Rachel’s note: Today in the Dispatch, we’re bringing you part two of Casey Report chief analyst Nick Giambruno’s conversation with our colleague over at The Daily Cut, Chris Lowe. (If you missed part one, you can catch up here.)
Regular readers know Nick’s bullish on gold. He believes the historic run we’ve seen in recent days is just beginning. And that the fallout from COVID-19 will only accelerate the metal’s rise.
Recently, he uncovered a sinister government plan to confiscate everyday Americans’ wealth… while the mainstream is distracted by the coronavirus crisis.
And be sure to read on below for all the details behind the War on Cash…
Chris Lowe: Something I’ve been talking about for years is the War on Cash. There is a push to remove physical dollars from circulation in the U.S. Is that part of the changes that are coming in the money system?
Nick Giambruno: Yes. There are two things here.
First, there are the changes the elites, governments, and banks of the world would like to implement. Second, there are the changes that may be forced upon them to implement.
The dream of statist, totalitarian central planners is a cashless system in which they control a digital currency. That’s what they would like to do. And that’s what they’re trying to do. Whether they succeed is anybody’s guess.
I hope they don’t. But they are moving in that direction. And it’ll be a nightmare. From a personal freedom perspective… from an economic perspective… it’ll be a total disaster.
The ethos of governments is never let a crisis go to waste. A crisis lets them do things they otherwise couldn’t do and push for things they otherwise couldn’t push for.
Moving towards a digital, cashless society has long been on their bucket list. This whole COVID hysteria might give them the perfect pretext to roll it out.
Whether that’ll be successful or not is undetermined. But there are ways you can protect your wealth in spite of all of these things happening.
Chris: I want to get to the ways to protect yourself in a moment. First, I want to stay with this idea that the U.S. government would stop printing the dollar and replace it with a digital version.
People would spend it on their phones, much like bitcoin or something. Is that how it would work?
Nick: Yes, it would. If you take a long view, this is well underway. Just think of how inflation has destroyed their buying power.
Today, a $100 bill is the largest denomination of U.S. currency. But there used to be a $500 bill, a $1,000 bill, even a $10,000 bill.
Then you had the whole fake farce of the War on Drugs. This introduced another fake concept, money laundering, which is a make-believe crime.
It’s a completely invented political crime that didn’t exist 40 years ago.
And then of course we had to get rid of these large bills because of the made-up concept of money laundering. Since then the largest bill has always been a $100 bill.
But a $100 bill is not worth what it was in the 1970s. A $100 bill today is worth what a $20 bill was in the 1970s.
So just by not making larger-denominated bills, they’re already pushing people into electronic payments. But even that’s not going fast enough. They want to go full-blown with the cashless society. That is where they’re going with this.
They’re making all sorts of restrictions on cash. On top of the War on Drugs hysteria, you had the War on Terror hysteria and all this Know-Your-Customer crap. It’s a total farce. This is making it harder and harder to use cash.
It’s not a coincidence. It’s a trend in motion. That is where things are going unless something turns this trend around. Unfortunately, I don’t see how that will happen.
There are some things that are pushing in the other direction. But not from politics. They’re coming from the free market.
Chris: Before we get to those, I wanted to talk to you a bit about COVID-19 and the War on Cash. I haven’t used cash here in Ireland, where I’m based, in a while. Merchants just don’t want to take it. With the pandemic, they’re worried about it being a vector for contagion.
So most people probably haven’t used cash in the past couple of months. They may not even miss it… over the short term, anyway.
Nick: Well, like I was telling you before, this whole COVID-19 thing has become politicized all around the world.
This is one aspect of it. They’ll use the COVID-19 crisis to push for the cashless society. That’s now fairly obvious. We’ll just have to see how far they push it… and whether people will just roll over and accept it.
I guess the next step is to microchip everyone. Are people just going to accept this? I certainly hope not.
Chris: That’s a scary prospect. I read that you had unearthed this patent proposal from Microsoft to do exactly that. It seems so bizarre. It was a patent that would detect your body temperature and other biometrics… and also allow you to pay for stuff. Is that right?
