the dollar would start devaluing. Not only would their dollar assets lose value but, additionally, their exports would become dearer. The only alternative was for them to devalue their currencies too but that would then cause their energy costs to skyrocket (given that oil was denominated in dollars). In short, Japan and the Europeans found themselves between a rock and a hard place.
Toward the end of 1971, in December, Presidents Nixon and Pompidou met in the Azores. Pompidou, eating humble pie over his destroyer antics, pleaded with Nixon to reconstitute the Bretton Woods system, on the basis of fresh fixed exchange rates that would reflect the new ‘realities’. Nixon was unmoved. The Global Plan was dead and buried and a new unruly beast, the Global Minotaur, was to fill its place.
Once the fixed exchange rates of the Bretton Woods system collapsed, all prices and rates broke loose. Gold was the first commodity discretely to jump from $35 to $38 per ounce, soon to $42 and then to float unbounded into the ether. By May 1973 it was trading at more than $90 and before the decade was out, in 1979, it had reached a fabulous $455 per ounce; a twelvefold increase in less than a decade.
Meanwhile, within two years of Nixon’s August 1971 bold move, the dollar had lost 30% of its value vis-à-vis the Deutschmark and 20% against the Yen and Frank. Oil producers suddenly found that their black gold, when denominated in yellow gold, was worth a fraction of what it used to be. Members of the Organisation of Petroleum Exporting Countries (OPEC), which regulated the price of oil through agreed cutbacks on aggregate oil output, were soon clamouring for coordinated action (i.e. reductions in production) to boost the black liquid’s gold value.
At the time of Nixon’s announcement, the price of oil was less than $3 per barrel. In 1973, with the Yom Kippur war between Israel and its Arab neighbours apace, the price jumped to between $8 and $9, thereafter hovering in the $12 to $15 range until 1979. In 1979 a new upward surge began that saw oil trade above $30 well into the 1980s. And it was not just the price of oil that scaled unprecedented heights. All primary commodities shot up in price simultaneously: Bauxite (165%), lead (170%), silver (1065%) and tin (220%) are just a few examples. In short, the termination of the Global Plan signalled a mighty rise in the costs of production across the world. Inflation soared as did unemployment: a rare combination of stagnation with inflation that came to be known as stagflation.
The conventional wisdom of what caused the 1970s stagflation is that the OPEC countries pushed the dollar price of oil sky high against the will of the United States. It is an explanation that runs against logic and evidence. For if the Nixon administration had truly opposed the oil hikes, how are we to explain the fact that its closest allies, the Shah of Iran, President Suharto of Indonesia and the Venezuelan government, not only backed the increases but led the campaign to bring them about? How are we to account for the administration’s scuttling of the Tehran negotiations between the oil companies (the so-called Seven Sisters) and OPEC just before an agreement was reached that would have depressed prices?
Quoting an influential American observer of these crucial discussions, “…a split was announced in the talks in Tehran by a special US envoy, then-Under Secretary of State John Irwin, accompanied there by James Akins, a key State Department man on oil….[T]he real lesson of the split in negotiations with OPEC was that higher prices were not terribly worrisome to representatives of the State Department… the whole subject of what the negotiations were about began to focus not on holding the price line but on ensuring security of supply.”
The question is thus begged: Why did the United States not oppose with any degree of real commitment the large increases in oil prices? The simple reason is that the Nixon administration, just like it did not regret the end of Bretton Woods, did not care to prevent OPEC from pushing the price of oil higher. For these hikes were not inconsistent with the administration’s very own plans for a substantial increase in the global prices of energy and primary commodities!
Recalling that the new aim was to find ways of financing the US twin deficits without cutting US government spending, or increasing taxes, or reducing US world dominance, American policymakers understood that they had a simple task: To entice the rest of the world to finance its deficits. But this meant a redistribution of global surpluses in favour of the United States and at the expense of the two economic zones they had built around Germany and Japan. Two were the prerequisites of the planned reversal of global capital flows which would see the world’s capital stream into Wall Street for the purposes of financing the expanding US twin deficits:
A. Improved competitiveness of US firms in relation to their German and Japanese competitors; and
B. Interest rates that attracted large capital flows into the Unites States
Prerequisite A could be achieved in one of two ways: Either by boosting productivity in the United States or by boosting the relative unit costs of the competition. The US administration decided to aim for both, for good measure. Labour costs were squeezed with enthusiasm and, at the same time, oil prices were ‘encouraged’ to rise. The drop in US labour costs not only boosted the competitiveness of American companies but, also, acted as a magnet for foreign capital that was searching for profitable ventures. Meanwhile, as oil prices rose, every part of the capitalist world was affected adversely. However, Japan and Western Europe (lacking their own oil) were burdened much more than the United States.
Meanwhile, the rise in oil prices led to mountainous rents piling up in bank accounts from Saudi Arabia to Indonesia, as well as huge receipts by US oil companies. All these petro-dollars soon found their way into Wall Street’s hospitable bosom. The Fed’s interest rate policy was to prove particularly helpful in this respect.
Turning to Prerequisite B, money (or nominal) interest rates jumped from 6%, were the Global Plan‘s final years had left them, to 6.44% in 1973 and to 7.83% the following year. By 1979 President Carter’s administration began to attack US inflation with panache. It appointed Paul Volcker as Fed Chairman with instructions to deal decisively with inflation. His first move was to push average interest rates to 11%.
In the following year, June of 1981 to be precise, Volcker raised interest rates to a lofty 20%, and then further up again to 21.5%. While his brutal monetary policy did tame inflation (pushing it down from 13.5% in 1981 to 3.2% two years later), its harmful effects on employment and capital accumulation were profound, both domestically and internationally. Nevertheless, Prerequisites A&B had been met even before Ronald Reagan had settled in properly at the White House.
A new phase thus began. The United States could now run an increasing trade deficit with impunity while the new Reagan administration could also finance its tremendously expanded defence budget and its gigantic tax cuts for the richest Americans. The 1980s ideology of supply-side economics, the fabled trickle-down effect, the reckless tax cuts, the dominance of greed as a form of virtue etc. were just manifestations of America’s new exorbitant privilege: the opportunity to expand its twin deficits almost without limit, courtesy of the capital inflows from the rest of the world. American hegemony had taken a new turn. The reign of the Global Minotaur had dawned.
The Global Minotaur
The United States had neither wanted nor resigned easily to the collapse of the Global Plan. However, once America lost its surplus position, US policymakers were quick to read the writing on the wall: the Global Plan‘s Achilles’ Heel had been pierced and its downfall was a matter of time. They then moved on very rapidly, unwilling to countenance the prospect of jeopardising global hegemony in a futile attempt to mend a broken design.
