Arthur Hayes has issued a stark market warning: he sees a growing split between his preferred risk gauge, Bitcoin, and the tech-heavy Nasdaq 100 as a signal that credit stress may be building under the surface.
Related Reading
Hayes, a co-founder and former CEO of cryptocurrency exchange BitMEX, calls Bitcoin a “fiat liquidity fire alarm” — an asset that reacts quickly when credit conditions change.
A Warning From Market Signals
When two assets that often moved together start to pull apart, traders take notice. Hayes believes that a gap like this deserves investigation because it could point to trouble in bank balance sheets or in the flow of lending.
He argues the move is not about one stock or one trade; it is about the plumbing of credit and how fast liquidity can dry up when things turn.
Source: Arthur Hayes
How AI Job Cuts Could Ripple Through Credit
Reports note that companies cited AI as a reason for thousands of layoffs in recent years, with an outplacement firm counting roughly 55,000 cuts in 2025 that were tied to AI. Much of that hit was inside tech.
Hayes sketches a rough scenario: a sizable drop in knowledge-worker employment would weaken mortgage and consumer credit repayment, which could then shave bank equity and tighten lending.
The numbers he offers are approximate and built on multiple assumptions, but they are intended to show how a shock to white-collar paychecks could cascade into the credit system.
Source: Arthur Hayes
Expectations About Central Bank Action
Hayes expects a policy response if banks start to fail and credit freezes. He argues the Federal Reserve would step in with fresh liquidity, and that more money creation would follow — a move he says would be favorable for Bitcoin’s price outlook.
That scenario has been a recurring theme in his commentary; past essays and posts have linked anticipated Fed liquidity to sharp rallies in crypto markets.
BTCUSD currently trading at $67,298. Chart: TradingView
Altcoin Bets And Fund Positioning
His fund, Maelstrom, is said to plan staking or stablecoin deployments into privacy-focused and exchange-native plays once liquidity policy shifts occur, naming Zcash and Hyperliquid as examples. That kind of tactical stance is meant to profit from a short-term surge in risk assets after a policy pivot.
Related Reading
A Measured View
This is a dramatic chain of events: AI job losses lead to credit losses, which cause bank stress, which forces the central bank to expand money supply, which lifts Bitcoin.
Each link is plausible, but none is guaranteed. Some of Hayes’ figures are rough estimates meant to illustrate risk rather than to act as a precise forecast.
Market history shows that central banks do sometimes step in, and that policy moves can power asset rallies, but outcomes depend on timing, scale and public confidence — factors that are hard to predict in advance.
Featured image from Unsplash, chart from TradingView
They say journalists never truly clock out. But for Christian, that’s not just a metaphor, it’s a lifestyle. By day, he navigates the ever-shifting tides of the cryptocurrency market, wielding words like a seasoned editor and crafting articles that decipher the jargon for the masses. When the PC goes on hibernate mode, however, his pursuits take a more mechanical (and sometimes philosophical) turn.
Christian’s journey with the written word began long before the age of Bitcoin. In the hallowed halls of academia, he honed his craft as a feature writer for his college paper. This early love for storytelling paved the way for a successful stint as an editor at a data engineering firm, where his first-month essay win funded a months-long supply of doggie and kitty treats – a testament to his dedication to his furry companions (more on that later).
Christian then roamed the world of journalism, working at newspapers in Canada and even South Korea. He finally settled down at a local news giant in his hometown in the Philippines for a decade, becoming a total news junkie. But then, something new caught his eye: cryptocurrency. It was like a treasure hunt mixed with storytelling – right up his alley!
So, he landed a killer gig at NewsBTC, where he’s one of the go-to guys for all things crypto. He breaks down this confusing stuff into bite-sized pieces, making it easy for anyone to understand (he salutes his management team for teaching him this skill).
Think Christian’s all work and no play? Not a chance! When he’s not at his computer, you’ll find him indulging his passion for motorbikes. A true gearhead, Christian loves tinkering with his bike and savoring the joy of the open road on his 320-cc Yamaha R3. Once a speed demon who hit 120mph (a feat he vowed never to repeat), he now prefers leisurely rides along the coast, enjoying the wind in his thinning hair.
Speaking of chill, Christian’s got a crew of furry friends waiting for him at home. Two cats and a dog. He swears cats are way smarter than dogs (sorry, Grizzly), but he adores them all anyway. Apparently, watching his pets just chillin’ helps him analyze and write meticulously formatted articles even better.
Here’s the thing about this guy: He works a lot, but he keeps himself fueled by enough coffee to make it through the day – and some seriously delicious (Filipino) food. He says a delectable meal is the secret ingredient to a killer article. And after a long day of crypto crusading, he unwinds with some rum (mixed with milk) while watching slapstick movies.
Looking ahead, Christian sees a bright future with NewsBTC. He says he sees himself privileged to be part of an awesome organization, sharing his expertise and passion with a community he values, and fellow editors – and bosses – he deeply respects.
So, the next time you tread into the world of cryptocurrency, remember the man behind the words – the crypto crusader, the grease monkey, and the feline philosopher, all rolled into one.
Owners of the 2024 FIAT 500e Coupe are guaranteed to hear, “Aww, it’s so cute!” often when driving this all-electric car, so get used to it. Frankly, this FIAT’s huggable size, curvaceous two-door body, and wide eyes is seemingly built for that reaction, and its intended market will embrace the admiration. This is especially true when dressed in the color I reviewed—their signature Inspired By Beauty edition’s rose gold exterior—which would be considered pink at first impression, but its welcomed metallic luster and chrome accents justify the moniker.
If you’re looking for a car that’s ideal for inner-city commutes, could fit virtually in a space only something two wheels could utilize, and is fully electric, this should be strongly considered.
2024 Fiat 500e Inspired By Beauty front 3/4
But don’t let the petite frame deceive what the 500e delivers under the hood. With a more-than-adequate 118 horsepower pep in its step from its 400-volt engine is responsive enough to pass slower drivers and lane changing especially when in Sport mode; Eco and Normal are the other two. The drive is smooth, and the one-pedal activation is a convenient feature to use during virtually any driving situation. Efficiency numbers are reasonable for particularly metropolis commutes, averaging 110 MPGe per charge and a range of 141-mile driving range. The wow factor comes from the amount of money saved in fuel costs, with this automaker boasting $6,250 over five years.
The interior suggests seating four, but two adults would appreciate the extra room. And while the frame is small at a 143-inch length, FIAT goes big regarding the amenities. This includes embroidered leather-trimmed seating, a bi-color steering wheel, “drone view” parking visuals, an electrochromic rearview mirror, 10.25-inch touchscreen, six speakers, 4G LTE WiFi, and wireless smartphone capability including CarPlay. Another plus is FIAT including a Level 2 home-charging station with its purchase, which eases the transition of new customers going fully electric.
Note that the 500e also comes in an Inspired By Music version boasting a piano key black and chrome, or “Marine Layer Mist” for the Inspired By Los Angeles trim. With three options to choose from, FIAT will attract a lot more customers for sure.
Nice job on this, FIAT. Well done.
Fuel Economy: In MPGe, 121 city/100 highway/110 combined
Price: The 2024 FIAT 500e Coupe is $34,095 including options, handling, processing and delivery as reviewed.
This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.
We need work and work needs us.
Labor is what takes a harsh, brutist and difficult world and turns it into a livable, enjoyable and even meaningful place. Work is how we contribute to our civilization, our communities and, of course, our families. Work in a normal, functioning market provides value.
Work, in a very real sense, is what we contribute to civilization. The output of our labor is a legacy we leave behind. Our collective work is what builds everything around us, from the buildings we live in, to the roads that we travel on, the computers we type on, the electricity that we use, and pretty much everything else.
Yet this very basic equation of work — productive labor in return for money — is not working that well. You can see this in the massive layoffs that are currently happening all over the economy, particularly in tech. What is going on? How is it that tens of thousands of people in different companies can be let go and things still function? What were they all doing? Making inane TikTok videos?
In this article, I’m going to answer those questions and place the blame where it belongs. As usual, it’s fiat money’s fault.
Work Lets You Specialize
Markets work because people are willing to pay for goods and services they find valuable. Someone pays because it would cost them more in some way otherwise, say in convenience, quality, price or something else. Money, or the common medium of exchange that we all employ, allows us to specialize and do what we’re good at.
A fisherman can catch lots of fish, far more than he can eat. A cobbler can make shoes, far more than he can wear. But through trade, they can leverage their own skills to get everything they want and need. This is why fishermen are not making their own shoes and cobblers are not catching their own fish.
Civilization gets built because of this specialization of work. And, in a sense, everyone optimizes for value provided per time worked while minimizing the unpleasantness of the task. More colloquially, we try to make the most money we can while doing things that we dread the least.
This last point is important because there are things that pay very well, but people are loath to do, like collecting garbage or truck driving, which can offer a better per-hour rate than other tasks but with unpleasantness that keeps many away. The price of labor goes up to compensate for its unpleasantness. Similarly, rare skills are compensated better because fewer people can do them. Labor is like any good in the market, where the usefulness of what you produce and its relative rarity determine price. The people that make the most money should be the ones doing the work that’s most difficult and/or least desirable to do.
Clearly, something is wrong because many high paying jobs are definitely not that difficult (think tanks, administration, etc.) and many are very desirable (board member, venture capitalist, investment banker.) There’s something about our economic system that rewards the wrong things.
Fiat Adds Meaningless Work
Fiat money throws a wrench into a beautifully efficient market by adding another buyer. By creating money out of nothing, fiat money allows governments to create all sorts of work that does not add value. These are what we call rent-seeking jobs.
Money in a normal market pays for value provided. Inefficiencies are punished through less profit or even loss. Labor, therefore, has to create value. But in a fiat economy, there’s another buyer, who’s not particularly price-sensitive, the money printer. Generally, the people in power buy conspicuous consumption, national prestige, make-work jobs, bribes to loyalists and so on. These add less value than Roger Ver.
For the money printers, labor isn’t connected to creating value anymore, but to satisfying their desires, usually to maintain power. In a democracy, the money printers might spend to create valueless jobs, like the proverbial digging and filling back in of a ditch. In a military dictatorship, the money printers might spend more money on buying votes and paying for weapons or even social programs. Even jobs in such a government can be a thin veneer for bribes and nepotism. The money gets printed and used to staying in power and not creating value for anyone.
As the money printer in a fiat economy becomes a large customer of everything in the economy, almost all work gets mingled with fiat rent seeking. Work that’s valuable gets mixed with work that’s not. The further along the money printing path we get, the harder it is to disentangle what provides value and what doesn’t, what’s beneficial to civilization and what’s not. Rent-seeking has spread like fungus on an old sandwich.
For example, many large companies have human resources departments that specialize just in employment compliance. In typical bureaucratic fashion, each employee has to complete cringe-worthy training, whether they be on sexual harassment, race discrimination, interview questions that are allowed to be asked and so on. These are almost certainly unrelated to the business they’re in but nevertheless each new employee is forced to waste valuable time on them. These compliance requirements may not be monetary taxes, but they are time taxes. As such, our labor gets split between productive and non-productive work. In the last 50 years, the non-productive part has grown so much that entire positions are non-productive, even in very profitable companies.
Is it any wonder, then, that Twitter, Google, Facebook, Microsoft and many other profitable companies can lay off so many people and have everything run just fine? Layoffs are the equivalent of chemotherapy, surely hurting the companies that do them, but also excising the cancer underneath.
Fiat Friction
The blight of rent seeking slows down the economy, the same way a flat tire does to a car. Fiat money’s ubiquitous entanglement with politics is one of the many ways in which productive work gets slowed down, adding less value. The work that people strive for is not in providing value, but in becoming middlemen to valuable transactions. They slash tires and inconvenience everyone so they can sell more tires.
As a result, in a fiat economy, even if you wanted to, it’s difficult to provide value. There’s a lot of rent-seeking friction that needs to be overcome and these barriers prevent people from providing value. How hard is it to start a business in most places? How hard is it to open a bank account, get the right permits and comply with the many rules that enrich rent seekers? These are all taxes on not just entrepreneurs, but on civilization itself.
So why is rent seeking so hard to eliminate? The problem is that rent seeking is very attractive to most people. It’s a lot less volatile than the market and the income is guaranteed through the government in some way. There’s much less dealing with difficult customers, changing market conditions or ambitious competitors. Most people would take less money to have this long-term certainty. As a result, even those providing value slide toward rent seeking very quickly.
The Slippery Slope To Rent Seeking
Not all rent seekers start out that way. Many fall into rent seeking slowly and almost unnoticeably. You can see this in some of the most “successful” tech companies of the last 20 years. Amazon, Facebook and Google were very good services. Of course, part of why they were perceived that way is because they sold their goods and services at a loss. In the case of Amazon, it lost money on a lot of sales early on. Facebook and Google gave their services away for free. Incidentally, this was only possible because of the large amount of money available for investment, which is a side effect of an inflating fiat currency. Thus, the services that you got for the cost were a great deal for customers.
But that was part of their long-term strategy. Like a drug dealer giving the first hit for free, their convenience hooked the users. Then they started selling ads to “monetize” their audience. Monetizing is really a euphemism for becoming middlemen in transactions that their users want to engage in. Thus, Amazon, Google and Facebook started becoming brokers for third-party merchants, either through ads or through becoming monopolistic platforms.
As soon as the users were hooked, they made the terms attractive for the other side of the transaction, the merchants. Lead generation on Facebook or Google were much cheaper than what existed before. Soon, merchants became addicted to their platforms and then they were exploited to monetize further. Auctions for ads were manipulated and fees for listing became more expensive. They used fiat money to be middlemen in a market they entirely controlled. At each step, these companies inserted themselves deeply in the value being provided to capture the profit. In other words, they became rent seekers.
What’s worse is that this was their plan all along! This is the plan for nearly every startup and has been for many years. Grab a lot of users, grab a lot of merchants and become the middleman. Every venture capitalist talks about this as a desirable outcome: to capture lots of value and be able to defend that monopoly. This is the path to profitability that every venture backed startup strives for and hence why there’s so much emphasis on growth.
This is not an isolated story since 1971. Once Nixon ended the gold standard and every currency pegged to the dollar suddenly became fiat currency, the market incentives changed. Rent seeking was much more profitable and unsurprisingly, we’ve gotten a lot more rent seekers. There are few businesses that are creating significant value anymore. Many large businesses rely on some form of government spending, fiat loans or both. Many tech companies relied on a lot of venture capital (VC) money which are really, fiat loans, to become rent seekers. The fiatization of the economy has been ever-present and growing for the past 50 years and even the most productive companies have become infected.
Glorifying Rent Seeking
Why is it that so many people coming out of business school now want to be wealth managers? Because they’re imitating the Warren Buffets of the world. He’s a guy that hasn’t created anything in his entire life, he has just managed other peoples’ money. He’s the ultimate rent seeker which has made him fabulously wealthy. Because of the primacy of money, rent seeking has become extremely prestigious. The heroes of this generation are guys like Buffet and not Thomas Edison or Nikola Tesla, who actually made things.
Bitcoin, thankfully, starts shaming rent seekers for who they are. Altcoiners are so obviously rent seeking and creating no value. Hence they’re rightfully condemned strongly by Bitcoiners. You can see the obvious rent seeking in the “free money” altcoins use to bribe people to market for them. The main attraction of altcoins is that they let you be a rent-seeker without the gatekeeping of top-tier business schools, political connections or media approval. It’s really rent-seeking for all, which really means no one’s doing any real work.
In a sense, altcoins are the natural end of fiat rent seeking. They are all completely non-productive and have no redeemable quality whatsoever. The aspiration is that you can make money for doing nothing valuable. That’s what’s so attractive, but also what’s so unsettling. Most people can sense that there’s something extremely wrong about people making money for doing nothing. Something doesn’t add up and even a 5-year old can sense it. The value has to come from somewhere and hence there’s always a bit of dread with most altcoiners. Even in bull markets, they know at some level that they’re playing with house money that they didn’t earn. So many altcoiners go broke like lottery winners because deep down, they know they didn’t provide any value.
Indeed, the value being extracted by all this rent seeking is from the capital that civilization has built up over many generations. In Western countries, there’s a culture of trust that’s starting to disintegrate. Trust is a capital good that takes a long time to form. Trust is why you saw an economic miracle in Japan and Germany after World War II but not one in the Soviet block. Abusing that trust for monetary gain reduces communal trust. These rent-seeking frauds are eating our seed corn.
Adding Value
Thankfully, there’s no rent-seeking in Bitcoin as there’s no centralized entity that can hand out rent-seeking positions. Bitcoin is building up capital again because Bitcoin rewards people who add value. The toxic maximalism that everyone complains about is really just a reaction against rent-seeking, value-subtracting behavior. VCs are experts in being rent-seeking middlemen. Influencers are as well. These are the people who, when they come in trying to extract value from Bitcoiners, get roasted.
Bitcoin companies are harder to create than any other because there’s no room for rent seeking. The Ethereum Foundation isn’t giving you a grant, nor is the “crypto” VC going to give you money because you don’t have a new token they can pump. But that’s what makes for better, more honest companies and why Bitcoiners are much more likely to support them. The value add is obvious because there’s no fiat or altcoin subsidization.
Bitcoin builds capital through making work about adding value again. And work is harder, but less scammy. In other words, instead of being scammy rent seekers, we can do honest work again.
Reject rent seeking. Build.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
Bitcoin maximalists have had a whirlwind of a year. From getting browbeat through the recent price drawdown to being seemingly prophetic bell-ringers of the dumpster fire that is “crypto,” much of what has been written in the mainstream remains net negative. What’s concerning is that their centralized, authoritarian counterparts (referred to here as fiat maximalists) somehow maintain an air of superiority in the mainstream. Oddly, both Bitcoin maxis and fiat maxis have some similarities in their structure. But how they each attempt to achieve their goal is where they differ dramatically.
As a child of the early gaming systems, I fancied the “Street Fighter” and “Mortal Kombat” series. I’d even consider myself a formidable “Tekken” opponent. From those experiences, I often frame real-world comparisons using the “choose your fighter” paradigm. Whether I’m choosing which side of a debate has the best arguments, which ideology delivers the optimal outcome or which strategy is best suited for a game, I end up creating a mental list of attributes from which I can better choose my course of action.
So, what would it look like to size up Bitcoin maxis versus fiat maxis? Does one side have a stronger argument? Does one ideology deliver optimal outcomes versus the other? Or is it simply that one strategy is better suited to win in “the game” of monetary dominance? Let’s compare…
Shinobi recently defined Bitcoin maxis as those who focus on Bitcoin, share criticism of other technologies and are constantly preaching the virtues of Bitcoin. Stephan Livera defines Bitcoin Maximalism as “the view that we’ll live on a bitcoin standard…” and that “maximalists want to clearly distinguish Bitcoin from ‘crypto.’” A potential framing of the toxic aspects of Bitcoin maximalism could be those preaching further out on the spectrum of decentralized (versus centralized), individualistic (versus collectivist) and laissez-faire (versus authoritarian), often confrontationally and controversially.
Conversely, when we apply these terms to fiat maxis, we can start to see some common themes. They focus on fiat currencies, criticize Bitcoin and pseudo-competing technologies, and are constantly preaching the virtues of the almighty dollar or similar coercive currencies. The fiat maxi maintains the view that we will all continue with the fiat standard. They also try to lump Bitcoin and “crypto” together. The toxic aspects of fiat maximalism tend to be those further out on the spectrum of centralized (versus decentralized), collectivist (versus individualistic), and authoritarian (versus laissez-faire). These are the ones who want you to eat the bugs, live in a pod, and, as the World Economic Forum states, “own nothing” and “be happy.”
When compared with these categorizations, it’s easy to see how we’re all so similar; we all want what we want in the way we want it. We’re not so different, you and I. We’re two sides of the same coin! Time to start singing “Kumbaya”? No? Well, although Bitcoin and fiat maxis are structurally similar in regards to their monetary systems, how they go about achieving it is where they contrast starkly.
“GFY” is a common anthem of the toxic Bitcoin maxi. If that makes you uncomfortable, pause for a moment, take a deep breath, and challenge yourself to understand why that’s not such a bad thing.
Comments like these are overt in nature, which is a feature not a bug. Tomer Strolight wrote “that thing that some people consider a ‘bug’ in bitcoin that they call ‘toxicity’ is in fact the virtue of integrity.” Most of the GFY-like comments are preceded by those either disingenuously or erroneously attacking Bitcoin; toxic Bitcoin maxis draw a line in the sand. Strolight further offers the concept of “principle-based toxicity,” which he considers an “intolerance of what Bitcoiners consider fatal compromises to Bitcoin.” This includes surrendering decentralization, sound engineering or security, all in exchange for adoption of some form.
If something I value is being attacked, I want to know that the people around me are willing to help defend it. Furthermore, personal growth happens when there’s a firm foundation upon which to build. If I’m surrounded by people willing to tell me the truth, I’m more likely to make sound decisions. As odd as it may sound, GFY is sincere; Bitcoin maxis are letting the intended recipient know they’re full of it and will not tolerate anything short of the truth, which is similar to the truth provided by Bitcoin’s consensus algorithm.
Personally, my BS detector has improved dramatically since I started studying the virtues of Bitcoin. While this is an N of 1 observation, I’ve encountered many similar anecdotes from Bitcoiners. That being said, there’s value in standing your ground while also calmly calling out someone’s inconsistencies in a constructive way. We should all strive to attain Michael Saylor’s ability to maintain a positive, collaborative, illustrative and welcoming frame.
Contrast all of that with the covert nature of the toxic fiat maximalist. These are the people who engage in what George Orwell referred to as “doublespeak,” language that deliberately obscures, disguises, distorts or reverses the meaning of words. Common to the toxic fiat maxi, this language does not display integrity. It is often used divisively in order to garner more control; it’s insidious in nature.
Whether it’s Nancy Pelosi’s obscure “we have to pass the bill so that you can find out what is in it” comment to Elizabeth Warren’s divisive “shadowy faceless group of super coders,” all of these are just word salads attempting to coerce the public into a preapproved mindset; it’s obfuscatory optics. Nothing they say offers solid truths; it’s hot air intended to puff up their perceived sense of power. Words are weapons they wield to sway public perception. At least Agustin Carsten was direct when he said that, with central bank digital currencies (CBDCs), “central bank(s) will have absolute control on the rules and regulations.”
So, seriously, kudos to you for that.
Choose Your Fighter
It’s time to choose your fighter. Who do you want to associate with? Someone who has a principled approach and provides a clear conception of reality (regardless of political correctness) or a wordsmith with the intent to deceive? Someone who wants to allow you to be you (regardless of what “you” stands for) or someone who will attempt to exert influence over others who don’t share their conception of what ought to be?
In a weird way, the preferred monetary medium is irrelevant (at least in the vacuum of this framing). What is relevant is the outcomes of human behavior seemingly created by each system. I often wonder what size the effect of the chosen monetary system has upon the individuals within said system. It’s as if Bitcoin is a forcing function for facts while fiat is a forcing function for falsehoods.
This fight continues to play itself out on the main stage of society. I believe it’s imperative to not only choose the side of truth and reason, but also to share these facts with those you love. A bottom-up, grassroots approach is the ethical way to garner consensus. Where fiat maxis will coerce you with their doublespeak to continually create their ruling-class legacy in their image, Bitcoin maxis will continue to authentically advocate for truth and reason.
Bitcoin maxis are the antithesis of fiat maxis; Bitcoin maxis exude integrity, sincerity and truthfulness whereas fiat maxis exhibit corruption, artificiality and equivocation. Bitcoin is to signal what fiat is to noise. In a head-to-head match, I choose Bitcoin maxis hands down, every time. Good ideas don’t require force. Adoption is increasing. Our time will come. The good news is Bitcoin is for everyone. Except you, Craig.
This is a guest post by Tim Niemeyer. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Conor Chepenik, a Bitcoin pleb.
