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The State Control over Property and Finance and How Bitcoin Can Help With Becoming Independentby@anton-dzyatkovskii
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The State Control over Property and Finance and How Bitcoin Can Help With Becoming Independent

by Anton DzyatkovskiiFebruary 13th, 2023
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Zoltan Pozsar is an expert on global macroeconomic affairs. He says the state can take everything from its citizens when it needs to finance a war. War bonds convert citizens into ‘investors’ in the war effort, he says. The state gets money right away, and will pay it back in years if the war is won.

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World history shows that during the last 3,400 years, only 268 of them were completely peaceful. This means that none of us have lived a single year during which there was no war in one part or another of the world. 

“Wars are inflationary”, writes Zoltan Pozsar, an expert on global macroeconomic affairs. And not only this: wars are expensive.

Who pays all the expenses though? 

We, ordinary people, do. 

You may be wondering how that’s possible. You don’t want any wars, and you don’t want to sacrifice your financial well-being for one. 

Here’s where the bad news comes in: the state can take everything from its citizens when it needs to finance a war. How can this happen?

Whatever you own: your house, your car, and the money in your bank account is yours because the state allows it. The state protects your right to hold these things. 

But what if the state stops protecting your ownership rights? Whoever is stronger can come and take all your belongings. 

Finally, what if the state wants everything you own because there is a war and it needs to be won? Then, you have two options:

  • To escape the state by leaving everything and moving to another country.
  • To obey, willingly or unwillingly.

How can the state control private resources? There are two options:

  • Physical - the control of food, medicines, machinery, etc. 
  • Abstracted - the control of financial assets in circulation, stocks, bonds, etc.

The first case is more evident and thus, more painful. When you have to produce food to feed soldiers, or when you have to work 12 hours a day to survive because the rest of your earnings go for war needs, it makes the war very real to everybody. That’s why in most cases, the state chooses this option when all other possibilities are exhausted.

The second option is not so evident, and is aimed at controlling people’s assets. The state has its ways to force people to sacrifice their financial security for the sake of victory. One of them is to develop monetary patriotism

Monetary Patriotism as a Way to Persuade People That They Need to Support a War

Monetary patriotism can be developed in several ways. One of the most common is issuing war bonds. As former BitMEX CEO Arthur Hayes claims, “War bonds convert citizens into “investors” in the war effort. Now, everyone’s interests are aligned. We win the war, and you get your money back”. 

How does the state benefit from selling war bonds? First of all, it gets money right away, and will pay it back in years and only if the war is won.

Secondly, war bonds generate yields lower than the inflation rates. Even if investors get their funds back, there’s no way they earn on this investment. If it were the contrary, the state would go bankrupt eventually.

For example, take the war bonds that the USA was selling to its citizens during WWII. The announced yields were not that bad, but if we discount the inflation rates, we will see that the losses of citizens were immense.

Source: https://entrepreneurshandbook.co/for-the-war-fd5509d525d

The total value of war bonds issued by the USA was $186bln. Now, you can calculate how much people lost in the long term - billions of dollars.

Germany did not issue any war bonds, instead they found another solution. Businesses had to accept that payments for their goods and services were made for 40% in interest-free tax bills. Simply put, later, they could have discounts on taxes. 

With this move, the state achieved several benefits:

1 - the government received a lot of money on very favorable terms.

2 - the state didn’t have to pay the money back.

3 - the state significantly reduced its cash expenditures.

But even if people can’t calculate how high their losses from such an “investment” can be, they understand that inflation rates are going to surge. Prices always rise whenever there is a war, this way, the state finances the conflict. That’s why there are always some people who try to escape. And this is why the state has developed multiple ways to control their capital. 

How Can the State Control Your Capital?

It depends on the country. During WWII, the USA was one of the strongest economies, the war wasn’t on their territory, and hence, there were no reasons for the capital outflow. That’s why the country didn’t impose any controls on money. The only asset that was heavily controlled is gold.

All citizens were ordered to sell their gold to the state for $20.67 per ounce. Later, the price was raised, but the prohibition to own gold in the USA lasted until 1974.

In the UK, the situation was different. The country imposed strict controls over the national currency. Sterling could be exchanged for another currency or moved abroad only if the government permitted it. The capital of citizens was not really theirs.

In the current situation, Russia imposed withdrawal limits and ordered all businesses to convert their reserves into national currency. While for now, no country has issued war bonds, we shall be attentive to how pension funds invest. They have billions of dollars under management, and this money supposedly belongs to people. Simply ordering them to invest in specific projects (government-approved, of course) would give the state access to billions of dollars that can be used for the war’s needs.

Food rationing is probably the last measure that can be taken by the state to get more resources for the war. We’ve seen that after WWII the state used to issue food cards. In exchange for these cards, citizens used to get a specific amount of some product: eggs, milk, bread, etc. The black market was thriving, and prices there were growing with the growth of state control. There, products were available to those only who could pay for them.

Rice prices (1934 is taken as a reference point when the rice value was 1)

Source: https://entrepreneurshandbook.co/for-the-war-fd5509d525d 

Over 8 years, the rice price grew 1,000 times. If your income didn’t grow at the same rate, you became poorer. Finally, how much is fiat is worth if you can’t even buy a basic product to feed your family?

Even if your income is immense, and you can afford to get whatever you and your family needs, don’t forget that your wealth is controlled by the state. The state decides whether you can get access to your assets or not.

Take the most recent example, when the UK confiscated all the property of Roman Abramovich, one of the richest people in the world because of sanctions. He had everything, but this everything was controlled by the state.

How to Escape Total Control?

Now, imagine that you can keep your wealth somewhere where it can’t be accessed by the state. Let’s say, it’s your cold wallet, and your wealth is in Bitcoins. 

The state can see how many coins are in circulation, how many of them are moved from one wallet to another, but it can’t find out exactly which transactions are yours. Bitcoin stays outside of state-controlled banks. It’s out of the system.

The government can ban Bitcoin in your country, but it can’t confiscate it from you. You can go to another place where Bitcoin is legal and settle there, without losing your property. 

Even if the state can prove that a wallet address out there is yours, it can’t be sure whether you still have access to it. Even if you send your crypto somewhere else, the only thing that can be proved is that you had access to your wallet at that specific time. 

Bitcoin has no physical form. I may hold millions in BTC, and nobody will ever know about it. But protecting millions worth of gold from the state would be a challenge, let alone fiat. 

What if the State Bans Mining?

To start with, Bitcoin mining only became an issue in 2013 when ASIC miners were invented. Mining difficulty surged, and now, we face the consequences. Bitcoin cannot be mined with PCs anymore.

The good thing is that mining difficulty adjusts. One block is added to the Bitcoin blockchain approximately every 10 minutes. If there are fewer miners, the mining difficulty drops to keep this speed. So, if mining is banned, people will finally be able to use their PCs or even mobile devices to mine BTC.

What if there’s no internet or electricity? At this point, it’ll be too late to talk about property and finance. Even fiat money will become useless. 

Bottom Line

I don’t insist that we switch to Bitcoin asap. The system is still not mature enough to replace fiat, and state control is still crucial to keep everything in order. But I believe that Bitcoin has immense potential, and in the future, we’ll benefit from it to the full extent.