It appears that the cryptocurrency Ponzi scheme is finally unraveling.
The whole crypto/blockchain/DeFi scam was heavily promoted by libertarians after 2008, especially those of the "too much money printing" school of thought. They had spent years evangelizing that only gold and silver were real money, and that all our problems were due to Big Government and the Federal Reserve. They pushed The Creature From Jekyll Island the way Jehovah’s Witnesses push The Watchtower or Scientologists push Dianetics. They put up Web sites like What Happened in 1971? and flooded online forums and social media with their ideology. They got celebrities to endorse unregistered securities and renamed stadiums in perhaps the greatest confidence trick of all time.
But what was more surprising is that a lot of people on the more leftward end of the political spectrum fully bought into this, too. They came at it from a different angle, though. These were mostly anarchists who hated the state. Therefore, to them, it made sense to somehow decouple money creation from states. Once we had currencies for economic exchange that were not tied to centralized states and their central bank, they reasoned, we could get down to the work of dismantling the state once and for all and live in small, self-sufficient anarchist collectives.
Or else they promoted it as a way to circumvent state "tyranny." They were concerned about governments using their control over currency for political reasons to suppress protests and throttle dissidents worldwide.
And while these were absolutely valid concerns, it was almost impossible to have rational conversations with these people. You could point out all sort of ways these cryptocurrencies were conceptually flawed, but they wouldn't listen. It had become a sort of religious belief. Decentralization became an end in itself, regardless of the problems and drawbacks. In the end, cryptocurrencies ended up creating just as much fraud and graft as the bankers did in 2008, which we're now seeing play out in real time. Of course, there are still True Believers, but I think the rest of us can take a victory lap.
More tragically, I think this distracted people from what I think is the real problem with banking and the way our money system is organized. It's not that the state has too much control over money and currency issuance, but too little.
The Real Problem
Consider that the value of money is always socially constructed. Money only has value because we collectively assign it value. This derives from the extensive system of laws and regulations standing behind it which are (in theory, mind you) established by democratic governments appointed by We The People to enact the People's will. It is also due to the fact that only U.S. dollars are accepted in payment of taxes.
The United States government is ultimately the only source of U.S. dollars. No one else can legally create dollars, either virtually or physically. Try it and you will be arrested for counterfeiting.
But we've delegated money creation to a private banking cartel which lends us OUR OWN dollars back to us at interest and reaps enormous profits by doing so. In other words, they charge us interest for the use of our own currency—currency that you and I have given value to only through the laws and regulations passed by our democratically-elected representatives.
Why is that?
Why do we delegate money creation to a corrupt private banking cartel instead of We The People?1
Consider how much profit accrues to the banking industry because of this extraordinary privilege. I've had trouble finding exact figures, but from what I can tell the amount of money made by the private banking system every year is somewhere on the order of around half a trillion dollars.
Half a trillion dollars! Every single year!!!
That is, all of us collectively pay half a trillion dollars in interest to a private banking cartel because of this extraordinary privilege which our government has granted exclusively to them. This could easily fund college tuition for all, or replenish the Social Security Trust fund, or any number of other urgent things. But instead all that money goes exclusively to the bankers while the rest of us don't see a penny of it. Of course, some of it comes back to the government via taxes, but it's only a small percentage of the total (assuming it's not hidden by shell games). The total U.S. budget expenditure is somewhere around 6 trillion dollars.
The rationale behind this system is that this private banking industry is able to allocate money much more effectively than the government ever could. This is the idea promoted by conventional economic theory.
But this argument pretty much died in 2008. The banking industry used OUR dollars to gamble on all sorts of pyramid schemes, complex financial products, shady lending practices, and other assorted frauds and scams. The bankers brought down the entire financial system by doing so, forcing government to step in and spend even more money to bail them out in what was effectively a hostage situation. We are still paying the price for this over a decade later. That should have been a wake-up call.
Even more galling, even though the private banking system can create money at will by extending credit (hopefully you are aware that loans create new money—I'll have to do a deep dive on this sometime), by contrast, whenever our government needs to spend money on any kind of urgent social need (aside from the military), we are told we are "broke" and asked how we are going to pay for it, et cetera. So not only has the ability to issue new money been freely given to bankers, it has effectively been taken away from our democratically-elected representatives (not in reality, but through misinformation campaigns and corrupt politicians, many of whom are bankrolled by the financial industry).
I think that's the real problem. Our publicly created money is used by private entities to make a fortune off of the rest of us as individuals and businesses. Why do we allow this? And why is nobody talking about it, instead promoting libertarian wank fantasies like Bitcoin and other such Ponzi schemes? Maybe this was all a deliberate distraction from what should have been the REAL issue.
The Alternative
Consider: What if the profits made by lending out our dollars accrued to the United States government instead of a corrupt banking cartel?
In other words, what if we dispensed with the private banking system altogether?
