Politics
With the many elections that have taken place around the world this year, there has been considerable excitement in the media over who our next leaders should be. On the other hand, however, many roll their eyes when people mention politics. The issues can create much conflict as people draw proverbial swords over their differences in opinion.
Power
Some may ask why politicians are so powerful, especially when it is difficult to identify with many of them as people.
Ultimately, the source of their power comes down to the rules and laws they make on our behalf, as I discussed in my previous newsletter, Bitcoin & Politics. This collective organisation of power also gives them access to powerful resources. i.e. our money gathered through taxation.
Taxes
There is a famous saying that people can only guarantee two things: ‘Death and Taxes’. However, the form taxes take varies considerably over the years and has always been a point of conflict between those who collect them and those who pay them.
Tithes
Initially, in the UK, the landed gentry were required to pay tithes to the ruling monarch. Indeed, around the time of Henry VII, the first monarch of the Tudor dynasty’s ascension to the throne. The laws he created, and his levies and fines became quite ruthless as he attempted to assert his authority over the newly conquered population.
A lord who fell out of favour could have his entire fortune stripped from him, which would be devastating.
Of course, at this time, the monetary system was still based on monetary metals (silver and gold), a relatively easy system to steal from with a powerful army, which gave a monarch the ability to do this.
Assets
Over time, there has been considerable pushback against such harshness, with outcomes no longer dependent on the whims of a single individual, nevertheless, by having a system that depends on a third-party entity to store your wealth, such as our current banks. It will always leave a vulnerability that a third party can remove those assets.
For centuries, resources have gravitated to the most crafty and skilled at winning kinetic battles. As the battles became more extensive, however, and the monarchs became less competent in their roles, the leadership of countries evolved into our modern concept of government.
Rejection Of The Monarchy
An uprising against the monarchy occurred in England during the English Civil War (1642-1651), shortly followed by the establishment of the Bank of England in 1694 (See Bitcoin and Banking).
By significantly reducing the monarchy’s power, the landed gentry finally believed they had a say over who ruled them and the rules made to govern them. They also had some say over how much of their money was collected and spent. In addition, the establishment of the Bank of England, in concert with a puppet monarch, allowed them to take out loans, with the responsibility for paying the interest on these loans contracted to the British taxpayer.
Initially, the government managed interest payments on such loans through lotteries, land taxes, and trading taxes.
Debt
However, the unfettered spending allowed by this new system caused an explosion of debt. In four years, it rose from the initial loan of £1.25 million to set up the Bank of England to £16 million, and this was just for the wars fought by their convenient new king, William of Orange.
By 1711, the costs for running the government had exploded to an additional unaccounted-for £9 million that parliament had no means of paying. This reckless spending created an unsustainable debt load that politicians attempted to fix by setting up the Southsea Company.
As my newsletter outlines, Bitcoin and the Southsea Bubble, this company’s abysmal failure resulted in a massive financial crisis.
The Southsea Bubble
The debt generated by this crisis was ultimately split between the East India Company and The Bank of England until it was consolidated by Gladstone in 1844, officially transferred to the British Public with the nationalisation of the Bank of England following the Second World War in 1946, and finally repaid by George Osbourne in 2015. All the while, the British Public were responsible for paying the interest on this debt. Three hundred years of interest payments!
Therefore, it was not long after the rejection of the monarchy in the 1600s that the government became susceptible to precisely the same corruption, if not worse, that they had complained about with their previous monarchs.
However, This irresponsibility with the nation’s finances did not end with the Southsea Bubble of 1720.
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The Napoleonic Wars
During the Napoleonic Wars, not only did the British Government suspend its gold standard, but it also introduced income tax to help meet this expense. Many people believed it was their patriotic duty to pay this tax. In addition, once the Napoleonic wars were over, to restore the Gold Standard after stealing value from the currency of the nation by suspending it, the government created a massive financial crisis in 1825 by allowing for the removal of more currency units from circulation than they had injected initially, even though the country had won a colossal bounty through the £14 million indemnity paid by France following the victory of Wellington at Waterloo in 1815.
The financial crisis of 1825 was so devastating to Britain’s fledgling businesses that it ended the First Industrial Revolution, which had gained traction there and led the way in Europe during the 1700s. However, the Prime Minister overseeing the emergence of the Napoleonic Wars, William Pitt, had now set the precedence for income tax, and the new financial crisis usefully justified its continuance. Income tax has now become an established part of ongoing British tax policy.
Budgeting
The issue of how much money is collected and spent can be a hot topic in many families who vary in their approach to such matters. Let alone the single vote of a citizen influencing those decisions for a whole country. Inevitably, when matters become especially serious, groups are finally motivated to join together to change things. However, it is still quite challenging to coordinate large groups of people to work together for a single goal, as so many have differing opinions on what that goal should be. For example, British Farmers are now protesting the rise in inheritance tax, but this contrasts with the equal outrage at the lack of funding for the NHS and the education system – both of which have been struggling due to poor funding for many years.
As time has passed and the government fails to resolve such conflicts satisfactorily, the path of least resistance for the government has been to somewhat acquiesce to the demands of those who shout the loudest. They then hide the consequences through various schemes and by paying the bills partly with taxes but mostly with further debt behind the scenes, usually in response to an unforeseen crisis, e.g. wars, financial collapses and the most recent pandemic.
Each new budget usually includes some ‘fudge’ regarding how they will handle the existing debt and then manage even more debt for their latest project. The government treasury introduces as many tax rises as they can get away with as a solution, but their strategy glosses over the more profound problems. All the while, the country grows an ever-increasing debt pile that is unsustainable.
