Is Socialism a Successful Economic Model? Part 1

Welcome to the third post of this series on socialism.  In the next two posts we will look at failed examples of socialism. The truth is socialism has been tried many times throughout the world over the last century. In every example it failed miserably. There are so many examples of failed socialism that we can’t cover them all in this post. We need to split it into two posts. Even then it would be hard to list every example without writing a book. For the sake of time I will rely on a few videos to present some of the detailed information. So now I will present my case as to how Marxian Socialism has failed in the promise of elevating workers and raising poverty levels. Instead it has brought about brutal dictatorships that have killed a massive amount of innocent people.

When you hear some progressives talk today they seem to make the claim that socialism has been a successful model in the past. According to them, it only failed under some governments but not all governments. They will point to certain governments in Europe today and claim that in some cases socialism works. They make the bogus claim that some examples of socialism in the past have failed, but there are examples that we can see today that seem to indicate that it can be successful. Then they drive this next point home. “Socialism can work, it just needs to be done by the right people.” These are their talking points, but are these claims true? Does socialism provide a better economy? Does it reduce poverty? In this post we are going to explore these questions. We will trace the history of socialism and see what the real story tells.

We are talking about Marxian Socialism. These concepts originate with Karl Marx, and Fredrich Engels. Karl Mark wrote the Communist Manifesto. Marx and Engels also collaborated on a work called Das Capital. The primary theories and definition of socialism are spelled out in these writings. So let’s look at the history.

Soviet Union

Vladimir Ilyich Ulyanov is better known by the alias Lenin. He was born on April 22, 1870. He was a politician, political theorist, and a Russian communist revolutionary. He was the head of Soviet Russia from 1917 to 1922 and then of the Soviet Union from 1922 to 1924. Under his leadership, Russia became the wider Soviet Union. This was a one-party communist state governed by the Russian Communist Party. Lenin was ideologically a Marxist. He built on that foundation and developed his own political theories which are known as Leninism.

Lenin was born to a wealthy middle class family. He embraced revolutionary socialist politics following his brother’s execution in 1887. He moved to Saint Petersburg in 1893 and became a Marxist activist. In 1897, he was arrested for sedition and exiled to Shushenskoye for three years. After his exile, he moved to Western Europe, where he became a prominent theorist in the Marxist Russian Social Democratic Labour Party or RSDLP.

When Lenin finally took power his administration issued a series of decrees. The first was a Decree on Land. This decree declared that the landed estates of the aristocracy and the Orthodox Church should be nationalized and redistributed to peasants through local governments. This conflicted with Lenin’s desire for agricultural collectivization, but the decree provided governmental recognition of the widespread peasant land seizures that had already occurred. In November 1917, the government issued a decree on the press. After that point it controlled all media outlets. In November 1917, another decree was issued abolishing Russia’s legal system, and calling on the use of “revolutionary conscience” to replace the abolished laws. The courts were replaced with “Revolutionary Tribunals” to address counter-revolutionary crimes, and People’s Courts to deal with civil and other criminal offences. They were instructed to ignore pre-existing laws, and base all rulings on the Sovnarkom decrees and a “socialist sense of justice”.

In September 1917, Lenin published “Imperialism, the Highest Stage of Capitalism”. He argued that imperialism was a product of monopoly capitalism. He believed capitalists sought to increase their profits by extending into new territories where wages were lower and raw materials were cheaper. He believed that competition and conflict would increase and that war between the imperialist powers would continue until they were overthrown by a proletariat revolution with an end result of established socialism. In this way social justice would be achieved.

Lenin was a devout Marxist, and believed that his interpretation of Marxism was the sole authentic and orthodox one. Lenin’s interpretations were first termed “Leninism” by Martov in 1904. According to his Marxist view humanity would eventually reach pure communism. First it would become a stateless, classless, egalitarian society of workers who were free from exploitation from capitalists. They would control their own destiny and abide by the rule “from each according to his ability, to each according to his needs”. Lenin thought that the path he was setting Russia on would ultimately lead to the establishment of this communist society. Lenin’s Marxist perspectives led him to the view that society could not transform directly from its present state to communism. It must first enter a period of socialism. Because of this belief, his main objective was how to convert Russia into a socialist society with a socialist economy. In order to do this he believed that a “dictatorship of the proletariat” was necessary to suppress the bourgeoisie. He defined socialism as “an order of civilized co-operators in which the means of production are socially owned”, and believed that this economic system had to be expanded until it could create a society of abundance.

