Cryptocurrencies are winning. If you need proof look no further than Facebook’s proposed Libra stablecoin. With the release of its White Paper, Tom Luongo explains the salient point is Libra is another attempt by the current banking establishment to slow the flow into the world of hard money.
In this respect Libra is no different than Ripple or dollar-settled Bitcoin futures contracts. These are products designed to slow the exodus out of the shadow banking system. Ripple is a way to lower foreign exchange fees and off-chain futures settlement is a way to control Bitcoin prices and exacerbate volatility to slow crypto-adoption by so-called normies.
Now we have Facebook and Libra. As Caitlin Long points out in her excellent Forbes’ article, Libra will get major financial players backing it. The goal is to become a standard creator in the vein of the Dow Jones Committee or the IMF since it will determine the basket weighting of Libra.
It won’t, however, be a cryptocurrency in the traditional sense. It won’t have a limited supply, defined inflation rate or any commodity character whatsoever.
Proof-of-work? Phsaw! Every good Friedmanite knows that opportunity cost in creating new monetary units is simply wasted capital!
Only mouth-breathing rubes stuck in the 19th century think that’s important.
Instead Libra’s supply will be regulated just like every other fiat currency, by a central authority. Facebook already wants all your data, whether you’re an account holder or not.
Now they want to control your currency as well.
The Central Bank of Facebook
When you extrapolate out the power of Facebook’s platform to where this coin will be marketed to, emerging markets, Libra is looking for all the world like Facebook’s application into the cartel of price-setting central banks.
Ms. Long even hints at this in her article. In fact it’s her first of six important points about Libra.
1. Facebook’s cryptocurrency will be a powerful force for good in developing countries, which is where Facebook intends to market the product.
Why? Because central banks in developing countries are notorious for their lack of discipline in maintaining the value of their fiat currencies, which too often lose purchasing power. The best example among many is Venezuela, which is experiencing hyperinflation worse than that of Germany after World War I. By providing citizens of developing nations with access to a store-of-value that is more reliable than their government-backed currencies, Facebook’s cryptocurrency will indirectly exert fiscal and monetary discipline on developing nations—which will improve the lives of many people globally.
Leaving aside the fact that much of Venezuela’s hyperinflation stems from the U.S. sanctioning and cutting Venezuela off from the global banking system, she has a strong point.
Governments are terrible at managing the value of their currencies for all the reasons Austrian economists have laid out in painstaking detail for decades.
Think this through for five seconds and you get to the obvious conclusion. Facebook and the Wall St. banks which actually control it are creating a coin to do away with national currencies in the countries most vulnerable to the Fed’s control over the global monetary system.
This is the next step in the quest to create a world currency.
And if the current system’s long-term health is threatened by, oh I don’t know maybe, the implosion of a bunch of SIFI banks like Deutsche Bank sparking a global sovereign debt crisis, then a stablecoin like Libra to replace a discredited dollar/euro/yen/pound makes some perverse sense.
If the plan has always been, as Jim Rickards has been saying for years, that the response to a collapsing monetary system would be national currencies replaced with IMF SDR’s as the reserves of the banking system, then having a ‘cryptocurrency’ Trojan Horse to bait and switch with has to be part of the plan to maintain confidence in the institutions that fomented the crisis in the first place.
And what better platform to do that with than Orwell’s Panopticon itself, Facebook?
As I pointed out at during last year’s meltdown in cryptocurrencies, Bitcoin was needed to replace these Ponzi schemes masquerading as money.
… Bitcoin was born out of the extreme fraud of the financial system under Greenspan and Bernanke.
They used leverage ratcheted up post-Y2K to levels which could only be supported through legislative fiat to wall off capital fleeing the system.
And the response was a group of folks applied the teachings of Austrian Economics and Ludwig von Mises’ Regression Theorem to create a digital asset which became more resistant to fraud the more it was adopted.
The result was Bitcoin.
Bitcoin was a catastrophic mutation. A thing born out of necessity to free human beings from a central issuing authority of new monetary units. That relationship needs to be broken if we are going to free ourselves from the cycle of tyranny of the few at the expense of the many
In short, Government ineptitude and/or fundamental evil created Bitcoin.
This is the essence of what Ms. Long talked about around the same time as that post in her Mises Weekend talk “Will Blockchain Free Us from Wall St.”
It’s a wonderful talk that focuses on the domestic reasons why the dollar is yet to collapse and why Bitcoin provides the framework in which we can craft money that isn’t controlled by a central issuing authority.
This is the key point that she mentions but doesn’t emphasize in her talk. For the first time in history we have been presented the option to choose money whose new units are not subject to the whims and corruption of humans.
That’s set by math. And math both determines the rate of inflation and the rate of trust developed by the money itself. This continues to be Bitcoin’s biggest advantage as long as the economic incentives to maintain the network remain positive and are not perverted.
A Farewell to Kings
It means no philosopher kings deciding the rate of inflation or deflation. It means minimizing rent-seeking behavior. It means an end to counterfeiting as we have experienced in the past.
But as I said earlier, things like off-chain settled futures contracts create ‘Paper Bitcoins’ which suppress its exchange rate versus the U.S. dollar. They are an attempt at counterfeiting through through leverage. So are stablecoins like Tether, if not managed properly and, don’t kid yourself, Libra.
Facebook and Wall St. are banking on Facebook’s pervasiveness to drive mass adoption to build an adjunct to the existing financial system which slows the growth of the real cryptocurrency marketplace.
They value blockchain to lower costs and replace antiquated clearing systems of increasingly opaque ledgers, as Ms. Long points out in her talk. But they still want to retain control over the value of the money itself and what that money represents.
They want to retain the system of perverse incentives they have created which rolls up the wealth of the world to them.
It was, as I said earlier, these perverse incentives that created Bitcoin in the first place. And with each new attempt to co-opt the technology and/or suppress its usage through ridiculous laws they validate cryptocurrencies all the more.
Which is Ms. Long’s conclusion in her recent article:
6. Facebook’s cryptocurrency will turn out, in the end, to be a Trojan horse that benefits Bitcoin.
During a period of monetary upheaval, one in which the faith in the Institutional Order tends towards zero, there will be a fundamental shift away from public-issued money as trusted media of exchange.
If Martin Armstrong is correct and we are approaching the end of a mega-cycle in Public trust and a massive shift in consciousness to Private assets as stores of wealth, then it again makes sense for the powers that be, those I like to call The Davos Crowd to create a private-in-name-only “cryptocurrency” to co-opt that shift and remain in control.
But it also means that these same people, who have fed at this trough for so long, aren’t any more capable of managing it successfully than they were the dollar and the euro.
So we really do have little to fear from Facebook and Libra in the long run, because as we know from the Trojan Rabbit, it came back to land squarely on their heads.
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Finally, as Bloomberg points out, whether Libra will be used in commerce is very much in question. For the last decade, multiple cryptocurrencies starting with Bitcoin have tried and failed to penetrate coffee shops and retail stores. In the first four months of this year, only 1.3% of Bitcoin economic transactions came from merchants, according to researcher Chainalysis Inc. The majority of the rest related to trading, and while many digital-assets enthusiasts are now hanging their hopes on the company’s new digital coin succeeding where Bitcoin has not, there are plenty of concerns.
“While Libra might be a big step in opening up a new wave of users to the benefits of asset-backed digital money, it comes with the risks of centralized pain points and vulnerabilities,” said Joseph Lubin, a co-creator of Ethereum.
“Data silos enable incumbents to maintain pricing power, and also come with the risks of data breaches, privacy, and security issues -— problems that many have already begun to associate with Facebook.”
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