Nick: Yeah, that’s essentially right. That’s not good. It’s part of the push toward this totalitarian technology. Of course, it’s going to be integrated with a lot of other things too.
Now you have something like a Maoist Cultural Revolution going on in the U.S. Well, don’t be surprised if there’s a Chinese-style social credit system.
[The social credit system is a national reputation system the Chinese government is rolling out. The government gives every citizen a score. When you break the law… or do something the government doesn’t like… it docks your score.
Get a low enough score, and the government metes out punishments. Folks with too low a score are banned from commercial flights and trains. They’re also banned from sending their kids to certain schools and getting jobs at state-run firms.]
If you say something that the outraged mob doesn’t like, it’ll ding your score. That will make it harder for you to do everyday things. It doesn’t need to be a blatant criminal act. It could be for “thought crimes.”
This thing needs to be stopped in its tracks right now. Where it can go in the not-so-distant future is truly terrifying.
Chris: You mentioned that there are some free-market forces pushing in the opposite direction. Are cryptocurrencies one of those forces?
Nick: Bitcoin is clearly a free-market currency. People may not understand, but bitcoin is absolutely a creation of the free market.
Nobody told anybody they had to use bitcoin. There were no legal tender laws that forced anybody to use bitcoin. You just had millions of people around the world coming to the same conclusion: “Hey, this thing has value as money. Let’s use it.”
Bitcoin’s rise in value is the result of millions of individual choices and judgements about bitcoin as a monetary good. And that’s because bitcoin has monetary properties.
It could be a very important tool in the pushback against the digital dollar. It could be the invention that rips the monetary power out of the hands of governments and the state. Thanks to bitcoin, we’ll hopefully have a separation of money and state.
But I’ll add a caveat. Bitcoin is very different from the other cryptocurrencies. Bitcoin is a monetary good. Other cryptocurrencies are more speculative in nature. They don’t have the same monetary properties as bitcoin. But in the marketplace for monetary goods, bitcoin is very exciting.
Chris: What is it about bitcoin that makes it so interesting as a “monetary good,” as you put it?
Nick: Well, at Casey Research we often talk about monetary goods as being durable, divisible, and consistent.
But one thing people get hung up on is they think there’s something called intrinsic value. Intrinsic value is a myth. It doesn’t exist. It’s a figment of your imagination.
Value is not objective. It’s subjective. Something has value because it has value to people. For example, when people didn’t understand what crude oil was, they’d find it in their backyards and think it was garbage.
Bitcoin doesn’t have physical value. But it does have monetary properties. That’s because it’s durable, divisible, and consistent. And the most important monetary property that bitcoin has is that it’s a hard asset – new supply is insignificant relative to current supply.
That’s why gold, incidentally, is also a superior monetary good. It’s not just that gold is rare and scarce. It is. That’s important, too. But platinum and palladium are rare and scarce as well.
Why aren’t platinum and palladium money?
It’s because the new production of platinum and palladium that comes onto the market each year is about equal to the existing stockpiles of platinum and palladium.
That is not true of gold. New supply of gold relative to existing stockpiles is coming on stream at a rate of 1% to 2% a year. Bitcoin is about the same. But bitcoin’s supply is coming on at a decreasing rate.
[New bitcoins enter circulation as block rewards. “Miners” produce them using expensive electronic equipment to verify transactions on the bitcoin network. In return, they earn new bitcoins. This process is known as “mining.” Roughly every four years, the total number of bitcoin that miners can potentially earn is halved. This tapers the rate of new issuance over time.]
There is one more feature of bitcoin that makes it different from every other cryptocurrency. Bitcoin is immutable. Nobody controls it. It’s sufficiently decentralized. We’ve seen that.
And just look at Ethereum, the second-largest crypto asset by market value. It has a lot of problems. For example, the development team of Ethereum is arguing about what the inflation schedule should be.
[In the crypto world, new coin issuance is governed by code. The inflation schedule of a cryptocurrency governs how many new coins are issued and how frequently.]
That’s no different from a central bank getting together and deciding what the inflation schedule should be for a country.
Bitcoin is different because it takes the monetary policy out of the hands of humans. Humans will inevitably inflate the supply. It’s just a matter of human nature.
