1/ My new essay "The Invisible Cost of War in the Age of Quantitative Easing" is live.
Putin was able to invade Ukraine because there are no checks on his tyrannical power.
Democracies in theory should be more constrained in warmaking.
But are they? 🧵
bitcoinmagazine.com/culture/how-th…
Putin was able to invade Ukraine because there are no checks on his tyrannical power.
Democracies in theory should be more constrained in warmaking.
But are they? 🧵
bitcoinmagazine.com/culture/how-th…
2/ One of the greatest argued strengths of democracy is Democratic Peace Theory
DPT observes that democracies are less likely to fight, and especially less likely to fight each other.
Democratize the world, get world peace.
But this story has one big flaw: fiat central banking
DPT observes that democracies are less likely to fight, and especially less likely to fight each other.
Democratize the world, get world peace.
But this story has one big flaw: fiat central banking
3/ Post-1971 America in the role of the world's leading democracy and guarantor of the international system has transformed how it finances war.
In the first half of the 20th century, wars were fought with taxes and "liberty bonds"
WWII was 50% financed by taxes, Korea 100%
In the first half of the 20th century, wars were fought with taxes and "liberty bonds"
WWII was 50% financed by taxes, Korea 100%
4/ Post-1971, everything changed. There would be no more war taxes after 1968, and no more liberty bonds.
War was placed on the national credit card.
America's post-9/11 wars have been paid for exclusively by borrowing.
War was placed on the national credit card.
America's post-9/11 wars have been paid for exclusively by borrowing.
5/ Combined with the end to conscription--and the rise of drones and robotics--borrowing for war (instead of taxing or raising money specifically for it) has led to a population that is not engaged with and knows very little about the wars its government wages across the world
6/ For example, how many Americans know about Operation Inherent Resolve?
It's a newer 8-year war, launched by Obama, that has cost tens of billions of dollars and is being fought in Syria, Iraq, and Libya.
Paid for entirely by borrowing from the future.
It's a newer 8-year war, launched by Obama, that has cost tens of billions of dollars and is being fought in Syria, Iraq, and Libya.
Paid for entirely by borrowing from the future.
7/ In order to fight the US government's post-9/11 "credit card" wars, the American people have already paid ~ $1 trillion in interest alone, just on the money that their government borrowed to fight those wars.
This is not a widely discussed fact. Some might say it is hidden.
This is not a widely discussed fact. Some might say it is hidden.
8/ US entitlements remain largely paid by taxes but when it comes to exotic forever wars, they are paid by credit.
This is possible because interest rates on US debt are near-zero and cheap to pay back
But if rates went to 3% the US would owe ~25% of its tax revenue on interest
This is possible because interest rates on US debt are near-zero and cheap to pay back
But if rates went to 3% the US would owe ~25% of its tax revenue on interest
9/ The Fed has purchased ~ $9 trillion of US debt and financial assets since 2008.
Since March 2020 the Fed has purchased ~ $4.7 million of assets *per minute*
This puts upward pressure on the price of US debt, and downward pressure on rates, reducing the cost of borrowing.
Since March 2020 the Fed has purchased ~ $4.7 million of assets *per minute*
This puts upward pressure on the price of US debt, and downward pressure on rates, reducing the cost of borrowing.
10/ Of course, US treasuries remain the most desired financial collateral in the world.
But 15 years of enormous buying pressure from the buyer of last resort to the tune of almost $10 trillion has had an undeniable impact on the market, mechanically and psychologically.
But 15 years of enormous buying pressure from the buyer of last resort to the tune of almost $10 trillion has had an undeniable impact on the market, mechanically and psychologically.
11/ Without QE/ZIRP, US interest rates would be higher, and the forever wars would be cut shorter.
Of course, proponents of QE and debt monetization do not talk about foreign policy.
In Stephanie Kelton's 300-page "The Deficit Myth," the words Iraq and Afghanistan do not appear
Of course, proponents of QE and debt monetization do not talk about foreign policy.
In Stephanie Kelton's 300-page "The Deficit Myth," the words Iraq and Afghanistan do not appear
12/ It's true that the post-1971 fiat standard monetary system has made it possible to pay for more social welfare in the US.
But it has also made it possible to pay for a lot more sustained war than otherwise possible.
The latter is almost never discussed.
But it has also made it possible to pay for a lot more sustained war than otherwise possible.
The latter is almost never discussed.
13/ ZIRP and QE have other negative externalities for Americans.
They may make it possible to continue fighting forever wars without needing to raise taxes or raise war-specific bonds, but they also cause asset inflation and increase inequality.
They may make it possible to continue fighting forever wars without needing to raise taxes or raise war-specific bonds, but they also cause asset inflation and increase inequality.
14/ In the early 90s, the 1% owned about 23% of American household wealth.
Today after three decades of easy monetary policy, with interest rates falling from 8% to 0.08%, the 1% own about 32%.