Many know how much debt the world is in but are baffled by how to tackle the problem.
Recent Policy Decisions
Our current not-so-esteemed leaders in the UK are no different. In September 2022, with their new leader, Liz Truss, as Prime Minister and Chancellor Kwasi Kwartaeng. The Conservative party boldly implemented several strategies closely aligned to free market economics to end austerity and stimulate the economic growth many had been campaigning for.
Part of their plan was to abolish £45 billion in taxes, aiming to stimulate growth in the private sector. Their goal was to encourage the economy to expand, which would increase tax revenues and help bring down the UK’s debt burden. Unfortunately, they organised to fund these tax cuts by significant borrowing in the early years of their plan. However, with interest rates rising, their strategy clashed with the Bank of England’s efforts to control inflation.
The financial markets didn’t like it and promptly went into meltdown, putting everyone’s pensions at risk. So even though the general public voted for more free market economics, the moment the existing system was in danger, a prompt about-face ensued as Liz Truss sacked her chancellor before finally being dethroned herself as Prime Minister. The Conservative Party promptly replaced her with Rishi Sunak, seen as more friendly to the financial markets.
Two years later, following the election of a labour government, the new chancellor, Rachel Reeves, has taken the opposite approach, introducing over £40 billion in extra taxes. In addition, she has readjusted how the government reports their figures, allowing for additional borrowing to support a £100 billion investment in public services. She argues that this will stimulate the economy to increase the tax revenues to manage the outstanding debt!
Growth Strategy
Both of these approaches disgruntle the general public. They criticise the Conservatives for applying their favourite tactic of ‘trickle-down economics’ by easing the tax burden on the rich to stimulate the economy. At the same time, the Labour government is labelled with the reputation of ‘tax and spend’. They massively increase taxation, promising further money to sink into the insatiable welfare system.
In both cases, their strategy for paying off the debt is growth. The Conservatives want to stimulate the private sector by reducing taxes, while the Labour government intends to invest in the public sector by increasing taxes. While distracting us with their battles, no one points out that neither strategy will likely make the slightest difference to the UK’s massive debt pile.
The UK currently has a debt of £2.6 trillion. (97.5% of GDP) It takes in £1.1 trillion (37% of GDP) but spends £1.14 trillion. (45% of GDP). So until the government figures out how to spend less than it takes in income, the debt pile isn’t going anywhere. It is like a family household having maxed out its credit cards but still not having enough money to pay its bills at the end of the month. Not only that, but if the increase in taxes sinks the economy of the country into a recession, its GDP will sink, and the amount of taxes the government can collect will sink along with it, leaving them having to borrow their way out of another financial crisis, making their debt challenge even worse!
Government Debt
This cycle will only stop once the government can no longer borrow money, and indeed, with interest rates increasing, their debt is progressively a rumbling disaster. It is a slow and steady crisis that has been building for hundreds of years.
It is not the general public and their voting powers that have the greatest say over what happens in the economy. The general public thinks that the free market sounds like a great idea until they realise that the reality will shake the very foundations of our financial infrastructure.
Those of us who are prepared and understand how the existing system keeps us in ever greater slavery are willing to pay that cost, which is why they support a new system. Until many more see it that way, though, the outcry from those still reliant on the status quo will continue to hold sway.
Bitcoin As A Strategic Reserve
The United States government suffers from similar issues and is starting to accept that Bitcoin could solve their debt problem. US politicians are now discussing the prospect of President Trump adding Bitcoin to the Strategic Reserve. The price of Bitcoin has been rising so powerfully lately this seems like a compelling solution.
The trouble is, though, that while Bitcoin is limited in supply, making its price rise inevitable as more people invest in it. Once you make a mistake in managing your Bitcoin holdings, it is impossible to rectify it by changing the system’s rules as politicians have done previously.
The rules of Bitcoin are programmed into its software and can only change with a consensus of 50% of the nodes that exist worldwide. The decentralised nature of the way these nodes work means that it is now impossible for a small organised group to have control over the network, unlike some other cryptocurrencies (see here):
It isn’t even plausible for a country to own the Bitcoin system, although Donald Trump states that the US should possess all Bitcoin mining!
The initial Bitcoiners designed the software cleverly and arranged for the first Bitcoins to be distributed efficiently through its verification protocol. As Bitcoin grows in strength, any strategy to control and singularly own Bitcoin becomes impossible.
Bitcoin As A Solution
Governments are destined to catch on to Bitcoin’s power as it rapidly rises in value, and despite their best efforts, the network’s monopoly will grow out of their reach. Their inability to manipulate the network will hold countries to a much higher financial accountability than they have ever been held to before.
So, with this new system of Bitcoin as their money, the general public will have a much greater ability to hold politicians to account for their spending. It will be possible to issue a public wallet address for the government’s spending that everyone can analyse. Not doing so would quickly raise questions and protests.
Most importantly, though, by not being able to adjust the Bitcoin protocol, politicians will no longer be able to unilaterally change the rules of finance in their favour. The cost of manipulating and controlling the general public through the media and their legal systems to see things their way will now be too high, thanks to Bitcoin’s immutability.
As a result, their ability to tax the public relentlessly and unfairly in reparation for their mistakes will be a thing of the past.
Until next time, enthusiasts.
Bitcoin at $100K!
For years, Bitcoiners have been predicting that Bitcoin will reach the lofty price of $100K! This week, we came within $400 of fulfilling that target. Watch here as I celebrate with my colleagues on the World Crypto Network.
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