Perhaps the best narrative on the violent abandonment of the Global Plan comes from the horse’s mouth. In 1978 Paul Volcker, the man who was among the first to recommend that Bretton Woods be discarded, addressed an audience of students and staff at Warwick University. Not long after that speech, President Carter appointed him to the Chair of the Fed. One wonders if his audience grasped the significance of his words:
“It is tempting to look at the market as an impartial arbiter… But balancing the requirements of a stable international system against the desirability of retaining freedom of action for national policy, a number of countries, including the US, opted for the latter …”
And as if this were not sufficiently loud and clear, Volcker added the following:
“[A] controlled disintegration in the world economy is a legitimate objective for the 1980s.” (the emphasis is mine)
It was the Global Plan‘s best epitaph and the clearest exposition of the second post-war phase that was dawning. Volcker’s speech was a blunt proclamation of the future that US authorities envisaged: Unable to maintain reasonably well balanced international financial and trade flows any longer, America was planning for a world of rapidly accelerating asymmetrical financial and trade flows. The aim? To afford America the exorbitant privilege of running up boundless deficits and, thus, to entrench further US hegemony (not despite, but) courtesy of its deficit position. And how would such a feat be accomplished? The answer Volcker gave, with his usual bluntness, was: By choosing to fling the world economy into a chaotic, yet strangely controlled, flux; into the labyrinth of the Global Minotaur.
In the decades that followed, the days when the United States would be financing (directly, through war financing, or by the exercise of political power) Germany and Japan became a distant memory. America began importing like there was no tomorrow and its government splurged out unhindered by the fear of increasing deficits. As long as foreign investors sent billions of dollars every day to Wall Street, quite voluntarily and for reasons completely related to their bottom line, the United States’ twin deficits were financed and the world kept revolving haphazardly around its axis.
The Athenians’ gruesome tributes to the Cretan Minotaur were imposed by King Minos’ military might. In contrast, the tributes of capital that fed the Global Minotaur flooded into the United States voluntarily. Why? How did US policy makers persuade capitalists from all over the world to fund the superpower’s twin deficits? What was in it for them? The answer turns on four factors. To stick to the mythological narrative, let’s call them the Minotaur‘s charismas.
I shall be returning to these four charismas in my next posting.
 2.3 million dead, 3.5 million seriously wounded, 14.5 million refugees.
 These estimates are due to New Deal economist Robert Eisner, Professor at Northwestern University and a one-time President of the American Economic Association.
 V.H. Oppenheim, V.H. (1976-77), ‘Why Oil Prices Go Up: We Pushed Them’, Foreign Policy, 25, 32-33
Saturday, 11/10/2007 10:59
If the US won’t swap Dollars for gold, the rest of the world will just have to make the exchange itself…
THE PRESIDENT of FRANCE went to Washington this week. He spoke to Congress en Français and told the United States to stop dumping Dollars on the rest of the world, risking a global financial crisis.
Zut alors! Sounds just like old times…
“The Dollar cannot remain solely the problem of others,” said Nicholas Sarkozy before a joint session of Congress on Wednesday. He was riffing on the (infamous) joke made by John Connally, Treasury Secretary to Richard Nixon in the early ’70s.
Connally had told the world that the Dollar was America’s currency “but your problem.” Au contraire, replied Monsieur le President this week.
“If we’re not careful,” Sarkozy went on – apparently using “we” to mean both himself and the US Congress – “monetary disarray could morph into economic war. We would all be its victims.”
Ooh la la! Did Sarkozy need to take a little Dutch courage before speaking his mind to US legislators and wonks? (As the Belgian news anchor in this clip from June’s G8 summit puts it, M.Sarkozy only ever drinks lots of water.) Telling the US to take responsibility for its actions – and its currency – is a gambit for only the brave.
It weighs heavy with history, too. “What the United States owes to foreign countries it pays – at least in part – with Dollars that it can simply issue if it chooses to,” barked French president Charles de Gaulle in a landmark press conference of Feb. 1965.
“This unilateral facility contributes to the gradual disappearance of the idea that the Dollar is an impartial and international trade medium, whereas it is in fact a credit instrument reserved for one state only.”
De Gaulle did more than simply grumble and gripe, however. Unlike Nicholas Sarkozy, he still had the chance to exchange his dollars for a real, tangible asset – physical gold bullion – at the Federal Reserve.
Gold “does not change in nature,” de Gaulle reminded the world in that 1965 speech. “[Gold] can be made either into bars, ingots, or coins…has no nationality [and] is considered, in all places and at all times, the immutable and fiduciary value par excellence.”
How to collect and hoard this paragon of assets? Back in the 1950s and ’60s, world governments could simply tip up at the Fed, tap on the “Gold Window”, and swap their unwanted dollars for gold.
So that is exactly what de Gaulle did.
Starting in 1958, he ordered the Banque de France to increase the rate at which it converted new Dollar reserves into bullion; in 1965 alone, he sent the French navy across the Atlantic to pick up $150-million worth of gold; come 1967 the proportion of French national reserves held in gold had risen from 71.4% to 91.9%. The European average stood at a mere 78.1% at the time.
“The international monetary system is functioning poorly,” said Georges Pompidou, the French prime minister, that year, “because it gives advantages to countries with a reserve currency.
“These countries can afford inflation without paying for it.”
In 1968, de Gaulle then pulled out of the London “Gold Pool” – the government-run cartel that actively worked to suppress the Gold Price, capping it in line with the official $35 per ounce ordained by the US government. Three years later, and with gold being air-lifted from Fort Knox to New York to meet foreign demands for payment in gold, Richard Nixon put a stop to de Gaulle’s game. He stopped paying gold altogether.
De Gaulle called the Dollar “America’s exorbitant privilege“, repeating a phrase of his favorite economist, Jacques Rueff. This privilege gave the United States exclusive rights to print the Dollar, the world’s “reserve currency”, and force it on everyone else in payment of debt. Under the post-war Bretton Woods Agreement of 1946, the Dollar could not be refused.
Indeed, alongside gold – with which the Dollar was utterly interchangeable until 1971 – the US currency was real money, ready cash, the very thing itself. Everything else paled next to the imperial Dollar. Everything except gold.
“Printing a $100 bill is almost costless to the US government,” as Thomas Palley, a Washington-based economist wrote last year, “but foreigners must give more than $100 of resources to get the bill.
“That’s a tidy profit for US taxpayers.”
This profit – paid in oil from Arabia…children’s toys from China…and vacations in Europe‘s crumbling capital cities – has surged since the Unites States closed that “Gold Window” at the Fed, and ceased paying anything in return for its dollars.
Now the world must accept the Dollar and nothing else besides. So far, so good. But the scam will only work up until the moment that it doesn’t.
“The US trade deficit unexpectedly narrowed in Sept.,” reported Bloomberg on Friday, as “customers abroad snapped up American products from cotton to semiconductors, offsetting the deepening housing recession that is eroding consumer confidence.
“Exports have reached a record for each of the past seven months, the longest surge since 2000,” the newswire goes on, which “may help explain why the Bush administration has suggested it’s comfortable with the Dollar’s drop. It has declined in all but one of the past five years, even as officials say they support a ‘strong’ Dollar.”
What Bloomberg misses, however, is the surge in US import prices right alongside. They rose 9.2% year-on-year in October, the Dept. of Labor said on Friday, up from the 5.2% rate of import inflation seen a month earlier.
Yes, the surge in oil price must account for a big chunk of that rise – and the surge in world oil prices may do more than reflect Dollar weakness alone. The “Peak Oil” theory is starting to make headlines here in London. Not since the Club of Rome forecast a crisis in the global economy in 1972 have fears of an energy crunch become so widespread.
But if you – an oil producing nation – were concerned that one day soon your wells might run dry, wouldn’t you want to get top dollar for the barrels you were selling today? Especially if the very Dollar itself was increasingly losing its value?
