Is Bitcoin Standing In For Gold?
Is Bitcoin Standing In For
Gold?
Paul Craig Roberts and Dave
Kranzler
In a series of articles
posted on www.paulcraigroberts.org, we have proven to our satisfaction that the
prices of gold and silver are manipulated by the bullion banks acting as agents
for the Federal Reserve.
The bullion prices are
manipulated down in order to protect the value of the US dollar from the
extraordinary increase in supply resulting from the Federal Reserve’s
quantitative easing (QE) and low interest rate policies.
The Federal Reserve is able
to protect the dollar’s exchange value vis-a-via the other reserve
currencies—yen, euro, and UK pound—by having those central banks also create
money in profusion with QE policies of their own.
The impact of fiat money
creation on bullion, however, must be controlled by price suppression. It is
possible to suppress the prices of gold and silver, because bullion prices are
established not in physical markets but in futures markets in which
short-selling does not have to be covered and in which contracts are settled in
cash, not in bullion.
Since gold and silver
shorts can be naked, future contracts in gold and silver can be printed in
profusion, just as the Federal Reserve prints fiat currency in profusion, and
dumped into the futures market. In other words, as the bullion futures market
is a paper market, it is possible to create enormous quantities of paper gold
that can suddenly be dumped in order to drive down prices. Everytime gold
starts to move up, enormous quantities of future contracts are suddenly dumped,
and the gold price is driven down. The same for silver.
Rigging the bullion price
prevents gold and silver from transmitting to the currency market the
devaluation of the dollar that the Federal Reserve’s money creation is causing.
It is the ability to rig the bullion price that protects the dollar’s value
from being destroyed by the Federal Reserve’s printing press.
Recently, the price of a Bitcoin
has skyrocketed, rising in a few weeks from $1,000 to $2,200. Two explanations
suggest themselves. One is that the Federal Reserve has decided to rid itself
of a competing currency and is driving up the price with purchases while
accumulating a large position, which then will be suddenly dumped in order to
crash the market and scare away potential users from Bitcoins. Remember, the
Fed can create all the money it wishes and, thereby, doesn’t have to worry
about losses.
Another explanation is that
people concerned about the fiat currencies but frustrated in their attempts to
take refuge in bullion have recognized that the supply of Bitcoin is fixed and
Bitcoin futures must be covered. It is strictly impossible for any central bank
to increase the supply of Bitcoins. Thus Bitcoin is standing in for the
suppressed function of gold and silver.
The problem with
cryptocurrencies is that whereas Bitcoin cannot increase in supply, other
cryptocurrencies can be created. In order to be trusted, each cryptocurrency
would have to have a limited supply. However, an endless number of
cryptocurrencies could be created that would greatly increase the supply of
cryptocurrencies. If entrepreneurs don’t bring about this result, the Federal
Reserve itself could organize it.
Therefore, cryptocurrency
might be only a temporary refuge from fiat money creation. This would leave
gold and silver, whose supply can only gradually be increased via mining, as
the only refuge from wealth-destroying fiat money creation.
For as long as the Federal
Reserve can protect the dollar by bullion price suppression and money creation
by other reserve currency central banks, and as long as the Federal Reserve can
keep the influx of new dollars out of the general economy, the Federal
Reserve’s policy adds to the wealth of those who are already rich. This is
because instead of driving up consumer prices, thus threatening the US dollar’s
exchange value with a rising rate of inflation, the Fed’s largess has flowed
into the prices of financial assets, such as stocks and bonds. Bond prices are
high, because the Fed forced up the price by purchasing bonds. Stock prices are
high, because the abundance of money bid prices higher than profits justify. As
the US government measures inflation in ways designed to understate it, the
consumer price index and producer price index do not send alarm systems into
the markets.
Thus, we have a situation
in which the Fed’s policy has done nothing for the American population, but has
driven up the values of the financial portofilios of the rich. This is the
explanation why the rich are becoming more rich while the rest of America
becomes poorer.
The Fed has rigged the
system for the rich, and the whores in the financial media and among the
neoliberal economists have covered it up.
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