Government Digital Currency: Should You Be Terrified?

An economic system based on social score and not merit is possible because of a government-backed digital currency.

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The Probability Of The U.S. Government Moving To A Digital Currency Is Extremely High

A digital currency gives Big Government and the Fed complete control over spending, money supply, inflation, and your life.

If this doesn't sound terrifying and exaggerated to you, then you haven’t thought this through enough.

In this article, I’ll explain what a government digital currency is, how it works, how the government can have limitless control, and what life would look like if we were forced to use it.

government digital currency Explained

First and foremost, we’re not talking about electronic dollars like we use today.

Many think digital currency is not a big deal because it's what we have right now with ATM cards, Venmo, Paypal, and our banks. But it is a big deal and it is different.

It all starts with the Federal Reserve creating Fedcoins, which get to the people through Modern Monetary Theory or MMT. All people would need is an app on their phone, and the Fed would deposit these coins automatically.

Let's pretend there are only six coins in the system. A fella by the name of Oliver gets three and hid buddy Fred gets the other three.

Let's say Oliver wants to buy a book that Fred owns, written by Paul Krugman. Oliver offers Fred one coin for the book. Fred agrees and they trade the book for one coin.

After the purchase is done, something happens on the blockchain ledger at the Federal Reserve. Or maybe, in this case, it's the US treasury.

Either way, the transaction has been recorded on a ledger.

The Government now knows that something has changed with Olivers Fedcoins 1, 2, and 3, and Freds Fedcoins X, Y, and Z. There has been a third transaction noted and it was between Oliver and Fred.

They know Oliver’s coin number 1 was transferred over to Fred's ledger when he purchased the book.

Everything would be tracked and accounted for on the Government ledger because a Fedcoin has its own unique serial number, like Bitcoin.

The main difference between digital currency and the digital dollars we use today is that every transaction would be traced, which gives the Fed and the government far more power than just being Big Brother.

Currently, when the Fed does QE, they create bank reserves, so if we had a digital currency, those reserves would be Fedcoins.

Those Fedcoins would go into the reserve accounts of primary dealers A, B, and C, but since these coins now have a serial number, the government can control, through programming, how each individual coin gets used.

Jason Hartman Pandemic Investing

In other words, they can pre-program the types of loans banks can give out into the real economy.

As an example, let’s say they allocate a specific amount of bank reserves for green energy, shale oil production, or politically correct mortgages.

So any primary dealers or banks under the Fed’s umbrella would have additional reserves that they could lend against those reserves.

Let's say there’s a lady named Kaitlyn with a high social score, wanting to buy a house from Steve.

Kaitlyn fits a politically correct category. And a certain number of Fedcoins have been allocated for circumstances that fit the needs of people like Kaitlyn.

Kaitlyn goes to her local bank and asks for a home loan of $100,000.

The bank runs Kaitlyn through a government database and discovers she is the perfect candidate for these specially programmed fedcoins that will help her buy Steve's house.

The bank gives her the loan, and the transaction is recorded on the government blockchain.

The commercial banks would still be in charge of creating additional money supply in the real economy, not with electronic dollars, but Fedcoins.

The electronic dollars we use today are dumb. Like a scoreboard at a basketball game, today's dollars are agnostic when it comes to purchasing power. You can buy anything with today's dollars, so as long as you have enough of them.

The government-backed digital currency fedcoin is more like a video game. This currency can be programmed to work for specific uses only and every transaction is traceable.

Think about this. Imagine having 100,000 fedcoins in your digital wallet, and the only thing you could use it for is house buying. You can't buy a car with it. You can't grocery shop with it.

Now, this makes sense for a house. You wouldn't take out a home loan and go grocery shopping. The bank wouldn't allow it.

But hopefully, you can see how a programmable digital currency could potentially manipulate social habits and spending behavior.

Government Digital Currency And Its Limitless Control

If we get to the point where the government officially has a digital currency, then we’ll have to assume they'll ban cash.

Personally, not only is it inevitable but imminent.

To understand why they would ban cash, we need to understand the Fed and the government's objectives.

Both the federal reserve and the US treasury should be considered one entity at this point. They practically are today, although they won't admit it.

Their goals are to keep asset prices high and interest rates low.

Their main objective is to keep inflation high along with sovereign, state, consumer, and corporate debt. Which are all at all-time highs.

They believe the best way to get rid of massive amounts of debt is to inflate it away.

How The Fed Determines Future Inflation

To determine future inflation the Fed uses three metrics:

1. The feds balance sheet

Currently, they have total control over this metric. So from now on we can look at the Fed’s balance sheet and call it “the hockey stick” because it’s going vertical, as you can see in the image.

The Fed hasn't much control over the last two metrics.

2. M2 or ‘broad money' in the system

The curve starts out rather flat until 1995.

In 1995, the curve begins a new trajectory. Notice in 2008, during the Great Financial Crisis, the curve begins going parabolic.

Yet, this is nothing compared to what’s been happening in the last month.

