Tuesday, April 9, 2013

The Dollar bubble?

Moldbug (as is his wont) brings teh Smart:
The dollar is already the global monetary standard - what creates any incentive to switch to Bitcoin?  If the dollar was financially perfect, there would be no such incentive.  The dollar is anything but financially perfect.

Probably the easiest way to see this is to consolidate dollars, Treasury notes, and in fact all securities explicitly or implicitly supported by the US Government - a strong argument could be made that this set now includes both the stock market and the real-estate market - as USG liabilities.  To put it crudely, a dollar is a share of stock in America.  Like a frequent-flier mile (which is also a liability), it confers no explicit rights, but can be redeemed for valuable privileges (especially on April 15).

This set of liabilities is constantly expanding - quite a bit more rapidly than the Bitcoin pool.  In plain English, USG leaks money.  It bleeds, in fact, like a stuck pig.  When we do accounting in a diluting equity like this, the rational way to track our positions is not by the number of shares, but by the percentage of ownership.  If we adopt this "normalized accounting," we see that normalized money is constantly being sucked out of our bank accounts.
The only thing that I'd add is that while the US Government can no doubt strangle Bitcoin in its cradle, the Gods of the Copybook Headings pay no heed to fiat currency.  The problem we may face is a combination of 1930s economic depression combined with 1920s Weimar hyperinflation.  Quite frankly, the Fed.Gov wouldn't need to raid your 401(k) account - just let inflation run at 10% a month and they take it all, via the Federal Reserve printing press.

Me, I'm a fan of hard assets.  Real property (not mortgaged), gold and silver (not paper, but physical assets).  Tam's idea of buying collectable firearms is a good one - if the bottom drops out of the economy the gats will be likely even more valuable.  Gunpowder and lead is optional, but only a store of value if you don't go shooting.

Good morning - I'm a real Cheerful Charlie today.  Hope 'n' Change!

5 comments:

Old NFO said...

Can't disagree Sir, and it's going to get worse with this 'cap' the adminstration wants to put on 401Ks...

ASM826 said...

Gunpowder, primers, lead in useful shapes and sizes, loaded ammo. These are fungible goods. While they may be consumed, they are trade goods with a long shelf life, they can broken down to small individual units (one round. They have a value even when a bar of gold is a small heavy brick. They certainly have more value than dollars when the rise in prices skyrockets beyond inflation.

Think of the value of your portfolio and how it's accrued over the last 10 years. Then look at ammo prices. If you had taken every dollar you invested and used it to buy ammo and reloading supplies over the last 10 years, what would the value be at today's prices?

Unknown said...

Yes to almost all of the above. Most of my net worth is in paid-for land. In addition I'm quite enamored of not only guns, ammo, and components, but also heirloom seeds and hand tools associated with several different crafts. I've never cared much for gold because I see it as having little intrinsic value beyond the decorative. Silver, on the other hand, has a number of practical uses. Then there are iron, copper, tin, and nickel.

In a slightly more fringe (and highly speculative!) development, recently I've started looking towards little-known (say, third-tier) violin and viola makers whose work can be commissioned for comparatively little but whom I believe have a good chance to become influential in their craft over the next decade or so. One could argue that fiddles aren't much more practical than gold, but they're a heck of a lot more accessible.

Oh, and skills are huge long-term investments. The more things I know how to do that don't depend on a reliable power grid, the better I think my chances are of not dying destitute.

Of course, on paper I look utterly sterquilinian.

Alan said...

The Dollar is an international standard because it is the currency that sucks the least. Doesn't mean it is all that great.

I still have grave doubts about Bitcoin, I think it's vulnerable to counterfeit and obviously theft on a grand scale. (But then so is the Dollar.) Bitcoin's advantages are a mathematical limit on expansion and not being controlled by a government. Of course that means it's totally unacceptable to governments and I expect it to be outlawed.

Unknown said...

I'm still trying to form an opinion on Bitcoin. Still way to much I don't know to even think about putting any money in that direction.

There are a number of potential issues that I'm not sure I understand. At this point I look at it as a pure speculation device.

The biggest problem I have is that at any time, any nation can cut off your access which is likely to result in significant loss of value as the market for currency exchange dwindle.


Given it's potential threat to economic control by central banks, I suspect there will be some significant resistance to letting it stand as an alternative currency.