When a doctor operates on a wounded patient, the first thing they do is make sure they can stop the bleeding. No point operating if you can’t get the bleeding under control because the patient will die. Money facilitates mutual exchange and helps market actors coordinate price discovery — it is the literal blood of the economy. As fiat currencies slowly bleed out in value, they incentivize fewer people to save. If you want to stop the bleeding in your financial life, you are going to need to find a way to store your wealth in something else. There are plenty of options, but only one that is programmed to stop all bleeding in 2140.
As peoples’ money bleeds out, so too does their education, time and, I’d even argue, their mental sanity. Blood isn’t oozing out egregiously, but rather being siphoned off from tiny cuts, so most people do not even realize it’s happening. This is a hard pill to swallow. Most Western societies teach people not to question authority: raise your hand if you want to ask questions, and trust the experts. Breaking out of this mentality is difficult. Watch this clip of the White House press secretary to get an idea of how those at the top will treat people who dare question the narrative.
Pain Is The Best Teacher
Narrative is everything when trying to coerce the masses to accept a “Great Reset” (if you have no idea what the Great Reset is, you can read about it here). The scope of this article won’t cover what the Davos elite is attempting to impose on the rest of the world, but rather why Bitcoin stops money from bleeding out. Trying to calculate all of the variables that bring about the emergent, complex behavior of society is futile. Governments stole trillions of dollars via quantitative easing and blamed their theft on COVID-19.
For better or worse, pain is the best teacher. Hard Money recently reported that Trezor has seen a 300% increase in sales revenue after the FTX debacle. The whole point of Bitcoin is to not trust ,but verify for yourself. Many ignored this because FTX had the stamp of approval from many mainstream news outlets, politicians and celebrities.
In the wake of its blow, FTX created tons of new Bitcoin maximalists who now understand why not verifying Bitcoin with your own node means that you are trusting potentially-corrupt third parties. The mainstream media is not doing itself any favors with puff pieces like the one below. Articles like this only serve to increase the pain of those who were robbed and convince more people that the mainstream narrative is corrupt:
The remedy to most of these problems is a better education. Tools like Saylor.org, Udemy and plenty of others have lowered the barrier tremendously. It just requires a desire to learn.
For me, I found that desire by going down the Bitcoin rabbit hole. Ironically, answering one question would lead me to more questions and that number of questions grew exponentially. It made me wonder how much people are not taught intentionally during their traditional schooling. There is only so much time in the day and teachers must prioritize their curriculums accordingly. I just don’t understand why taxes, how to vote and basic financial literacy aren’t at the top of most public school curriculums. The reader can come to their own conclusions. What’s important is finding a teacher who speaks your language and a subject that brings out your natural curiosity. Learning becomes one of the most euphoric feelings in the world when those two needs are met.
The standard way of learning has horrible mental models for teaching people, like memorizing things for a test. Oscar Wilde is quoted as saying, “Experience is merely the name men gave to their mistakes.” People are so focused on learning from the experts that they forget that those who changed the world didn’t ask for permission to do so. They just did it. People want a hero to fix all of their problems but the truth is that no one is coming to save you. I’m not saying one should not find great mentors; it’s super valuable being able to listen to those who have become experts in their fields in order to learn. I’m saying one should not worship people like gods who can’t make mistakes. Just look at Sam Bankman-Friend, who many thought was a hero.
Despite all of the educational content out there, the reality is most people will come to understand the difference between paper bitcoin and bitcoin you actually hold the keys for via an expensive lesson. When the majority of Bitcoiners self custody their coins, and stop blindly trusting their heroes, that is when we will see fireworks in regards to bitcoin’s price action. Every person is different and has various forms of risk tolerance. For those who are discouraged by recent events, remember: Rome was not built in a day. Sometimes the only way to get a lesson through someone’s head is for them to suffer the pain of said mistake.
FTX And Central Planners Are Not So Different
What’s interesting about watching FTX fail so rapidly is that the same thing would happen with our traditional financial system if we didn’t have central banks acting as lenders of last resort. FTX violated its own terms of service by using customer funds to make bets, but 99.9% of the world just turns a blind eye when banks do this because their terms of service legally allow fractional reserve banking.
In his book “Human Action,”Ludwig von Mises writes:
“The rich, the owners of the already operating plants, have no particular class interest in the maintenance of free competition. They are opposed to confiscation and expropriation of their fortunes, but their vested interests are rather in favor of measures preventing newcomers from challenging their position. Those fighting for free enterprise and free competition do not defend the interests of those rich today. They want a free hand left to unknown men who will be the entrepreneurs of tomorrow and whose ingenuity will make the life of coming generations more agreeable. They want the way left open to further economic improvements. They are the spokesmen of progress.”
Technology getting better should lead to massive deflation from productivity gains. Regulatory moats and monopolies prevent this. Fractional reserve banking creates an inflationary environment where tons of capital is misallocated. In a free market, most commercial banks would be insolvent.
FTX tried to create its own fractional reserve monopoly by lobbying Congress and creating a regulatory moat around its business which would’ve made it impossible for competitors to compete in the crypto ecosystem. The world is fortunate FTX’s system blew up before it was able to get its way with D.C.
Mises was right: It is not the incumbents who will create a more agreeable future, it is entrepreneurs and ideas competing in a free market. Bitcoin has over 10,000 competitors, and that number is growing every day. Many, if not all of these tokens, are Ponzi schemes in my opinion, but the idea that D.C could do a better job deciding this than the free market could is ridiculous.
I understand regulation is difficult when technology is changing things at such rapid rates. The little piece of glass in our pocket allows us to hail a ride, order food or listen to some of the greatest minds on the planet whenever we want. All of these things would seem magical to someone who lived before the creation of smartphones. There are going to be hiccups along the way as humanity tries to come to grips with these new tools. This is why I keep this Hal Finney quote as my Twitter header:
For all of the wonders that technology can do for humanity, it can also drive a whole new level of control. Free markets lead to optimal price discovery. Too much central planning and markets start to break. Price discovery in a free market is like a hash function. It takes inputs of data and spits out an output that only goes one way.
With a normal hash, the algorithm works so that it is unfeasible to reverse-calculate the data. You can verify a hash by making sure the same output is achieved based on the input, but you can’t take the output and figure out the input. In this same vein, a free market will set the price of a good, but you can’t figure out how all of the labor, work, travel and other variables created the price of the good. The function only goes one way.
Market actors get upset when the coercion variable is notched up and price increases happen. The blame is typically pushed on to the producers rather than the central planners who are causing such issues. Sound familiar? Like say the U.S. government, which is calling out greedy fossil fuel companies for raising the price of gas while at the same time advocating for the end of fossil fuel use. If price controls are imposed, price discovery completely breaks down, resulting in shortages. Until the creation of money is no longer heavily intermingled with politics these issues will continue to play out.
Bitcoin Is More Important Now Than Ever
As central bank digital currencies (CBDCs) and digital identities are rolled out, it has never been more important to point out why Bitcoin is the remedy. Bitcoin allows the individual to go down a hero’s journey where they can keep the value of their labor in their head. CBDCs and digital IDs offer governments tools to enact monetary policy at the individual level, be at the center of every transaction and turn off people’s money as they see fit.
Bitcoin offers a better system, one that no one can cheat if they want to be in consensus with the rest of the network. Preston Pysh said it best: “Bitcoin is like the infinity stone.” It takes a great deal of faith to hold on to an asset that has had multiple 70% to 90% drawdowns before recovering to new all-time highs. Not many can hang on to their bitcoin but those who do over long periods of time are greatly rewarded.
The network effects of Bitcoin are insane. There is a Bitcoin website paying people 21,000 satoshis to post a sticker that it ships to you around their cities. Think about that. You can earn sats and increase the value of those sats by helping raise awareness. Bitcoin is full of these win-win scenarios. The tech is exciting, but the passion I see from Bitcoiners in real life is unlike anything I’ve ever seen before.
Bitcoin as a technology, a new form of money and an idea are bringing hope to humans around the world who have been disadvantaged because governments have a monopoly on violence. Bitcoin empowers the individual to fight back like never before. There will be growing pains along the way and more turmoil in the short term for those obsessed with measuring things in fiat. The way to fix that is to orient yourself around the new system.
The possibilities that will come out of this Bitcoin renaissance are endless. Grappling with what this new form of money means is difficult because the world is full of so many paradoxes. When you learn, you become smarter by ending up with more questions. Monopolies have brought about some of the most prosperous and technologically advanced times in human civilizations while also making George Orwell’s “1984” look like a very plausible path for the future. The internet is connecting people like never before and at the same time, loneliness is increasing. Number go up technology is associated with greed and is what initially attracts people to Bitcoin, yet many stay because they realize Bitcoin is the true effective altruism movement. These paradoxes are a bit mind bending but I do think there is value to be had from chewing on these ideas.
It can be easy to get bogged down with all of the bleeding going on in the fiat world. Bitcoin is the Band-Aid to fix it. It gives me a lot of confidence knowing my money is secured by open-source software and math rather than 12 individuals who decide when it is okay to steal and when it’s time to practice fiscal austerity.
I’m glad the Fed has finally decided to do the right thing for the economy but it has manipulated the cost of capital for so long that it now risks destroying the entire system if it keeps tightening. The problem is that the Fed’s only other option is to lower rates again, which causes more bleeding via inflation. Bitcoin offers humanity a way out of this paradox where central planners try to fix the bleeding by siphoning more blood out of the patient. Every time central planners manipulate the cost of capital it becomes more clear that market participants are playing a rigged game. Bitcoin is the fairest game humanity has ever created and the best chance we have of separating money and state.
This is a guest post by Conor Chepenik. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Mickey Koss, a West Point graduate with a degree in economics. He spent four years in the infantry before transitioning to the Finance Corps.
Always up, always having to add more lest you fall behind. I could feel the American dream slowly slipping away every year. We dutifully paid our bills, contributed to retirement accounts, invested prudently and yet it felt like every year things got a little tighter. A little harder to contribute what we needed to. When we found Bitcoin, it gave us hope.
“Striking is mutual suffering. A game of chicken. Bitcoin changed the game. It made striking valuable to the striker.”
Now my wife and I are on strike, like many of you reading this article probably are. Once the money printers started roaring after the COVID-19 lockdowns began in 2020, I felt a sinking feeling that the world would never be the same again. Ungodly sums of money were mentioned on news stations with such causal indifference. Ultimately, the results speak for themselves:
One of the most commonly-cited critiques I hear from seemingly-sophisticated investors and economic PhDs alike is that Bitcoin is a Ponzi scheme: a game of the greater fool buying from the scammy huckster as the earlier investors dump their bags on the new.
LinkedIn post that inspired this article, accessed on November 27 but since deleted
The above post beautifully illustrated the complete lack of understanding, let alone critical thinking, surrounding this particular line of FUD. The abject lack of intellectual curiosity is astonishing, yet somehow unsurprising given my recent stint in academia:
“The whole thing depends on even more people parting with their savings…”
Is this not true for the stock market? The housing market? The commodities market? By that logic, every market with fluidity of pricing based on supply and demand is a Ponzi scheme. I guess it’s time to go back to the barter economy? Or does the stock market go up on earnings alone without any buyers or demand?
In fact, It appears to me that prices have been going up faster than earnings since about 1980, even when taking inflation into account:
The above image depicts the Shiller PE ratio for the S&P 500. It is the price-to-earnings ratio for the stock market, but adjusted for inflation. Can anyone say “Cantillon effect”?
Fiat Is The Ponzi
Crypto is a symptom, not the underlying problem. Years of pent up nihilism unleashed into get-rich-quick pump and dumps as the world seemingly falls apart around us. It’s not hard to see why. But Bitcoin is not crypto, and crypto is not Bitcoin.
In what now feels like the blink of an eye, trillions of dollars were created to prevent the system from imploding. Suddenly, the stock market was booming while it seemed like everything was crumbling. I don’t even blame the central bankers. They responded to their incentives and did what they had to, but the effects were dire. If you weren’t already invested, you lost big, making it just that much harder to get your dollars to work for you, to escape inflation and eventually escape the rat race.
One of the most salient illustrations to me is the below graph. It demonstrates that you should buy a house, any house, it doesn’t matter. Because if you don’t already own a house, if you choose to save instead, you may never actually be able to afford one. It doesn’t take a lot of empathy to understand the financial desperation many are feeling today.
Now, I admit that I’m not a professional statistician, but the charts appear to have some significant correlation. Perhaps CPI inflation may not be the only problem. Perhaps asset price inflation may be forcing savers to become part-time investors. Supply and demand has a price impact on bitcoin, yes, but does the stock market not require new money to support prices as well?
Bitcoin Is Savings
Savings: Money put by the excess of income over expenditures.
So, why can’t we just save money anymore? The FRED graphs included here tell it all. If you don’t become an investor, you will never keep up. That is, until now.
Bitcoin is our savings in a world bereft of things worthy of investment. Even if it hits $1 million tomorrow, we’re not selling. What would we even sell it for? To diversify? Into what? A stock market completely dependent upon money printing? An investment property where our tenants won’t have to pay rent following the stroke of a politician’s pen? A shiny rock with “intrinsic value”?
You see, how could Bitcoin be a Ponzi when Bitcoiners don’t even want your dollars? What you don’t understand is that we’re playing a different game now. What you don’t understand is that we’re trying to build something new; a better future for our children and grandchildren.
So, if you think bitcoin is doomed to crash and burn then short it. Try to profit off our demise, though I don’t think you will.
We will just keep buying and holding, continuing to front-run you and Wall Street, and everyone else who refuses to even try to understand Bitcoin. We hold no anger or resentment toward you. We don’t want to eat the rich, or to burn the system down; we just don’t want to play by your rules anymore. And if we go down with the ship, at least we lost it all fighting for something we believed in.
This is a guest post by Mickey Koss. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Alex Gladstein, chief strategy officer of the Human Rights Foundation and author of “Check Your Financial Privilege.”
I. The Shrimp Fields
“Everything is gone.”
–Kolyani Mondal
Fifty-two years ago, Cyclone Bhola killed an estimated 1 million people in coastal Bangladesh. It is, to this day, the deadliest tropical cyclone in recorded history. Local and international authorities knew well the catastrophic risks of such storms: in the 1960s, regional officials had built a massive array of dikes to protect the coastline and open up more territory for farming. But in the 1980s after the assassination of independence leader Sheikh Mujibur Rahman, foreign influence pushed a new autocratic Bangladeshi regime to change course. Concern for human life was dismissed and the public’s protection against storms was weakened, all in order to boost exports to repay debt.
Instead of reinforcing the local mangrove forests which naturally protected the one-third of the population that lived near the coast, and instead of investing in growing food to feed the quickly growing nation, the government took out loans from the World Bank and International Monetary Fund in order to expand shrimp farming. The aquaculture process — controlled by a network of wealthy elites linked to the regime — involved pushing farmers to take out loans to “upgrade” their operations by drilling holes in the dikes that protected their land from the ocean, filling their once-fertile fields with saltwater. Then, they would work back-breaking hours to hand-harvest young shrimp from the ocean, drag them back to their stagnant ponds, and sell the mature ones to the local shrimp lords.
With financing from the World Bank and IMF, countless farms and their surrounding wetlands and mangrove forests were engineered into shrimp ponds known as ghers. The area’s Ganges river delta is an incredibly fertile place, home to the Sundarbans, the world’s biggest stretch of mangrove forest. But as a result of commercial shrimp farming becoming the region’s main economic activity, 45% of the mangroves have been cut away, leaving millions of people exposed to the 10-meter waves that can crash against the coast during major cyclones. Arable land and river life has been slowly destroyed by excess salinity leaking in from the sea. Entire forests have vanished as shrimp farming has killed much of the area’s vegetation, “rendering this once bountiful land into a watery desert,” according to Coastal Development Partnership.
A farm in Khuna province, flooded to make shrimp fields
The shrimp lords, however, have made a fortune, and shrimp (known as “white gold”) has become the country’s second-largest export. As of 2014, more than 1.2 million Bangladeshis worked in the shrimp industry, with 4.8 million people indirectly dependent on it, roughly half of the coastal poor. The shrimp collectors, who have the toughest job, make up 50% of the labor force but only see 6% of the profit. Thirty percent of them are girls and boys engaged in child labor, who work as much as nine hours a day in the salt water, for less than $1 per day, with many giving up school and remaining illiterate to do so. Protests against the expansion of shrimp farming have happened, only to be put down violently. In one prominent case, a march was attacked with explosives from shrimp lords and their thugs, and a woman named Kuranamoyee Sardar was decapitated.
In a 2007 research paper, 102 Bangladeshi shrimp farms were surveyed, revealing that, out of a cost of production of $1,084 per hectare, the net income was $689. The nation’s export-driven profits came at the expense of the shrimp laborers, whose wages were deflated and whose environment was destroyed.
In a report by the Environmental Justice Foundation, a coastal farmer named Kolyani Mondal said that she “used to farm rice and keep livestock and poultry,” but after shrimp harvesting was imposed, “her cattle and goats developed diarrhea-type disease and together with her hens and ducks, all died.”
Now her fields are flooded with salt water, and what remains is barely productive: years ago her family could generate “18-19 mon of rice per hectare,” but now they can only generate one. She remembers shrimp farming in her area beginning in the 1980s, when villagers were promised more income as well as lots of food and crops, but now “everything is gone.” The shrimp farmers who use her land promised to pay her $140 per year, but she says the best she gets are “occasional installments of $8 here or there.” In the past, she says, “the family got most of the things they needed from the land, but now there are no alternatives but going to the market to buy food.”
In Bangladesh, billions of dollars of World Bank and IMF “structural adjustment” loans — named for the way they force borrowing nations to modify their economies to favor exports at the expense of consumption — grew national shrimp profits from $2.9 million in 1973 to $90 million in 1986 to $590 million in 2012. As in most cases with developing countries, the revenue was used to service foreign debt, develop military assets, and line the pockets of government officials. As for the shrimp serfs, they have been impoverished: less free, more dependent and less able to feed themselves than before. To make matters worse, studies show that “villages shielded from the storm surge by mangrove forests experience significantly fewer deaths” than villages which had their protections removed or damaged.
Under public pressure in 2013 the World Bank loaned Bangladesh $400 million to try and reverse the ecological damage. In other words, the World Bank will be paid a fee in the form of interest to try and fix the problem it created in the first place. Meanwhile, the World Bank has loaned billions to countries everywhere from Ecuador to Morocco to India to replace traditional farming with shrimp production.
The World Bank claims that Bangladesh is “a remarkable story of poverty reduction and development.” On paper, victory is declared: countries like Bangladesh tend to show economic growth over time as their exports rise to meet their imports. But exports earnings flow mostly to the ruling elite and international creditors. After 10 structural adjustments, Bangladesh’s debt pile has grown exponentially from $145 million in 1972 to an all-time high of $95.9 billion in 2022. The country is currently facing yet another balance of payments crisis, and just this month agreed to take its 11th loan from the IMF, this time a $4.5 billion bailout, in exchange for more adjustment. The Bank and the Fund claim to want to help poor countries, but the clear outcome after more than 50 years of their policies is that nations like Bangladesh are more dependent and indebted than ever before.
During the 1990s in the wake of the Third World Debt Crisis, there was a swell of global public scrutiny on the Bank and Fund: critical studies, street protests, and a widespread, bipartisan belief (even in the halls of the U.S. Congress) that these institutions ranged from wasteful to destructive. But this sentiment and focus has largely faded. Today, the Bank and the Fund manage to keep a low profile in the press. When they do come up, they tend to be written off as increasingly irrelevant, accepted as problematic yet necessary, or even welcomed as helpful.
The reality is that these organizations have impoverished and endangered millions of people; enriched dictators and kleptocrats; and cast human rights aside to generate a multi-trillion-dollar flow of food, natural resources and cheap labor from poor countries to rich ones. Their behavior in countries like Bangladesh is no mistake or exception: it is their preferred way of doing business.
II. Inside The World Bank And IMF
“Let us remember that the main purpose of aid is not to help other nations but to help ourselves.”
The IMF is the world’s international lender of last resort, and the World Bank is the world’s largest development bank. Their work is carried out on behalf of their major creditors, which historically have been the United States, the United Kingdom, France, Germany and Japan.
The sister organizations — physically joined together at their headquarters in Washington, DC — were created at the Bretton Woods Conference in New Hampshire in 1944 as two pillars of the new U.S.-led global monetary order. Per tradition, the World Bank is headed by an American, and the IMF by a European.
Their initial purpose was to help rebuild war-torn Europe and Japan, with the Bank to focus on specific loans for development projects, and the Fund to address balance-of-payment issues via “bailouts” to keep trade flowing even if countries couldn’t afford more imports.
Nations are required to join the IMF in order to get access to the “perks” of the World Bank. Today, there are 190 member states: each one deposited a mix of their own currency plus “harder currency” (typically dollars, European currencies or gold) when they joined, creating a pool of reserves.
When members encounter chronic balance-of-payments issues, and cannot make loan repayments, the Fund offers them credit from the pool at varying multiples of what they initially deposited, on increasingly expensive terms.
The Fund is technically a supranational central bank, as since 1969 it has minted its own currency: the special drawing rights (SDR), whose value is based on a basket of the world’s top currencies. Today, the SDR is backed by 45% dollars, 29% euros, 12% yuan, 7% yen and 7% pounds. The total lending capacity of the IMF today stands at $1 trillion.
Between 1960 and 2008, the Fund largely focused on assisting developing countries with short-term, high-interest-rate loans. Because the currencies issued by developing countries are not freely convertible, they usually cannot be redeemed for goods or services abroad. Developing states must instead earn hard currency through exports. Unlike the U.S., which can simply issue the global reserve currency, countries like Sri Lanka and Mozambique often run out of money. At that point, most governments — especially authoritarian ones — prefer the quick fix of borrowing against their country’s future from the Fund.
As for the Bank, it states that its job is to provide credit to developing countries to “reduce poverty, increase shared prosperity, and promote sustainable development.” The Bank itself is split up into five parts, ranging from the International Bank for Reconstruction and Development (IBRD), which focuses on more traditional “hard” loans to the larger developing countries (think Brazil or India) to the International Development Association (IDA), which focuses on “soft” interest-free loans with long grace periods for the poorest countries. The IBRD makes money in part through the Cantillon effect: by borrowing on favorable terms from its creditors and private market participants who have more direct access to cheaper capital and then loaning out those funds at higher terms to poor countries who lack that access.
World Bank loans traditionally are project- or sector-specific, and have focused on facilitating the raw export of commodities (for example: financing the roads, tunnels, dams, and ports needed to get minerals out of the ground and into international markets) and on transforming traditional consumption agriculture into industrial agriculture or aquaculture so that countries could export more food and goods to the West.
Bank and Fund member states do not have voting power based on their population. Rather, influence was crafted seven decades ago to favor the U.S., Europe and Japan over the rest of the world. That dominance has only weakened mildly in recent years.
Today the U.S. still owns far and away the largest vote share, at 15.6% of the Bank and 16.5% of the Fund, enough to single-handedly veto any major decision, which requires 85% of votes at either institution. Japan owns 7.35% of the votes at the Bank and 6.14% at the Fund; Germany 4.21% and 5.31%; France and the U.K. 3.87% and 4.03% each; and Italy 2.49% and 3.02%.
By contrast, India with its 1.4 billion people only has 3.04% of the Bank’s vote and just 2.63% at the Fund: less power than its former colonial master despite having a population 20 times bigger. China’s 1.4 billion people get 5.7% at the Bank and 6.08% at the fund, roughly the same share as the Netherlands plus Canada and Australia. Brazil and Nigeria, the largest countries in Latin America and Africa, have about the same amount of sway as Italy, a former imperial power in full decline.
Tiny Switzerland with just 8.6 million people has 1.47% of votes at the World Bank, and 1.17% of votes at the IMF: roughly the same share as Pakistan, Indonesia, Bangladesh, and Ethiopia combined, despite having 90 times fewer people.