The Feds balance sheet has moved up by almost a trillion dollars in four weeks.

To add context, it took six years from 1980 to 1986 to move up a trillion dollars.

3.Velocity: How quickly the money circulates in the real economy.

Around the late 70s, velocity was very consistent. Moving up and down between 1.6% and 1.8%.

Then it flatted out. But once we got into the late 70s, when inflation got out of hand, velocity started spiking.

So Volcker came in, jacked interest rates to almost 20%, and velocity decreased.

But then in the 90s, it went through the roof.

Velocity peaked out a little after 1995 and since then it has done nothing but go straight down to where we are today at an all-time low around 1.4.

With a digital currency, the Fed and the government would be able to control these three metrics, they wouldn't be out of their control anymore.

They would have the power to guide spending in the real economy and control the amount of credit that goes into the system.

But more importantly, who the credit is going to.

If they can control the credit in the real economy, it means they can control the M2 money supply and the Cantillon effect.

The Austrian Economics Center explains what the Cantillon effect is.

“The so-called Cantillon effect describes the uneven expansion of the amount of money. If a central bank pumps more money into the economy, the resulting increase in prices does not happen evenly.

The Austrian economist Friedrich August von Hayek compared this monetary expansion with honey. If you pour honey into a cup, it won’t spread out evenly. It will clump in the middle of the cup first before spreading out.

Same with money: in case of a monetary expansion, the ones who profit from it are the ones who are close to the money. “Close to the money” in this case means everyone who can access the money right at the beginning, i.e. big companies, banks, etc. They get loans and make investments. Prices then start to rise even though the rest of the population has not received any of the new money yet. This part of the population usually is not the one with too much money. Nonetheless, they have to pay the higher prices even though they have not profited from the increase in money at all. And they will never profit from it in the same way as the ones who received the money first. The result is a redistribution from the poor to the rich.”

Does this sound familiar?

Keep in mind the gentleman that came up with this concept was an economist in the 18th century.

It's just as true today as it was back then.

You may think this new fedcoin idea sounds good because technically, money isn’t hitting the big banks and corporations first, which does nothing but drive up asset prices, creating economic bubbles.

You would think the new fedcoin money would get straight to the people who need it.

But I see it differently.

I think they would take this newly forged power and first reward people who were connected politically.

Think about all the special interest groups, big corporations, big banks, and whoever else is rubbing elbows with powerful politicians.

So it would get more corrupt than it is now.

It would be easier to get Fedcoins into the digital wallets of those who have political connections first.

And once those entities spend the coins, then it trickles down into the real economy to all of us peasants.

By then, prices will have shot up and the average income will always lag behind.

Controlling Velocity in A Digital Currency Economy

Also, let's not forget big government would now have a way to control velocity in the economy.

I discussed this in an interview I had with infowars.com, here's a piece of it.

Info wars: “Especially when you combine politics and economics, something like a digital currency fits within what the state would want, because it empowers them to an extraordinary degree, and they could have every justification for it.

In fact, their current currency problems that are about to be accelerated over the next year would particularly be the pretext for a solution. They would be like hey! What do you think about those ideas, is there a possibility of that occurring? And how much of that is a risk versus a national digital currency?”

I definitely think its a possibility because to infowars.com point, it gives the government so much control, not only from a taxation standpoint but it also gives them control over interest rates or the central bank.

Right now, it would be very difficult for the Fed to take interest rates to a negative five percent because they might not be able to go down 50 basis points as they have in some places in Europe.

But at a certain point, the general public draws the line and takes their money elsewhere.

Yet, with a digital currency, you could not take your purchasing power out of the banking system.

In the government's mind, the models work the same way they do when solving a problem in the business cycle. If you lower interest rates, then you create more demand.

I haven’t seen how their models work, but I would assume, based on their actions, that if interest rates are already at zero, and the solution for a recession is taking interest rates low, then they would have to take them even lower.

Spend it or lose it!

I see this playing out. Not only with negative interest rates but also with a timer on every single Fed coin.

Think about it, let’s assume every single American gets a thousand Fedcoins per month on the condition they have to spend it all by the end of the month.

So there would be an expiration date on each coin, and if we don’t spend them fast enough, they expire and disappear.

If velocity was too low, then all they would need to do is adjust the expiration date so the coins expired sooner.

They could literally force people to spend their Fedcoins immediately in an effort to increase the velocity of money.

Increases in velocity will also increase the rate of inflation.

Digital currency endgame

If we continue down this path of building our economy on asset bubbles, debt, and consumer confidence, along with this obsession of a politically correct culture, then this is how I see it playing out.

This isn’t a prediction. This is what I think the possibilities are five to ten years down the road with the Fed coin.

It goes back to their main objectives of maintaining high asset prices, low-interest rates, and a high rate of inflation, which is why I think the Fed and the government would be buyers of last resort.

How?

Let’s say in the stock market, the S&P is at 3,000. That’s the floor where the Fed wants to set their ‘fed put'.

