Authored by Tom Luongo,

People hate change. They also allow themselves to be swayed by the first or second thing they hear about something new that confirms their bias for or against it. Once that happens, they simply run with that as a justification for why they don’t like something and never move off that position.

In libertarian circles, private roads is the wedge issue to keep people statists. Fear over who will maintain the roads is a classic rhetorical technique used by statists to prove libertarianism is stupid.

The other is the environment. Again, because they have such a low level of trust in humanity they only see the downside of human ingenuity not the upside.

So, in Ancapistan, the mythical land where anarcho-capitalism reigns supreme, the roads would be impassible and the environment a toxic wasteland.

And gods forbid that their first experience with a libertarian was with someone ill-equipped to allay those fears and present good, communitarian arguments as to why those fears are unfounded.

Muh Bitcoin

Which brings me to Bitcoin and cryptocurrencies in general. This morning Martin Armstrong is embarrassing himself once again about the future for cryptocurrencies.

His entire blog post is a morass of poor argumentation which I could go into point by point but seriously why? Anyone who has spent as much time analyzing markets and governments as Martin should know that today’s governmental power rests on a functional internet and electrical grid.

95% of all dollars are digital. So, shut off the power grid and you shut down the dollar. In fact crypto peer-to-peer networking would start back up quicker than any government banking system because of the lack of single-points of failure. But, I digress.

This is the paragraph that reveals Armstrong’s irrationality and institutional bias.

I have been skeptical about the claims that cryptocurrencies will replace all money and central banks and end banking creating money out of thin air. That would be recreating the Dark Age. For that to take place there can be no lending.

Nonsense. What would take place is a radical deflation of assets artificially inflated in price by the profligate issuance of currency. Currencies created by the central banks having zero skin in the game. And therefore have zero real assets at risk. Because the central banks are there to bail them out and socialize the costs of their mistakes through the issuance of….?

More currency.

Cryptocurrencies can create just as much or as little financial gearing or leverage as the holders of them want to create. A project like SALT is a 100% reserve lending model. You borrow against the value of your crypto-assets in dollars and pay them back either through asset appreciation versus those dollars or by deploying them in the real world generating a positive rate of return.

Hmmm… sounds like banking and lending. So, this isn’t what Armstrong is worried about. No, what he fears is the destruction of run-away leveraged lending. And having listened to a few of the most ignorant crypto-apostles, he is now thoroughly biased against it.

He refuses to even admit that there are plenty in the crypto-community wanting to create their version of J.P. Morgan. Or that if there isn’t enough Bitcoins to liquefy the monetary system, someone will simply fork the blockchain, lower the difficulty for mining to attract miners and increase capacity of the entire cryptocurrency market per KWhr expended.

Welcome to Litecoin, Bitcoin Cash, Bitcoin Gold, Zcash, Monero, DASH, Komodo, etc.

Inflation? Deflation? I’m the Guy with the Gun

Honestly, for a man forecasting the coming destruction of the current monetary order because of insane politicians, he can’t see the benefit of removing from them the power to set the value of and control of the currency?

Does he not realize that extreme deflation and hyperinflation are two sides of the same dissolving coin?

When the nominal value of assets reaches its zenith versus the perceived value of those assets one of two things must happen. Either those assets fall in price of the current dominant currency, in this case the U.S. dollar or all other non-fnancial assets, those without counter-party risk like gold, commodities and cryptocurrencies, rise dramatically in price.

Martin regularly tells the gold bugs they were wrong about the depression. It was a deflationary period and gold languished. I disagree. Gold, in 1934, was instantly re-valued upward by FDR from $20 to $35 per ounce. That was a 75% inflation that took place in a day. Annualized that’s an inflation rate of over 27,000%

But, no one talks about this event in these terms. Because everyone needed dollars.

Armstrong is arguing in favor of the very kind of lending that gives the governments and banks an incentive to destroy value and steal from the people while having zero real risk of failure.

The mortgage market would collapse and the value of the property would fall to less than 10% of its worth becomes the maximum someone has cash as was the case during the Great Depression. This hatred of central banks is stupid. The money they create is less than 10% of the money supply. The bulk is created through lending and fractional banking.

Thank you for making Murray Rothbard’s argument for 100% reserve banking. Fractional reserve banking, while expedient is also fraudulent, no matter how the currency was created — through mining or via the issuance of debt.

Why? Because it necessarily entails creating multiple claims against the same asset, be it a dollar or a Bitcoin. And when all ‘rights holders’ of that asset decide they want it at the same time, the system collapses.

This is why we are in a deflationary environment? Because people do not believe in the notional value of the assets backing the loans of the banking system that’s why. So the banks hold excess reserves on the Fed’s balance sheet getting recapitalized now at 1.25% versus 0.25% for the past nine years.

This is why Bitcoin is still holding at prices more than 800% higher than this time last year. And it is also why the banking cartel wants to control its rise in value through futures and options trading. They have an unlimited number of cheap dollars to throw at these markets to suppress their price.

Just like they have with gold and silver for the past thirteen years, since the advent of Gold and Silver ETFs which hold futures contracts (settled in dollars, mind you) as their assets versus physical gold.

Evil is the Mother of Necessity

Again, Martin’s own biases both historical and professional keep him from seeing why Bitcoin exists. He refuses to understand where it came from and why its proponents see it as necessary. To wit:

Video streaming today is because of the online porn industry (I won’t post a picture of that). They needed to sell their product and they invented video streaming under the mother of all evolution – Necessity.

I’m not making the argument here that Bitcoin et.al. are ready to take over the world right now. No. That would be silly. But I am saying that Bitcoin is the catastrophic mutation of money borne out of, yes Martin, necessity to break the monopoly governments have on the issuance of new monetary units.

Previously we have never had the opportunity to remove humans and all of their faults and vices from the ultimate form of thievery, counterfeiting. There’s always been some single-point-of-failure that traced back to a human, with imperfect knowledge and the capacity for corruption, with his finger on the print button.

Cryptocurrencies represent our first experiments in that brave new world. And it saddens me to watch someone so abused by the system as Martin Armstrong publicly out himself as a victim of Stockholm Syndrome, defending the very people who stole years of his life.

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