Big-picture power shifts from the past, present and future shape the financial world.
This episode is sponsored by NYDIG.
On this episode of “The Breakdown,” host NLW takes a step back from the nitty-gritty of markets and politics to examine current events from the global macro perspective, including:
- The 50th anniversary of the “Nixon Shock” – aka the end of the gold standard
- Afghanistan news and the fall of Kabul
This weekend marked the 50th anniversary of when President Richard Nixon decoupled the USD from the gold standard. That event in 1971, which upended the world of finance, contributed in a large way to the rise of cryptocurrencies.
The site “WTF Happened In 1971?” has chronicled the impacts of Nixon’s decision in the years since with extensive data covering wages, productivity and more. Can 50 years of financial transformations be traced back to one event?
In global news, the Afghan government’s struggle against the Taliban has reached a critical point as Taliban forces have taken Kabul, the capital. The news comes after the U.S. withdrew its troops after a 20-year war. This global event is bound to affect the financial system, but it also has ties to cryptocurrencies as they are a new, completely external tool to provide citizens in tumultuous regions agency over their money in a way that has never been possible before.
See also: The Nixon Shock: 50 Years of Money Without Gold
“The Breakdown” is written, produced by and features NLW, with editing by Rob Mitchell and additional production support by Eleanor Pahl. Adam B. Levine is our executive producer and our theme music is “Countdown” by Neon Beach. The music you heard today behind our sponsor is “Only in Time” by Abloom. Image credit: Paula Bronstein/Stringer/Getty Images News, modified by CoinDesk.
What's going on guys? It is Monday, August 16 and boy, oh boy, for someone who says they're interested in big-picture power shifts, this weekend sure had a lot to think about. It was, of course, the 50th anniversary of one of the key preceding historical events that would eventually lead to the rise of Bitcoin. That event, of course, was the "Nixon Shock" when then-President Richard Nixon decoupled the U.S. dollar from gold backing, and began the new Free Floating Fiat era. That clip you just heard was from a video shared by Michael Goldstein, aka Bitstein on Twitter, which was later retweeted by Wyoming Senator Cynthia Lummis with the statement, "Monetary policy has consequences, right a 50 year wrong. Return to sound money. #WTFhappenedin1971 #Bitcoin."
That hashtag Lummis referenced refers to a website, WTFhappenedin1971.com, that shares a huge array of charts that suggests that something critically, fatally wrong happened that day when we left the gold standard, growth and productivity, which is up 246% since then, versus growth in wages, which are up just 115%. Decline in wages as a share of the economy's total income, continuous increase in the portion of wealth captured by the top 1%. And many, many other damning statistics. So let me say a few things about "WTF Happened in 1971," and more the idea than the website. First on the website, it is a great project and a tremendous set of data to go explore. I have nothing but admiration for the folks who put it together and keep the focus on this question. Second, though, even as a Bitcoiner, I get extremely uncomfortable with both one, incomplete stories; and two, the reduction of 50 years of historical change to a single causal factor.
On the incomplete stories front, any honest accounting of the problems of the fiat system must take into account the benefits and the beneficiaries of that system as well. Mass liquidity and the availability of capital also created the underpinnings for technological revolutions that have shaped the day-in, day-out of our lives as one example. That does not mean, by the way, that one won't come away with the same conclusion that the cost to us, or perhaps more pointedly, to future generations, have been or will be worth it, but simply that it's disingenuous to not at least weigh the balance. This is the same problem I have when proponents of globalization say "look at the cheap TVs!" without being willing to discuss the hollowing out of the middle class. Or likewise, when anti-globalists say, "look at the depression in the heartland!" without also acknowledging the ways that our economy has benefited from massive global interconnection. This is not a knock on "WTF Happened in 1971.com", they're trying to bring light to a part of the story that isn't often told. And by the way, none of this is also to argue for some mushy middle of everybody's right and nobody's wrong. It's simply to try to push for conviction that is born of the complete story and a true accounting of the counter arguments. When one could look at all of the benefits of a system they disagree with and acknowledge them and still come away with the conclusion that the system has been a net negative, I find that massively more compelling than just an outright incomplete dismissal.
I worry that the Twitter version, at least, of the WTF Happened in 1971 story sometimes falls into that incomplete story trap. The other trap it can often fall into is this notion of reducing 50 years of global change into a single causal factor. It ignores the role of technological change, geopolitical change, changes in cultural expectations and so much more. And yes, I've seen people try to connect almost all of these back to a fiat money system in some way and some of the arguments are compelling. Perhaps more than anything, though, pinning such a big change on any one factor obviates the agency of literally every other global actor besides the U.S. And not just the U.S., but the U.S. at the absolute highest level of leadership. It denies them having any sort of meaningful role in shaping the history of a half century. Now with all that said, I share my skepticism of the meanest, oversimplified version of the WTF Happened in 1971 thesis only because that version is so popular on Bitcoin Twitter, in the context of the larger discussion of historical forces, that happens in other places, it is extremely narrowly important that Bitcoiners have been able to elevate these types of questions about the role of the design of the monetary system. These are immensely important questions, and the political and historical discourse would almost certainly not be asking them at all were it not for Bitcoiners.