“At the end of 2006, China’s foreign exchange reserves were $1,066 billion, or 40% of China’s GDP,” notes Edwin Truman in a new paper for the Peterson Institute. “In 1992, reserves were $19.4 billion, 4% of GDP. They crossed the $100 billion line in 1996, the $200 billion line in 2001, and the $500 billion line in 2004.”
What to do with all those dollars? “If all countries holding dollars came to request, sooner or later, conversion into gold,” warned Charles de Gaulle in 1965, “even though such a widespread move may never come to pass…[it] would probably shatter the whole world.
“We have every reason to wish that every step be taken in due time to avoid it,” the French president advised. But the step chosen by Washington – rescinding the right of all other nation-states to exchange their dollars for gold – only allowed the flood of dollars to push higher.
Nixon’s quick-fix brought such a crisis of confidence by the end of the ’70s, Gold Prices shot above $800 per ounce – and it took double-digit interest rates to prop up the greenback and restore the world’s faith in America’s paper promises.
The real crisis, however – the crisis built into the very system that allows the US to print money which no one else can refuse in payment – was it merely delayed and deferred? Are we now facing the final endgame in America’s post-war monetary dominance?
If these sovereign wealth funds – owned by national governments, remember – cannot tip up at the Fed and swap their greenbacks for gold, they can still exchange them for other assets. BCA Research in Montreal thinks that “sovereign wealth funds” owned by Asian and Arabian governments will control some $13 trillion by 2017 – “an amount equivalent to the current market value of the S&P500 companies.”
And if China doesn’t want to buy the S&P500 – and if Congress won’t allow Arab companies to buy up domestic US assets, such as port facilities – then the sovereign wealth funds will simply swap their dollars for African copper mines, Latin American oil supplies, Australian wheat…anything with real, intrinsic value.
They might just choose to Buy Gold as well. After all, it remains – “in all places and at all times…the immutable and fiduciary value par excellence,” as a French president once put it.
Charles de Gaulle also warned that the crisis brought about by a rush for the exits – out of the Dollar – might just “shatter the world”. It came close in January 1980. Are we getting even closer today?
Adrian Ash is director of research at BullionVault, the physical gold and silver market for private investors online. Formerly head of editorial at London’s top publisher of private-investment advice, he was City correspondent for The Daily Reckoning from 2003 to 2008, and is now a regular contributor to many leading analysis sites including Forbes and a regular guest on BBC national and international radio and television news. Adrian’s views on the gold market have been sought by the Financial Times and Economist magazine in London; CNBC, Bloomberg and TheStreet.com in New York; Germany’s Der Stern; Italy’s Il Sole 24 Ore, and many other respected finance publications.
See the full archive of Adrian Ash articles on GoldNews.
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If the petrodollar collapsed, the entire world would collapse with it into an economic crisis worse than the Great Depression. For a while.
A little history:
In the Bretton Woods conference of 1944, the US dollar was tied to gold at a fixed rate of 35 dollars per troy ounce of gold. This made the dollar very attractive as a reserve currency for many countries and created an artificial demand for dollars that allowed the US to print out money without it resulting in inflation. At one point the US held about 80% of the world’s gold reserves.
However, the US has a history for being bad at balancing budgets. In 1971, near the end of the Vietnam War, the US had a massive fiscal deficit. In the same way you fear for your money if your bank is making bad investments, countries who had their reserves in dollars started to feel uneasy with the way the US was spending (or printing money). They started buying back gold with the dollars they had, the equivalent of a bank run. The US realized it didn’t have enough gold reserves to cover the massive amounts of money they had printed out (like a fractional reserve bank), and so they unilaterally decided to let the dollar float in what is now called the Nixon Shock. It was a virtual default. Since then, the USD has lost more than 30 times its purchasing power relative to gold.
Without gold backing the dollar, demand for dollars would have collapsed. In fact, for a while, the “oil shocks” that resulted from Nixon’s decision caused considerable economic instability and inflation. The US had to figure out a way to stabilize and solidify the dollar.
So, how did they do it?
First, a deal was struck with Saudi Arabia, by far the biggest producer of crude oil in the 70s, that required them to sell their oil exclusively in US dollars. In exchange, the US offered the Saudis weapons and protection, something they readily accepted given the Middle East’s propencity to military conflict (in part exacerbated by the US itself). And thus the petrodollar was born. The idea was to make the global oil trade depend on the dollar, creating the demand needed to prevent too much inflation.
It was certainly easier for everyone (even if you had your differences with the US) to trade oil in US dollars, because it made markets more accessible, competitive and transparent. Soon after the Saudi deal, the entire world was trading oil in dollars, even the USSR. But it gave the US a massive amount of control, and since then the US has defended this fiercely with military force and political scheming. Recently, Gaddafi and Saddam tried to challenge the petrodollar, and the US immediately gave them a good dose of “democracy”. Saddam was falsely accused of having WMDs. They didn’t even bother to make up a good story for Gaddafi, and simply said he was an evil, corrupt despot (which he incidentally was). They’re both dead now. Al Qaeda and ISIS are both the result of the US funding proxy wars to topple governments they wanted to control. Just a few examples.
The US is the middle-man for the most lucrative trade in the world and much of its prosperity depends on keeping it so. With a high demand for dollars, they keep inflation under control, because all countries subsidize the growing money supply when they buy oil. It has worked brilliantly. The US has issued debt like crazy (and let’s not even mention the fact that the FED is a private institution), and despite this has had super cheap debt, because everyone wants those precious dollars to buy oil.
This has gone on for over 40 years now. 40 years of continuous fiscal deficits, military intervention in the Middle East (Iraq 2x, Libya, Syria, etc), artificially cheap debt, and a manufactured demand for dollars. All financed by the entire world’s consumption of oil.
Meanwhile, globalization has made the dollar the cornerstone of not only the oil industry, but virtually everything else, particularly the financial industry.
But make no mistake: the dollar itself is the biggest economic bubble there’s ever been. There is a massively corrupt and greedy element of geopolitical control in the dollar, rotten to the core. That greed is ultimately, I think, the biggest source of hate, sorrow and war in today’s world.
And yes: were it to suddenly collapse, it would be a disaster. The dollar supply would far and away exceed demand, resulting in high inflation. Everyone all around the world would scramble to get rid of their dollar reserves. And since everything, everywhere is connected to the dollar, it would be a catastrophe. It would all have to start with the US losing control of the oil markets.
It’s already happening now, to some extent. We’ve seen many instances where the US just can’t deal with the economic and political threats through military intervention as it did in the past:
- China and Russia are pushing towards a non-US dollar oil market. China already has plans for a gold-backed oil futures contract in yuan. Basically, China will do what the US was doing pre-Nixon, and that’s what made everyone want to buy dollars at the time. It’s already being called a “game changer” for the oil industry. It is by far the biggest threat to the petro-dollar right now, and the US is powerless to stop it.
- The Syria affair, one of the biggest screw ups in foreign policy history. Aside from that one, the US has a massive PR issue in the Middle East in general.
- Venezuela is collapsing and it seems Russia and China are ready for scavenging.
Times have changed. Today, even piss-poor countries like North Korea can force the US into submission, by threatening to fire a ballistic missile across the world and flatten an entire city. The world has become too unstable to use force as an effective foreign policy instrument.
A complete collapse of the petrodollar can’t happen overnight, though, because the dollar is backed by not just oil, but the world’s biggest economy. It also wouldn’t be a complete collapse, because the US itself is one of the biggest oil producers in the world, so a big chunk of trading will always be done in US dollars.
