The Crypto Answer to Financial Crisis

With geopolitical crisis on the horizon, the economies of the world have a problem: They’re too reliant on an ever-growing pile of debt, both private and public.

In 2008, it was the private debt that blew up, nearly bringing the entire global financial system to its knees. Had it not been for Herculean rescues by sovereign governments, it could have been the end.

The governments bought up the private debt. They printed $15 trillion in new paper money to pay for it. And they effectively moved a large portion of private assets from the coffers of banks to the balance sheets of federal governments.

In the immediate aftermath of the 2008 crisis, talk about financial reform was common. Government officials and economists of all stripes seemed to share the same fear and the same agenda: They worried it could happen again. And they figured something had to be done to prevent it.

But today, those concerns are faint memories. The underlying causes of the 2008 crisis have been largely forgotten. The world has moved on.

Even so-called “experts” have a big blind spot. They don’t seem to realize how little has changed. They don’t get the fact that the conditions leading to the near-collapse of 2008 are still largely with us today.

Nor do they understand the great asset shift that has taken place in the interim:

Since 2008, the global economy has witnessed a historic, monumental transfer of wealth from private banks to sovereign nations.

Think about it: Banks were bailed out. The treasury departments and finance ministries dished out the dough. Central banks printed the paper money. And, in the final analysis, governments inherited the toxic assets.

It was the classic example of debt papered over. No cure. No reform. No improvement whatsoever. Just a lot of kicking of cans down the road.

End result: In the years ahead, the global financial system will face an even greater crisis.

Not just bankrupt companies, but also bankrupt governments. Not just the specter of corporate debt defaults, but also the Armageddon of public debt defaults.

In weaker countries, there is a real possibility that governments will default outright. They will miss payments of principal and interest.

In other, more advanced countries, the default could be more subtle — via excess taxation or a de-facto devaluation of the currency.

No one knows for sure.

But opinion polls and surveys do tell us one thing: There’s is a broad public perception that something broke in 2008, and that, even today, something’s not quite right.

Most people can’t pin it down. Or they blame the wrong actors and causes. That’s natural; the inner workings of the financial/monetary systems can be obscure. But it’s not really that complicated. It can be broken down into six simple facts of life.

Fact of life #1. Beyond the pale. The mountain of debt accumulated by sovereign governments is now beyond the point of no return. It’s so big, it can never be repaid.

Fact of life #2. Old-fashioned skullduggery. Despite all the advances of science and technology, we continue to live under a global regime of free-wielding money creation — out of thin air and at the whim of politicians.

Fact of life #3. Feeding on seed. The only way they’ve been able to manage their debt loads is by running their money printing presses and using the money to buy up their own debt. Like desperately poor farmers that eat their seed.

Fact of life #4. Social distortions. This wanton fiscal and monetary behavior has created all manner of distortions in society and the marketplace. Two prime examples: Unprecedented levels of wealth concentration and equally unprecedented extremes of political divisiveness.

Fact of life #5. It’s nothing new. Historically this isn’t the first time this has happened. Nor will it be the last. Since ancient times, governments have tried to live beyond their means. They managed to do so for a while. But they rarely reformed and never survived. Almost invariably, they ultimately pulled every trick in the book to keep their lights on.

Fact of life #6. The people hold the wealth. Sooner than later, political leaders discover that most of a nation’s wealth is not in the hands of amorphous institutions; it’s held by the population. So, when governments run out of money, they have only one place to go. They must turn to the citizenry.

And they find a way to confiscate the people’s wealth.

In politically incorrect countries, they confiscate by force. They freeze your bank account. They swap out your deposits denominated in one currency that’s worth more for deposits in another currency that’s worth a lot less.

In politically “correct” countries, they deploy more tactful tactics: Below-market yields. Special transaction taxes. Or just plain, old-fashioned inflation.

Your money is stashed away in a bank account. And you think it’s safe?

For now, maybe.

But what happens in a crisis like 2008 when some of the world’s largest financial institutions were near failure?

More to the point, what happens in a crisis when some of the world’s largest governments are on the brink of failure?

For those of us who have grown up outside of the developed world, we know what that means.

We know that there’s nothing more scary than frightened politicians in a failing government.

They lash out. They do crazy things. And the bank deposits of the average citizen are the most obvious targets.

What are the alternatives?

Among most investors, common stocks are what comes first to mind.

But ask yourself: Do you truly control the ownership of your stocks? Or is it your broker, holding it for you in “street name,” i.e., the firm’s name?

Then ask: If you lived in a wayward country with a history of asset confiscation, would you trust your broker any more than your banker?

Finally, follow up with this question: What about countries that are currently making the same kinds of fiscal and monetary mistakes today that developing countries made years ago?

Examples: The European Union. Japan. The United States.

Gold: Confiscation-Proof or Not?

Is it buried in your backyard or equivalent?

Or are you trusting a third party to guard it for you?

In the midst of an acute financial or political crisis, will your governmental authorities let you take it out and lock it up in a private safe?

Will they let you pack it up in a bag, check it on the next plane, and take it out of the country?

Not sure, right?

Even if you live in an advanced society where the rule of law usually prevails, you cannot predict what desperate politicians will do when their back is against the wall.

This is why cryptocurrencies can play such an important role.

Not only do cryptocurrencies offer individual citizens a truly private safe haven, but they can also play a stabilizing role for society itself.

Cryptocurrencies are the ultimate form of self-regulated, private money. As such, they could be in great demand in any crisis, any time, in any country.

When you store cryptocurrencies in your wallet, only you own them. Only you control that asset. No one else.

They are not in the custody of third parties. They cannot be taken away from you. They cannot be confiscated.

When you make a transaction, it’s always peer to peer. No middle man. No central authority that can one day decide your money is needed for the “common good.” No leader who one day says you’re “a patriot” and tells you “your country needs YOU” (in other words, your MONEY).

In the world of crypto, you don’t follow the rulers. You just follow the rules.

You don’t have to answer to a central authority; the networks are decentralized and scattered across the planet.

You type your “mnemonic seed” phrase — a set of random words, sorted in a specific order.

And as long as you remember that phrase, the funds are there for you. Anywhere, anytime.

Best,

Juan

About the Editor

When econometrician and pro trader Juan M. Villaverde first applied his algorithms to Bitcoin years ago, he discovered a regular cyclical pattern. And he has since used it to build the world’s first crypto timing model based on cycles. Thanks to his analysis, the Weiss Ratings team has accurately picked the top and bottom of major crypto booms and busts.

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