Meanwhile, the bottom 90% saw their wealth share decline from 40% to less than 30%
Today after three decades of easy monetary policy, with interest rates falling from 8% to 0.08%, the 1% own about 32%.
Meanwhile, the bottom 90% saw their wealth share decline from 40% to less than 30%
15/ In a country where the top 10% own almost 90% of the stocks, asset inflation is a redistributionary phenomenon.
But extreme inequality isn't the only major downside of debt-financed spending.
But extreme inequality isn't the only major downside of debt-financed spending.
16/ In the late 1960s, as the gold standard came to an end, and the fiat standard began; in the mid 1980s; and again in the early 2000s, the US embarked on a series of debt-financed military buildups.
Each one ended in a catastrophic financial crisis.
Each one ended in a catastrophic financial crisis.
17/ The first was followed by a run on the dollar, the Nixon Shock, the end of the gold standard, and dollar devaluation.
The second was followed by the Savings and Loan Crisis and Black Monday.
The third was followed by the subprime-triggered Global Financial Crisis.
The second was followed by the Savings and Loan Crisis and Black Monday.
The third was followed by the subprime-triggered Global Financial Crisis.
18/ In the fiat age, debt-financed military buildups cause crashes.
And in today's GWOT, America is now at an all-time high of debt-to-GDP ratio, topping 130%
Even if we stop them today, we'll owe $2T on post-9/11 war spending by 2030, and $6T by 2050
And in today's GWOT, America is now at an all-time high of debt-to-GDP ratio, topping 130%
Even if we stop them today, we'll owe $2T on post-9/11 war spending by 2030, and $6T by 2050
19/ It's possible that the interest we owe on the post-9/11 wars eventually eclipses *actual spending* on these wars.
And this comes at a time when demand for US debt has peaked, and the US dollar system is under enormous stress, with Russia and China perhaps splitting away.
And this comes at a time when demand for US debt has peaked, and the US dollar system is under enormous stress, with Russia and China perhaps splitting away.
20/ Smith, Mill, and Keynes all argued borrowing for war was a bad idea, especially if it caused rates to rise.
But America figured out a magic trick to borrow for sustained war with low rates.
As Cicero said, “nervi belli pecunia infinita”—the sinews of war are infinite money.
But America figured out a magic trick to borrow for sustained war with low rates.
As Cicero said, “nervi belli pecunia infinita”—the sinews of war are infinite money.
21/ So how do we prevent the Credit Card Wars from further eroding democracy?
Conscription could work, but is politically impossible and morally dubious.
War taxes + liberty bonds could work, but these seem politically impossible, too.
Would a war bond even pass the ESG test?
Conscription could work, but is politically impossible and morally dubious.
War taxes + liberty bonds could work, but these seem politically impossible, too.
Would a war bond even pass the ESG test?
22/ One option would be a move away from the fiat standard to a new kind of more restrained monetary standard.
It may sound far-fetched, and central banks would never choose it willingly, but many of us believe a Bitcoin standard is a future possibility.
It may sound far-fetched, and central banks would never choose it willingly, but many of us believe a Bitcoin standard is a future possibility.
23/ This neutral, open, predictably scarce, and decentralized money has grown from an idea to a trillion-dollar asset, and could potentially see a wave of global adoption in the next decade amidst high inflation, fiat devaluation, and financial repression.
24/ If the world's leading democracy couldn't simply issue bonds with one hand and buy them with the other, if its central bank and private sector were constrained by a BTC position, then there would be a spending triage.
Exotic wars might be one of the first things to go.
Exotic wars might be one of the first things to go.
25/ The US earns enough income to pay for most of its entitlements.
But we borrow to fight the forever wars.
Defensive or just wars could still be fought and waged in a Bitcoin standard, but unpopular ones could not be sustained.
The cost of war would be invisible no longer.
But we borrow to fight the forever wars.
Defensive or just wars could still be fought and waged in a Bitcoin standard, but unpopular ones could not be sustained.
The cost of war would be invisible no longer.
26/ If you enjoyed this thread, you can read the full essay here.
Thanks to @BitcoinMagazine for the opportunity to go so deep into a topic.
I hope this helps spark more debate over war finance ✌️
bitcoinmagazine.com/culture/how-th…
Thanks to @BitcoinMagazine for the opportunity to go so deep into a topic.
I hope this helps spark more debate over war finance ✌️
bitcoinmagazine.com/culture/how-th…
27/ This essay was inspired by the work of thinkers who may disagree but are all hugely insightful
Follow them!
-@sekreps
-@LJBilmes
-@rosellacappella
-@CLeonardNews
-@MacroAlf
-@LynAldenContact
-@LukeGromen
-@thoatley
-@FedGuy12
-@saifedean
-@CryptoHayes
-@BichlerNitzan
Follow them!
-@sekreps
-@LJBilmes
-@rosellacappella
-@CLeonardNews
-@MacroAlf
-@LynAldenContact
-@LukeGromen
-@thoatley
-@FedGuy12
-@saifedean
-@CryptoHayes
-@BichlerNitzan
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