Why They Really Fear Bitcoin

“[Bitcoin]’s a bubble,” asserts Alan Greenspan — who, as chair of the US Federal Reserve, oversaw a 77.5% inflation of the US dollar. Greenspan asserts that “you have to really stretch your imagination to infer what the intrinsic value of Bitcoin is. I haven’t been able to do it.”

Somehow, however, he can stretch his imagination to reckon “intrinsic value” in ledger entries and green pieces of paper backed by nothing more than “the full faith and credit” of politicians who yank double-digit percentages of the wealth supposedly represented by those dollars out of the economy in direct taxation, who have “borrowed” (after having the Federal Reserve create it out of thin air) another $17 trillion, and who have committed the US government to future liabilities of tens of trillions more, all on the premise that they can find some way to steal that wealth from the rest of us to finance their schemes.

No chutzpah deficiency there, that’s for sure. Lecturing other people on “bubbles” and Cloud Cuckoo Land projects after his own career in same? Really? On the other hand I guess he is, by definition, an expert on the subject.

I’m not an economist, and I try to avoid playing one on the Internet. Yes, I’m aware that some economists — not just Keynesian and monetarist nutcases, but the real thing, i.e. Austrian School types — are skeptical of Bitcoin as “real money” for various reasons. I respect their skepticism. I guess we’ll see.

It’s important to keep in mind, though, that the concerns of politicians, bureaucrats, regulators, crony banksters and other members of the political class over Bitcoin are neither true economic concerns (if Bitcoin IS a house of cards, it’s no more so such than the political class’s own “currency” regimes) nor regulatory concerns (did regulators protect us from Bernie Madoff or from the 2008 bank collapses?) nor crime/fraud concerns (in 2012, credit/debit card fraud cost $5.5 billion and affected 10% of Americans … did politicians suggest avoiding credit/debit cards?).

The concerns of the politicians and their hangers-on are far more simple than any of that: What they fear, as they should, is loss of control.

Taxes are part of that fear, and rightly so. The movements of a transnational, decentralized, peer-to-peer, potentially anonymous (Bitcoin is NOT inherently anonymous, but is fairly easy to obscure identity links to) digital currency will be difficult — OK, impossible — to tax. But governments can adapt by taxing things that are harder to hide. Land occupancy and use, for example, or the movement of physical goods.

The bigger issue, to the political class, is that a transnational, decentralized, peer-to-peer, anonymous digital currency is far more immune to political manipulation. If its creation system is secure and if they don’t operate that system themselves, they can’t “borrow” money by creating it. If it’s truly transnational and widely adopted, it will be harder to use it as an instrument of economic war between or within states. If it can’t be effectively regulated, Big Business can’t have its friends in government use it to bar entry to, or disadvantage, new competitors.

And of course such a currency is great for the rest of us for all the same reasons. A complete separation of economy and state will be a major step toward abolishing the latter and putting the former more efficiently to work for the rest of us.

Will Bitcoin be the instrument of such a separation? Maybe, maybe not … but that instrument is coming.

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