Population vs. IMF voting rights
These voting shares are supposed to approximate each country’s share of the world economy, but their imperial-era structure helps color how decisions are made. Sixty-five years after decolonization, the industrial powers led by the U.S. continue to have more or less total control over global trade and lending, while the poorest countries have in effect no voice at all.
The G-5 (the U.S., Japan, Germany, the U.K. and France) dominate the IMF executive board, even though they make up a relatively small percent of the world’s population. The G-10 plus Ireland, Australia, and Korea make up more than 50% of the votes, meaning that with a little pressure on its allies, the U.S. can make determinations even on specific loan decisions, which require a majority.
To complement the IMF’s trillion-dollar lending power, the World Bank group claims more than $350 billion in outstanding loans across more than 150 countries. This credit has spiked over the past two years, as the sister organizations have lent hundreds of billions of dollars to governments who locked down their economies in response to the COVID-19 pandemic.
Over the past few months, the Bank and Fund began orchestrating billion-dollar deals to “save” governments endangered by the U.S. Federal Reserve’s aggressive interest rate hikes. These clients are often human rights violators who borrow without permission from their citizens, who will ultimately be the ones responsible for paying back principal plus interest on the loans. The IMF is currently bailing out Egyptian dictator Abdel Fattah El-Sisi — responsible for the largest massacre of protestors since Tiananmen Square — for example, with $3 billion. Meanwhile, the World Bank was, during the past year, disbursing a $300 million loan to an Ethiopian government that was committing genocide in Tigray.
The cumulative effect of Bank and Fund policies is much larger than the paper amount of their loans, as their lending drives bilateral assistance. It is estimated that “every dollar provided to the Third World by the IMF unlocks a further four to seven dollars of new loans and refinancing from commercial banks and rich-country governments.” Similarly, if the Bank and Fund refuse to lend to a particular country, the rest of the world typically follows suit.
It is hard to overstate the vast impact the Bank and Fund have had across developing nations, especially in their formative decades after World War II. By 1990 and the end of the Cold War, the IMF had extended credit to 41 countries in Africa, 28 countries in Latin America, 20 countries in Asia, eight countries in the Middle East and five countries in Europe, affecting 3 billion people, or what was then two-thirds of the global population. The World Bank has extended loans to more than 160 countries. They remain the most important international financial institutions on the planet.
Today, financial headlines are filled with stories about IMF visits to countries like Sri Lanka and Ghana. The outcome is that the Fund loans billions of dollars to countries in crisis in exchange for what is known as structural adjustment.
In a structural-adjustment loan, borrowers not only have to pay back principal plus interest: they also have to agree to change their economies according to Bank and Fund demands. These requirements almost always stipulate that clients maximize exports at the expense of domestic consumption.
During research for this essay, the author learned much from the work of the development scholar Cheryl Payer, who wrote landmark books and papers on the influence of the Bank and Fund in the 1970s, 1980s and 1990s. This author may disagree with Payer’s “solutions” — which, like those of most critics of the Bank and Fund, tend to be socialist — but many observations she makes about the global economy hold true regardless of ideology.
“It is an explicit and basic aim of IMF programs,” she wrote, “to discourage local consumption in order to free resources for export.”
This point cannot be stressed enough.
The official narrative is that the Bank and Fund were designed to “foster sustainable economic growth, promote higher standards of living, and reduce poverty.” But the roads and dams the Bank builds are not designed to help improve transport and electricity for locals, but rather to make it easy for multinational corporations to extract wealth. And the bailouts the IMF provides aren’t to “save” a country from bankruptcy — which would probably be the best thing for it in many cases — but rather to allow it to pay its debt with even more debt, so that the original loan doesn’t turn into a hole on a Western bank’s balance sheet.
In her books on the Bank and Fund, Payer describes how the institutions claim that their loan conditionality enables borrowing countries “to achieve a healthier balance of trade and payments.” But the real purpose, she says, is “to bribe the governments to prevent them from making the economic changes which would make them more independent and self-supporting.” When countries pay back their structural adjustment loans, debt service is prioritized, and domestic spending is to be “adjusted” downwards.
IMF loans were often allocated through a mechanism called the “stand-by agreement,” a line of credit that released funds only as the borrowing government claimed to achieve certain objectives. From Jakarta to Lagos to Buenos Aires, IMF staff would fly in (always first or business class) to meet undemocratic rulers and offer them millions or billions of dollars in exchange for following their economic playbook.
Abolition or reduction of foreign exchange and import controls
Shrinking of domestic bank credit
Higher interest rates
Increased taxes
An end to consumer subsidies on food and energy
Wage ceilings
Restrictions on government spending, especially in healthcare and education
Favorable legal conditions and incentives for multinational corporations
Selling off state enterprises and claims on natural resources at fire sale prices
The World Bank had its own playbook, too. Payer gives examples:
The opening up of previously remote regions through transportation and telecommunications investments
Aiding multinational corporations in the mining sector
Insisting on production for export
Pressuring borrowers to improve legal privileges for the tax liabilities of foreign investment
Opposing minimum wage laws and trade union activity
Ending protections for locally-owned businesses
Financing projects that appropriate land, water and forests from poor people and hand them to multinational corporations
Shrinking manufacturing and food production at the expense of the export of natural resources and raw goods
Third World governments have historically been forced to agree to a mix of these policies — sometimes known as the “Washington Consensus” — in order to trigger the ongoing release of Bank and Fund loans.
The former colonial powers tend to focus their “development” lending on former colonies or areas of influence: France in West Africa, Japan in Indonesia, Britain in East Africa and South Asia and the U.S. in Latin America. A notable example is the CFA zone, where 180 million people in 15 African countries are still forced to use a French colonial currency. At the suggestion of the IMF, in 1994 France devalued the CFA by 50%, devastating the savings and purchasing power of tens of millions of people living in countries ranging from Senegal to Ivory Coast to Gabon, all to make raw goods exports more competitive.
The outcome of Bank and Fund policies on the Third World has been remarkably similar to what was experienced under traditional imperialism: wage deflation, a loss of autonomy and agricultural dependency. The big difference is that in the new system, the sword and the gun have been replaced by weaponized debt.
Over the last 30 years, structural adjustment has intensified with regard to the average number of conditions in loans extended by the Bank and Fund. Before 1980, the Bank did not generally make structural adjustment loans, most everything was project- or sector-specific. But since then, “spend this however you want” bailout loans with economic quid pro quos have become a growing part of Bank policy. For the IMF, they are its lifeblood.
For example, when the IMF bailed out South Korea and Indonesia with $57 billion and $43 billion packages during the 1997 Asian Financial Crisis, it imposed heavy conditionality. Borrowers had to sign agreements that “looked more like Christmas trees than contracts, with anywhere from 50 to 80 detailed conditions covering everything from the deregulation of garlic monopolies to taxes on cattle feed and new environmental laws,” according to political scientist Mark S. Copelvitch.
A 2014 analysis showed that the IMF had attached, on average, 20 conditions to each loan it gave out in the previous two years, a historic increase. Countries like Jamaica, Greece and Cyprus have borrowed in recent years with an average of 35 conditions each. It is worth noting that Bank and Fund conditions have never included protections on free speech or human rights, or restrictions on military spending or police violence.
An added twist of Bank and Fund policy is what is known as the “double loan”: money is lent to build, for example, a hydroelectric dam, but most if not all of the money gets paid to Western companies. So, the Third World taxpayer is saddled with principal and interest, and the North gets paid back double.
The context for the double loan is that dominant states extend credit through the Bank and Fund to former colonies, where local rulers often spend the new cash directly back to multinational companies who profit from advising, construction or import services. The ensuing and required currency devaluation, wage controls and bank credit tightening imposed by Bank and Fund structural adjustment disadvantage local entrepreneurs who are stuck in a collapsing and isolated fiat system, and benefit multinationals who are dollar, euro or yen native.
Another key source for this author has been the masterful book “The Lords of Poverty” by historian Graham Hancock, written to reflect on the first five decades of Bank and Fund policy and foreign assistance in general.
“The World Bank,” Hancock writes, “is the first to admit that out of every $10 that it receives, around $7 are in fact spent on goods and services from the rich industrialized countries.”
In the 1980s, when Bank funding was expanding rapidly around the world, he noted that “for every US tax dollar contributed, 82 cents are immediately returned to American businesses in the form of purchase orders.” This dynamic applies not just to loans but also to aid. For example, when the U.S. or Germany sends a rescue plane to a country in crisis, the cost of transport, food, medicine and staff salaries are added to what is known as ODA, or “official development assistance.” On the books, it looks like aid and assistance. But most of the money is paid right back to Western companies and not invested locally.
Reflecting on the Third World Debt Crisis of the 1980s, Hancock noted that “70 cents out of every dollar of American assistance never actually left the United States.” The U.K., for its part, spent a whopping 80% of its aid during that time directly on British goods and services.
“One year,” Hancock writes, “British tax-payers provided multilateral aid agencies with 495 million pounds; in the same year, however, British firms received contracts worth 616 million pounds.” Hancock said that multilateral agencies could be “relied upon to purchase British goods and services with a value equivalent to 120% of Britain’s total multilateral contribution.”
One starts to see how the “aid and assistance” we tend to think of as charitable is really quite the opposite.
And as Hancock points out, foreign-aid budgets always increase no matter the outcome. Just as progress is evidence that the aid is working, a “lack of progress is evidence that the dosage has been insufficient and must be increased.”
Some development advocates, he writes, “argue that it would be inexpedient to deny aid to the speedy (those who advance); others, that it would be cruel to deny it to the needy (those who stagnate). Aid is thus like champagne: in success you deserve it, in failure you need it.”
IV. The Debt Trap
“The concept of the Third World or the South and the policy of official aid are inseparable. They are two sides of the same coin. The Third World is the creation of the foreign aid: without foreign aid there is no Third World.”
According to the World Bank, its objective is “to help raise living standards in developing countries by channeling financial resources from developed countries to the developing world.”
But what if the reality is the opposite?
At first, beginning in the 1960s, there was an enormous flow of resources from rich countries to poor ones. This was ostensibly done to help them develop. Payer writes that it was long considered “natural” for capital to “flow in one direction only from the developed industrial economies to the Third World.”
The life cycle of a World Bank loan: positive, then deeply negative cash flows for the borrower country
But, as she reminds us, “at some point the borrower has to pay more to his creditor than he has received from the creditor and over the life of the loan this excess is much higher than the amount that was originally borrowed.”
In global economics, this point happened in 1982, when the flow of resources permanently reversed. Ever since, there has been an annual net flow of funds from poor countries to rich ones. This began as an average of $30 billion per year flowing from South to North in the mid-to-late 1980s, and is today in the range of trillions of dollars per year. Between 1970 and 2007 — from the end of the gold standard to the Great Financial Crisis — the total debt service paid by poor countries to rich ones was $7.15 trillion.
Net resource transfers from developing countries: increasingly negative since 1982
To give an example of what this might look like in a given year, in 2012 developing countries received $1.3 trillion, including all income, aid and investment. But that same year, more than $3.3 trillion flowed out. In other words, according to anthropologist Jason Hickel, “developing countries sent $2 trillion more to the rest of the world than they received.”
When all the flows were added up from 1960 to 2017, a grim truth emerged: $62 trillion was drained out of the developing world, the equivalent of 620 Marshall Plans in today’s dollars.
The IMF and World Bank were supposed to fix balance of payments issues, and help poor countries grow stronger and more sustainable. The evidence has been the direct opposite.
“For every $1 of aid that developing countries receive,” Hickel writes, “they lose $24 in net outflows.” Instead of ending exploitation and unequal exchange, studies show that structural adjustment policies grew them in a massive way.
Since 1970, the external public debt of developing countries has increased from $46 billion to $8.7 trillion. In the past 50 years, countries like India and the Philippines and the Congo now owe their former colonial masters 189 times the amount they owed in 1970. They have paid $4.2 trillion on interest payments alone since 1980.
The exponential rise in developing country debt
Even Payer — whose 1974 book “The Debt Trap” used economic flow data to show how the IMF ensnared poor countries by encouraging them to borrow more than they could possibly pay back — would be shocked at the size of today’s debt trap.
Her observation that “the average citizen of the US or Europe may not be aware of this enormous drain in capital from parts of the world they think of as being pitifully poor” still rings true today. To this author’s own shame, he did not know about the true nature of the global flow of funds and simply assumed that rich countries subsidized poor ones before embarking on the research for this project. The end result is a literal Ponzi scheme, where by the 1970s, Third World debt was so big that it was only possible to service with new debt. It has been the same ever since.
Many critics of the Bank and Fund assume that these institutions are working with their heart in the right place, and when they do fail, it is because of mistakes, waste or mismanagement.
It is the thesis of this essay that this is not true, and that the foundational goals of the Fund and Bank are not to fix poverty but rather to enrich creditor nations at the expense of poor ones.
This author is simply not willing to believe that a permanent flow of funds from poor countries to rich ones since 1982 is a “mistake.” The reader may dispute that the arrangement is intentional, and rather may believe it is an unconscious structural outcome. The difference hardly matters to the billions of people the Bank and Fund have impoverished.
V. Replacing the Colonial Resource Drain
“I am so tired of waiting. Aren’t you, for the world to become good and beautiful and kind? Let us take a knife and cut the world in two — and see what worms are eating at the rind.”
By the end of the 1950s, Europe and Japan had largely recovered from war and resumed significant industrial growth, while Third World countries ran out of funds. Despite having healthy balance sheets in the 1940s and early 1950s, poor, raw-material-exporting countries ran into balance-of-payments issues as the value of their commodities tanked in the wake of the Korean War. This is when the debt trap began, and when the Bank and Fund started the floodgates of what would end up becoming trillions of dollars of lending.
This era also marked the official end of colonialism, as European empires drew back from their imperial possessions. The establishment assumption in international development is that the economic success of nations is due “primarily to their internal, domestic conditions. High-income countries have achieved economic success,” the theory goes, “because of good governance, strong institutions and free markets. Lower-income countries have failed to develop because they lack these things, or because they suffer from corruption, red tape and inefficiency.”
This is certainly true. But another major reason why rich countries are rich and poor countries are poor is that the former looted the latter for hundreds of years during the colonial period.
“Britain’s industrial revolution,” Jason Hickel writes, “depended in large part on cotton, which was grown on land forcibly appropriated from Indigenous Americans, with labor appropriated from enslaved Africans. Other crucial inputs required by British manufacturers — hemp, timber, iron, grain — were produced using forced labor on serf estates in Russia and Eastern Europe. Meanwhile, British extraction from India and other colonies funded more than half the country’s domestic budget, paying for roads, public buildings, the welfare state — all the markets of modern development — while enabling the purchase of material inputs necessary for industrialization.”
The theft dynamic was described by Utsa and Prabhat Patnaik in their book “Capital And Imperialism”: colonial powers like the British empire would use violence to extract raw materials from weak countries, creating a “colonial drain” of capital that boosted and subsidized life in London, Paris and Berlin. Industrial nations would transform these raw materials into manufactured goods, and sell them back to weaker nations, profiting massively while also crowding out local production. And — critically — they would keep inflation at home down by suppressing wages in the colonial territories. Either through outright slavery or through paying well below the global market rate.
As the colonial system began to falter, the Western financial world faced a crisis. The Patnaiks argue that the Great Depression was a result not simply of changes in Western monetary policy, but also of the colonial drain slowing down. The reasoning is simple: rich countries had built a conveyor belt of resources flowing from poor countries, and when the belt broke, so did everything else. Between the 1920s and 1960s, political colonialism became virtually extinct. Britain, the U.S., Germany, France, Japan, the Netherlands, Belgium and other empires were forced to give up control over more than half of the world’s territory and resources.
As the Patnaiks write, imperialism is “an arrangement for imposing income deflation on the Third World population in order to get their primary commodities without running into the problem of increasing supply price.”
Post 1960, this became the new function for the World Bank and IMF: recreating the colonial drain from poor countries to rich countries that was once maintained by straightforward imperialism.
Post-colonial drain from the Global South to the Global North
Officials in the U.S., Europe and Japan wanted to achieve “internal equilibrium” — in other words, full employment. But they realized they could not do this via subsidy inside an isolated system, or else inflation would run rampant. To achieve their goal would require external input from poorer countries. The extra surplus value extracted by the core from workers in the periphery is known as “imperialist rent.” If industrial countries could get cheaper materials and labor, and then sell the finished goods back at a profit, they could inch closer to the technocrat dream economy. And they got their wish: as of 2019, wages paid to workers in the developing world were 20% the level of wages paid to workers in the developed world.
As an example of how the Bank recreated the colonial drain dynamic, Payer gives the classic case of 1960s Mauritania in northwest Africa. A mining project called MIFERMA was signed by French occupiers before the colony became independent. The deal eventually became “just an old-fashioned enclave project: a city in a desert and a railroad leading to the ocean,” as the infrastructure was solely focused on spiriting minerals away to international markets. In 1969, when the mine accounted for 30% of Mauritania’s GDP and 75% of its exports, 72% of the income was sent abroad, and “practically all the income distributed locally to employees evaporated in imports.” When the miners protested against the neocolonial arrangement, security forces savagely put them down.
Geography of the drain from the Global South from 1960 to 2017
MIFERMA is a stereotypical example of the kind of “development” that would be imposed on the Third World everywhere from the Dominican Republic to Madagascar to Cambodia. And of these projects rapidly expanded in the 1970s, thanks to the petrodollar system.
Post-1973, Arab OPEC countries with enormous surpluses from skyrocketing oil prices sank their profits into deposits and treasuries in Western banks, which needed a place to lend out their growing resources. Military dictators across Latin America, Africa and Asia made great targets: they had high time preferences and were happy to borrow against future generations.
Helping expedite loan growth was the “IMF put”: private banks started to believe (correctly) that the IMF would bail out countries if they defaulted, protecting their investments. Moreover, interest rates in the mid-1970s were often in negative real territory, further encouraging borrowers. This — combined with World Bank president Robert McNamara’s insistence that assistance expand dramatically — resulted in a debt frenzy. U.S. banks, for example, increased their Third World loan portfolio by 300% to $450 billion between 1978 and 1982.
The problem was that these loans were in large part floating interest rate agreements, and a few years later, those rates exploded as the U.S. Federal Reserve raised the global cost of capital close to 20%. The growing debt burden combined with the 1979 oil price shock and the ensuing global collapse in the price of commodities that power the value of developing country exports paved the way for the Third World Debt Crisis. To make matters worse, very little of the money borrowed by governments during the debt frenzy was actually invested in the average citizen.
Third World debt service over time
In their aptly named book “Debt Squads,” investigative journalists Sue Branford and Bernardo Kucinski explain that between 1976 and 1981, Latin governments (of which 18 of 21 were dictatorships) borrowed $272.9 billion. Out of that, 91.6% was spent on debt servicing, capital flight and building up regime reserves. Only 8.4% was used on domestic investment, and even out of that, much was wasted.
Brazilian civil society advocate Carlos Ayuda vividly described the effect of the petrodollar-fueled drain on his own country:
“The military dictatorship used the loans to invest in huge infrastructure projects — particularly energy projects… the idea behind creating an enormous hydroelectric dam and plant in the middle of the Amazon, for example, was to produce aluminum for export to the North… the government took out huge loans and invested billions of dollars in building the Tucuruí dam in the late 1970s, destroying native forests and removing massive numbers of native peoples and poor rural people that had lived there for generations. The government would have razed the forests, but the deadlines were so short they used Agent Orange to defoliate the region and then submerged the leafless tree trunks underwater… the hydroelectric plant’s energy [was then] sold at $13-20 per megawatt when the actual price of production was $48. So the taxpayers provided subsidies, financing cheap energy for transnational corporations to sell our aluminum in the international market.”
In other words, the Brazilian people paid foreign creditors for the service of destroying their environment, displacing the masses and selling their resources.
Today the drain from low- and middle-income countries is staggering. In 2015, it totaled 10.1 billion tons of raw materials and 182 million person-years of labor: 50% of all goods and 28% of all labor used that year by high-income countries.
VI. A Dance With Dictators
“He may be a son of a bitch, but he’s our son of a bitch.”
Of course, it takes two sides to finalize a loan from the Bank or Fund. The problem is that the borrower is typically an unelected or unaccountable leader, who makes the decision without consulting with and without a popular mandate from their citizens.
As Payer writes in “The Debt Trap,” “IMF programs are politically unpopular, for the very good concrete reasons that they hurt local business and depress the real income of the electorate. A government which attempts to carry out the conditions in its Letter of Intent to the IMF is likely to find itself voted out of office.”
Hence, the IMF prefers to work with undemocratic clients who can more easily dismiss troublesome judges and put down street protests. According to Payer, the military coups in Brazil in 1964, Turkey in 1960, Indonesia in 1966, Argentina in 1966 and the Philippines in 1972 were examples of IMF-opposed leaders being forcibly replaced by IMF-friendly ones. Even if the Fund wasn’t directly involved in the coup, in each of these cases, it arrived enthusiastically a few days, weeks or months later to help the new regime implement structural adjustment.
The Bank and Fund share a willingness to support abusive governments. Perhaps surprisingly, it was the Bank that started the tradition. According to development researcher Kevin Danaher, “the Bank’s sad record of supporting military regimes and governments that openly violated human rights began on August 7, 1947, with a $195 million reconstruction loan to the Netherlands. Seventeen days before the Bank approved the loan, the Netherlands had unleashed a war against anti-colonialist nationalist in its huge overseas empire in the East Indies, which had already declared its independence as the Republic of Indonesia.”
“The Dutch,” Danaher writes, “sent 145,000 troops (from a nation with only 10 million inhabitants at the time, economically struggling at 90% of 1939 production) and launched a total economic blockade of nationalist-held areas, causing considerable hunger and health problems among Indonesia’s 70 million inhabitants.”
In its first few decades the Bank funded many such colonial schemes, including $28 million for apartheid Rhodesia in 1952, as well as loans to Australia, the United Kingdom, and Belgium to “develop” colonial possessions in Papua New Guinea, Kenya and the Belgian Congo.
In 1966, the Bank directly defied the United Nations, “continuing to lend money to South Africa and Portugal despite resolutions of the General Assembly calling on all UN-affiliated agencies to cease financial support for both countries,” according to Danaher.
Danaher writes that “Portugal’s colonial domination of Angola and Mozambique and South Africa’s apartheid were flagrant violations of the UN charter. But the Bank argued that Article IV, Section 10 of its Charter which prohibits interference in the political affairs of any member, legally obliged it to disregard the UN resolutions. As a result the Bank approved loans of $10 million to Portugal and $20 million to South Africa after the UN resolution was passed.”
Sometimes, the Bank’s preference for tyranny was stark: it cut off lending to the democratically-elected Allende government in Chile in the early 1970s, but shortly after began to lend huge quantities of cash to Ceausescu’s Romania, one of the world’s worst police states. This is also an example of how the Bank and Fund, contrary to popular belief, didn’t simply lend along Cold War ideological lines: for every right-wing Augusto Pinochet Ugarte or Jorge Rafael Videla client, there was a left-wing Josip Broz Tito or Julius Nyerere.
In 1979, Danaher notes, 15 of the world’s most repressive governments would receive a full third of all Bank loans. This even after the U.S. Congress and the Carter administration had stopped aid to four of the 15 — Argentina, Chile, Uruguay and Ethiopia — for “flagrant human rights violations.” Just a few years later, in El Salvador, the IMF made a $43 million loan to the military dictatorship, just a few months after its forces committed the largest massacre in Cold War-era Latin America by annihilating the village of El Mozote.
There were several books written about the Bank and the Fund in 1994, timed as 50-year retrospectives on the Bretton Woods institutions. “Perpetuating Poverty” by Ian Vàsquez and Doug Bandow is one of those studies, and is a particularly valuable one as it provides a Libertarian analysis. Most critical studies of the Bank and Fund are from the left: but the Cato Institute’s Vásquez and Bandow saw many of the same problems.
