I believe in my lifetime, the world will have to deal with something I (and others) have dubbed “The Great Collapse”. At first, I admit this sounds like conspiratorial thinking. However, I am not suggesting this collapse is a plan crafted by shady figures behind closed doors, but rather the natural course of our economy given our actions and circumstances.
I’ve taken to studying monetary history in the last half-decade of my life in order to better understand Bitcoin and the role it is playing in today’s macroeconomic environment. A lot can be learned from studying the actions of policymakers, and bankers in the context of trying to understand the direction of our current economy.
Now, it seems we have an opportunity to protect ourselves from what appears to be an inevitable cycle of fiat money collapse. We have Bitcoin; the insurance policy against The Great Collapse.
What is The Great Collapse?
The Great Collapse is the natural result of two macro trends.
The inflationary influence of expanding the base money supply
The effect of infinitely expanding a fiat money supply is known and thoroughly explored by our ancestors. It has always ended in the collapse of the currency itself, and a subsequent contraction or collapse of the nations built around it.
The deflationary effect of technology has only begun to be understood on a macro level as we are now leaving the long tail on the exponential curve that is technological innovation.
Both effects are exponential in nature.
“The greatest shortcoming of the human race is our inability to understand the exponential function.” — Albert Allen Bartlett
Now more than ever, it is important that we strive to understand both of these trends in light of our inability to comprehend the nature of the exponential function.
Exponential Expansion of the Money Supply
Last week I wrote about how Modern Monetary Theory is built on the premise that we can print money infinitely (as long as we keep inflation under control). I mentioned that other empires from our past have tried similar things only to fail in similar ways. In order to understand what effect printing money will have on the economy, let us look at a couple of examples from our history books.
The Fall of Rome
Like all things, the cause of the fall of Rome is not due to a single factor such as the debasement of the money supply. But debasement certainly contributed1. Alongside debasement was excessive military spending, money clipping, over-taxation, and corruption at the governmental level. For example, political positions were auctioned off to the highest bidder, creating a system wherein the rich could easily seize power and exert their control to seize ever greater amounts of wealth and power.
The Dutch Florin
The Dutch Florin2 reigned as the global reserve currency in the 16th and 17th centuries. The system worked similarly to how our current monetary system is structured. The bank of Amsterdam issued currency to the city of Amsterdam, wherein they distributed the currency to the Dutch empire during their reign. The end of the life of the Dutch Florin was brought on by excessive government spending, expansive credit for the public, and wartime funding.
The US Dollar
Pointing out the obvious here. We are in a time when the United States just spent 2 trillion dollars fighting a 20 year war without result (wartime funding). Almost 50% of all USD in circulation was printed in the last 2 years3. The debt to GDP ratio is climbing to new all time highs4. The consumer debt for all developed nations is reaching an all-time high, with America coming in at a total of 15.3 trillion dollars5. I don’t know how anyone is convincing themselves that we’re not in the middle of the collapse of the current monetary paradigm.
Deflationary Influence of Technology
Deflation — Reduction of the general level of prices in an economy.
Technology makes everything cheaper. It does this by creating efficiencies and innovations within our economic systems. Technology shortens the time it takes for a good to reach its destination (planes, trains, automobiles). It also gives the destination the means to produce goods for themselves with materials that are readily available (3D printing, manufacturing, agriculture).
The internet is the great accelerant to the trend of deflation. One effect of the exponential function is that the rate at which technology progresses keeps on accelerating. In other words, things will continue to change faster and faster with each passing year.
The Gutenburg Revolution
The last thing to rival the invention of the internet in terms of information accessibility is the invention of the printing press. It took place in around 1440 and allowed for the mass production of printed text. In other words, the cost of producing books and information was significantly reduced. The first piece of text to be mass-produced was the bible. This eventually led to the separation of church and state, as the church no longer had a monopoly on knowledge and religion. People no longer needed to go to church to consume their religion, they could sit at home, and interpret religious teachings in the sanctity and privacy of their own home.
Suddenly, by putting information, and the means to create and distribute new information in the hands of the individual, society saw a massive explosion in the democratization of all states wherein a printing press was domiciled.
The Internet Makes Everything Cheaper
The time to create, and distribute information was further driven closer to zero by the internet. Telemedicine makes healthcare faster. Netflix put blockbuster out of business by bringing movies directly to your couch. Bookstores cannot compete with Amazon because they’ve built a bookstore with every book ever printed in every language ever.
No bookstore big enough would ever stand to compete with Amazon, nor would you want to physically walk through such a bookstore to find the book you’re looking for. Google has made finding information instantaneous, allowing people to more easily access specific information on a topic. It is easier than ever to create a website and add to the modern-day Library of Alexandria.
The internet in aggregate has allowed for more education to take place, with the least amount of barrier than any other systems of information that existed before. The internet unbiasedly gives information to those who request knowledge from it. As such, it is a model technology for future systems to built upon.
Bitcoin is the Ultimate Deflationary Money
As quoted earlier in this letter, humans are not very good at understanding the exponential function. Bitcoin leverages the greatest deflationary information system to ever exist (the internet) to manifest the greatest deflationary monetary system to ever exist (Bitcoin). Built directly into the code of bitcoin, is the design to half the rate at which new bitcoin enters the system every 4 years. This function is exponential.
Not only does bitcoin accelerate the rate at which people can economically participate in the world, it decelerates the rate at which more bitcoin will be available in the future. For me, this makes Bitcoin the ideal technology to adopt in a time when inflation is about to explode.
Oppositional Forces at Play
As inflation of our money supply drives the relative prices of all things up, technology works in the opposite direction bringing the prices of all things closer to zero. Both forces now seem to be climbing the exponential curve, and so we’re going to see what these forces do when pushed to the limit. History can already tell us what is likely to happen to our monetary system when money is printed like it is today. The wild cards here are technology and bitcoin.
We have yet to determine as a civilization what happens when we climb the exponential curve of technology. If history is any kind of reliable predictor of the future, then goods and services will become cheaper and more accessible as a result of technological innovation.
Jobs will become more scarce, and goods and services will cost less and less over time. If the money we use to buy these goods is bitcoin, then the cost of those goods and services will go down in bitcoin terms. In other words, a little bitcoin now goes a long way later.
Bitcoin, the Insurance Policy
Imagine someone selling you house insurance when your house is on fire. You would be a fool not to buy it. I suppose the only thing you’d need to be sure of, is that the insurance company will be around to fulfill your claim once your house actually burns down. Luckily, Bitcoin is perhaps the most robust and anti-fragile system to ever exist, virtually guaranteeing that you will be able to cash in on your policy.
For me, the collapse of our current system is when not if. From this perspective, it is difficult to wrap my head around NOT owning bitcoin, even if it is just a little bit. Owning .1 Bitcoin is infinitely better than owning 0.
I am not an economist, nor a professional investor. All information in this letter is not investment advice. All decisions taken as a result of reading this letter are your own, and I shall not be held accountable for gains or losses incurred from following any information contained within this letter.