Later in May, the US govt began breathing down its neck by seizing one of BitCoin's biggest exchanges. This was followed up with the'Liberty Reserve' digital currency being shut down completely, allegedly because it was "running a $6bn money-laundering scheme that became a bank of choice for the criminal underworld." Is BitCoin also being used for this purpose? Or is that the official line to dissuade people from using a potentially viable alternative to the international central banking cartel's 'funny money'?
Just yesterday, August 26th, it emerged that the BitCoin Foundation has been meeting representatives from FinCEN (a U.S. Treasury agency), the Internal Revenue Service, the Federal Deposit Insurance Corporation, the Federal Reserve, the Office of the Comptroller of the Currency, the FBI, the Drug Enforcement Administration, the Secret Service, the Department of Homeland Security, and legislators on Capitol Hill.
At a time when services founded on complete user privacy are folding left and right, is this a last-ditch lobbying effort to stave off govt-enforced closure? What kind of compromise can a virtual currency that attracts users because of the privacy it offers make with a National Security State that is determined to know everything about everyone?
Running Time: 02:12:00
Download: MP3
Show transcript:
Joe: Hi and welcome to this week's SOTT Talk Radio.
Jason: The world for sweaters that shrink.
Joe: The world for sweaters that shrink. I'm Joe Quinn and with me is Niall Bradley as usual also Jason.
Niall: Hi everyone.
Joe: As usual. Say hello Jason.
Jason: Hello Jason.
Joe: Good job, and Pierre.
Pierre: Hello.
Joe: This week we are going to look at the recent hits taken by gold and bitcoin. Bitcoin is so called virtual currency and has been touted as the solution to people's concerns of online privacy and protection from over bearing and centralized fiscal authorities. Bitcoin has steadily risen in popularity and value since its launch in 2008. Until, that is, a couple of weeks ago when the dollar value suddenly plummeted. What happened to make people suddenly lose interest? Or more sinisterly, was it that the currency was attacked by financial speculators? What makes prices rise and fall anyway? Speculation, hype, and pump and dump schemes certainly play a role in making or breaking products on the markets inflating the value of state's currencies. But are there forces at work here that extend beyond human influence? And what about paper money? Do we still use it? Will it soon become a thing of the past? Is a cashless society, where all purchases are made with digital transactions really on the cards? Everyone knows that money doesn't grow on trees. But where then does money come from?
Jason: Well it's made from paper and it technically...it's not made from paper anymore. It's kind of like a linen material?
Joe: I don't know, but why is there never enough of it for most of us and far too much of it for the 1%? In an era of record wealth disparity between rich and poor, what are we going to do about it? Are we unique in history? Or do we have a historic precedence to compare it with? And after all those questions I open to our panel of experts.
Jason: Well first we should backtrack one second, or no you go ahead.
Niall: I wanted to clarify that we are not experts but it interests us...
Joe: Speak for yourself there Niall. Joke my friend.
Niall: I mean, you know we've got some pretty well educated opinions, I think, amongst us. Between us. I reckon a lot of our callers too are people who are paying attention who understand to some degree how things are rigged.
Jason: Tell us the number for calling in.
Pierre: Either you see it or not, as a consumer, as an employee, as a retired type person, you can see the effects, you can see what is going on, see the erosion year after year, month after month, of your purchase power. You can see rising poverty. You can see the rich getting richer. You can see the poor getting poorer. Even if you don't grok all the certain mechanisms behind the curtain.
Niall: Yeah. Everyone has got their opinion on it so we are going to throw our opinions out there and you are more than welcome to put yours into the hat and we will see what we come up with.
Jason: Yeah. We hope people will call in and chime in with this stuff. What is the number for the call in Joe?
Joe: The number is 001, if you're outside the US, then 718 508 9499.
Jason: Thanks Joe. So I wanted to backtrack what Joe said, because a lot of people are presenting bitcoin as a privacy kind of thing. They do a privacy angle. And that really is not true. Bitcoin wasn't designed with privacy in mind at all.
Niall: Well how about we backtrack even further. I mean to be honest, until it came up in the news recently, I've heard mention of it here and there but I was like man bitcoin, what's that? So you've got some idea here, what is bitcoin?
Jason: Ok, well bitcoin is, I'll use the description line, it is a decentralized, peer to peer currency. Now what that basically means is, everyone who participates in bitcoin, all the spenders and users and stuff like that - all of the people part of the network - are the central authority basically. There is no central bank that issues bitcoins. Bitcoins are generated by solving mathematical equations to find correct sequences of hashes, and thus creating coins. There is a limited number of coins that can ever be created; twenty one million or so. And, as you go along within history, the coin becomes more and more difficult to generate.
And what this basically means is that bitcoins are not counterfitable. You cannot print more. And it is mathematically backed up, which in a certain sense is kind of what makes bitcoin very attractive, because a lot of banks are saying that bitcoin has no regulation. Well that is not really true. Bitcoin has the sternest regulator of them all, mathematical. You know the god of mathematics tells you exactly what can and cannot happen. And no amount of...
Niall: Just to clarify, you mentioned print anymore, but this is a virtual currency. There is no actual physical coin or paper, right?
Jason: Mmm, that's kind of an... that comes down to a philosophical question of whether or not something inside of a computer has an existence. And it does really. People need to remember that computers do have physical existences. And uh...
Niall: Sure, the computers do but the currency as such is not actually, that's why it is called a virtual currency right?
Jason: It does exist. It does exist because it's like the number 13 exists right? You would say that the number 13 exists. It doesn't physically exist. You can't hold 13 in your hand.
Niall: Right, I got ya.
Jason: And in the same sense that a bitcoin exists because it is just a mathematical reality that that bitcoin exists inside of a space of 0 to 21 million possible numbers representing a bitcoin. So it does exist. It has a very fixed existence. It can't be faked. It can only be found based on the history of the network and what's going on. And then there you go.
Niall: Got you. So the concept is sound.
Jason: The concept is excruciatingly sound. It's backed up by hardcore mathematical; a mathematical truth essentially.
Niall: Ok.
Jason: There is no way to fake it.
Niall: How is it, is there one particular group of people, one guy, how does this start and when did it start?
Jason: It started in 2008, 2009 by a ...
Niall: Ok, so about 5 years now.
Jason: By a white paper published on a crypto list, which are people who are interested in mathematical cryptography and stuff like that.
Niall: Ok.
Jason: You know like creating hashes and ways to secure information and things like that. Wrote a paper and published basically a proof of concept source code for a program. Very well designed. It is suspiciously well designed actually.
Niall: Have you had a look at it?
Jason: Yes. I've had a look at the source code. I've had a look at the paper by a man named Satoshi Nakamoto, who doesn't write like a Japanese person at all, and has a German email address. He's kind of like a Fulcanelli character where he just sort of popped up, created this thing. It was already kind of really created and done, you know, as a whole masterpiece almost, with very little changes have been made. There have been a lot of fixes and some new features into the client and stuff like that. But for the most part the system hasn't fundamentally changed since he "designed it" quote-unquote. Um, so there are a lot of questions about it; who he was, whether he was a group of people and things like that.
Niall: Ok, now it's taken off, to the extent that, two weeks ago, the news was that the bubble had burst on it.
Jason: Right.
Niall: So, what's meant there? The bubble of the value of bitcoin that have been generated in these five years suddenly plunged, what happened there?
Jason: The thing is that bitcoin was designed to be kind of like an open source community currency in the same sense that like I have a hammer, you have some eggs, you need somebody to build you, you need to borrow my hammer to, you know, build something and I need an egg to cook so if you give me an egg I will let you borrow my hammer. So it's a physical exchange even though it's a virtual currency.
Niall: It's a means for exchanging goods and services like any other form of currency.
Jason: Like any other form of currency. But then some smart person, some idiot, decided that they would have like currency exchanges that people could do speculation, um, based on bitcoins. And then buy and then sell them in the same way that people buy and sell currencies or buy and sell any kind of quote-unquote "commodity". Even like gold, or whatever it is. And so they created some exchanges, internet exchanges that people could go on, they pay their money and get some bitcoins and they trade them back and forth. And um, through some mechanism the price of it goes up because, of course, it got very popular so people started wanting them. Of course when people want them they will pay any price for them. But at a certain point after they had gotten their bitcoins and realized that they couldn't do anything with it. So they are like shit I want my money back, and so they start selling them, and they were willing to sell them at any price. So then, of course you know, the value went up and then the value went down and that's what happens with currencies all the time. There is nothing fantastically new about it. It doesn't change anything intrinsic about the system. Or the value, I mean it's just what people who really aren't even really a part of the community of bitcoins, who are willing to pay. They were willing to pay 260 bucks because they are idiots. And then when they were in there they got scared and they were willing to accept anything that included like, you know, 16, 20 bucks or 50 bucks or whatever it was that it fell to at the time, I don't remember. Um because they were idiots you know, that's basically what happened. It wasn't a big bubble and I get the feeling from reading various news and reading the various posts from the community of bitcoin users that they were just like, what? Huh? You know like it went up and they were like, oh cool, and then it went down and they were like, eh whatever, I am going to go continue doing what I'm doing.
Niall: Can you explain to technophobe, like myself, I'm not a technical, I don't hate technology but I'm a technophyte.
Jason: Yeah?
Niall: Can you explain to me what would be attractive about getting involved and or purchasing? What was it that brought people into this little market so to speak?
Jason: People who are sort of of a libertarian bent and very against central banks and the currency manipulation and depreciation ... (inaudible) ... aspects of the system are of two varieties: one, of course, you can't print more so it is a fixed supply, therefore it's ... (inaudible 11:12 to 11:28).
Niall: We're back.
Jason: So we're back online there Joe?
Joe: Yes, we are back online. Carry on.
Jason: Excellent. Ok, so then Niall and I were just talking about, again the privacy thing is and that's kind of not really even promoted by Bitcoin, the paper by Nakamoto doesn't even talk about really privacy concerns and bitcoin wasn't really designed to be a private currency. They call it a crypto currency and people automatically think cryptography, that must mean hidden. But Bitcoin works off something called the public ledger which is basically the entire network maintains a ledger of every single transaction that has ever taken place for any amount of bitcoin or fractions of bitcoins since the beginning. And that is publicly accessible and publicly look-able. You can look at it. What makes it sort of kind of like a little bit private is this obscurity of your identity because all of the transactions are recorded as exchanges between two addresses, which are like really long strings of hex codes or you know digits or whatever it is. So it's really big identifiers.
So your name isn't in there, but that identifier can be traced back to you.
The whole idea that it's some way to like prevent the government from knowing you have been doing some stuff is not really entirely accurate. There obviously are methods to do that but those methods are the same traditional methods that have always been in place for internet security you know. Go to a WiFi hot spot, use Truecrypt on your computer type of stuff, I mean have like 50 different public and private keys that you're using and maintain five different identities to work on, you know, so it's a lot of work, you know, to do that. And bitcoin is not intrinsically private and the paper Nakamoto basically doesn't even cover the privacy aspect. He's just more interested in the mathematical integrity of the system as a whole and the inability of a central authority, or even a small group of attackers, to compromise the system. And that's basically what bitcoin is built to prevent.
So it's not something that, you know, it's not something that like Goldman Sachs can just buy like 5 computers and screw with the network. It doesn't work quite that way. And even if they did they wouldn't be able to do much damage because of the way everything is structured. So most of it is about how do you generate a currency system that doesn't rely on trust? No central trust. There's no Visa, there's no Mastercard, there's no central bank, there's not any of that stuff who keep track of transactions. There's no bank that says yes so and so has enough money to write this check or has enough money on their credit card. There's no need for that because the system ensures that if you spend a coin you are the owner of the coin and it's mathematically provable that you were at that point in time and then when you exchange the coin and then it's fixed forever, and no one can reverse it, and it cannot be undone.
