Nick’s Note: Former Wall Street executive Teeka Tiwari is the face of the Palm Beach Research Group’s comprehensive wealth-building strategy. Regular readers also know him as a world-renowned expert in cryptocurrencies.

Recently, Teeka published New World Money—a how-to book on how to play cryptocurrencies for profits.

This book is not available for sale anywhere. But Teeka has allowed us to publish excerpts of Chapter 1 in the Daily.

By Teeka Tiwari, editor, The Palm Beach Letter

Chapter 1: Bitcoin Rises From the Ashes

You are looking at a live picture of Lehman Brothers’ 158-year-old firm—born pre-industrial revolution and surviving the Great Depression…

Lehman Brothers will file for bankruptcy this evening under circumstances that, without the government’s assistance, sources tell us would almost certainly result in significant market disruption.

— CNBC special report, September 14, 2008

I trust you remember what happened next.

The credit market’s liquidity evaporated. The S&P was cut in half. 30 million jobs were shed. U.S. households lost $16 trillion worth of financial wealth. More than one million homes were lost in foreclosure.

Fear and panic spread. Some said the stock market was going to zero. Some said this was the end of capitalism. Others said it was the end of human civilization.

The U.S. government rushed in with a $700 billion bail-out package for banks it deemed “too big to fail.” With the stroke of a pen, taxpayers were on the hook for Wall Street’s reckless behavior.

But it didn’t stop at $700 billion.

The Federal Reserve (the Fed) went on to inject $3.7 trillion into the financial system over the next several years.

The Fed used this new money to do two things.

First, it purchased U.S. Treasury bonds in bulk to artificially suppress interest rates.

Second, it purchased the toxic mortgage debt from Wall Street, thus transferring bad debt from the banking sector to the public sector… to the taxpayer.

This was sold as heroic. Fed Chairman Ben Bernanke called it “The Courage to Act” in his memoir.

But a few people out there weren’t so sure. They had to ask: Where did that $3.7 trillion come from?

And the answer they found was rather simple. It came from nowhere. Well, to be more specific, it came from a journal entry on the books of the Federal Reserve.

The Fed is very honest about how this works. They tell you right on their website. The Fed basically writes a check “against itself” to create money for whatever purpose it deems necessary.

Now most people don’t question this. It’s not even on their radar. But those who understand basic economics realize something very important: Value is driven by supply and demand. As supply goes up, value tends to go down.

In other words, an item needs to be relatively scarce and relatively useful for it to have value. This is true of anything… especially money.

The median household income in the United States is about $53,000 per year, according to the U.S. Census Bureau. You need at least six decimal points before your Excel spreadsheet can compare this $53,000 figure to the $3.7 trillion that the Fed created from nothing.

What does that say about your monetary system?

This caused a few people to protest the Wall Street banks. And a few others protested the government.

They learned pretty quickly that their protests were doomed from the beginning. Brute force and opposition is not what changes institutional systems.

Systems theorist Buckminster Fuller observed this dynamic early in the 20th century. Here’s Bucky:

You never change things by fighting the existing reality. To change something, build a new model that makes the existing model obsolete.

But this was not a new discovery.

Famed artist Michelangelo understood this way back in Europe’s High Renaissance period. “Criticize by creating” is how Michelangelo put it.
Let’s turn our attention back to 2008.

Lehman Brothers has collapsed. Wall Street is in shambles. Fear and panic is spreading across the country… and across the globe.

In this environment, a curious message appeared on an obscure mailing list dedicated to the study of cryptography. The date was November 1, 2008. The author was Satoshi Nakamoto.

I’ve been working on a new electronic cash system that’s fully peer-to-peer, with no trusted third party… The main properties:

Double-spending is prevented with a peer-to-peer network.

No mint or other trusted parties.

Participants can be anonymous.

New coins are made from Hashcash style proof-of-work.

The proof-of-work for new coin generation also powers the network to prevent double-spending…

Bitcoin was born. It rose from the ashes of the worst financial crisis since the Great Depression.

But to truly understand bitcoin, the world’s first digital currency (or cryptocurrency), you must also understand money. What is it? Where does it come from? Where has it been?

Think about it. What is money?

We know what money does—it buys things. But can we define it?

Is it a green piece of paper with numbers, words, and symbols printed on it? Is it a card with your name, a string of numbers, and a bank logo on it?

Or is that just a piece of paper and a piece of plastic?

The short answer is that money is a unit of account that serves as a medium of exchange. But this is an incomplete view. To be sustainable, money must have several definitive characteristics.

  • Money must be durable. It must serve as a store of value over long periods of time.

  • Money must be portable. It must be easy to move money around—either in person or electronically.

  • Money must be divisible. You must be able to break money down into consistent smaller units that add up to consistent larger units. In other words, you must be able to make “change” out of your money.

  • Money must be fungible. It must be interchangeable. Each monetary unit must be consistently the same.

Any item that has these properties can serve as money.

Now that we know what money is, we need to figure out where it comes from… and where it has been.

As it turns out, this story is far more interesting than you would think.

A Brief Monetary History

Prior to the 20th century, most of the world operated on the gold standard through which international trades were settled in gold.

While not perfect, the classical gold standard kept nations mostly honest in their financial dealings with each other. It also forced nations to live within their means.

Large trade deficits had to be settled in gold, which drained gold from the nation’s reserves. Conversely, a trade surplus added gold to the nation’s reserves. This system placed limits on national debt.