In order to achieve this, he sought to bring the Russian economy under state control. This was his central concern. Lenin said “all citizens” becoming “hired employees of the state”. Lenin’s interpretation of socialism was centralized, planned, and statist, with both production and distribution strictly controlled. His calls for “workers’ control” of the means of production did not refer to the direct control of enterprises by their workers, but it really meant the operation of all enterprises under the control of a “workers’ state”. This is pretty much the path that all Marxian Socialists take.

When the revolution first took place it lasted four years. After a bloody four-year struggle Lenin won, establishing the Soviet Union in 1922. It had an estimated cost of 15 million lives and billions of rubles. Poverty levels rose sharply and the land faced famine because of the war. Under Lenin thousands of people were killed in something called Red Terror. With Vladimir Lenin’s approval 50,000 white prisoners of war and civilians were executed via shooting or hanging after the defeat of General Pyotr Nikolayevich Wrangel. This occurred at the end of 1920 during the civil war in Russia. They had been promised amnesty if they would surrender. Russia was the first place where true socialism was established and it only brought death and poverty.

Joseph Stalin was born December 18 1878. He was the de facto leader of the Soviet Union from the mid-1920s until his death in 1953. He was among the Bolshevik revolutionaries who took part in the Russian Revolution of 1917. Lenin had Stalin appointed General Secretary of the Communist Party of the Soviet Union in 1922. This post allowed Stalin to appoint many of his allies to high government positions. He managed to consolidate power following the death of Vladimir Lenin in 1924. He did this by expanding the functions of his role while at the same time eliminating any opposition. He began serving as the Premier of the Soviet Union after establishing the position in 1941.

Over the years many people have tried to calculate the number of people killed by Stalin. Here is a partial breakdown according to historians that used Soviet records. The Soviets executed 158,000 soldiers for desertion during the war. There are official records of 799,455 executions between 1921-53. Historians estimate that nearly 700,000 people (353,074 in 1937 and 328,612 in 1938) were executed in a reign of terror. 1.7 million deaths in the Gulags and some 390,000 deaths during kulak forced resettlement – with a total of about 3 million officially recorded victims in these categories.

Other estimates of people killed including executions equal 1.5 million, Gulags equal 5 million, deportations equal 1.7 million out of 7.5 million, and POWs and German civilians equal 1 million. This is a total of about 9 million victims. If famine victims are included due to resettlement and land confiscation then there was a minimum of around 10 million deaths added to this number. It breaks down to 6 million from famine and 4 million more from other causes which are attributable to Stalin’s regime. Some historians suggesting a likely total of around 20 million people were killed under Stalin. After the cold war more records were open to America and numbers were revised. American political scientist RJ Rummel believes 60 million died under Stalin. I think the number is closer to 23 million.

https://www.quora.com/We-know-that-Stalin-killed-60-million-are-the-27-million-people-who-died-in-WW2-counted-with-them-How-many-of-them-were-killed-in-the-civil-war

https://en.wikipedia.org/wiki/Excess_mortality_in_the_Soviet_Union_under_Joseph_Stalin

Poverty levels remained high under Stalin’s rule. Many farms where confiscated and many people lost land through Russia’s redistribution efforts.

Germany

Nazism is also known as the National Socialist German Workers’ Party According to historians. It was a totalitarian movement led by Adolf Hitler as head of the Nazi Party in Germany. With its intense nationalism, and dictatorial rule, Nazism shared many elements with Italian fascism. However, Nazism was far more extreme in its practice and in its ideas. It was an anti-intellectual movement emphasizing the will of the charismatic dictator as the sole source of inspiration of all people. Nazism also held a vision of annihilation of all enemies of the Aryan Volk as the one and only goal of Nazi policy.

