BitCoin enthusiasts have been overjoyed in recent months to observe the rise of their favourite cryptocurrency against the US Dollar. The price of BitCoin recently touched USD40,000 earlier today, making predictions of an eventual six-figure value seem believable. But the good news for BitCoin holders might herald bad news for everyone else. This could be the collapse of the fiat currency system.
The rise in the price of BitCoin has to be understood in the wider economic context.
Ever since the Global Financial Crisis of 2007, Western governments have taken to what is known as quantitative easing. This involves the widespread printing of fiat currency, a practice that has seen the price of everything go up. New Zealand recently increased the Quantitative Easing limits to $100 billion, up from $60 billion, meaning that the Reserve Bank of New Zealand will help to fund the Government through buying bonds.
Almost 24% of all US Dollars in existence have been created over the past 12 months. This money printing has led to a much greater supply of money in circulation, which means one thing: inflation. The fiat currencies of the world are rapidly becoming worthless. This is evident when comparing their value to housing, bullion and BitCoin.
In New Zealand, the average house price has doubled since 2009, but wages have only gone up 40% since then. The average house cost ($330,000/$25) 13,200 hours of labour at the average wage in 2009. By 2020, it cost ($700,000/$34) 20,600 hours. So measured in house-buying terms, the average wage has lost 50% of its power since the Global Financial Crisis.
This is despite that fact that the value of housing stock has served as a kind of heat sink that has taken the steam out of the economy. That sink has now absorbed all the energy that it can. The extra is manifesting as inflation.
The rise in the price of silver bullion is even more striking. Silver bullion has doubled in value since April 2020. The reason for this is mostly uncertainty around fiat currency (the last time silver bullion spiked was in the immediate aftermath of the Global Financial Crisis). Silver has traditionally been seen as an alternative to fiat currency owing to its millennia of trade use.
It’s a similar story with gold bullion, the price of which has tripled since the Global Financial Crisis.
Most striking of all is the price of BitCoin. At the time of writing this article, the price of BitCoin had gone up 30% over the previous week. It had gone up 500% over the previous nine months. BitCoin has gained fame as a digital alternative to fiat currency, owing to the fact that it is not under centralised control.
Many people have predicted that BitCoin will take over once the fiat currency system collapses completely. It will be evident when this is happening, apparently, from a sustained spike in the BitCoin price. Well, there’s a spike in the BitCoin price right now, as well as a spike in the silver price, the gold price and the house price.
All of these trends point unmistakably to one conclusion: the fiat currency system is collapsing. This isn’t surprising to those who were already aware of the life cycle of fiat currencies. Soon, fiat currencies might be worth so little that some people refuse to take them in trade. Then the shit will hit the fan.
*
If you enjoyed reading this essay, you can get a compilation of the Best VJMP Essays and Articles of 2019 from Amazon for Kindle or Amazon for CreateSpace (for international readers), or TradeMe (for Kiwis). A compilation of the Best VJMP Essays and Articles of 2018 and the Best VJMP Essays and Articles of 2017 are also available.
*
If you would like to support our work in other ways, please consider subscribing to our SubscribeStar fund. Even better, buy any one of our books!