When one really dives into Bitcoin, there are so many economic laws that catch the eye.
Gresham’s Law is well known, as people evaluate the various monies in the market, they hoard one and spend the other. But there is an interesting, extremely law that isn’t as well known - Stein’s law.
Proposed in 1986 - economist Herbert Stein stated the following when testifying before congress:
“If something cannot go on forever, it will stop”
The simplicity of this statement is amazingly clear, yet people today still stress about the economic system, the dollar, and express deep fear were in for an economic collapse.
Is this true? Will the dollar suddenly lose all value, and so quickly that things move into a Mad Max scenario?
Lets explore the probable outcome.
Why the Dollar has Been So Successful
For five decades now, the dollar has been untethered to gold.
And while it has been loosely tied to oil (the petrodollar) its strength has really come from the worldwide adoption of the currency - even outside of oil producing countries.
This led to the idea of “exorbitant privilege” where the United States benefits at the expense of the rest of the world.
While one could argue this was true for some time, a number of factors come into play over time which make this a burden as well
In the end, like anything in this world there are trade-offs for all involved.
Having the world’s reserve currency puts a different set of problems on America, and those have come to a head in recent years.
Thus, as Stein’s Law states: A thing will continue until it cannot anymore.
Why the Dollar is Finally Faltering
Today countries and individuals around the world have been taking a closer look at whether it is wise to hold an excessive amount of dollars, and dollar related assets like US treasuries.
This is simply the wise thing to do when you see a country spending like a drunken sailor in port for the evening. The United States is that sailor, blowing through trillions of dollars every year on military expenditures, entitlement programs, and millions of governmental employees.
This works, as long as enough of the world is willing to finance your deficits. For nearly 50 years, foreigners (and Americans) were willing to hold dollars and treasuries in sufficient quantity to make this work.
But Russia started stacking gold after the 2008 meltdown, in huge quantities. China recently announced huge gold purchases. And many countries have started dealing in Chinese Yuan in greater quantity.
Gradually, then suddenly…
Dollar domination continued for as long as it could, but Herbert Stein’s wise words are now coming true…it cannot anymore.
Dollar Domination, How Much Longer?
The dollar is faltering in many ways, but an outright collapse is not in the cards.
There simply isn't another asset large enough, and trusted enough to take over all of the trade and serve as the reserve currency for the world.
But slowly, things are starting to splinter - away from the dollar and into alternative monies.
One country agrees to trade in another's currency, then settle the difference in dollars, or gold.
Another country simply trades one commodity for another counties commodity, and settles the difference in dollars.
Either way, fewer dollars are required, thus fewer reserves are needed.
The same thing happens everywhere in the world where barter is used as a method of exchange. There may be IOUs given or something else substituted, but capitalism finds a way to get it done.
Economic interests demand that everyone, from the largest nation down to the individual continually make economic calculations that benefit them not only today, but into the future.
De-dollarization is happening now, as more and more people decide that it is time to diversify their holdings. The dollar won’t collapse, rather it will slowly decline over time as alternatives are held in response to the continual degradation of the currency.
Bitcoin’s Role in the Coming De-Dollarization
Eventually, the entire system will be replaced.
It may take ten years, or fifty. But men and women always find a way to transact across time and space. Too many people have too many reasons to use a better currency, one not controlled by a small group of people living in one particular area of the world.
As a student of Bitcoin, you probably already know the huge advantages offered by a decentralized currency that cannot be manipulated by anyone. You either play by the rules, or you don’t play at all.
This is the massive advantage Bitcoin has over the dollar.
Because the dollar has been so powerful, it has been used by the United States to bludgeon other nations into compliance.
Don’t do what we say? Do something we don’t like? We’re going to sanction you!
Now this isn’t an argument for or against, it is what it is.
But there are more than 7 billion people living outside of the United States, and the game theory built into Bitcoin requires that they all, in time, evaluate what is best money for their own self interest and preservation.
The decision isn’t going to be difficult, we are just in the early stages.
As people become educated, a fixed supply deflationary money that cannot be sanctioned or confiscated is going to come out as the winner - and it won’t even be close.
Bitcoin will continue to rise exponentially in dollar terms as the world realizes this.