The Breakdown - Bitcoin and Opting Out of the IMF & World Bank

Starting point is 00:00:00 Welcome back to The Breakdown with me, NLW. It's a daily podcast on macro, Bitcoin, and the big picture power shifts remaking our world. The breakdown is sponsored by nexo.io, circle, and crack it and produced and distributed by CoinDesk. What's going on, guys? It is Sunday, December 4th, and that means it's time for Long Read Sunday. Before we get into that, however, if you are enjoying the breakdown, please go subscribe to it, give it a rating, give it a review, or if you want to dive deeper into the conversation, come join us on the Breakers Discord. You can find a link in the show notes or go to bit.ly slash breakdown pod. All right, folks, happy Sunday, happy weekend. Now, as I was reviewing things

Starting point is 00:00:48 to read for this Long Read Sunday, there was quite a temptation to read one of the many scathing indictments, explanations, etc., around SPF. A couple that I highly recommend our punk 6529's threat on the subject, which does a better job explaining what happened, than pretty much every mainstream media article we've seen to date. And I also need to give a special shout out to David Morris's op-ed on CoinDesk. FTC's collapse was a crime, not an accident. It says quite crisply what the title suggests and is an incredibly important message. However, since I've been living inside FtX Fallout, that means you guys have had to live

Starting point is 00:01:29 inside FtX Fallout, and I just didn't want to do it today. Plus, there are some really good pieces released this week on topics that are actually important in the long run. The first piece we're going to read comes from Alex Gladstein. I'm sure that most of you are familiar with Alex's work, but he is the chief strategy officer at the Human Rights Foundation. He writes essays for Bitcoin Magazine. He wrote a book called Check Your Financial Privilege, and is just a really great thinker

Starting point is 00:01:56 when it comes to Bitcoin in the broader world. This week for Bitcoin Magazine, he wrote an incredibly long and powerful piece called Structural Adjustment, how the IMF and World Bank repress poor countries and funnel their resources to rich ones. It pulls no punches, as you can probably imagine. Now, the full essay is a little too long to read for the sake of this show, but luckily Alex also published a companion thread on Twitter, which is just about right. So with that setup, let's read Structural Adjustment, the Twitter thread. Gladstein writes, My essay, Structural Adjustment, How the IMF and World Bank repressed poor countries and funnel their resources to rich ones is now live. The bank and fund claimed to help poor countries develop

Starting point is 00:02:37 and rescue them from crises. But what if that's not true? As any credit card holder knows, when you borrow, you eventually need to pay back a higher sum, principle plus interest. This basic concept is forgotten when we think about development economics. But billions of dollars of loans over decades creates even more debt. In the 1960s and 1970s, this is exactly what happened. Huge credit was extended to the third world. Eventually, the amount repaid by borrowers exceeded what was given. This moment happened in 1982. Since then, the net flow of resources has been from poor countries to rich ones. In this way, the IMF and World Bank have approximated the dynamics of colonial drain, where imperial powers looted the periphery of the globe for hundreds of years,

Starting point is 00:03:20 obtaining cheap resources and labor, and selling finished goods back to markets where they had monopolies. Today, the difference is that the sword and gun have been replaced by weaponized debt. What was once accomplished by physical force is now accomplished by quote-unquote structural adjustment. Conditions attached to loans that dictate how borrowers can run their economies. The IMF and later the World Bank attached conditions to their loans that force third-world countries to do what industrial countries like the U.S., UK, Japan, and Germany, were never asked to do post-World War II. full austerity measures. The structural adjustment playbook imposed on developing countries included raising taxes, currency devaluation, shrinking bank credit, wage ceilings, scrapping food and energy

Starting point is 00:04:04 subsidies, cutting state health care and education, favorable rules for multinational corporations. The goal of structural adjustment, and in general, of the bank and the fund, was to view third world countries as companies. Expenses had to be reduced, profits had to be increased. This meant domestic consumption was to be sacrificed, so that exports could be maximized. World Bank Policy, in particular, was designed to transform the traditional consumption agriculture of third world countries into monocrop industry to mass export typically non-edible goods, for example, coffee, tea, rubber, palm oil, cocoa, and cotton. World Bank Policy was also designed to facilitate the extraction of minerals and other natural

Starting point is 00:04:44 resources to international markets, with as little as possible being soaked up by local populations. Think, a remote hydro dam powering a mine, putting minerals on a train to a port. Export earnings did not typically benefit locals, but rather, help service foreign debt, purchase weapons, import luxury goods, fill Swiss bank accounts, and put down dissent. Historically, most bank and fund clients were unaccountable autocrats. The affinity of the IMF and World Bank with dictators runs deep into their very founding. In the 1940s and 1950s, the bank and fund extended credit to a variety of colonial operations, including to the Dutch, British, French, and Australians.

Starting point is 00:05:26 World Bank's support for Portuguese domination of Mozambique and South African apartheid was so scandalous that the UN tried to force them to cancel their loans. But the bank claimed that as a neutral organization, it could not get involved with politics, so the loans were made. The World Bank and IMF rarely met a dictator they didn't like. imperialists in right-wing regimes like the British, Pinochet, and Suharto were supported alongside left-wing or Marxist regimes like Mingizu, Tito, the CCP, and Nyerre. Suharto, Marcos, and Mobutu topped the list in terms of theft and repression. Each one borrowed

Starting point is 00:05:57 billions from the bank and the fund, only to siphon off much of it for their own personal uses. At the same time, they impoverished their populations. One would think that their debt would be considered illegitimate, as the populations of their countries did not consent to the loans. This concept is known as odious debt and originated more than 100 years ago. But the bank and fund have never followed this precedent. Third World countries were never allowed to go bankrupt. Instead, broke autocrats would get new loans from the bank and fund. By the 1970s, the leaders of these sister institutions knew that third world debt could only be

Starting point is 00:06:30 repaid with more debt. It was a literal Ponzi scheme. A key point is that the bank and funds creditors did not want holes on their balance sheets. they did not want countries to go bankrupt. They would prefer to extend more loans so they could get repaid. Again, most bank and fund clients were unaccountable and hugely corrupt dictators, who were happy to borrow today at the expense of the future, so the lender and borrower had every incentive to keep the system going. The poor and middle classes' populations of the third world, who were impoverished and repressed by structural adjustment and its enforcers,

Starting point is 00:07:01 did not have a say. There was zero democratic accountability. The outcome of 60 years of IMF and World Bank lending policies is staggering. Between 1960 and 2017, a staggering $62 trillion was drained from poor countries to rich ones. That's the equivalent of 620 Marshall plans. Against what we are led to believe, people in poor countries subsidized the way of life of people in rich countries, not the other way around. Poor countries have paid more than $7 trillion in debt service since 1980 to their creditors. Developing country debt has increased exponentially from the 1970s to today. Former colonies now owe their former colonizers 189 times more than they did in the 1970s. The bank and fund have helped these countries

Starting point is 00:07:45 achieve the impossible, borrow so much debt that they could never possibly pay it back. The solution is always to borrow more. The largest IMF loan in history was $57 billion to Argentina just four years ago. In an ecosystem where innovation is the norm, it's the basics that are in the spotlight. NXO is a company that has never put the safety of clients' funds in question. With over 50 global licenses, $775 million in insurance, and a real-time audit of custodial assets, NXO sets an example for security standards in the industry.

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Starting point is 00:10:02 reduce their sovereignty, and bail them out beyond the point of financial reality. Worst of all, during the 1970s and 80s, the per capita income of dozens of poor countries shrunk despite their growing populations. For every 2% decline in GDP, the mortality rate increases by around 1%. This means tens of millions as a result of bank and fund policy. The bank and fund were, of course, never held accountable and still aren't today. In fact, their voting structure means the U.S., Europe, and Japan are in total control. Britain has more votes at the bank and fund than India, despite being 20 times smaller. Italy has about the same number of votes as Brazil and Nigeria. Switzerland has more votes than Pakistan, Indonesia, Bangladesh, and

Starting point is 00:10:45 Ethiopia, despite having 90 times fewer people. No one with power in this arrangement has any incentive to change the game. Creditor nations want to continue to make more and more loans, and largely corrupt and unaccountable borrowers want to take them. Only a paradigm shift could change things. The bank and fund in modern form are only possible due to the fiat system. The reserve currency can be printed as a political decision, allowing massive risky loans to be extended to shaky borrowers. Everyone knows there is a put on sovereign debt. Creditors will be repaid. In a Bitcoin standard, this ends. The structural adjustment lending Ponzi will slow and then stop. The bank and fund will need to be more careful about loans and may turn to co-investment. The colonial drain may

Starting point is 00:11:27 finally come to an end. Ironically, some of the countries that have been harmed most by the IMF and World Bank now have the highest levels of Bitcoin and cryptocurrency adoption. Ghana's economy is once again collapsing, and the IMF recently visited to prepare to extend a 17th bailout for the country's rulers. But next week in Accra, there is a different kind of event happening, the Africa Bitcoin Conference. The organizers and speakers at the Africa Bitcoin Conference aren't there to extract value from Ghana and the surrounding countries, or to ensnare their governments in debt traps. They are gathering to give people open-source tools to help them achieve financial freedom. Despite the dark tone of the essay, the global Bitcoin movement does give me great hope.

Starting point is 00:12:05 This is the longest essay I've ever written and also the most jarring in the way it made me think differently. I think it's fair to say that after doing the research and interviews and putting all this together, I'll never see the world the same way again. All right, back to NLW here. First of all, big thanks to Gladstein both for the long-form piece that's on Bitcoin magazine, as well as for the summary thread. As you guys know, probably, or maybe have heard me talk about before, when I was in college, I thought I was going to spend my career on post-conflict or current conflict development economies. I studied in Cairo, went to Lebanon, Syria, Jordan. I spent a ton of time in northern Uganda, where at the time the Lord's Resistance

Starting point is 00:12:44 Army was still actively stealing children from surrounding communities, and I went to the Balkans, Serbia, Montenegro, Bosnia, spending time with local organizations. One of the most painful things the young people who get interested in development issues confront is an understanding of just the extent to which the problems that they are dealing with, the problems that they are trying to clean up and deal with the fallout from, are not really problems that ultimately can be solved by civil society and nonprofits. They are problems of power. Problems of power at the local level, of strongmen politics, of warlord politics in some places, of post-conflict power gaps, of economic turmoil that turns into opportunities for autocratic or dictatorial leaders,

Starting point is 00:13:29 and that those local problems are ultimately part and parcel of larger power structures, a huge piece of which is exactly this sort of global financial and economic infrastructure. And of course, as you heard in that thread from Gladstein, it's not just the hardest up places, the places you associate with war and violence and famine and all these sorts of things. Argentina and its huge recent IMF loan is a great example. It's also a great example of where Bitcoin might fit in with all this and how it's going to be fought. One of the terms of the most recent IMF loans to Argentina, one that was just finalized this year,

Starting point is 00:14:05 was that the country's leadership had to try, as part of their agreement, to discourage citizens from engaging in the use of cryptocurrencies. The most recent deal was a $45 billion deal, which is a restructuring of that $57 billion program that Alex mentioned. The provision in question was called strengthening financial resilience and says, To further safeguard financial stability, we are taking important steps to discourage the use of cryptocurrencies with a view to preventing money laundering, informality, and disintermediation. They explicitly do not want citizens of that country to disintermediate. They want them to have to go through the system that the IMF is quote-unquote restructuring. Meanwhile, inflation this year is around 72%. Last year it was 48%, the year before, 42%. The year before that,

Starting point is 00:14:54 53%. Clearly, something is not working. It's not surprising to me then that Argentina is an absolute hotbed for people who are involved in Bitcoin and other decentralized and defy projects. And I think, again, this is one of the reasons that this space for all of its fucking exhausting scammery and bullshit is worth fighting for. Alex Yes might be talking about how in the future on a Bitcoin standard, this situation couldn't come about. But right now in this, in this this moment where I get hope is the fact that there are at least some folks in places like Argentina and elsewhere who are empowered to opt out of the local monetary system that they were born into. We don't have many things in the world that can help us solve accidents of where

Starting point is 00:15:42 we happen to be born. But Bitcoin is one of them, and it works today. I think it's especially important to remember this now, because you're going to see a lot, a lot of people, say, that in the wake of FTX, really shouldn't we just hang it all up? We've proven once and for all that there are no real use cases. It's just the Sams of the world who found a new, beautiful huckster playground. And maybe the way to deal with that infestation is to just burn the layer. But that doesn't account for all these other parts of the world where people are, even if in small numbers, using Bitcoin and other decentralized cryptocurrencies to actually escape the crush of a system that otherwise might eat them alive.

Starting point is 00:16:26 So, fucking hell, I said it wasn't going to be about Sam, but right now, I guess everything is, even if it's just in opposition. But this is a good thing to fight for, and I appreciate people like Gladstein leading that fight. For now, I want to say thanks again to my sponsors, nexo.io, circle and crackin for supporting the show, and thanks to you guys for listening. Until tomorrow, be safe and take care of each other. Peace.

The Breakdown - Bitcoin and Opting Out of the IMF & World Bank

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