Broken Money, by Lyn Alden

Summary & Review

“Who controls the ledger?”

Broken Money is an excellent lesson on money. Past, present, and future. The first half of the book talks about the history of money, and the technical aspects of fiat currency. The second half is about Bitcoin and the future of digital currency.

This book is best for someone interested in the history of money and the future opportunities with Bitcoin. Broken Money feels like an expanded version of The Bitcoin Standard book that I read and reviewed not too long ago. Bitcoin has so many comparisons to gold, but also has some positives and negatives compared to gold. Lyn covers these points in this book.

I loved the comparison of the naturally evolving economy of the video game Diablo 2 to the use of a highly salable form of money that people will use when they aren’t forced by government to use a specific form of money. The game developers meant for the players to use gold as a currency, but the players started to realize that there was a better option for trading with other players.

Here’s a few notable sections of the book that I enjoyed, and I’ll mostly just quote parts from the book instead of giving my take on it:

The Rise of the Petrodollar

I now have a better understanding of how after the dollar was no longer pegged to gold it became pegged unofficially to oil with the petrodollar. I was aware but didn’t really understand the agreement between Saudi Arabia and the US government to only sell oil in US dollars in exchange for the US keeping Saudi ports protected with their military. And the Arabians wanted to keep it a secret that they were using their excess dollar income to buy US treasuries, but wanted these purchases to “remain strictly secret” because of the United States’ strong support for Israel.

"Due to the United States' support of Israel, the United States was viewed very negatively by many Muslim-majority countries in the 1970s, and so Saudi Arabia wanted to keep the relationship a secret. Saudi Arabia's leadership worried about the negative optics of associating closely with the United States. However, they also wanted to strengthen their economic and military security against their nearby rival Iran, which is why the petrodollar deal was compelling to them.

The summary of this period of history was that the United States had enough military and economic prowess to convince Saudi Arabia and other nations to keep using its centralized and unbacked fiat currency ledger. The global oil market is enormous, and by convincing many producers to price it in dollars, sell it in dollars, and to hold their petrodollar surpluses in U.S. Treasuries, the United States basically backed the dollar by oil. The dollar was not redeemable or pegged to any specific amount of oil, but this new system made it so that any oil-importing country should want to hold dollars (Often in the form of U.S. Treasuries) as reserves, to ensure that they could buy oil when needed. This kept global demand for dollars going strong, and therefore kept the overall dollar network effect going strong. Starting in 1974 and continuing to the present, the world has mostly operated on this petrodollar standard.”~ Lyn Alden, Broken Money

IMF & the World Bank

This section of the book was probably the most eye-opening for me. There’s a very detailed explanation of how the International Monetary Fund and the World Bank are structured to export as much wealth and commodities out of impoverished developing countries, and instead of a mutual benefit, those impoverished countries are left with dollar denominated debt which puts them in an endless cycle of constantly needing to produce for the wealthier nations. This is why you see impoverished countries, mainly in the Southern Hemisphere, have so many resources yet always seem to be struggling to get out of this debt cycle.~ Lyn Alden, Broken Money

"The current global financial system with 160 different fiat currencies, each with a local monopoly over its jurisdiction, and each of which being tied to the highly salable U.S. fiat currency through dollar-denominated debts and dollar-denominated reserve holdings, tends to benefit those at the top of the socioeconomic ladder at the expense of those at the bottom. It helps keep people in developing countries in a state of constant development, dependency, and ever-rising debt, while structuring their economies around serving the wealthy developed countries rather than optimizing for self-sufficiency and well-roundedness.

Currencies are regularly devalued (either due to mismanagement by their leaders or at the behest of the IMF) which keeps workers' wages and savings low in terms of global purchasing power. This process enriches corrupt developing country rulers who get to control their country's ledgers and siphon off value for themselves by devaluing the savings of the people. It enriches developed market corporations who get paid to do the work, and leaves the bill at the public level with the impoverished people of those nations who had little say in the process. It then helps keep those corrupt rulers in power by giving them bailouts and restructurings — up to a dozen times or more — to repeatedly push the problems into the future whenever they have a crisis in the present. Those crises are often caused by them having too much dollar-denominated debt in the first place, and the typical solution is to help them take on even more dollar-denominated debt and remain on that endless treadmill.”~ Lyn Alden, Broken Money