But a decline will gradually happen. The US government is running the biggest ponzi scheme in history and in doing so is keeping the entire world’s economy hostage to the privately owned FED. Since 2008, the US printed about 3 trillion dollars in their “quantitative easing” program, quadrupling the FED’s reserves. But China, Europe and Russia all want a piece of the pie and are fighting for it. In fact, I think the entire world is a little bit fed up with the whole thing too, especially in Europe, where the monumental cluster f**k that is the Middle East has resulted in serious demographic problems that aren’t on some remote corner of the world anymore… They are at their doorstep.
In this video from VRIC 2020 Peter Schiff and Brent Johnson debate about the future of the fiat money specifically US Dollar and the gold standard.
Peter Schiff believes the US market has never been as overvalued and over priced. And one of the major warning signs is we blew up the private equity market. This decades dot.com bubble is the private equity market destruction. This destruction will lead to the decline of the US dollar and eventually a remonetization of gold as the dollar loses its place as the Worlds Reserve Currency.
Peter Schiff’s theory is that Central Bankers around the world are under the false impression that a cheap currency is a good thing because it allows them to export more to the United States. However, the US is broke and can never pay for what it’s buying.
And since America is the largest debtor nation in the world and have more debt than other major countries combined and manufacturing is such a small portion of the US economy, there is a complete dependency on foreign goods.
And Relative to Wealth producing components of GDP no other country on earth has as much debt as the United States.
Add in contingency guarantees such as bank accounts, pensions, brokerage accounts that the US government is committed to funding despite the lack of money to pay for these things.
Combine all of this together and there is the potential for a currency crisis the likes the world has never seen. Schiff thinks this because there is an unrealistic level of belief for the US Dollar.
Schiff thinks the dollar will perform worse than other fiat currencies around the world and that we’re going to remonetize gold as the central asset.
Brent Johnson ultimately believes the same ending but with a different theory on how it will all go down.
Brent’s theory is that MMT is that the government will spend more money into existence and the central banks will want to control of the monetary policy. And that the dollar will go up and people will continue borrowing and buying which will ultimately lead to a massive currency crisis.
Every country in the world has over leveraged their economy and Brent Johnson believes that Central Bankers in every country are making the same bad bets across the world.
Brent Johnson makes note of The Plaza accord and that it was put in place in 1986 to artificially weaken the dollar against the other worlds Fiats because it was too strong. He argues that the dollar will be the the worlds central currency until fiat fails.
Schiff’s theory is “Money Is Nothing” and the value is the production and real goods that a country has. Money just lets you divvy up whats been produced. The wealth of the nation is the productive capacity of that nation.
Schiff also believes that in order to have a strong country you need:
Which are things that the US severely lacks and will pay a massive price for the over dependence on countries that do have these things.
The Canadian economy will benefit from a resource and precious metals boom that will help the Canadian dollar.
Schiff on inflation: Inflation initially pushes up asset prices before consumer prices.
Brent believes that digital currencies could be the future of money and likely will be implemented by most countries in the near future.
Brent and Peter agree that The Gold Standard will happen after a general loss of confidence in fiat currency.
Schiff explains MMT Modern Monetary Theory as the practice of taking Quantitative easing to the extreme. Printing Money without creating prosperity. Democrats will rely on the central bank to fund their spending agenda.
Repo rates have spiked to 9% – the market wants rates higher but Americans have so much debt and American can’t afford to service the debt. And international banks have been accessing the FED repo market to a greater extent than the US domestic markets. Repo rates spiking shows a demand for funding from the US dollars.
Americans have so much debt that the US government has to keep rates low other
Marin Katusa postulates that the highest risk lies in the credit market with debt in triple BBB
Alex Saunders of Nuggets News shares his thoughts on what to expect from central banks on the road ahead from dropping rates, implementing quantitative easing and the applying modern monetary theory. Explaining why this is important to understand when investing in hedge assets like Gold and Bitcoin.
Alex Saunders is one of Australia’s leading blockchain educators and founder of Nuggets News.
Filmed at the Gold and Alternative Investments Conference 2019, Saturday, October 26, 2019.
Transcript00:00how we’re going guys that’s working so00:01hands up who owns gold and hands up who00:06owns Bitcoin it’s bit more even than I00:09thought so yeah I’m definitely a big fan00:11of both and today I’m going to try and00:13give you a rundown of bitcoins history00:15and how it’s been affected by monetary00:17policy where I think that is going as we00:20head into the future and Bitcoin is very00:23hard to understand so I’m going to tie00:25together all these concepts as best I00:27can for you in under half an hour and00:29just a bit of an intro I run Nuggets00:32news I’ve been in cryptocurrency since00:342012 I was actually a pharmacist by00:37trade and I’ll talk about how my story00:40came about so these days where00:43Australia’s leading provider of free and00:45premium education with a focus on00:48Bitcoin other cryptocurrencies as well00:50as the importance of gold and protecting00:53your wealth a bit of well-rounded00:55financial education so Bitcoin often01:00gets called you know digital gold01:01internet money and I think these terms01:03maybe oversimplify it and don’t do it01:06justice so I’m going to talk about all01:07the different things that it is bringing01:09together and why it is so important so01:12another focus of my talk today is you01:13know what have we learned from the GFC01:15it’s ten years on now and Bitcoin01:18actually came about from the GFC my01:23journey begins around that time when I’d01:25been studying pharmacy but investing it01:27always been my passion and when the GFC01:30unfolded like a lot of you I’m sure you01:32want to know what happened and there’s01:33some fantastic documentaries out there01:35and you learn about how you know the01:37banks effectively caused all this01:39trouble and then got bailed out and01:41satoshi the creator of Bitcoin embedded01:44this message about the the bailouts for01:47the banks in the Genesis block of01:49Bitcoin so it’s very much one of the01:51messages that he was trying to portray01:53about bitcoins mission going forward so01:56since the the GFC I guess the message01:59from central banks and their02:01relationship with government has always02:02been around you know trust us02:04we’ve got these levers of printing money02:06and interest rates and we can steer the02:08economy and they really ramped up their02:11production of of money as most02:13in this room probably know to encourage02:15banks to lend out and get the economy02:17going that I’m gonna talk about how that02:19hasn’t really unfolded and what we saw02:21around this time was people becoming02:25aware of these issues and push back02:27against what was happening so Occupy02:29Wall Street was pretty prominent at the02:31time he kind of died down a little bit02:33but this was when Bitcoin was starting02:35to get a little bit of traction now like02:38a lot of people when you learn about02:39what he’s going on in the monetary02:40system you know I’m preaching to the02:42converted here at a gold conference and02:44I know personally I wanted to go out and02:45buy some some gold and silver and one of02:48the first bars I bought it wasn’t a02:50common I commonly made bar and I was02:52sort of thinking you know how I know02:53that this is legit so I guess that’s02:54probably one of the the aspects of02:57Bitcoin and auditing and even gold that02:59I believe blockchain can help Gold’s03:01case as well but I’m very much an03:02advocate of gold and silver and I still03:05own those today another thing that a lot03:08of gold bugs will