Why Peter Schiff is wrong…
...about the solution!
In a previous post I wrote about Peter Schiff’s spot-on analysis of the issues with our current financial system. He shared some great insights he shared in an interview with Jordan Peterson.
Where Peter Schiff falls spectacularly short however is in the solutions he proposes. His proposed solution to the problems of our current system is of course #gold.
But #gold’s failures are the reason we have our current #fiat system.
At the same time he is venomously anti #Bitcoin. Which would be comical if it weren’t so damaging to the many people listening to his advice.
If Peter Schiff really wants to help fix the issues with our financial system, he would study #Bitcoin and realise it is the solution that #gold (due to its characteristics) could never be..
From the same interview with Jordan Peterson here is where Peter Schiff falls short the most when it comes to #gold and #Bitcoin.
1. Central banks will go back to gold
“What are the reasons that countries would want gold, as opposed to the US dollar, is that the US government doesn’t have any control over it”
The US government indeed doesn’t control #gold the same way it controls #fiat. But #gold was never able to fix the problem of fractional reserve banking.
Gold however is stored in a central location, and we simply have to trust the government that the gold is really there.
Do we really know how much gold is stored at Fort Knox?
With gold-backed currencies it is easy for governments to print more money than the peg allows, because they control the gold in a central location.
“Trust me, bro…”
That the US government can’t be trusted with this was shown in 1971. The US was printing more money than the peg allowed and was forced to declare bankruptcy and move the dollar of the gold standard.
This was the birth of the #fiat system as we know it again. And any future gold-backed currency will end up the same way.
2. Why does gold have intrinsic value?
“Gold is the most valuable, the most useful metal on the periodic table. Gold became money because it was such a valuable commodity. Gold has a lot of properties that make it uniquely qualified to be money”
Peter Schiff evades the question without answering directly. Gold has intrinsic value because it's durable, scarce, and hard to mine (this prevents sudden supply increases).
This is what gives gold its monetary premium. But Peter Schiff can’t admit that without arriving at a very uncomfortable conclusion (for him…).
It would mean acknowledging Bitcoin scores better than gold on the properties that are required for a commodity to be good money.
3. Bitcoin isn’t a store of value
“Bitcoin isn’t a store of value because you can’t store something you don’t have”
This argument is typical of gold enthusiasts who insist that if you can’t physically touch something, it isn't real.
If you follow this line of thinking you would also conclude that gold-backed currencies have no value. They would be mostly digital (like today’s fiat currencies) and thus have no value according to Peter Schiff.
Intangible things can be very real. Love, reputation, email, streaming TV, social media, and video games are proof of that!
4. Bitcoin is similar to fiat
“Bitcoin is similar to fiat in that all its value comes from faith and confidence”
Fiat’s value comes from faith and confidence in the government issuing the fiat currency.
Bitcoin’s value comes from its properties of:
1- Digital scarcity
2- 100% ownership rights
3- Permission-less network
Gold has always been money because it was the scarcest commodity we had, with the highest stock-to-flow. It was the best we could get for 1,000s of years…
Until Bitcoin came around. Now gold only has value because the world needs time to get off 1,000s of years of thinking of gold as the primary monetary asset.
Fiat is the complete opposite of Bitcoin. It is based on debt, and the government can add as much of it as they want.
And they have been doing that abundantly!
5. Gold-backed cryptocurrency
“A cryptocurrency that is a digital representation of that gold. An IOU for gold. And then if I wanted to give you some of my gold, I wouldn’t have to ship you my bar. I can just send you my tokens”
Really Peter? A digital IOU for gold?
This is literally the solution we had in the past with gold-backed currencies which lead to the current fiat system.
We used to store our gold at a trusted entity (like a bank) and received an IOU which served as money. This way we could pay with the paper representing the gold, instead of the gold itself.
The problem was it turned out these trusted entities could not be trusted. They issued more IOUs than there was gold in the vault.
While very profitable for banks, this fractional banking artificially inflated the money supply. And eventually led to the fiat system we know today.
It’s shocking Peter Schiff is advocating for the same system, but then with a digital spin.
How can the outcome be any different than for previous gold-backed currencies?
Bitcoin solves this weakness of gold-backed currencies by allowing individuals to own the asset themselves, independent of a third party.
No need for a paper or digital IOU...