Niall: Right.
Jason: And you can't steal them out of the network.
Niall: Well the first thing that strikes me, that something like that would surely be, um, on let's say the powers that be radar. Because here you've got a system where transactions take place without being taxed?
Jason: Yeah, I mean I think, I don't know if this number is true one time I read there was several hundred million but then another time someone was saying there was one billion dollars' worth of transactions being done a year, or something like that, with bitcoin. I don't know the exact number but it's a lot. Yeah you would think it would be on their radar and I have a couple of different opinions on that particular thing. Whether or not it's, that um, the government created itself and wants something like Bitcoin, because I think in a certain sense you could say that a certain cabal within the governments of the world doesn't really like the banking system, to be quite honest.
It is, I mean, bitcoin is a bank killer, one hundred percent. It is a banking and credit card killer. If it is allowed to persist, it will kill banks because it's just a better system. Um, it's very, very sound and it balances itself out and it doesn't require them, and it's cheap, you know anybody can exchange coins, you know. So you don't need a central bank at all. And it's so well designed by someone who is obviously kind of an academic individual. Um, probably someone who is, you know, involved into military research or something like that, I think. So it sounds like it's something that kind of comes from the government. Um, or a cabal within the government that wants to either experiment or see what's going on, because it creates a kind of a perfect system for a government if you think about it. And it's not really perfect for people. It's a completely public and track able system, you know, it's not hidden, it's not easy to conceal yourself on the bitcoin system.
Niall: Although it claims that it has pure anonymity.
Jason: Well, it doesn't claim that.
Niall: No.
Jason: People who use it claim that, you know.
Niall: People have assumed that it maybe.
Jason: People have assumed it because, you know, you have these public/private key cryptography and all these different stuff. But that's not, that doesn't ensure anonymity because the minute you, let's say for instance, the minute you buy something with bitcoin, you have to have it delivered somewhere.
Niall: And that, of course, the item itself would be track able.
Jason: The item itself lands in a physical location which is then tied to you which means the address for that transaction is tied to you, which means therefore they can go through the entire history of all transactions and see where that bitcoin moved from who to where to what. Was it yours, where did you get it, who did you get it from? And so it is still easy to collect intelligence on people, and there are ways around that naturally. You know you can create new wallet address for every transaction and use different keys and move to different locations and never have anything delivered to a location tied to you. You know, but that is a whole lot of work. You have no idea. It is almost impossible to do. So ...
Niall: So, people are looking for alternative ways to trade to, I guess internet privacy comes into this a lot.
Jason: Internet privacy comes into it a lot but you have to remember that there is no such thing as internet privacy. There is no real internet privacy. Everything is sort of ...
Niall: Yeah, it's kind of like the holy grail for, let's say, a hacktivist community out there like, you know, can we stay under the radar? Can anyone? ...
Jason: No. I mean there's like these two branches of that particular argument. The one is, is that you can't because the government is so all powerful that they have all these satellites and all this technology, which is, of course, total BS because they're not. What has happened over the last few years, which lets you know this, is that the government has kind of empowered local ISP's to basically spy on people. And given them not only carte blanch to do it, but the tools, technology, whatever you know spy on your own consumers. So that actually it's a giant sort of like nazi-esque network of ISP's reporting on their own clients type of thing. You know so you're in a physical location, you have a computer, the computer was bought with your credit card, it has a serial number, that transaction is recorded at the place that you bought it, and just intrinsically in just record keeping you know. And then you did something with it and the MAC address, I mean, seriously there is no anonymity. You can't do anything without leaving, you know, digital fingerprints quote-unquote on anything.
Niall: Ok
Jason: I mean we talk about this today there is so much that can be said on this topic.
Niall: Well, I thought it was interesting that, um ok, so this bitcoin is setup and, because people are looking for alternative ways to get around heavy burdens of constant taxation, big brother eye in the sky, just to have some semblance of privacy. And it struck me that the value that people place on something like this, a virtual currency, is exactly that privacy.
Jason: Right privacy.
Niall: But from what you are saying this isn't really attainable.
Jason: Not, no no, it doesn't really exist in there. Everything, it can, you can do a lot of work for it. It presents a little bit of a problem for the government in the fact that they are not positioned right now to go into bitcoin and find out who is spending what and tax them all. Right? But they will. You know, and because of the nature of bitcoin they will be able to do it retroactively, because everything is public and it's a public ledger, and they will just, you know, find some way. I mean with a little bit of anonymity, you know, effort and lots and lots of encryption, switching addresses, you can make it very hard to next to impossible for them to find out everything that you did on the network, but eventually it will get to that point.
Its value is in the ability to have a way to exchange and keep assets that are not seizeable, most importantly by an arbitrary third party like Paypal. Everybody hates Paypal because Paypal will arbitrarily seize your money, freeze your account for an indefinite period of time and you have no real legal recourse against them. You haven't necessarily committed a crime; they just decided to do it. And all of a sudden you need that money and they don't want to give it up. And sometimes I think they do it for fun every once in a while. Um, so that's the kind of, bitcoin protection against that.
It doesn't protect against government seizures because the government always has the ability to come into your house and take your computer and then they have access to your wallet. So, you know I mean, bitcoin is not really different from cash in a certain sense. You know, there's still a wallet and somebody can take it. The government can take it in the same way they can take a wallet out of your pocket and the same way they can seize your assets physically. So bitcoin really solve big government problem at all. It does solve the third party problem.
Pierre: Yeah that, one difference you can see between cash and bitcoin in that unlike bitcoin, cash is non-track able, are not tracked.
Jason: Yes.
Pierre: And uh, you can see in the last decade, efforts, reoccurring efforts, toward a cashless society.
Jason: Exactly.
Pierre: Because cash, being not track able, cannot be taxed, and cannot know what the citizen is consuming by each setting. So it means less control and less taxation exacted by the powers to be on citizens.
Jason: And there we go to the second problem that we got sidetracked to you know.
Niall: Yeah. And in the same week that bitcoin takes this plunge in its dollar value, in its nominal market value, gold took a big hit. Now people are more familiar with the idea that gold is an alternative currency. But, of course...
Jason: It's the original currency.
Niall: It's the original currency.
Pierre: Almost.
Niall: Pierre you want to...
Jason: Seashells...
Pierre: Exactly. Well there is a lot to say. Maybe, just, we should start with the basics and like what a currency is. And uh, the fundamentals of the currency is a notion of value. Ok. And its notion of value is reflected, is a reflection of several parameters. For country, nation, it's national currency would be a reflection of the intrinsic value of the country. If the country discovers new resources or invades a new country with a lot of oil or make a major discovery, technology that improves competitiveness. The value of the national economy increases and, therefore, the value of the currency increases.
For a long time this intrinsic value was affected by the treasure of the country. The treasure was consisted of gold, silver and copper, the three noble metals at the time. If you had a lot of wealth, you had a lot of gold, you had a mint, kings had mints, dukes, princes, and you could issue coins. Gold coins. Now today, we are going to talk about the history that led to the current situation, we are into the era of fiducial money, or fiat money. Fiducial based on fides, the Latin word that means confidence, trust, and credit that is based on the Latin word credere, belief. And basically today when you hold a one dollar note in your hand, or a ten dollar note in your hand, the value, the ten dollar value is purely subjective, arbitrary and based on a belief. It has no intrinsic value at all.
Niall: Apart from the value of the paper.
Pierre: Yes, apart from the value of the paper, which is less than ten dollars.
Joe: How much is a sheet of toilet paper worth?
Pierre: And uh, unlike gold, gold has an intrinsic value because the supply is limited. Because it has industrial use, used by civilization to make electronic components, jewelry, etc. So, when you melt a coin, its price, weight wise, is almost the same one as the coin minted. Today we live in an era of illusory money. Money as debt. We are going to develop that probably later. Um, and the illusion that keeps the confidence, the trust, of the citizen in that currency is thoroughly maintained through different mechanisms, manipulations, including the rigging of the price of gold. That is not what speculators, what the big financial institutions are doing, is not hiding the rise in gold prices. They are hiding the constant drop, the constant decrease in currency value. Today we can say objectively most countries are in a bankrupt state. If it was a normal company, evaluated by an objective consenting group, it is bankrupt. The debts are much, much, much higher than the assets, than the income, than the profits, whatever way we value the country. However, the currencies are still considered as having a value higher than zero, which is actually not the case.
Joe: The problem with, even though gold is, you know, you go back in the time when gold was a commodity, and it was traded, gold or silver. That's still, I mean, everybody thinks that gold is oh, 'I want some gold or at least some silver', but they are still just minerals like any other technically and the idea that they are rare. I mean the only value that they essentially have is the idea that they are rare but then, even if they are rare, gold doesn't have any practical uses you know. You would think that iron would be more, a much better commodity because it has more practical use. I mean what can you do with gold? It is a soft metal, it's pretty. So the value of gold is backed by prettiness?
Pierre: In terms of, not only it is a very nice metal I think.
Joe: Yeah, it is.
Pierre: But it has other advantages. If we take back, if we go back to, just as an example, I have a hammer, you have an egg, you want to sell your egg and I want to sell my hammer. But you don't want a hammer and I don't want an egg either. So the notion of currency is the tool that we allow to (verify? 27:20) transactions.
Joe: Yeah but that could be anything. Why would it be gold?
Pierre: Okay, we are going there. Gold has several advantages. First...
Joe: It's malleable.
Pierre: It's malleable. It is ductile. It is a ductile metal so it is easy to cut it into small pieces, big pieces. Second, unlike most metals, it doesn't alter over time. It doesn't rust, it doesn't corrode.
Joe: Okay, so there are a few aspects of gold that make it a natural ...
Pierre: And there is another one. And the other one is that it's rare, but the rarity of the good doesn't make its value. It is more the balance between the supply and the demand. If the supply is scarce, if it's rare, and if, in addition, the demand for it is quite high, can be because of belief, because of the industry application, because of any factor, the more the demand is higher than supply, the higher the value of the good. And for gold, the supply is really limited. Over the centuries we have been mining and mining and we don't extract much.
Joe: Yeah.
Pierre: And recurrently every decade, every year, the demand is higher than the supply. Okay, so today and for centuries, millenniums, gold value has been high. And actually it has been quite stable. In the Roman Empire, one ounce of gold allowed you to buy a whole outfit of clothes. Today with one ounce of gold, about $500 or €1,200 you buy a whole outfit; that is relatively stable. There are manipulations up and down but overall it is relatively stable. And this high value gives another advantage to gold is if you want to move your estate, if you want to carry big transactions, you want to move your castle, you want to move country, you will need to dismantle your castle and carry each stone from one country to another one. But you can sell it with gold that will, a castle might be historically around 10Kg of gold for centuries, and you can carry your 10Kg of gold in small volumes for practicality, for transactions. It has a lot of logistical advantage. It is a small volume with very high value.
Joe: Okay. I still don't really understand why, you know, gold was chosen? Apart from malleability and the practicality of it could be any other, I mean, there is nothing intrinsically, objectively speaking, there is nothing intrinsically valuable where gold apart from the, ah ...
Pierre: There is not only gold, when you look at it, silver is the same. But silver being less scarce, less rare has a lower value. Copper has an intrinsic value and the price is going through the roof.
Joe: Yeah but the scarcity came after words as a result of the fact that gold was chosen originally for, probably for its prettiness and its malleability and then they said okay well it is rare, therefore for the reasons that you mentioned that it has benefits for it being traded, you know what I mean? But the original idea seems to be was that it was nice and malleable.