Hitler would often declare that the Nazi party was socialist in speeches. However, the assumption that the country was socialist because the word “socialist” appeared in the party’s name and socialist words and ideas appeared in the writings and speeches of top Nazis is a bit naive. On the contrary, what the evidence shows is different altogether. The truth is the Nazi Party leaders paid mere lip service to socialist ideals on the way to achieving their one true goal which was raw totalitarian power. I believe that having the appearance of socialism simply rallied more people to their cause. As people joined the party, they more than likely believed they were part of a socialist revolution.

I don’t believe Hitler was ever a socialist. This is because he upheld private property, individual entrepreneurship, and economic competition, and he disapproved of trade unions and workers’ interference in the freedom of owners and managers to run their business. Germany’s economy did very well in the 1930’s. However, the state, not the market, would determine the shape of economic development. This is why some claim that socialism was part of the platform in the Nazi party. Capitalism was left in place, but in operation it was turned into an adjunct of the state. Socialism is complete state control of industry. That was not German policy. If you doubt this then watch the movie Schindlers’ List. You will see how capitalism, although limited, worked within the state. However, similar to socialism policy, all Jewish businesses were seized.

Immediately after taking office Hitler instituted what he called “Racial Hygiene.” Between 1934 and 1937 over 400,000 people were deemed unfit by the Nazi regime. These people went through forced sterilization. Then Hitler sought to euthanize people. Hitler sought genocide of the Jewish people. This was driven by his beliefs in eugenics. During the course of the war millions of Jews would die. There were extermination camps set up. The Auschwitz camp preformed experiments in eugenics. The most infamous doctor at Auschwitz was Josef Mengele. He performed many cruel experiments on people in the camp. He was known as “The Angel of Death”. In total Hitler’s regime killed 11 million of his own people. Millions of Jews also died.

https://en.wikipedia.org/wiki/Adolf_Hitler

Argentina

In 1916 Argentina was one of the richest countries in the world. At that time, Great Britian’s empire had grown into the dominant place among the world’s industrialized nations. At that same point in history, the United States and Argentina competed for the worlds second most powerful economy. Like the United States, Argentina had huge acres of farmlands filled with rivers and an accessable port system. Argentina’s level of industrialization was much higher than many European countries. Telephones, railroads, and automobiles were common among the people and they could be found everywhere.

In 1916 Argentina elected a new president. Hipolito Irigoyen from a newly formed political party known as The Radicals. Under the  solgan of “Fundamental Change” and with the appeal of the middle class he instituted socialist policies. Among some of Irigoyen’s changes he instituted mandatory pension insurance, mandatory health insurance, and support for low-income housing in an effort to stimulate the economy which was already booming. The state assumed economic control of a major part of the country’s operations. They began assessing new payroll taxes to fund their efforts.

With a vast increase in funds for these entitlement programs, Argentina’s payouts became overly generous. Before long the entitlement programs surpassed the value of the taxpayers contributions. It quickly became underfunded. The economy started a downward spiral.

The economy fell after the election of Juan Peron. He was a fascist and had a corporatist upbringing. Peron and his charismatic wife Eva aimed their rhetoric at taxing the nation’s wealthy and rich, but this targeted group quickly expanded to include the middle class who later became an enemy that needed to be defeated. Propaganda targeting the rich also targeted the middle class.

Under Peron, the size of government bureaucracies exploded through the use of massive programs of social spending and by encouraging the growth of labor unions. These programs provided government jobs and attracted the peons from the haciendas which led to large reductions in beef and wheat production.

Peron had been driven from office, but the high taxes and economic mismanagement laid the foundation for poverty after he left. His populist rhetoric and contempt for real economics lived on. Argentina’s federal government continued to spend well beyond its means. By the 1970s  inflation was so bad that taxi cab drivers were issued a printed chart each morning. The meter reading was adjusted using the daily chart in order to determine the fare. Now Argentina was importing wheat and beef when at one time these items  were  vital exports.  Hyperinflation exploded in 1989 due to industrial protectionism, redistribution of income based on increased wages, and  the growing state intervention with the economy. All socialism ends this way without exception.