“The Fund underwrites any government,” they write, “however venal and brutal… China owed the Fund $600 million as of the end of 1989; in January 1990, just a few months after the blood had dried in Beijing’s Tiananmen Square, the IMF held a seminar on monetary policy in the city.”
Vásquez and Bandow mention other tyrannical clients ranging from military Burma, to Pinochet’s Chile, Laos, Nicaragua under Anastasio Somoza Debayle and the Sandinistas, Syria, and Vietnam.
“The IMF,” they say, “has rarely met a dictatorship that it did not like.”
Vásquez and Bandow detail the Bank’s relationship with the Marxist-Leninist Mengistu Haile Mariam regime in Ethiopia, where it provided for as much as 16% of the government’s annual budget while it had one of the worst human rights records in the world. The Bank’s credit arrived just as Mengistu’s forces were “herding people into concentration camps and collective farms.” They also point out how the Bank gave the Sudanese regime $16 million while it was driving 750,000 refugees out of Khartoum into the desert, and how it gave hundreds of millions of dollars to Iran — a brutal theocratic dictatorship — and Mozambique, whose security forces were infamous for torture, rape and summary executions.
In his 2011 book “Defeating Dictators,” the celebrated Ghanaian development economist George Ayittey detailed a long list of “aid-receiving autocrats”: Paul Biya, Idriss Déby, Lansana Conté, Paul Kagame, Yoweri Museveni, Hun Sen, Islam Karimov, Nursultan Nazarbayev and Emomali Rahmon. He pointed out that the Fund had dispensed $75 billion to these nine tyrants alone.
In 2014, a report was released by the International Consortium of Investigative Journalists, alleging that the Ethiopian government had used part of a $2 billion Bank loan to forcibly relocate 37,883 indigenous Anuak families. This was 60% of the country’s entire Gambella province. Soldiers “beat, raped, and killed” Anuak who refused to leave their homes. Atrocities were so bad that South Sudan granted refugee status to Anuaks streaming in from neighboring Ethiopia. A Human Rights Watch report said that the stolen land was then “leased by the government to investors” and that the Bank’s money was “used to pay the salaries of government officials who helped carry out the evictions.” The Bank approved new funding for this “villagization” program even after allegations of mass human rights violations emerged.
Mobutu Sese Soko and Richard Nixon at the White House in 1973
It would be a mistake to leave Mobutu Sese Soko’s Zaire out of this essay. The recipient of billions of dollars of Bank and Fund credit during his bloody 32-year reign, Mobutu pocketed 30% of incoming aid and assistance and let his people starve. He complied with 11 IMF structural adjustments: during one in 1984, 46,000 public school teachers were fired and the national currency was devalued by 80%. Mobutu called this austerity “a bitter pill which we have no alternative but to swallow,” but didn’t sell any of his 51 Mercedes, any of his 11 chateaus in Belgium or France, or even his Boeing 747 or 16th century Spanish castle.
Per capita income declined in each year of his rule on average by 2.2%, leaving more than 80% of the population in absolute poverty. Children routinely died before the age of five, and swollen-belly syndrome was rampant. It is estimated that Mobutu personally stole $5 billion, and presided over another $12 billion in capital flight, which together would have been more than enough to wipe the country’s $14 billion debt clean at the time of his ouster. He looted and terrorized his people, and could not have done it without the Bank and Fund, which continued to bail him out even though it was clear he would never repay his debts.
That all said, the true poster boy for the Bank and Fund’s affection for dictators might be Ferdinand Marcos. In 1966, when Marcos came to power, the Philippines was the second-most prosperous country in Asia, and the country’s foreign debt stood at roughly $500 million. By the time Marcos was removed in 1986, the debt stood at $28.1 billion.
As Graham Hancock writes in “Lords Of Poverty,” most of these loans “had been contracted to pay for extravagant development schemes which, although irrelevant to the poor, had pandered to the enormous ego of the head of state… a painstaking two-year investigation established beyond serious dispute that he had personally expropriated and sent out of the Philippines more than $10 billion. Much of this money — which of course, should have been at the disposal of the Philippine state and people — had disappeared forever in Swiss bank accounts.”
“$100 million,” Hancock writes, “was paid for the art collection for Imelda Marcos… her tastes were eclectic and included six Old Masters purchased from the Knodeler Gallery in New York for $5 million, a Francis Bacon canvas supplied by the Marlborough Gallery in London, and a Michelangelo, ‘Madonna and Child’ bought from Mario Bellini in Florence for $3.5 million.”
“During the last decade of the Marcos regime,” he says, “while valuable art treasuries were being hung on penthouse walls in Manhattan and Paris, the Philippines had lower nutritional standards than any other nation in Asia with the exception of war-torn Cambodia.”
To contain popular unrest, Hancock writes that Marcos banned strikes and “union organizing was outlawed in all key industries and in agriculture. Thousands of Filipinos were imprisoned for opposing the dictatorship and many were tortured and killed. Meanwhile the country remained consistently listed among the top recipients of both US and World Bank development assistance.”
After the Filipino people pushed Marcos out, they still had to pay an annual sum of anywhere between 40% and 50% of the entire value of their exports “just to cover the interest on the foreign debts that Marcos incurred.”
One would think that after ousting Marcos, the Filipino people would not have to owe the debt he incurred on their behalf without consulting them. But that is not how it has worked in practice. In theory, this concept is called “odious debt” and was invented by the U.S. in 1898 when it repudiated Cuba’s debt after Spanish forces were ousted from the island.
American leaders determined that debts “incurred to subjugate a people or to colonize them” were not legitimate. But the Bank and Fund have never followed this precedent during their 75 years of operations. Ironically, the IMF has an article on its website suggesting that Somoza, Marcos, Apartheid South Africa, Haiti’s “Baby Doc” and Nigeria’s Sani Abacha all borrowed billions illegitimately, and that the debt should be written off for their victims, but this remains a suggestion unfollowed.
Technically and morally speaking, a large percentage of Third World debt should be considered “odious” and not owed anymore by the population should their dictator be forced out. After all, in most cases, the citizens paying back the loans didn’t elect their leader and didn’t choose to borrow the loans that they took out against their future.
In July 1987, the revolutionary leader Thomas Sankara gave a speech to the Organistion of African Unity (OAU) in Ethiopia, where he refused to pay the colonial debt of Burkina Faso, and encouraged other African nations to join him.
“We cannot pay,” he said, “because we are not responsible for this debt.”
Sankara famously boycotted the IMF and refused structural adjustment. Three months after his OAU speech, he was assassinated by Blaise Compaoré, who would install his own 27-year military regime that would receive four structural adjustment loans from the IMF and borrow dozens of times from the World Bank for various infrastructure and agriculture projects. Since Sankara’s death, few heads of state have been willing to take a stand to repudiate their debts.
Burkinese dictator Blaise Compaoré and IMF managing director Dominique Strauss-Kahn. Compaoré seized power after assassinating Thomas Sankara (who tried to refuse Western debt) and he went on to borrow billions from the Bank and Fund.
One big exception was Iraq: after the U.S. invasion and ouster of Saddam Hussein in 2003, American authorities managed to get some of the debt incurred by Hussein to be considered “odious” and forgiven. But this was a unique case: for the billions of people who suffered under colonialists or dictators, and have since been forced to pay their debts plus interest, they have not gotten this special treatment.
In recent years, the IMF has even acted as a counter-revolutionary force against democratic movements. In the 1990s, the Fund was widely criticized on the left and the right for helping to destabilize the former Soviet Union as it descended into economic chaos and congealed into Vladimir Putin’s dictatorship. In 2011, as the Arab Spring protests emerged across the Middle East, the Deauville Partnership with Arab Countries in Transition was formed and met in Paris.
Through this mechanism, the Bank and Fund led massive loan offers to Yemen, Tunisia, Egypt, Morocco and Jordan — “Arab countries in transition” — in exchange for structural adjustment. As a result, Tunisia’s foreign debt skyrocketed, triggering two new IMF loans, marking the first time that the country had borrowed from the Fund since 1988. The austerity measures paired with these loans forced the devaluation of the Tunisian dinar, which spiked prices. National protests broke out as the government continued to follow the Fund playbook with wage freezes, new taxes and “early retirement” in the public sector.
Twenty-nine-year-old protestor Warda Atig summed up the situation: “As long as Tunisia continues these deals with the IMF, we will continue our struggle,” she said. “We believe that the IMF and the interests of people are contradictory. An escape from submission to the IMF, which has brought Tunisia to its knees and strangled the economy, is a prerequisite to bring about any real change.”
VII. Creating Agricultural Dependence
“The idea that developing countries should feed themselves is an anachronism from a bygone era. They could better ensure their food security by relying on the U.S. agricultural products, which are available in most cases at lower cost.”
As a result of Bank and Fund policy, all across Latin America, Africa, the Middle East, and South and East Asia, countries which once grew their own food now import it from rich countries. Growing one’s own food is important, in retrospect, because in the post-1944 financial system, commodities are not priced with one’s local fiat currency: they are priced in the dollar.
Consider the price of wheat, which ranged between $200 and $300 between 1996 and 2006. It has since skyrocketed, peaking at nearly $1,100 in 2021. If your country grew its own wheat, it could weather the storm. If your country had to import wheat, your population risked starvation. This is one reason why countries like Pakistan, Sri Lanka, Egypt, Ghana and Bangladesh are all currently turning to the IMF for emergency loans.
Historically, where the Bank did give loans, they were mostly for “modern,” large-scale, mono-crop agriculture and for resource extraction: not for the development of local industry, manufacturing or consumption farming. Borrowers were encouraged to focus on raw materials exports (oil, minerals, coffee, cocoa, palm oil, tea, rubber, cotton, etc.), and then pushed to import finished goods, foodstuffs and the ingredients for modern agriculture like fertilizer, pesticides, tractors and irrigation machinery. The result is that societies like Morocco end up importing wheat and soybean oil instead of thriving on native couscous and olive oil, “fixed” to become dependent. Earnings were typically used not to benefit farmers, but to service foreign debt, purchase weapons, import luxury goods, fill Swiss bank accounts and put down dissent.
Consider some of the world’s poorest countries. As of 2020, after 50 years of Bank and Fund policy, Niger’s exports were 75% uranium; Mali’s 72% gold; Zambia’s 70% copper; Burundi’s 69% coffee; Malawi’s 55% tobacco; Togo’s 50% cotton; and on it goes. At times in past decades, these single exports supported virtually all of these countries’ hard currency earnings. This is not a natural state of affairs. These items are not mined or produced for local consumption, but for French nuclear plants, Chinese electronics, German supermarkets, British cigarette makers, and American clothing companies. In other words, the energy of the labor force of these nations has been engineered toward feeding and powering other civilizations, instead of nourishing and advancing their own.
Researcher Alicia Koren wrote about the typical agricultural impact of Bank policy in Costa Rica, where the country’s “structural adjustment called for earning more hard currency to pay off foreign debt; forcing farmers who traditionally grew beans, rice, and corn for domestic consumption to plant non-traditional agricultural exports such as ornamental plants, flowers, melons, strawberries, and red peppers… industries that exported their products were eligible for tariff and tax exemptions not available to domestic producers.”
“Meanwhile,” Koren wrote, “structural adjustment agreements removed support for domestic production… while the North pressured Southern nations to eliminate subsidies and ‘barriers to trade,’ Northern governments pumped billions of dollars into their own agricultural sectors, making it impossible for basic grains growers in the South to compete with the North’s highly subsidized agricultural industry.”
Koren extrapolated her Costa Rica analysis to make a broader point: “Structural adjustment agreements shift public spending subsidies from basic supplies, consumed mainly by the poor and middle classes, to luxury export crops produced for affluent foreigners.” Third World countries were not seen as body politics but as companies that needed to increase revenues and decrease expenditures.
The testimony of a former Jamaican official is especially telling: “We told the World Bank team that farmers could hardly afford credit, and that higher rates would put them out of business. The Bank told us in response that this means ‘The market is telling you that agriculture is not the way to go for Jamaica’ — they are saying we should give up farming altogether.”
“The World Bank and IMF,” the official said, “don’t have to worry about the farmers and local companies going out of business, or starvation wages or the social upheaval that will result. They simply assume that it is our job to keep our national security forces strong enough to suppress any uprising.”
Developing governments are stuck: faced with insurmountable debt, the only factor they really control in terms of increasing revenue is deflating wages. If they do this, they must provide basic food subsidies, or else they will be overthrown. And so the debt grows.
Even when developing countries try to produce their own food, they are crowded out by a centrally-planned global trade market. For example, one would think that the cheap labor in a place like West Africa would make it a better exporter of peanuts than the United States. But since Northern countries pay an estimated $1 billion in subsidies to their agriculture industries every single day, Southern countries often struggle to be competitive. What’s worse, 50 or 60 countries are often directed to focus on the very same crops, crowding each other out in the global marketplace. Rubber, palm oil, coffee, tea and cotton are Bank favorites, as the poor masses can’t eat them.
It is true that the Green Revolution has created more food for the planet, especially in China and East Asia. But despite advances in agricultural technology, much of these new yields go to exports, and vast swathes of the world remain chronically malnourished and dependent. To this day, for example, African nations import about 85% of their food. They pay more than $40 billion per year — a number estimated to reach $110 billion per year by 2025 — to buy from other parts of the world what they could grow themselves. Bank and Fund policy helped transform a continent of incredible agricultural riches into one reliant on the outside world to feed its people.
Reflecting on the results of this policy of dependency, Hancock challenges the widespread belief that the people of the Third World are “fundamentally helpless.”
“Victims of nameless crises, disasters, and catastrophes,” he writes, suffer from a perception that “they can do nothing unless we, the rich and powerful, intervene to save them from themselves.” But as evidenced by the fact that our “assistance” has only made them more dependent on us, Hancock rightfully unmasks the notion that “only we can save them” as “patronizing and profoundly fallacious.”
Far from playing the role of good samaritan, the Fund does not even follow the timeless human tradition, established more than 4,000 years ago by Hammurabi in ancient Babylon, of forgiving interest after natural disasters. In 1985, a devastating earthquake hit Mexico City, killing more than 5,000 people and causing $5 billion of damage. Fund staff — who claim to be saviors, helping to end poverty and save countries in crisis — arrived a few days later, demanding to be repaid.
VIII. You Can’t Eat Cotton
“Development prefers crops that can’t be eaten so the loans can be collected.”
The Togolese democracy advocate Farida Nabourema’s own personal and family experience tragically matches the big picture of the Bank and Fund laid out thus far.
The way she puts it, after the 1970s oil boom, loans were poured into developing nations like Togo, whose unaccountable rulers didn’t think twice about how they would repay the debt. Much of the money went into giant infrastructure projects that didn’t help the majority of the people. Much was embezzled and spent on pharaonic estates. Most of these countries, she says, were ruled by single party-states or families. Once interest rates started to hike, these governments could no longer pay their debts: the IMF started “taking over” by imposing austerity measures.
“These were new states that were very fragile,” Nabourema says in an interview for this article. “They needed to invest strongly in social infrastructure, just as the European states were allowed to do after World War II. But instead, we went from free healthcare and education one day, to situations the next where it became too costly for the average person to get even basic medicine.”
Regardless of what one thinks about state-subsidized medicine and schooling, eliminating it overnight was traumatic for poor countries. Bank and Fund officials, of course, have their own private healthcare solutions for their visits and their own private schools for their children whenever they have to live “in the field.”
Because of the forced cuts in public spending, Nabourema says, the state hospitals in Togo remain to this day in “complete decay.” Unlike the state-run, taxpayer-financed public hospitals in the capitals of former colonial powers in London and Paris, things are so bad in Togo’s capital Lomé that even water has to be prescribed.
“There was also,” Nabourema said, “reckless privatization of our public companies.” She explained how her father used to work at the Togolese steel agency. During privatization, the company was sold off to foreign actors for less than half of what the state built it for.
“It was basically a garage sale,” she said.
Nabourema says that a free market system and liberal reforms work well when all participants are on an equal playing field. But that is not the case in Togo, which is forced to play by different rules. No matter how much it opens up, it can’t change the strict policies of the U.S. and Europe, who aggressively subsidize their own industries and agriculture. Nabourema mentions how a subsidized influx of cheap used clothes from America, for example, ruined Togo’s local textile industry.
“These clothes from the West,” she said, “put entrepreneurs out of business and littered our beaches.”
The most horrible aspect, she said, is that the farmers — who made up 60% of the population in Togo in the 1980s — had their livelihoods turned upside down. The dictatorship needed hard currency to pay its debts, and could only do this by selling exports, so they began a massive campaign to sell cash crops. With the World Bank’s help, the regime invested heavily in cotton, so much so that it now dominates 50% of the country’s exports, destroying national food security.
In the formative years for countries like Togo, the Bank was the “largest single lender for agriculture.” Its strategy for fighting poverty was agricultural modernization: “massive transfers of capital, in the form of fertilizers, pesticides, earth-moving equipment, and expensive foreign consultants.”
Nabourema’s father was the one who revealed to her how imported fertilizers and tractors were diverted away from farmers growing consumption food, to farmers growing cash crops like cotton, coffee, cocoa and cashews. If someone was growing corn, sorghum or millet — the basic foodstuffs of the population — they didn’t get access.
“You can’t eat cotton,” Nabourema reminds us.
Over time, the political elite in countries like Togo and Benin (where the dictator was literally a cotton mogul) became the buyer of all the cash crops from all of the farms. They’d have a monopoly on purchases, Nabourema says, and would buy the crops for prices so low that the peasants would barely make any money. This entire system — called “sotoco” in Togo — was based on funding provided by the World Bank.
When farmers would protest, she said, they would get beaten or their farms would get burned to rubble. They could have just grown normal food and fed their families, like they had done for generations. But now they could not even afford the land: the political elite has been acquiring land at an outrageous rate, often through illegal means, jacking up the price.
As an example, Nabourema explains how the Togolese regime might seize 2,000 acres of land: unlike in a liberal democracy (like the one in France, which has built its civilization off the backs of countries like Togo), the judicial system is owned by the government, so there is no way to push back. So farmers, who used to be self-sovereign, are now forced to work as laborers on someone else’s land to provide cotton to rich countries far away. The most tragic irony, Nabourema says, is that cotton is overwhelmingly grown in the north of Togo, in the poorest part of the country.
“But when you go there,” she says, “you see it has made no one rich.”
Women bear the brunt of structural adjustment. The misogyny of the policy is “quite clear in Africa, where women are the major farmers and providers of fuel, wood, and water,” Danaher writes. And yet, a recent retrospective says, “the World Bank prefers to blame them for having too many children rather than reexamining its own policies.”
As Payer writes, for many of the world’s poor, they are poor “not because they have been left behind or ignored by their country’s progress, but because they are the victims of modernisation. Most have been crowded off the good farmland, or deprived of land altogether, by rich elites and local or foreign agribusiness. Their destitution has not ‘ruled them out’ of the development process; the development process has been the cause of their destitution.”
“Yet the Bank,” Payer says, “is still determined to transform the agricultural practices of small farmers. Bank policy statements make it clear that the real aim is integration of peasant land into the commercial sector through the production of a ‘marketable surplus’ of cash crops.”
Payer observed how, in the 1970s and 1980s, many small plotters still grew the bulk of their own food needs, and were not “dependent on the market for the near-totality of their sustenance, as ‘modern’ people were.” These people, however, were the target of the Bank’s policies, which transformed them into surplus producers, and “often enforced this transformation with authoritarian methods.”
In a testimony in front of U.S. Congress in the 1990s, George Ayittey remarked that “if Africa were able to feed itself, it could save nearly $15 billion it wastes on food imports. This figure may be compared with the $17 billion Africa received in foreign aid from all sources in 1997.”
In other words, if Africa grew its own food, it wouldn’t need foreign aid. But if that were to happen, then poor countries wouldn’t be buying billions of dollars of food per year from rich countries, whose economies would shrink as a result. So the West strongly resists any change.
IX. The Development Set
Excuse me, friends, I must catch my jet
I’m off to join the Development Set
My bags are packed, and I’ve had all my shots
I have traveller’s checks and pills for the trots!
The Development Set is bright and noble
Our thoughts are deep and our vision global
Although we move with the better classes
Our thoughts are always with the masses
In Sheraton Hotels in scattered nations
We damn multinational corporations
Injustice seems easy to protest
In such seething hotbeds of social rest.
We discuss malnutrition over steaks
And plan hunger talks during coffee breaks.
Whether Asian floods or African drought
We face each issue with open mouth.
And so begins “The Development Set,” a 1976 poem by Ross Coggins that hits at the heart of the paternalistic and unaccountable nature of the Bank and the Fund.
The World Bank pays high, tax-free salaries, with very generous benefits. IMF staff are paid even better, and traditionally were flown first or business class (depending on the distance), never economy. They stayed in five-star hotels, and even had a perk to get free upgrades onto the supersonic Concorde. Their salaries, unlike wages made by people living under structural adjustment, were not capped and always rose faster than the inflation rate.
Until the mid-1990s the janitors cleaning the World Bank headquarters in Washington — mostly immigrants who fled from countries that the Bank and Fund had “adjusted” — were not even allowed to unionize. In contrast, Christine Lagarde’s tax-free salary as head of the IMF was $467,940, plus an additional $83,760 allowance. Of course, during her term from 2011 to 2019, she oversaw a variety of structural adjustments on poor countries, where taxes on the most vulnerable were almost always raised.
Graham Hancock notes that redundancy payments at the World Bank in the 1980s “averaged a quarter of a million dollars per person.” When 700 executives lost their jobs in 1987, the money spent on their golden parachutes — $175 million — would have been enough, he notes, “to pay for a complete elementary school education for 63,000 children from poor families in Latin America or Africa.”
According to former World Bank head James Wolfensohn, from 1995 to 2005 there were more than 63,000 Bank projects in developing countries: the costs of “feasibility studies” and travel and lodging for experts from industrialized countries alone absorbed as much as 25% of the total aid.
Fifty years after the creation of the Bank and Fund, “90% of the $12 billion per year in technical assistance was still spent on foreign expertise.” That year, in 1994, George Ayittey noted that 80,000 Bank consultants worked on Africa alone, but that “less than .01%” were Africans.
Hancock writes that “the Bank, which puts more money into more schemes in more developing countries than any other institution, claims that ‘it seeks to meet the needs of the poorest people;’ but at no stage in what it refers to as the ‘project cycle’ does it actually take the time to ask the poor themselves how they perceive their needs… the poor are entirely left out of the decision-making progress — almost as if they don’t exist.”
Bank and Fund policy is forged in meetings in lavish hotels between people who will never have to live a day in poverty in their lives. As Joseph Stiglitz argues in his own criticism of the Bank and Fund, “modern high-tech warfare is designed to remove physical contact: dropping bombs from 50,000 feet ensures that one does not ‘feel’ what one does. Modern economic management is similar: from one’s luxury hotel, one can callously impose policies about which one would think twice if one knew the people whose lives one was destroying.”
Strikingly, Bank and Fund leaders are sometimes the very same people who drop the bombs. For example, Robert McNamara — probably the most transformative person in Bank history, famous for massively expanding its lending and sinking poor countries into inescapable debt — was first the CEO of the Ford corporation, before becoming U.S. defense secretary, where he sent 500,000 American troops to fight in Vietnam. After leaving the Bank, he went straight to the board of Royal Dutch Shell. A more recent World Bank head was Paul Wolfowitz, one of the key architects of the Iraq War.
The development set makes its decisions far away from the populations who end up feeling the impact, and they hide the details behind mountains of paperwork, reports and euphemistic jargon. Like the old British Colonial Office, the set conceals itself “like a cuttlefish, in a cloud of ink.”