Pierre: yeah, it could be. Although other noble metals. Platinum.
Joe: Exactly, yeah. Let me just pause you there because we have a call. We will get back to that. Hi caller, what's your name and where are you calling from?
Caller: My name is Adam and I am from Michigan.
Joe: Hey Ad.
Pierre: Hello.
Adam: Hello.
Joe: What have you got to say to us?
Adam: Um, I've been doing a lot of research into bitcoin when I first read about it. And the concern that I have is, originally when bitcoin was made the way the blocks were verified, the average person could just use their CPU power and, you know, hopefully get one in the first phase of it. For every block you verify you got fifty bitcoins. Well they, so many have been verified at this point that now they have gone on to this second phase where you only earn half as much, you earn twenty five. Well, over time they figured out that video card GPUs could be used to verify the blocks at ten times the processing power of a normal CPU. So people started building these incredible rigs. If you, if anyone wants to see one, just Google "bitcoin rigs" and you'll actually see pictures of an entire room filled with motherboards with basically the fastest video cards that are, were currently out at the time. And these people were, you know, generating processing power that even then the average person could not do. So it, to me I almost wonder if the bitcoin generation and people getting the, solving the blocks and getting fifty, and now it's down to twenty five, and it'll go down again eventually.
Jason: Right.
Adam: If they are going to end up having somewhat of a monopoly, because if you think about, you know ...
Jason: Absolutely.
Adam: If the one percent realized that this type of currency is a threat they could put somebody up to researching like the new technology that's now, they are called ASICs, application specific integrated circuits.
Jason: Right.
Adam: And the processing power of these is just absolutely incredible. There are no words to really describe how much processing power these have compared to even the old video card rigs that people were using before.
Jason: Well, the interesting thing with ASICs though is that it's not so much processing power, it's just that they are faster at it. They actually allow for less power.
Adam: Right, they allow for less power. I know a lot of the rooms before the, you know, the power use was actually, people were starting to figure it out, and yeah they might have solved a block, but when they calculated what their electricity cost was going to be, and the cooling the rooms so all the units didn't overheat was actually exceeding what they were getting in bitcoins.
Jason: Yeah exactly.
Adam: At least with the current value of what the bitcoin was until it went up into the two hundreds, or whatever it was, several weeks ago and then it crashed.
Jason: Right. Yep.
Adam: But I am still concerned with ASICs being out there now that because they are in such limited production, you know, there are a handful of people that are basically, nobody can compete with them now, you know, and as more of these come out we're just, you know, how few people are going to have the majority of the bitcoins on the market, I mean it's ...
Jason: Right. Well that's one of the problems, I mean, there is actually even now a new thing which is after ASICs they came up with. It might have been before ASICs they have mining pools, basically, where a whole bunch of people get together and they use RPC to connect their computers to do the equivalent.
Adam: Wow! I haven't heard of that yet.
Jason: Yeah, so there is mining pools as well. But the thing is yeah, you are absolutely correct. I think that fundamentally one of the flaws of the bitcoin system... Because basically you have everyone on the bitcoin network and they're more or less consumers of the public ledger. And then you have what are called miners, and miners work kind of in the same way that Visa works, they process the transactions. They basically, you say I want to make this transaction and they say okay. They put it inside of a, in a space and they calculate the blocks, the hashes afterword, up until like say for instance six,
Adam: Exactly.
Jason: and then as they do that, every once in a while they get to a new block and then that releases you fifty, now twenty five new coins, right?
Adam: Right.
Jason: And those guys are actually doing the bulk of the work of the network and are maintaining the integrity of the network and as long as they're honest, then the network is good. But the minute that they are no longer honest, then it's bad. And that's kind of like a necessary flaw. But the thing that I didn't like about bitcoin or don't like is that it is not everybody lending a small amount of their processing power, where everyone who participates in the network has an equal chance of releasing a block, and everyone is processing a little bit of transactions when they participate. Instead you have to have people who buy dedicated hardware to do this.
Adam: Right, in the very beginning it was shared in that way because the other technology didn't exist. They hadn't figured out the GPU trick to increase it by ten times.
Jason: Right.
Adam: And then the ASICs and now the pools that you're talking about, I mean, what comes to mind now with the pools that you mentioned that, is what if somebody buys, say there are three hundred new ASICs released and a month and a half from now, what if some big company or somebody buys half of those?
Jason: Right.
Adam: And that's the pool. Is they have half of the ASICs. The processing power of that pool alone is going to have enormous leverage over basically how many bitcoins they get.
Jason: Right.
Pierre: And you know this describes actually the way most markets, commodities, currencies, share markets are being rigged and manipulated. How speculative bubbles are created and bursted. You have a few major players who concentrate 50, 60, 70 percent of the assets in their pocket and they can move the market in the way they want when they want.
Adam: Yeah.
Niall: The way Adam is describing it, it sounds like the monopolization of this new currency is already taken place in record time.
Jason: Well yeah, I mean, okay so, it doesn't really ... It is a problem, like it definitely is a problem that people can, they could theoretically hoard them but there would be no real point. They can be the ones to discover the bitcoins which is great for them in the early points but it doesn't, in the long term of the network, isn't really a problem unless they never release those bitcoins. If they never release the bitcoins and there's only ten million then it is a bit of a problem. But once the coins have been discovered, they have been discovered and the network continues on afterwards. So, I mean, it's not like a horrible, oh my god it's over, flaw, but it is one of those ones where, yeah, a big company or somebody who is really wealthy like Goldman Sachs could decide to actually commission ASICs. Because an ASIC is just an application specific integrated circuit. It's basically a microchip where your code for solving the algorithm, your program, is just written onto the chip and there is no CPU or processor, it is the whole thing right there in one little chip.
They could just commission some techies to make that for them. They could just fill a room with it and then they could take over the processing of the network and then manipulate it. So, yeah, that is a weakness, it has always been a weakness but the great thing about bitcoin in that particular respect is that the kind of manipulation they can do is still limited to things like, they could double spend coins or they could switch around the order of transactions at any point. But they couldn't really do that much with it. They would always be in a constant battle to be manipulating the system and constantly have to run (work? 38:47) so, in a certain sense, it's bad because, yeah, like Adam saying you can't compete, like the average user can't compete anymore. And that's kind of not really fair, you know.
Adam: Yeah, that's the way I felt about it. It's, there's something that I find unattractive about it. It almost, to me falls into the same class as the high speed trading that goes on in the markets now.
Jason: Yeah.
Adam: I mean, you know there are people that can afford the rigs and equipment and hardware that have processing power that none of us could possibly afford and these people, in the end, somehow always figure out a way through technology to make everything go their way.
Jason: What's worse about that ... yeah you were saying?
Adam: Go ahead, go ahead.
Jason: I was going to say that what's worse about that is it's not actually... these guys are not really techies, is that they have so much money right now that they pay a couple of nerds to get together and find them a solution and then they just cook up a button for them to press and they manipulate stuff with buttons you know. It's all of these massive trading platforms that are, you know, hard core design that have like special algorithms that wait for things to be at certain prices and sell immediately and faster than any person could ever do it, and they make their money that way. I mean it's kind of unfair still.
Adam: Exactly.
Jason: It's unfair to the little person.
Adam: Yeah, that's one of the things that I thought about when I read about the first gentleman that actually did release ASICs for sale for bitcoin generation. You know it dawned on me who could have possibly came to this guy and paid him to develop it? He obviously had the knowledge to create the ASIC to do it. You know he's making good money off of it but what if somebody gave him; a big corporation, somebody who saw the value in this to get it to their advantage? They could have been the ones who basically gave him his lab and all of the equipment. Because if you look at the picture of his lab, that is some extremely sophisticated equipment that is being used to create these things.
Jason: Yeah, I think one of the first rigs though to go out went to the, one of the core developers, I can't remember what his name is.
Adam: It did.
Jason: So that was a good thing because if that guy is honest then maybe it's okay but. I think like my friend Mikey is always saying that, you know in a gold rush, the people who make money are the tool makers. The guy who makes the pick axe is the one who really makes out during a gold rush. And that's kind of like what's going on here you know everybody is, you know I mean there was a guy who paid twenty thousand six hundred dollars for one of these ASIC rigs. Not even for it actually, just the promise that the guy will make it for him at a future date.
Adam: Yup, that would be an auction on ebay. I had read about that.
Jason: Yeah, pay twenty grand for one of these ASICs and you know I mean okay I understand that he, yeah its speculation. I don't think that, I think that the bitcoin community should definitely not be down with speculation. Speculation is a killer in markets, you know. Speculation just shouldn't be allowed.
Adam: Yes.
Jason: You know that's what caused the bubble, just rampant, greedy speculation of people who have nothing. They just said, oh it's a hot commodity, I'll go and trade it, let me put some money on it, and of course they lost their shirts and they deserved it for being stupid.
Niall: Here in lies the rub, bitcoin is part of a world where the financial, economic system is such that speculation is given free reign ...
Jason: Right.
Niall: to run rampant.
Jason: Which is why I see bitcoin, like I was saying before, as like it seems like the government is kind of like behind it, or some cabal in the government is behind it, because it's really like it's perfect for them. It's not completely private and it is a public ledger. It is traceable, it is you know taxable and will be, when they, if they were to ever get setup for it, um it's just perfect for a cashless society.
Adam: Yeah.
Jason: And what better than to get the people themselves to demand it. "We want the government to start using Bitcoin", and they will be like "okay no problem". Kaching!
Niall: Yeah, that crossed ...
Adam: And everybody not knowing any better would jump on board with that not realizing where the source of it came.
Jason: yeah I mean because it was too well done. You know it's so well done that it could; a lot of people have mentioned that probably couldn't have been written by just one single person. Or at least it would be very suspicious to have been created by one person. Just the source code kind of looked in the sense like maybe there had been more than one person behind it, that it's been a group of people probably with academic backgrounds. I mean this really sounds ...
Adam: Exactly.
Jason: This really sounds like the product of a think tank. You know a think tank ...
Adam: That's what I am thinking as well. When you read about the history of bitcoin and its origin they always refer to this, you know, cryptic individual who nobody knows his real name, and supposedly some people have met with him and seen him. Well, I haven't. How many other people that are using bitcoin have? Probably none of them.
Jason: It's the same Fulcanelli type of character; you know where Canseliet is always saying "yeah I met him in Spain I swear" and we are like yeah we a supposed to believe you because you're selling books.
Adam: Right.
Niall: Keyser Söze , is he real?
(Laughter)
Joe: Alright Adam, thanks for you call. Great talking with you.
Adam: Thank you very much.
Niall: Take it easy.
Adam: Bye.
Joe: Yeah, I think the fundamental problem here is that it's the world we live in and the type of people in the world. You can try to impose a really positive kind of, you know kind of game changer, potential game changer situation that would improve the lot of humanity and get rid of banking for example.
Jason: It doesn't really improve the lot.
Joe: It doesn't really improve the lot and is it really possible? Are people deprogrammed enough or are they too programed into the existing system to even you know... They are not going to accept an alternative that isn't a part of officialdom type thing. They are going to be suspicious of it because it is not official. Authorities don't back it. You need half the world to be a bunch of renegades, you know what I mean? And they're not, they're a bunch of sheep.
