Bitcoins: A Fully-Compliant Currency The Government Can Love

I’m finishing up a novel, a piece of speculative fiction in a genre you could call “economic-thriller”.

The Mark of the Beast?

In the book, the dollar crashes in a hyperinflationary fire (natch), replaced by a new currency called the american. The exchange rate at the time of the changeover is $1,000 equals ₳1. To illustrate its purchasing power, ₳1 buys you a candy bar.

However, americans don’t exist as physical currency. There are no “american bills” like there are dollar bills, and no coins either. Instead, americans are a fully digital currency: They exist in the ether. You need a card—be it a credit card, debit card, or EBT card—to spend americans. And to receive americans, either from employers, customers, government, etc., you need a “central account” which is tethered to your Social Security number.

The rationale for these measures is convenience—but the implication is, no one can earn, save or spend money without the government being aware of exactly what you are doing.

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A Calm Analysis of Bitcoins as a Currency

I got quite a bit of backlash for writing a couple of days ago about bitcoin (post here). My criticisms were fairly mild—I’m not unsympathetic to the drive behind making bitcoin work.

“Where’s bitcoin?”
Uh . . .

But even such mild criticism of the bitcoin enterprise was enough for some of the bitcoin-faithful to denounce me as a heretic, or worse, an apostate. Or worse, a shill for the banksters and their minions. Or worse still, a fucking idiot who didn’t know shit-all about bitcoins and what they represent—the future!

Okay . . .

To be clear, I am not against bitcoin, or any other of the so-called “cryptocurrencies” (cybercurrency sounds more accurate, but I’ll stick with the current convention). Neither in principle nor in practice do I object to these immaterial, manufactured, fiat currencies. Hell, I’ve had a bitcoin wallet since 2011, when I parked a few hundred bucks in it when it was at $8 a BTC.

So I’m fine with bitcoin—but I’m not a mindless cheerleader for the thing.

When talking about bitcoin, cognoscenti have to admit, and neophytes have to understand, that bitcoin does not do all that people claim it does. Far from it, bitcoins and other cryptocurrencies are severely limited.

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Bitcoins: Get Out While The Getting's Good

“It’s so pretty!
Almost like gold . . .”

Everyone hates the dollar and the euro—and with good reason. By the lights of any thoughtful observer, the two reserve currencies are being crashed by their respective central banks: The dollar by the insanity which is Quantitative Easing, the euro by the insanity which is German intransigence.

So everyone in the blogosphere is looking for a savior, a way out of this looming inflationary/deflationary collapse.

Enter bitcoin.

Bitcoin presses all the erogenous zones of nerdy tech guys everywhere, who are after all the dominant demographic of the internet, and who are not coincidentally wild about bitcoins.

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I Have A Kid

Hulkita and me.

I have a kid. She’s five-and-a-half months old, weighs about seven kilos two-hundred, measures 65.5 cm, and as of a week ago, has two lower front teeth, each about two milimeters wide.

Once a couple of days ago, she was sitting up on my lap when I got a random hiccough. It so startled her that for a moment, her expression froze as she stared into my eyes—then she burst into tears, terrified.

But no matter how bad her mood, if I raise her over my head and say, “Airplane! Airplane!” while I smile and blow kisses at her, eventually, she smiles back and starts laughing. If I rub her upper chest with the tip of my nose, she giggles. If ever I start singing Iggy Pop and The Stooges’ Search & Destroy in her presence, she begins kicking and waving her arms, revved up to rock out; it’s her favorite song, hands down—bigger than Barney in our household.

When her diaper is full, she’ll complain. She complains in two ways: One is, she babbles incomprehensibly, but with the rhythms of speech of someone dressing somebody else down (namely my wife and me). This babble often sounds vaguely like Mandarin. The other way she complains is, she lets out a low flat growl from the back of her throat, her face turning bright red as she stares fixed at us. My wife calls this her “Hulkita” growl, as she looks like a tomato-red version of a miniature Incredible Hulk.

My wife and I were walking her in her stroller a few days ago, and some asshole came tearing into a driveway immediately in front of us, his pickup truck crossing our path barely three feet from her stroller. His window was rolled down, and the driver shot me an unconcerned look. In that split second, I seriously considered killing the guy, and the guy realized it, ‘cause he apologized and backed the fuck off.

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“I Had A Dad”

“I tried hard to have a father
Instead I had a dad . . .”
—Cobain

In America, you probably grew up with this shlubby dude who wanted to be your buddy, your pal, your amigo, your confidante, your friend.