The prolific and exhausting histories written by the set are hagiographies: the human experience is airbrushed out. A good example is a study called “Balance of Payments Adjustment, 1945 to 1986: The IMF Experience.” This author had the tedious experience of reading the entire tome. Benefits from colonialism are entirely ignored. The personal stories and human experiences of the people who suffered under Bank and Fund policy are elided. Hardship is buried under countless charts and statistics. These studies, which dominate the discourse, read as if their main priority is to avoid offending Bank or Fund staff. Sure, the tone implies that perhaps mistakes were made here or there, but the intentions of the Bank and Fund are good. They are here to help.
In one example from the aforementioned study, structural adjustment in Argentina in 1959 and 1960 is described as such: “While the measures had initially reduced the standard of living of a vast sector of the Argentine population, in relatively short time these measures had resulted in a favorable trade balance and balance of payments, an increase in foreign exchange reserves, a sharp reduction in the rate of increases in the cost of living, a stable exchange rate, and increased domestic and foreign investment.”
In layman’s terms: Sure, there was enormous impoverishment of the entire population, but hey, we got a better balance sheet, more savings for the regime, and more deals with multinational corporations.
The euphemisms keep coming. Poor countries are consistently described as “test cases.” The lexicon and jargon and language of development economics is designed to hide what is actually happening, to mask the cruel reality with terms and process and theory, and to avoid stating the underlying mechanism: rich countries siphoning resources from poor countries and enjoying double standards that enrich their populations while impoverishing people elsewhere.
The apotheosis of the Bank and Fund’s relationship with the developing world is their annual meeting in Washington, D.C.: a grand festival on poverty in the richest country on earth.
“Over mountainous piles of beautifully prepared food,” Hancock writes, “huge volumes of business get done; meanwhile staggering displays of dominance and ostentation get smoothly blended with empty and meaningless rhetoric about the predicament of the poor.”
“The 10,000 men and women attending,” he writes, “look extraordinarily unlikely to achieve [their] noble objectives; when not yawning or asleep at the plenary sessions they are to be found enjoying a series of cocktail parties, lunches, afternoon teas, dinners, and midnight snacks lavish enough to surfeit the greenest gourmand. The total cost of the 700 social events laid on for delegates during a single week [in 1989] was estimated at $10 million — a sum of money that might, perhaps, have better ‘served the needs of the poor’ had it been spent in some other way.”
This was 33 years ago: one can only imagine the cost of these parties in today’s dollars.
In his book “The Fiat Standard,” Saifedean Ammous has a different name for the development set: the misery industry. His description is worth quoting at length:
“When World Bank planning inevitably fails and the debts cannot be repaid, the IMF comes in to shake down the deadbeat countries, pillage their resources, and take control of political institutions. It is a symbiotic relationship between the two parasitic organizations that generates a lot of work, income and travel for the misery industry’s workers — at the expense of the poor countries that have to pay for it all in loans.”
“The more one reads about it,” Ammous writes, “the more one realizes how catastrophic it has been to hand this class of powerful yet unaccountable bureaucrats an endless line of fiat credit and unleash them on the world’s poor. This arrangement allows unelected foreigners with nothing at stake to control and centrally plan entire nations’ economies…. Indigenous populations are removed from their lands, private businesses are closed to protect monopoly rights, taxes are raised, and property is confiscated… tax-free deals are provided to international corporations under the auspices of the International Financial Institutions, while local producers pay ever-higher taxes and suffer from inflation to accommodate their governments’ fiscal incontinence.”
“As part of the debt relief deals signed with the misery industry,” he continues, “governments were asked to sell off some of their most prized assets. This included government enterprises, but also national resources and entire swaths of land. The IMF would usually auction these to multinational corporations and negotiate with governments for them to be exempt from local taxes and laws. After decades of saturating the world with easy credit, the IFIs spent the 1980s acting as repo men. They went through the wreckage of third-world countries devastated by their policies and sold whatever was valuable to multinational corporations, giving them protection from the law in the scrap heaps in which they operated. This reverse Robin Hood redistribution was the inevitable consequence of the dynamics created when these organizations were endowed with easy money.”
“By ensuring the whole world stays on the U.S. dollar standard,” Ammous concludes, “the IMF guarantees the US can continue to operate its inflationary monetary policy and export its inflation globally. Only when one understands the grand larceny at the heart of the global monetary system can one understand the plight of developing countries.”
X. White Elephants
“What Africa needs to do is grow, grow out of debt.”
–George Ayittey
By the mid-1970s, it was clear to Western policymakers, and especially to Bank president Robert McNamara, that the only way poor countries would be able to pay back their debt was with more debt.
The IMF had always paired its lending with structural adjustment, but for its first few decades, the Bank would give project-specific or sector-specific loans with no additional conditions attached. This changed during McNamara’s tenure, as less specific structural adjustment loans became popular and then even dominant at the Bank during the 1980s.
The reason was simple enough: Bank workers had a lot more money to lend out, and it was easier to give away large sums if the money was not tied to specific projects. As Payer notes, “twice as many dollars per staff week of work” could be disbursed through structural adjustment loans.
The borrowers, Hancock says, couldn’t be happier: “Corrupt ministers of finance and dictatorial presidents from Asia, Africa and Latin America tripped over their own expensive footwear in their unseemly haste to get adjusted. For such people money was probably never easier to obtain: with no complicated projects to administer and no messy accounts to keep, the venal, the cruel and the ugly laughed literally all the way to the bank. For them structural adjustment was like a dream come true. No sacrifices were demanded of them personally. All they had to do — amazing but true — was screw the poor.”
Beyond “general use” structural adjustment loans, the other way to spend large amounts of money was to finance massive, individual projects. These would become known as “white elephants,” and their carcasses still dot the deserts, mountains and forests of the developing world. These behemoths were notorious for their human and environmental devastation.
A good example would be the billion-dollar Inga dams, built in Zaire in 1972, whose Bank-funded architects electrified the exploitation of the mineral-rich Katanga province, without installing any transformers along the way to help the vast numbers of villagers who were still using oil lamps. Or the Chad-Cameroon pipeline in the 1990s: this $3.7 billion, Bank-funded project was built entirely to siphon resources out of the ground to enrich the Deby dictatorship and its foreign collaborators, without any benefits for the people. Between 1979 and 1983, Bank-financed hydroelectric projects “resulted in the involuntary resettlement of at least 400,000 to 450,000 people on four continents.”
Hancock details many such white elephants in “Lords Of Poverty.” One example is the Singrauli Power and Coal Mining Complex in India’s Uttar Pradesh state, which received nearly a billion dollars in Bank funding.
“Here,” Hancock writes, “because of ‘development,’ 300,000 poor rural people were subjected to frequent forced relocations as new mines and power stations opened… the land was totally destroyed and resembled scenes out of the lower circles of Dante’s inferno. Enormous amounts of dust and air and water pollution of every conceivable sort created tremendous public health problems. Tuberculosis was rampant, potable water supplies destroyed, and chloroquine-resistant malaria afflicted the area. Once prosperous villages and hamlets were replaced by unspeakable hovels and shacks on the edges of huge infrastructure projects… some people were living inside the open pit mines. Over 70,000 previously self-sufficient peasant farmers — deprived of all over possible sources of income — had no choice but to accept the indignity of intermittent employment at Singrauli for salaries of around 70 cents a day: below survival level even in India.”
In Guatemala, Hancock describes a giant hydroelectric dam called the Chixoy, built with World Bank support in the Mayan highlands.
“Originally budgeted at $340 million,” he writes, “the construction costs had risen to $1 billion by the time the dam was opened in 1985… the money was lent to the Guatemalan government by a consortium [led] by the World Bank… General Romero Lucas Arica’s military government, in power during the bulk of the construction phase and which signed the contract with the World Bank, was recognized by political analysts as having been the most corrupt administration in the history of a Central American country in a region that has been afflicted by more than its fair share of venal and dishonest regimes… members of the junta pocketed about $350 million out of the $1 billion provided for Chixoy.”
And finally in Brazil, Hancock details one of the Bank’s most harmful projects, a “massive colonization and resettlement scheme” known as Polonoroeste. By 1985, the Bank had committed $434.3 million to the initiative, which ended up transforming “poor people into refugees in their own land.”
The scheme “persuaded hundreds of thousands of needy people to migrate from Brazil’s central and southern provinces and relocate themselves as farmers in the Amazon basin” to generate cash crops. “The Bank’s money,” Hancock wrote, “paid for the speedy paving of Highway BR-364 which runs into the heart of the north-western province of Rondonia. All the settlers traveled along this road on their way to farms that they slashed and burned out of the jungle… Already 4% deforested in 1982, Rondonia was 11% deforested by 1985. NASA space surveys showed that the area of deforestation was doubled approximately every two years.”
As a result of the project, in 1988 “tropical forests covering an area larger than Belgium were burnt by settlers.” Hancock also notes that “more than 200,000 settlers were estimated to have contracted a particularly virulent strain of malaria, endemic in the north-west, to which they had no resistance.”
Such grotesque projects were the result of the massive growth of lending institutions, a detachment of the creditors from the actual places they were lending to, and management by unaccountable local autocrats who pocketed billions along the way. They were the outcome of policies that tried to lend as much money as possible to Third World countries to keep the debt Ponzi going and to keep the flow of resources from south to north moving. The grimmest example of all might be found in Indonesia.
XI. A Real-Life Pandora: The Exploitation Of West Papua
“You want a fair deal, you’re on the wrong planet.”
The island of New Guinea is resource-rich beyond imagination. It contains, just for starters: the third-largest expanse of tropical rainforest in the world, after the Amazon and the Congo; the world’s largest gold and copper mine at Grasberg, in the shadow of the 4,800 meter “Seven Summit” peak of Puncak Jaya; and, offshore, the Coral Triangle, a tropical sea known for its “unparalleled” reef diversity.
And yet, the people of the island, especially those living in the California-sized Western half under Indonesian control, are some of the poorest in the world. Resource colonialism has long been a curse for the residents of this territory, known as West Papua. Whether the pillage was committed by the Dutch, or, in more recent decades, the Indonesian government, imperialists have found generous support from the Bank and the Fund.
This essay already mentioned how one of the World Bank’s first loans was to the Dutch, which it used to try and sustain its colonial empire in Indonesia. In 1962, Imperial Holland was finally defeated, and gave up control over West Papua to the Sukarno government as Indonesia became independent. However, the Papuans (also known as the Irianese) wanted their own freedom.
In the course of that decade — as the IMF credited the Indonesian government with more than $100 million — Papuans were purged from positions of leadership. In 1969, in an event that would make Geroge Orwell’s Oceania blush, Jakarta held the “Act of Free Choice,” a poll where 1,025 people were rounded up and forced to vote in front of armed soldiers. The results to join Indonesia were unanimous, and the vote was ratified by the UN General Assembly. After that, locals had no say in what “development” projects would proceed. Oil, copper and timber were all harvested and removed from the island in the following decades, with no involvement by Papuans, except as forced labor.
The mines, highways and ports in West Papua were not built with the wellbeing of the population in mind, but rather were built to loot the island as efficiently as possible. As Payer was able to observe even in 1974, the IMF helped transform Indonesia’s vast natural resources into “mortgages for an indefinite future to subsidize an oppressive military dictatorship and to pay for imports which supported the lavish lifestyle of the generals in Jakarta.”
A 1959 article on the discovery of gold in the area is the beginning of the story of what would later become the Grasberg mine, the world’s lowest-cost and largest producer of copper and gold. In 1972, the Phoenix-based Freeport signed a deal with Indonesian dictator Suharto to extract gold and copper from West Papua, without any consent from the indigenous population. Until 2017, Freeport controlled 90% of the project’s shares, with 10% in the hands of the Indonesian government and 0% for the Amungme and Kamoro tribes who actually inhabit the area.
By the time Grasberg’s treasures are fully depleted by the Freeport corporation, the project will have generated some six billion tons of waste: more than twice as much rock as was excavated to dig the Panama Canal.
The ecosystems downstream from the mine have since been devastated and stripped of life as more than a billion tons of waste have been dumped “directly into a jungle river of what had been one of the world’s last untouched landscapes.” Satellite reports show the devastation wrought by the ongoing dumping of more than 200,000 of toxic tailings per day into an area that contains the Lorentz National Park, a world heritage site. Freeport remains the largest foreign taxpayer in Indonesia and the biggest employer in West Papua: it plans to stay until 2040, when the gold will run out.
As the World Bank writes candidly in its very own report on the region, “international business interests want better infrastructure in order to extract and export the non-renewable mineral and forest assets.”
By far the most shocking program that the Bank financed in West Papua was “transmigration,” a euphemism for settler colonialism. For more than a century, the powers in control of Java (home to most of Indonesia’s population) dreamed of moving large chunks of Javanese to farther-flung islands in the archipelago. Not just to spread things out, but also to ideologically “unify” the territory. In a 1985 speech, the Minister of Transmigration said that “by way of transmigration, we will try to … integrate all the ethnic groups into one nation, the Indonesian nation… The different ethnic groups will in the long run disappear because of integration … there will be one kind of man.”
These efforts to resettle Javanese — known as “Transmigrasi” — began during colonial times, but in the 1970s and 1980s the World Bank began financing these activities in an aggressive way. The Bank allocated hundreds of millions of dollars to the Suharto dictatorship to allow it to “transmigrate” what were hoped to be millions of people to places like East Timor and West Papua in what was “the world’s largest-ever exercise in human resettlement.” By 1986, the Bank had committed no less than $600 million directly to support transmigration, which entailed “a breathtaking combination of human rights abuses and environmental destruction.”
Consider the story of the Sago palm, one of the main traditional foodstuffs of Papuans. One tree alone was able to supply food for a family for six to 12 months. But the Indonesian government, at the encouragement of the Bank, came and said no, this is not working: you need to eat rice. And so the Sago gardens were cut down to grow rice for export. And the locals were forced to buy rice in the market, which simply made them more dependent on Jakarta.
Any resistance was met with brutality. Especially under Suharto — who held as many as 100,000 political prisoners — but even today in 2022, West Papua is a police state almost without rival. Foreign journalists are virtually banned; free speech does not exist; the military operates without any accountability. NGOs like Tapol document a legion of human rights violations ranging from mass surveillance of personal devices, restrictions on when and for what reason people can leave their homes and even rules on how Papuans can wear their hair.
Between 1979 and 1984, some 59,700 transmigrants were taken to West Papua, with “large scale” support from the World Bank. More than 20,000 Papuans fled the violence into neighboring Papua New Guinea. Refugees reported to international media that “their villages were bombed, their settlements burned, women raped, livestock killed, and numbers of people indiscriminately shot while others were imprisoned and tortured.”
A subsequent project backed by a $160 million Bank loan in 1985 was called “Transmigration V”: the seventh Bank-funded project in support of settler colonialism, it aimed to finance the relocation of 300,000 families between 1986 and 1992. The regime’s governor of West Papua at the time described the indigenous people as “living in a stone-age era” and called for a further two million Javanese migrants to be sent to the islands so that “backwards local people could intermarry with the newcomers thus giving birth to a new generation of people without curly hair.”
The original and final versions of the Transmigration V loan agreement were leaked to Survival International: the original version made “extensive reference to the bank’s policies on tribal peoples and provides a list of measures that would be required to comply with these,” but the final version made “no reference to the bank’s policies.”
Cultural genocide in West Papua
Transmigration V ran into budget issues, and was cut short, but ultimately 161,600 families were moved, at a cost of 14,146 Bank staff months. The Bank was clearly financing cultural genocide: today, Ethnic Papuans make up no more than 30% of the territory’s population. But social engineering wasn’t the only goal of taking money from the Bank: 17% of funds for transmigration projects were estimated to have been stolen by government officials.
Fifteen years later on December 11, 2001, the World Bank approved a $200 million loan to “improve road conditions” in West Papua and other parts of Eastern Indonesia. The project, known as EIRTP, aimed to “improve the condition of national and other strategic arterial roads in order to reduce transport costs and provide more reliable access among provincial centers, regional development and production areas, and other key transport facilities. Reducing road transport costs,” the Bank said, “will help to lower input prices, raise output prices and increase the competitiveness of local products from the affected areas.” In other words: the Bank was helping to extract resources as efficiently as possible.
The Bank and Fund’s history in Indonesia is so outrageous that it seems like it must be from another time, ages ago. But that’s simply not true. Between 2003 and 2008, the Bank funded palm oil development in Indonesia to the tune of nearly $200 million and hired private companies who were alleged to have “used fire to clear primary forests and seize lands belonging to indigenous people without due process.”
Today, the Indonesian government remains on the hook for the EIRTP loan. In the past five years, the Bank has collected $70 million in interest payments from the Indonesian government and taxpayer, all for its efforts to accelerate the extraction of resources from islands like West Papua.
One might consider bankruptcy an important and even essential part of capitalism. But the IMF basically exists to prevent the free market from working as it normally would: it bails out countries that normally would go bankrupt, forcing them instead deeper into debt.
The Fund makes the impossible possible: small, poor countries hold so much debt that they could never pay it all off. These bailouts corrupt the incentives of the global financial system. In a true free market, there would be serious consequences for risky lending: the creditor bank could lose its money.
The exponential rise of Third World debt
When the U.S., Europe or Japan made their deposits at the Bank and Fund, it was similar to purchasing insurance on their ability to extract wealth from developing nations. Their private banks and multinational corporations are protected by the bailout scheme, and on top of it, they earn handsome, steady interest (paid for by poor countries) on what is widely perceived to be humanitarian assistance.
As David Graeber writes in “Debt,” when banks “lent money to dictators in Bolivia and Gabon in the late ’70s: [they made] utterly irresponsible loans with the full knowledge that, once it became known they had done so, politicians and bureaucrats would scramble to ensure that they’d still be reimbursed anyway, no matter how many lives had to be devastated and destroyed in order to do it.”
Kevin Danaher describes the tension that began to emerge in the 1960s: “Borrowers began to pay back more annually to the Bank than it disbursed in new loans. In 1963, 1964, and 1969 India transferred more money to the World Bank than the Bank disbursed to it.” Technically, India was paying off its debts plus interest, but the Bank’s leadership saw a crisis.
“To solve the problem,” Danaher continues, Bank president Robert McNamara increased lending “at a phenomenal rate, from $953 million in 1968 to $12.4 billion in 1981.” The number of IMF lending programs also “more than doubled” from 1976 to 1983, mostly to poor countries. The Bank and the Fund’s assurances led the world’s titanic money center banks as well as hundreds of regional and local banks in the U.S. and Europe — “most of them with little or no previous history of foreign lending” — to go on an unprecedented lending spree.
The Third World debt bubble finally burst in 1982, when Mexico announced a default. According to official IMF history, “private bankers envisaged the dreaded possibility of a widespread repudiation of debts, such as had occurred in the 1930s: at that time the debt owed by debtor countries to industrial counties was mostly in the form of securities issued by debtor countries in the US and in the form of bonds sold abroad; in the 1980s the debt was almost entirely in the form of short and medium term loans from commercial banks in the industrial members. Monetary authorities of industrial members instantly realized the urgency of the problem posed for the world’s banking system.”
In other words: the threat that the banks of the West might have holes on their balance sheet was the danger: not that millions would die of austerity programs in poor countries. In her book “A Fate Worse Than Debt,” the development critic Susan George charts how the top-nine largest U.S. banks all had placed more than 100% of their shareholders’ equity in “loans to Mexico, Brazil, Argentina, and Venezuela alone.” The crisis was averted, however, as the IMF helped credit flow to Third World countries, even though they should have gone bankrupt.
“Simply put,” according to a technical analysis of the Fund, its programs “provide bailouts for private lenders to emerging markets, thereby allowing international creditors to benefit from foreign lending without bearing the full risks involved: the banks reap significant profits if borrowers repay their debts and avoid losses if financial crisis occur”
Latin American citizens suffered under structural adjustment, but between 1982 and 1985. George reported that “in spite of over-exposure to Latin America, dividends declared by the big nine banks increased by more than a third during the same period.” Profits in that time rose by 84% at Chase Manhattan and 66% at Banker’s Trust, and stock value rose by 86% at Chase and 83% at Citicorp.
“Clearly,” she wrote, “austerity is not the term to describe the experiences since 1982 of either the Third World elite or the international banks: the parties that contracted the loans in the first place.”
The “generosity” of the West enabled unaccountable leaders to plunge their nations into debt deeper than ever before. The system was, as Payer writes in “Lent And Lost,” a straightforward Ponzi scheme: the new loans went straight to paying for the old loans. The system needed to grow to avoid collapse.
“By keeping financing going,” an IMF managing director said, according to Payer, structural adjustment loans “permitted trade that might otherwise not have been possible.”
Given that the Bank and Fund will prevent even the most comically corrupt and wasteful governments from going bankrupt, private banks adapted their behavior accordingly. A good example would be Argentina, which has received 22 IMF loans since 1959, even trying to default in 2001. One would think that creditors would stop lending to such a profligate borrower. But in fact, just four years ago, Argentina received the largest IMF loan of all time, a staggering $57.1 billion.
Payer summed up “The Debt Trap” by stating that the moral of her work was “both simple and old-fashioned: that nations, like individuals, cannot spend more than they earn without falling into debt, and a heavy debt burden bars the way to autonomous action.”
But the system makes the deal too sweet for the creditors: profits are monopolized while losses are socialized.
Payer realized this even 50 years ago in 1974, and hence concluded that “in the long run it is more realistic to withdraw from an exploitative system and suffer the dislocation of readjustment than it is to petition the exploiters for a degree of relief.”
In a true global free market, the policies that the Bank and Fund impose on poor countries might make sense. After all, the record of socialism and large-scale nationalization of industry is disastrous. The problem is, the world is not a free market, and double standards are everywhere.
Subsidies — for example, free rice in Sri Lanka or discounted fuel in Nigeria — are ended by the IMF, yet creditor nations like the U.K. and U.S. extend state-funded healthcare and crop subsidies to their own populations.
One can take a Libertarian or Marxist view and arrive at the same conclusion: this is a double standard which enriches some countries at the expense of others, with most citizens of rich countries blissfully unaware.
To help build out from the rubble of World War II, IMF creditors relied heavily on central planning and anti-free market policy for the first few decades after Bretton Woods: for example, import restrictions, capital outflow limits, foreign exchange caps and crop subsidies. These measures protected industrial economies when they were most vulnerable.
In the U.S., for example, the Interest Equalization Act was passed by John F. Kennedy to stop Americans from buying foreign securities and instead focus them on domestic investing. This was one of many measures to tighten capital controls. But the Bank and Fund have historically prevented poor countries from using the same tactics to defend themselves.
As Payer observes, “The IMF has never played a deciding role in the adjustment of exchange rates and trade practices among the wealthy developed nations… It is the weaker nations which are subjected to the full force of the IMF principles… the inequality of power relationships meant that the Fund could do nothing about market ‘distortions’ (such as trade protection) which were practiced by the rich countries.”
Cato’s Vásquez and Bandow came to a similar conclusion, noting that “most industrialized nations have maintained a patronizing attitude towards underdeveloped nations, hypocritically shutting out their exports.”
In the early 1990s, while the U.S. stressed the importance of free trade, it “erected a virtual iron curtain against [Eastern Europe’s] exports, including textiles, steel, and agricultural products.” Poland, Czechoslovakia, Hungary, Romania, Bosnia, Croatia, Slovenia, Azerbaijan, Belarus, Georgia, Kazakhstan, Kyrgyzstan, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan were all targeted. The U.S. prevented Eastern European nations from selling “a single pound of butter, dry milk, or ice cream in America” and both the Bush and Clinton administrations imposed stiff chemical and pharmaceutical import restrictions on the region.
It is estimated that protectionism by industrial countries “reduces developing countries’ national income by roughly twice as much as provided by development assistance.” In other words, if Western nations simply opened their economies, they wouldn’t have to provide any development assistance at all.
There is a sinister twist to the arrangement: when a Western country (i.e., the U.S.) runs into an inflationary crisis — like today’s — and is forced to tighten its monetary policy, it actually gains more control over developing countries and their resources, whose dollar debt becomes much more difficult to pay back, and who fall deeper into the debt trap, and deeper into Bank and Fund conditionality.
