RANCHO SANTANA, NICARAGUA – As we outlined yesterday, Americans are richer than ever.
U.S. household assets stand at $97 trillion.
All over the world, “wealth” is surging, too… with the value of global stocks near a record high of $100 trillion.
But there’s a hitch: We allege that this wealth was built on fake money. If we’re right, is the wealth fake, too?
As longtime Diary sufferers know, the Fed’s ultra-low interest rates over the past eight years have created the biggest pile of debt in history.
Last week, the total U.S. debt hit a new record at $68 trillion… up from $29 trillion in 2000.
And yesterday, Fed chief Janet Yellen said she would take a stick to America’s debtors, increasing the cost of carrying that debt.
Already, the Fed’s rate hikes have boosted the interest cost of credit card debt by about $7.5 billion a year. That will rise by another $8 billion as future scheduled increases take effect.
Extrapolate to include all the nation’s debt – consumer, business, and government – and every quarter-point rate hike costs $170 billion extra in carrying costs a year.
Add a whole percentage point… and you are up to $680 billion – about equal to the Pentagon’s annual budget.
And so cometh, like the Grim Reaper, the end of the biggest fake boom ever. Inflated with fake money lent at fake rates… it will deflate when rates go up.
But “fake boom” is merely an allegation; we have to prove it. So let’s begin by exploring the “money” that made it possible.
Prior to President Nixon ending the exchange of dollars for gold at a fixed rate in 1971, the U.S. had a dollar that was connected to gold and silver.
Not perfectly. And not always. But precious metals, particularly gold, were there… in the background.
And that old dollar was the money which had existed, more or less unchanged, since it was created in 1792.
That’s when the U.S. government, with the Coinage Act, introduced a national currency backed by gold.
That is what the world came to know as “real money.” You could trust it. “As sound as the dollar” was not an ironic expression; it described the solidity of America’s currency.
Then, with hardly a by-your-leave, Tricky Dicky introduced a new dollar. It looked just like the old one. But it was an impostor.
This new dollar was not backed by gold or silver. It was a “Federal Reserve Note,” with nothing standing behind it except the full faith and credit of the United States of America.
It was a debt instrument, in other words… not cold, hard cash.
Real money is different from debt. It doesn’t need to explain itself. It doesn’t need to tell you where it’s been or what it’s been up to.
You take a gold coin as it is. No backstory or balance sheet is necessary. That’s the way real money works: It closes transactions. You accept payment and the account is settled.
But debt is different. It comes with question marks: Who issued this debt? What is it really worth? Will I get paid?
Here is the key to understanding debt money, as opposed to real money: Real money is the fruit of past efforts – distilled and preserved for future use.
Debt money is a claim on wealth that has never been produced. And perhaps never will be.
As the quantity of real money increases, a society becomes richer and more financially stable. Because it’s real wealth.
But as the supply of debt money increases, more people owe more and more money; the economy becomes more fragile… and eventually goes broke.
But if the authorities want to increase the supply of money, the only kind of money supply they can increase is the fake kind. Real money must be earned; like wealth, it cannot be printed.
That is true of bitcoin, too, by the way.
Like gold, either you “mine” it (using real-world inputs of energy and computer processing power), or you trade something for it.
The supply of bitcoin is governed by an algorithm and theoretically capped at 21 million. Central banks cannot create more bitcoins simply because they think there are not enough. (Whether bitcoin ever becomes real money or not, we wait to find out, along with everyone else.)
That is why gold is such good money. The supply of it increases more or less at the same rate as the economy. More gold usually means more wealth.
Fake money – whether it is the trillions of dollars of Fed debt… or the gazillions of IOUs issued by the central banks of Zimbabwe or Venezuela – operates in the opposite fashion. The more it increases, the poorer you get.
In an important sense, it puts the cart before the horse.
After man’s expulsion from the Garden of Eden, God made it clear that the days of free lunches were over.
“By the sweat of your brow shall you earn your bread,” He said.
You have to work… you have to do something… BEFORE you get wealth.
You don’t get your bread first.
But the feds increase the money supply before any new wealth is created. This Fed debt – in the form of Federal Reserve Notes – is a fraud; it breaches the laws of nature. It doesn’t add to wealth. Instead, it is a claim on wealth that other people already own… or wealth that hasn’t been created yet.
In practice, what it really does is call away the real wealth of some people to deliver it into the hands of other people with better connections to the central bank, aka the Deep State insiders.
Government is always a way for the few to exploit the many. The fake-money system is a major tool, helping them do it.
More to come…
By Jeff Brown, Editor, The Near Future Report
Editor’s Note: As Bill mentioned above, one key feature of bitcoin is that it can’t be manipulated or controlled by big banks or government. Below, Bill’s go-to technology expert, Jeff Brown, reveals what makes these crypto assets tamper-proof.
Last Saturday, I wrote to you to give you an “inside look” at what is playing out in the world of cryptocurrencies.
I told you that these new crypto assets still had a long way to run. And the reason why can be summed up in one word: blockchain.
You’ve likely heard the term “blockchain” associated with the popular cryptocurrency bitcoin. You may even know it as the decentralized ledger technology underpinning cryptocurrencies.
