Could Facebook be What Causes the Next ‘Crisis’?
What is ‘money’?
I don’t want you to jump onto Google and type, ‘what is money’ into the search bar. I don’t want you to pull out a textbook for an official definition.
I just want you to think about what money means to you. What purpose does it fulfil? And importantly why do you need it, want it, crave it, work so hard for it?
Yep, it’s time to get a little introspective.
Maybe you’re reading this on your morning commute, your lunchbreak, or the evening commute. Either way, just take a minute to really think what money is all about to you.
Okay, so you’ve got that idea in your head I hope. Now let me tell you what it means to me, at least at this very point in time.
‘Money’ to me is a means to an end. It’s a vehicle that allows me and my family to enjoy time together and to enjoy the wider world. That’s as succinct as I can define my definition of money.
Now, in order to get money to achieve this we undertake a number of activities.
From my early childhood I was taught to try and save money for a ‘rainy day’. Well to be honest, most rainy days are spent inside doing squat all. So perhaps we should encourage kids to save for a ‘sunny day’ when you can actually use it.
I know I’m taking that meaning too literally, but hey, why not?
Either way, I used to put dollars and notes into my little Commonwealth Bank Dollarmites money box from when I was a wee-little tacker. Even today I still put aside money for savings because that’s just what you do, what you know and what you understand to be a relatively safe way to have money for some point down the track.
Maybe it’ll be used for my kid’s education, or a holiday, or on a renovation to the house. Who cares, it’s there to be used at some point.
The gatekeepers to the global financial system are scared
Another way of getting some money is to invest. We buy stocks and shares in companies in the hope they will be worth more down the track and those shares will also be worth more. Then one day we’ll sell those shares for more money than we spent buying them and voila, we have money!
Savings and investment. These are the two primary methods of getting money. Another is to buy other assets that fall under the ‘investments’ umbrella. This might include gold which is often described as ‘hard money’. It might include art work, collectibles, fine wine or whiskey.
Again, the idea is that at some point down the track you or someone down the generational line can covert these assets back into money or use them as a method to buy or do something.
Occasionally people will use money to buy investments that also happen to be functional and can be appreciated. And those aforementioned ‘alternative’ investments like wine, art and collectibles fall into that category.
But the thing that underpins all of this — savings, investment, art, collectibles, gold and wine — is based on the ‘stability’ of the global financial system.
The global financial system is the complex, convoluted, intertwined system of government, central banks and financial institutions that control money supply, money flow and money rules.
The gatekeepers to this system are few in number, great in power and even greater in wealth. They’ve operated and controlled the financial system with an iron fist since the days of the argentarii (the money changers) of the Roman Empire.
That’s thousands of years of command and control over what money is, it’s value, its importance, and who gets access to the lion’s share of it. It’s therefore easy to understand why the modern argentarii get so protective of the system they’ve shaped to suit their own agendas.
Failure of the systems they’ve constructed is no longer an option. This was evident in 2008 and 2009. It was even more evident during 2013 and is once again becoming crystal clear in 2019. Any threat to the system must be eliminated. Any threat to the powerbase of modern argentarii must be quashed.
And that’s exactly what’s happening now. And it’s not even because of the likes of bitcoin or cryptocurrency…it’s because of Facebook.
As you know, Facebook is planning to launch their own cryptocurrency they call Libra. They plan to issue this using a digital wallet application they call Calibra. They plan to do this with the backing of up to 100 major global companies and potentially billions, maybe trillions of dollars in financial backing.
Facebook is minting their own global currency
What Facebook is really doing is minting their own global currency for use amongst their 2.6 billion active users. This isn’t exactly a cryptocurrency, but it certainly is akin to a state-issued currency. And the fact it could be a global reserve currency has the modern argentarii quaking in their boots.
That’s why today the US House Committee on Financial Services sent a letter to Facebook and Calibra to, ‘immediately agree to a moratorium on any movement forward on Libra—its proposed cryptocurrency and Calibra — its proposed digital wallet.’
That’s right, the world’s authorities are already trying to shut down the threat of a universal digital currency for the masses that isn’t the US dollar, the euro, the renminbi, the yen, the pound, or any other state-issued currency.
This is what the Committee said,
‘It appears that these products may lend themselves to an entirely new global financial system that is based out of Switzerland and intended to rival U.S. monetary policy and the dollar. This raises serious privacy, trading, national security, and monetary policy concerns for not only Facebook’s over 2 billion users, but also for investors, consumers, and the broader global economy.’
But here’s the incredible part, the sentence that truly stinks of unadulterated fear:
‘Failure to cease implementation before we can [review and examine Libra], risks a new Swiss-based financial system that is too big to fail.’
‘Too big to fail’. Heard that before?
Could this be what causes the next crisis?
Global financial authorities are petrified that their entire power base will be eroded by Facebook’s move into ‘crypto’. As such Facebook is likely to comply with their requests.
The authorities are afraid this could be the straw that breaks the camel’s back. What they forget to mention is the camel is practically dead anyway. If the authorities are worried about systemic risk to the global financial system because of Facebook’s Libra…what does that say about the state of the global financial system?
And even if they can tell Facebook to ‘cease and desist’ you know what they can’t write a letter to? Bitcoin. There is no single entity that can stop bitcoin. And if they think Libra is a threat to their system and their power base, they really misunderstand the potential of cryptocurrency like bitcoin.
This incredible move from the authorities is a sign that maybe the current financial system is more fragile than we expect. And if there is another crisis and too big to fail just becomes ‘fail’ then how does all that money you’ve worked so hard for look in that world?
What happens when your ‘money’ isn’t worth the paper (or plastic) it’s printed on? What happens when those numbers in your internet banking mean nothing because you can’t withdraw it from the bank?
Now that might be a calamitous situation. And this is why gold has such an allure for investors as ‘hard money’ in the event of a crisis.
But you’ve also got to realise that in times like that, it won’t just be gold that has real value. Bitcoin is one of the most incredible assets to hold in times of crisis. It’s near-zero correlation makes it the kind of asset you want to have in the mix for a smart strategy.
Ignoring it is to ignore the risks the global financial system presents. Bitcoin is money, it will always be money. It might not be the traditional definition you’re used to. But in the future it might be the only money you want, need, crave and work for.
It might be the only money you can use. And in that case, you’d want to have as much of it as you can get your hands on.
Editor, Money Morning
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