In 2008, during the Great Financial Crisis, American and European authorities lowered interest rates and juiced up banks with extra cash. During the Third World Debt Crisis and the Asian Financial Crisis, the Bank and Fund refused to permit this kind of behavior. Instead, the recommendation to afflicted economies was to tighten at home and borrow more from abroad.
In September 2022, newspaper headlines stated that the IMF was “worried” about inflation in the United Kingdom, as its bond market teetered on the brink of collapse. This is of course another hypocrisy, given that the IMF did not seem worried about inflation when it imposed currency devaluation on billions of people for decades. Creditor nations play by different rules.
In a final case of “do as I say, not as I do,” the IMF still holds a whopping 90.5 million ounces — or 2,814 metric tons — of gold. Most of this was accumulated in the 1940s, when members were forced to pay 25% of their original quotas in gold. In fact, until the 1970s, members “normally paid all interest owed on IMF credit in gold.”
When Richard Nixon formally ended the gold standard in 1971, the IMF did not sell its gold reserves. And yet, attempts by any member countries to fix their currency to gold are forbidden.
XIV. Green Colonialism
“If you turned the electricity off for a few months in any developed Western society, 500 years of supposed philosophical progress about human rights and individualism would quickly evaporate like they never happened.”
In the past few decades, a new double standard has emerged: green colonialism. This, at least, is what the Senegalese entrepreneur Magatte Wade calls the West’s hypocrisy over energy use in an interview for this article.
Wade reminds us that industrial countries developed their civilizations by utilizing hydrocarbons (in large part stolen or bought on the cheap from poor countries or colonies), but today the Bank and Fund try to push policies which prohibit the developing world from doing the same.
Where the U.S. and U.K. were able to use coal and the Third World’s oil, the Bank and Fund want African countries to use solar and wind manufactured and financed by the West.
This hypocrisy was on display a few weeks ago in Egypt, where world leaders gathered at COP 27 (the Sharm el-Sheikh Climate Change Conference) to discuss how to reduce energy use. The location on the African continent was intentional. Western leaders — currently scrambling to import more fossil fuels after their access to Russian hydrocarbons was curtailed — flew in on gas-guzzling private jets to plead with poor countries to reduce their carbon footprint. In typical Bank and Fund tradition, the ceremonies were hosted by the resident military dictator. During the festivities, Alaa Abd Al Fattah, a prominent Egyptian human rights activist, languished nearby on hunger strike in prison.
British Prime Minister Rishi Sunak arrives at COP 27 on a private jet
“Just like back in the day when we were colonized and the colonizers set the rules to how our societies would work,” Wade said, “this green agenda is a new form of governing us. This is master now dictating to us what our relationship with energy should be, telling us what kind of energy we should use, and when we can use it. The oil is in our soil, it is part of our sovereignty: but now they are saying we cannot use it? Even after they looted incalculable amounts for themselves?”
Wade points out that as soon as the core countries have an economic crisis (as they now face heading into the winter of 2022), they go right back to using fossil fuels. She observes that poor countries aren’t allowed to develop nuclear energy, and notes that when Third World leaders tried to push in this direction in the past, some of them — notably in Pakistan and Brazil — were assassinated.
Wade says her life’s work is prosperity building in Africa. She was born in Senegal, and moved to Germany at age seven. She still remembers her first day in Europe. She was used to a shower being a 30-minute affair: get the coal stove going, boil the water, put some cold water in it to cool it down, and drag the water to the shower area. But in Germany, all she had to do was turn a handle.
“I was shocked,” she says. “This question defined the rest of my life: How come they have this here but we don’t over there?”
Wade learned over time that reasons for Western success included the rule of law, clear and transferable property rights, and stable currencies. But, also, critically, reliable energy access.
“We can’t have limitations on our energy use imposed on us by others,” Wade said. And yet, the Bank and Fund continue to put pressure on energy policy in poor countries. Last month, Haiti followed pressure from the Bank and Fund to end its fuel subsidies. “The result,” wrote energy reporter Michael Schellenberger, “has been riots, looting, and chaos.”
“In 2018,” Schellenberger says, “the Haitian government agreed to IMF demands that it cut fuel subsidies as a prerequisite for receiving $96 million from the World Bank, European Union, and Inter-American Development bank, triggering protests that resulted in the resignation of the prime minister.”
“In over 40 nations since 2005,” he says, “riots have been triggered after cutting fuel subsidies or otherwise raising energy prices.”
It is the height of hypocrisy for the West to achieve success based on robust energy consumption and on energy subsidies, and then try to limit the type and amount of energy used by poor countries and then raise the price that their citizens pay. This amounts to a Malthusian scheme in line with former Bank chief Robert McNamara’s well-documented belief that population growth was a threat to humanity. The solution, of course, was always to try and reduce the population of poor countries, not rich ones.
“They treat us like little experiments,” Wade says, “where the West says: we might lose some people along the way, but let’s see if poor countries can develop without the energy types we used.”
“Well,” she says,” “we are not an experiment.”
XV. The Human Toll Of Structural Adjustment
“To the World Bank, development means growth… But … unrestrained growth is the ideology of the cancer cell.”
The social impact of structural adjustment is immense, and barely ever gets mentioned in traditional analysis of the Bank and Fund’s policy. There have been plenty of exhaustive studies done on their economic impact, but very little comparatively on their global health impact.
Researchers like Ayittey, Hancock and Payer give a few jarring examples from the 1970s and 1980s:
Between 1977 and 1985, Peru undertook IMF structural adjustment: the average per capita income of Peruvians fell 20%, and inflation soared from 30% to 160%. By 1985, a worker’s pay was only worth 64% of what it had been worth in 1979 and 44% of what it had been in 1973. Child malnutrition rose from 42% to 68% of the population.
In 1984 and 1985 the Philippines under Marcos implemented yet another round of IMF structural reform: after one year, GNP per capita regressed to 1975 levels. Real earnings fell by 46% among urban wage earners.
In Sri Lanka, the poorest 30% suffered an uninterrupted decline in calorie consumption after more than a decade of structural adjustment.
In Brazil, the number of citizens suffering from malnutrition jumped from 27 million (one third of the population) in 1961 to 86 million (two thirds of the population) in 1985 after 10 doses of structural adjustment.
Between 1975 and 1984 in IMF-guided Bolivia, the number of hours the average citizen had to work to purchase 1,000 calories of bread, beans, corn, wheat, sugar, potatoes, milk or quinoa increased on average by five times.
After structural adjustment in Jamaica in 1984, the nutritional purchasing power of one Jamaican dollar plummeted in 14 months from being able to buy 2,232 calories of flour to just 1,443; from 1,649 calories of rice to 905; from 1,037 calories of condensed milk to 508; and from 220 calories of chicken to 174.
As a result of structural adjustment, Mexican real wages declined in the 1980s by more than 75%. In 1986, about 70% of lower-income Mexicans had “virtually stopped eating rice, eggs, fruit, vegetables, and milk (never mind meat or fish)” at a time when their government was paying $27 million per day — $18,750 per minute — in interest to its creditors. By the 1990s, “a family of four on the minimum wage (which made up 60% of the employed labor force) could only buy 25% of its basic needs.
In sub-Saharan Africa, GNP per capita “dropped steadily from $624 in 1980 to $513 in 1998… food production per capita in Africa was 105 in 1980 but 92 for 1997… and food imports rose an astonishing 65% between 1988 and 1997.”
These examples, though tragic, only give a small and patchwork picture of the deleterious impact that Bank and Fund policies have had on the health of the world’s poor.
On average, every year from 1980 to 1985, there were 47 countries in the Third World pursuing IMF-sponsored structural adjustment programs, and 21 developing countries pursuing structural or sector adjustment loans from the World Bank. During this same period, 75% of all countries in Latin America and Africa experienced declines in per capita income and child welfare.
The decline in living standards make sense when one considers that Bank and Fund policies sculpted societies to focus on exports at the expense of consumption while gutting food security and healthcare services.
During IMF structural adjustment, real wages in countries like Kenya declined by more than 40%. After billions in Bank and Fund credit, per capita food production in Africa fell by nearly 20% between 1960 and 1994. Meanwhile, health expenditures in “IMF-World Bank programmed countries” declined by 50% during the 1980s.
When food security and healthcare collapse, people die.
Papers from 2011 and 2013 showed that countries that took a structural adjustment loan had higher levels of child mortality than those that did not. A 2017 analysis was “virtually unanimous in finding a detrimental association between structural adjustment and child and maternal health outcomes.” A 2020 study reviewed data from 137 developing countries between 1980 and 2014 and found that “structural adjustment reforms lower health system access and increase neonatal mortality.” A paper from 2021 concluded that structural adjustment plays “a significant role in perpetuating preventable disability and death.”
It is impossible to do a full accounting of just how many women, men and children were killed as a result of Bank and Fund austerity policies.
Food security advocate Davidson Budhoo claimed that six million children died each year in Africa, Asia and Latin America between 1982 and 1994 as a result of structural adjustment. This would put the Bank and Fund’s death toll in the same ballpark as the deaths caused by Stalin and Mao.
Is this remotely possible? No one will ever know. But by looking at the data, we can begin to get a sense.
Research from Mexico — a typical country in terms of consistent involvement historically from the Bank and Fund — shows that for every 2% decrease in GDP, the mortality rate increased by 1%.
Now consider that as a result of structural adjustment, the GDP of dozens of countries in the Third World between the 1960s and 1990s suffered double-digit contractions. Despite massive population growth, many of these economies stagnated or shrank over 15-25 year periods. Meaning: the Bank and the Fund’s policies likely killed tens of millions of people.
Whatever the final death toll, there are two certainties: one, these are crimes against humanity, and two, no Bank or Fund officials will ever go to prison. There will never be any accountability or justice.
The inescapable reality is that millions died too young in order to extend and improve the lives of millions elsewhere. It is of course true that much of the success of the West is because of enlightenment values like rule of law, free speech, liberal democracy and domestic respect for human rights. But the unspoken truth is that much of the West’s success is also the result of resource and time theft from poor countries.
The stolen wealth and labor of the Third World will go unpunished but remains visible today, forever encrusted in the developed world’s architecture, culture, science, technology and quality of life. The next time one visits London, New York, Tokyo, Paris, Amsterdam or Berlin, this author suggests going for a walk and pausing at a particularly impressive or scenic view of the city to reflect on this. As the old saying goes, “We must pass through the darkness to reach the light.”
XVI. A Trillion Dollars: The Bank And Fund In The Post-COVID World
Bank and Fund policy towards developing countries has not changed much over the past few decades. Sure, there have been a few superficial tweaks, like the “Highly-Indebted Poor Countries” (HIPC) initiative, where some governments can qualify for debt relief. But underneath the new language, even these poorest of the poor countries still need to do structural adjustment. It’s just been rebranded to “Poverty Reduction Strategy.”
The same rules still apply: in Guyana, for example, “the government decided in early 2000 to increase the salaries of civil servants by 3.5%, after a fall in purchasing power of 30% over the previous five years.” The IMF immediately threatened to remove Guyana from the new list of HIPCs. “After a few months, the government had to backpedal.”
The same large-scale devastation still occurs. In a 2015 International Consortium Of Investigative Journalists (ICIJ) report, for instance, it was estimated that 3.4 million people were displaced in the previous decade by Bank-funded projects. The old accounting games, meant to exaggerate the good done by assistance, are joined by new ones.
The U.S. government applies a 92% discount to the debt of Highly-Indebted Poor Countries, and yet U.S. authorities include the nominal value of the debt relief in their “ODA” (official development assistance) numbers. Meaning: they significantly exaggerate the volume of their aid. The Financial Times has argued that it is “the aid that isn’t” and has argued that “writing off official commercial debt should not count as aid.”
While it’s true that there have actually been large transformations at the Bank and Fund in recent years, those changes have not been in the way that the institutions try to shape the economies of borrowing countries, but rather in that they have focused their efforts on nations closer to the world’s economic core.
“By practically any metric,” a NBER study observes, “the post-2008 IMF programs to several European economies are the largest in the IMF’s 70-year history.”
The largest IMF bailouts in history
“IMF commitments as a share of world GDP,” the study explains, “hit an all-time high as the European Debt Crisis began to unravel.” Iceland began an IMF program in 2008, followed by Greece, Ireland and Portugal.
The IMF-led bailout of Greece was a staggering $375 billion. In July 2015, “popular discontent led to a ‘no’ vote in a referendum on whether to accept the IMF’s loan conditions, which included raising taxes, lowering pensions and other spending, and privatizing industries.”
In the end, however, the Greek people’s voice wasn’t heard since “the government subsequently ignored the results and accepted the loans.”
The Fund used the same playbook in Greece and other lower-income European countries as it has used all over the developing world for decades: breaking democratic norms to provide billions to the elites, with austerity for the masses.
In the past two years, the Bank and Fund have pumped hundreds of billions of dollars into countries following government lockdowns and COVID-19 pandemic restrictions. More loans were given out in a shorter time than ever before.
Even in late 2022 as interest rates continue to rise, the debt of poor countries keeps rising, and the amount they owe to rich countries keeps growing. History rhymes, and IMF visits to dozens of countries remind us of the early 1980s, when a massive debt bubble was popped by Federal Reserve policies. What followed was the worst depression in the Third World since the 1930s.
We can hope that this does not happen again, but given the Bank and the Fund’s efforts to load up poor countries with more debt than ever before, and given that the cost of borrowing is going up in a historic way, we can predict that it will happen again.
And even where the Bank and Fund’s influence shrinks, the Chinese Communist Party (CCP) is beginning to step in. In the past decade, China has tried to emulate the dynamics of the IMF and World Bank through its own development institutions and through its “Belt and Road” initiative.
As the Indian geostrategist Brahma Chellaney writes, “Through its $1 trillion ‘one belt, one road’ initiative, China is supporting infrastructure projects in strategically located developing countries, often by extending huge loans to their governments. As a result, countries are becoming ensnared in a debt trap that leaves them vulnerable to China’s influence… the projects that China is supporting are often intended not to support the local economy, but to facilitate Chinese access to natural resources, or to open the market for its low-cost and shoddy export goods. In many cases, China even sends its own construction workers, minimizing the number of local jobs that are created.”
The last thing the world needs is another Bank and Fund drain dynamic, only pulling resources from poor countries to go to the genocidal dictatorship in Beijing. So it is good to see the CCP having trouble in this area. It is trying to grow its Asian Infrastructure Investment Bank by more than $10 billion per year, but it is encountering a variety of issues with projects that it financed across the developing world. Some governments, like in Sri Lanka, simply cannot pay back. Since the CCP cannot mint the world reserve currency, it actually has to eat the loss. Because of this, it won’t likely be able to come anywhere close to approximating the lending volume of the U.S.-Europe-Japan-led system.
Which is certainly a good thing: CCP loans may not come with onerous structural adjustment conditions, but they certainly don’t have any considerations for human rights. In fact, the CCP helped shield one belt and road client — Sri Lankan president Mahinda Rajapaksa — from war crimes allegations at the UN. Looking at its projects in Southeast Asia (where it is depleting Burmese minerals and timber and eroding Pakistani sovereignty) and sub-Saharan Africa (where it is extracting an enormous amount of rare earths), it largely amounts to the same kind of resource theft and geopolitical control tactics practiced by colonial powers for centuries, just dressed up in a new kind of clothing.
It’s not clear that the Bank and Fund even view the CCP as a bad actor. After all, Wall Street and Silicon Valley tend to be quite friendly with the world’s worst dictators. China remains a creditor at the Bank and Fund: its membership has never been in question, despite the genocide of the Uyghur people. As long as the CCP does not get in the way of the big picture goals, the Bank and Fund probably don’t mind. There’s enough loot to go around.
In 1979, developing nations gathered in the Tanzanian city of Arusha to devise an alternative plan to the IMF- and World Bank-led structural adjustment that had left them with mountains of debt and very little say as to the future of the world economy.
“Those who wield power control money,” the delegates wrote: “Those who manage and control money wield power. An international monetary system is both a function and an instrument of prevailing power structures.”
As Stefan Eich writes in “The Currency Of Politics,” “the Arusha Initiative’s emphasis on the international monetary system’s burden of hierarchical imbalances was a powerful attempt to insist on money’s political nature by countering claims to neutral technical expertise asserted by the Fund’s money doctors.”
“The IMF may have claimed a neutral, objective, scientific stance,” Eich writes, “but all scholarly evidence, including the Fund’s internal documentation, pointed the other way. The Fund was, in fact, deeply ideological in the way it framed underdevelopment as a lack of private markets but systematically applied double standards in ignoring similar market controls in ‘developed’ countries.”
This resonates with what Cheryl Payer observed, that Bank and Fund economists “erected a mystique around their subject which intimidated even other economists.”
“They represent themselves,” she said, “as highly trained technicians who determine the ‘correct’ exchange rate and ‘proper’ amount of money creation on the basis of complex formulas. They deny the political significance of their work.”
Like most of the leftist discourse on the Bank and Fund, the criticisms made at Arusha were mostly on target: the institutions were exploitative, and enriched their creditors at the expense of poor countries. But Arusha’s solutions missed the mark: central planning, social engineering and nationalization.
The Arusha delegates advocated for the Bank and Fund to be abolished, and for odious debts to be canceled: perhaps noble but entirely unrealistic goals. Beyond that, their best plan of action was “shift power into the hands of local governments” — a poor solution given that the vast majority of Third World countries were dictatorships.
For decades, the public in developing countries suffered as their leaders wavered between selling out their country to multinational corporations and socialist authoritarianism. Both options were destructive.
This is the trap that Ghana has found itself in since independence from the British Empire. More often than not, the Ghanaian authorities, regardless of ideology, chose the option of borrowing from abroad.
Ghana has a stereotypical history with the Bank and Fund: military leaders seizing power by coup only to impose IMF structural adjustment; real wages dropping between 1971 and 1982 by 82%, with public health spending shrinking 90% and meat prices up 400% during the same time; borrowing to build enormous white elephant projects like the Akosombo Dam, which powered a U.S.-owned aluminum plant at the expense of more than 150,000 people who contracted river blindness and paralysis from the creation of the world’s largest manmade lake; and a depletion of 75% of the country’s rainforests as timber, cocoa and minerals industries boomed while domestic food production cratered. $2.2 billion of assistance flowed into Ghana in 2022, but the debt stands at an all-time high of $31 billion, up from $750 million 50 years ago.
Since 1982, under IMF “guidance,” the Ghanaian cedi was devalued by 38,000%. One of the biggest outcomes of structural adjustment has been, like elsewhere around the world, expedition of the extraction of Ghana’s natural resources. Between 1990 and 2002, for example, the government only received $87.3 million from the $5.2 billion worth of gold mined out of Ghanaian soil: in other words, 98.4% of the profits from gold mining in Ghana went to foreigners.
As Ghanaian protestor Lyle Pratt says, “The IMF is not here to bring down prices, they are not here to ensure that we construct roads — it is not their business and they simply don’t care… The IMF’s primary concern is to make sure that we build the capacity to pay our loans, not to develop.”
2022 feels like a rerun. The Ghanaian cedi has been one of the world’s worst-performing currencies this year, losing 48.5% of its value since January. The country is facing a debt crisis, and, like in decades past, is forced to prioritize paying back its creditors over investing in its own people.
In October, just a few weeks ago, the country received its latest IMF visit. If a loan is finalized, it would be the 17th IMF loan for Ghana since the CIA-backed military coup of 1966. That is 17 layers of structural adjustment.
A visit from the IMF is a bit like a visit from the Grim Reaper — it can only mean one thing: more austerity, pain, and — without exaggeration — death. Perhaps the wealthy and well-connected can escape unscathed or even enriched, but for the poor and working classes, the currency devaluation, rising interest rates and disappearance of bank credit is devastating. This is not the Ghana of 1973 that Cheryl Payer first wrote about in “The Debt Trap”: it is 50 years later, and the trap is 40 times deeper.
But perhaps there is a glimmer of hope.
On December 5 to 7, 2022 in the Ghanaian capital of Accra, there will be a different kind of visit. Instead of creditors looking to charge interest on the people of Ghana and dictate their industries, the speakers and organizers of the Africa Bitcoin Conference are gathering to share information, open-source tools and decentralizing tactics on how to build economic activity beyond the control of corrupt governments and foreign multinational corporations.
Farida Nabourema is the lead organizer. She is pro-democracy; pro-poor; anti-Bank and Fund; anti-authoritarian; and pro-Bitcoin.
“The real issue,” Cheryl Payer once wrote, “is who controls the capital and technology that is exported to the poorer countries.”
One can argue that Bitcoin as capital and as technology is being exported to Ghana and Togo: it certainly didn’t arise there. But it’s not clear where it arose. No one knows who created it. And no government or corporation can control it.
Bitcoin and cryptocurrency ownership per capita: countries with a history of IMF structural adjustments tend to rank very high
During the gold standard, the violence of colonialism corrupted a neutral monetary standard. In the post-colonial world, a fiat monetary standard — upheld by the Bank and Fund — corrupted a post-colonial power structure. For the Third World, perhaps a post-colonial, post-fiat world will be the right mix.
Proponents of dependency theory like Samir Amin gathered at conferences like Arusha and called for a “delinking” of poor countries from rich ones. The idea was: the wealth of rich countries was not just attributable to their liberal democracies, property rights and entrepreneurial environments, but also to their resource and labor theft from poor countries. Sever that drain, and poor countries could get a leg up. Amin predicted that “the construction of a system beyond capitalism will have to begin in the peripheral areas.” If we agree with Allen Farrington that today’s fiat system is not capitalism, and that the current dollar system is deeply flawed, then perhaps Amin was right. A new system is more likely to emerge in Accra, not Washington or London.
As Saifedean Ammous writes, “The developing world consists of countries that had not yet adopted modern industrial technologies by the time an inflationary global monetary system began replacing a relatively sound one in 1914. This dysfunctional global monetary system continuously compromised these countries’ development by enabling local and foreign governments to expropriate the wealth produced by their people.”
In other words: rich countries got industrialized before they got fiat: poor countries got fiat before they got industrialized. The only way to break the cycle of dependency, according to Nabourema and other organizers of the Africa Bitcoin Conference, might be to transcend fiat.
XVIII. A Glimmer of Hope
“The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust.”
Whatever the answer is to poverty in the Third World, we know it is not more debt. “The poor of the world,” Cheryl Payer concludes, “don’t need another ‘bank,’ however benign. They need decently paid work, responsive government, civil rights, and national autonomy.”
For seven decades, the World Bank and IMF have been enemies of all four.
Looking forward, says Payer, “the most important task for those in the wealthy countries who are concerned with international solidarity is to actively fight to end the flow of foreign aid.” The problem is that the current system is designed and incentivized to keep this flow going. The only way to make a change is through a total paradigm shift.
We already know that Bitcoin can help individuals inside developing countries gain personal financial freedom and escape the broken systems imposed on them by their corrupt rulers and international financial institutions. This is what will be accelerated in Accra next month, contra the designs of the Bank and Fund. But can Bitcoin actually change the core-periphery dynamics of the world’s power and resource structure?
Nabourema is hopeful, and doesn’t understand why leftists in general condemn or ignore Bitcoin.
“A tool that is capable of allowing people to build and access wealth independent from institutions of control can be seen as a leftist project,” she says. “As an activist that believes that citizens should be paid in currencies that actually value their life and sacrifices, Bitcoin is a people’s revolution.”
“I find it painful,” she says, “that a farmer in sub-Saharan Africa only earns 1% of the price of coffee on the global market. If we can get to a stage where farmers can sell their coffee without so many middle institutions more directly to the buyers, and get paid in bitcoin, you could imagine how much of a difference that would make in their lives.”