World War I effectively put an end to the classical gold standard in 1914. To finance the war effort, the countries involved “printed” new money that was not convertible to gold. Trade settlement in gold was suspended indefinitely.

Most nations attempted to go back to the gold standard once the war was over. But the excessive money-printing caused their national currencies to diminish in value significantly. That meant nations would have to peg their currency to gold at a higher ratio than before, thus admitting the currency had lost value. Instead, the war combatants scrapped the gold standard.

During the same period, the shift towards central planning in America led to the creation of the Federal Reserve System in 1913.

The Federal Reserve is not a government agency. It is actually a group of private central banks that act as one unit. The U.S. government granted the Fed a legal monopoly on the issuance of currency.

In other words, the Fed is permitted to create U.S. dollars as it sees fit. Anyone else who attempts this will go to jail for counterfeiting.

The Federal Reserve was also tasked with being a “banker’s bank,” which meant the Fed would loan newly created money to commercial banks that got in trouble. They thought this would make the system stronger.

Instead, it created “moral hazard” within the banking system. Commercial banks knew that the Fed would bail them out if needed… so lending standards diminished over time. It became easier and easier for risky borrowers to get a loan.

This is the dynamic that ultimately caused the financial crisis of 2008. Wall Street, backed by the Fed—and the government—made too many loans to too many risky borrowers. Then it chopped up those risky loans and packaged them into complex derivatives.

And they kept doing this until it all blew up in 2008.

Rather than learn their lesson, the monetary authorities transferred the banking losses to the public with bailouts and quantitative easing programs to keep the system going.

But we need to back up for a minute. Those bank bailouts and quantitative easing programs would not have been possible 100 years ago. There were several changes to the monetary system that had to occur first.

The U.S. dollar was backed by gold when the Fed was first created in 1913. Americans could trade their dollars for gold anytime they wanted to at first.

But then, in 1933, President Franklin Delano Roosevelt (FDR) issued an executive order that made it illegal for Americans to own gold. In fact, Americans were required to sell their gold to the government for $20.67 per ounce.

After it had bought all the gold domestically, the U.S. Treasury announced that foreign central banks would still be able to trade dollars for gold… but it raised the conversion rate to $35 per ounce.

This influx of gold for cheap gave the U.S. government a strong seat at the Bretton Woods conference in 1944. At this conference, representatives from 44 nations met in Bretton Woods, New Hampshire, to discuss a new international monetary system.

They agreed upon the “Bretton Woods System” that established the U.S. dollar as the world’s reserve currency.

As the world’s sole reserve currency, the dollar replaced gold as the medium for international trade settlement. This meant that all international goods would be bought and sold in U.S. dollars… no matter which nations were doing the buying and selling. The dollar would remain pegged to gold at $35 per ounce, and other nations could redeem their dollars for gold through the “gold window.”

The dollar’s convertibility into gold on demand was to serve as a “check” on the United States. The link to gold is what gave the other countries confidence in the U.S. dollar.

The Bretton Woods System bestowed an enormous privilege upon the United States because it created a global demand for dollars. All nations needed to hold U.S. dollars to facilitate foreign trade.

This dynamic made trade deficits irrelevant for the United States. Under the gold standard, trade deficits required the U.S. to send its gold to another country. Under Bretton Woods, trade deficits required the U.S. to send its dollars to another country. And the U.S. could just print new dollars to ship out if it needed to.

This artificial global demand for dollars is what powered Lyndon Johnson’s “guns and butter” campaign that ramped up in the 1950s.

The U.S. military went to war with Korea and Vietnam overseas. That was the “guns” part. At the same time, the Great Society welfare programs launched domestically. That was the “butter.”

These initiatives were extremely expensive. As they progressed, the U.S. government created more and more new dollars to pay for them.

But foreign countries took notice. They began to worry about the value of the dollars they were holding. And rumors of the U.S. unilaterally changing the gold conversion ratio spread.

Here’s former French President Charles de Gaulle in 1965:

The fact that many countries accept as principle, dollars being as good as gold, for the payment of the differences existing to their advantage in the American balance of trade… this fact leads Americans to get into debt and to get into debt for free at the expense of other countries… We consider necessary that international trade be established as it was the case before the great misfortunes of the world, on an indisputable monetary base, and one that does not bear the mark of any particular country. Which base? In truth, no one sees how one could really have any standard criterion other than gold!

France and other concerned nations began to rapidly exchange their dollars for gold through the gold window. It was a global “bank run” on the dollar and gold rapidly flowed out of U.S. vaults.

By 1971, the U.S. Treasury only had enough gold to cover 22% of all dollars outstanding. It was about to run out of money.

Nick’s Note: Bitcoin and other cryptocurrencies are powering a financial frenzy in America’s first new “stock exchange” since 1971. New World Money tells you everything you need to know about profiting from what some are calling the “New Nasdaq.”

You won’t find New World Money on Amazon, Barnes and Noble, or any public bookseller. But you can learn how to get a FREE copy rushed to you right here…

IN CASE YOU MISSED IT…

On December 19, an FDA anomaly could launch the “God Key” 35,000%…

One Silicon Valley insider says he’s “personally invested money in 89 of the world’s most promising, breakthrough technologies. The ‘God Key’ is more valuable than all of them combined.”

See why he’s so excited right here…