As the United States is at the lowest level of forward military deployment in 90 years, with an extreme aversion to new overseas involvement among conservative voters, the US as financial clearinghouse and security guarantor for global trade is receding rapidly. Meanwhile, a breakdown in trust of supply chains, centered in China, exposes the weaknesses in globalized trade. If the kind of financial cooperation enjoyed for the last six decades can’t be found to make a thing there and ship it here, the role of the US dollar as the central medium of global financial cooperation could likewise be relaxed.
This makes many countries reliant on trade with Western consumer economies highly vulnerable to new currency volatility. Because Bitcoin’s monetary policy is resilient to interference from state actors, it should be thought of by core and non-core central banks alike as a strategic tool to dampen the effects of currency weakness and attacks against domestic financial systems.
These effects include 1) the Congressional announcement to abrogate its responsibility to pass budgets by abolishing the debt ceiling, giving the executive carte blanche to print and spend, 2) the IRS contravening the 4th Amendment to peer into personal and corporate bank accounts, 3) the largest increase in Social Security spending in 40 years, guaranteeing that high levels of consumption by elderly Americans continue to be financed by young Americans by way of inflationism.
And perhaps more importantly, the internal effects of drastic shifts in the prevailing economic paradigms could be even more destabilizing. Bitcoin offers a way for domestic populations to preserve purchasing power to remain socially resilient through extreme political conflict. And as central banks bandwagon on MMT, and the 2020 fling with universal basic income (over 30% of US 2020 GDP was government transfer payments), it is unexpectedly Bitcoin which secures domestic financial solvency.
At Home
The United States since 1945 has made the choice to trade domestic economic resilience for a combined projection of financial and military power. This tradeoff has largely not been felt domestically as a consequence of many factors including the remarkably long-lived and robust ability to export inflation in exchange for consumer imports, structured primarily atop the pricing of crude oil in USD. This dynamic always had a shelf life, however. The exchange of absolute decomposition of domestic productive capacity and its sociological consequences arrogantly ignored for the sake of near-term shareholder returns was ending. Through the 2016 elections, the US electorate vocalized that the tradeoff was in fact being felt finally in a way that was no longer acceptable.
Globalized trade networks which required greater and greater domestic borrowing in order to export geometrically more of the hegemonic currency has meant the cost of currency hegemony is sponsored by Americans’ private balance sheets. And now an apex of deindustrialization leading to a drastic erosion of underlying collateral is met with a national debt so large the interest charge will surpass the defense budget. As the president just quipped, “Raising the debt limit is about paying off our old debts.” Is the hegemony of the USD any longer socially viable in the US?
In 2020, world governments more deeply entrenched themselves in a combination of lockdowns and supporting those who found themselves on the wrong side of the debt-based ponzi scheme at the expense of those on the right side. There are two cohorts on the wrong side of the ponzi scheme, both who’ve taken on debt as a counterforce to inflationary wealth erosion. Those taking on debt to consume, who most aggressively agitate for government budget expansion, and those taking on debt to lever into rent-producing assets and financial speculation, who most aggressively agitate for permanently zero interest rates and MMT. Both powerful cohorts are against the long-term hegemony of the USD in their abetting of the crime of national and private capital depletion.
If USD hegemony is not socially viable, countries face two challenges, 1) replace the primary reserve asset, and 2) compete far more unilaterally on trade for that new asset. We must also look forward in a “qui-bono” sense, who else benefits from a global capital depletion? China of course comes to mind, which must wrench itself free from the petrodollar in order to grow economically, and replace its own commodities trade medium with a digital yuan which it can emit unilaterally rather than export in order to earn. In this new regime with a with competing inflationist currency providers, Bitcoin in effect acts like part of an SDR basket and at the very least becomes strategically central to any state seeking to preserve its economic stability in order to preserve its national defense.
Mining
For this reason, it is critical the United States maintain a dominant foothold in mining capability. As central banks embrace Bitcoin as a reserve asset to help insulate their citizenry from attacks on their fiat currency flexibility and integrity, domestic mining will be thought of as a strategic asset. Both a heavy reserve position and mining capability will be central to the complexion of strategic financial integrity.
China’s expulsion of miners in Q2 2021 showcased its push to support its own digital yuan in the new era of strategic competition for currency reserve status, relinquishing immediate threats to the Bitcoin network. The United States has the opportunity to grasp strategic ownership of a dominant position in mining the Bitcoin network. This someday may entail the US Defense Department preparing budgeting for computation acquisition resources to prevent 51% attacks. But by far more importantly, it means individual states must be proactive in exploring how they can support new mining operations being formed and built.
We believe it will become more and more difficult to view that American mining networks are not a critical element of infrastructure for human economic ecology which spans the entire 7.7B of us. We are in the early stages of profound social transformation which calls for the best of the best. Individual states and the nation at large must be early in intellectually and emotionally embracing the drastic changes which have only just begun.
-RC