International Man: In a recent interview, we discussed the battle for monetary supremacy between fiat, bitcoin, and gold—but in the geopolitical sense, the country with the “best” money ultimately imposes its dominance on others. Today, the US dollar is still the global reserve currency, but the US fiscal and monetary policy now resembles the destructive money printing of every other country. What does this mean for the US and its financial chokehold on the rest of the world? Nick Giambruno: First, I think it’s important to clarify something. You often hear the media, politicians, and financial analysts toss around the word trillion without appreciating what it really means. A trillion is an enormous, almost incomprehensible
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International Man: In a recent interview, we discussed the battle for monetary supremacy between fiat, bitcoin, and gold—but in the geopolitical sense, the country with the “best” money ultimately imposes its dominance on others.
Today, the US dollar is still the global reserve currency, but the US fiscal and monetary policy now resembles the destructive money printing of every other country.
What does this mean for the US and its financial chokehold on the rest of the world?
Nick Giambruno: First, I think it’s important to clarify something.
You often hear the media, politicians, and financial analysts toss around the word trillion without appreciating what it really means.
A trillion is an enormous, almost incomprehensible number.
The human mind has trouble wrapping itself around something so big. So let me try to put it into perspective.
One million seconds ago was about 11 days ago.
One billion seconds ago was 1989.
One trillion seconds ago was 30,000 BC.
So that’s how big a trillion is.
When politicians carelessly spend and print money in the trillions, you know you’re in dangerous territory. That’s precisely what is happening in the US right now.
After the onset of the COVID hysteria, the US government adopted a policy of printing money to finance growing multi-trillion-dollar deficits forever. This is what Modern Monetary Theory (MMT) is all about, and it’s already here.
Likewise, the COVID stimulus checks are the beginnings of a Universal Basic Income (UBI). There is no way any politician will ever be able to roll them back, much less stop them entirely. Who is going to beat Santa Claus in an election?
By embracing MMT and a UBI, the US has embarked on the most dangerous economic experiment since communism.
Eventually, all this spending financed by money printing will destroy the currency.
This is precisely the same problem that has trapped Argentina in a perpetual cycle of hyperinflation and economic collapse. And even then, it’s politically impossible to get rid of the freebies, so the process starts up again.
Here’s the bottom line. With MMT and a UBI, the US has gone beyond the monetary point of no return.
That’s why individuals, companies, and foreign governments will inevitably look to alternatives to the US dollar and financial system. As they do, a large part of the US government’s geopolitical leverage will evaporate.
International Man: Countries like Russia and China are accumulating more gold than ever before. What does this signal about the trust in the US dollar and other fiat currencies?
Nick Giambruno: Let’s define fiat currency.
The Oxford English Dictionary defines it as “inconvertible paper money made legal tender by a government decree.”
Here’s a helpful way to think of it.
Think of nation-states as casinos and fiat currencies as the casino chips.
The US has the biggest casino in the world. They get to tax anyone in their casino by creating more chips and diluting their value. They get to set the rules at the tables, decide on who can enter and who is forbidden. As long as people use the US casino, it gives the US government enormous power.
The Russians, Chinese, and many others are increasingly aware that the US casino is becoming more rigged. So they’re taking their chips and cashing out for real money—gold.
International Man: Tech entrepreneur and American venture capitalist Peter Theil recently made a public statement about the threat of China to the US dollar. He said:
“I do wonder whether, at this point, Bitcoin should also be thought of in part as a Chinese financial weapon against the US. It threatens fiat money, but it especially threatens the US dollar.If China’s long Bitcoin, perhaps from a geopolitical perspective, the US should be asking some tougher questions about exactly how that works.”
What’s your view on this?
Nick Giambruno: Thiel’s take isn’t 100% correct. Bitcoin isn’t specifically a Chinese financial weapon. It’s open-source software and a hard money monetary system that nobody controls and anyone in the world can use, including US adversaries.
Nonetheless, Thiel hit on an important point. Bitcoin has become a geopolitical competition, implying that the US better get in the game or watch China and other rivals develop a strategic edge in the future of money.
International Man: China is the world leader in Bitcoin mining and is also responsible for producing a lot of the computer equipment needed to mine Bitcoin.
What advantages does that give them in the battle for geopolitical monetary supremacy?
Also, if such a large portion of Bitcoin is mined in China, does this pose a real threat to Bitcoin and its decentralized nature?
Nick Giambruno: China isn’t as dominant as it might seem.
In most cases, to get in the business of being a Bitcoin miner, you have to join a mining pool, a collection of other miners that collectively contribute computing power.
A lot of mining pools are indeed in China. But the actual mining machines contributing to those pools are not necessarily in China and could switch to other pools outside of China if they chose.
Further, it’s crucial to understand that miners do not control Bitcoin.
A globally decentralized network of over 10,000 full nodes—computers running the Bitcoin blockchain—ultimately control Bitcoin.
Miners must be honest and follow the Bitcoin protocol, which is enforced by the full nodes. If they don’t, they will do nothing but waste money and eventually bankrupt themselves.
Bitcoin proponent Saifedean Ammous said it best: “Miners are Bitcoin’s slaves, not masters.”
What Saifedean means is that the miners need to satisfy the Bitcoin network—not the other way around. If they don’t, they will have spent a lot of money on electricity and hardware for nothing. It’s a brilliant system of incentives.
The “blocksize wars,” which culminated in 2017, dramatically illustrated this dynamic. That’s when an overwhelming majority of the Bitcoin miners—and other prominent insiders and large companies—tried to get together and change Bitcoin. It was an abysmal and embarrassing failure for them because, even though they represented the vast majority of the Bitcoin miners, the network successfully rejected their efforts.
So, as it relates to the question, the issue is not about control or changing the Bitcoin network—that is practically impossible, even for large nation-states like Russia, China, and the US. The issue here is who is engaging in mining to generate the hardest money known to man.
So, is the US just going to sit back and let its rivals accumulate Bitcoin and become rich and powerful by dominating the future of money?
I don’t think so.
At some point soon, the US government will realize that it needs to provide a competitive environment for Bitcoin mining, or it will get left behind as an unstoppable and superior form of money continues to take over the world.
Reprinted with permission from International Man.