Jason: Well Canada has already started a digital mint basically. Canada has based on kind of like a bitcoin technology has started issuing digital currency of some kind. I don't have any specifics on that unfortunately. But you see that the banking system is having a very adverse reaction. They've started closing the accounts of people trading with bitcoin. They've done a couple of famous accounts in Canada, the Bank of Canada or something, I don't know the Royal Bank, whatever, they've started cancelling people's accounts even though they are very large like, you know one guy had thirteen million dollars' worth of transactions and they closed his account and said you know we are not interested in your business anymore. We have the right to close your account, just because. They are afraid and I think that the government, that certain parts of the government recognize what the banking system is doing and that they are out of control and they want their hands in that pie. You know they want to get more direct, into people's homes. And bitcoin is a way that they do that. I mean if they were to take over bitcoin or say, alright bitcoin is cool, or whatever they build off of bitcoin. I don't think bitcoin will succeed. I think that the next thing after bitcoin will be this sort of cashless society digital currency and that it will be, you know, issued by the government or a government of some kind, right.
Joe: Yeah, you can see how it can lead into the whole purported illuminati's plan for a one world government via a cashless society and bitcoin would be a lead into that, do you know what I mean. They set that up or tweak it a little bit.
Jason: It's a proving ground.
Joe: Yeah.
Niall: Potential Trojan horse. So bitcoin beware. Caveat emptor.
Joe: Caveat bitcoin.
Pierre: Actually, we pretty much in a cashless society already.
Niall: We are yeah.
Pierre: Ninety eight percent of transactions are virtual? You see, it's less visible in the US where the use of cash is still more prevalent than in Europe over the last decade you see ...
Joe: The use of cash I don't think is prevalent in the US. I think the more so in the US than in Europe people use ...
Pierre: Can you use cash to buy cars in the US?
Joe: I think you have been watching too much TV. Have you been watching the idiot shows, the US shows?
(laughter)
Jason: Everybody just buys by credit card now.
Pierre: Alright, so it is the same and so I can see it.
Joe: I think that's where it was ...
Jason: We do but think about it if you were in control of the government and you see all of these transactions going along, and you're looking at your pockets and saying why isn't all this money in my pocket, what's going on here, you know? And I think that there, the government really does want to get rid of the banks because they've been in control too long. They've controlled too much too long.
Pierre: I'm not sure there is much difference between the government and the banks.
Jason: I think there is.
Pierre: At the top they might be yeah. Some collusion and some of the players want their fingers in several pies banking, government.
Jason: There is a banking cartel you know. There's an intelligence cartel. There's a banking cartel.
Joe: But the question is the only way that the government, and here we are talking about high level government, you know super, duper, black ...
Jason: We're talking about shadow government.
Joe: Shadow government, behind the government type people, the only reason they would want to get rid of banks is if there were some diversions and the plans or the agenda of those two entities. But if they're the same? Banks are good for the shadow government and the shadow government is good for the banks.
Pierre: And I am not sure the political leaders, governments could be in power without the approval of the big players including banking and major players in other economic fields.
Jason: But you know I always argue for the fractured nature of the governments of the world. They're not, you know that there are all these different factions and I, think that it seems it has all the fingerprints of some sort of government think tank, this whole bitcoin thing, and the whole Tor thing and all this different stuff. I mean it has the fingerprints all over it.
Joe: Yeah, I mean governments are more or less like a corporation you know in terms of their relationship with the central banks of countries. You know central banks fund the government and the government can't operate, i.e. the government, the members of the government the president and all of his people and stuff can't be in power and can't you, know maintain their jobs essentially, without the connivance of the central bank that funds it all. That funds the running of the country, you know what I mean? Members of the government can easily be removed or taken down or the country itself can be ...
Jason: Right.
Joe: You know through public opinion. You have the central bank put the squeeze on the people and get them worked up. The people then demand a new government and those guys are out. So it's like in the interest of at least the overt government members to just, you know, tip their hat to the central bankers, because they are their employers essentially.
Jason: Right. But look at like you know how they have these problems in Greece and Spain and Cyprus and all these different places having these crises and all the banks saying we're gonna foreclose here or there. There might be this possibility that we're foreclosed. And you can see some people involved in the government sitting there going like wait a minute, they are screwing us too! It's kind of like a back stab you know when a government is toppled by a bank, it's like a stab in the back. When it was a banana republic or was down in South America, they were like hahaha, those South Americans, hahaha. And now it's starting to happen in western countries. You would think that some of them are pausing and saying hmm, wait a minute.
Pierre: Some people try. I think first the leaders, the political leaders are not stabbed by the banks. They are not the ones hit by the crises engineered by the banks.
Jason: Yeah.
Pierre: It's people. And probably those political leaders actually paid a lot to comply with those decisions that go against the interest of the people. But historically some leaders have tried to reverse, so maybe they play nice with the banks and say okay I'm going to do this and that and I will comply, and along the way they tried to apply the politic they really had in mind. That's the case of Francois Mitterrand, a French president elected in 1981, he really had a social vision, political vision you know. Trying to spread the wealth in a more balanced, just way. He started to do that in 1981, 1982, and in 1982 they pull out the plug and you see the Frank dropping down. But what people have to understand is that, anyway you would talk about it with the genesis of federal banks and the inflation and interest rate and the power to create monetary mass. When you have the power to create currency and to define interest rate levels, you basically control the country. You control the politicians, you control the companies, you control the citizens, their wage, their purchase power, their life.
Jason: Right.
Pierre: It's a very powerful tool. So most politicians comply otherwise they will not be elected quote-unquote. Some do not follow the script and they are quickly put back on the right track because if they don't comply, the country will be economically destroyed.
Joe: Yeah, we have another call here. Hi caller. What's your name and where are you calling from?
Caller: Hi, this is Mike from Baltimore, Maryland.
Joe: Hey Mike, welcome to the show.
Niall: Hi Mike.
Mike: Thanks for having the show.
Niall: Cool. Go ahead.
Mike: Well, I just wanted to mention a couple of things. There are a couple of alternatives to Federal Reserve notes, currencies that were taken down within the last couple of years. One was e-gold and the other was Liberty Dollar. So they don't want an alternative to fractional reserve banking or paper currencies. So it always made me wonder about bitcoin. So I really appreciate the discussion you guys are having on it.
Joe: Yeah, what happened to e-gold, you said it was taken down?
Mike: Yeah they, I think, they went after the founder of it which pretty much took it down, and what e-gold was, was electronic currency backed by gold. Where you can make payments and stuff like that. And Liberty Dollar was more a paper currency backed by silver that was outside of the regular government or private bank Federal Reserve system. And they went after them I think the Secret Service closed them down and the Secret Service went after e-gold as well. And uh another comment to make is in terms of the difference with gold and silver now-a-days in terms of investments and if you read heavily into like silver bug stuff or gold bug literature, a lot of people say that silver is the better investment based on that it has a lot of modern uses.
And one of the things about it that's intriguing that a lot of people point to is its used in a lot of electronics and stuff like that. And since the price is lower, it is not economically feasible to recycle the silver in the electronics. So unless the price went up it wouldn't happen so throughout history there's been a certain amount of silver mines and, depending on who you read, it's a matter of how many ounces has been used up in industrial uses that will never be taken out of and be able to be recovered again. So that is something with gold it has less modern uses other than being used for money or what not but silver does have a lot of modern uses like medical electronics and such.
Joe: Yeah, that's a good point.
Jason: Yep, I agree.
Pierre: Yeah and the e-gold experience was interesting and actually was the way currencies are being valued until 1971, for the dollar and for, until the second World War for some other currencies, and it gave an intrinsic value to the currency. If the gold backing was real until 1971 every dollar note was exchangeable in gold, physical gold. It would be interesting to know if what the treasure, the US Treasury is claiming it was owning was really there. What is in Fort Knox? There are eight thousand tons of physical gold there available? And in the same way (? 56:22) it's definitely more reliable than fiduciary money, fiduciary currency. But you still have the question about the reliability of the operator. Does the operator own as much gold as the gold backed currency it is issuing? So when comes the point where a crisis develops and customers want their gold or want their money, will the operator be able to provide?
Mike: Well de Gaulle wanted the gold from France, he wanted to, since the US printed so much money and stuff like that or had so much debt based on the Vietnam War. Then Nixon closed the gold window where governments couldn't exchange their US currency for gold anymore and that was I think what you were referring to in 1971.
Pierre: Exactly. Yeah and since then the value of the dollar has kept depreciating, dropping because more and more money has been created and immaterially out of nothing. There was no more gold backing, there was no more reference in the actual world.
Joe: Now-a-days a one dollar note is exchangeable not for the value in gold or silver, but it's exchangeable for other dollar note.
Pierre: Yeah, in 1933, you had one dollar was 1/35th of an ounce, which is roughly a bit less than a gram, so one dollar was one gram of gold. Today one gram of gold is about forty six dollars. So it means the value of the dollar has dropped ...
Mike: Dramatically.
Pierre: by a factor of forty six over eighty years.
Joe: Alright Mike, have you any other comments for us?
Mike: Well, just one last comment. There's a lot of speculation and I read Jim Sinclair's a pretty good read about gold and he recently aired something that I've thought about is where is, what's happening to all this gold, you know you have the paper markets with the Comex and then you have all these people buying gold on the physical market. And it's a matter of, you know, if you have a cabal of people that realize that paper currencies or what's happening with the economy is going to go bad, and hyperinflation, and eventually they'll decide 'we have to enrich ourselves and drain the gold out of the system'.
So you know whether that's happening or not it's so opaque to try and figure out what is actually going on. But that might be going on where the powers that be and what not, and people that really see what's happening that have control and stuff like that, might be draining the gold out of the system from governments. Because the governments have been for years selling gold that they had with agreements, international agreements. And where is that gold been going. So that's just the last comment that I had.
Pierre: Well and what you say is true and at the same time over the last year you see some changing behavior amongst some countries, especially China and Japan. Because in 1971 another change decided by the Nixon administration was to trade oil and some other major commodities in dollars. So since 1971, if you want to buy oil, you first have to buy dollars and trade in dollars, which created an artificial demand for dollars, and which is one factor why the dollar doesn't collapse. And you have countries with a positive commercial balance, countries like China, countries like Japan, who sell a lot and they are getting a lot of dollars. Until recently, four or five years ago, they were stacking up dollars. And then policy started to change and they have been massively buying gold.
Jason: Yeah.
Pierre: And selling dollars. Because they probably see what's coming and what is I think unavoidable. We don't know the timing but sooner or later the value of the dollar will be obvious.
Jason: I mean the sun is setting on the western empire. You know, I mean the empires in the west are kind of on the way out and the east is kind of in ascendancy right now. And I mean that's sort of the general trend that I think everyone has been noticing.
Niall: Well recently in Cyprus, in order to pay off, or to begin paying off some of its debt, had to sell some of the country's reserve of gold. So you've got to wonder right there, you know, who's that going to? It's going to the European Central Bank for debt that was incurred, uh, well, we'll probably have to get into this by explaining in a bit more detail exactly how a country ...
Joe: Well we will let you go Mike so as not to keep you on the line.
Mike: No, I'm done, thank you guys.
Joe: Alright, thanks for calling Mike.
Niall: Thanks Mike.
Pierre: Bye bye.
Mike: Bye.
Joe: Yeah so let's go back to the basics what is ...
Niall: Mike mentioned something there, fractional reserve lending.
Joe: What is that all about, fractional reserve lending? I don't understand at all ...
Jason: Can we go to a commercial break?
Joe: Do you need a commercial break?
Jason: Yeah, I'd like to go pee.
Joe: Okay, that was a little too much information there but ...
Pierre: That was pretty clear.
Joe: We are going to a commercial break and we'll be back in about a minute and a half.
[Commercial break]
Joe: Yes indeed Comets and the Horns of Moses is available from all Amazon websites right now and it's a very important book for anybody who is interested in anything that you have ever read on Sott.net. It puts it all into perspective, gives you the broad picture and really, I mean you might, accuse me of being biased here but I really have to say that it is a book that everybody needs to read and even anybody that has a thirty percent open mind or twenty percent open mind that you know of, family member, friend, it's a good book to give to someone. It might make a difference.