Anyway, part of what made this weekend in particular feel so connected to that other point in history 50 years ago, was the global military backdrop. In April 1975, the frantic final last hours of the American presence in Vietnam took place. Thomas Polgar was the Saigon station chief for the CIA. In those frenetic final hours, Polgar helped the evacuation, lifting people over fences to safety, destroying files and eventually sending the final dispatch before destroying the agency's cable machine and taking the last helicopter to safety. His dispatch read, "This will be the final message from Saigon station. It has been a long and hard fight and we have lost. This experience, unique in the history of the United States, does not necessarily signal the demise of the United States as a world power. The severity of the defeat and the circumstances of it, however, would seem to call for a reassessment of the policies of nearly half measures which have characterized much of our participation here, despite the commitment of manpower and resources, which were certainly generous. Those who fail to learn from history are forced to repeat it. Let us hope that we will not have another Vietnam experience and that we have learned our lesson. Saigon signing off."
Americans were reminded of that story, that dispatch and those images of the evacuation of Saigon over the weekend as a resurgent Taliban took Kabul ending a 20-year multi-trillion dollar war with very near nothing to show for it. The images some 46 years later, however, are much more dramatic and coming live in real time. It's hard to overstate the horror of watching thousands of Afghans, who have in many cases now spent decades as American allies, chase planes down the runway, in some cases clinging to their sides only to eventually fall.
The spin machine is in full sway. On the one hand is a sort of imperial, "You break it, you bought it'' argument that says we simply can't leave this place and that state that we now have an obligation to it. This perspective is, of course, extraordinarily unpopular. It was President Trump who determined to get us out of Afghanistan with pressure from an isolationist base, and President Biden who presided over these final months, including assuring us just weeks ago that the Afghan military could and would stand up to the Taliban on their own. Either way, staying to fix Afghanistan was never in the cards.
On the other end of the spectrum are the Peter Zeihans of the world who call this more or less completely predictable, and moreover, necessary to free up American resources. In a piece titled "The Return of American Narcissism," he gave four responses to those criticizing Biden for, quote, "losing Afghanistan," and here I'm paraphrasing. One, if after 20 years and trillions of dollars the Afghanistan military can't hold on for two weeks, what would we have gotten for another couple trillion and 10,000 more lives? Two, we went to Afghanistan to prevent the return of Al-Qaeda but in the meantime, more effective copycats popped up in dozens of countries. Are we supposed to occupy them all? Three, our allies in Afghanistan weren't exactly the type of people we want to be allied with. Four, it was never worth it from a geostrategic perspective, there was nothing to be won." As Zeihan goes on to put the withdrawal in its larger context, which is America's withdrawal from the world in general, something that he personally is glad about as it gives us a chance to actually reflect: "It enables the United States to absorb the lessons of the forever wars, retool its national security agencies and military and start looking at the horizon again, narcissism can be unsightly, but it also enables one to focus on different things more relevant to the population."
Yet still, we live in a social media age and those images, those extraordinary images of would-be refugees chasing planes down the runway, no matter what the spin, no matter if withdrawal was years overdue, reeks of failure. This is another poll of the commentary I've read. Balaji Srinivasan wrote: "Public military defeat cannot be spun away. Elites are only as powerful as their assurances, and if their assurances are no longer believed, in other times and places and external defeat of this magnitude has catalyzed revolutionary political change, not always for the good." Importantly, it's rather clear that this is the narrative the U.S.'s geopolitical opponents are seizing onto and pointing in the direction of hotspots that are decidedly more significant than Afghanistan, the Global Times,. which is a Chinese state-run English language newspaper, published an op-ed connecting the dots to Taiwan and basically saying that America's Taiwan allies should be absolutely terrified. They tweeted, "From what happened in Afghanistan, those in Taiwan should perceive that once a war breaks out in the straits, the island's defense will collapse in hours and the U.S. military won't come to help. As a result, the DPP will quickly surrender."