The Argentinean government’s policy of printing incredible amounts of money to pay off its public debts which were caused by socialism crushed the economy. Hyperinflation hit 3,000 percent. Food riots were now commonplace. Stores were looted, and the country descended into chaos. By 1994, Argentina’s public pension had imploded. This was the equivalent of our social security program. The payroll tax on the middle class increased from 5 percent to 26 percent. Argentina also implemented a value-added tax also known as VAT tax. New taxes crushed the private sector and further damaged the economy. By 2002 the Government’s fiscal irresponsibility paved the way to an economic crisis that was equal to the Great Depression. In 1902 Argentina was one of the worlds richest countries. One hundred years later it is poverty-stricken and it is struggling to meet its debt obligations. This is the type of financial chaos that is caused by socialism.

Cuba

Cuba is another place that has been devastated by socialism and communism. In the 1950s, various organizations, including some advocating an armed uprising, competed for public support in bringing about political change. In 1956, Fidel Castro and about 80 supporters landed from the yacht Granma in an effort to begin a rebellion against the Batista government. Batista’s government, although capitalist, was also brutal and corrupt. It was not until the summer of 1958 that Castro’s  movement emerged as the leading revolutionary group.

By late 1958 the rebels had broken out of the Sierra Maestra and launched a general  insurrection that became popular. After Castro’s fighters captured Santa Clara, Batista and his family fled to the Dominican Republic on January 1st, 1959. Later Batista went into exile on the Portuguese island of Madeira.  He finally settled in Estoril, near Lisbon. Fidel Castro’s forces entered the capital on 8 January 1959. The liberal Manuel Urrutia Lleó became the provisional president.

From 1959 to 1966 Cuban insurgents fought a six-year rebellion in the Escambray Mountains against the Castro government. The U.S. State Department has estimated that 3,200 people were executed from 1959 to 1962. According to Amnesty International, official death sentences from 1959–87 numbered 237 of which all but 21 were actually carried out. Other estimates for the total number of political executions range from 4,000 to 33,000. The vast majority of those executed directly following the 1959 revolution were policemen, politicians, and informers of the Batista regime. Many of these people were accused of crimes such as torture and murder, and their public trials and executions had widespread popular support among the Cuban population. Many innocent people died as well. Some were falsely accused.

The state wasted no time seizing control of industry. Cuba’s imports grew after the revolution and at the same time, their exports fell. The newly formed Cuban government started to receive financial assistance from the Soviet Union. Once the cold war ended the Soviets cut off their assistance and Cuba experienced a high level of poverty. State run industry has always been a failure in post revolutionary Cuba. It was harder to detect when the Soviets were underwriting their losses.

CIA report on Cuba after the revolution declassified

Che Guevara was born in Argentina. He is thought of as a hero by the liberal elites, but this man has killed many people. He is responsible for assisting in the Cuban Missile Crisis, and in the end he died a cowards death.  Watch the videos below to learn more about him.

Conclusion

There are about 40 countries around the world today that have embraced socialism. I have only covered a few of them in this post. In every case each country failed economically. The promises of a socialist workers paradise followed by economic freedom  never came to pass. Socialism’s promise of being free from exploitation has never materialized. Karl Marx wrote about the benefits of socialism. What he did not know is the fact that none of these benefits really existed. Today our young people share that same dilemma.

Socialism has taken its toll. In many cases people were executed either for their belief in capitalism, for the support of the old government, or for their belief in Christianity. Many innocent people were killed who had never had an economic worldview.  Over 100,000,000 people were executed in the name of socialism. In the next post we will cover more places were socialism has failed, and point out misconceptions regarding socialism in Europe.

What is Socialism?

Iraq Currency Watch started off by evaluating and analyzing the Iraqi dinar as an investment. From there we started to look at other currencies. That led to a study on how currencies work, and that led to a four-year study on global economics. We have been writing about economics since 2010. When ever you discuss and research these topics you will eventually compare economic models that nations have used in the past with current economic models. Today, Iraq Currency Watch covers false doctrines associated with global economics. These doctrines are used to push fraud and investment scams. With this background in mind I would like to cover and define the economic model of socialism and its impact on our society and culture today. In this next series we will define what true socialism is and uncover its past. It seems that this topic is misrepresented in universities around the world.