“Today,” she says, “our countries in the Global South still borrow money in U.S. dollars, but over time our currencies depreciate and lose value and we end up having to make twice or three times the payment we initially promised in order to reimburse our creditors.”
“Now imagine,” she says, “if we get to a stage in 10 or 20 years where bitcoin is the global money that is accepted for business worldwide, where every nation has to borrow in bitcoin and spend bitcoin and every nation has to pay their debts in bitcoin. In that world, then foreign governments cannot demand that we repay them in currencies that we need to earn but they can simply print; and just because they decide to increase their interest rates, it won’t automatically jeopardize the lives of millions or billions of people in our countries.”
“Of course,” Nabourema says, “Bitcoin is going to come with issues like any innovation. But the beauty is that those issues can be improved with peaceful, global collaboration. No one knew 20 years ago what amazing things the internet allows us to do today. No one can tell what amazing things Bitcoin will allow us to do in 20 years.”
“The way forward,” she says, “is an awakening of the masses: for them to understand the ins and outs of how the system works and to understand that there are alternatives. We have to be in a position where people can reclaim their liberty, where their lives aren’t controlled by authorities that can confiscate their freedom at any time without consequences. Gradually we are getting closer to this goal with Bitcoin.”
“Since money is the center of everything in our world,” Nabourema says, “the fact that we are now able to obtain financial independence is so important for people in our countries, as we seek to reclaim our rights in every field and sector.”
In an interview for this article, deflation advocate Jeff Booth explains that as the world approaches a bitcoin standard, the Bank and the Fund will be less likely to be creditors, and more likely to be co-investors, partners, or simply grantors. As prices fall over time, this means debt gets more expensive and more difficult to repay. And with the U.S. money printer turned off, there would be no more bailouts. At first, he suggests, the Bank and Fund will try to continue to lend, but for the first time they’ll actually lose big chunks of money as countries freely default as they move onto a bitcoin standard. So they may consider co-investing instead, where they might become more interested in the real success and sustainability of the projects they support as the risk is more equally shared.
Bitcoin mining is an additional area of potential change. If poor countries can exchange their natural resources for money without dealing with foreign powers, then maybe their sovereignty can strengthen, instead of erode. Through mining, the vast amounts of river power, hydrocarbons, sun, wind, ground warmth, and offshore OTEC in emerging markets could be converted directly to the world reserve currency without permission. This has never before been possible. The debt trap seems truly inescapable for most poor countries, continuing to grow every year. Maybe investing in anti-fiat Bitcoin reserves, services and infrastructure is a way out and a path to striking back.
Bitcoin, Booth says, can short-circuit the old system that has subsidized wealthy countries at the expense of wages in poor countries. In that old system, the periphery had to be sacrificed to protect the core. In the new system, the periphery and core can work together. Right now, he says, the U.S. dollar system keeps people poor through wage deflation in the periphery. But by equalizing the money and creating a neutral standard for everyone, a different dynamic is created. With one monetary standard, labor rates would be necessarily pulled closer together, instead of kept apart. We don’t have words for such a dynamic, Booth says, because it has never existed: he suggests “forced cooperation.”
Booth describes the U.S. ability to instantly issue any amount of more debt as “theft in base money.” Readers may be familiar with the Cantillon effect, where those who are closest to the money printer benefit from fresh cash while those farthest away suffer. Well, it turns out there is a global Cantillon effect, too, where the U.S. benefits from issuing the global reserve currency, and poor countries suffer.
“A bitcoin standard,” Booth says, “ends this.”
How much of the world’s debt is odious? There are trillions of dollars of loans created at the whim of dictators and unelected supranational financial institutions, with zero consent from the people on the borrowing side of the deal. The moral thing to do would be to cancel this debt, but of course, that will never happen because the loans exist ultimately as assets on the balance sheets of the creditors of the Bank and Fund. They will always prefer to keep the assets and simply create new debt to pay the old.
The IMF “put” on sovereign debt creates the biggest bubble of all: bigger than the dot-com bubble, bigger than the subprime mortgage bubble, and bigger even than the stimulus-powered COVID bubble. Unwinding this system will be extremely painful, but it’s the right thing to do. If debt is the drug, and the Bank and Fund are the dealers, and the developing country governments are the addicts, then it’s unlikely either party will want to stop. But to heal, the addicts need to go to rehab. The fiat system makes this basically impossible. In the Bitcoin system, it may get to the point where the patient has no other choice.
As Saifedean Ammous says in an interview for this article, today, if Brazil’s rulers want to borrow $30 billion and the U.S. Congress agrees, America can snap its fingers and allocate the funds through the IMF. It’s a political decision. But, he says, if we get rid of the money printer, then these decisions become less political and start to resemble the more prudent decision-making of a bank that knows no bailout will come.
In the last 60 years of Bank and Fund dominance, countless tyrants and kleptocrats were bailed out — against any financial common sense — so that their nations’ natural resources and labor could continue to be exploited by core countries. This was possible because the government at the very heart of the system could print the reserve currency.
But in a bitcoin standard, Ammous wonders, who is going to make these high risk, billion-dollar loans in exchange for structural adjustment?
“You,” he asks, “and whose bitcoins?”
This is a guest post by Alex Gladstein. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
The idea of charity is a deeply Christian notion. Charity is love for your neighbor, the idea that you provide for them when they are in need. Some of the first hospitals, for example, were Christian charity institutions. The principle that the poor and needy should be treated with love and dignity was an alien notion to most philosophies, from those developed by the Romans to those of Nietzsche. Charity is one of the markers of Western civilization.
Unfortunately, charity has been debased. As a Christian virtue, charity is a much greater notion of love than just almsgiving. Sadly, the word “charity” has changed to mean pretty much only almsgiving as a result of fiat money. Instead of meaning helping the poor and vulnerable neighbor when they are in need, it now means giving money to some central organization to help people on your behalf. Charity has transitioned from a concrete action helping someone to a monetary gift to a central party. Charity has devolved like an absentee dad making up for a lack of relationship by buying his kids toys.
Unsurprisingly, fiat money has contributed greatly to this debasement.
Charity In The Past
Charity used to be very local. You had a relationship with your neighbor and helping them out was a part of the communal experience. There was already a web of relationships that connected you and charity was received with gratitude. The giver and the recipient both knew that the help wasn’t something you could take for granted. Abusing charity had harsh consequences. Taking advantage of charity would be breaking the very relationships that provided that charity and would damage more relationships besides. Abusing charity would be like sawing off the branch you’re standing on and few people would be foolish enough to do so.
Nowadays, relationships are treated as disposable. People don’t have an incentive to act well because ultimately, the bad reputation that it should engender doesn’t really come back to bite them. Most people are dependent on their employers or governments, so as long as those relationships are good, they’re fine letting other relationships go.
Thus, relationship dynamics are much more high time preference. A relationship with a person is very different than a relationship with an organization. Organizations, quite frankly, are much easier to fool and they rely on bureaucratic procedures to determine your neediness. The centralization of our relationships around large organizations has made abuse of charity much easier.
As a result, charity has become less effective and mostly economic. What used to be fulfillment of all sorts of human needs has been reduced to monetary help. Fiat mentality is thinking that money can solve any and all problems, and charities are infected.
As with all virtues, practicing real charity is hard. It not only requires sacrifice on the part of the giver, but also their effort, whether it’s time or relationship capital that’s spent, or your personal skills that are used to help. What charitable organizations have done is to outsource all of that in an economic transaction with themselves in the middle.
The fiat mentality that money can solve everything has placed these large organizations in the middle and unsurprisingly, the money often isn’t used very effectively, nor in a way that actually helps.
Cantillonaire Almsgiving
Fiat money has made charity pretty impersonal. Giant organizations sit in the middle of the almsgiving. These organizations are very convenient for the would-be altruist. The hard work of virtue is outsourced to someone else. Love for a neighbor can be bought for some money.
The money, if earned under a sound money economy, likely produced a lot of goods and services. In a fiat money economy, however, that money may have been earned through Cantillon effects, that is, through theft. The reputations of Cantillon winners are generally pretty bad. Think about the typical investment banker and what sort of reputation they have. Many people want to be investment bankers, it’s true, but they’re not exactly beloved.
Rent seekers don’t really add anything to society and that’s why their reputations are terrible. They need some level of reputation repair and charity gives them a convenient way to do that. They can buy a good reputation through charity.
This is a tried and true strategy for many billionaires. By focusing on “charity,” they get a tremendous reputational boost and many of their fiat abuses are put on the back burner. The incentives of fiat money are such that it encourages almsgiving, especially as a way to whitewash your fiat abuses.
At this point, you might be thinking, isn’t that good? Don’t we want charities to be funded well? Don’t we want good things that a charity provides? Allow me to disabuse you of that notion.
Charities Have Terrible Incentives
Certainly, the goals of most charities are noble. They want to end world hunger and reduce pollution and cure diseases and promote the arts. Their goals are noble, but do they actually achieve them?
The charities would have you believe that they do. Unfortunately, the incentives are such that they only tell you about their successes. After all, if they told you that they wasted millions of dollars on a scheme that didn’t work, would you donate to them? Yet there must be lots of failures. If charities were all successes, wouldn’t all of their noble goals be achieved already given the enormous amounts of funding? Wouldn’t we have world peace, lifted billions out of poverty and have cured all kinds of diseases?
This should sound familiar. These same incentives exist in a decidedly different area: government. It’s in their interest to tout only their successes. It’s in their interest to make it seem like they’re not wasting money, even if they are. We know that government wastes a tremendous amount of money. The market incentives aren’t there and funding comes through political means. As a result, we get a lot of rent seeking.
Similarly, charities tend to also have a lot of rent seeking. In Barack Obama’s autobiography, “Dreams From My Father,” he talks about his experience as a community organizer. He was frustrated at how many of the charities that were supposed to help these communities were staffed by people who didn’t do anything. This behavior was so common that whenever he was associated with a charity, people in these neighborhoods would hit him up for jobs at that charity. In other words, charities are known to be a haven for rent seeking.
Charities have a structural problem and unfortunately good intentions, or noble goals, are not enough. Too many people trust charities to do the right thing and that trust unfortunately gets abused.
Very Little Verification
People like charity. It’s the original virtue signaling. Donate some money to some cause and it makes you look altruistic. I say this somewhat cynically, because so many of the people who donate to charity don’t actually follow up and verify whether the money is being spent well. If people really cared about the results, most of their effort would be on the verification aspect of these charitable endeavors.
Sadly, the only verification you receive are from the charities themselves and of course they have a huge incentive to make it seem as though they’re doing massive good. Sadly, the accountability is lacking in most charities. If we really cared about the good they were doing, then each charity would be much more scrutinized.
But, as we saw with fiat monetary systems, there’s much less scrutiny in general. VC due diligence is a complete joke. We’ve seen this over and over again, whether it be WeWork, Theranos or FTX. The money isn’t real anyway, so the more important job for a VC is to get in on investments that everyone else is getting into and dump. They give lip service, but don’t really care all that much about dull things like profit and loss. Sound money systems have much more scrutiny because there’s no endless spigot of money coming in.
And indeed, this pattern of much less scrutiny extends to charities. In a sound-money economy, charities are deeply scrutinized for actual good that’s done because the money is scarce. There’s more verification and less trust. In a fiat money economy, there’s way more money, so there’s more dependence on trust.
A charity is, in some sense, an investment. The investment is not for your own profit, obviously, but for the good of civilization. And those need to have at least as much accountability as normal investments. Instead, most people outsource that verification to others, often the charity itself. Do you honestly expect someone taking your money to tell you about how they spent it badly?
The Politicization Of Charity
One of the reasons why charity has become so political and rent seeking is because of the special player in the fiat money economy: the money printer. Charities don’t just get money from rich people, they often get money from government coffers.
Since 2018, San Francisco has given over $1 billion in grants to nonprofits to fight homelessness. That’s a single issue in a single city. I will note with prejudice that the homelessness problem in San Francisco since 2018 has gotten much worse, not better. Would you stick with a workout regimen if it made you weaker? What are all these nonprofits doing, anyway?
As you might expect with fiat money, the charities that survive are the ones that are connected politically. Outcomes are secondary to getting access to government coffers. Further, government funding of these charities serves as an informal verification system to donors that can’t be bothered.
Charities are perceived to be not driven by money. Yet if you look at their organizational structure, what becomes very clear is that money is at the center of everything they do. Instead of earning money through useful goods and services provided to the market, they go straight to donors like city governments to provide them with money. They sound noble, forsaking the dirty game of capitalism, but in its place is a dirtier game of playing politics to get the money they need to operate.
Further, because these charities aren’t dependent on outcomes or markets, the people that are in these organizations generally aren’t very good with money. Which is to say, that they’re not good at achieving the goals of the charity or making things more efficient. Their specialization is politics, marketing and publicity. Many are very good at throwing $20,000-per-person parties to raise money, but not so good at actually building wells. A lot of money going into charities gets wasted.
Because of fiat money, charities tend to leverage political skills rather than economic ones. They’re good at getting the high esteem of others and being viewed a certain way. They are in a sense a market good. The donors get a status boost for their donation. Charities survive despite their ineffectiveness, because of their political positioning.
So, What Now?
My view of charities is a bit depressing. I’ve just told you that many charities run on trading money for virtue signaling. How can we turn this around? Should charities even exist? Can we prevent bad organizations from taking advantage of our desire to virtue signal?
There is hope. There is a good way to do charity and, given that I expect many of you reading this to be in positions to give a lot of money away in the future, I have some thoughts.
First, verify. The sad reality of today’s charitable giving is that there’s too little verification and way too much trust. Giving away money for the greater good is not easy. I daresay that it’s often harder than earning it. Fiat money created this culture of trusting the slick salesman instead of verifying things for yourself. Much like with our money, we need to verify the charities we give to. Your money isn’t enough, your effort is required to give effectively.
The easiest way to verify is to have a close relationship with the person you’re giving your money to. This doesn’t mean that you’re in the same country club as the president of the non-profit, but doing some due diligence on the actual people that the charity is helping. Humans are built for relationships and that should be at the center of charity, not the money. The money is supposed to be secondary to the real virtue of charity, which is loving others.
Another possibility is to cut out the middleman and reduce the politicization of charitable giving. The giant charitable organization makes the monetary giving very easy, but in many other ways adds a lot of cost. By cutting out the middleman, we reduce the possibility of rent-seeking.
Middlemen are less necessary than ever. Giving direct contributions to the people that need it is much easier with Bitcoin. Verification, again, is difficult without some real relationship. Thus, if you really care about charity, go and make some relationships with the people that you want to help. Instead of waxing poetically about some oppressed group somewhere, go become friends with members of that group. I’m not saying this will be easy, but actually having a relationship with the people you’re helping will go a long way toward verification. Incidentally, this is one of the many reasons I really like going to the Oslo Freedom Forum. You can meet and interact with the people that need the help.
Second, look at the incentives. Charities like to think that they’re above economic incentives, but that’s not the case. Who’s in charge and how can you be sure that the money is going to the right place and done so in a way that’s efficient? If the charity pays more than the market rate for some good, that’s going to have second- and third-order effects. For example, many local clothing makers in developing countries go out of business when a charity gives clothes away for free. Yes, it feels good to help people get clothed, but you’re also stifling entrepreneurship in the region. You may be causing more harm than good. Make the calculation yourself instead of outsourcing it to the charity.
Third, beware of your own motivations. There are numerous altcoins which use charities as a way to whitewash the fraud they’re engaged in. They virtue signal because what they’re doing is so clearly scammy. This is so prevalent, in fact, that I see it as a horrible signal. If you feel the need to whitewash your gains through charity, those gains are likely ill gotten.
In the same way, we often give to charity as a way to boost our social standing, ease our conscience or to feel good about ourselves. Our motivation matters because it’s going to affect how much we verify. Give without telling other people that you’re giving. And give to people who you already know. If you don’t know anyone in need, go and make more friends outside of your bubble. Having the right motivation isn’t a cure-all, but it certainly helps you to put your money in the right place.
Bitcoin Fixes This
Thankfully, charity is strengthened by Bitcoin. Fiat money makes trusting other people to do the right thing the norm and of course, that trust gets abused. With Bitcoin, we can cut out the middleman and have direct relationships with the people we want to help.
Fiat money has made charity much shallower. Charity shouldn’t end with a donation, it should continue until the actual people that it’s supposed to help are actually helped. As such, we need a much deeper understanding of what helping the poor and vulnerable is. In that sense, charity demands not just money but also our time, effort and energy.
Fiat charity has been debased through fiat money. Exercising real charity is much harder than the current fiat version, which is outsourcing virtue to some monolithic organization.
Giving money away in an effective way is very hard. It’s as hard or more difficult than earning money from the marketplace. The same level of rigor needs to be applied to giving as earning, otherwise, you’re just going to enable a bunch of rent seekers.
Verify, don’t trust. Verify the organization, yourself and the people that you’re helping. Charity requires more from you and anything less may very well be paving a road to hell.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Jimmy Song, a Bitcoin developer, educator and entrepreneur and programmer with over 20 years of experience.
We want nice things. We want to live in a nice house, eat good food and have fulfilling relationships. We want to travel to exotic places, listen to great music and experience fun. We want to build something that lasts, achieve something great and leave a better world for tomorrow.
These are all part of being human, of participating in society and of progressing humanity. Unfortunately, all these things and more get ruined by fiat money. We want nice things, but we can’t have them, and the reason is because of fiat money.
Governments want the power to decree prosperity, fulfillment and progress into existence. They’re like the alchemists of yesteryear, who wanted to turn lead into gold through some formula. Actually — they’re worse. They’re like a five-year-old that thinks by wishing hard enough, that she can fly.
Being the delusional power-drunk politicians that they are, the elites think that by decreeing something to be so, it magically happens. That’s indeed where the word “fiat” comes from. The word literally means “Let there be,” — in Latin and in English, it’s become an adjective to describe creation by decree. This can be most easily seen in Genesis 1:3 in Latin. The phrase there is “fiat lux” which means “let there be light.”
Of course, creation by decree doesn’t quite work like it does in Genesis. If you want a building, you can’t just say, “Let there be a building.” Someone has to dig, pour a foundation, add framing, etc. Decrees don’t really do anything without capital and labor. In the absence of the market forces of supply and demand, decrees require people and resources to be enlisted. In other words, as much as governments would love for reality to be different, a decree by itself doesn’t really do anything. By itself, a decree is about as useless as an old man yelling at the sun. There has to be some coercion involved to fulfill the decree. Fiat decrees are a euphemism for using force and violence.
For buildings, it’s obvious that creation by decree doesn’t do anything. Yet for money, decreeing it into existence seems legit, maybe even compassionate. Keynesian economists see fiat money as something that by itself does something. Of course, they’re wrong and no amount of calling it “debt we owe to ourselves,” changes the fact that it’s theft. That’s about as honest as Enron’s accounting.
The deviousness of fiat money is that it makes government violence look like a market process. Fiat money printing steals from the other holders of the currency and pays people to do the government’s bidding. That theft is hidden and combined with a good dose of Keynesian propaganda, which makes fiat money seem innocuous, perhaps even benevolent.
In a sense, fiat money is less violent than other forms of fiat rule. But that’s like saying mobsters that give you a chance to pay them off are less violent than street thugs.
Dictators use obvious violence to compel their citizens to fulfill the desires of the dictator. Forced conscription, war and poverty are common in these societies, and theirs is a miserable existence with little human freedom to speak of. Fiat rule is terrible for humanity as can be clearly seen in how backwards the Soviet Union was or how backwards North Korea is now. Progress is very hard in a society built on slave labor.
Fiat money, by contrast, at least looks voluntary. Yet in many ways, it’s still very harmful to civilization. Fiat money is more like organized crime, which makes everything seem voluntary.
Fiat Money Ruins Incentives
Fiat money ruins many market incentives. The reason is because there’s a special buyer in the market that has much less price sensitivity. That buyer, of course, is the fiat money creator. They can and do print money for all sorts of reasons — some benevolent (welfare for the poor), others not (military buildup). They spend like drunken sailors who just found pirate treasure.
The problem with a buyer like the government is that someone always sits in the middle. It’s not the “government” per se, that actually buys a fighter jet or an office building. There’s always someone that acts as an agent of the government that does this buying. The agent works on behalf of the government to procure various goods and services and the government entrusts the agent with the authority to spend on its behalf.
Unfortunately, this arrangement is ripe for abuse. The agents are essentially spending other peoples’ money for other peoples’ gain, so they aren’t incentivized to trade very efficiently. Their incentives are as skewed as the Leaning Tower of Pisa.
When we are buying and selling in the market with our own money for our own benefit, we do complicated economic analyses to figure out whether we’ll benefit enough from the good or service to be willing to part with our money. Thus, we’ll be price sensitive and attempt to get the most value for the money we pay.
For a government bureaucrat that’s in charge of procurement, however, getting value for the money is not their priority. They are incentivized to spend in a way that’s for their own benefit and not the governments’. This doesn’t have to be in obvious ways as with bribes. They can spend much less time examining the goods and services, or buy from people that they like. The result is generally a bad trade where the agent gets some small benefit at a much larger expense to the government. In a sound money economy, the government would fire such people — but in a fiat money economy, the government doesn’t care as much since money is abundant and they’re not price-sensitive. You can do that when there’s a cookie jar that you can always steal from.
So in the final math, the agent benefits at the expense of everyone else. These people are what we call rent seekers. They don’t add any benefit but still get paid. And it’s not just government bureaucrats. If you are an investment banker that takes extremely leveraged bets, you are a rent seeker, too. Generally, they get to keep the profits when their investments win, but get bailed out when their investments lose. They, too, don’t add anything and leech off of society. What’s worse, these are supposed to be some of the most talented and driven people in society. Instead of building things that would benefit civilization, they’re engaged in grand larceny! Of course, they’re not the only ones guilty of rent-seeking theft. Sadly, most jobs in a fiat money society have a huge rent-seeking component.
One rule of thumb that we’ll get to later in this article about how to tell if something is rent seeking is by seeing how much of the job is political and not value-adding. The more politics involved, the more rent seeking there generally is.
Rent-seeking jobs cheat the system and when people have the incentive to cheat, many will. You only need to look at online gaming to know that. Cheating is attractive because it’s a lot easier than doing hard work and if the cheating is normalized, as it is today, there’s little moral impediment. We’ve all become that soccer player that pretends to be in pain to influence the referee.
Rent seeking is understandable since creating a good or service that the market wants is not only hard, but it’s very fickle. What you produce today is an innovation away from becoming obsolete. Rent-seeking positions, even with less compensation, are nevertheless more desirable because of their certainty. Is it any wonder that rent-seeking positions are so sought after?
Think about how many people want to become investment bankers, venture capitalists or politicians. They’re way more profitable than providing a good or service, require way less effort and have lots more certainty.
Fiat money incentives are more broke than Sam Bankman-Fried.
Fiat Money Ruins Meritocracy
The existence of so many rent-seeking positions means that a large part of the economy does not run on normal supply-demand market forces. Even the possibility of rent seeking means that goods and services need to account for a tilting of the playing field. Fiat money ruins meritocracy.
In a normal market system, the best products win. Not the most politically-connected products. Not the products that employ the most people. The best products win because they satisfy the needs and wants of more people. Fiat money changes the equation by adding politics.
When the government can print money, the people that benefit the most are the people that get access to that money first. This is called the Cantillon Effect and it’s the reason why rich people get richer without adding much, if anything. So how does the government determine who gets access to the money? As with everything government related, decisions on who gets what money is determined through politics. And when the money printer is political, everything else becomes political. Politics is a cancer that spreads through the entire market.
The “haves” in a fiat money economy tend to be the ones that are good political players. They know how to get newly printed money directed toward them and they have a large advantage over those that don’t. Politically savvy companies will do better than the non-politically savvy companies that make better products. Thus, surviving companies in a fiat money economy are very politically savvy. It’s no wonder so many companies seem to be led by politicians rather than entrepreneurs, especially as these companies age.