"So Dad . . ."

He didn’t want to be your father—he wanted to be your dad.

So he didn’t teach you as a father should. And you knew it, even if you couldn’t articulate it.

You wandered through elementary school, high-school, college, without a fucking clue as to what to do, how to behave, what to pay attention to and what to ignore. You didn’t even realize why you were wandering through these halls, supposedly getting this great education. So you either blew it off—to your later deep regret—or you took it at face value—again, to your later deep regret. Your dad kept sighing, giving you a shit-eating grin, and saying, “Son, you need to get good grades,” or “Son, you need to get an education,” without telling you that good grades and a good education are two vastly different things. No one ever told you what all that schooling was really for, or how to get a real education in spite of (rather than because of) the dangerous joke that is the educational system.

Women? They might as well been martians for all the help you got from dear old “Dad”. From the first boy-girl dances you went to in junior-high, to the hook-up culture of college, to twenty-something girls on their Slut-Trek through the big city, to the Biological Alarm Clockers who accost you like beggars in Calcutta now that they’re in their early-thirties, trying to trap you into marriage: The “Dads” (“Dicks”?) gave you nothing smarter than “Follow your heart”, or “Be true to your feelings”, or most despicably of all: “Tell her how you feel—but always respect her wishes.”

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Game, the Art of Archery, and the Business of Selling

Recently, I’ve been getting into the so-called “manosphere”: Blogs, sites and forums devoted to men’s interpersonal relationships, especially with women.

Game: Apply as required.

Contrary to what critics who have never bothered reading any of these sites would have you believe, the best of them (Roosh, Chateau Heartiste, Solomon II and others) aren’t misogynistic. Quite the contrary, the writers of the better sites clearly love and appreciate women.

Their sin is, they don’t idealize women.

They cast a cool eye on women, and interpret their actions not from any Romantic, quasi-Victorian ideal of “female fragility” (which if you get right down to it is how feminism implicitly regards women, even as they are loath to admit it). Instead, these sites and blogs interpret women’s actions through a combination of evolutionary biology and social Darwinism.

The underlying assumption of these sites is that women, no different from men, seek more: More status, more reproductive success, more possessions, more ease of life, more stuff, more etc.

These sites all explicitly posit that, just as men judge women on characteristics that they value—be it youth, beauty, sexual attractiveness, etc.—women judge men on characteristics that they value—such as objective social status, localized social dominance, professional success, apearance, etc.

Therefore, according to these writers, it behooves men to understand what it is that women are judging in men, in order to improve themselves so as to become more attractive to women.

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The Democrats Finally Embrace Money Printing

Quantitative Easing is no longer just a palliative Federal Reserve policy—it has just become a political issue. Which is why it will get bigger—and worse.

If you’ve been following American political theater since the start of the Global Financial Crisis in 2008, you’ve probably noticed how many (but not all) Republicans line up on the side of fiscal austerity and tight-money policies so as to limit the fiscal deficit and reduce the government debt (at least when it comes to non-military spending. And non-law enforcement spending. And non-bank-saving spending.)—

Who says the Dems don’t like money?

—whereas the Democrats have insisted that the government needs to take on more debt, and spend its way back to prosperity. In the Dems’ worldview, deficits and debt don’t matter: What matters to them is how much is the government going to spend in order to “save the economy”. (“Paging Professor Krugman!”)

But last Thursday, during the testimony Federal Reserve Chairman Ben Bernanke gave to the Senate Banking committee, Democratic senators questioned why Bernanke was thinking of tapering off the bond purchasing programs of Quantitative Easing (QE). They wondered out loud if maybe QE should continue “until the economy further improves”.

In other words, the Democrats have finally realized that not only does QE mean they don’t have to rein in the deficit—QE also means that they can expand the deficit, confident that additional debt will be bought and paid for by the Federal Reserve. Confident that additional debt will be monetized by the Federal Reserve—because after all, that’s what QE is: Debt monetization, and everybody knows it.

(What, you really think that the Fed is gonna one day unwind its QE position? Sterilize all that money printing and rein in its balance sheet to less than $1 trillion, as per the status quo ante the Global Financial Crisis? Hue’ón, you buy that, then open your wallet, ‘cause I got a bridge to sell you.)

Which means that, with their calls for more QE, it’s clear that the Democrats have finally embraced flat-out money-printing.

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My Dog, Claire

My dog, Claire, in the kitchen at home. 

I got my dog, Claire, back in March of 1999—over fourteen years ago. She was a nine week-old puppy back then. And since then, I’ve spent more hours of my waking life with her than with any person—even my parents when I was growing up.

Think about it: I work at home, so she’s always hanging around—either napping directly behind my chair, or stepping out onto the balcony and watching the world go by. Even during the years when I worked in an office with other people, I would bring Claire along. (I could get away with that, of course, because I owned the businesses.) I once even had a fairly tense meeting with some investment bankers in my office, and Claire was there. No one noticed her: She lay under a corner table, watching everything without making a sound, the squad of banksters completely oblivious to her presence.

Claire was probably wondering, What are these crazy humans up to?

Claire isn’t my child, by the way:
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Gold is a Crap Investment—Unless...

About gold as an investment, Barry Ritholz said it best:

This is not to say gold is not affected by Macro issues. But that is very different than saying Gld has a fundamental value, an intrinsic worth. It does not. [. . .] Gold is not, and can never be, an investment. It has no true intrinsic value, no cash flow, no earnings, no coupon[,] no yield. What people call fundamentals are nothing more than broad macro analysis (and how have your macro funds done lately?). Gold is the ultimate greater fool trade, with many of its owners part of a collective belief theory rife with cognitive errors and bias. [bold emphasis in the original]

Ritholz is absolutely right: Gold does not have cash flow, earnings, coupons, or yields. Unlike, say, a factory, or a piece of land, gold cannot produce anything; gold just sits there, inert. Though it has a handful of industrial applications, and of course can be used for decoration, gold has no practical use. You can’t eat gold. You get caught in the middle of the Sahara with a ton of gold and not a drop of water? You’ll be the richest corpse in no time.

So just like Ritholz says, gold is not an investment—unless.

Unless what? Unless the fiat currency itself becomes worthless.

It is this possibility—that the novel, experimental and reckless measures being taken by the central banks of the major reserve currencies might well end up debasing the dollar, the euro and the yen to the point where they are as worthless as Weimar-era Deutsche marks—that makes mincemeat out of Ritholz’s perfectly sensible analysis.

The central banks’ screwing with the fundamentals of fiat currency is why gold is a good investment. At this time, in this era of “heroic central bank measures”, gold is probably an essential investment, considering the general direction the global economy is headed in.
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If You Are A Baby Boomer, You Will Go Bankrupt—If You Stay In America

Recently (drum roll, please) I had a tooth removed (cymbal crash!).

Unlike us, he’s got no worries—
he can afford a good gerontologist. 

But I live in Chile. So I wound up paying $62 for the extraction of a cracked rear molar, and an additional $450 for a state-of-the-art implant with a porcelain crown that ought to last me the rest of my life. This was done at a fancy-pants private dental clinic, with the latest equipment and some very hot nurses, lemme tell ya. I practically looked forward to going! (Don’t tell my wife. Please.)

Meanwhile, a friend in Texas, with nearly the identical problem, wound up paying $2,000 for the implant, and an additional $1,500 for the crown—almost 8 times what I paid. I told her it would have been cheaper—substantially cheaper—for her to fly down to Chile, stay at a nice hotel, and get the procedure done here. She thought I was kidding—until she compared the costs of the procedure, added the airfare and hotel costs, and then realized that I was right. (If you don’t believe me, check out the American Airlines website and the Holiday Inn website for yourself, then do the math.)

Another example: My 89 year-old grandmother has senile dementia, so she requires round-the-clock nursing care. Her cost? Here in Chile it’s about $1,500 per month—and this is private nursing care through a professional agency, with fully acredited RN’s taking care of her day and night in her own home. In the U.S.? The cost for the same quality of care would be between 5 and 10 times as expensive, if not more.

Now, I’m not bringing up these examples because I’m working for the Chilean ministry for tourism—I’m not. I’m giving these examples in order to highlight something crucial about globalization.

Globalization has meant that labor costs are much cheaper outside the developed world. A factory in China will produce a doodad at a small fraction of what it would cost to produce in America or Europe. Which is great, if you want to buy that doodad.

But globalization has also meant that the care and services required for older people are much cheaper outside the developed world—and prohibitively expensive in the U.S. and Europe.

Which is a disaster for retirees in America. Because if you are a retiree—or if you are a Baby Boomer who will soon be retiring—then you live on a fixed income: Be it a pension or Social Security checks or an annuity or some combination thereof. So if you live on a fixed income, and the price of health care (or health insurance) is continuously rising, then it is a certainty that you will go bankrupt before you die.

Pretty much sucks, yeah? Here’s why.
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QE Won’t End—It Will Increase

The markets are panicking about the possible end of QE. Everything but the dollar is down—and down hard—which is no surprise, considering how addicted to Quantitative Easing the markets have become.

“To Inifinity . . . and Beyond!”

This turn of events didn’t come out of the blue. Chairman Ben Bernanke and his minions at the Federal Reserve had been hinting for over a month that Quantitative Easing (QE)—the policy whereby the Fed purchases some $85 billion worth of Treasury bonds and other assets per month (per month!)—would begin to be “tapered off” starting later in the year. On Wednesday in his press conference, Bernanke essentially confirmed that strategy, claiming that the underlying economic data was improving enough to support this move. (Pelado cabrón, are you high?)

Let’s leave aside how asinine Bernanke’s view of the real economy really is, and instead focus on one brief exchange Bernanke had with a questioner at his press conference on Wednesday:

Question: Mr. Chairman, you've always argued that it’s the stock of assets that the Federal Reserve holds which affects long-term interest rates. How do you reconcile that with the very sharp rise in real interest rates that we've seen in recent weeks? And do you think the market is correctly interpreting what you think is most likely to be the future path of the Federal Reserve's stock of assets? Thank you.

Bernanke: We were a little puzzled by that. It was bigger than can be explained, I think, by changes in the ultimate stock of asset purchases within reasonable ranges, so I think we have to conclude that there are other factors at work, as well, including, again, some optimism about the economy, maybe some uncertainty arising. So I'm agreeing with you that it seems larger than can be explained by a changing view of monetary policy.

I can’t overstate how important—how revealing—this lone comment really was. The fact that Bernanke was “a little puzzled” by rising Treasury yields in the weeks before the Wednesday QE tapering announcement points to two things that are essential, if we want to understand what will happen to the markets and to the economy over the next 18 months:

One, Bernanke does not realize that it is the amount of the monthly purchases of assets—and not the inventory of purchased assets that the Fed already has on its balance sheet—that determines the prices (and therefore yields) of those assets. And two, ending QE is tantamount to ending the price support for Treasury bonds—which means that yields will rise much much more, if the Fed exits QE. Since rising yields means rising interest rates, and the Fed explicitly does not want this until at least 2015, QE purchases will continue in order to prevent this rise in yields. They will continue, and if necessary (because of rising interest rates) they will increase.

Let me restate this in simple terms for the peanut gallery in the back: There will be no “tapering off” of Quantitative Easing—instead QE will continue indefinitely, and most likely in even greater quantity, even as yields rise and drive up interest rates in the economy.

My argument is simple.
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This is the Moment

Anyone following the gradual transformation of the United States from an open society into a police-state has probably been mainlining the Greenwald-Snowden-NSA leaks case like a junkie shooting up China White.

For those who missed it, Edward Snowden, a private contractor working for the NSA, leaked several key documents which conclusively proved that the National Security Agency not only spies on all Americans’ electronic communications, but that they have the full-fledged support of the major tech companies, such as Yahoo!, Apple, Microsoft, Facebook and Google, among others.

This has been potent stuff, stuff that pretty much confirms what a lot of hard-core civil libertarians such as myself have suspected about the United States over the last few years: America has been drifting towards turnkey totalitarianism, using the War on Terror as the excuse to roll back civil liberties, and taking advantage of technology¹ to create (in Snowden’s wonderful phrase) “the architecture of oppression”.

Something Edward Snowden said, in the Glenn Greenwald interview where he revealed himself as the source of the NSA leaks, struck me hard: “The greatest fear that I have regarding the outcome for America of these disclosures is that nothing will change.” (Video here, quote at 10:49. Also embedded below.)



He’s right, and it’s my fear too. In fact, it ought to be the fear of anyone who cares about the future of the United States as a representative democracy that stands for basic human rights and against oppression. If the people of the United States do not stand up to their government now, right now, in the face of this blatant violation of all the core principles of the American Constitution, then we’re screwed. If nothing is done now, then the next stop—inevitably, irrevocably—is police-state fascism American-style.

How’s this so? Here’s my argument:

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Mo’ Debt, Mo’ Problems (Mo’ Keynesian Cynicism)

Christ, is Matt Yglesias stupid. Stupid or high, or maybe he’s just a cynical bastard—I really can’t make up my mind.