I was always baffled with the amount of supporters Bernie Sanders has. I could never understand why so many young people believed in the promises of socialism so passionately. Then I encountered some of these people and it became apparent that they don’t really know what socialism is. Their definition is skewed. Eventually, I had nieces and nephews that were enrolled at various universities. Soon after their first few classes they began preaching socialist concepts. They explained to me that we already have socialism and that it has been very successful. They claimed that the fire department is socialism. The police department is socialism. Government making public roads is socialism. In fact, these new socialists believe that almost every public government function is some form of socialism.

Today’s socialists have no understanding of real history or economics in general. They seem to have the misunderstanding that anything that has the word “social” in it is socialism. It would not surprise me if they believed social media is some new form of socialism. They believe that socialism in Europe has been extremely successful. They are so brained-washed that they even believe capitalism made most Americans poor while socialism made everyone in Europe rich. Don’t believe me, Look at their propaganda.

https://eand.co/how-capitalism-made-americans-poor-and-socialism-made-europeans-rich-6eb7b52353a

The article above claims that capitalism has made Americans poor while socialism has made Europeans rich. This author acts like the middle class is under great oppression in America today. Can this guy be more out of touch? He even ignores history in his ill-informed opinion on socialism and he redefines it into something entirely different. But this is a good example of what most Bernie Sanders followers believe today.

Today, liberals have changed the very meaning of socialism to be anything where a social good or service is provided by some form of government; be it local, state, or federal. To them that is socialism, but that modern definition coined by liberal think tanks to be inserted into talking points is not the standard socialism that many of us historically refer to. This would mean that every form of government is socialist, and that is certainly not the case. When I say “socialism” I am referring to Marxian Socialism. In this model, the path to socialism proceeds not through the establishment of model communities that set examples of harmonious cooperation to the world in a utopian society, but through the clash and struggle of social classes. This concept of socialism is defined according to the writings of Karl Marx and Frederich Engels.

In essence, socialism and capitalism are economic models that concern themselves primarily with what’s done with the surplus product created by profitable industries. Capitalism says that the profits belong to the owner of the business and it is up to them to determine pretty much every aspect of running their business. Socialism, either through state-control regulatory bodies or workers’ councils, carries out the will of the workers to equitably redistribute all the wealth created by state-controlled industries. All the wealth and production of industries is controlled by the state in this model.

With that in mind, the fire department does not generate a profit, the police do not participate in manufacturing goods, students do not receive wages for their “work” and libraries do not typically sell products in order to become wealthy. Collecting taxes to pay for public services and welfare programs is not the socialism Karl Marx is speaking of. This is not his true model and definition. Every modern country has roads, public schools, and police officers.  That does not make them inherently socialist. Ancient Rome even built public roads, public bath houses, and public aqueducts, but this doesn’t mean they invented socialism. How much net profit did the fire department make last year? How much production and gross revenue did the police department generate? We are talking about a Marxist economic model for government. How is it that liberals can’t differentiate between basic civic services and nationalizing private industries? The socialism I am talking about failed in many countries, and Venezuela is the latest example. Changing the meaning of socialism to “government social services” has confused many Bernie Sanders supporters. It really is a disservice to all the millions of people who died by the hand of Marxian Socialism.

Socialism Limits Freedom

Socialism by its very existence denies freedom to its citizens. One of the biggest problems with real Marxian Socialism is the loss of freedom. Political freedom, as defined by Milton Friedman, includes the freedom of speech, the freedom of religion, and the right to vote. Government ownership of the means of production means you loose private property rights. Copyrights, patents, and trademarks no longer apply. All assets can be redistributed by the government. This is why socialists put great faith in bigger government. While they make the argument that capitalism is greedy, they seem to ignore the fact that greed is found in socialism too. It’s not the corporations that are greedy in this model; it is the very governments that rule the people and have total control of industry that becomes greedy. As the state becomes more powerful personal freedoms are stripped away. Greed is found in communism as well. History is full of examples.

