While you may believe the vast majority of politicians are nefarious ghouls, out to suck the life blood out of the common man to fund their private jet flights and pet projects, I will assume they have the best of intentions. Perhaps many politicians do believe the regulations they want to pass, taxes they want to alter or projects they want to fund will drive positive change. That is immaterial to my argument.
What I will argue is that due to their reckless funding method, the result of even altruistically-driven spending by politicians will result in a mess indistinguishable from fraud, just as we saw in SBF’s case.
What is this reckless funding method? Excessive government debt.
The State’s Reckless Financing
SBF may have recklessly used customer deposits and lines of credits in order to fund projects he believed would positively impact the world — leading to the swift collapse of his company and a near-total loss of customer funds.
Unfortunately, our governments are doing the same with our savings and wages, on a mind-bogglingly large scale. How?
In government, central planners pick an end they want to achieve — the elimination of poverty, or drug addiction, or high healthcare costs for example — and spend against it. When we pay into that system via taxation, with the money going in equaling or exceeding the money going out, there is no accrual of debt, and therefore no risk of bankruptcy.
However, our governments are currently addicted to debt. Since President Nixon
ended the U.S. dollar’s tie to gold in 1971, all currencies around the world suddenly became “fiat” — their value not backed by anything but trust in that government’s ability to pay down its debts.
Since 1971, government debt around the world has ballooned in size. When a government takes on debt, it expands the liabilities side of its balance sheet. This creates risk — an obligation to pay against uncertain revenues in the future.
The debt of global governments as a percent of their GDP. The majority are deeply in debt, with more than a handful over 100%. Source .
Many governments today carry debt burdens exceeding their entire GDP — including the U.S. Even if politicians spent all the money raised by issuing that debt on programs they genuinely thought would help citizens, there is now a huge hole in the balance sheet that needs to be paid back.
To a politician with good intentions, repeatedly taking on debt to pay for ongoing government programs and servicing existing debt might look like simply doing the most good for citizens and the world. Doing what is necessary to tackle the great crises at hand, even when that leads to an accelerating debt burden.
To outside observers, however, this activity should be indistinguishable from fraud.
So why are irresponsible governments still in business?
Governments Are Special
First, governments are just like other businesses in that their debt-fueled spending schemes survive off trust. Creditors must trust that the government will pay down its debts at some point. However, governments have a few extra tools up their sleeves than a normal corporation in order to keep paying down their excessive debts.
First, many governments can simply print money to lower their liabilities. While you and I have to work to pay off our debts, a government’s central bank can simply buy the government’s debt and hand over billions with
a few keystrokes. Other schemes like minting a trillion-dollar coin achieve the same ends. All of them take value from all holders of that currency — hurting the lower end of the socioeconomic spectrum which keeps a larger portion of its assets in cash — and give it to the government.
Printing money worked well from the 1980s up until 2021, when inflation in real goods took hold. Prior to 2021, inflation mainly affected asset prices like equities and real estate while driving a wealth gap through the Cantillon effect. Post-2021, consumers are feeling sharp pain from rapidly rising costs of staples — energy and food — and that means the pitchforks are coming out. Many central banks rightly understand their excessive printing and low interest rates led to this outcome, so the ability to print more cash is now limited for the first time in decades.
Without the money printer, how can governments continue to retain the trust of their creditors that they can pay down their debts?
Cue the second tool of governments to pay down their excessive debts: violence and coercion. We’ve given governments a unique monopoly on violence, which they can use to compel their citizens to pay up. Just the threat of fines and jail time is enough to intimidate many into complying with increased taxation or financial controls, like those which may come with a central bank digital currency (CBDC). One only has to look to China to see how a
CBDC can be used to micromanage the finances of individuals in the name of the greater good — as defined by the ruling class.
Government use of money printing and violent coercion mean citizens, not politicians, end up footing the bill for the collapse of state finances driven by the reckless debt burdens taken on by politicians. Those politicians may even support the use of violent coercion and money printing to keep the funding going, believing the pain to others to be worth it on the journey to a greater good they’ve defined. Similarly, depositors at FTX will foot most of the bill for the exchange’s reckless use of their funds.
To politicians and SBF, this may feel like honest mistakes and rough patches on the road to helping others as effectively as possible.
To everyone else, it is indistinguishable from fraud.
Are You Begging To Be Crushed?
The entire global financial system looks about as bad as FTX’s books right now, and the only thing that’s keeping it from unwinding is our trust in it. From a citizen’s point of view, we are trusting that our governments will effectively extract value from
us to pay for the misadventures and financial risk-taking of politicians.
The solution for citizens is exceedingly simple — withdraw from the monetary and financial system that is designed to crush you. That system can only survive if we, collectively, trust it enough to store our hard-earned money in it. If we withdraw from it in droves, the entire ruse vaporizes — just like FTX.
If you are one of the first ones to withdraw from the existing financial system, you may keep your value intact — just as those who were quick to withdraw from FTX were made whole, before the assets dried up. Those who are too late to withdraw will be left with pennies on the dollar, punished by the taxation, control and money printing governments will need to engage in just to survive.
What does it mean to withdraw in a world where governments can
freeze your bank accounts and take your property based on only suspicions of a crime, even in the most developed jurisdictions?
Withdrawing is about distance: How can you put the most distance between your assets and the fraud? I’ll leave it to you to find the form that takes in your situation, as each of us is completely unique. For me, it’s unforgeable digital money that moves at the speed of light, and lives everywhere and nowhere at once: Bitcoin.
Whatever it is for you, I hope you take action sooner rather than later.
This is a guest post by Captain Sidd. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.