The U.S. Debt: Notice a trend?
[click to enlarge]

He just wrote a piece in Slate proposing that the U.S. government go into even more debt, ballooning the Federal debt to even higher levels than the “mere” 120% of GDP it currently is.

His “reasoning”? To take advantage of the lower interest rates currently prevalent in the bond markets.

Prima facie, Yglesias sounds reasonable. As he rightly points out,

[T]he inflation-adjusted yield on 10-year Treasury bonds was negative 0.56 percent. Savers, in other words, want to pay the American government for the privilege of safeguarding their money. For the longest-dated bonds we sell, the 30-year Treasury bond, rates were 0.51 percent. That’s higher than zero, but far below the long-term average economic growth level. [emphasis in the original]

All good up to this point.

But then in the very next breath—I mean, literally the very next line—he writes something of startling imbecility:
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Why Isn’t Gold Higher?

Hint: Because it’s the Credit Default Swap of the Next Financial Crisis

Why isn’t gold higher? Two of the three reserve currencies of the world—the dollar and the yen—are on a relentless race to the bottom, and only recently have the Europeans figured out that they’d better start kicking the euro down, before they price themselves out of the global markets.

With this general fiat currency devaluation, you would think that gold would be much-much higher than it is now.

But gold isn’t higher—it’s drifting. Consider this chart of gold, over the last decade:

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Mr. Abe’s Trigger

Prime Minister Shinzō Abe

The newly elected Japanese Prime Minister, Shinzō Abe, has caused quite a stir. The leader of the Liberal Democratic Party, which scored a landslide victory in 2012’s election, he’s promised to restart the Japanese economy, whatever it takes.

How will he do this? He “will implement bold monetary policy, flexible fiscal policy and a growth strategy that encourages private investment, and with these three policy pillars, achieve results”—according to his statement following the LDP election victory.

By “bold monetary policy”, what he means—and what he has said—is to end the independence of the Bank of Japan, and have the government dictate monetary policy directly. (You could argue whether any central bank in any of the developed economies is truly “independent”—or indeed, has ever been so. But for the sake of this discussion, let’s assume that they have been.)

The perception is, the Bank of Japan will not only print yens and buy government bonds à la Quantitative Easing of old—it is also generally thought that Mr. Abe and the incoming Japanese government fully intend to target the yen against foreign currencies, like Switzerland has been doing with the euro.

This perception is what has been driving the Nikkei 225 index higher, and driven the yen lower. Prime Minister Abe’s policies have yet to be fully implemented—so far, it’s all been just talk. But the markets are taking Mr. Abe at his word, convinced that he is going to set a policy very similar to what the United States and the Federal Reserve have been doing: Targetting the equities markets, and printing in order to bring the yen down, and thus make Japanese products competitive in foreign markets.

But why was this decision triggered? For going on twenty-three years, Japan’s GDP growth has been sluggish at best, it’s government amassing huge debts, all the while the yen slowly strengthening and the Nikkei index meandering—yet all of a sudden, now the Japanese government is ready to do whatever it takes to turn the Japanese economy around, which begs the question: Why now?

Simple: Japan’s balance of trade has turned decisively negative for the first time since the Oil Shock of 1980—and this has put the fear of God into the Japanese leadership. Look at the following chart:

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Post Mortem On The Trillion Dollar Coin (or, Krugman Jumps The Shark)

So the idiotic idea of the Trillion Dollar Coin—floated so as to get around the debt ceiling—is dead as Dillinger. The official White House announcement stated:

Neither the Treasury Department nor the Federal Reserve believes that the law can or should be used to facilitate the production of platinum coins for the purpose of avoiding an increase in the debt limit.

Since we won’t know how this decision was made until a few years hence, when Obama officials start publishing their memoirs, the current best speculation of what probably happened comes from Bruce Krasting:

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The Trillion Dollar Coin: The Zimbabwe Dream of the Obama-heads

Why do banks spend money making sure that their branches look good and solid? Why do banks spend even more money making sure their main offices look as solid and stately and settled as ancient temples?

Is this what Yglesias
and the Obama-heads
have in mind?

Why, to give the illusion of solidity. Because in finance, the illusion of solidity begets solidity—just as the appearance of banana republic-dom begets a banana republic.

The trillion dollar coin idea floating around out there is the dumbest idea ever—but it’s also dangerous for two reasons: It is a naked power grab by the executive, and it shatters the illusion of solidity and sense in the monetary system.

Matt Yglesias over at Slate is fervently in favor of the trillion dollar coin idea, and he gives as good a précis as any of the situation.
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