Freedom is the hallmark of the American market economy. Its underlying institutional foundations are individual rights, private property, and freedom of association and exchange in a political setting of limited government under the impartial rule of law. These are the things that are guaranteed by our constitution. This is what has been handed to us by our founding fathers because they understood oppression under British rule. It is the American constitution that limits the role of government. It is the very thing that guarantees real freedom.

When judges believe they should present decisions based on the original intent of our founding fathers our freedoms are preserved. Some Judges believe that the constitution is a living document and that it should be interpreted through the lens of our modern-day society. The only problem is this belief gives an abundance of power to supreme court judges to legislate from the bench and change the very document that guarantees  freedom for all. Liberal socialists know that the only way they can get socialism in America today is to change the constitution. They can’t vote it in and they can’t create laws to bring about socialist policies without being challenged by the court system. Their only hope is to fill the supreme court with judges that will introduce socialist policies through their rulings and uphold liberal laws that congress creates. This explains the hidden motives behind the brutal attacks to supreme court nominees from the liberals today.

Under socialism, one person’s freedom becomes another person’s obligation. past examples show that poverty actually increases in socialism because the middle class is pulled down to a lower class in this great struggle of classes. Because of this climate people tend to be confused about material abundance and cultural comfort in Western nations. Many socialists have forgotten that this is not man’s “natural state of affairs.” It is only the result of America’s unique constitution and institutions that have enabled prosperity to replace poverty. This is why many have come to the United States in search of a better life. The opportunity in America can be maintained and improved upon only to the extent that the very same ideas and institutions protect, nurture and foster a future better than today,

Yet, Karl Marx believed the only “free” man is one who does not have to work, save, and produce to have food, clothing, housing, education, and medical care, or any other everyday necessities required for life. That is precisely what  Bernie Sanders regurgitates  now, “True individual freedom cannot exist without economic security and independence. Necessitous men are not free men. ” To have to work for what you want by definition makes you not free.”

The Marxist view of freedom is freedom as emancipation or freedom from exploitation.  Later  in his life , Marx emphasized more on structural factors thus  his idea of freedom evolved to be freedom from structures of exploitations.  Labor was  often viewed as explotaion. To put it another way, any human activity that is an economical means to a desired end or goal is a manifestation of a lack of “real’ freedom. Anything lacking a life of playful enjoyment with all the related means and material possessions to that enjoyment being effortlessly available represents man as a slave to his circumstances and environment. All Industry only serves to exploit him. A socialist’s view of freedom is simply out of touch with reality. They limit the freedom of others while trying to implement their own twisted idea of liberty.

Stefan Molyneux

I thought Stefan Molyneux had an interesting point of view. He was once a socialist and now his beliefs changed. While I don’t agree with everything he says, he does have some valid points.

The Iraqi Dinar Devalued-No RV (Revalue)

You heard right. The rate just adjusted again. It is now trading at 1190 to one U.S. dollar. Sam i am predicted the rate would drop a while back on a conference call. So with that in mind an updated conference call just took place. Topics include how far the rate will drop and the future of the dinar. Here is the call in its entirety.

Of course, many of the dinar holders on YouTube did not like this news. We have been going at it pretty hard and heavy in the comment section. Some of the commenters came back and deleted their comments when they realized we were telling the truth. One of the people who has been leaving comments is a guy by the name of haissemweneht. When we were talking about the strength of the dollar he had this to say

“Remember when gasoline was worth 1 dollar per gallon? The value of the US Dollar is 14 – 16 percent less than a few years ago. Now gas is 3 dollars. I would say that the dollar is worthless.”

This is total GCR propaganda nonsense and this is what these guys do. They confuse economic terms and rant like idiots! The big mistake in this GCR talking point is the fact that they are taking a nominal inflation rate and judging the strength of the dollar by it to make the claim that the dollar has lost global value.  These are actually two different things blended together to look like one thing. They are comparing inflation rates with exchange rates and claiming the dollar is weak!