Niall: I also hope that by the end of the show it will also put this topic into perspective.
Pierre: True.
Niall: We are getting there because the history of economies, up and down, is not what we generally think it is. History has shown that an economy goes up and down in much bigger cycles, or waves if you like, so we will be getting on to that soon. Pierre, there a lot of technical terms ...
Pierre: That doesn't mean that there is no human engineered crises. Most crises are engineered by big financial institutions. However, there's a point whether external pressure gets so high that human operators, even big financial operators cannot do anything to what is going on.
Niall: Good point. There are a lot of technical terms here. Mike, the last caller, brought up on fractional reserve lending. Also, I think a central bank needs to be explained. Everyone is familiar, well okay the central bank so what? A central bank is a privately run institution.
Pierre: Yes and no. I mean yes and no in the sense that some are privately held, some are publically held, but in the end it's not in the power of the citizen to decide the policy of the central bank. You never had a votation where you were asked to vote for 'ok shall we increase the interest rate by one point or decrease it by one point?'. You have a group of individuals, a small group of individuals who decide the monetary policy basically. How much money we create and what is the interest rate?
Well, the typical example is Jekyll Island, 1910 where you have seven mega bankers who meet secretly on this Jekyll Island place along the US coast. Seven bankers amongst whom you have the Rockefeller, Warburg, and JP Morgan, those seven bankers hold twenty five percent of the world's wealth. They are big players. And together, they conspire, that's a word conspiracy, a secret, collective project, they will be applying in 1913 and basically put in the hand of the US Central Bank, which is a private entity, the power, which is a very big power, to decide of the monetary policy. And, by the way, the Federal Reserve, which was created during this meeting, is not federal, it has nothing public, it has nothing to do with a vote or the citizen's choice, it is not a reserve, it's not backed by gold, it's not backed by anything, its fiat money. Money created out of nothing, out of a printer.
Niall: That was something that when I first learned this, it was so simple and so devious and I thought, 'how have they gotten away with this for so long?
Where does money come from? You know it is assumed that for every debt, for every loan given, somewhere, somewhere else it's owed, something is owed back to somebody. But when you get to the center of this web, the money is literally created out of thin air. Can you explain it a bit?
Pierre: It's even worse than that. It's ah, yeah the money is created out of thin air. Basically at the time you are printing notes because the money was security to notes basically. Today it is even more virtual. It's just an operation between bank computers. Or you see on your bank statement when your company, your employer pays you, you see plus x thousand dollars. There's no note. There's no gold. There's nothing transiting between you, the bank and the employer. It's totally virtual, it's just a figure. And basically, I say it's worse because on one side the money is created out of nowhere, but its creation generates inflation, the more money you have, the lower the value of your money. So it's a tax. It's a tax on people. And this money that is created from nothing doesn't go into the pocket of the citizens. If you look at the quantitative easing (? 1:08:38). Quantitative easing, it's more than one thousand billion dollars that is injected into banks. The very one who designed the crises, the subprime crises. But in the end, all those people who got their house foreclosed because of these credit abuses and bank manipulations, their house they gave to the banks was a real house. And the sweat for hours doing their work to pay for this house, was real sweat, was real live labor. So the banks with money created out of nothing, got your time, they got your house, they got your furniture, and they even get your future.
Niall: Your pension.
Pierre: Yeah and your future income. Because at least in France, I don't know about the US but when you are a debtor, when you get bankrupt, there will be the court that will say okay, from now on every month from your bank account, from your salary directly we will take 500 euros, 1000 euros to pay your debt.
Niall: So, yeah it all originally started talking about it ...
Joe: Money was originally stored by people in, well not originally but at a certain point nine hundred years ago it was stored as gold or precious metals and that was, you know, someone who, a bank essentially was setup to store those precious metals that were people's wealth.
Pierre: Yeah, one of the beginnings historically that gives a perspective to this transition from physical gold as money to notes is the Templars along the crusade routes.
Niall: The Knights Templar.
Pierre: Yeah the posts you know. And for travelers, it created the antique traveler's check. You are a traveler and you want to go to Mecca or to Italy whatever on this route. And you know it's a dangerous place, so you don't want to go there with your gold, because you don't want your gold to be stolen. So you go to a Templar's post in your town, in Paris for example, you give your gold, say one ounce, in exchange the Templar's post writes you a note saying okay, one ounce worth that is signed and stamped and all that. And you go with this note to Mecca and to the Mecca Templar's post, you show this note, in exchange the Templar there will give you one ounce of gold. That is the genesis, one of the genesis' of money as a note, as a piece of paper.
Joe: Ok yeah, so it started and spread from there, that idea caught on of someone holding your gold, your precious metals, and giving you something that you could redeem the value of from elsewhere with other people. And then eventually the people said okay well let's just use these notes. Let's exchange these notes with each other and therefore you have paper money essentially. But the idea being that your gold was always redeemable from the original source or from any other source. And then you know, so the whole banking system started where the bankers ...
Niall: Well, there was still goldsmiths, and what they started to realize was that people ...
Joe: Never came to take their gold.
Niall: never came to claim their gold. And they were able to start loaning out ...
Pierre: More than what they owned.
Niall: Exactly.
Joe: But that's the problem though, the whole idea of loaning - because we haven't got to loaning here. We're just talking about people who had their gold, give it to a banker, got a note that said you have this much gold that you can then redeem it elsewhere. But then the goldsmiths, holders of people's gold, like you just said, decided that they would, because people never came to get their gold, they could give the gold to other people. But somewhere down the line people decided that they needed loans, they didn't have enough of their own precious metals to get what they wanted so they had to go and ask someone for them. You know they
Jason: What you are talking about is usury.
Joe: And they immediately they decided to charge an interest on that. If I give you some of this gold which isn't mine, which is someone else's, but that person never comes to get it, so I'm going to loan it to you temporarily. You give it back me with a bit extra for the pure simple fact of, you don't have any, I'm giving you some, therefore you have to pay for that. Not just give it back to me at some point but pay for it. And they were making all this interest off loaning out other people's money that additionally, the other people who owned the gold said well we want a cut of this, you know you are getting all this interest. You're charging these poor people who don't have the money, you're getting interest from them, they are paying you back at plus, so we want some of that plus. So then you have basically bankers, that is the origin maybe of a banker, a bunch of bankers getting together setting themselves up and expanding this concept out.
Niall: And for the longest time usury, that is to charge interest on something you give to someone, in this case money, was considered immoral.
Pierre: Connivecal. After the (reconciliation? 1:14:17), usury, interest rate, was considered as radical and immoral for the very simple reason usury comes from the French, Latin word usure, which means to wear/tear down. You could have an interest rate. If I lend something to someone I can charge interest rate because when you return the good, the good wore down and has less value so to compensate the loss in value you pay a premium.
Joe: And they justify it by the potential of threat that the risk that the bankers incurred of not getting it back at all right? Because when they lend something out there is a possibility that they won't actually get it back, so that their right to charge interest is justified on the risk that they were taking. But it still doesn't explain the fact that most of it wasn't their money to lend out in the first place you know.
Pierre: Yeah there is two problems that go together today, that we face today, today banks in the end they lend money that they don't have, that is not backed by anything tangible or valuable intrinsically, and they charge interest rate, right. And there is a, this interest rate things it also punishes us in the sense that, to make it simple imagine you are a central bank you issue one billion euros, one billion dollars, okay? And you distribute this one billion dollars to people around this table and all of the members on this show, okay you all have one million dollars and everybody is happy. But you have to pay back the central bank and their interest rates and you are going to pay back slowly about twenty years. So with a five percent interest rate you have to pay back two million. But that doesn't really matter because in twenty years you could have used this money and make it multiply, grow and invest okay. But imagine if the central bank only created one billion dollars, okay before there was more money, how all of us are going to be able to pay back two million dollars? There is only one billion in circulation and how can we pay back two billion?
Niall: There isn't enough money out there for all of us to do it. Some of us are going to get burned.
Pierre: Exactly. And that's where they manage to seize tangible, real assets. After lending the virtual, created from nothing money through interest rates.
Niall: So built into the system then people are going to lose.
Pierre: Their house, their money, their future.
Joe: People say that money the dollar isn't backed or paper money isn't backed by anything tangible, but it is. It's backed by everybody else in your communities, houses, cars, and possessions, technically.
Pierre: The loan.
Joe: The loans, yeah, the loans.
Pierre: The currencies are another story but the loan yeah. Whatever the evolution of the dollar up down, sure. The moment you don't pay your loan the bank gets a house.
Joe: But today money is loans essentially. Money is debt. Money is created from debt. So in a strange way you could say that, you know for example ...
Pierre: If everybody pays back there's no more money.
Joe: For example if I go to the bank, if I have a positive credit in the bank, with the bank, and my neighbor has a negative, he has a loan where he owes the bank money and there is a run on the banks or something along those lines where I suddenly say I want all of my money. I want all my assets you know what is my money backed with? And there is hyperinflation going on and I say listen I want something tangible here. I don't want the paper money really so much. I want what it's backed with because originally the idea is that the money is backed by something tangible and right now with the state of the economy what they give me back would buy me you know half a loaf of bread. I don't want a half a loaf of bread or half a slice of bacon and I don't want, that's not enough. So what have you got? And he says well, we've got your neighbor's house or we can give you a bedroom in there maybe. That's about the equivalent of what you hold on to with the bank. That would be what they have to offer people because that's what it is all backed with.
Jason: The worse thing is that rule only applies to them. When they need to get their money back they can take your house. But when you need to get your money back you're screwed if something happened.
Pierre: You wouldn't get that building. And there is something worse; a) they lend money that doesn't exist, it's virtual, it's a dream.
Niall: Or a nightmare.
Pierre: In addition, because of this
Niall: Fractional reserve lending.
Pierre: Fractional reserve lending. When a bank gets one dollar in deposit, it is allowed to lend between ten and thirty dollars depending on the rules and the way you apply it. That means that not only banks deal with money that is virtual, but in addition it doesn't even have the money, not enough money to pay back all the depositors. Because it lends thirty times more than what it has. And what it has is written money, paper money so.
Joe: Yeah exactly but so they could always just create more money and pay it back with notes.
Pierre: Well that's what they do. The quantitative easing of 2008, that is an interesting story maybe you can read the story quickly.
Niall: Go for it.
Pierre: So one way to make money is bubbles. And bubbles basically, as citizens we are always losers because we are not insiders. We don't have the information. So basically you have a cartel of big players that decide, okay we are gonna create the bubble here or there. IT 2000, biotechnology 2002, real estate. After 2002 the money is out of the biotech market or the IT market, there's a new, they need a new place to speculate and make a bubble. They do a bubble in the real estate. How do they do that? You reduce interest rates and you start giving loans for people to buy houses. You don't check the credit rating, you don't check the income, you don't check the history, the prospectives get money. And they give money and money and money.
And everybody buys houses. Every citizen wants to have his own house. I mean it's a legitimate desire. You buy house and actually the guarantee of your loan is your house. So you borrow say four hundred thousand dollars, you buy a house that is four hundred thousand dollars and here is the first lie; the widespread belief that real estate market over the long term always goes up. This is simply not true. You look at places around the world towns that have been totally deserted. The house had a value before, now the value is zero and will be zero forever; first lie.
So the idea is to guarantee the loan with the house. The loan is four hundred thousand, the house is four hundred thousand, the real estate market will go up over time. So it will be five hundred, six hundred thousand, and in any case even if you lose your job, your income you can pay back the loan with your house okay. Once you reach a critical mass of people who borrowed money who have this house, actually the bank who owns the house, you pull the plug.
