Your Central Bank Steals Your Money. Here’s How.
Your Central Bank Steals Your Money. Here’s how.
We operate in a particular financial paradigm: a centralised order with extraordinary power concentrated at the top.
However, Bitcoin has created what was once unimaginable: a working, resilient and voluntary financial system with power distributed evenly according to contribution.
It may or may not be possible to reconcile the legacy financial order with this new system. The jury’s still out. Even without reconciliation one would assume that the majority would flock to the new system.
In flattening the financial structure you offer a greater value proposition to the majority. Assuming, of course, the majority can see that value proposition. But it is not always obvious. It would be if people understood that their central bank stole from them.
At the top of the existing structure is the central bank. They do indeed steal from you. They steal from you in disgusting quantities and every day. The theft is insidious and indirect. So, it is not obvious. But the theft is still very real.
The theft is not particularly complicated. Although it is dressed in confusing language: ‘quantitative easing’, ‘operation twist’, and ‘bailout’. Realizing how the theft works is important.
When the methods of the thief (central bank) are understood, the value proposition for the Bitcoin system becomes much more obvious.
Culturally and collectively we seem to instinctively understand that ‘printing money’ is bad. Arbitrarily increasing the supply of currency is incredibly detrimental to an economy. In essence this is what your central bank does. But why is it detrimental?
Money is not wealth. Goods and services are wealth. Money is how you represent and transfer that wealth. Printing money does not increase wealth (the quantity of available goods and services). Printing money simply divides the existing wealth into a greater number of pieces.
This is because the dollar you hold does not represent your share of the available goods and services. Rather, it only represents your share of the total money supply. That is the key.
Life is Like Monopoly
Paul Mckeever’s Monopoly game analogy offers a useful illustration. Take four players in a monopoly game. Each player, including the banker, has $100. The total money supply is therefore: $400. Each player has a ¼ share of the money supply.
The banker suddenly issues himself an extra $400. The total money supply is now $800.
The banker has $500 (this is now 5/8ths of the total money supply). Each of the 3 other players is still left only with their $100 of savings. This now only represents 1/8th of the total money supply.
Each of the other players has effectively had 1/2 of their money stolen. This was done when the banker increased the money supply and gave the new money to himself. He has unjustly enriched himself at your direct expense.
Each of the other 3 players money has had 1/8th of value absorbed directly into the banker’s newly issued money, moving him to 5/8ths of the money supply.
The effect would be exactly the same if the banker had instead kept his $100, not introduced any new money into the system, reached over and taken dollars from each player. Of course, that theft would be too obvious. You’d slap him.
Notice that the total wealth (available properties) in the Monopoly game never increases. The only thing that increases is the banker’s capacity to purchase that wealth (properties) over the other players.
The act of arbitrarily increasing the amount of money in circulation simply transfers the capacity to purchase the existing wealth from those who hold money (workers and savers), to those who create additional money (bankers). The banker’s new money absorbs that stolen money.
It’s a neat trick and a very interesting form of thievery.
Of course, it is a zero sum game. The central bank gains directly at your expense, whereas real wealth increases benefit everyone. But they can only ever occur from productivity, creating more goods and services of higher value at a lower cost.
How does Bitcoin Solve This?
Quite simply, no one can arbitrarily increase the supply of Bitcoins and steal from you in this way. The central bank’s power to increase the supply of money and give it to themselves and their friends is gone.
The money creation process instead mimics the mining of a natural resource like Gold. Entrepreneurs must efficiently organise land, labour and capital to create the tools needed to dig Bitcoins out of the digital crust. It is an expensive and risky exercise.
The Bitcoins take time, effort, resources and sacrifice to dig up from the virtual ground. So it is true that over the next 100+ years those who mine Bitcoin will be creating new money. However, and, most importantly, it is not out of thin air - at zero cost.
The newly created Bitcoins will absorb value from the existing Bitcoins in circulation. This is true. But they will do this completely predictably over time and at a decreasing rate, minimising the negative effects on those who hold Bitcoins.
Most importantly however, the people who want to dig the Bitcoins out of the virtual crust must first spend Bitcoins and take on risk in order to do this. This money creation is not arbitrary. The central bank takes on no risk and increases the supply of money at no cost.
And of course, eventually, one day in 2140, the creation of new Bitcoins will stop and that is all there can ever be, mathematically. Can we say the same of the US dollar?
Bitcoin is often understood to be both dangerous and an unreliable store of value. In the worst logical leap it is claimed that Bitcoin is as worthless as centrally issued fiat paper. This accusation is more outrageous and egregious when one understands the particular aspects of how central banks steal your money.