[dropcap size=small]I[/dropcap]n 2008, Europe followed the United States into a financial crisis, a crisis that was best described as caused by: “Too many people, borrowing money that they couldn’t afford, from people they didn’t know, to buy things they didn’t need, so they could impress people that they didn’t like.”
A German television documentary called “State secrets and Bank bailouts” was aired in Germany and France in March this year, and this documentary has raised some interesting issues. Two documentary makers in Germany, Harald Schumann and Arpad Bondi, became concerned that the popular opinion in Germany, that German workers had been forced to bail out profligate countries, might not be quite true. They set out to follow the money and just to see where it went. They found that the hard-earned cash of German workers ended up covering the losses of international financial investors, many of these investors were in fact living in Germany.
Ireland, that small island on the West coast of Europe, is seen by many German workers, as a nation consumed by reckless spending, one that needed the steady and conservative German taxpayer to bail them out. In fact Ireland, one of Europe’s smallest countries in the EU, ended up paying a total of 42% of the cost of bailing out all of Europe’s failed banks.
The fact is that many banks throughout Europe today have a zombie existence where they continue to exist, attempt to draw in savings, that they cannot get, by offering deposit rates, significantly below the rate of inflation, and live in an existence where they have money to pay staff but yet cannot afford to make loans to support businesses. The banks continue to trade, annually they must increase fees and yet they continue to record annual losses. Their losses are usually met by state guaranteed loans and those states seek daily to extricate themselves from their obligations to these banks.
How does this affect cryptocurrency? It had a creat effect because of the existence of the Laffer curve. The Laffer curve is one of the most important indicators in economics because it gives us an indication of how people behave in a tightly controlled system of taxation.
Let me give a simple example. If the total tax rate in a state is 10%, this includes direct and indirect taxes, then most people will choose to pay tax and the state will get a certain level of revenue. If the total tax rate increases to 20%, then some people will move to the black economy, but most will still choose to pay tax, the total revenue to the state will increase. Same with 30%, but there comes a tax rate that is so high that more and more people will choose to enter the black economy and total revenue to the state, will in fact fall. Any increases in tax rate beyond this point will result in less and less revenue. So, when countries need revenue, in the aftermath of a financial crisis, what do they do? They maintain high rates of total taxation and introduce criminal sanctions and governance to ensure that as much money as possible remains flowing through the financial institutions that exist within the State. When citizens choose not to, or are not in a position to, save money, what is it that finances the banks? The answer to this is simple, just one word, TAXES!
A significant number of banks throughout Europe have not had adequate volume of savings for a considerable number of years. Small and medium businesses need access to finance and high levels of personal and transaction taxes have ensured that the public’s propensity to save is dramatically reduced. People are frightened of ever more taxes and are choosing to pay down personal debts rather than placing money on deposit. Governments are levying more and more tax and this forces people to save less and less money. Financial instruments, such as Bitcoin, takes money directly out of this spiral. Bitcoin is empowering consumers but in doing so it is terrifying politicians.
With Bitcoin we have created a systemized currency that eliminates transaction charges and guarantees anonymity. The very success of Bitcoin has become a cause for concern within Europe. Bitcoin’s decentralized structure does not suit certain nations that have come to demand total and complete knowledge of their citizens financial affairs. Transactions via Bitcoin act to remove revenue from hard pressed states as well as from commercial companies and governments do not like this.
Bitcoin has been subject to continued bad press from many academics. Politicians have been less than positive in the face of, what may well turn out to be, a financial revolution. Europe is peppered throughout with Zombie banks, and the fact remains that many of these banks have not been fully assessed for viability. Many of our greatest enemies may well not be around in three years but the next few years may well prove to be tough ones. Bitcoin is a volatile store of value and will remain so until it enjoys more widespread acceptance. In the meantime I would simply ask you to evaluate the question: Whenever you hear the criticisms, who exactly is it that is paying the critics?