To pull the plug is quite easy you just increase interest rates. And that's one of the mega powers of central banks. And you see by just turning this knob, interest rate knob, the devastating effect it can have. By increasing the interest rate you increase the payment, monthly payment owed by borrowers to the bank. Because in the US and Europe are more and more the interest rate is variable so you have to pay more every month. And the more the interest rate increases, the more you have to pay, you reach a point where most households they cannot pay back. So you go into bankruptcy. So the bank gets the house back.
And then after artificially increasing the value of the real estate market by giving a lot of loans, and everybody buys, and the price of houses goes up. Now you pull out the plug, increase interest rates, nobody can buy anymore, the loans are too expensive and people who already bought cannot pay the loan back, foreclosure, the banks get houses, a lot of houses for sale on the market, the market collapses. And now your four hundred thousand dollar house cannot cover the amount you owe, because not only your four hundred thousand but you owe interest, over twenty years multiplies by two, you owe now eight hundred thousand dollars but the house is only market value two hundred thousand dollars.
So in your operation you lost six hundred thousand dollars. And then, but the story is not over. So the banks make big, big money on this interest. They gave money that does not exist in exchange they got a lot of houses, a lot of properties, a lot of land, tangible goods. But some banks have been investing so much in some speculative products linked to real estate loans, you know, that they start to lose money, some of them, and they are close to bankruptcy. You see the government, the central bank didn't do anything to save the citizens who are losing their house, or their money. But when some banks start to be threatened, start to be close to bankruptcy, the government decides for quantitative easing; almost two trillion dollars, two trillion dollars to save banks. But how this money affects the country? Those two trillion dollars dilutes the existing monetary mass. So the Americans who got screwed the first time and who saw their house stolen by the banks because they got lured into this loan scheme, subprime scheme, in addition the government issues more money to the central bank and dilutes even more their purchase power.
Joe: It's not just the purchase power, I mean this has happened, what you're describing is exactly what has happened in the economic crises of the past few years. And it seems they pick particular countries to inflict this on. It's almost like test cases, you know. Ireland was one of them, and what you're describing is that if people were, the banks forced, I mean it's really disgusting. It's so corrupt, so horrible what they're doing. It's not complicated you know. People shouldn't think that it is so complicated.
As Pierre just described, the banks in the previous years before the crises, the banks were shoving credit cards on people. They were harassing people. I know this personally, I was there at the time. They were harassing people to take credit cards. We can give you a credit card in five minutes, just, you know, if you just say yes, they'll call you up just say yes on the phone line and even automated you know yes do you want a credit card? Ah yes. Okay you now have ten grand credit. We'll send you a new credit card; extra ten grand in your account, boom; loan whatever you know.
And people just took it. And that's the only blame that you can ascribe to people is that they took it, but I mean it was totally irresponsible of the banks to do that. So they push all this credit, all these loans on people, and then suddenly they, on people that can't, that really couldn't afford ultimately to pay them back. And pushed mortgages on people that couldn't afford to pay them back. And then they started trading like a bunch of freaking jackals you know. And bankers and hedge fund managers all around the world were creating essentially in all of the people, in everybody's debt, in your debts, in your mortgage, in your car repayments; they're just packaging all those together, hundreds of thousands of them, and saying all these are good.
And you know the whole subprime mortgage crises was that they were saying that they were taking a bunch of mortgages that they had given, that the banks had pushed to people that most of them were unlikely to be able to pay them back, but they were saying, oh but these are solid, these are gold, these are perfect, you'll get a lot money and sell them on at the interest - because there is interest attached to the mortgage, and sell them all around the world to investment funds. And then ultimately they were passing them on to each other, and ultimately it became clear that they were selling dodgy goods that weren't actually up to the value. Weren't worth what they were being sold for.
Niall: Those things they were selling: CDOs, Collaterized Debt Obligations, and all these bland, inane terms. What they effectively were, were new forms of currency, they were new forms of money.
Joe: It was money. It was basically money.
Niall: And they were betting on other people's money. Again, if ...
Pierre: And also dislocated. It was really insidious because the real estate bubble grew for about six years in 2002 - 2008. So you can imagine your neighbor, you know, he gets a house and the value increased, sells the house and gets a bigger house. He's rich. He looks rich you know. There was this social proof thing, and everybody was into this frenzy, and working interest rates were low and relied a lot on the manipulated allotment of interest rate to sell you this variable interest rate mortgage. They were showing the stats and it was true. Interest rates were very low and they were going down, and they went down for a lot for a while, so compelling people to buy a house.
Joe: Well what the bankers, yeah to be pressured to buy a house or to buy a house for an inflated price, but what these bankers were doing was selling on these mortgages in packages to each other. And they were trying to sell them on and each one would sell them on a higher pricing or yeah this one's good let's package this one up as being a AAA rating, sell it on. We'll make some money. Eventually someone's left holding the baby, you know carrying the can. And they so oh crap you know they paid a bunch of money for something that's not worth half of it, you know, because all these people aren't going to pay back their mortgage. These are dodgy mortgages and that people can't pay it back. So then it's like oh the poor banks but these guys are speculating right. They were gambling. So if you lose on a gamble it's your fault!
Jason: They were cooking people I mean plain and simple.
Joe: Yeah but they were the ones who were gambling right. They were betting, let me buy that and see if I can, it's kind of like a gamble you know where I buy something from you.
Jason: Some of them were obviously.
Joe: And I try to sell it on to Pierre you know and I make some money off of it. But the bottom line is that they deserve it. Oh the poor banks and then they go and bail them out, as Pierre just mentioned with tax payers money with government money, taxpayer's money. They give all this money to these banks who are left holding a bunch of dodgy mortgages. But those banks weren't actually really down on anything, because even if they were holding mortgages that they had paid for that people couldn't pay back, and they weren't going to get the interest with them, those banks then could claim, essentially the people's house because that was the collateral. Ultimately though there was collateral in the form of people's houses and cars.
Jason: Right.
Joe: Right? That were tied to the ...
Jason: I think that it is more insidious.
Joe: So but despite the fact that they still had this collateral, these poor banks that were left carrying the can, the central banks or the International Monetary Fund came in and demanded and the central banks of Ireland, for example, demanded that tax payers, taxpayer money be donated given to them to pay back all these dodgy debts.
Jason: For a reason.
Joe: And but you know what, the taxpayers; so you have people who, these banks then went and took the people's houses said listen, I own the mortgage, I own your mortgages been passed to me, I own your mortgage and you cannot pay it back I just realized. So I'm gonna be wanting your house. So out of your house, it's mine now plus I get a big load of compensation from tax payer's money for my trouble, type of thing. And but that person who got kicked out of the house, when the taxpayer's money goes to the bank who already just got your house, the bank gets the house and the tax payer's money and the guy who got kicked out of his house then not only finds himself without a house, but because a lot of tax payer's money is being given to the bank who just took your house, you also have to take a cut in your social security money if you're unemployed, or your child care for your wife, or various social services. All of those were hit because of the money that was given to the banks.
Jason: It is so much more insidious. It's a classic con, you know, they always say that you can't you know crook an honest person, and a lot of these people they got set up, they got set up into this whole idea of got to have a house, got to have a car, got to have a TV. So that was their hook to scheme people. One, it was a giant land grab, and the second thing is it was to facilitate the necessity of the quantitative easing so they would push a larger part of the population into deeper poverty, because that's what happened. Because it wasn't just tax payer's money, it was more fake money that was added to the system, and that pushed them deeper into poverty because they were more impoverished after their money was given to the banks than they were before.
So like Pierre was saying we have this debt, you know first it was four hundred thousand, then with all the you know, whatever, the interest rates it was going to be eight hundred thousand, and they had these houses worth four hundred thousand suddenly the house was only worth two hundred thousand, right? So then they could only pay off two hundred thousand worth of the debt now they're in the hole six hundred thousand, and then the quantitative easing that pushes them down even more so they have even less money, less wealth to pay it off with. So it's like a double con, double screw. And I think ultimately the point was to expand poverty.
Joe: Of course that's exactly what I am saying, I mean, but when they took your house, if you can't pay back your mortgage on a house that you paid eight hundred thousand for, and because now it's only worth two hundred thousand, the bank takes your house, your debt is cleared basically they've taken, I mean you have no more money.
Jason: It should be but it's not.
Joe: No but for most people it is. I mean you're bankrupt, that's it. The bank can't get any more out of you other than your house. But the problem, like I was saying that came after that, was the fact that they then stripped all this money from the economy which had a direct effect. It wasn't just like paper, you know, for the person who was kicked out of his home, and then for whatever reason lost his job or whatever; he then wasn't getting any unemployment or was getting half the unemployment benefit, because the IMF came in and said listen, in order to, because you have to pay all this money to the banks you can't put it into social funds that would offer incentives. It was such a screw job and it was horrible! But ... We've got a call hear hang on. Hi caller what's your name and where are you calling from?
Caller: Can you hear me? Your voices are low.
Joe: Yeah we'll try to pick up here.
Caller: Ok.
Jason: Yeah we're here again.
Caller: Alright. I came here because I saw the bitcoin, gold and the cashless society title.
Joe: Yeah.
Caller: I presume you covered bitcoin. I would like to add a synopsis about what you think about it, what you think the future of it is going to be?
Jason: Okay, I'll try. We are a bit undecided to be quite honest. Maybe we just, you know, talked about the nature of it. I mean there is a couple of different possible ideas; that could be the savior of us all and it could be the product of a sort of government oriented think tank for promoting a cashless society, a proving ground for a cashless society kind of techniques. It's an interestingly designed system. It's not super private like everyone's claiming. And ...
Caller: I don't understand the value of it at all.
Jason: The value of this?
Caller: Yes.
Jason: Okay, the value of the, (garbled)
Niall: Well we discussed this, and it seems that the perceived value of it for example... (heavy interference).
Jason: It affords the ability to make a few transactions where the government and the banks can't interfere, and that is only partially true, it's like Paypal and your bank can't change your funds, but the government still probably could. So it doesn't really protect you in that sense. Its value is just that it's ...
Caller: It's new, that's about it, a novelty.
Jason: Yeah it's a novelty.
Caller: You complete transactions over the net and even though it was bordered by somebody that hardly anybody knows anything about, and it's supposed to be encrypted and supposed to be limited, all of that can go right out the window. If a person gets drunk one day and feels that he just wants to blow up the Bitcoin value, maybe because it dropped down in value a week or so ago. So I don't understand the value of it. Some people are actually engaging in it are more than just online, and I can't see that, but that's that.
So you know that's my point of view on it. People say that because it has a limited amount therefore it has some value. To me that's bull because it's run by one person or one organization, and that one organization wants to pump it up he can pump it up. If he wants to change the rules he can change the rules. As far as I'm concerned gold doesn't have much value. Certainly not like it did centuries ago when gold was considered extremely valuable, and even then that was to me nothing more than just a (tool? 1:36:28) craze. I understand the value of money so that people don't have to exert a lot of effort doing barter. But the fact that we have anything, gold or any so called precious metal as the backing for it, to me is a false premise.
Jason: Alright, okay, okay, I can see where you're going.
Pierre: You have a point because the problem of the gold market, and any market, is greed. You have cartels, monopoles, legal forces, political forces, that can push up or down the market whenever they want. The problem with gold, although there is a limited supply of physical gold, is that most transactions are virtual transactions on gold futures. And gold and ETFs, eighty percent of transactions, maybe ninety percent of transactions are of virtual gold. People who don't have gold can push the price up or down. So even gold and other tangible assets are not immune to speculation. And we can see it right now. You can see the situation of the gold price that has nothing to do with objective factors that should affect the market. The recent plunge in gold as well as at the same time when Germany was claiming its gold that is in the US, four hundred tons, China was announcing that it will increase its gold reserve by one thousand tons, at the same time the gold market plunges.
