Crypto Currency - a Bad Idea

Timothy Birdnow

Stephen Moore pens an enthusiastic piece on crypto-currency and why ehe believes we should support the rise of private money.

From the Washington Tlimes article:

There has always been crypto-currencies; we call them counterfeits. It used to be illegal. In fact, the Federal government is granted the sole authority to mint money (although the individual states are allowed to coin it since they are - or were -using precious metals with intrinsic value.)

Article 1 Section 8 of the U.S. Constitution g:ants Congress the powr to

So a crypto-currency appears to fall outside of the authority; it's a form of counterfeiting.

Now, crypto-currency has been used before, most notably by the U.S. Army which used to pay soldiers in military script, which was worth less than American dollars. It has also been used in the past by private groups, particularly businesses which offered "corporate script" instead of money, but in the end payments in corporate money was deemed illegal, although payments in benefits - health, dental, stock options, etc. have always been permitted. But this isn't a payment; it's a form of alternate money.

The WSJ article continues:

Last week’s congressional hearing on crypto-currencies revealed broad agreement that U.S. regulators and policymakers must force cryptocurrency companies to comply with as the WSJ put it, "a panoply of regulations governing risks, money laundering, terrorism financing and evasions of sanctions.”

End excerpt.

This is not an unreasonable point. Money as such is only so fungible in the public eye; as a private thing one wonders about how easily it can be misused. The prospects for fraud are enormous. Of course, there is enormous fraud with Federal Reserve notes, too, as our government simply prints money as it wishes with little regard to intrinsic value. But at least the U.S. government is subject to the democratic process, unlike a crypto-currency. I am particularly disturbed by Facebook's Libra; Facebook is essentially declaring itself independent. Zuckerberg wants to be kinbg of his own version of the Danelaw in Britain, or Ivan the Terrible with his Oprichnina.

But let us continue:

Thank God the Internet didn’t face this kind of universal resistance or we would all still be using dial up modems. What is everyone in government so afraid of? The one word answer is: Competition. Cryptocurrencies challenge the state’s strangle-hold monopoly over fiat money. This could diminish the authoritative powers of arrogant and fallible central banks. Germany’s finance minister has even admitted that cryptos should be stopped so they don’t in any way challenge the supremacy of the Euro.

End excerpt.

Really? Seems to me we have exactly the kind of situation that we did NOT want, an internet ruled by four supranational corporations. Can anyone really say we're better off with Google running almost all internet searches. With Facebook acting as the gatekeeper of social intercourse? With Amazon controlling the buying and selling?

I agree; the government types are worried because these cryptos threaten their monopoly. I don't think their being afraid is a bad thing by any stretch. But is it necessarily a good thing? I'm not at all sure. We could be trading George III for George I, as the King of England mistakenly predicted when America obtained her independence.

Here's where he really goes off the rails:

Cryptos will provide what we might call a "private option” alternative to government money. They are hedges against inflation and they can execute global blockchain transactions much more swiftly and at lowe costs than using government money. This is no more nefarious than in the old days transacting in gold tokens, rather than dollars, Euros or Pesos.

End excerpt.

Gold coins have intrinsic value. Cryptos really do not. They are as much fiat currency as a Federal Reserve Note (aka money) We are agreeing to their value in either case.

Here is a good explanation of fiat money - and crypto currency:

People call it the dollar but its real name is the Federal Reserve Note. When you look at it, it even says that, Federal Reserve Note at the top $1.00, that’s really a Federal Reserve Note.

Now, how are they any different? How is this $100 bill different than the $100 monopoly bill? Well, it’s got higher quality paper higher quality ink we hope but when you’re playing monopoly and you have this yellow $100 bill what can you do with that, can you buy houses, can you buy properties, can you buy hotels? Yeah, right? And no one can say you can’t. You say, "Yeah, I can according to the rules of the game, I can use that money to buy whatever I want to buy.”

