Economic Deflation, Price Inflation, and The Bitcoin Bear Market – May 23, 2021
Joe Biden winning the Federal Election in the United States has been a wake-up call for me, because I genuinely thought everyone would know even a moderate Joe Biden would be bad for the global economy. Joe Biden is far from being moderate, not only is Joe Biden adding regulations to the U.S economy he’s also raising taxes and wanting to hire more IRS agents.
What this equates to for the private sector is malinvestment, when your costs as a business owner go up via the government you make changes to how you do business and these changes don’t necessarily equate to success or profitability, sometimes customers don’t want to pay the higher prices, customers also want the same service they’re used to.
Because most customers/consumers, don’t understand the correlation between government policy and how it destroys the private sector when the private sector changes its behavior to be profitable, those same voters/consumers will run to the government and demand the government do something else to make the private sector provide the service or prices they used to provide.
This is deflation, this is what prolonged the Great Depression, the Great Depression prior to FDR was a recession and the recession under Herbert Hoover quite frankly had to do with racism in the south, the national socialists in the south had been raising hell because the then minorities were taking all the jobs and driving down wages.
Back then if you were anti-racism you were a Republican, capitalism as ANTI-RACISM, because most employers/capitalists will hire the most competent person to do a job at the lowest amount of money possible. Prior to the buffoonery that exists today, everyone knew that life was a trade-off, there’s no Utopia without hard work, the meek shall inherit the earth, I comprehend that most people are atheists today, but meekness = docile, overly compliant, spiritless, yielding or tame.
A lot of Americans subscribed to Christianity back in the day, so concepts that we’ve lost in the modern era, we’re practiced. Now, to be fair a large segment of Americans, in that era did not believe in race mixing, it’s not saying that they didn’t race mix, but it was frowned upon and this was regardless of whether or not they were members of the KKK.
Most Americans didn’t like the KKK nor did they side with the racists and this was the fact all of the way back then. Now, the racism I’m referring to by the way is economic racism, minorities even back then were willing to do jobs whites were unwilling to do and for less money, so if you were capitalists in the early 1900s you may have preferred employing a black person over a white person.
This obviously led to economic deflation in white communities, who felt entitled to a LIVABLE WAGE. Nothing has changed except technology in the modern era. The same Socialists that existed in the 1800 and 1900s exist today, they want the government to take of them.
I say this because entitlements led to the Great Depression and the great depression was actually the result of the creation of the Federal Reserve Bank, which oddly enough came under the presidency of a Democrat by the name of Woodrow Wilson.
The Republicans did nothing to reverse the Federal Reserve act, which is what gave Franklin D. Roosevelt the idea to have a minimum wage and social security. Both of these legislations created the foundations for the modern-day welfare state. The minimum wage and social security act legislation led to America defaulting on its debts so badly that President Richard Nixon a Republican was forced to end the international convertibility of the U.S. dollar to gold.
This default by the U.S government that occurred on August 15, 1971, is the only reason why Bitcoin has any value today. The U.S dollar since 1971 became a confidence dollar and Bitcoin is a better-structured confidence dollar. The weakness in Bitcoin is that it’s nothing physical, sure right now it can be used to buy physical goods, but its value is useless.
Some people imagine that money has to do with a specific arrangement, no, Gold is money because people want it, if it weren’t for the government I could start a Gold Standard currency today and peg my currency 100 rich paper notes = 1 ounce of gold, the only thing people would care about is the transparency of my currency. I could have a factual reserve component to my gold-backed paper currency and as long as the people invested in my currency believed in it, it would work.
When there’s a run on the bank people expect to get whatever they put in the bank back in their hands. Run-on banks often occur for any reason, currently, there appears to be a run on the Bitcoin bank as people are selling it, the reason I believe this is happening has to do with deflation, people are running out of money to service their debts and buy stuff.
The problem with Bitcoin is that it’s dependent on going up in value because like fiat money it has no other purpose for existence.
Governments and central banks have to find inflation otherwise their currency is useless, now, technology has created all the PRICE inflation the central banks could ever need, the problem is that Politicians, keep growing the size of government. Government isn’t free, for every new IRS agent hired, a private business owner becomes less productive.
The very rich have no reason to cheat on their taxes, I personally hire professionals to do my taxes, and I’m connected to QuickBooks, I give the government what they want, the people who usually cheat on their taxes are the poor and middle-class business owners who usually don’t have the means to hire a lawyer or a tax professional, so after the IS agents realize there’s nothing to gain by taxing the rich anymore, the then bored IRS agents start focusing their attention on the poor and middle-class businesses.
This is deflationary and what will most likely happen to correct this deflation is the central banks will print more money, the problem with that however is that most poor and middle-class people are also in debt so as the governments borrow and spend and the central banks monetize, recipients, rewarded by the government may then use that money they were gifted to pay down debts or even save the money.
This again is deflationary, and this is very bad for the price of Bitcoin because when people start paying down debt or saving money, they’re less likely to take on any risk! The fluctuating price of Bitcoin along with new emerging crypto competition is going to create a new dynamic for Bitcoin that may even threaten its price appreciation.
Bitcoin like Fiat money has no value, it’s all based on confidence and this is why Bitcoin is going to face its biggest challenges in the next 10 years, so far we’ve only observed Bitcoin ascending now that’s declining a bit we’ll now get a chance to see how it reacts to the deflationary economy, meaning do people want Bitcoin during a bear market. We already know when the price of gold goes down, people start accumulating it like crazy, because the price of bitcoin is capped and thus far it’s not really important to society, we’ll see if a lower-priced Bitcoin attracts more investors and if those investors are willing to pay a higher price if Bitcoin goes up.
What I’m getting at here is that when it comes to fiat money, consumers have a resistance point, as an example I’m unwilling to sell my U.S dollars into Canadian dollars at a certain price, in fact, if the Canadian dollar reaches parity with the Green Back I’ll back up the truck and sell my Canadian dollars and buy Greenbacks.
I wonder if Bitcoin buyers will reach a point when they say, you know what I’m not willing to pay this amount of dollars or Euros for a Bitcoin? That’s a problem I don’t think most people in Bitcoin thought about. As a Canadian, I understand the cost structure of my governments’ welfare state, I know what the Canadian dollar should be valued next to the U.S dollar.
If people buy int Bitcoin for price inflation in a particular currency, they may start to weigh the pros and cons to buying at a certain price and this is when the value of something matures. I bought Gold at $2000, Gold is now at $1800 I don’t care, I still feel like I bought my gold at a bargain, because I imagine Gold to be a form of insurance.
I don’t know if Bitcoin is looked at as a form of insurance because it behaves like it could have the equivalent of a bank run at any time and because it’s nothing physical and is reliant on the grid, its value could be subjective. Again, I like the blockchain ledger, it’s a great idea, but it would be useless if there was a gold standard.
Maybe depending on the cost, it could be used to support a gold standard, but Bitcoin is in competition with the fiat forex markets, which are heavily dependent on price inflation. The problem with capitalism is that it’s deflationary, you only get inflation out of capitalism via innovation, and the bigger the government gets the less likely people will innovate things.
So for me I see the economy deflating and the governments and central banks fighting deflation with money printing. I imagine Bitcoin assuming it will be the beneficiary of money printing, but I think Bitcoin underestimates the power of deflation. The Venezuelan economy is relating, and to fight the deflation their government and their central banks print more money, this gives the illusion of inflation, because wages and prices are going up, but the reality is the Venezuelan economy is HYPER-DEFLATING, and every government action to suffocate their free market is making their economic situation worsen. Bitcoin buyer beware!
Interesting times ahead.
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