First, we are talking about the global value of one currency against another currency. Let me give you an example. When we were invested in the dinar it took 1166 dinar to get one U.S. dollar. Today it takes 1190 dinar to get one U.S. dollar. This means that the value of the dinar has gone down and the value of the dollar has gone up. In fact, if you research this you will discover that the dollar is a lot stronger globally than most people know!

We are not talking about national purchasing power. We are talking about exchange rates not Inflation rates! If we were talking about inflation then it would only be fair to compare the United States inflation rates with other inflation rates. Let’s take his gas example. Gas went over a dollar in the 1980’s. In 1986 Gas was about 1.18 a gallon. That was 32 years ago. Now let’s look at what gas cost in England 32 years ago and compare that price with today’s price in England. By this dumb logic we would conclude that the pound is completely unstable.

Every country has inflation. That is a side effect of a decent economy. When the economy goes bad you have deflation or worse, hyperinflation. All currencies lose purchasing power over time. Even the dinar loses purchasing power and it had hyperinflation during the 1990’s. He was comparing the inflation rate of the dollar with the exchange rate of the dinar. These are two different animals and it is a really bad argument. The dollar is strong compared to other currencies, not inflation rates.

This is the type of typical GCR nonsense used to sell precious metals and dinar gurus steal the same talking points. They need the dollar to tank in their presentations in a feeble attempt to make the dinar look like a good investment.

Just as a side note, look at the name of our commenter who was spreading this nonsense. The name haissemweneht is actually the new messiah spelled backwards! I don’t think I would trust anyone who has a name like that. Thanks to Nash for pointing that out!

The Bitcoin Phenomenon Part 3

If you have been following this series on bitcoin then you should have a pretty good handle on this cryptocurrency by now. Part one gives a brief history of bitcoin and talks about some of the risks. Part 2 talks about why bitcoin will never be a viable currency. It also covers the limitations it has functioning as a legitimate currency. Read part 1 here. Read part 2 here.

If you have invested in bitcoin and made money then you are fortunate. If you invested in bitcoin when it was at an all-time high then you learned a valuable lesson about investing in assets like this. The truth is you take an enormous risk every time you invest in an asset that is at an all-time high and it is smashing records at an incredible rate. Yet somehow new investors are always drawn to these types of investments. Many of these people are first time investors. Let’s review why the risk is high.

For our example we will look at gold. Gold’s all time high was hit in August of 2011. It was going for $1,917.90 an ounce. It pulled back that same day to $1880.00 an ounce. It’s all time high is officially 1889. 70. Later in that same year gold began to drop. Eventually it bottomed out in 2013 as we saw a drop by 28 percent. By 2014 gold hovered around $1140 to $1180 an ounce.

Many gold experts blamed the fall in price on bitcoin. At the time bitcoin was just starting to become popular. The story is that most people were pulling their money out of gold and buying bitcoin. This hype helped those that sold precious metals for a while. Then these gold merchants began to spread a false narrative of a Global Currency Reset. The more they attacked the dollar, the more sales they got. Now the hype was going to be that the dollar was going to crash any minute. This seemed easy to believe simply because the 2008 meltdown was still fresh on everyone’s mind. Many people were still hurting from those events, but the real truth about gold’s fall in value is much different.

The thing that drove up the price of gold was the fact that the world went through a financial global meltdown in 2008.  This meltdown was produced in large part by government intervention into the housing market, and triple A rated mutual funds acquiring junk CDO’s that represented bad debt. Insecurity in the dollar caused the price of gold to skyrocket dramatically creating a gold bubble. As the dollar recovered the price of gold came back down. By 2014 gold was below the $1200.00 mark. It turns out that 2014 was the best year the dollar had since 2005!

https://www.marketwatch.com/story/dollar-index-on-track-for-best-year-since-2005-2014-12-31

Here we are at the beginning of 2018 and gold is just now at the $1,305.60 as of this writing. If you purchased gold close to its high in 2011, you watched your investment dwindle in value. If you spent over $1,800.00 for an ounce of gold, and many people did, you now had two choices to consider. First you can get out and take a loss, or you can ride it out until the price of gold goes back up.