Bitcoin’s monetary policy is not in the hands of a development team of influential insiders. The monetary policy of bitcoin, as well as all the rest of its aspects, is resistant to change. That’s what makes bitcoin a superior money.
Every other cryptocurrency from Ethereum on down has development teams, insiders, and groups of people who can get together and change the monetary policy – should they choose to.
That makes these other cryptos, in my view, no different from a central bank. They may be good for other things. But they’re not good as money.
Chris: A final question then, to address both bitcoin and gold. How are these two assets going to help preserve people’s buying power versus the dollar over, say, the next 20 years?
Nick: Well, given the rampant central money-printing going on around the world, I don’t expect fiat currencies – whether the dollar or any other currency – to hold much of their value over the long term.
So I’m not looking to personally hold dollars over the long term – certainly not for 20 years. Who knows what the buying power of those dollars will be in 2040?
I use dollars for short-term spending and medium-term savings as a diversification of savings. For long-term savings, I like a mix of gold and bitcoin… but mostly gold. Gold has that 5,000-year history as a reliable store of value. I don’t think that’s going to change.
Remember, we’re talking about three monetary goods here – the U.S. dollar, gold, and bitcoin. The wonderful thing about the market is competition. I want to see more free-market monetary goods in the market for money.
Bitcoin is a new monetary good in the market for monetary goods. That makes it more speculative. Yes, it has monetary properties. But it doesn’t have that established history. There are still a lot of issues.
I see bitcoin as a mix of a store of value… and also as a speculation. Bitcoin is becoming money around the world. But it’s still small right now. So buying bitcoin today is a speculation on bitcoin’s further monetization.
I think it’s a very good bet. But in my opinion, it’s riskier than gold. So that’s how I divide my “buckets” of these three monetary goods.
Chris: So the more conservative you are, the more you lean toward gold? Then you hold a more speculative portion in bitcoin. Is that right?
Nick: For your long-term savings, yes, absolutely.
You want to own gold with as few counterparties as possible. So don’t buy the gold exchange-traded fund (ETF) GLD (SPDR Gold Trust). Who knows how much gold it has? You’re just buying papers that are being shuffled around, and you have no idea. If you want to own gold, own it in a way that has as few counterparties as possible.
The fewest counterparties possible is having a coin in your hand. Then you have no counterparties. That’s how I would recommend dealing with physical gold.
Chris: And I presume if you’re saving bitcoin over the long term, you’d want to hold it on some sort of storage device and not on an online crypto exchange. Is that right?
Nick: Well, it doesn’t have to be on a storage device. This can get complicated for folks. But it doesn’t need to be…
With bitcoin, the equivalent of holding physical gold in your hand is making sure you control your private keys.
[Bitcoin and other cryptocurrencies use something called public-key cryptography. To prove ownership of your bitcoin, you need two keys – public keys, which you can share with others, and private keys, which are known only to you. Think of your private key like a unique signature you use to prove ownership of your bitcoin.]
So if you hold your bitcoin on an online exchange such as Coinbase or Binance – or any of the other crypto exchanges – you don’t control your private keys. You have basically the equivalent of a bitcoin in a checking account.
What you want to do is to make sure you take that bitcoin onto a wallet that you control.
[When you mix bitcoin, you combine it into one large transaction with multiple inputs and outputs. An observer cannot determine which output belongs to which input, and neither can the participants themselves. This makes it difficult for outside parties to trace where a particular coin originated and where it was sent. It’s a way of anonymizing transactions.]
Chris: Great. Well, Nick, that’s so much information. Thank you. Hopefully, you’ll still be safe and sound in Argentina.
Nick: Yes, absolutely. Thank you, Chris. I hope you stay safe as well, and we can all return to normal as soon as possible.
Rachel’s note: As Nick said above, government bureaucrats never let a crisis go to waste. And the coronavirus is just another excuse for politicians to pass unpopular laws… and escalate their War on Cash.
Recently, Nick uncovered a sinister plan buried in a stimulus bill… it’s an underhanded cash grab aimed at everyday Americans’ savings.
Go here to access Nick’s urgent briefing… and learn how you can prepare today.