Bitcoin, A Threat To The Feds…

Uh, did you sell those bitcoins, like I suggested?

Your roguish economist has four sons. Several of them invested in the virtual currency Bitcoin. They thought it was the money of the future.

Watch out,‘ cautioned their father. ‘Governments always try to look into the future and prevent it from happening. And this is a future the feds are especially keen to stop. They have a monopoly on money. And there is no way they’ll give it up without a fight.

The fight has begun. The Financial Times is on the story: ‘Blow to Bitcoin as $3.6 million seized.

The feds began with a flank attack. They shut down the illegal drugs market website Silk Road, which they described as a ‘black-market bazaar‘.

They’ve also arrested a 29-year-old hacker who goes by the name of ‘Dread Pirate Roberts’…allegedly the brain behind the Silk Road site.

A black market bazaar sounds like a good thing to us. Fewer zombies to worry about. Just crooks, scoundrels, and the usual riffraff.

But a ‘black market bazaar’ also sounds like the sort of thing the feds would like to stop. Who collects taxes in a black market?

Since the Silk Road site is where many Bitcoin enthusiasts turn their money into goods and services, its closing substantially reduces the value of the new currency.

We will come back to this subject in a moment. First…a quick market check.

Well, how do you like that?

Up, down, up, down… No visible trend. What to make of it?

Nothing… Let’s go back to Silk Road and Bitcoin. And one of the biggest mistakes libertarians – and anyone opposed to state control – can make…

You are probably getting tired of us pointing out how the feds have failed. QE has not produced a recovery. Bailouts did not create strong companies. ZIRP doesn’t lead to useful capital investment. Deficits don’t boost employment.

But arguments over whether the feds’ policies have succeeded or failed are nothing but wind unless you understand what the policies are really meant to achieve. Recovery? Full employment? Investment? The feds couldn’t care less.

Take employment, for example. It would be stupidly easy to create jobs. A conversation yesterday explains why…

Did you know that France had almost no unemployment in the 30 years after the war?‘ wife Elizabeth began.

Then, after Mitterrand, unemployment rates were always high.


Chirac, Sarkozy, Hollande – every president promises to create jobs. Apparently, they’re not very successful. And small wonder. Mitterrand put in place so many laws to protect working people. Now, who wants to hire people in France? It’s so expensive.


You’d think they’d realise what’s going on. I mean, there’s an obvious connection between raising the cost and hassle of hiring someone and unemployment rates. If they really wanted to decrease unemployment they’d abolish some of this employment legislation.

One of the silly conceits of libertarians and Tea Party activists is that the feds are stupid. Not so. They only look stupid. Because their policies are usually at cross-purposes with their stated goals.

The more legislation you pass to protect working people, for example, the worse off they become. You can see that easily in the US, where the typical real, spendable earnings for a man of working age are now lower than they were 50 years ago.

So, opponents say the feds ‘failed’.

But they miss the point. All political activity is aimed at: (1) gaining power, (2) holding onto power and (3) using power to transfer wealth, status and more power to the insiders.

It doesn’t matter whether you call it ‘job creation’ or ‘foreign aid’. The real purpose is always the same – even when many of the insiders themselves don’t realise it.

Bitcoin represents a threat to the feds’ ability to rip people off by manipulating the value of the currency.

This ‘exorbitant privilege’, as de Gaulle called it, is worth trillions of dollars. It is essential to many other policies and pretensions – including managing interest rates, controlling the money supply, and controlling inflation.

(The feds’ massaging of the CPI allows them to manipulate their costs – Social Security, debt service costs and so forth – as well as the value of money itself.)

Think they’re going to give that up to a bunch of internet geeks? Not a chance!

Have the feds failed?

Nope…They have been the most successful group on the planet.


Bill Bonner
for The Daily Reckoning Australia

Join Markets and Money on Google+

From the Archives…

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The Unintended Consequences Brewing Thanks to the Federal Reserve
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The Market’s Declining Response To ‘Open Mouth’ Operations
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Since founding Agora Inc. in 1979, Bill Bonner has found success and garnered camaraderie in numerous communities and industries. A man of many talents, his entrepreneurial savvy, unique writings, philanthropic undertakings, and preservationist activities have all been recognized and awarded by some of America’s most respected authorities. Along with Addison Wiggin, his friend and colleague, Bill has written two New York Times best-selling books, Financial Reckoning Day and Empire of Debt. Both works have been critically acclaimed internationally. With political journalist Lila Rajiva, he wrote his third New York Times best-selling book, Mobs, Messiahs and Markets, which offers concrete advice on how to avoid the public spectacle of modern finance. Since 1999, Bill has been a daily contributor and the driving force behind Markets and Money.

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