“You’re broke even if you have money,”
A
“Generation One” family member recently asked if I had insight about the linked
article here citing a situation recently experienced by a Puerto Rican
citizen who said “You’re broke even if
you have money,” due to the island-wide
power blackout and non-functioning ATMs.
The
blog goes on to say, “Big Government is
thrilled to see so many banks go cashless. But as the folks in Puerto Rico are
learning the hard way, a cashless society isn’t all it’s cracked up to be...”
Well,
the simple insight in this situation is that without electricity, ATMs don’t work. “Duuuuh!”
Then the writer goes on to use that instance
to build a naive and biased discussion of the reasons behind banks’ promotion
of a cashless society. Despite his naiveté, that specific circumstance inevitably
leads to the larger topic of digital money.
It’s
inherent in their DNA that banks will promote cashless financial transactions.
They rightly argue it will reduce fraud, tax evasion, and money laundering. Unstated,
however, is the real reason: cashless
transactions provide banks and government authorities with more control of
money and taxing power.
But
there are much larger issues at play behind the desire for a cashless society
which are only beginning to integrate into the system of money and its
transfer. This, along with the broader implications of digital currency, have
been discussed by economists, politicians, and banks for some time. It’s simply
another manifestation of the huge transformations wrought by the development of
digital technology.
Technological
changes are increasing at an
exponential rate, not in a straight line. That’s because technology uses
information already developed to upon which to build new systems, thus driving
advances in information flows,
analyses and exploitation more rapidly than ever before.
A math professor of mine once said, paraphrasing, “The greatest weakness
of modern man is his inability to understand the exponential
function.” No doubt.
We
are currently living through changes which are more widespread, epochal, and impactful
to economies, governments and societies than mankind has experienced in over
2000 years---or more accurately since the dawn of human history---due to pervasive
advances in digital technology. None of those
developments, including cashless societies and digital money, will be stopped.
And that’s why Elon Musk, in particular, along with other visionary
technologists, warn about the potential danger of robots taking over mankind.
I
will get into the deeper, invisible changes surrounding the technology of money
later, but to the practical matter of providing for our immediate, foreseeable
needs during a weather emergency, others advise we should keep a sufficient
amount of hard cash in a home safe which allows us to live for 3-6 months if
the economy should collapse or power fails due to a storm or war. As in Puerto
Rico, a storm in this country has knocked out power for weeks in some parts of
the country, but it’s extremely unlikely the entire grid would go down.
As
I’m sure readers are aware, the so-called “prepper” movement takes this
potential disaster to the extreme and advises that you should be totally
self-sufficient to provide for yourself and family in case of economic collapse
or if the power grid goes down. Neither of those events will happen…ever.
Puerto
Rico will return to normalcy supported by money from the U.S and other
countries. As just one example, Elon
Musk has offered to provide solar power and batteries to Puerto Rico which use
the same technology powering the electric cars he developed. He claims he can power entire cities using
his batteries in a stacked array. He can probably do it. He already has in development the same type
of lithium-ion battery to power homes and buildings as well as his cars. This
is just another example of technology development visible around us.
But, as you might expect, there’s more to Puerto
Rico’s power grid failure that is not discussed. The Puerto Rican electric
system is a government entity supported with citizen’s money, namely taxes. Puerto
Rico Electric Power Authority is itself
bankrupt and unable to pay its bills, propped up by the government which
continually injects funds into PREPA.
More important, PREPA is rife with corruption. The fact that the Puerto Rican financial
system had already fallen into insolvency and on the verge of bankruptcy---before the hurricane struck---is
largely due to graft and waste in PREPA, which, by the way, is responsible for
some 70% of the country’s debt. As a result of the inefficiencies so often
found in government run entities, the system is an antiquated mish-mash of
vulnerable components: generators,
transformers, powerlines, and cable that fail to work in the best of times.
With
regard to the U.S. power grid specifically, much of what you hear, mostly from
doomsayers, is that there is a risk of the entire U.S. power grid going down.
That won’t ever happen, either, for a couple of reasons. The entire system,
while it is, in fact, interconnected not
only domestically but also with Canada and Mexico, is made up of so many independent
legacy generating, transmission, and computer control systems developed over
the last 120 years, that each individual grid can, for the most part, isolate
and support itself with the power generating capacity within its own system. No
doubt, there would be brownouts and blackouts, but it’s impossible for the
entire system to go down all at once or even in a short period of time.
But
I digress. The use of pieces of paper and metal as money, or more accurately,
fiat money, (which is a book’s worth of information in itself), will inevitably
disappear. As a result, paper money and coins will be kept as relics of an
earlier time.
Beyond
that, there is another technology already in development which will take us to
the next level of systems of financial exchange and do away with the need for
any kind of money, be it paper, silver, gold or otherwise. This truly disruptive technology will
eliminate the need for banks and will preclude governments---least of all
politicians---from interfering in the personal exchange of money between
individuals and institutions.
This
potential but real threat of Bitcoin and the blockchain to the established
financial order and to powerful financial elites recently caused Jamie Dimon,
CEO of J.P. Morgan, one of the world’s largest banks, to state that “…Bitcoin…is a
fraud.”
But
the man speaketh with forked tongue. It’s a known fact that every bank in the
world is frantically analyzing the blockchain upon which Bitcoin and over 1500
cryptocurrencies are based because it will---and is already---changing the
fundamental workings of the global financial system. This new technology threatens the wellbeing
and very existence of every financial powerhouse and its beneficiaries because
it brings a truly distributed, democratic process to the functioning of money
as a system for the exchange of value.
Dimon
speaks from his position at the very top of the established financial and political
order. He speaks not to the point that
Bitcoin is a fraud, but rather from outright fear of the ability of this new
technology to literally destroy that system he represents. Without a doubt, he
fully comprehends Bitcoin’s and the blockchain’s threat to the banking system.
Banks will become like horse drawn carriages and buggy whips---a symbol of an
antiquated system. Fifty to a hundred years from now, his statement will be
seen as akin to those made during the advent of the automobile.
You
may have heard of Bitcoin, or more generally, “cryptocurrency,” which itself is a technology based on the “blockchain”. A cryptocurrency is a digital currency in which encryption
techniques are used to regulate the generation of units of currency and verify
the transfer of funds, operating independently of a central bank. Bitcoin was the first, and is now only
one example, of more than 1500 such currencies recently developed.
Digital currencies are able to function only
because of the underlying technology known as the blockchain. The
blockchain can best be described as a universally
distributed and remote (“in the cloud”) accounting ledger digitally connected
to all other transactions registered in the blockchain (visualize a DNA strand)
in a peer-to-peer network. The
blockchain tracks each financial transaction independent of any other while
each transaction depends on the previous one to build the infinite chain of
entries in the ledger.
The first distributed blockchain was invented
by an anonymous person or group known as Satoshi
Nakamoto in 2008 and implemented the following year as a component of
his digital currency – bitcoin –
where it serves as the public ledger for
all transactions
With
currently known technology, fraud, theft and hacking can’t occur due to the
extremely lengthy and complex algorithms
used in the blockchain and which are currently impossible to decode. However, my personal opinion is “Never say
never!” Blockchain has potential
applications beyond money exchange. For example, it can be used to track
medical records, identity management, any type of transaction process, and even
food traceability.
So
this brings us full circle to earlier comments about governments’ desire to
transition to a cashless society. With the implementation of the blockchain,
that technology will prove to be the ultimate demise of those very governments and
banks that seek to control money and their citizens. Can a one-world government
or no government at all be far behind?
Len
Ruggiero
CEO,
LaMarch Capital, LLC.
10/8/17
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