tell you is the price03:10manipulation so depending on what degree03:12you believe in that I certainly I can03:14understand the case for you know these03:16futures markets and ETFs and03:18rehypothecation and what what is the03:20real gold underlying that and it’s03:23something that I hope doesn’t creep into03:24the Bitcoin world too much because we03:27don’t want that money that once exposure03:29to that asset being pushed into these03:31things that aren’t backed by real03:32Bitcoin or by real gold so you see a lot03:37of these different slides around03:39bitcoins properties and you know it’s03:42it’s all looking pretty good according03:43to that but I’m certainly not here to03:45tell you that Bitcoin is a replacement03:46for gold at all there’s some things that03:48it does are better and some things that03:50it doesn’t do better that track record03:52and the history of gold obviously is03:53very hard to compete with but it’s all03:55the properties of Bitcoin that give it’s03:58you know good credence to be a good04:00money the future money the next04:02evolution of money so for the first time04:06ever we had a way so I guess stick it to04:09central banks and governments and say04:10well you know if you’re going to try and04:12manipulate gold and ETFs and I know most04:15people instrument robably fans of04:16holding the real thing for the first04:17time ever we’ve got a way to hold your04:21assets outside the system and become04:22your own bank and this was a famous04:24photo that you probably saw with someone04:26to buy Bitcoin behind janet yellen air04:29so what is Bitcoin what are the04:32properties that make it a good money04:34well the first things you learn is about04:36this finite supplier and how the04:38inflation rate halves every four years04:40so you can see there on the curve we’re04:43at a very important point well in May04:45next year we step down from 4% inflation04:47to 2% and then again four years later04:50down to 1% and at that time Bitcoin04:53becomes more scarce than that inflation04:55that all central banks are targeting of04:57two and three percent the new production04:59of gold is about one or two percent so05:01Bitcoin will become you know more scarce05:03in terms of the new coins created and05:05that’s very attractive in a world where05:07money printing is running right another05:10thing that you’ll love about Bitcoin05:12once you learn about is this05:13decentralized nature so what does that05:15mean well anyone can download the05:17Bitcoin blockchain running on their05:19computer help support the network you05:21can download a wallet and you become05:23part of the network you can send Bitcoin05:25to anyone else there’s no one company05:27that can be targeted or shut down05:29there’s there’s nodes computers all over05:31the world that run this network and it’s05:33literally impossible to stop unless you05:35plan on showing down the entire Internet05:38so around 2013 we saw the Cypress05:42bailing so heads up who knows the story05:44there so this is the first time that05:47we’d seen governments and banks say well05:49we’re not we’re not going to bail the05:50banks out and give them money you’re05:51gonna have to bail your customers in to05:53shore up your reserves and they got what05:56they call a haircut where the customers05:57lost a percentage of all money in their05:59accounts and we saw a lot of protests at06:01the time the ATMs shut the bank shut in06:04Cyprus and Bitcoin ran from a hundred06:06dollars to over a thousand dollars as06:08people in Cyprus saw that as the best06:10way to protect their wealth and have06:12access to their money so this was the06:14first I guess bubble and Bitcoin does06:16follow these these cycles these mini06:18bubbles where we have a very scarce06:20asset it’s thinly traded so when06:22everyone tries to borrow we get these06:23big run ups in price and that leads to06:25euphoria and speculation and then we06:27have these these crashes and like06:29anything it overshoots to the downside06:31and we have panic so I’ve been through06:32seven of these cycles now since 2012 and06:35you know every time people who say whoo06:38bitcoins dead he’d ends up going up a06:39thousand06:40sent the following year throughout this06:43time and despite this volatility if you06:45look at all the network stats for06:46Bitcoin and we can pull a lot of data06:48from that because the blockchain is06:50transparent and anyone can see what’s06:51going on the growth in the network was06:54very constant so bitcoins price06:56unfortunately isn’t just going to06:58steadily increase and you know REITs07:01these large market caps in the trillions07:03where I believe it’s going we’re going07:04to have those cycles despite the actual07:07growth underlying it being very very07:09consistent so most of you’ve probably07:12seen this slide about the u.s. debt07:14clock it’s probably going up a few07:15billion since I took this screenshot07:17yesterday and it’s these are the reasons07:20why bitcoin is so important because of07:23that finite nature that low inflation07:25rate that I spoke about there’s also an07:27Australian debt clock if you want to07:29google that and you can see how quickly07:31these liabilities and promises the07:34government is saying they’re gonna pay07:35us all are unfolding so I’ll put my07:38pharmacists hat back on07:40and once data like to tell people is07:41that for the first time in history07:42there’s more adult diapers than baby07:44diapers we’ve got a generation of baby07:47boomers every day 10,000 baby boomers07:49retire in the US and they’ve been07:51promised these pensions and this07:52Medicare and as you saw in the previous07:54slide that’s hundreds of trillions of07:56dollars the US and other countries are07:58promising at a time when they’re running08:00huge deficits there’s no way that this08:02can be funded and every dollar of debt08:04represents something that needs to be08:06paid out in the future so we know that08:08the money supply is going to have to08:09increase into the hundreds of trillions08:10of dollars and that is going to be very08:13inflationary in all countries around the08:15world at the same time we’ve got a08:18generation of young people such as08:20myself that have grown up with the08:21internet and devices and every time a08:23new technology comes along the adoption08:26rate speeds up so smart phones and08:28Facebook took over the world you know in08:30a number of years only a couple of years08:32compared to previous technologies and08:34communication things spread like08:36wildfire these days and when I see those08:39charts of the Bitcoin and people saying08:40it’s dead it’s a bubble all of those08:42little bumps on the road when you zoom08:44out just another adoption curve in my08:46mind and we’re gonna head to a 80 or 9008:48percent penetration and that doesn’t08:50mean the Bitcoin becomes a world08:51currency or anything like that it just08:53means that08:54every person he’s going to use it to08:55some degree whether it’s just on08:56holidays you know to some degree I08:59believe Bitcoin is going to be used by09:00lots of different people in different09:02capacities now when people tell me that09:05no one spends Bitcoin no one uses it a09:07little company in Australia called09:08living room with Satoshi you have09:10allowed you to pay any bill in Australia09:12since 2014 pay your credit card off pay09:15someone else to their bank account pay09:17your dentist over be pay you can pay any09:19bill in Australia for five years so09:20people are using this every day and we09:23have more and more merchants that are09:25accepting Bitcoin directly so there’s09:27websites and and cards where I can use09:29to pay for things with my Bitcoin do my09:31shopping every week but now we go a step09:33further where the merchants and cafes we09:36rolled out Brisbane Airport last year09:37every shop there now accepts Bitcoin so09:39the merchants are now accepting it09:41directly as well as those other09:42intermediary services now some people09:45say that Bitcoin isn’t the best method09:47of payment it can get a bit expensive in09:48the networks a bit slow and that’s why09:50we’re working on things like the09:51Lightning Network as you see here so09:53that’s a layer that sits on top of the09:55Bitcoin network it’s not perfect like09:57the internet in the early days we’re09:59ironing out all the bugs and we’re10:00making this thing work better and better10:01over time but as long as you can find a10:04route to another person just like we10:06used with the internet you know it finds10:08a route to that website you want to use10:09you don’t even have to know what’s going10:11on your computer on the back end this is10:12what’s happening in the world of