From the Notebook posts were first published exclusively to my Patrons and are expanded upon here.
This one was from 4/12/2021
One of the things that converted me to the Austrian way of thinking about the economy was the concept of money with an expiration date. Early articles at Lewrockwell.com and Mises.org covering hyperinflations of various forms and kinds horrified me when banknotes and government scrip reached the point of forcing people to spend money versus having it lose its ‘legal tender’ status.
Money that ‘expired’ like points on your credit card was simply a horrifying idea.
Martin Armstrong makes the point all the time that the main reason why the U.S. dollar is the world’s reserve currency is because it is the only modern government-issued currency that hasn’t been defaulted on in over two hundred years.
In fact, it was the consolidation of the Colonial government debt held over from the Revolutionary War which ultimately doomed the government under the Articles of Confederation giving rise to the current U.S. constitution and its monopoly power to issue dollars.
That power gave the Constitution its power as an international player, telling the world the new government honored its debts. The inability of the ECB today to control the debt issuance of the euro-zone states is that currency zone’s fatal flaw and why any move towards consolidation of that power is the goal of all EU fiscal and EU monetary policy.
Absent that the EU is doomed to the same fate as the Articles of Confederation.
Fast forward to today with the world awaiting the birth of the first Central Bank Digital Currency (CBDC), the Digital Yuan from China, and we see the concept of expiration being embedded directly into what looks like the next monetary system planned for us.
We’ve come full circle, folks.
From Zerohedge came this great article going over most of the concerns anyone should have about a digital Yuan.
Fast forward a few months when China’s preparations to rollout a digital yuan gathered pace, and we reported in October that China was poised to give legal backing to the launch of its own sovereign digital currency, “cementing its trailblazer status in virtual currencies far ahead of other countries, after already recently experimenting with large-scale trials of actual payments by consumers, which was met with mixed results.” Specifically, the South China Morning Post reported that “The People’s Bank of China published a draft law on Friday that would give legal status to the Digital Currency Electronic Payment (DCEP) system, and for the first time the digital yuan has been included and defined as part of the country’s sovereign fiat currency.”
There are plusses and minuses to everything about the digital yuan. From China’s perspective it gives them a currency which can easily bypass the U.S.’s control over the flow of U.S. dollars while giving China much more control over capital inflows into the country and the terms under which it can come in.
With tensions rising between the U.S. and the Russia/China/Iran axis all three of these states are making profound moves to insulate themselves from aggressive dollar diplomacy. Today’s announcement of new, sweeping sanctions against Russia not just targeting diplomats and members of the government but limiting access to Russia’s sovereign debt greatly accelerate these tensions.
As expected the White House and Treasury’s actions against Russia today are sweeping and have some serious teeth, with the US expelling ten of its diplomatic personnel from the Russian Embassy in Washington, which is said to include intelligence officials.
Further, the US will ban American banks from buying new Russian sovereign debt starting June 14. The White House fact sheet detailing the Biden executive order’s multi-layered action details:
Russia, for her part, has already announced plans to ban MasterCard and Visa from use there. They, like China, already have a homegrown analog to the U.S.-controlled SWIFT system for international payments and are as well exploring the development of a digital ruble.
The digital yuan, which has already cut a deal with SWIFT to provide a bridge between them, will however, be used for far more than just evading U.S. sanctions so international trade can continue.
A CBDC is a digital token issued directly by the central bank with holders of the tokens being tied directly to the central bank. There is no ‘going outside that system’ because there will be no physical cash equivalent.
So, this is a completely trackable credit system that can come with, you guessed it, an expiration date to perform Keynesian (really Samuelsonian) fiscal stimulus whenever the ruling class feels there’s too much paradox of thrift happening.
CBDC’s are the ultimate power move by the central banks to consolidate their power and just the mere threat of an expiration date on your money creates a powerful incentive, they think, to spend that money as quickly as possible. This keeps money velocity high and the economy humming along in a macro sense.
Of course it does nothing to incentivize people into spending that money wisely or productively. It’s all about the flow, baby. That’s what keeps the Ponzi scheme alive. And they would only move to this type of system, unmoored from any opportunity cost for producing new monetary units, if the old debt-based system wasn’t already beyond repair.
Moreover, this is beyond Orwellian and anathema to anyone with any shred of individualism still coursing through their veins. I know that’s a lot to ask in today’s terminally woke culture which has elevated the state to godhood, but dopey me for having such provincial ideas in the insouciant 21st century.
But aside from my backwardness it still begs the bigger question what are the consequences attached to this?
From where I sit, people aren’t stupid. They may make dumb decisions but these maximized thanks to the misaligned incentives of a corrupt monetary system. Absent consequences for dumb decisions, people will continue to make them until they can’t. And yet to our feudal overlords there is no limit to this.
If we were half as dumb as they think we are, would they constantly have to lie to us about literally everything to keep us believing in their unlimited power and wisdom?
If there is one thing I have learned in my 53 years circling the sun it is that there is one thing people are more passionate and knowledgeable about than anything else and that is their money. They may not always spend it wisely, getting bamboozled out of large sums of it buying over-priced cars and homes, but when it comes to the day-to-day use of it they know exactly what the stakes are.
So, don’t for a second think that China will have a whole lotta success rolling the digital yuan out to the world with a CCP-controlled expiration date. Not in a world where Bitcoin has a $1.2 trillion valuation or DASH can moves millions in a few seconds for a penny.
They can lock down and force this onto their people but they can’t get the international community to embrace it with these kinds of land mines. Because it gets back to that same problem the first U.S. government had, if no one believes you’ll pay back the debt or honor the value of the currency its based on why would anyone accept it?