So, why connect the dots and talk about this massive geopolitical event on an economics and Bitcoin podcast? In a weird way, I feel like the story we're watching transpire in front of us in Afghanistan is evidence of both sides of what I presented at the beginning. On the one hand, my point is that it feels dangerous to reduce things to a fiat money system. There's clearly so much going on in the story of the U.S.'s role in Afghanistan, a big dose of domestic politics, a big dose of total strategic lack of clarity. And let's not deny the agency of the groups on the ground for whom this is not a global sideshow and national distraction, but the epicenter of their lives, a multi-generational struggle. At the same time, there is no denying the role that an endless money machine played in this tragedy, this farce.
Afghanistan's central bank governor Ajmal Ahmady recounts the story of leaving on Twitter. "The collapse of the Government in Afghanistan this past week was so swift and complete - it was disorienting and difficult to comprehend. This is how the events seemed to proceed from my perspective as Central Bank Governor. Although much of the rural areas fell to the Taliban over the past few months, the first provincial capital to fall was just one week and two days ago! On Friday August 6th, Ziranj fell. Over the next six days, a number of other provinces fell - particularly in the north. There were multiple rumors that directions to not fight were somehow coming from above, there was something left unexplained. Currency volatility and other indicators had worsened, but DAB were able to stabilize the macroeconomic environment relatively well during the last week - given the deteriorating security environment. Then came last Thursday, I attended my normal meetings. Ghazni fell in the morning. I left work, and by the time I went home - Herat, Kandahar, and Baghdis also fell. Helmand was also under serious attack. Friday - we received a call that given the deteriorating environment, we wouldn’t get any more dollar shipments. People spread rumors that I had fled on Friday. On Saturday, DAB had to supply less currency to the markets on Saturday, which further increased panic. Currency spiked from a stable 81 to almost 100 then back to 86. I held meetings on Saturday to reassure banks and money exchangers to calm them down. I can’t believe that was one day before Kabul fell. On Saturday night, my family called to say that most government had already left. I was dumbfounded. A security assessment accurately forecast Taliban arrival to Kabul within 36 hours and its fall within 56 hours. I got worried & purchased tickets for Monday as a precaution. On Sunday I began work. Reports throughout the morning were increasingly worrisome. I left the bank and left deputies in charge. Felt terrible about leaving the staff. But I arrived at the airport & saw that Mohaqeq, Rahmani, Massoud, etc were already there! Head of parliament seems content."
It then goes on to describe the absolute chaos of trying to leave the country of being shoved on a plane, of hearing shots fired before the door closed around him. From our standpoint, it's hard to ignore the significance of that tweet as a turning point in their struggle. "Friday, we received a call that given the deteriorating environment we wouldn't get any more dollar shipments." Interestingly, there was a dust up all weekend on Bitcoin Twitter between Jason Lowery, a new entrant to the space who works at Space Force and who has been trying to get people on board with his conception of Bitcoin as digital violence, and basically the rest of Bitcoin Twitter who went to pains to articulate their belief that Bitcoin is the opposite of violence, technology that absolutely breaks the tradition of imposition through state power, but is growing based on voluntary adoption. A technology, which without an infinitely expandable supply, does not afford the ability to wage forever wars. There's a lot more to explore there, but I had to at least note it in the context of everything happening.
There's finally, however, the more human side of the financial dimension of this crisis. On Sunday, BBC journalist Sana Safi tweeted: "Those in Kabul who have careers, a passport and money in the bank, went to withdraw some cash today only to be told the bank manager has left his post and there may be a pause and their services." Now, to those who say Bitcoin isn't a realistic solution for these people, I'll share a tweet from Alex Gladstein: "Young Afghan woman working with Roya Mahboob and the Digital Citizen Fund were self custody-ing bitcoin as early as 2013, one used her Bitcoin savings to escape to Europe and start a new life, no need for the bigotry of low expectations." That phrase the bigotry of low expectations is a great one.
I spent my early 20s in post and current conflict zones from Northern Uganda, to Rwanda, to Israel and Palestine, to Syria to Lebanon, Serbia, Bosnia, Montenegro, what got me excited about Bitcoin when it finally clicked for me, wasn't the idea that it would help every one of the refugees or internally displaced persons that I met. Nor was it frankly, that it could upend a monetary system that had in some cases helped perpetuate and enable the conflicts that had so affected their lives. It was that for a few of those people I knew who, even back in 2004, 2005, 2006 were technologically literate, plugged into mobile and the internet and using those tools to hunt for more opportunity. For them, it would have represented a totally new a-historical force, the ability for them to exert agency over their money in a way that had never before been possible. One of the things that makes me most glad to be a part of the Bitcoin community is that it is full of people who are willing to think more deeply and with more difficulty and consternation than many, if not most other communities out there. In our world, I believe that that capacity for heterodoxy and lightness of mind will be essential. For now guys, I hope you had a great weekend. I hope this week is off to a great start. Until tomorrow, be safe and take care of each other. Peace!