Bitcoin10:14and payments now those cycles that I10:17spoke about this chart huge is just10:19showing you the market cap of Bitcoin as10:20it as it grows compared to the realized10:22market cap so what that means is we can10:25look at the last time a Bitcoin moved10:26you know in a wallet when someone bought10:28it and if they bought it a hundred10:30dollars and then the price runs up to10:31$1,000 we can see that the actual market10:34cap is now a long way away from what10:36they last realized the price of their10:37Bitcoin app so people take profits when10:40that moves too far away and it reverts10:42back to the mean and we bottomed out10:44again last year in 2019 at around three10:46thousand dollars and the little orange10:48line you can see at the top there is is10:50that realize market cap so it basically10:52means where everyone’s had a chance to10:54sell now if they want to take profits10:55and whatnot and so the actual true value10:57that’s been realized at the Bitcoin10:59network is at all-time highs and11:00consistently increasing now people say11:03Bitcoin it’s not a good story value it’s11:05too volatile well it11:07we’re in a bear market we’ve been in a11:08bear market for almost two years and11:10it’s still been profitable for 9011:11percent of bitcoins life to buy Bitcoin11:13you’re still in profit and I believe11:15we’re gonna pass those all-time highs in11:17the next 12 or 24 months and that will11:19go back to a hundred percent of the time11:21becomes been a good store of value now a11:23lot of people to the Gold’s of a good11:25story value if you bought it over $1,90011:27and then it falls to a thousand well you11:29bought silver at fifteen and falls to11:30fifteen dollars but those same arguments11:32we can use for Bitcoin zoom-out look at11:34the longer-term chart over time it’s11:36consistently been a better story value11:38than every currency on the planet so11:41what happens when you’ve got an asset11:42that’s the best performing asset and11:43then planet every year buy one for ten11:45years or there’s a lot of copycats come11:47out and other coins so one of the11:49arguments often hears about Bitcoin11:50Forks someone can copy the network hands11:53up who’s heard of Bitcoin cash it’s a11:55it’s a fork of the Bitcoin network so a11:58community can say well we think Bitcoin12:00will be better if we have this feature12:01and they can split away and it’s up to12:03you then to convince everyone why your12:05coin is better so there’s over a hundred12:07Forks 99.9% of them are crap they have12:10zero value but it’s allowed people to12:13try and experiment with something12:14different now they pretty much extends12:16for all cryptocurrencies there’s over12:18ten thousand out there today the term12:20cryptocurrency probably doesn’t do it12:21justice because most of them aren’t12:23trying to be currencies these days12:24there’s just a lot of projects and12:26businesses in the real world that are12:28using a blockchain technology so we need12:30to start referring to these things as12:31digital assets they’re not trying to be12:33currencies and I think that confuses a12:35lot of people so Bitcoin cash has been12:37the most successful hard fork and that’s12:39only captured around two or three12:40percent of the network so Bitcoin12:42continues to get stronger and stronger12:44we call it anti fragile throw out any12:46attack he won on it or any copycat coin12:48and it continues to gain market share12:50and any feature that actually works12:52really well Bitcoin can update and12:55absorb that feature so now we see12:59everyone wanting to get into this space13:00the payment space banks have had it13:02pretty good for a fair while now so13:04Apple pay launch email card13:05recently Facebook came out with the13:07Libra cryptocurrency13:09now all these coming up with payment13:12coins stable coins JPMorgan have13:15launched their own coin so it’s very13:16different to what Bitcoin are trying to13:18do it’s not finite they can13:20as many of those stable coins as they13:22want and that’s just absorbing value and13:25it’s pegged to fiat currency that has13:27all the issues that I’ve been talking13:28about it’s no good being pegged to13:29something that’s going to be inflated13:31away over time and we’ve already seen13:33big regulatory pushback MasterCard Visa13:36PayPal they’ve all pulled out of this13:38labor project and Mark Zuckerberg was in13:40front of Congress getting and grilling13:42again yesterday one of the things that13:44actually said in that Congress hearing13:46was we can’t call the CEO of Bitcoin in13:49here they’re actually admitting that13:51there’s nothing they can really do about13:52it because it is truly decentralized so13:55for ten years now you know the big banks13:57have seen these huge profits the execs13:59get these huge bonuses and yet here we14:01are at the moment last night the Fed14:03prints another hundred billion dollars14:05and lend it out to banks because they14:06they’re crying poor we haven’t got14:08enough money to show up our books that14:09have been paying themselves these14:10enormous bonuses no one’s gone to jail14:13nothing’s been fixed since the GFC and14:15this is at a time when asset prices are14:18at record highs so the sp500 property14:21prices bonds you name it this has been14:23one of the periods of you know enormous14:27growth and your banks are still crying14:28for you know help us out print us some14:31more money now now people aren’t buying14:34this anymore14:34and it’s very very clear even the14:36Federal Reserve in their notes are14:38admitting that what they did didn’t work14:40it ended up with asset inflation and14:42it’s caused inequality so the top one14:44percent you know they’ve gained enormous14:46wealth the bottom 90% you know we see14:48this in Australia as well there’s no14:49wage growth it’s just getting harder and14:51harder for that average person to afford14:53to live and they report inflation at two14:55or three percent but if you look at a14:57lot of the work that’s been done by you14:58know alternate economist it’s far closer15:01to 7 or 9 percent when you see your pack15:03of the Tim Tams getting smaller15:04your bottle of coke getting smaller and15:06the price stays the same there’s ways15:08that they hide inflation from us so as I15:12said this period should be very15:13prosperous for banks they’ve got it very15:15good they get to create that money and15:17you know they should be really booming15:19but yet we see Deutsche Bank in these15:21European banks are on their knees we saw15:23a study come out this week that half the15:25world’s banks wouldn’t survive a15:26downturn now with markets at record15:29highs and we know that this is one of15:31the longest periods of expansion in15:33history15:34every day a recession is drawing near15:36it’s just a natural part of the business15:37cycle so they’re admitting that when15:39that hits half our banks aren’t going to15:41survive so at the moment they’re giving15:42them a hundred billion dollars a day I15:44very much think that the new QE15:46quantitative easing is going to be to15:47the tune of trillions of dollars to have15:50to say the bank’s now because they don’t15:52have those reserves and they’re so weak15:54we’re hoping to see them take measures15:56to force people to keep their money in15:57them and in the legislation we’re seeing15:59Balian laws being written in in16:01countries like Australia just like we16:03saw in Cyprus so this week ANZ16:05updated their terms where they can16:06freeze your account they can stop you16:08getting money out and they can close16:10your account altogether if it would mean16:11that they would suffer financial loss16:13we’re also seeing the the cash war in16:17Australia at the moment they’re trying16:18to ban those $10,000 payments they’re16:20already talking about dropping that to16:21five or two thousand dollars and where16:23this is all heading is negative interest16:25rates in all these countries around the16:26world that abandon cash the IMF wrote a16:28paper that said look negative interest16:31rates don’t work if cash exists because16:33people can pull money out and if we we16:34want to enforce negative interest rates16:36we need to keep people in banks so we16:37need to ban cash so whether it’s you16:40know banks or the well bond market this16:42is a virus that’s spreading and I think16:44people are asleep at the wheel because16:46we’ve had it pretty good in Australia16:47and and in the US but as soon as those16:50rates go negative in our country and in16:52the US it’s a big big wake-up call to16:54everyone that what what is going on16:57interest rates for the past 20-30 years16:58have been trending down people thought17:00they couldn’t go past