Jason: I mean what he just said though I mean in a certain sense all currencies are a little bit faith based. I mean people agree on the value in gold.
Caller: I don't have any problems with fiat money as long as it's run properly, as long as it is backed by a government that isn't corrupt, because if you're going to use fiat money as a measure of paying your taxes, that gives it credibility because then business men have to have that certain type of paper in order to pay taxes to the government. But if the government is corrupt, then it's going to print up like Bernanke and Volker and Greenspan form, so it's going to flood the market with cheap paper and make the cheap paper even cheaper. Gold by itself though is not the panacea. Gold is just a metal.
Niall: Yeah, I agree.
Jason: Yeah but that's why bitcoin is interesting is the fact that it was an answer to the problem of let's just print more money, and with bitcoin you can't. So that was why it had to sort of like tech appeal, like, oh, that particular problem is kind of solved, you can't just print more. But again it always comes down to faith based. You know the dollar, fine. Cool but he is right in what he says because part of the problem is always going to be the corrupt bankers and politicians involved in the system. You know who cares what you're trading in? Make it seashells, make it you know ...
Caller: Well make it so that you could redeem it for something in which is worthwhile. If you're going to redeem it for gold and Nixon took us off the gold standard in 1971 as a result of deGaulle wanting to take all of his reserves and then trade them for gold, if you're going to trade it in for gold then eventually there's going to be competition by the nations to see who can redeem each other's gold reserves, so to me it's nonsense. Centuries ago gold had some sort of significance because back then Christopher Columbus was sailing around the world for spices, that's how dull the world was at that time. You would kill for salt. And you would kill for gold because it was glittery. Because it didn't evaporate, it stayed shiny, it was an element, people didn't know anything about the Periodic table at that time but it was long lasting. So people if they had jewelry, they were probably considered the Trumps of their time. But now-a-days what good is gold? I mean if we're going to have an economic collapse, I would rather have cigarettes to trade than gold.
Jason: Yeah, exactly.
Pierre: You have one point, I'm thinking that gold is less than fiat money in the sense that it has some intrinsic value, but definitely at this point in time, with the prospect of economic collapse, it may be wise to invest money now in tangible assets, useful assets, knowledge, books, cigarettes, trucks, tools, a lot of ...
Caller: Yeah, actual wealth. Wealth you can actually barter if we are going to be in this type of abyss.
Joe: Yeah, stuff that people use.
Pierre: ... needed durable goods.
Caller: I would rather have seeds for a garden than you know a truck full of gold.
Jason: Say some bad shit happens everything collapses you know. What are you going to do with a truck full of gold? I mean, who going to want it you know?
Joe: Who's going to want it?
Pierre: Yeah. Here is one factor because black and white I think one factor is that it depends on the magnitude of the crises. And usually the crisis it might not come overnight. So you might spend some time, collecting water and still trade goes on. And at this point silver or gold can help you. But when it is at the point where you only have pockets of survival i.e. there is no more trade or gold? You don't need currency or gold and silver, you're not ... there's no more barter.
Caller: Nah, if it gets that bad there will have to be barter, there will have to be a black market and there will have to be barter and then eventually currency will be built up. The first currency will probably be cigarettes. After that it will probably be some sort of medicine, salt, or something like that.
Jason: Roman soldiers were once paid in salt.
Caller: Well that's odd, I didn't know that but that goes to confirm my theory about how spices years ago you know was the incentive to have the Pinta, the Nina, and the Santa Maria go around the world. These people were living a dull life. They didn't have floors. They had wooden um ...
Jason: They probably had dirt of some kind.
Caller: Dirt. Dirt floors. And they had to sweep them out and they had no glass windows and they were leading a life of quiet desperation. So that's what they had, and gold brought some value to their life. And people also forget that when the gold first started, when the gold traders first started to trade their receipts for gold for making money, people were trading their own particular stash of gold. Not government accrued gold.
Joe: Yeah.
Caller: Huge difference ...
Pierre: What we can say at this point where we have some idea of some probable future, during the recent past since 1971 for example, there has been a constant diversion of currencies because of this massive creation of money, and gold like other assets actually have been an interesting investment to protect yourself against inflation.
Caller: Sure, oh yeah. And people will continue to buy gold because they are trained to believe that gold is somehow valuable.
Joe: Yeah, well we have got to just watch the way, watch the trends and the way things are going, you know because gold can be, like right now gold, I mean if you bought gold ten years ago and you kept it until today you've made you know three, four hundred percent profit for that time. You know but it has a limited value depending on the circumstances you know.
Caller: Well if the economy is good gold is going to drop down to whatever the market value will bear. Surely less than one thousand dollars, probably shouldn't be any more than about forty or fifty dollars. But the thing is that gold does not have any intrinsic value. I understand its properties for money because it can't be tarnished. When it's mixed with other alloys, it lasts for a fairly long time. But at the same time as an intrinsic value it has none.
Joe: Yeah.
Jason: It has a little bit of intrinsic value.
Joe: A little bit of value.
Jason: A little bit.
Joe: If what's being created is minerals then gold is shiny ...
Caller: Well, okay.
Joe: But it's only when in the situation where minerals are the currency of trade type of thing you know.
Caller: Well okay in that case I'll still trade platinum because if you're going to have minerals I need a catalytic converter.
Joe: Yeah but here's another interesting point previously, on the salt thing that you mentioned that Jason said Roman soldiers were paid in salt, that's where the word salary comes from.
Caller: Oh really?
Joe: Because the Latin salarium and the word salary came from the word salt. That was actually a listener typing that in, ah Robin.
Jason: Yeah throughout history I mean currencies have been things like tradable goods like what we were talking about spices which was a big thing, fabrics and textiles imported from different areas were very important. You know I mean it's what people want and what people agree on as being valuable in the end, you know I mean in support of ...
Caller: It's what governments agree on because people don't know the difference.
Jason: Yeah and sometimes it is what the government agrees on. In Sparta, they toke iron coins and quenched them in vinegar so they were completely and totally useless for anything else, but that was the currency in Sparta because they banned gold and silver. And they lived through eight hundred years doing just basically that, until they allowed the gold and silver back in then everything fell apart and went tits up, but I mean so it's whatever you agree on. Paper money is okay you know, shells, I mean shells were probably one of the earliest currencies ever used, just seashells.
Caller: Well so were the sticks in Hawaii where you could put notches in them and you could use them as currency too. The thing is, you know I see gold as a valuable means of exchange but not as an intrinsic value type of good. And I can't see seashells or, you know, stuff like that because you can, well salt I can see to a degree because you can't create more salt. You can only find it, because like with gold.
Jason: And you will die without it. It's one of things that you have to have salt to live.
Pierre: In fact here is such an important point is fundamentally a currency purpose is to ease trade. And hence its value is purely a convention. It's a social convention. Whatever you use gold there is a small intrinsic value because there is some use for gold in industry, jewelry and things like that. But, like seashells, like twigs in Hawaii or, it's a convention. So the point is not what kind of currency you use. Paper with a one dollar written on it, or gold or seashells, it's the way it is managed. And considering the ponerization factor, if the currency was managed properly and was an objective reflection of the wealth of the country that issued it, if it had an objective value that fits the claimed value, there would be no problem with currency.
Caller: In your opinion, what would be the objective value to give currency its greatest value? Objectivily speaking what do you think should be the foundation for a currency's real value other than paying taxes?
Niall: It would be a currency that was issued by the government. Not by a private interest. And it would be interest free.
Joe: A non-corrupt government.
Pierre: Actually the question it goes, the currency, if you start to look at the economic fundamentals the currency is only a vector ..(massive interference).. supply and demand, of labor, of the equipment capital, things like that. But I think one of the fundamentals to establish the objective value of currency is to find the proper quantity of available labor, availability of goods and find the balance.
Caller: It would be the economy, that's the answer.
Pierre: The real one.
Caller: Yeah, a real economy, manufacturing. Because if you're going to for example what, if you're going to try and figure out why is our dollar worth any kind of value compared to other currencies, in other words why would you want to trade your dollar in for another person's yen or another person's deutschmark, is because of what it can buy in that other country. So if that country is producing nothing then that currency is worth nothing.
Jason: Precisely. Basically like work. Pretty much work, industrial work.
Caller: Well not work. Work is labor. I mean if you just, if you work you can work at a salt mine and not produce much. You could even work in an oil mine and not produce much.
Jason: Right I mean work in a business sense.
Caller: If you actually manufacture goods that actually increases the lifestyle of the people within that nation, that's the economy I'm talking about. And that's what's ruining us because ten million jobs or six million jobs have gone either overseas or disappeared in the last ten years, manufacturing jobs. And when you go back thirty years there's even more than that had disappeared. So our country is slowly imploding upon itself and that would be the real downfall of our power, is the fact that we can't produce anything, hardly produce anything anymore.
Pierre: True.
Joe: Alright man, thanks for your call.
Caller: Okay.
Niall: Yeah, some great comments there.
Jason: Thanks man.
Niall: Thanks for calling in.
Caller: Take it easy.
Pierre: Bye bye, thanks.
Joe: Yeah I mean he makes some good points and they're all pretty obvious really, I mean a currency has no objective value.
Jason: Right.
Joe: It has subjective value and a currency, ideally a currency should be, can be anything. It can be a metal, a piece of cloth, it can be a twig, it can be a shell, whatever. It's just the means that everybody agrees on to say if I give you one of these, this one of these is worth, not in itself, one of these is worth something else that actually has objective value. I mean for example everybody will agree that one little small piece of gold or any other metal or material whatever, is equal to one cup? Right so you start, you have to give each, you see ...
Jason: Gold has more intrinsic value today than it did before in a certain sense, because at least today gold has a manufacturing use. Right it is good in electronics, therefore it does have an intrinsic value in the fact that it makes some better electronic component.
Joe: Yeah okay.
Jason: Gold and silver they do. So today they have more intrinsic value. In all fairness a bit of gold has more intrinsic value than a US dollar in the sense of the US dollar, all you can do is wipe your ass with it. That's about all it's good for, whereas with you know gold you can manufacture something that works better with gold than without.
Joe: That's today.
Jason: Today, back in the old days yeah it was a little bit less.
Joe: It was a vanity kind of thing for jewelry, for what you could do with it.
Jason: It was used to facilitate trade because again it didn't tarnish, it didn't rust, it lasted, it was easy to mint and mold.
Joe: Yeah exactly. Those were just practical benefits to it.
Jason: They were practical benefits.
Joe: But so what it comes down to is that any currency, gold or whatever it is, simply a means to facilitate barter.
Jason: Right.
Pierre: Exactly.
Joe: To define, you know, so you don't have to carry your cow and exchange it for ...
Jason: It was like the guy was saying in manufacturing, I said work but manufacturing is an exchange for the skill and service of another person. Like say for instance if you say it's to exchange, I want a hammer right? Well what you are asking for I want to purchase the skill of the person who knows how to construct hammers. That hammer is not such an easy thing to construct if it is nice and it has a claw and everything like that, and it has to be molded in metal and then shape the wood and stuff like that. So you are purchasing the labor, the manufacturing, the work of another person and that is what money is.