In other words, if the S&P falls below 3,000 and there are no buyers to purchase assets, then the federal reserve becomes the buyer of last resort and will add those assets to their balance sheet.

Daytrading.com does a great job explaining what a ‘fed put' is.

Let's say, at some point, the S&P is at 3,000. Boeing is at $100 per share, Apple at $200, and Ford $10.

Then a year later, the S&P goes to 3,500. The Fed could simply move their ‘ fed put' up from 3000 to 3500.

And if someone owns a $200 stock, and can't find any buyers, then the Fed could step in and buy that stock using fedcoins.

The exact same process could be done with someone who is trying to sell a home but can't find a buyer.

The Fed/government could step in, buy the property, and add it to their balance sheet.

Is it legal for the Fed to buy all these assets or set ‘a floor' on prices?

Here’s how Robert Barnes, free speech and constitutional lawyer, explains it.

“There’s a legal theoretical definition of what’s the scope of the power the government to control the means and medium of the interchange.”

George Gammon: Can they confiscate gold?

We have unfortunately the example of FDR.

After he got elected, it was within a year or thereabout that he said everyone had to bring their gold back in, and if anybody was caught with gold, bad things were going to happen.

So, there’s always a risk, but there were a numbers of people who didn’t do so. They estimate somewhere 10% to 15% weren’t trackable, but there were a lot of high profile arrests because at the time when he was doing it, there were serious doubts whether he could do it, from a constitutional standpoint.

The courts were the ones that turned a blind eye because this was the crisis of the depression.

So nobody was going to meaningfully contest because he was depriving people of their property without any due process, or showing how it was necessary to take away someone’s gold to protect some other compelling public interest.

The analysis of constitutional law in the United States is, if you’re violating someone’s core constitutional rights, the government has to show a compelling public interest and the means they’ve chosen to protect that compelling public interest narrowly tailored to it.

What’s happening currently in the pandemic is not narrowly tailored remedies, the seizure of gold was not a narrowly tailored remedy, but we live in an environment where the New York governor has suspended laws, anti-bribery, gift-giving to politicians, and transparency laws about state contracts.

All in the name of the pandemic, its like how exactly the duke correlated? Only a politician would think the best way to solve this pandemic was by getting rid of these anti-bribery laws.

So, is there a risk of currency seizure or them prohibiting the use of certain things as mediums of exchange? No doubt.

Their ability to enforce it constitutionally, is still an open question, but their ability to do so practically is probably the bigger question.”

In other words, even if it was against the law, they’d simply change it or ignore the constitution altogether.

As Robert puts it, they simply look the other way.

But, what about small and mid-sized businesses? How would the government and the Fed prop those up?

As an example, let’s imagine Joe has a coffee shop and he isn’t doing well because he’s losing a lot of money, but, Joe has a social score of 10 because he has played by all the government’s rules, explicit and implicit.

But before we continue with Joe's example, I'll explain how a social score could possibly work.

how a social score could work

First, let’s go over the things that would most likely reduce someone’s social score.

If a person went out and bought too much alcohol, or what the governments deem to be too much alcohol, their social score would be lowered.

Same thing if someone buys a gun, gold, or Bitcoin, criticizes the Fed’s ledger and the government, or is caught up speeding or banned in social media from a certain platform.

Or, what's even worse if someone gets blocked on Twitter by one of the political elites.

So this social score measured because of their actions would affect their credit.

The Government Could Have All Economic Leverage Over You!

Because the Fed owns all the debt, every loan would go straight to their balance sheet, just like mortgages do right now, and since all of the debt would go on to their balance sheet, it doesn’t matter if it's paid or not because they don't have a profit and loss.

They can create as many Fedcoins as they want. With a digital currency, someone could get a loan not based on their ability to pay it back but on their social score.

Whatever they wanted, any type of loan would start with the social score.

And because the Fed and the government don’t want Joe’s coffee shop to go bust (because he has a great social score), they could program other people’s Fedcoins to be spent at Joe’s coffee shop.

Of course, this brings in a lot of money, making the business profitable again.

This way, the Fed/government would make sure no one ever loses money.

An economic system based on social score and not merit is possible because of a government-backed digital currency.

Nonetheless, many of you might be thinking about the Fed's actions of purchasing everything and the consequences of these generating tons of inflation

But, this won't happen, not at all. They’d go straight to the MMT playbook because the federal government is just spending these coins into existence, it’s not part of the Fed anymore, they don’t have to sell bonds or debt.

Then, to lower the money supply or reduce the amount of inflation they just need to get money or Fedcoins out of circulation, and to do so, they would simply raise taxes.

Everybody has its Fedcoins on the app, so the Fed/government would reduce everyone’s by 20% or 30% to make sure there are fewer Fedcoins in circulation and keep inflation under control.

This is central planning at its finest.

What would you do if they banned cash, confiscate gold, and made Bitcoin completely illegal?

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