But that’s only part of the story…
Blockchain technology is also known as distributed ledger technology (DLT). We can think of a distributed ledger in its simplest form as a distributed database.
Historically, companies, governments, and individuals all keep their records in one centralized database. Imagine a room with racks of computers that store information.
But centralized databases can be manipulated, records can be changed, hard drives can fail, data can be lost… and the records represent only one party’s view of any given transaction.
In the world of blockchains and distributed ledger technology, the exact opposite is true. The transactions that are recorded on the ledger represent the views of all parties that were involved in that individual transaction.
The graphic below can help give you an idea of the difference between these two network types.
The value and utility that a well-designed blockchain provides is remarkable. Immutability, secure transactions, privacy, lack of friction, transparency, reduction or elimination of fraud.
That last part is important…
That’s because in a centralized system, we depend on “trusted” intermediaries (banks and other financial institutions) to conduct transactions.
But as we’ve learned time and time again, these “trusted” intermediaries are not at all trustworthy.
It wasn’t that long ago when the LIBOR scandal uncovered that many of the most “trusted” financial institutions in the world were manipulating key interest rates for their own benefit, and, of course, at the expense of others.
Banks like Barclays, Deutsche Bank, JPMorgan, UBS, Citigroup, Bank of America, and RBS (Royal Bank of Scotland) were found to be right in the middle of these manipulations.
And then there’s Wells Fargo…
You’ve likely heard about how the banking giant created an estimated 3.5 million “ghost accounts” for their customers. They did this to charge customers banking fees for accounts they never signed up for.
The corruption is seemingly endless.
In comparison, blockchain technology is cryptographically secured, immutable (cannot be changed), and nearly impossible to manipulate. By design, it removes the potential for corruption or manipulation to take place.
That’s why I am so excited about this piece of technology. It has the potential to rewrite our entire society the way the internet did more than twenty years ago. And the assets associated with this technology – cryptocurrency and digital tokens – will continue to soar in value.
You may think that the cryptocurrency boom has already peaked. You may think you’re too late. There will certainly be some pullbacks and high volatility along the way. But I’m here to tell you that it’s not too late.
It most certainly is not too late.
We are just getting started…
– Jeff Brown
P.S. This blockchain technology will revolutionize our society. But 99% of investors are so distracted by bitcoin that they are missing the bigger picture. You don’t have to be one of them.
I’ve found three ways for investors to potentially make 21 times their money from blockchain technology without ever logging on to a cryptocurrency exchange. Let me show you.
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In the mailbag, yesterday’s Diary “Fed Begins Its March to Doom,” has gotten readers thinking…
The Fed is like the black plague. It really is a shame Washington does not have the guts to render the Fed hapless and tell whiny old psycho Janet Yellen to go to hell. Their con game of raising interest rates will slow down the stock market, increase crime (as that goes with frustration), as well as probably forcing a very unwanted recession on an already hard-pressed U.S. economy.
With a recession, the cries for “Impeach Trump” will get a lot louder. If he allows Janet Yellen to destroy the U.S. economy, then he needs to resign.
– Mark V.
You make things too complicated by half. Why not consider the simplest explanation? The governments of the world have found ways to create wealth out of nothing using various complicated financial mechanisms. The money has to go somewhere. So it is used to buy stocks, bonds, various rare objects, and now bitcoin.
The money cannot be used to make more stuff because more stuff is being made than people want or can buy. Therefore, more money does not make more jobs because the amount of stuff needed is now made mostly by robots or in China. In other words, the mechanism for distributing money into the general population as jobs no longer works.
Most of this excess money now goes to a very small and select group of people who then buy stocks, bonds, and bitcoin rather than stuff. When this failed distribution happens, as it has in the past in various countries, the solution is either an armed revolution or a government that finds a better way to distribute the wealth, such as the “new deal” created when the U.S. last experienced this problem.
No amount of complaining or clever wordsmith can change this reality. The voters now have a very simple choice. So far, the choice has only made the problem worse.
– Edmund S.
Meanwhile, a reader writes in after visiting Bill’s Nicaraguan estate.
I finally made it to Nicaragua. I drove up to Rancho Santana on Monday, December 13. From your letter today, it looks like we were there at the same time. The guard stated that you couldn’t drink at the bar without a reservation (I’m such a bottom feeder).
I’ve been reading you since 2008 when I found, in a Goodwill store, Bill Bonner and Addison Wiggin’s Empire of Debt – that book and The 5 Minute Forecast changed my whole view of the world. No buts; they taught me to doubt the news that they were feeding me.
Anyway, just wanted to say thanks and maybe someday our paths will cross. Till then, don’t forget about us bottom feeders… We need you, too… And Nicaragua was unbelievably beautiful. Thanks again.
Oh… and we signed up two travelers to the cryptocurrency exchange Coinbase.
– Darryl W.
Tonight is the night…
Tonight at 8 p.m. ET, legendary speculator Doug Casey is holding a free masterclass seminar. During this free event, Doug will show you how he spotted opportunities that went on to return gains as high as 721%, 928%, and even 2,154%.
Then, Doug is revealing what he calls “the greatest speculation in history.” You can still reserve your spot right here.