Thus, politically savvy incumbents have a tremendous advantage in a fiat money economy. They will saddle newcomers with regulatory costs and get subsidized by newly printed money, ossifying their position. The marketplace will be filled with older, worse goods and newer, better goods will never come to market given these unfair advantages. The incumbents get to play CalvinBall and change the rules whenever they’re losing.
Labor unions, zombie companies and old politicians are all indicators that institutions last way beyond their usefulness to society. They all use political means to make up for their lack in fulfilling market desires. The decrepit and the dying never die to make room for the innovative. Politics stifles entrepreneurialism and creativity. It is a cancer that destroys the good cells that keep the body alive.
Merit, in other words, has been overtaken by politics everywhere.
Fiat Money Ruins Progress
The ubiquity of politics over merit means that it’s become harder than ever for civilization to improve. Better stuff doesn’t necessarily win and markets tilt toward the political. Fiat money protects the existing politically connected players against the newer, more dynamic players from gaining market share.
Hence, fiat money ruins progress. Civilization ossifies because the incumbent players have way more power to stop new players. The incumbents often will put up huge regulatory moats, under-price newer competitors through fiat subsidization, hire away the best employees with fiat money or as a last gasp, just buy out the new players altogether. All of these strategies work through access to newly printed money. The zombies survive by eating brains.
We should have nuclear powered everything right now, but that technology is completely stifled by regulation. Government can enforce this mandate through fiat money. Oil, natural gas and coal continue to dominate because we don’t make scientific progress on other ways to provide better energy. Technologies like wind and solar get government backing because they’re politically popular, despite their clear inferiority in variance, energy density and portability. We’re going backwards in energy.
The Luddites win in a fiat monetary system because fiat money and political considerations essentially force everything to stay the same. It’s profoundly conservative in that the old and decrepit are saved at the expense of the new and meritorious. If that sounds familiar, it should. That’s the exact math that was used to justify the lockdowns of the past few years.
We can see this dynamic in the airline industry. The time to travel from New York to London is worse now than it was 50 years ago. We can also see this dynamic in dishwashers. A dishwasher 50 years ago could clean a full load in under one hour. It now takes more than 3 hours. Regulations protect incumbents and put politics as a priority over merit. The result is that civilization doesn’t progress.
Instead, fiat money has regressed civilization. The nuclear engineers of yesteryear are working on React.js apps and scammy Web3 products because that’s where the money is. The inventors of yesteryear are investment bankers creating high-frequency trading systems. The incentives are broken — merit is no longer a consideration, so is it any wonder we’re regressing as a civilization?
We peaked as a civilization in 1969 when we landed a man on the moon. Everything since then hasn’t pushed humanity forward, but turned it inward. At best, it’s preserved what we already have. At worst, it’s destroying humanity’s progress.
What’s worse, all this rent seeking has inflamed the entitlement mindset. Having good political connections, these rent seekers think they are entitled to these negative-sum positions. Nothing is more toxic to progress than people whose incentives are to keep things from getting better. Fiat money changes productive people into entitled brats.
Fiat Money Is Profoundly Conservative
Bad incentives are at the core of fiat money. If you can steal instead of work, most people will steal — and they can, through politics. Politics, unfortunately, is a negative-sum game and that means regression for civilization. Like war, politics is about consuming accumulated capital.
Fiat money redistributes wealth so that the incumbents can stick around. There’s little room for new ideas or new goods or new products because the incumbents have so much political clout.
Indeed, we’ve reached a tipping point where there’s more rent seekers than there are productive people creating stuff. How many people work email jobs? How many people even work? Way too many people are happy with an XBox, a mattress and pizza delivery. Do these people benefit society in any way? It’s no wonder so many people are so depressed.
The politicization and zombification of the economy has had real consequences in how society functions. Building codes make new forms of housing very difficult to build. Airline regulations make new designs completely illegal. Nuclear regulations make different, more efficient forms of energy really expensive.
Ancient industries, companies long past their expiration date suck productivity out of the economy. They provide little value, but continue getting subsidized through fiat money. Industries like oil, trains, airlines and cars have all become zombies and are protected from extinction through fiat money. Heck, even some electronics producers, and software companies, which are relatively new to the economy, are zombies at this point. The zombies are winning.
And the zombification is accelerating. Facebook probably transitioned from producer to rent seeker much more quickly, than, say, IBM.
Sadly, this is the reality of fiat money. The producers at a certain point turn into rent seekers as they politicize. The zombies soon start outnumbering the normal people and everything goes downhill.
Bitcoin Fixes This
The good news is that Bitcoin fixes these incentives. Removing fiat money means the normal market process of supply and demand and prices can work. Politics takes much less of a role and the zombification of the economy reverses. Civilization can progress again. Bitcoin is the antidote and the great hope for reversing the decline.
Unfortunately, we have about 100 years of rot to clear out and that’s going to take some time. The people most embedded in the current system, the Cantillon winners, such as Ivy League business school graduates, rich old people and bureaucrats of all types, are the least likely to convert to Bitcoin and will fight tooth and nail to preserve their positions. These people are not going away quietly and you can already see that they’re making their own bid to further zombify with CBDCs.
Thankfully, Bitcoin has the advantage of time on its side. The Cantillon losers, such as young people, citizens of developing countries and actual producers of goods and services will inevitably turn toward the much fairer system in Bitcoin. The zombies will be consuming themselves.
Welcome to the revolution. Now go save civilization.
This is a guest post by Jimmy Song. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Hannah Wolfman-Jones, author of “System Override: How Bitcoin, Blockchain, Free Speech, & Free Tech Can Change Everything” and founder of We The Web.
Capitalism is controversialthesedays. Many look at societal problems today and lay the blame squarely at the feet of capitalism. What these crusaders who proudly label themselves as “anti-capitalists” fail to realize is the global fiat system we have today is not really capitalism.
Under capitalism in its pure form, people with capital invest in businesses and ventures that they believe have merit and thus are likely to generate returns. Investors need to make difficult prudent judgments and take on the risk of losing big. Their capital — when invested in a successful business — allows for the creation of services, goods and jobs that are desired by people, making the profits awarded to successful investors just. Through investors in a free market, worthy ventures can get the capital they need to launch or expand a successful business, increasing prosperity across society in a meritocratic manner.
Unfortunately, this system has been greatly disrupted as the decentralized judgements by millions of independent actors in a free marketplace have been supplanted by the unilateral judgements of a few bureaucrats. Under the fiat monetary system, money itself is controlled by a small cabal of unelected economists and bankers. Capitalism is all about free markets. When it comes to our money itself, the currencies used, their supply and interest rates are not market-determined but rather calibrated by bureaucrats. This is not capitalism.
So, instead of spending all their considerable analytical efforts looking at possible business ventures and market needs, savvy capital allocators must follow and predict the actions of central banks, whose edicts can tip entire economies into bear or bull runs. “Don’t fight the Fed,” is an old mantra on Wall Street referring to the idea that investments must align with the current monetary policies of the Federal Reserve to be successful. Investors thus have to follow and theorize around the actions of unelected, unaccountable, powerful centralized actors such as the Chair of the Federal Reserve Jerome Powell. This creates wasted effort and a huge misallocation of resources as the capital available to value-generating businesses fluctuates hugely on the words of one man — Powell — whose actions these businesses do not control. For example, Powell’s speech on August 26, 2022 precipitated a drop in the Dow Jones Industrial Average, the S&P 500, and the Nasdaq Composite of 3.03%, 3.37%, and 3.94% respectively — a staggering fall for just one day. This greatly hinders the meritocratic value creation of capitalism: Savvy investors must make decisions based on Powell’s words rather than a business’s value.
Moreover, under the fiat system, designated legal tenders such as the U.S. dollar are in a perpetual state of inflation. This inflation forces ordinary people looking to save money to risk their capital on investments or else watch their purchasing power be steadily eaten away. Thus, people who are not investors, who lack the skill and desire to risk their capital on business ventures, are forced to do so. Without a venture they believe in for investment, hard-working normal people put their money in indexes and mutual funds. “Zombie companies,” — economically unviable companies that survive through investments while failing to deliver sufficient products and services to the market to cover their costs — can persist for many years due to their inclusion in these indexes and funds. These “zombie companies” receive passive investments from ordinary people who do not know company fundamentals but are forced to invest in indexes and mutual funds to preserve their savings in the face of constant fiat inflation.
If Bitcoin were adopted globally, it would provide hard money that does not depreciate in value long-term. Thus, ordinary people could save in Bitcoin rather than risk their retirements on companies they themselves have not evaluated through mutual funds and indexes. Moreover, the monetary policy of Bitcoin is transparently baked into its code rather than being controlled by powerful central bankers. In a world where Bitcoin dominated over fiat, investors could once again turn all their attention to finding ventures of merit rather than hanging on every word of the Fed. This would largely restore the prosperity-creating engine of capitalism — the least terrible economic system we have.
This is a guest post by Hannah Wolfman-Jones. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
This is an opinion editorial by Craig Deutsch, organizer of Asheville Bitcoiners, designer of The Bitcoin Game and junior editor at Bitcoin Magazine.
You may have seen or heard about people in Lebanon robbing banks for their own money. They’re no Butch Cassidy, but are just trying to get their own money out of the bank.
Lebanon is facing an economic crisis and banks responded by locking depositors out of their own accounts. As a result, multiple banks have been held up by their customers, who are only looking to withdraw their own money.
In late June 2022, G7 countries famously froze around $300 billion of Russian central bank funds, including $30 billion of Russian oligarchs’ assets. Ethiopia’s central bank is banning foreign currency from being used in local commerce and is lowering the threshold for the amount of time that residents who are returning to the country can hold foreign currency. Taiwan is facing significant capital outflows and is floating the idea of foreign-exchange controls if the trend continues to worsen. Mongolia’s local banks are restricting the amount of dollars their customers can buy to $300 per day due to their foreign currency reserves being down 40%. Russian citizens are flocking to banks to withdraw their funds and the waiting time is two to three days.
Similarly, financial surveillance and censorship continue to advance. Even transferring money within the United States has its risks. PayPal has expanded its “Acceptable Use Policy” to threaten users with fines of $2,500 per violation. The company is no stranger to freezing client funds. In January 2022, three users filed a federal lawsuit for locking them out of their accounts without cause. More recently, the payments company shut down accounts of the U.K.-based Free Speech Union. (Authors’ note PayPal quickly reversed course when it became clear that many users were shutting down their accounts in response to this new policy.)
I think you can see the trend.
Capital Controls And Capital Flight
People will always find ways to protect their wealth.
It is well known that there are certain countries that have more favorable privacy and tax customs when it comes to banking. With the release of the Panama Papers and the Pandora Papers, finances of current and former world leaders and more than 100 other politicians were released to the public, proving that the wealthy elite have ways to store their money in offshore accounts and shell corporations, while everyday people are locked out of their bank accounts.
The reality of capital controls is becoming more and more apparent as global tensions heat up. When Russia first invaded Ukraine, there was a story about the wife of a wealthy politician getting caught fleeing the country with suitcases full of dollars and euros. I already listed plenty of examples of countries tightening their citizens’ monetary leashes. It is only a matter of time before people recognize that bitcoin is the solution to monetary restrictions and outright control.
Bitcoin Knows No Borders
According to Western Union, it can take anywhere from 24 hours to five days to send money internationally. From SWIFT’s website:
“There are a number of reasons why cross-border payments may be delayed or held up. Firstly, not all account balances can be updated outside the operating hours of local settlement systems. Delays can also arise if compliance checks need to be carried out, especially when a payment passes through different countries and jurisdictions.”
Let’s unpack SWIFT’s statement and compare it to Bitcoin:
“Firstly, not all account balances can be updated outside the operating hours of local settlement systems.” Bitcoin runs 24/7, 365 days per year. It has been running almost nonstop for over 5,000 days. It is possible and common for users to send money outside of typical business hours, on weekends and holidays. Bitcoin settles transactions with finality in blocks nearly every 10 minutes.
“Delays can also arise if compliance checks need to be carried out, especially when a payment passes through different countries and jurisdictions.” Bitcoin needs no compliance checks. Nodes verify whether the transaction follows the rules of bitcoin, by ensuring the bitcoin is coming from a valid unspent transaction output, and that it is not being double-spent. There are no governments, authorities, people with guns, banks or central third parties that are required to complete the payment. Just miners, who are rewarded in bitcoin by expending energy and for including valid transactions in blocks.
There is nothing stopping me from sending bitcoin to anyone else anywhere in the world, regardless of their country, nationality, race, religion, age or whether or not they are on a sanctions list. Bitcoin knows nothing about its users and it knows no borders.
Bitcoin lives everywhere and nowhere; the ledger of all transactions is stored in a distributed manner on computers called nodes that are running the bitcoin software. If someone is trying to escape capital controls or oppression of any kind, they can leave the country with the clothes on their back and still access all of their bitcoin by remembering their seed phrase and recovering their funds when they get to a safe place.
Leaving one’s country due to capital controls, oppression or war is an extreme example and a majorly useful albeit drastic use-case, but even the ability to travel with a significant amount of funds is an impressive use-case. One anonymous Reddit user claims to have exited a country with $1 million of bitcoin by keeping their seed phrase with them on the flight.
Without getting further into the implications of being able to escape from a country with one’s entire net worth in their pocket (or mind), there are other major problems that bitcoin has solved, namely, the ability to pay someone quickly in another part of the world.
It is not yet possible to fully understand the impact of Bitcoin having solved cross-border payments.
You could buy some saffron from Afghanistan with a weeklong wire transfer or you could just order some from the merchant and pay them directly with bitcoin.
Need some design work done for your business? You can hire a graphic designer from halfway around the world and they can receive the money for their work in approximately 10 minutes.
These types of peer-to-peer transactions are exactly what Bitcoin was designed to facilitate. The fact that anyone can opt into direct trade with anyone else, anywhere in the world is a major breakthrough that will have far-reaching ramifications that we are nowhere close to comprehending. As Lyn Alden stated in “A Look At The Lightning Network,”: “Back when the iPhone was introduced in 2007, few people thought, ‘Wow this could really disrupt the taxi industry a decade from now.’”
Bitcoin’s ability for its users to send value easily, quickly and trustlessly while retaining property rights in the face of tyranny will have implications few people can grasp.
People will always find a way to protect their wealth. It is inevitable that people will come to the conclusion that bitcoin is the best option for them to do so.
This is a guest post by Craig Deutsch. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc. or Bitcoin Magazine.
This is an opinion editorial by Andrew Axelrod, a Bitcoin educator and writer whose LinkedIn posts have orange pilled thousands.
“We truly are a species with amnesia. We have forgotten a very important part of our story.” — Graham Hancock
“You have forgotten who you are and so have forgotten me. Look inside yourself Simba. You are more than what you have become. You must take your place in the Circle of life.” — Mufasa
Most of human experience is relegated to the dustbin of history and forgotten. And maybe rightfully so. After all, life is largely mundane, punctuated by inanities.
But those scarce few stories that survive, survive for good reason. They speak to us on a deeper level. They tap into a fundamental and enduring truth about the human condition. These aren’t stories from a far gone past, these are stories about the here and now. The names and faces may change, but the stories stay the same. We can’t help but play them out over and over again, generation by generation. They are as relevant to us now as ever.
By contrast, bitcoin may seem like the bleeding edge of technology and without historical parallel. But the truth is, bitcoin fits into a far richer and meaningful story about our very nature. Let us now delve into one such story and explore how bitcoin will come to play a key part in its latest rendition.
Alexander the Great, who forged a vast empire with the tip of his spear and whose exploits have become the stuff of legend, is without the shadow of a doubt one of those scarce few figures that have stood the test of time.
One of his legends stands out in particular. The ancient Greek myth tells of how Alexander the Great’s ambitious campaign in Western Asia brought him to the Phrygian capital city of Gordium, in modern-day Turkey.
As the story goes, Phrygia was a kingdom without a king. Its inhabitants believed that the rightful heir to the throne was yet to be ordained. The true king would reveal himself by solving an intractable problem — the Gordian knot.
This knot was a nightmarish tangle of wrist-thick cornel bark that was twisted around an ox cart’s yoke and impossible to unfasten.
The ox cart had belonged to the ancient king Gordias, who, himself a humble peasant, had been placed on the throne through providence a thousand years earlier.
A prophecy foretold that whoever could untie the knot would not only rule over Phrygia as the dead king’s successor, but would go on to conquer all of Asia.
This of course appealed to Alexander the Great who readily accepted the challenge.
But when he failed to untangle the knot, just as everyone before him had, he did something that shocked the Phrygians.
He unsheathed his shortsword and unceremoniously chopped through the ropes, saying:
“Alexander Slashed The Gordian Knot Apart With His Sword” by Jesús Blasco (1919-95)
Now comes the interesting part of the story.
Alexander the Great had clearly violated the oracle’s prophecy by cutting through the knot instead of disentangling it and had in the process desecrated a holy relic on the steps of their temple. So how did the Phrygians react?
They crowned him as king on the spot.
How can this be?
Although the Gordian knot mythology is widely known, it is also deeply misunderstood.
Many historians and philosophers draw some of the following conclusions from it:
That sometimes the best answer to a complex problem is the simplest one.
That some problems are solvable only through bold action and with great ambition.
That Alexander the Great had lawyered his way around the prophecy’s words. After all, exceptionally clever people see solutions where others do not. “Thinking outside the box,” we would call this.
All of these interpretations however miss the mark and fail to recognize a basic truth the story elegantly reveals. The essence of the legend is simply this:
Alexander the Great was perhaps the greatest conquering war lord of all time. He’s certainly right up there with the likes of Attila the Hun, Sun Tzu, Saladin, Julius Caesar and Hannibal Barca. He was undefeated in battle and had brought most of the civilized world to its knees. What’s more, he had at his back an army of fiercely loyal Macedonian soldiers who stood waiting at the gates of Gordium, ready to rape and pillage the city at a moment’s notice.
Who among the Phrygians would dare challenge Alexander the Great’s methods?
If he wanted to play fast and loose with the rules, who was to say otherwise.
And so, the Gordian knot is at its core the story of how might makes right.
It’s no coincidence Alexander the Great used his Sword to “solve” the problem.1
But the Gordian knot has an even deeper lesson to teach us. To understand its meaning, we must first appreciate the story’s message for what it truly is.
In the story, the knot was roped around an ox cart — a technology for transport and trade, and a symbol of civilization and order. As the prophecy foretold, the rightful king would unshackle the ox cart and become ruler over the known world. This would be done through the use of brute strength — by the sword.
As if to drive this point home, many historic paintings and artistic renderings have since depicted a chariot instead of an ox cart. The chariot of course being a striking symbol of war and triumph.
“Alexander the Great Cutting the Gordian Knot” (1767) by Jean-François Godefroy
The message is clear: When a situation becomes so gnarly and entangled as to become untenable, a proverbial Gordian knot, it demands a forceful actor to throw out the old ruleset and in so doing create a new order.
But what if there is no wise and powerful leader to grasp a sword in hand and do what is necessary?
After all, the Alexander the Greats of this world are few and far in between the long arcs of history. They are the exceptions, not the rule. Knowing this, Alexander the Great himself never chose an heir to his empire — what would be the point? When asked on his deathbed to whom his immeasurable wealth and expansive kingdom would fall, he simply responded: “To the strongest.”
What followed was fifty years of warfare … This is a number with significance that we will revisit. The point is though, that the Gordian knot is not always loosened with a clean cut, but is sometimes butchered and frayed.
To this end, the Romans, for example, had devised their own way of cutting a Gordian knot whenever it reared its ugly head. Working class citizens would abandon entire cities in defiance, called “Succession of the Plebeians,” leaving the rulers to squabble amongst themselves, and force a system change.
“The Secession of the People to the Mons Sacer” (1849) by B Barlocinni
This is nothing new. Such transitions occur with stunning regularity — about every fifty years, in fact. History tells us that social orders typically take about three generations to deteriorate into a Gordian knot and require an Alexander the Great to slice through them. As the saying goes: The first generation sows it, the second grows it, and the third blows it.
It’s a story as old as time.
This process of civilizational decay and rebirth is such an ingrained and human phenomenon that it’s even found its way into scripture.
The book of Leviticus prescribes a so-called Year of Jubilee as a remedy for these purges. The Year of Jubilee comes around once every fifty years and is a special time during which all debt is forgiven and all slates wiped clean — a great reset:
“You shall thus consecrate the fiftieth year and proclaim a release through the land to all its inhabitants. It shall be a jubilee for you (Leviticus 25:1–4, 8–10, NASB).”
Yes, the names and faces might change, but the story doesn’t. And we again find ourselves at such an inflection point.
The current financial world order has existed for just over fifty years, and now it’s coming apart at the seams (how’s that for coincidence). This most recent cycle kicked off with the abolishment of the gold standard on August 15, 1971. After abandoning the gold standard, the world has been running purely on paper money, credit and borrowed time. We have been living through a global fiat experiment ever since.
But this chapter is now quickly drawing to a close. After all, our current financial system is the Gordian knot of them all and we are undoubtedly on the cusp of a reset.
The 2008 financial crisis proffered just a tiny glimpse of what’s to come. When the house of cards began collapsing in April of that year, a horrifying realization began to finally dawn on our ruling class …
The tangle of debt, mortgage backed securities and other credit based derivatives, had mutated into a monstrosity that was constricting and suffocating everything. Even worse, the financial crisis revealed how trillions of dollars of debt based derivatives were causing contagion effects that no one really understood — the system’s chain of ownership was no longer comprehensible.
And when trust in the system finally reached its terminal moment on September 29, 2008, the Dow fell seven percent, marking the largest single-day point drop in history. This was the plebeians’ attempt at severing the knot. Instead of the Roman citizenry fleeing their capital, these were investors trying to abandon ship by selling out of all positions.
But of course, the plebeians ultimately failed to stave off the inevitable collapse of Rome and were forced to helplessly watch as corrupt central planners debased the currency and bankrupted and ransacked a once-great empire. Over the course of a few painful decades, the capital city was practically emptied out, collapsing from a height of more than a million inhabitants to a paltry population of just a few thousand. The plebeians could not prevent the civilized world from plunging into centuries of darkness.
And just as the plebeians had failed, so too had we. Absent an Alexander the Great, the knot was not cut. In fact, quite the opposite. The knot was further tightened as bureaucrats poured billions of printed money into the void. The supposed remedy to the Global Financial Crisis was to layer additional debt on top of the system. Central banks have ever since continued to backstop the market by inflating the money supply and further debasing currency.
And now, the knot has become so twisted that even something as simple as equities, a supposedly straightforward expression of financial ownership, has become an unmanageable tangle of debt:
The DTCC, the world’s main trade matching service, attracts 99 percent of U.S. deal flow and is supposed to keep track of who owns what.
The plot never changes — only the names and faces do. And so, the Gordian knot becomes undone, one way or another. Whether it be at the hands of a powerful leader who can restore order to the world, or under the strain of its own suffocating weight, plunging everything into chaos.
But here’s what has changed: For the first time, we need not wait for an Alexander the Great. Instead, we can wield the sword ourselves. Because of bitcoin’s unique property of self-custody, we can choose to cut the Gordian knot at any time by simply taking possession of our own money.
Gone are the endless and nebulous chains of credit-based ownership. The simple act of taking self-custody banishes all middle men, sets fire to the endlessly multiplying paper money and clarifies true ownership. The plebeians now finally have a tool to cut the knot. And while bitcoiners may call themselves “plebs,” it’s high time we also understood that bitcoin is the sword.
Endnotes
An alternate and far lesser known version of the myth tells how Alexander the Great loosened the knot by pulling the linchpin out of the yoke. However, this version hasn’t stood the test of time and, instead, the expression “cutting the Gordian knot” has permeated our vocabulary.”
This is a guest post by Andrew Axelrod. Opinions expressed are entirely their own and do not necessarily reflect those of BTC Inc or Bitcoin Magazine.