Pierre: I have a personal story here I... At the time I was giving postscript classes in a business course, and one of the classes was about value, because I was working with venture capitalists, and we have to negotiate the value of companies. You know you are an entrepreneur, you start your IT company and you need funding and you meet venture capitalists and you want money and they want some equity from the company so what's the value of your company? And now there are thousands of books developing theories about how to get, create the value of the company. How are the growth prospective, market share, number of customers, net income, profitability, assets, etc. And in the end of the classes my conclusion was in the end, the value of your company is how much a buyer is willing to pay for it. And it is so subjective.
Joe: It is all subjective.
Jason: yeah.
Pierre: It's subjective. It's more a social or collective convention. It's an agreement between someone who has something to offer and one who wants this thing on how much for it.
Joe: And that can be, there can be corruption behind that, there can be lies and deceit behind that. I mean for vested interest, for example when you talk about the markets today, the economy in different, you know stock exchanges they being, markets being based on sentiment. I mean it's ridiculous. People just accept that the markets, you know, sentiment in the market today is that... So what you have apparently is for example in New York and Wall Street in the stock exchange, you have these bankers who are, you know, they're brokers or whatever, but they've got a reputation for being the people to go to, and apparently they are the ones... I mean they earn like twenty five million dollars a year, but apparently one of those guys can, if the right person says the right thing to them, he can turn around and say, oh you know what, I don't really like the look of orange juice these days, you know? Right now orange juice isn't looking good, and he spreads that word around and suddenly the price of orange juice will plummet.
Or people will dump all of their stocks in oranges you know and the price will collapse. And he just set that sentiment. That's just one guy or a relatively small group of people who have the power to, and the companies can be destroyed and people can lose their jobs over him saying that for a particular reason, because somebody gave him a brown envelope, or some friend of his wants, for whatever reason, he can spread a sentiment that will cause the value of commodities to drop for no reason what so ever. And it's completely false.
Pierre: It's true. Ironically the fundamentals of modern economics are based on the theory of perfect markets with rational players.
Joe: Rational?
Pierre: Yeah, yeah we are getting there. So the idea that all players in the market have access to objective information at the same time that the market shares are shared amongst a lot of players and that they take objective, rational decisions. But actually all those points, that make the fundamentals of modern economics, are false. The information that affects the market are manipulated, are false, not every player gets the same information at the same time. Insiders and outsiders and of course we are not insiders so you are sure to lose when you are not an insider, because you have the information late and usually you have the corrupted information, and there is not a widespread distribution of market share. You have a few players that are usually in collusion, work together, and that hold such a share of the market that they totally control it. So the reality is just geometrically opposite to the fundamentals of modern economic i.e. perfect market with rational players.
Joe: Yeah. So it's all going to go down into the toilet pretty soon. That's the way it's looking. The economy is going to crash, be crashed, it's going to implode in on itself because it is all based on a false premise.
Niall: Yeah.
Joe: So people need to, what can people do? What people need to start thinking in those terms and like our last caller just said start stocking up on stuff that yourself will need, if you can, and that you might be able to trade. Because ultimately if the worst happens it's going to go back to a bartering type of scenario, because it's going to be basic essentials that people want to exchange and you need, to start kind of thinking and making connections with other people if that's possible you know.
Jason: And start developing some skills too.
Joe: Skills absolutely.
Jason: Skills are the most important thing because even if you don't have any goods you can always trade a skill. I mean you know take a class in construction or cabinet making and you know learn something you know good you know? Learn to do for yourself. That's probably the most important thing that anyone can do because ...
Joe: Animal husbandry.
Jason: Yeah animal husbandry or something like that you know.
Pierre: Steel work.
Jason: Yeah you know get control of that stuff because... and then lock in value. I mean people gotta learn to see the intrinsic value of a thing. The first thing you should think about in terms of value, the most valuable thing is the thing that you can't live without. Like if you don't have you'll die. Most people don't even know like for instance you'll die if you don't have salt. So it's probably a good idea to have some salt. It's very important you know.
Pierre: Again here players are not rational. As a human beings are controlled by emotions often and beliefs.
Jason: Yeah exactly.
Pierre: And I remember this report about surviving during the Russian crises and one of the products that was in most asked for by citizens was perfume, by women because when you have lost everything you still want this little island of dignity, of femininity. You know during the, after the first world war in France when there was scarcity not a lot of resources, during the 1929 crises, something that was really researched by a consumer was this black eyeliner, because a woman could fake the long socks, the line at the back of the legs so you would think they were wearing stockings. So it is not only rational.
Joe: Yeah and what really beats me is that when you think, if you just stop and think about any country and all of the people who are working in that country, they are the people who are producing everything. They are producing absolutely everything. But today especially in the west the vast majority of them, or a large percentage of them are in debt. You know collectively they are all the ones who produce everything that exists within the country in terms of things that are needed. Yet a large percentage of them are in debt to a bunch of bankers who produce absolutely nothing.
Niall: We have a parasitic economy that sits on top of the real economy, where you and I live and work. I was going to say 'it's out of control', it's not that it's out of control, it's (??? - 2:00:15). But there is a historical precedence, it has happened before. I think businesses should also be aware that for all the efforts they make to control, manipulate prices, control things, enrich themselves and of course that does go on, there is no actual control. There are things that are outside their control even in the sphere of prices.
Joe: They control you mind you know. Basically that is how they control it all. Tell what you believe.
Niall: This year is the hundredth anniversary of the Federal Reserve. And a lot of the people in the US are aware of its machinations and want it pulled down. Their refrain is 'End the Fed, End the Fed!' To come up with some alternative solutions I think would be better. But it is going to take more than that of course.
Pierre: It is a systemic problem.
Niall: It is a systemic problem and it repeats in history. I've been reading a fascinating book by an economic historian. It's called "The Great Wave", and he charts - using umpteen different kinds of data, which is readily available because the main thing he used was prices of food, receipts for purchases, the price of labor... all going back some eight hundred years. And using all this data he's found there are four great waves of what he calls price revolutions. These are periods when inflation went up markedly. And he plots it over this time scale. Okay we are all familiar with inflation going up and down, year to year, decade to decade; to some extent that is manipulated, locally manipulated, let's say.
But over the longer time frame it's outside the scope of any one group of people or individuals to rig. Of course it is, we're talking hundreds of years here. And what he found was fascinating because there are price revolutions where inflation, the cost of basic food and goods goes up, and it goes up and up, it's an exponential race and then of course there's a crash. The overall bubble, let's say, pops, and then there's a systemic crash, and then there is a new equilibrium that develops afterwards.
There have been four great waves in the last eight hundred years. One Fischer calls the medieval price revolution, then there is the Renaissance one, then there's one in the eighteenth century, and today we are living in the tail end of the twentieth century price revolution. I'm only just beginning to compare some of the data, but it is amazing how these charts fit with periods of widespread crop failures as a result of environmental changes. These four spikes, so far as I can see, correlate with environmental changes. Right down to... I mean, there is a guy - Mike Baillie, who some listeners will be familiar with - and he has charted that carbon dioxide levels, for example, have risen in the very recent past, and it's exactly at this time that CO2 levels went up during the medieval period, at a time when this price revolution began. The first things that went up were food and fuel prices and then everything else followed from that. Economic historians do look at the environment as a factor in socio-economic change, but I wonder to what extent it is actually a major factor, even to the extent of it regulating our economy!
Pierre: Yeah that might be a different kind of crises and you can rig the market up to a certain point but when there is no more sun, no more crops, no more wheat, the factor, the price of wheat will go through the roof. That's not engineered and you can do nothing against that.
Joe: Get off the wheat people!
Pierre: And interestingly there are also the human engineered crises, because to make money in speculation is very basic; you have to buy a good for a lower price than you sell it. So basically you have to buy when it goes up and you sell when it's up or if it's a market going down, the opposite. If you know about the bubble, if you created it, then you buy when it's low and you sell when it's high. Hence the situation which are one of the basics of the wealth accumulation of the eighties, you pull the strings of the markets.
But then you start to wonder if there's a correlation, a kind of as above so below principle, is it a correlation between human crises and cosmic crises? If the level of suffering or lies belabor human beings can trigger some cosmic reaction? You can wonder if induced human engineered crises, financial crises, manipulation that induces a lot of suffering and which are a massive lie, a lot of suffering. Often we focus on those mass destructors you know like Stalin and Hitler, but imagine the one who turns the knobs of inflation rates, how much poverty they create, how much famine, how much death, how many diseased, that is a fundamental tool that affects all of us.
Nobody is immune. Everybody needs money to live, wage, a house, shelter. Money is the key. If you control money you control people, you control nations, you control the world. So how do the leaders that abuse, manipulate financial markets and put people in poverty and misery, trigger some crises they have no control over and at a far greater magnitude.
Joe: Absolutely, that is interesting.
Jason: In the end they are worse than Hitler, worse than Stalin because the death and the destruction and the misery they create is such a larger scale.
Joe: Yeah and so pervasive and insidious.
Pierre: And they present their deeds as being beneficial deeds. IMF, Central Bank was created officially to regulate and stabilize the market. Since the creation of the Federal Reserve we've gone through the 1929 crash, the 1930's crises, the ...
Niall: Two world wars.
Pierre: Two world wars, the 1987 crisis, the black Tuesday, the 1973 crisis, the 1978 crises, it's a succession of crises because crises is a fundamental device, phenomenon to rich, main capitalistic players increase their wealth.
Niall: And they do this as a force of nature, as Harvey Cleckley says. There are opportunities in crises. It's like what Naomi Klein said in "The Shock Doctrine"; when a crises happens, real or imaginary, people are shocked and traumatized, except for some. They immediately see the field as wide open to take more for themselves.
And this is actually, it's kind of indirectly mentioned by this historian, he didn't use the same terms but you can see he's getting there, that during good times of stability, of relative price stability, more or less equal distribution of goods, and where people are able to get a fair wage for their labor, slowly, slowly what starts to happen is that greed starts to infect the economy, and then it forms these ramified networks of mutual pathological interests, rather than any plan from the start to screw the people over. But invariably that hardens and forms a crust and it does for all intents and purposes look like it's directed from the top down.
Joe: Yeah it looks like but it's just a natural, organic infestation or infection of greed. And that's our problem, a major problem in the world today is that pathological people at the top, got to the top through greed, and who are destroying our society and have done through greed. Their greed is a sickness you know? And this is what people need to understand. It's not about overturning the system and you know overthrowing the government and all that kind of stuff. It's about seeing the way things are and understanding the state of the planet and the state of society and stepping outside of it.
And the most important way to step outside of it is psychologically, you know? It's through the process of seeing it, that's how you step out of it psychologically. And obviously when you step outside of it psychologically you start to do little different things here and there in the way that you run your life and organize your life. You can still live a normal life to some extent, but you start taking action based on what you see, and that's the simple answer to it.
Jason: The problems of the world are not so great that we can't fix them if we try. There not so great.
Joe: No, but everybody has to do their part and you've got to stop being mind-programmed you know? Stop buying into the bullshit you know, and believing the bullshit. They're not out to, you know, our glorious leaders are not here to protect us and keep us safe. They are here to feed off us.
Pierre: And finance is a field where the two main objectives of psychopathic individuals i.e. greed and destruction, go hand in hand, because it's a zero sum game. Money, there is a limited amount of money and resources. If follow greed and you accumulate wealth, it means others have less resources, which serves to put others in misery, so you serve your greed objectives and while serving your death and destruction at the same time.
Joe: Absolutely, yep. So I think we've covered the topic for this week. We hope everyone enjoyed the show. Thanks to all our listeners and thanks to our callers for your comments and questions and calls. We will be back this time next week. We're not sure what we will be talking about but we're damn sure ...
Niall: We'll be talking.
Joe: We'll be talking and it will be interesting. Until then, over and out.
it will become the New World Order currency. People will need to resort to bartering in order to keep the money changers out of their business.