When the game is over though, can you take your $100 yellow monopoly bill and go across the street and buy some tools with it? No, why? Because the game is over, you’re not playing monopoly anymore. As long as we’re playing the games at the Federal Reserve, then the Federal Reserve Note works. But what happens when the game of the Federal Reserve Note is over? It’s just a piece of paper.
Now Voltaire [0:15:00] who is a socialist. I don’t like to quote him very often, Voltaire said, "Paper money will always return to its intrinsic value which is paper, zero, nothing, it’s just paper.” And that’s what happens, paper money is just paper. That’s an important point to understand.

End excerpt.

While the "full faith and credit" of the United States may be suspect, it certainly has more to recommend it than does a crypto-currency, which is entirely a psychological fiction. It's value is solely based on what people impart to it. And who is doing the imparting/ In the case of Facebook's Libra, it will be Mr. Zuckerberg.

The article last cited continues:

Okay, so what is a dollar? I’ve got an object lesson point here. I’ve got a $20 bill, okay, it’s actually a $20 Federal Reserve Note we call it $20 bill. If I were to take you $20 bill and say, "Hey I’ll give you $1.00 for your $20.” Will anyone take me up on that? No, why would I do that. [0:16:00] What if I clear my throat and say, no, no, no I’m sorry I didn’t understand, what I am going to do I’ll give you $1.00 for your $20 who would take me up on then. Anybody would, right? "I’ll give you your dollar.” "Oh, wait a second.” Why would I say I’ll give you a dollar for twenty did you say no and then I say, "No, no, no I’ll give you a dollar for twenty” you say, "Yes” what’s a dollar. I’m confused. This $20 bill remember is not a $20 bill it’s a $20 Federal Reserve Note and this dollar it actually has what in it, it’s actually commodity money has silver in it, that’s why people will say, "Yes I want this” even if there’s only one of these and twenty of these.

So historically, Jefferson had an arch enemy his name was Hamilton, they’re both on opposite sides, a lot of definitions, but, in this definition in this idea they needed to come to the definition what the dollar was they’re on the same page. Okay, what they did is they went into the market and found out the Spanish milled [0:18:00] dollar was being circulated.

When you do a scientific experiment, find out how much silver is in it. So, they simply took a market analysis. They didn’t politicize it, they didn’t campaign they simply took a market analysis found some of them rubbed thin and some of them rubbed off the edge and added their sample they found that there is an average, 371.25 grains of fine choice silver in each dollar.

And so, under the power, under the Mint Act of 1792 — one of the very first acts of the very first Congress — they defined the dollar to be 371.25 grains of fine choice silver. That is the definition of what a dollar is. It’s a mass, it’s a definition, it’s a scientific number it is not a politicized or governmentally manipulated idea. The dollar is simply a measurement of content of silver in the coin.

End excerpt.

Get that? The dollar is essentially the amount of silver minted in a coin. A Federal Reserve Note was based on that. Certainly a crypto currency has no backing whatsoever.

In other words, it's a counterfeit.

George Washington said of paper money;

"If we should use unfunded paper money or any similar species of fraud, we shall assure to get a fatal stab to our national credit in its infancy.”

And he was right about that. Doubly right where this new crypto currency is concerned.

Washington also said:

"Paper money has had the effect in your State that will ever have, to ruin commerce, to oppress the honest and to open the door to every species of fraud and injustice.

Thomas Jefferson, not to be outdone by Washington, stated:

"Paper is poverty. It is only the ghost in money and not money itself".

So, is the new crypt-currency a good or bad idea. I can't say for certain,but it has all the problems as the paper money, but is less transparent, more easily open to manipulation, and in the end empowers plutocrats in a manner similar to the government regulators. We already have the Feds to deal with. We don't need more hands on our wealth.

I think this is a bad idea whose time should never come. Instead, let's get back to a currency based on something of real value.

Posted by: Timothy Birdnow at 10:51 AM | Comments (4) | Add Comment
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