zero and yet17:02they’re you know negative one percent or17:03greater in some of these countries now17:05that should be traditionally seen as17:07strong in Europe so the amount of17:09negative yielding debt in the world it17:11recently passed seventeen trillion17:12dollars you know how how easy is it to17:15park some money in gold or Bitcoin or17:17something that doesn’t have a negative17:19yield people are rushing into negativeyielding bonds because they think thatcentral banks are going to print moneyout of thin air and buy those bonds offthem so everyone’s on the one side of17:28the boat and that what worries me with17:29this this bond bubble now at the same17:32time everyone’s playing happy faces here17:34where there’s never been greater17:36mistrust of banks and policymakers so17:39Commissioner Haynes said that trust has17:41been lost to all the corporations and17:43institutions and banks in Australia and17:45I very much agree17:48now for the first time ever we’re seeing17:49widespread civil unrest people say oh17:52you know it’s it’s just Argentina or17:54then it’s just Venezuela then it’s just17:56symbolic17:57this week it’s Chile Hong Kong you know17:59it’s coming to a city near you where18:01people and governments are saying well18:03what we gonna do here let’s just raise18:05taxes and people are saying no we’re not18:07going to stand for that anymore and and18:09everywhere Bitcoin is becoming part of18:11this social movement now at the same18:13time we’re seeing central bankers MarkCarney from the Bank of Englandliterally saying that you know it isn’tfair that the US dollar has this worldreserve currency they get way too muchan advantage here so this isn’t Russia18:25and China throwing this anymore this is18:26their best friend saying that you’ve had18:28it too good for too long now the u.s.18:30being a world reserve currency means18:32that all these other regional currencies18:34have their debt denominated in u.s.18:35dollars and as their currencies fall and18:37u.s. dollar gets stronger they owe more18:39and more money back in terms of their18:41local currency so when seeing the US18:43dollar strengthened at a time when he’s18:45really hurting everyone else and so18:47there’s questions around how long it can18:49remain the reserve currency and make18:51mark carney they’re calling for a newreserve currency a digital currency toreplace the dollar we’re also seeingcalls for the u.s. we know that chinaare launching their own cryptocurrency19:02we’ve seen venezuela launch theirs so19:05whether or not the US does it you know I19:07don’t really care it’s gonna be a case19:09of you know trust us again this is a new19:11currency the only difference is they’re19:13going to be able to monitor literally19:14everything you do on a blockchain versus19:17what they do already with the banks and19:18they’re going to print those hundreds of19:20trillions of dollars of digital US19:22dollars it’s nothing like Bitcoin that19:24has a set amount and Bitcoin just19:26becomes more and more scarce relative to19:29all these other currencies that banks19:31and governments and the Facebook’s of19:33the world want to create so at this time19:36when all our currencies are going19:38digital everyone uses their online19:39banking less people use cash everyone19:42does the pay past these days so money is19:44already digital but people still think19:46about it as as notes or people don’t19:48realize it’s not backbite by gold19:50anymore so we’re seeing penetrations of19:53smart phones you know 90 percent or19:55greater even in emerging markets even if19:57they don’t have a smartphone they’ve got19:59a basic phone these days and you don’t20:00need a good20:01their connection to the Bitcoin payments20:02you need a very basic mobile connection20:04is all you all you need to be able to20:06participate in this network and become20:08your own bank20:09so throughout these Asian countries you20:11know Hong Kong was another recent20:12example where they’ve had issues with20:14the ATMs and whatnot these people are20:16extremely familiar with digital payments20:18and scanning and shops with their QR20:20codes and Bitcoin is just the next step20:22in that evolution of money so the20:25greatest opportunity in lies in these20:27emerging market economies where there’s20:29billions of people so too often people20:31say are the government will never let20:32Bitcoin overtake you know things in20:34Australia or the u.s. it doesn’t matter20:36Bitcoin has already been used widely in20:38Venezuela and all these other countries20:39where there’s billions more people than20:42in Australia the u.s. all these these20:44Western countries that are unbanked so20:46just like they didn’t get phone lines20:47and they started using mobile phones20:49they’re not going to get banks they’re20:51just going to start using digital20:52currencies on their phones so the value20:55of the Bitcoin network comes from the20:57number of connections and that’s why we20:58see just like Facebook grow that any21:00good technology it grows exponentially21:02and the value comes from the number of21:04connections in the network that’s known21:06as Metcalfe’s law so as more and more21:08people use Bitcoin it means more people21:10can send it to each other you know my21:12business that I started we’ve got a21:13number of services from say nine dollars21:16a month to $50 a month our customers are21:18all over the globe how someone in Russia21:20meant to send me nine dollars a month21:21for my newsletter it’s not possible21:23without Bitcoin and digital currency so21:25my business and hundreds of others are21:27examples of what’s possible we’ve crypto21:29currencies without the banking system so21:33this is a screenshot of a blockchain21:35Explorer so just like you can search21:37something in Google with on the Bitcoin21:39blockchain you can search for21:40transactions now this is a good and bad21:42thing if you know anyone’s address you21:44can send anyone else on the network21:46money there’s no no I can sense of that21:48transaction or freeze your account and21:49in terms of crime just last week this21:53helped regulators catch the bad guys21:55this is their best friend they could21:57follow the bitcoins where they’ve paid21:58them to when they cash them out and they22:01catch these crooks so to say that22:02bitcoins bad because you get to use for22:04crime you know that it’s just simply not22:06true it’s a regulators best friend now22:09one of the big debates we are going to22:11have is once Bitcoin starts to implement22:13more privacy so it’s important for be22:15this is not to be able to see every22:16transaction that they do so whether the22:18privacy upgrades come on the main22:20Bitcoin chain or second layers that’s22:23going to be a big debate as we move22:24forward about giving Bitcoin more22:26privacy at the same time we’re going to22:29get rid of those long strings of letters22:30and numbers that you just saw that are22:32confusing you’re going to be able to22:33send your cryptocurrency to Nuggets news22:36Bitcoin or Alex Saunders crypto so human22:39readable names and addresses just like22:41you do in your phonebook click of a22:42button send money to anyone in the world22:44another argument often hear is that22:46bitcoins wasteful bitcoin uses you know22:49more energy than a small country these22:51days but what they won’t tell you in the22:52mainstream is that the vast majority of22:54that is spare capacity at reactors that22:57would already be gone waste or renewable22:59energy so pick coin is the fastest23:01growing renewable energy industry on the23:03planet people are actually going out and23:05and building renewable energy plants23:07because they can start to mine Bitcoin23:09and pay it off you know this is uses23:11expanding our renewable footprint at a23:13time when governments are being slow to23:15act now part of bitcoins one of the23:19features that keeps it so secure it’s23:21the most secure computer network on23:23earth so when you hear about hacks there23:25are people that left their password in23:27there in their email account well they23:28left their you know being logged in at23:30work Bitcoin network has never been23:32hacked because it is so secure all these23:34computers all 10,000 that I showed you23:36at the start on that world map they’re23:38all securing the network so unless you23:40can hack every one of those at once you23:42can’t hack the Bitcoin blockchain so23:44this feature of how much energy it uses23:46secures it if governments tried to23:48attack it with every supercomputer and23:50on earth it wouldn’t even put a dent in23:53Bitcoin there’s so many more computers23:54globally that are securing the network23:57all that money that has been