The QE Bubble: How Bitcoin might have helped expose the real financial bubble in world markets [Feb 2018 Opinion]

Crypto Bill

7 years ago

Nobel Prize laureates in Economics, bank CEOs, the World Economic Forum, Bilderberg and George Soros have united against Bitcoin.

Why? What do they all have in common? Couldn’t they simply buy lots of cryptocurrencies and join the game too?

There’s obviously more to the establishment’s Bitcoin opposition than meets the eye. It’s not just about decentralization, regulation or taxation/legal difficulties (as if any of these were a major problem at all). There’s more to it, and the clue to understanding the legacy markets’ fear of cryptocurrencies is made up of two words you’ll probably continue to hear a lot about in the coming years: Quantitative Easing.

Q.E is at the heart of modern day economy and it leverages coordinated international central banking and the absence of physical reserves for fiat money. But, as we’ll see, this system might be living its sunset years and cryptocurrencies might have accidentally exposed all that is wrong with it.

Virtual Money

What has become the present day financial system, was once a bold idea brought to President Richard Nixon’s attention in the early 1970’s as the solution to the US Economy’s problems. The political godfather of this idea was none other than the gentleman who was riding in President JFK’s limousine on the day he was shot: former Texas Governor and Nixon’s Treasury Secretary John Connally. (Connally was also shot and seriously injured on that tragic day.).

The system they presented to Nixon was very clever: the intrinsic value of money was to be guaranteed by the United States Treasury and by the American commitment to never defaulting on international debt (or debt of any kind for that matter). The US Dollar would then form the cornerstone of international capitalism based on people’s trust on the US Government and on America’s economic and military power.

How, exactly, money was going to be turned into a virtual currency was decided at a secret meeting held at Camp David, which was also attended by renowned economists Paul Volcker and Arthur Burns. The resulting decision was later called “The Nixon Shock” and it was composed of several measures that reeked of Soviet centrally planned economic interventionism.

The US Government had suddenly intervened in the monetary system from a central authority, revoking the gold value of every dollar in circulation, freezing prices by decree and imposed several additional centrally controlled (and mostly temporary) restrictions that would change the structure of world financial systems forever. This was nothing like the free market ideals defended by the USA for the first half of the XX century, and it was like nothing ever attempted by any other country until then. The circulating currency of the USA, which was to be used as a reference for petroleum, banking and every basically all worldwide financial transactions was now 100% virtual money. No gold reserves, no silver dollars, nothing. The FED and the US Treasury were now given a blank check to govern monetary policy in the USA.

Thousands of kilometers away, at the Kremlin, Leonid Brezhnev must have smiled ironically while smoking a cigar, watching the evening news on August 15, 1971. The USA had intervened in its economic system just like the Soviets used to do.

The Q.E. Bubble

Fast forward a few decades, a few economic crashes and several presidents later, Japan is facing an unprecedented economic slowdown and banks were borrowing at negative interest rates. Who would have guessed that you could get paid to borrow money! That would have been impossible under the gold standard for sure, so virtual money does have its perks!

Something had to be done to stimulate the Japanese economy and the answer was Quantitative Easing (QE).

In short, QE is a fancy name for central bank sponsored economic stimulus. In a free floating currency, central banks mint more currency, or keep more currency locked in deposits, according to inflation goals. As the theory goes, if the inflation is in check, then it’s OK for central banks to print more money, but if inflation rises above a certain level, interest rates are raised to drain available currency from the free float.

QE is all about printing money to provide economic stimulus to weakened economies when inflation is low. Since the early 2000’s most of the world’s central banks have gotten more and more integrated and have developed into a coordinated international financial system where data is exchanged in real time and money is systematically pumped into the markets whenever there is a slowdown. As long as the inflation is in check, then in theory it’s OK to print more and more money.

What happens, then, when there’s excess money in the markets? We get a bubble.

You may print all the money you need, but production of goods and services doesn’t necessarily grow accordingly. Whenever currencies don’t accurately represent actual value, things tend to break down very fast. The theory that as long as there’s no inflation currency tends to represent actual value never made sense for the 99% of the people, but now this bomb might be reaching the higher echelons of the infamous 1% – again (well, it’s been 10 years).

