Dear Member,
Recently, a few of you have written and asked for more clarity on why I believe we desperately need an alternative to fiat money. I realize this is a rather unconventional belief, so I’m happy to oblige.
First, let’s talk about the current fiat system. The fundamental problem with it is debt. Ever since we left the gold standard, deficits and debt have skyrocketed. We’re now at the point where the snowball is rolling downhill – gathering mass and momentum.
The U.S. issued more than $1 trillion in new Treasurys in 2018 and will do so again in 2019. Over the next decade, the Treasury Borrowing Advisory Committee estimates we’ll borrow $12 trillion in total (and that assumes zero chance of recession)… Like most government estimates, I suspect this one will prove far too optimistic.
Who’s going to buy all these government bonds? China owns $1.2 trillion worth already and is actively reducing its exposure. No other foreign governments are stepping up to the plate thus far. So it seems like we’ll have to buy this mountain of new debt ourselves somehow.
I strongly suspect that the Federal Reserve will be the government’s “buyer of last resort” for bonds (some say it already is). It can always print up some fresh money.
This is known as debt monetization. It essentially means you’re paying off old debt with newly printed money. Inflation always comes into play eventually with so much money printing. And once these cycles begin, they are extremely hard to stop. In fact, there’s motivation to keep the inflationary process going. After all, you have to get rid of the debt somehow, and inflation is often seen as the path of least resistance (it’s already too late to tax our way out of debt, in my opinion).
As this process plays out, I believe the world will lose trust in fiat money.
Now let’s talk about the alternative to the fiat system. As people turn away from fiat, some will flock to precious metals, and there’s certainly nothing wrong with that. Gold is sound money.
Last year, billionaire and PayPal founder Peter Thiel argued that bitcoin has a lot in common with gold and could play a similar role for investors in the future.
“It’s like bars of gold in a vault that never move, and it’s a hedge of sorts against the whole world going falling apart,” Thiel said.
This is similar to how I’ve always seen cryptocurrency. I believe we’re going to need new ways to store and send money in the near future.
As I’ve mentioned before, I think that the electronic transferability of crypto will give it the edge over gold. If you have a new, independent form of currency that is both sound (can’t be printed at will) and easily transferable, that’s a recipe for success.
For me, this is what cryptocurrency has always been about: building an alternative to the disastrous fiat money systems we use today. It’s why Satoshi Nakamoto created bitcoin in the first place.
Good investing,
Adam