Under this system, the interest made by lending out OUR OWN currency to individuals and businesses for productive purposes would return to the government itself. This would represent a major source of revenue. Even if some bets didn't pay off, most of them would. And there wouldn’t be any need to bail out the banking industry in a worst-case scenario, since the government cannot fail. After all, banking is necessary for our economic system to function—in other words, it is a public utility. Why is it in private hands in the first place?
Why shouldn't the government collect the interest on the dollars that ultimately only it can issue via the Federal Reserve? Why does 100 percent of that interest accrue solely to a private cabal of bankers? This isn't some rule of nature, after all; it's a social decision.
Of course, the argument is that the government will misallocate money for political purposes and cronyism rather than direct investment to productive enterprises. That's what economists and the corporate media will tell you.
But is that really true, or is it standard anti-government rhetoric promoted by the same corporate interests who are on the banking gravy train and don't want their special privileges taken away? Allow me to tap the "2008" sign again.
Consider how much money is currently lent out the private banking industry for terrible ideas driven by favoritism, irrationality and fraud. WeWork, Theranos, FTX—the list goes on and on. Entire boxcars of money are set ablaze every single day in Silicon Valley the hopes of finding the next Google or Facebook2. The amount of waste is astonishing. Many businesses today are only viable because of a constant lifeline of cheap loans. Others use that money to squelch competition and establish monopolies. These are the so-called "intelligent" money allocation decisions made by the existing banking cartel.
In fact, you could argue that the government would make better decisions than the private sector which is driven by insatiable greed and the desire for ever-larger returns, no matter the social cost (as we saw in 2008). The government could even help direct the economy to important new industries like green technology, biotech, construction, and AI as part of the Green New Deal without having to pass any special legislation.
All that would change would be the ownership structure, and who gets the rewards. Why would a hypothetical banker suddenly start making worse decisions about which projects to fund if they were a government employee as opposed to a private sector employee? It doesn't make sense. As Michael Hudson says, all economies are planned, it's just a question of who does the planning. It may be politically unfeasible, but it is not logically so3.
Conventional economists will accuse the government of "picking winners," but that's exactly what the private banking and financial industry does every single day. At least in this scenario, We the People would be able to exercise some degree control and oversight over where our money goes. Economists and politicians will try and convince us that this is somehow a very bad thing, but really it's just democracy. The alternative is permanently giving away control over our own money to a morally and ethically bankrupt industry driven by fear and greed who says, in effect, trust us. But we've already seen how that worked out.
This should have been the focus of anti-banker sentiment after 2008. If even one percent of the effort and enthusiasm that many leftists and anarchists poured into Occupy Wall Street, meme stocks, and the cryptocurrency market in the wake of 2008 had gone into this instead, it might have been a remote possibility. Instead we got FTX and Sam Bankman-Fried.
The answer is because of historical reasons surrounding the Glorious Revolution of 1688., but that's way too large a topic to go into here!
In fact, the government has poured tons of money into Silicon Valley over the years, and is virtually responsible for creating it in the first place. The people of the United States who footed the bill didn’t get a return on that money, however.
Public banks exist. North Dakota has one, for example, as a result of the Populist Movement, and which did not need to be bailed out in 2008. A state infrastructure bank is another related idea. Postal banking is another idea to help out the unbanked in poor communities. All of these have historical precedent and working examples.
You've got this ass backwards. You don't understand the Fed. It pays the Treasury the interest it makes. https://www.stlouisfed.org/on-the-economy/2018/september/fed-payments-treasury-rising-interest-rates
And it's not government. It's a private corporation mandated by the government with regulatory duties (which it has failed to uphold). The government does NOT create money. In America, the Federal Reserve Bank of New York does. There used to be several banks in America that issued their own dollars and it's still legal to do so. The Federal government has never created money.
Giving that power to the government is an even worse idea than doing it privately: the government prints all the money it wants and inflates the currency to death. It's more or less what happened in Rome. Arguing that the government should have control over monetary supply is not the answer, they failed to regulate the Fed and the banking sector and deliberately caused this mess. To be clear: the Fed is a terrible idea itself. The centralization of money doesn't work and is especially dangerous when taken away from a physical standard like gold. That's what the crypto theorists are talking about. The government sucks, the central banks suck, let's create our own currency that nobody controls and whose value comes from supply and demand in the economy. It takes work to create it. Money only works because people agree that it has value. That has nothing to do with government or centralized entities controlling the supply and using it as a blunt geopolitical tool.
The problem is greedy assholes having control of the system. You advocate transferring control from one set of greedy assholes to another set of greedy assholes.
Crypto can remove their control entirely. No more bankers, no more middlemen.
Гроші повинні існувати лише у вигляді універсального засобу для обміну, і втрачати свою 'вартість з часом'.
Тоді буде неможливо їх 'накопичувати', а навпаки, вони будуть постійно в обороті, бо кожен намагатиметься їх швидше позбутися. Сильвіо Гезель, чудово описав це, а пізніше, було емпірично доведено ефективність такої системи.