invested by23:59those miners to buy those computers that24:02is all very important in terms of the24:04infrastructure of the Bitcoin network so24:06if I said to you I was here yesterday24:08for the panel discussion I think24:11yesterday I said what would it be worth24:12if Microsoft or Apple came out and said24:15hey guys we build a network that can’t24:17be hacked it’s got no down time that24:19would be worth hundreds of billions of24:21dollars so that is what the Bitcoin24:22network is it’s not just this payment24:24system or this store of value it’s the24:26most secure computer network in the24:28world and that24:29while we see someone like Microsoft say24:31geez this is better than anything we’ve24:32got let’s just our building our products24:34on top of the Bitcoin blockchain so24:37these household names like Microsoft24:38Vanek or one of the biggest providers in24:40the world of investment ETFs these are24:43the household names now that people are24:45realizing that oh this isn’t about this24:47isn’t a bubble they’re telling their24:48clients the investment case for Bitcoin24:50now a lot of people are tech savvy they24:53can’t figure out the hardware wallets24:55which is like a little USB stick where24:57you store your bitcoins yourself and has24:58your password on the device so it can’t25:00be hacked but not everyone wants to do25:02that you know we’ve done education25:04around all that sort of stuff if you’re25:05interested but some people they don’t25:06want to hold their own shares they just25:08want someone else to do it for him so25:09we’ve seen reputable companies like25:11Lloyds of London and bit go they’re25:14offering insurance and custody and25:16that’s why we’ve seen influx of high net25:18worth clients over the past 12 months25:20and in Australia our biggest growing25:22demographic is baby boomers so we did25:24one on one education we have a premium25:27community we’re but the number of over25:2965 now and they they’ve been through25:31cycles and crashes they see the25:33importance of gold and they’re starting25:34to understand the importance of Bitcoin25:37at the same time we’ve seen the futures25:39market take off as I said for I’m not a25:41big fan of that maybe it makes me quite25:43a bit more legitimate but I don’t like25:44those type of assets that are backed by25:46real Bitcoin but we’ve seen things like25:48option markets and even decentralized25:50option markets so it’s not one company25:52now anyone can create a market and a25:55theorem it’s the world’s second largest25:57cryptocurrency I’m also very bullish on25:59because the world of decentralized26:01finance is just exploding so instead of26:03paying $20 to calm sector trade shares26:05you’re gonna pay one cent and you’re26:07gonna buy them off someone else that’s a26:08shareholder and what blockchain does is26:10cut out the middleman of all these26:12services that are you know rent-seeking26:14and just taking their little clip each26:15time and it makes everything26:17peer-to-peer so tying this all together26:21we’ve seen the Federal Reserve start to26:23create billions of dollars each night to26:25help these banks and the old trustus you26:27know everything will be fine we’re gonna26:28normalize everything I think that’s why26:30we’ve seen gold correct over the past26:32few years as people thought oh it’s all26:34gonna go back to normal 3% growth 5% in26:36a bonding my retirement account26:38I don’t need gold or Bitcoin and now26:40that story is not being bought anymore26:41it’s qe426:43you know they can’t stop printing this26:44money in the debt based system that 20026:47trillion dollar figure that I’ve spoken26:48about we have to continue to grow and26:50create debt if we’re going to pay all26:52these people so once again we’re seeing26:54a lot of tension whether it’s between26:56you know the US Fed who don’t want to26:58drop rates and Donald Trump saying let’s26:59get rates to zero or negative everything27:01will be growing even more for the first27:03time throughout history we’re seeing27:04real tension between governments and27:06central banks who are saying trust us27:09we’ll fix everything without two levers27:11and now they’re saying I think we’re out27:13of tools here government it’s up to you27:15you need to spend more we’ve done all we27:16can do pass the buck27:17so who’s going to be left holding the27:19back here we know governments are no27:21good at running those economies and it’s27:22up to them to try an ear trick or the27:24central bankers to try something even27:26more crazy and I think actually people’s27:28QE where they enough to hand out money27:30to people because it’s not going to be27:32politically acceptable to put money and27:33give it to the banks and then we run a27:35danger of inflation but people aren’t27:37going to let it fly printing money and27:38giving it to the banks so you guys know27:40the story every fiat currency throughout27:42history has been eroded away over time27:44this is just last year in terms of27:46inflation in in ten countries there for27:48example and with more and more people27:50that Tim Draper’s of the world27:51respectable investors Jack Dorsey the27:54founder of Twitter saying that there’s27:56you know we’re in this Internet age just27:58like the internet opened up the way we27:59transfer information across the world28:01everyone said oh you can’t do that the28:03bad guys were taught for each other28:04Bitcoin allows anyone to transfer value28:06to each other and then a theorem again28:08further expands what we can do28:10peer-to-peer so there’s going to be some28:13sort of world currency on the internet28:15and Bitcoin has the track record so the28:17biggest opportunity that I see is these28:20currencies there’s over 200 currencies28:22globally the top five that are the world28:24reserve currencies of the world sure28:26that they’re fairly strong and whether28:28the US you know you loses its purchasing28:30power with all that debt that’s another28:32story but who on earth is going to hold28:34these hundred Southeast Asian currencies28:36and when the government’s are saying28:38trust us with the currency wars heating28:40up it’s a race to debase their28:41currencies as economies weakened they28:43all try to get the value of their dollar28:45down to help their exports it’s28:46literally a race to the bottom and we’ve28:48seen Donald Trump tweet about this28:49so these currencies have all got market28:51caps in the hundreds of billions or28:53trillions of dollars with that little28:54blip down the bottom there called28:56Bitcoin when28:57in a country with a smartphone can28:58choose to park their wealth in something29:00that’s fixed and scarce29:01or Park their wealth in this this29:03currency that they’ve seen Harper29:04inflate away constantly throughout29:06history I think the choice is pretty29:07clear so we’re seeing this in Argentine29:10record volumes Chile you know the list29:13is very long the number of people that29:15are now choosing Bitcoin instead of29:16something else29:17so the having next May is very important29:19as I spoke about and then again four29:21years later and where to Bitcoin derives29:24its a lot of its value from similar to29:25gold on this chart which you see the29:27yellow block up the top right corner is29:29the scarcity of gold that is something29:31that makes it valuable29:32now if gold goes to $5,000 an ounce29:35maybe people are going to mine it maybe29:36the inflation of gold goes to three or29:38four percent silver we see there as well29:40gets a lot of its value because of its29:42scarcity but Bitcoin as we see it29:45trending up that chart over time as it29:47becomes more and more scarce it29:49increases in value and bitcoin is going29:52to surpass gold in terms of what we call29:53stock to flow the amount of new supply29:55coming into circulation compared to29:57what’s already exists and I think the29:59bitcoins going to surpass the market cap30:01of gold within five years so tying it30:04all together when you look at everything30:06else told you today it’s a payment30:07system the smartest minds in the world30:10are working on the cutting edges of30:11technology it’s a store of value it’s a30:14medium of exchange it’s the world’s most30:15secure computing network what’s all that30:17worth in a world where we’ve got a30:19hundred billion dollar market cap30:20compared to the hundreds of trillions of30:23dollars that exists in currency markets30:24stock markets these technology companies30:28I think it’s an absolute no-brainer to30:30park a little bit of your wealth in30:32Bitcoin and if you want any more30:33information on anything we do come and30:35see me or head to Nuggets news.com30:37today.you thank you30:39[Applause]30:45[Music]