Bitcoin is emerging as an international monetary force, without borders and without a leader. As such, it can counter other more established financial forces. By understanding why they even exist, all the pieces of the puzzle fall into place.
Bad lessons from the Great Depression
The validity of any theoretical framework can be judged by its predictive power. You may know that all of our economic reality stems from Keynesian economics, but few are aware of its big predictive blunders even as it emerged as the dominant economic framework.
John Bernard Keynes became a monetary star as the Great Depression autopsy economist. His solution to prevent this from happening again is being followed to this day – the economy must be managed centrally to remain stable. You may have noticed that everything – from politics to the stock market – is significantly influenced by a central committee – the Federal Reserve.
It has been completely normalized to take a close look at every word spoken by Fed chairmen. Its movements then become “signals” that market players receive and react accordingly. Just recently, the Fed sent a signal by announcing the sale of corporate bonds.
Keynesian performance failure
It is now widely accepted that governments need to increase spending to create growth and manage inflation and unemployment. In Keynesian theory, the economy does not have an inherent mechanism to adapt on its own. However, a Keynesian prediction for the postwar era was another great depression due to the demobilization of millions of people involved in the war effort.
At the time, the best Keynesian economists were firmly convinced that such a sudden surge would lead to double-digit unemployment increases, destabilizing the economy because it cannot adapt on its own. Unfortunately for the reputation of the Keynesians, nothing like this happened. It wasn’t until September 1982, after decades of massive government spending, that the unemployment rate hit double-digit range.
When this prediction did not come true, the Keynesians resorted to “pent-up demand” as an alternative explanation. In other words, consumer spending had made up for the lack of public spending. However, that too didn’t make sense. When you look at the numbers, in 1947 government spending fell 75% while federal tax revenues fell only 11%.
Therefore, both pent-up demand and unemployment invalidated critical aspects of early Keynesian theory. And that’s just one of its failures of predictive validation. Unfortunately, the facts don’t matter when the central control mechanisms have already been set in motion – the creation of the International Monetary Fund (IMF) in 1944 – explicitly based on Keynesian economic thinking.
From Keynes to Modern Monetary Theory (MMT) to the Economies of the IMF’s Free Falling Countries
The constant disruption of market signals, centralized micro-corrections, and the shifting of money from taxes to government spending have inevitably led to the current state of affairs:
- Unprecedented consolidation and concentration of the power of companies, directly or indirectly subsidized by tax money.
- Merger of government and corporate power, the latter accepted as senior central managers.
- A national debt so huge that it is no longer worth thinking about.
- The emergence of MMT to deal with debt – it’s just untaxed spending that isn’t problematic as long as the nation has sovereign control over its currency.
When the United States embarked on this hyper-centralization project, the IMF was created as an exchange rate stabilizer during the Bretton Woods period which lasted until 1971 when President Nixon abolished the standard. -gold. A more direct way of looking at its mission is that the IMF has subsidized excess US capital in foreign markets.
Since then, the IMF has become an international debtor to low-income developing countries. Much of its loan budget comes from membership quotas, which are currently up to $ 1,000 billion.
Contrary to its stated purpose, wherever the IMF exerts its influence in lending, it tends to leave indebted and impoverished nations behind. In reality there is limited evidence to see that the IMF leaves nations in a better state.
Just look at the background details of a recent IMF proposal. The IMF has offered Belarus a loan of $ 940 million, on condition that the country adopts certain measures to “fight the pandemic”:
- Put on the mask, which some studies now suggest having a very limited advantage.
- Implement closures and curfews, for which there are legitimate proof suggesting that such measures cause far more harm than good.
The Belarusian president ultimately turned down the IMF’s offer.
Bitcoin as an escape from dystopia?
Unsurprisingly, when El Salvador announced its groundbreaking legislation to make Bitcoin legal tender, the The IMF was unhappy.
IMF spokesperson Gerry Rice said:
“The adoption of bitcoin as legal tender raises a number of macroeconomic, financial and legal issues that require very careful analysis.”
Indeed, these issues have to do with Bitcoin going against the stability version of the IMF, which some say looks like plummeting economies, to then buy their debt. Instead, Bitcoin is about deflationary growth.
Well-known Bitcoin maximalist, investor and entrepreneur Max Keizer has already pioneered the idea of founding a billion dollar Bitcoin-based lending facility to counter the IMF’s stranglehold on international lending.
Since Bitcoin has become the target of what many see as “questionable” environmental concerns, Keizer further suggested that El Salvador could issue Bitcoin Mining Backed Volcano (BMBVB) bonds. This is the composition of the country’s energy production, 25% of which comes from geothermal sources.
This could come to fruition sooner than some might have expected, as President Nayib Bukele has previously asked the country’s geothermal company to plan Bitcoin’s green mining operations.
One wonders if Michael Saylor saw this from the start. Through various entities, Saylor has acquired 111,000 BTC. Thanks to MicroStrategy, a major aspect of its business model has been to leverage Bitcoin against currency inflation. Could it also prepare for the IMF’s ousting from the scene of international debtors?
How do you see the future of the IMF? We would love to hear from you in the comments below.
About the Author
Tim Fries is the co-founder of The Tokenist. He has a BSc in Mechanical Engineering from the University of Michigan and an MBA from the Booth School of Business at the University of Chicago. Tim was a Senior Associate in the investment team of RW Baird’s US Private Equity division and is also a co-founder of Protective Technologies Capital, an investment firm specializing in detection, protection and protection solutions. control.