When it comes to governments and your life savings, there are two key facts. First, governments have become extremely generous lately. Second, governments are thoroughly bankrupt, without a dime to their name.
What squares this circle? You. The livestock. Who will be milked for all that free stuff politicians need to buy all the votes, and all the friends, they need. And if you fail along the way? All the better, as you become another statistic to justify yet more interventions on the surviving livestock.
Fortunately, there is a perfectly legal way out: Bitcoin.
Government bankruptcy shouldn’t be news at this point, but debt took a quantum leap in the wake of Covid-19. In a single year, Federal public debt jumped by $4.2 trillion, with another $2.3 trillion deficit already projected for 2021. In concrete terms, that’s $79,000 in new Federal debt for a family of four, bringing their tab to $362,000 — over three times median household wealth. Keep in mind there are trillions more in state and local government debt, also laid on that same family who, at this point, may well be living off government payments in the first place.
Bleak stuff. With no end in sight as politicians auction off a parade of trillion dollar schemes for their crisis of the week. Just to make sure they’ve milked every last ounce out of you before tossing you on the heap.
Economist Herbert Stein famously said, “If something cannot go on forever, it will stop.” And stop it will. It won’t stop because politicians learn their lesson, like an ‘80s sitcom where a teen maxes out his first credit card. No, it will stop because you can’t get blood from a stone. At some point taxes are so high, business burdens so asinine, that producers effectively go on strike. They dial back, take on less work, don’t expand the business, or even shut it down.
And so the party trundles along, past the fun part, past the sad drunks part, on to the point when the booze ran out long ago and they’ve shut off the electricity.
What happens next? Historically, when governments need quick cash they’re got two options: print or default.
Printing, today, means magicking up trillions of dollars, either by subsidizing banks to make it up, or by directly instructing the central bank to “buy” new government debt with fresh dollars. Either way, this can create breathtaking inflation; recent examples include Venezuela or Zimbabwe, but the grand-daddy of modern budget-driven hyper-inflations is Weimar Germany, where the once crippling national debt came to be worth a single loaf of bread.
Now, as appealing as it is for governments to shrink their debt to a loaf of bread, it comes at the price of utterly wiping out the people, as Weimar Germany also discovered. So, in practice, governments try to spread the pain with a mixture of higher taxes, higher inflation, and, when they can get away with it, selective default.
And that’s where Bitcoin comes in. Bitcoin offers an exit to all three of these end-games. Governments can’t inflate Bitcoin, they can’t default on Bitcoin, and in many cases they can’t even tax Bitcoin since it’s outside the captive banking system — you can’t tax what you can’t see. And, for that ultimate end-game, Bitcoin is extremely portable and 100% concealable.
Breaking each down, contrary to popular belief, inflation isn’t paid by everybody, it’s only paid by people who own dollars. That includes the dollars in your bank, along with any fixed assets or payments denominated in dollars. Since the poor tend to hold more dollars, and tend to get paid on fixed incomes, this is hardest on them.
Now, there’s still an economic hit from inflation, since it screws up price signals and, therefore, screws up the economy. But you can avoid almost all of it by simply not holding dollars, or hedging your dollar-denominated assets or fixed payments. When everybody else grumbles about $12 gas or $100 pizzas, you see stuff that costs the same, or less, in Bitcoin than it used to.
Next up is government default. This is when a government either cancels, or simply delays, debt payments. This often happens in poor countries such as Argentina or California. Default is attractive to governments since it hits a more concentrated group than, say, grocery shoppers.
Of course, that very concentration gives bondholders an incentive to organize politically, a problem economist Mancur Olson detailed. This can lead to special interests like Wall Street dodging defaults, leaving it to the widows, orphans, and foreigners to suffer trimmed benefits or defaulted loans. So, like inflation, you can dodge most of the effects by simply not buying bonds and, again, hedging any government payments like social security with a counter-cyclical asset like Bitcoin.
Finally, taxes. Beyond the obvious fact that you can hide income using Bitcoin’s pseudonymity, Bitcoin protects you because its mobility makes you less tied to a given country. Unlike gold, a Bitcoin seed-phrase can literally be memorized, with no trace that you ever owned it.
In fact, you don’t really move Bitcoin anywhere at all, you simply access it from a different country. This means you can keep, spend, and “export” your Bitcoin without asking a possibly rabid government for permission, an option previous generations of refugees would have dearly loved to have.
We are entering an unsustainable fiscal spiral that could go on for years, even decades, but that eventually will go where every fiscal spiral has gone: confiscatory taxation, widespread inflation, and predatory default. Bitcoin fixes all three, in a way that even gold never could.
With perhaps 10% of people owning crypto today, we can hope the remaining 90% understand there may come a day when you have to protect yourself from governments. Buying Bitcoin as a hedge against taxation, inflation, default, and even personal safety is the single best solution we have. If, in the meantime, your Bitcoin goes up in price, that’s super, but the key benefit of Bitcoin, it’s “killer app,” is self-preservation.
When it comes to governments, the only way to win is to not play the game. And Bitcoin is not playing the game.
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