Speculators like George Soros and Jesse Livermore have identified and documented this phenomenon decades ago: they’re boom/bust cycles that are based on emotions and irrational behavior. Greed, fear, doubt, the whole Livermore book. All that, except it’s now sped up 100 times and with 100 times more trading volume than they ever dreamed (because Livermore never had the luxury of speculating using virtual money).

Soros, on the other hand, is in on it and knows exactly how the modern banking system really works (hint: it works like a casino). Soros calls it reflexivity when the markets and speculators form feedback loops that reinforce the prevailing behavior until it is no longer sustainable, than it violently reverses. We might be just at such a point right now.

The Markets Are Rigged

Let’s be blunt about Quantitative Easing. The markets are rigged and central banks can pull money out of nowhere. While a blue collar worker does 9-to-5 shifts and has to control expenses when times are rough, bankers can simply print more money.

Trillions of dollars have been printed through QE and the bubble is about to burst.

On today’s volatile trading session, the S&P 500 VIX “fear index” has soared 115% – something we hadn’t seen since the Brexit vote night. (Note that, back during the aftershock of the Brexit vote, QE money was, as expected, used to artificially pump the stock markets up to pre-Brexit levels.) But now, the Dow has collapsed 10% from today’s high in the last hour of trading and world markets, all interconnected, are responding with what crypto traders know as fear, uncertainty and doubt. Has the QE bubble finally burst? We don’t know, but correction process seems to have begun – and Bitcoin might have had a role in exposing how the markets are rigged.

Enter Bitcoin

Back to our initial question: why can’t bankers simply adhere to Bitcoin instead of demonizing it? Why can’t world governments simply tax Bitcoin to oblivion and be done with it?

Stealing from James Carville: it’s not Bitcoin, stupid!

The sum of all their fears is, you guessed it, exposing the fraud of Quantitative Easing and the printing of money.

Tether has been pumping virtual money into the Bitcoin ecosystem and the Bitcoin prices have behaved like nothing we’ve seen in the traditional markets (until now?). Bankers are terrified of Bitcoin and they cannot simply join the train, because Bitcoin and Tether have exposed exactly what central banks have been doing in the traditional markets during the past decade.

Average Joe’s from Russia to the USA are suddenly questioning the real intrinsic value of money – they can “print money” at home, so how is the traditional system any different from what they do? The truth is there isn’t any difference between something like USD Tether and what central banks do. And this is what has them absolutely terrified. More and more average people who have no idea of complex economics are suddenly familiar with Bitcoin trading and how they perceive that value is created out of nowhere.

Bitcoin has soared from pennies to U$ 20,000 in 9 years. The cryptocurrency market cap reached almost a trillion U$ in mid December 2017. How can such crazy oscillation be possible? Where did all the money come from? Isn’t the world recovering from a crisis? Isn’t Japan still sort of stagnated?

Isn’t the Chinese economy also based on “printed money”? Yes, and so is ours. (The first sign that the West had started to do what China had been doing for years was when the US and EU stopped complaining about the “artificially deflated” Chinese Yuan. By then we were also printing toy money of our own.)

If the USA is just beginning to recover from the 2008 crisis, then where’s all the money coming from? How come the markets have been pumping the Dow Jones to repeated all time highs? The new jobs just recently generated have had this quick effect on the markets? Did Mr. Trump bring this much new capital into the markets? We don’t think so. What really is happening is that Quantitative Easing has been completely exposed. Average citizens, doctors, engineers, janitors, gardeners, contractors, scientists, teachers, everyone is beginning to ask the same thing: where is all this money coming from? How is the traditional fiat money market different from the “crazy virtual currency world of Bitcoin”? Turns out it isn’t very different at all.

We are at a strategic inflection point in the history of world economy. It is very possible that we’ll see the collapse of the central banking fraud within the next few years. The one thing everyone agrees upon is that currency must have physical value. You cannot simply print money, no matter how sophisticated your scheme is. Call it something fancy, call it Quantitative Easing if you want – it’s still virtual money. This system can no longer stand on its own and we believe Bitcoin has been the last straw needed to expose what’s wrong in world markets. And this is why banks cannot join the Bitcoin party – the more cryptocurrencies are talked about at home, the more people will start asking questions about the central banking system we’ve now come to accept as the norm.

Late Update

Bankers are reportedly already talking about a new bailout. JP Morgan’s head quant Marko Kolanovic has been quoted about today’s 1100+ point dip in the stock markets: