The below is a direct excerpt of Marty’s Bent Issue #1174: “Trust is being repriced in real time.” Sign up for the newsletter here.
What a time to be alive. The world is currently witnessing the global markets reprice trust in real time. Trust is a key ingredient in stable and peaceful economic activity. When trust is loss it leads to increased friction in economic activity. When the United States decides to freeze and seize money held in reserve accounts by countries they do not like it makes it so those countries cannot trust the United States to custody their money. Even worse, it allows doubt to begin to creep into the minds of other countries who are looking on from the sidelines. “If they can do that to them, they can do it to us. What’s stopping them from doing it to us?”
This is a line of questioning that is leading to the death of the US Dollar as the reserve currency of the world. There is no turning back from this. Trust has been lost and it won’t be coming back. Especially when one takes a critical look at how the dollar system has been managed since the Great Financial Crisis. “They’re going to print trillions dollars out of thin air on a whim and then have the gall to tell us we cannot even access them? I’d be crazy to hitch my financial wagon to this horse.”
Opening this Pandora’s box of questioning has many speculating that Russia, China and other BRIC nations will begin to increase the amount of trade that is settled in their native currencies and over rails that do not originate from the West. Visa, Mastercard and PayPal have locked out tens of millions of Russians from accessing their payment rails. Rumor is that there will be a tectonic shift toward China’s Unionpay, which was already facilitating almost half of all payments in Russia before last week. There is another rumor that Russia and China will roll out gold-back currencies or begin demanding that their commodities like oil, natural gas, and wheat be purchased with gold.
Speaking of commodities, they are proving to be very valuable in a world in which trust is being lost en masse. It turns out that when you exhibit untrustworthiness by using your monetary power to reprimand whole countries, those countries will react by using their hard assets as leverage to send a message back to you. Russia is learning a lesson about trusting others to hold your money and the US and Europe are learning lessons about trusting others to produce the commodities needed to facilitate a functioning economy. The West would be wise to take this lesson seriously and begin becoming more energy and food independent and secure so that they don’t have to trust countries they are engaged in a proxy war with for said goods.
I think it’s safe to say that things are pretty …messy at the moment. The world is in for some very volatile times as it attempts to appropriately reprice trust on a global scale. Many are going to learn hard lessons. Yes, turning to Unionpay, settling trade in currencies other than the dollar, and bringing back gold pegs seems like a better alternative than being beholden to the whims of the US government at the moment. However, doing these things doesn’t really solve the core issue of trust. You still have to trust Unionpay. You still have to trust that your trade counterpart won’t mess up their currency. And you still have to trust that the custodians of the gold you plan to back your currency doesn’t rehypothecate your gold by creating paper claims that exceed the amount of gold in the vaults. All of these solutions are temporary at best if your end goal is to decrease the level of trust necessary to be comfortable to reengage in earnest and free trade with counterparts who have lost your trust.
The only solution out there that provides this type of trust minimization is bitcoin, the distributed peer-to-peer cash system that cannot be controlled by a single person, government, corporation or coalition. The only way to ensure that your money is safe, your relative slice of the overall pie is preserved overtime, and you can spend it whenever and however you want is to use bitcoin as your money. It’s really that simple.
The world is headed for a period of chaotic experimentation of dollar alternatives that will employ a number of different strategies that are doomed to fail in the long-run due to the amount of trust necessary to make them viable. In a world where you cannot trust anyone because trust has been eroded, the only viable option is a free and open source distributed software program that anyone can join and validate for themself. Bitcoin has never been more obvious of a solution than it is today.