The Dollar and Developing Countries

“As US policy makers try to tighten or loosen monetary policy to smooth out the US economy, they push volatility and economic pain toward developing countries.”~ Lyn Alden, Broken Money

Inflation

"In modern times, most developed country central banks maintain a 2% annual price inflation target and become concerned if inflation is significantly below the target or above the target. A 2% inflation target means that prices on average will double every 35 years. This is interesting, because ongoing productivity gains should make prices lower over time, not higher. Central bankers do everything in their power to make sure prices keep going up. To put this another way, central bankers do everything in their power to ensure that deflationary productivity gains are continually offset by a greater amount of currency debasement, so that nominal prices of goods and services keep marching higher at a slow and steady pace despite becoming more efficient to produce.

Price deflation is inherently a good thing. Throughout the 19th century, at the dawn of the age of oil and electrification and long-distance railroads, prices tended to be structurally deflationary. It became much easier to make things with so much extra energy, and there was an explosion of technological growth, productivity growth, human population, and human life expectancy. Similarly, the past several decades have seen a rapid reduction in the prices of electronics.

And yet, deflation is often painted as a terrible thing by central bankers, and by mainstream economists more broadly. In their worldview, prices must continually go up rather than down. In fact, many of them argue that if prices go down, people will delay purchases indefinitely to wait for lower prices (even though we obviously don't do that with electronics). In their policy framework, prices must constantly go up, excess saving needs to be constantly discouraged, and people need to be kept on a constant treadmill of consumption and borrowing to support continual and smooth economic growth.

A key reason why policymakers and economists fear deflation is because deflation is bad for highly leveraged financial systems, and yet leverage is exactly what they encourage to exist through their policies. When everything is built on massive amounts of debt, and policymakers keep intervening to make sure debt levels go ever higher, then deflation can collapse the system if it's allowed to occur. Persistent deflation is not compatible with high debt levels, and thus not compatible with the modern financial system.”~ Lyn Alden, Broken Money

"The present has been persistently improved at the cost of the future. Dealing with the public debt has always been the next politician’s problem, and yet now, toward the later stages of a long-term debt cycle, we’re beginning to reach the point where the problems are materializing in the present.”~ Lyn Alden, Broken Money

CBDC vs digital currency

"It's clear that money is moving into an increasingly digital form over time.

The creation of Bitcoin ushered in a new era, and its aim was to decentralize money and give control of the ledger back to the users. On the other hand, fiat currency systems have adopted aspects of this technology and are being digitized as well, in the form of central bank digital currencies. In contrast to Bitcoin, CBCs empower the controllers of the ledger at the expense of the users, and therefore give central banks and state agencies the ability to control their ledger with even finer precision than they historically have been able to do. The technology of central bank digital currencies potentially allows central banks to phase out physical cash, which represents the last vestiges of private and censorship-resistant transactions within existing fiat currency systems.”~ Lyn Alden, Broken Money

Bitcoin in Politics & Law

"Technologies that make it harder to freeze money are not about avoiding legitimate laws, but rather are about ensuring governments themselves follow their own laws”~ Lyn Alden, Broken Money

"A theme that many left leaning bitcoin proponents have in common is that they view the bitcoin network as a tool to curtail the overreach of corporations and crony capitalism. In similar ways that many right leaning Bitcoin proponents view the bitcoin network as a tool to curtail the overreach of the state. This is not contradictory because in the broadest sense the Bitcoin network is a tool among many other tools that provides a check on many forms of consolidated power, including both the corporate and government varieties. At the highest levels of power, governments and corporations become intertwined anyway."~ Lyn Alden, Broken Money

My Review of Broken Money

I have so much of this book highlighted that I thought about adding to this summary/review, so there’s plenty more topics in this book that are really interesting. I enjoyed the first half of the book, talking about the history of money and how money works, as compared to the second half bitcoin section. I don’t know how much of the technical systems behind bitcoin that I need to know, but I’m learning. If this book doesn’t tempt you to invest at least a little bit into Bitcoin, then I don’t know what else could. There’s no doubt that there are major flaws in our current financial system and bitcoin is a near perfect solution, although the US government might not see it that way.

If you’ve made it this far, I really recommend checking out my book review of End The Fed by Ron Paul. This is one of my all time favorite books and Paul gives a great lesson on the consequences we are dealing with from allowing the Federal Reserve to control our financial system.