TYReads The End Of German Hyperinflation

Today 90 years ago, on the 15 of November 1923, by fixing the value of the recently created Rentenmark at a rate of 1 trillion ( Papermark per 1 Rentenmark, and one month later, by setting the rate of the Rentenrmark against the US Dollar at a rate of 4,2 Rentenmark per 1 US Dollar, the exchange rate that had prevailed between the Reichsmark and the US dollar before World War I, Hjalmar Schacht, the then new president of the Reichsbank, ended the German Hyperinflation of 1922-1923, a monetary phenomenon that it is often argued paved the way for the later onset of Nazism. Thorsten Polliet of The Ludwig von Mises Institute has written this article about it.

90 Years Ago: The End Of German Hyperinflation by Thorsten Polleit @ The Ludwig von Mises Institute

On 15 November 1923 decisive steps were taken to end the nightmare of hyperinflation in the Weimar Republic: The Reichsbank, the German central bank, stopped monetizing government debt, and a new means of exchange, the Rentenmark, was issued next to the Papermark (in German: Papiermark). These measures succeeded in halting hyperinflation, but the purchasing power of the Papermark was completely ruined. To understand how and why this could happen, one has to take a look at the time shortly before the outbreak of World War I.

Since 1871, the mark had been the official money in the Deutsches Reich. With the outbreak of World War I, the gold redeemability of the Reichsmark was suspended on 4 August 1914. The gold-backed Reichsmark (or “Goldmark,” as it was referred to from 1914) became the unbacked Papermark. Initially, the Reich financed its war outlays in large part through issuing debt. Total public debt rose from 5.2bn Papermark in 1914 to 105.3bn in 1918. In 1914, the quantity of Papermark was 5.9 billion, in 1918 it stood at 32.9 billion. From August 1914 to November 1918, wholesale prices in the Reich had risen 115 percent, and the purchasing power of the Papermark had fallen by more than half. In the same period, the exchange rate of the Papermark depreciated 84 percent against the US dollar.

The new Weimar Republic faced tremendous economic and political challenges. In 1920, industrial production was 61 percent of the level seen in 1913, and in 1923 it had fallen further to 54 percent. The land losses following the Versailles Treaty had weakened the Reich’s productive capacity substantially: the Reich lost around 13 percent of its former land mass, and around 10 percent of the German population was now living outside its borders. In addition, Germany had to make reparation payments. Most important, however, the new and fledgling democratic governments wanted to cater as best as possible to the wishes of their voters. As tax revenues were insufficient to finance these outlays, the Reichsbank started running the printing press.

From April 1920 to March 1921, the ratio of tax revenues to spending amounted to just 37 percent. Thereafter, the situation improved somewhat and in June 1922, taxes relative to total spending even reached 75 percent. Then things turned ugly. Toward the end of 1922, Germany was accused of having failed to deliver its reparation payments on time. To back their claim, French and Belgian troops invaded and occupied the Ruhrgebiet, the Reich’s industrial heartland, at the beginning of January 1923. The German government under chancellor Wilhelm Kuno called upon Ruhrgebiet workers to resist any orders from the invaders, promising the Reich would keep paying their wages. The Reichsbank began printing up new money by monetizing debt to keep the government liquid for making up tax-shortfalls and paying wages, social transfers, and subsidies.

From May 1923 on, the quantity of Papermark started spinning out of control. It rose from 8.610 billion in May to 17.340 billion in April, and further to 669.703 billion in August, reaching 400 quintillion (that is 400 x 1018) in November 1923.[2] Wholesale prices skyrocketed to astronomical levels, by rising by 1.813 percent from the end of 1919 to November 1923. At the end of World War I in 1918 you could have bought 500 billion eggs for the same money you would have to spend five years later for just one egg. Through November 1923, the price of the US dollar in terms of Papermark had risen by 8.912  percent. The Papermark had actually sunken to scrap value.

With the collapse of the currency, unemployment was on the rise. Since the end of the war, unemployment had remained fairly low — given that the Weimar governments had kept the economy going by vigorous deficit spending and money printing. At the end of 1919, the unemployment rate stood at 2.9 percent, in 1920 at 4.1 percent, 1921 at 1.6 percent and 1922 at 2.8 percent. With the dying of the Papermark, though, the unemployment rate reached 19.1 percent in October, 23.4 percent in November, and 28.2 percent in December. Hyperinflation had impoverished the great majority of the German population, especially the middle class. People suffered from food shortages and cold. Political extremism was on the rise.

The central problem for sorting out the monetary mess was the Reichsbank itself. The term of its president, Rudolf E. A. Havenstein, was for life, and he was literally unstoppable: under Havenstein, the Reichsbank kept issuing ever greater amounts of Papiermark for keeping the Reich financially afloat. Then, on 15 November 1923, the Reichsbank was made to stop monetizing government debt and issuing new money. At the same time, it was decided to make one trillion Papermark (a number with twelve zeros: 1,000,000,000,000) equal to one Rentenmark. On 20 November 1923, Havenstein died, all of a sudden, through a heart attack. That same day, Hjalmar Schacht, who would become Reichsbank president in December, took action and stabilized the Papermark against the US dollar: the Reichsbank, and through foreign exchange market interventions, made 4.2 trillion Papermark equal to one US Dollar. And as one trillion Papermark was equal to one Rentenmark, the exchange rate was 4.2 Rentenmark for one US dollar. This was exactly the exchange rate that had prevailed between the Reichsmark and the US dollar before World War I. The “miracle of the Rentenmark” marked the end of hyperinflation.

How could such a monetary disaster happen in a civilized and advanced society, leading to the total destruction of the currency? Many explanations have been put forward. It has been argued that, for instance, that reparation payments, chronic balance of payment deficits, and even the depreciation of the Papermark in the foreign exchange markets had actually caused the demise of the German currency. However, these explanations are not convincing, as the German economist Hans F. Sennholz explains: “[E]very mark was printed by Germans and issued by a central bank that was governed by Germans under a government that was purely German. It was German political parties, such as the Socialists, the Catholic Centre Party, and the Democrats, forming various coalition governments that were solely responsible for the policies they conducted. Of course, admission of responsibility for any calamity cannot be expected from any political party.” Indeed, the German hyperinflation was manmade, it was the result of a deliberate political decision to increase the quantity of money de facto without any limit.

What are the lessons to be learned from the German hyperinflation? The first lesson is that even a politically independent central bank does not provide a reliable protection against the destruction of (paper) money. The Reichsbank had been made politically independent as early as 1922; actually on behalf of the allied forces, as a service rendered in return for a temporary deferment of reparation payments. Still, the Reichsbank council decided for hyperinflating the currency. Seeing that the Reich had to increasingly rely on Reichsbank credit to stay afloat, the council of the Reichsbank decided to provide unlimited amounts of money in such an “existential political crisis.” Of course, the credit appetite of the Weimar politicians turned out to be unlimited.

The second lesson is that fiat paper money won’t work. Hjalmar Schacht, in his 1953 biography, noted: “The introduction of the banknote of state paper money was only possible as the state or the central bank promised to redeem the paper money note at any one time in gold. Ensuring the possibility for redeeming in gold at any one time must be the endeavor of all issuers of paper money.” Schacht’s words harbor a central economic insight: Unbacked paper money is political money and as such it is a disruptive element in a system of free markets. The representatives of the Austrian School of economics pointed this out a long time ago.

Paper money, produced “ex nihilo” and injected into the economy through bank credit, is not only chronically inflationary, it also causes malinvestment, “boom-and-bust” cycles, and brings about a situation of over-indebtedness. Once governments and banks in particular start faltering under their debt load and, as a result, the economy is in danger of contracting, the printing up of additional money appears all too easily to be a policy of choosing the lesser evil to escape the problems that have been caused by credit-produced paper money in the first place. Looking at the world today — in which many economies have been using credit-produced paper monies for decades and where debt loads are overwhelmingly high, the current challenges are in a sense quite similar to those prevailing in the Weimar Republic more than 90 years ago. Now as then, a reform of the monetary order is badly needed; and the sooner the challenge of monetary reform is taken on, the smaller will be the costs of adjustment.

Mr. Draghi & the “european banking union”

ECB on collision course with Germany on banking union @ Financial Times

Financial Times publishes this article about the reluctance of Germany to the intent of the ECB to get total supervisory and resolution control over all banks in the eurozone. The so-called “european banking union” plans seek to place eurozone banks under the overarching supervision of the ECB, followed by the creation of a bank resolution scheme for the bloc and, eventually, a common deposit scheme.

“In the 32-page opinion to EU institutions in Brussels, the ECB said the new agency, known as the single resolution mechanism, should be “strong and independent” with clear, unitary powers to force failing banks to either recapitalize or shut down.”

“The stance puts Mario Draghi, ECB president, in direct conflict with Wolfgang Schäuble, the German finance minister, who has repeatedly said the EU’s new bank bailout system should instead start as a “network” of national authorities because EU treaties do not allow for a single decision maker for all of Europe.”

“Differences between Brussels and Berlin over the way forward for a new EU bank executioner – which many officials believe is the biggest shift in sovereignty for the eurozone since the creation of the single currency itself – has slowed progress towards banking union to a crawl.”

Mr. Draghi’s haste in trying to get total control of the european banking system, something well beyond what was envisioned both in the intentions and the written law of the EU and ECB treaties, is another, perhaps the definitive, step towards protecting the banking industry from accountability and democratic (even if very mild and imperfect at present) control.

Germany’s reluctance is very logical, since once the ECB gets supervisory and resolution authority over all banks in the eurozone, it will have all the tools to perpetuate a “dual economy”, with a financial sector that not only finances itself at rates (basically zero) that have nothing to do with the rates at which citizens and small and mid enterprises have to finance themselves (if at all), but whose supervision would be in “friendly hands”. Friendly hands to them, banks, but unfriendly to citizens, whose savings are being constantly debased by a zero-interest-rate-policy that increasingly looks no longer like a temporary fixture but as a permanent feature of a new neo-feudal financial architecture.

It is a pity that such aspects are seldom mentioned when discussing the implications of the innocently named “european banking union”. One would hope that Germany would stand firm (even if partially for selfish reasons), but fear it will not. The “european banking union” is not a positive development for those who believe in a democratic Europe and a restrained and accountable financial sector.

Prescient George Carlin

Many of us have spent time in the USA, a country for which we have harbored kind thoughts and fond memories. But in the age of the NSA spying even on the closest allies, in the age of american drones killing civilians in a routine fashion, in the age where Wall Street and its tool, the Federal Reserve, have induced, first, a global financial crisis and, then, are intent on destroying whatever is left of the middle class thru a gigantic reverse Robin Hood transfer of wealth via zero interest rates and QE, in the age where the USA has the highest debt levels in its history (except peak of WWII) and does not plan to do anything to stop abusing the “exorbitant privilege” of having the, so far, world’s reserve currency, in the age where the USA involves itself in, or even promotes, uncountable wars, declared or not, for purposes that nothing have to do with national security, terrorist menace, justice, or the betterment of the life of its own citizens, in this age…there are many that believe that the America they once knew, either never existed (very likely), or is long gone.

Why has the country, once assumed to be the “land of the free”, changed so much? Or has it? Perhaps what is today visible to many was once only visible to a few. One of them is the already deceased comedian and author George Carlin, who, in this video, filmed in 2005, analyzes the “American Dream”. In 2013 it is not only not dated but insightful and prescient.

Germany says “Ja” to Bitcoin

Despite strong opposition by the american government, Bitcoin appears to be winning some important battles. You can read more about the virtual currency in Bitcoin a virtual currency that defies the NWO.

Bitcoin recognized by Germany as legal tender @ >CNBC.com Some excerpts:

“Virtual currency bitcoin has been recognized by the German Finance Ministry as a “unit of account”, meaning it is now legal tender and can be used for tax and trading purposes in the country.”

“Bitcoins is not classified as e-money or a foreign currency, the Finance Ministry said in a statement, but is rather a financial instrument under German banking rules. It is more akin to “private money” that can be used in “multilateral clearing circles”, the Ministry said.”

” “We should have competition in the production of money. I have long been a proponent of Friedrich August von Hayek scheme to denationalize money. Bitcoins are a first step in this direction,”said Frank Schaeffler, a member of the German parliament’s Finance Committee, who has pushed for legal classification of bitcoins.”

Bitcoin: the Berlin streets where you can shop with virtual money @ The Guardian Some excerpts:

“Florentina Martens has had the same experience since opening her Parisian-style cafe Floor’s two months ago just a couple of streets away. “There is not a prototype Bitcoin payer,” she said. “It’s random people. Not only nerds, let me put it that way.” ”

” “It’s an easier way of digital payment than credit cards, which cost me a lot of money as a business and to which I’m forced to sign up for years,” she says.”

”  “The truth is, I really want to believe in it. And I like the fact that Bitcoin scares people in suits, because if this thing were to really take off, it would bankrupt a lot of bankers.” ”

“Crypto-currency experts meeting Patzer at a recent Bitcoin soiree in the back of Floor’s cafe prefer to talk of the recent dip as a correction rather than a crash, which has brought Bitcoin back to a realistic price while it has retained its underlying value.” ”

” “I would look at these spikes and corrections as the birth pangs of an entirely new system,” said Mike Gogulski, a Bitcoin developer. “It represents an opportunity to transform the way we deal with the flows of wealth and human energy.” “

TYReads “the capitalist network that runs the world”

The 1318 transnational corporations that form the core of the economy. Superconnected companies are red, very connected companies are yellow. The size of the dot represents revenue <i>(Image: </i>PLoS One<i>)</i>

Revealed – the capitalist network that runs the world @ New Scientist

An analysis of the relationships between 43,000 transnational corporations has identified a relatively small group of companies, mainly banks, with disproportionate power over the global economy.”

“The idea that a few bankers control a large chunk of the global economy might not seem like news to New York’s Occupy Wall Street movement and protesters elsewhere. But the study, by a trio of complex systems theorists at the Swiss Federal Institute of Technology in Zurich, is the first to go beyond ideology to empirically identify such a network of power. It combines the mathematics long used to model natural systems with comprehensive corporate data to map ownership among the world’s transnational corporations (TNCs).”

“From Orbis 2007, a database listing 37 million companies and investors worldwide, they pulled out all 43,060 TNCs and the share ownerships linking them. Then they constructed a model of which companies controlled others through shareholding networks, coupled with each company’s operating revenues, to map the structure of economic power.”

“The work, to be published in PLoS One, revealed a core of 1318 companies with interlocking ownerships (see image). Each of the 1318 had ties to two or more other companies, and on average they were connected to 20. What’s more, although they represented 20 per cent of global operating revenues, the 1318 appeared to collectively own through their shares the majority of the world’s large blue chip and manufacturing firms – the “real” economy – representing a further 60 per cent of global revenues.”

“When the team further untangled the web of ownership, it found much of it tracked back to a “super-entity” of 147 even more tightly knit companies – all of their ownership was held by other members of the super-entity – that controlled 40 per cent of the total wealth in the network. “In effect, less than 1 per cent of the companies were able to control 40 per cent of the entire network,” says Glattfelder. Most were financial institutions. The top 20 included Barclays Bank, JPMorgan Chase & Co, and The Goldman Sachs Group.”

The top 50 of the 147 superconnected companies

1. Barclays plc
2. Capital Group Companies Inc
3. FMR Corporation
4. AXA
5. State Street Corporation
6. JP Morgan Chase & Co
7. Legal & General Group plc
8. Vanguard Group Inc
10. Merrill Lynch & Co Inc
11. Wellington Management Co LLP
12. Deutsche Bank AG
13. Franklin Resources Inc
14. Credit Suisse Group
15. Walton Enterprises LLC
16. Bank of New York Mellon Corp
17. Natixis
18. Goldman Sachs Group Inc
19. T Rowe Price Group Inc
20. Legg Mason Inc
21. Morgan Stanley
22. Mitsubishi UFJ Financial Group Inc
23. Northern Trust Corporation
24. Société Générale
25. Bank of America Corporation
26. Lloyds TSB Group plc
27. Invesco plc
28. Allianz SE 29. TIAA
30. Old Mutual Public Limited Company
31. Aviva plc
32. Schroders plc
33. Dodge & Cox
34. Lehman Brothers Holdings Inc*
35. Sun Life Financial Inc
36. Standard Life plc
37. CNCE
38. Nomura Holdings Inc
39. The Depository Trust Company
40. Massachusetts Mutual Life Insurance
41. ING Groep NV
42. Brandes Investment Partners LP
43. Unicredito Italiano SPA
44. Deposit Insurance Corporation of Japan
45. Vereniging Aegon
46. BNP Paribas
47. Affiliated Managers Group Inc
48. Resona Holdings Inc
49. Capital Group International Inc
50. China Petrochemical Group Company

* Lehman still existed in the 2007 dataset used

TYR reads “…It’s a Different Economy”

College Grads: It’s a Different Economy @ Of Two Minds Charles Hugh Smith aptly summarizes and describes the structure of the post-2008 USA economy, a description that by extension and with some tweaks can be applied to most western economes. An economy in which processes in the making since the end of WW2, if not sooner, are finally rising to the fore. It is not pretty. One could perhaps add a couple of points, but perhaps one  would not dare. Let’s hope that his half-optimistic concluding remarks are right. I am not so sure. CHS:

1. Getting a college degree, even in the STEM (science, technology, engineering and math) subjects, no longer guarantees a job.

2. Those millions of Baby Boomers clinging to their jobs can’t afford to retire, partly as a result of Federal Reserve bubble-blowing and zero-interest rates.

3. Many of those Boomers clinging to jobs are doing so to support you.

4. We now have a bifurcated economy: we have what’s left of the open-market economy and we have the cartel-state economy of various rentier arrangements. Arentier arrangement is one in which the input costs can keep rising due to political power/protection while the output declines.

Our economy is now dominated by rentier arrangements. This is one of the core reasons it is stagnating, the other being a parasitic, corrupt financial sector that depends on phantom collateral and accounting trickery for its survival.

Rentier arrangements include the financial sector (hated by the public but politically sacrosanct), the National Security State (you can never have enough people spying on the world, including Americans), healthcare (costs triple while the availability of care and the health of the populace decline) and education (college tuition rises 600% when adjusted for inflation but a third of the graduates learned essentially nothing).

Protected from the discipline of the market, these quasi-monopolies vacuum up an ever-increasing share of the national income while their output/yield declines. Where $200 million bought four top-line fighter aircraft a decade ago, now it buys one; we have reached the point where we can’t afford our own fighter aircraft. And many in the military conclude the $200 million-each F-35 Lightning (by some estimates of full program costs, $300 million each) is an underpowered, bug-ridden dog, less capable than competitors and the aircraft it replaces at four time the cost, the F-18 E/F Super Hornet.

For decades, those entering the rentier cartels were assured of lifetime security.Get a job in healthcare or education or the defense/national security sectors, and you had it made. But these bloated rentier arrangements are bankrupting the nation.

Lacking any limit on their cost inputs, these sectors have expanded at rates far exceeding the growth rate of the economy that supports them. Healthcare once absorbed roughly 5% of the economy; now it is consuming 18% and is on track to consume 20%. Healthcare alone will bankrupt the Federal government and the economy.

5. The private-sector economy is bifurcated as well.

6. The older generations will have to adjust to demographic and financial realities.

7. There are two sets of laws now: one for the Elites and the state, and one for the rest of us.

8. We are a free-lance nation.

He concludes:

There are opportunities, but they require a deep understanding of risk and security. A livelihood with day-to-day low-level insecurity and volatility is actually far more stable and secure than the cartel-state one that claims to be guaranteed.

The burdens of Fed manipulation and the cartel-state rentier arrangements will come home to roost between 2015-2017. Those who are willing to seek livelihoods in the non-cartel economy will likely have more security and satisfaction than those who believed that joining a rentier arrangement was a secure career.

There is a price to joining a parasitic rentier arrangement, a loss of integrity, agency and independence. Complicity in an unsustainable neofeudal society has a cost.

“He who controls the spice controls the universe.”

Guild Navigator - Dune (1984)

If you are a science fiction fan you’ll probably remember Dune, the excellent novel (a series of them actually) by Frank Herbert, and the film by David Lynch based on the same book. In it, one of the villains, Baron Vladimir Harkonnen, utters “He who controls the spice controls the universe”, the spice being a rare substance harvested in desert and desolate planet Arrakis and without which the universe would would grind to a halt (if you want to know why and have not read the book or seen the movie…just do it!). Instead of “spice” use “credit” and you’d have an adept metaphor of our universe, our western societies.

This week Spiegel Online interviewed Carmen Reinhart, an american economist known for being the co-author, with Kenneth Rogoff, of the book This Time Is Different: Eight Centuries of Financial Folly, in which they study debt crisis and their aftermaths in the last 800 years.

In this interview Ms. Reinhart gives very clear hints as to what the aftermath of the present debt crisis in western societies might be: inflation and impoverishment of savers and the general population. She also mentions the methods by which such an outcome will be achieved: financial repression and monetization of debt (aka Quantitative Easing aka QE).

Ms. Reinhart holds the thesis that governments have forced Central Banks to relinquish their independence in order to finance government deficits that can no longer be addressed via fiscal policies. What she does not say, be it because she does not believe it or because she does not dare, is that governments are themselves subservient to financial markets, an issue that we addressed in TYR reads “… a de facto coup d’état by Wall Street”. Ms. Reinhart utters some truths and chooses to ignore some other ones. The interview is both illuminating and mystifying, but well worth reading.

At the end of the interview…

…Spiegel asks “That sounds like a perpetual motion…”

…and Ms. Reinhart answers…”Of course it is!”.

It is perpetual motion because credit is the spice of our financial universe, a spice created by Central Banks, where decisions are taken by unelected officials, that channel it, at a very low or no cost, thru the private banking system, that multiplies and redistributes it, at a cost, to the rest of the economy. Ms. Reinhart tries to convince us that it is governments that control money, credit. No, Frank Herbert knew better. It is the Guild, the banking industry and their owners, who control the spice…credit…Central Banks…and in the end governments. How do we know?…ask yourself…Cui Bono? “He who controls the spice controls the universe.”

Some excerpts from the interview:

“So what happens is that money is transferred from savers to borrowers via negative interest rates.”

“If central banks try to accommodate and buy debt, there are risks associated with it. Somewhere down the road you are going to wind up with higher inflation.”

No doubt, pensions are screwed. Governments have a lot of leverage on what kinds of assets pension funds hold.”

“…after World War II austerity was easier to pursue, because you had a younger population and therefore less entitlements. Furthermore, military expenditure was easier to reduce. So, the build-up in debt we have seen since the crisis is very rare. Usually you get that kind of build-up when there is a war.”

4 April 2013 TYR reads

Helicopter QE will never be reversed @ The Telegraph Ambrose Evans-Pritchard hints at what the nature of the end-game of this monetary era might be…and it is printing money…forever. With an apparently neutral style and quoting potentially apocalyptic outcomes if permanent money printing by Central Banks is not considered ( “A breakdown of the global trading system might be one, armed conquest or Fascism may be others – or all together, as in the 1930s.”), the idea of a radical change of the monetary and economic system, without democratic consent, is being gradually introduced to a public opinion that is largely unable to understand the consequences of such monetary policies. He concludes: “Bondholders across the world may suspect that Britain, the US and other deadbeat states are engineering a stealth default on sovereign debts, and they may be right in a sense. But they are warned. This is the next shoe to drop in the temples of central banking.”

97% Of Spanish Social Security Pension Fund In Domestic Bonds @ Zerohedge “It appears, since the Spanish government does not explicitly have its own Fed to monetize debt, that it has merely plundered another quasi-governmental entity to do the bond-buying reach-around.”

Bank of Japan unveils aggressive easing @ Financial Times “The BoJ said it would double Japan’s monetary base from Y135tn ($1.43tn) to Y270tn by March 2015, mainly by buying more long-term government bonds.”. “We can’t escape deflation with the incremental approach that’s been taken until now,” Mr Kuroda said after the announcement. “We need to use every means available.”.

As Mr. Evans-Pritchard mentions in his article, “There were two extreme episodes of money printing in the inter-war years. The Reichsbank’s financing of Weimar deficits from 1922 to 1924 – like lesser variants in France, Belgium and Poland – is well known. The result was hyperinflation. Clever people made hay. The slow-witted – or the patriotic – lost their savings.”. The policies and situations described in the articles above suggest that it might happen, again.

TYR reads: Bitcoins Go Parabolic

Zerohedge reports about the parabolic rise in the price of the Bitcoin in the last 48 hours and its 1400% rise since the start of the year. The article rethorically asks…”which line item on the Fed’s Balance Sheet is ‘Virtual Currency Transactions’… what better way to destroy an up and coming currency competitor than to blow a bubble in it and explode it?”

We wrote about Bitcoin a couple of weeks ago in Bitcoin a virtual currency that defies the NWO. It is a brilliantly designed currency, but it can blow up…or be made to blow up. If you plan to use it, study it first and go slow.

Bitcoin a virtual currency that defies the NWO

Bitcoin the emerging monetary phenomenon created by a pseudonymous Satoshi Nakamoto in 2009 is no longer a joke, but a potential real threat to the neofeudal NWO whose visible components are the western Central Banks, from the Federal Reserve (FED) , to the European Central Bank (ECB), to the Bank of Japan (BoJ), to the Bank of England (BoE), to others.

Bitcoin poses a direct challenge to fiat based Central Bank created currencies that are continually being debased in order to maintain a “dual” economic system in which the banking industry is continually being subsidized (thru access to cheap money via the Central Bank, thru continuous bailouts paid by taxing the rest of the economy, thru covert inflation achieved by distorting the inflation measures).

It is likely that if the threat posed by Bitcoin materializes, Central Banks will fight it (they have already started), but whatever the outcome, Bitcoin is the most brilliant and lethal tool devised so far to fight a social order described decades ago, in “1984”. Forget, “Occupy Wall Street”, forget “indignados”, Bitcoin might be “it”.

It should thus not be a surprise that, as Zerohedge reported today, “US Begins Regulating BitCoin, Will Apply “Money Laundering” Rules To Virtual Transactions”.

So…What is Bitcoin?

According to Wikipedia, “Bitcoin (sign: BTC) is a decentralized digital currency based on an open-source, peer-to-peer internet protocol. It was introduced by a pseudonymous developer named Satoshi Nakamoto in 2009.”

“Internationally, bitcoins can be exchanged by personal computer directly through a wallet file or a website without an intermediate financial institution. In trade, one bitcoin is subdivided into 100-million smaller units called satoshis, defined by eight decimal places.”

According to Erik Voorhess, that provides an excellent introduction to Bitcoin in his blog, “Bitcoin is two things: it is a digital currency unit and it is the global payment network with which one sends and receives those currency units. Both the currency unit and the payment network share the same name: Bitcoin.”

“As a currency unit, consider Bitcoin like other currencies. The world has euros, dollars, yen, gold and silver ounces, and now it has Bitcoin as well. The properties of the Bitcoin currency unit are as follows:”

  • There will never be more than 21 million in existence, and they are released over time at a declining rate (at the time of writing, about 8.5 million Bitcoins exist).
  • As new coins are released on the set schedule, they are given at random to those who contribute computing power to securing the network. This is called “Bitcoin Mining” but it should more accurately be called “Bitcoin Auditing.” Those who contribute more computing power to this work have better odds of receiving the new coins, but the rate of new coin creation never increases (in fact it diminishes over time until all 21 million coins exist). Inflation is thus pre-determined and ever-decreasing toward zero. The below graph shows the release schedule and inflation rate:

  • Each Bitcoin is divisible by one hundred million. You can thus possess 0.00000001 Bitcoins.
  • Bitcoins are perfectly fungible, they are divided and combined seamlessly in your account.
  • It is theoretically impossible to make a fake Bitcoin (to fully understand why this is true, one needs to study cryptography and fairly advanced mathematics).
  • As a currency existing in a perfectly free market, Bitcoins always have a market price. At the time of this writing, this price is about $4.80 each. Because Bitcoin is global, there are also market prices for Bitcoin in every major national currency from yen to Brazilian reals.
  • Bitcoins are traded like other currencies on exchange websites, and this is how the market price is established. The most prominent exchange is MtGox.com

“So those are the details of Bitcoin as a currency unit, but Bitcoin is also a payment network. As a payment network, Bitcoin replaces the function of banks (especially the Federal Reserve as money creation is not at the whim of any person nor group), inter-bank funding networks (like SWIFT and SEPA), payment processors (like PayPal) and remitters (such as Western Union). The entirety of these massive industries as they relate to the creation, storage, accounting, and transfer of money has been usurped by Bitcoin. If Bitcoin succeeds, it is likely that PayPal and Western Union would be removed from the marketplace. The Federal Reserve (and every central bank) would be made redundant. “Disruptive technology” is thus an understatement.”

Is Bitcoin “money”? Does it have the characteristics that define that elusive concept called “money”. According to the traditional definion, “money” should be a store of value, a medium of exchange and a unit of account. Let’s see:

  • Is it a store of value?. Yes. Why?. Because it cannot be counterfeited and because it is scarce. Only 21 million Bitcoins will ever be issued by 2140. Being a store of value is based on being scarce, and Bitcoin is scarce.
  • Is it medium of exchange?. Yes. Why?. It is used to purchase and sell products and services.
  • Is it a unit of account? Yes. Why?. It is fungible, divisible and can be used to accumulate wealth.

Bitcoin is an experiment, and it could fail. Its success depends on its creators fulfilling the pledge never to issue more than 21 million units, on keeping it scarce. But so far it is succeeding. Check the price of the Bitcoin in USD in this chart provided by Blockchain: It went from 10 USD in July 2012 to 70 USD this last week. Check also the market capitalization of the Bitcoin market in this chart also provided by Blockchain: It went from 100 million USD in July 2012 to about 800 million USD this last week.

Its success also depend on it being widely accepted. This condition has the characteristics of a self-reinforcing loop: The more it is accepted, the higher the chances of it succeeding as a medium of exchange. So far the prospects are good. Transactions mediated by Bitcoin are growing fast.

As Bitcoin is decentralized, it can be hard to find all the resources one might want. Below is a list of some of the most useful websites and tools for learning about and engaging the Bitcoin economy (compiled by Erik Voorhees)

Paytunia.com – Very nice online ewallet service with Android app. Store your coins here.

BitSpend.net – Enables you to buy ANYTHING online by paying with Bitcoin. Very cool.

Bitcoin.org – Official site of the Bitcoin project, download the wallet software here.

MtGox.com – The leading Bitcoin exchange. Buy and sell Bitcoins here.

BitcoinTalk.org – The official discussion forum, and large enthusiast community.

Wiki.Bitcoin.it – Encyclopedia of most aggregated Bitcoin knowledge, very extensive.

Bitcoin.it/wiki/trade – Partial list of companies that accept Bitcoin as payment.

Blockchain.info – Tool for viewing accounts, payments, and numerous economic statistics.

BitcoinCharts.com – Shows current market prices and economic statistics.

Preev.com – Super easy Bitcoin<->fiat calculator, multiple currencies supported.

BitcoinMonitor.com – Live view of transactions as they happen on the Bitcoin network.

Paysius.com – Enables businesses to automatically accept Bitcoin payments on their website.

Bit-Pay.com – Another excellent merchant solution for businesses that wish to accept Bitcoin payments.

Coinabul.com – Leading gold and silver bullion seller for Bitcoin

Coinapult.com – Send Bitcoin via Email or SMS

WorkForBitcoin.com – Bitcoin job board – freelance projects which pay in Bitcoin.