"What is Bitcoin?" Manifest Part 2 -Federal Reserve and Central Bank at Your Service

"If printing money helped the economy, then counterfeiting should be legal." - Brian Wesburry

Federal Reserve and Central Bank

In this article, we will shift our focus to the Federal Reserve and Central Banks as they are a key component to our monetary supply decision making.

A central bank is a national bank that is given privileged control over the production and distribution of money and credit for a nation. The Federal Reserve is the central bank of the United States (US). The Federal Reserve was established in 1913 and its main goal has been to provide the US with a safe, flexible, and stable monetary and financial system. Since its inception, the Federal Reserve's balance sheet has grown by almost 100% since March 2020.

This means that the purchasing power of the US dollar has fallen 96%. This also means you can buy less beer with your US dollar today than you could a year ago (*sigh*).

The Federal Open Market Committee (FOMC) is comprised of twelve individuals that is a branch of the Federal Reserve responsible for the management of our monetary policy. Meaning, if they want to spend more money (by printing) and expand the money supply, they can do so with ease. Isn't it great that our monetary policy is mainly based on the decisions made by twelve individuals? Oh hell no!

What does the Federal Reserve and the FOMC have to do with us? Formerly our monetary policy was backed by the Gold Standard, which meant our country's currency, or paper money, had a value directly linked to Gold. Gold has value due to its sound money principles (great store of value through time), however, the US came off the Gold Standard in 1971 and has since switched over to the "fiat standard".

The fiat standard is a government issued currency that is not backed by a physical commodity (such as gold) but by the government that issued it. This means that we the people (you and me) must trust the government to not de-value the US dollar (fiat currency). It gives our central banks greater control over the economy because they can control how much money is printed. The U.S. dollar in your pocket is merely a paper currency not backed by anything, continues to lose value, and with the monetary spending of the U.S. government, will continue to lose its purchasing power. We are seeing inflation spikes leading to increases in the costs of goods, while our US dollar continues to be de-valued.

A famous person once said "The root problem with conventional currency is all the trust that’s required to make it work. The central bank must be trusted not to debase the currency, but the history of fiat currencies is full of breaches of that trust."- Satoshi Nakamoto

Figure 1 shows a great visualization of what your dollar is worth over the last 100 years. In 1940, one US dollar would buy 20 bottles of Coca-Cola, 17 oranges in 1971, and 1 McDonalds coffee in 2020.

Figure 1 - US Dollar Purchasing Power

We saw this meme (Figure 2) posted on the Internet, and while it brings a good laugh, it is actually true. In 1929, a twenty dollar bill could buy way more than today. Just bought a gallon of milk last week that cost $7.05!

Figure 2 - Funny Meme

While it may seem we are "programmed" to trust our government/central banks to NOT debase the US dollar and make monetary policy decisions that is not only SAFE but also for BEST of OUR interest, we have seen over time that since we have moved away from the Gold Standard in 1971, the US dollar has and is continuing to lose value.

This is why Bitcoin was created.