Even if gold recovers in 2018 and passes it’s all time high your investment was still tied up for over 6 years making you no money at all. Breaking even actually means you lost value when you factor in the rate of inflation. During this time you could have profited from mutual funds or other investments. This is the danger of investing in assets that have gone through historic and drastic price increases.

Bitcoin start out in 2017 trading between $930.00 and $978.00. Throughout the course of the year it rose to almost 20,000.00.  Just a few days later it dropped by 30% percent. That drop alone took billions of dollars away from the total cryptocurrency market capitalization. It was a big market correction. It was responsible for sending bitcoin’s price falling below $11,000.00.  Over the next few days, the price of bitcoin would rally, climbing back beyond $16,000 and higher on other cryptocurrency exchanges worldwide. However, bitcoin’s value has begun falling as it fell to the mid-$13k’s area after opening the day above $15,000 on December 28 2017.

This is extremely volatile, and it represents the classic bubble scenario that many first time investors don’t understand. It you purchased bitcoin close to its all time high then you’re stuck holding on to your investment until it recovers, or you can sell it and take a loss.

When will bitcoin recover? Nobody knows for sure, but typically with these things, you will hear a lot of hype and blame from those responsible for selling bitcoin, and from those holding bitcoin. They may blame other cryptocurrencies, and there might be some truth to that. They may make claims that the dollar crash is emanate. They may even spread some of the same global currency reset nonsense that was used to hype precious metals and foreign currencies from third world nations!

https://www.globalcurrencyresetfacts.com/

The truth is bitcoin is a bad currency. The currency gets its value from demand. So if demand is high the price is high. If demand drops, the price comes down. Standard currencies like the U.S. dollar has contraction measures in place in case demand drops. This makes these types of currency much more stable. Cryptocurrencies have no contraction measures. When demand drops investors suffer. Demand is also created through the use of taxation. It has been historically proven that when governments tax their people, and then requires them to pay that debt in the government’s currency, it creates demand. Because of the volatility of bitcoin it is not a stable store of value. This is the most basic function of a currency. This was covered in greater detail in part 2 of this series.

Not only is bitcoin an unstable currency, it is also a very unstable investment. It seems that there have been times in the past when the servers were down for days because they could not handle the volume of traffic. This means that if the investment begins to fall rapidly, it will be hard to get out creating an even bigger loss. See the link below

https://finance.yahoo.com/news/heres-big-bitcoin-problem-just-discovered-211912644.html

GBL is a Chinese bitcoin trading platform. Many subscribers were unable to log in creating a loss of up to $5 million worth of bitcoin. The server suddenly shut down on October 26, 2013. In September of 2017 China has banned cryptocurrency exchanges. This also caused bitcoin to drop temporarily. The People’s Bank of China ruled that these unregulated sales violated Chinese law and must stop immediately.

http://www.businessinsider.com/china-ban-bitcoin-exchanges-2017-9

Tether is an online company which backs bitcoin cryptocurrency with fiat currency. They were hacked on November 21, 2017. The hacker took $30,950,010 in USTD from their primary wallet.

http://www.businessinsider.com/bitcoin-ethereum-prices-fall-on-november-21-after-31m-tether-theft-2017-11

In February 2014, cryptocurrencies made national headlines because the world’s largest bitcoin exchange was declaring bankruptcy. The company called Mt. Gox stated that it had lost nearly $473 million of their customer’s bitcoins likely due to theft. This amount was approximately 750,000 bitcoins which equals about 7% of all the bitcoins in existence. Because of this crisis the price of a bitcoin fell from a high of about $1,160 in December to under $400 in February.

As of September 2017, there were over 1100 digital currencies in existence. As more of these currencies become popular it will likely pull revenue from those who invest in bitcoin. This action will decrease demand for bitcoin thus driving down prices.

Bitcoin could also recover sooner than expected. Who knows for sure? The main point in all of this is the fact that bitcoin was never a sure thing, and the investment is much more volatile than it seems! This investment is always presented by investors and cryptocurrency markets with great bias.