The most curious thing I’ve seen in all my years of studying markets and economics is that for some odd reason everyone agrees that the Law of Supply and Demand and its progenitor the Law of Diminishing Marginal Utility are universally true……
…. except when it comes to money.
Once we sprinkle the magic fairy dust and unicorn farts on the latest commodity to ascend the mountain of Mises’ Regression Theorem all of a sudden money operates under a completely separate set of rules.
Or so the Monetary Cranks who want control over your life want to tell you. They spend billions every year convincing you that monetary theory is different than the theory of action surrounding car buying.
And yet, it simply isn’t. Even the best analysts on the planet fall victim to this on occasion because they believe in the power of government to alter reality through the studious and ruthless application of coercion to do so.
The best description I’ve ever seen of the US Dollar recently was its a Proof of Guns Stablecoin. Absent the proof the guns which can be used to enforce the its primacy the dollar loses a lot of marginal demand.
The same will be true for a digital Yuan where the Proof of the CCP’s Guns to expire its digital yuan simply will not be able to climb that Misesean Mountain. Because once trust is lost between the consumer and their money, it 1) never comes back and 2) catalyzes a switch to something else very quickly.
Because the rules covering branding of any product, including money, are just as universal. Just ask Coke.
This is why first mover advantage in markets is so important, if properly nurtured. There’s an emotional connection to all the things we use and the inertia of using one money versus another is, of course, a big barrier to climb, but don’t think for a second that the PBoC will retain the people’s confidence the moment it tries to actually retire old tokens sitting in savings accounts as a hedge against future uncertainty, the only reason people save for the future in the first place.
Money is moving digital. The market is choosing this. The question is whether that digital money will be custodial with property rights or not. The digital yuan will not have property rights. Bitcoin and other real cryptocurrencies do. They are a necessary antipode to the type of tyranny the central banks have planned for us.
This is why all the gold bugs bitching about Bitcoin’s meteoric rise is so ungodly silly and counter-productive. We’re watching the collapse in confidence of the central banks in real time, the very thing Austrian economics told us would lead back to gold in the first place. Bitcoin trading 24/7/365 creates a different dynamic and grew up in an unregulated space where it didn’t ask permission from the tyrants to operate. It just did.
They are just bitter they picked the wrong asset in 2021 to prove that long-held conclusion correct.
Gold will have its day when the over-55 Boomer/Gen X set finally give up on thinking Proof of Guns is a valid monetary system. We haven’t even begun that process yet. They are still wedded to the old system. But the younger crowd gets it, and it’s not just here in the U.S.
If the CCP ever follows through with the threat of cancellation of digital yuan tokens to cover its incompetence it will learn the hard way that betraying the trust of the people you govern at such a fundamental level is a breach that creates real, lasting change.
The kind that real guns don’t create, only safeguard against.
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I simply don’t believe I can ever come to trust digital wallets. I am 20 years older, Tom, and don’t want any of my assets vaporizing on any basis other than my own failures.
You just identified why you can trust Bitcoin, Monero etc. With them, you and only you are responsible for managing your wallet (actually the private keys). What your are ‘trusting’ is that other people will continue to use the currency concerned. The same is true with Gold – though it has a MUCH longer history of people deciding to use it. But people do change their minds. Look at the history of using RAI stones as money – perfectly valid choice of currency technology – but it fell out of favour.
The enforced (force being the important word) currencies – fiat, by decree – that governments make you use are ok until those governments debase them in any way. Normally governments simply use slow monetary inflation to default on their debts and that affects almost everyone equally. Expiring currency introduces a new and very personal risk into their system.
Both styles of currency technology – public vs government – are digital, but the government style (CBDC) has many disadvantages.
The fact that they are both digital will be used to confuse many people and exploit them,
Curtmilr — Go to Kitco.com and see how easy it is to convrt that digital asset you fear into gold, platinum and silver. BTW, gold can be confiscatged with an executive order and BTC can only be confiscated by shutting down the internet.
Hmmm. Well I guess there may be several vectors of attack on BTC, not just the digital Yuan. One might be generating a processor shortage and then outlawing mining.
Proof of guns stablecoin. Too funny. Does this make China the Man with the Golden gun?
I own both crypto and metals. Only makes sense. If, however, the powers that be and their increasingly militarized police forces threaten you with imprisonments or worse for holding or using them, will you still thumb your noses as your doors are getting kicked in during the night? The more influential crypto currency becomes the more desperate and violent those that are threatened by it will become.
I agree with Tom on why digital currencies are working against the Fascist sh*t heads trying to herd the masses. However, history is replete with examples of where they will go next.
“If there is one thing I have learned in my 53 years circling the sun it is that there is one thing people are more passionate and knowledgeable about than anything else and that is their money.”
Yes, and it is for this reason that government spending should be controlled by taxpayers via the implementation of what I call an ‘Appropriature’ – a third house of Congress whose SOLE power is to appropriate tax monies collected by the House and Senate.
Members of the Appropriature would be elected by individuals voting in proportion to the amount of dollars they pay in federal taxes. The Appropriature would thus be more frugal and less wasteful as its members would be beholden to taxpayers.
The House (and Senate) could keep its taxing power but they wouldn’t want to use it if they couldn’t spend the money to get themselves elected and re-elected. Thus, the spending and size of government would shrink over time and, eventually, we should end up having just courts and a navy to protect our shipping.
This concept could be implemented in other ways and in other government bodies besides the US Congress. The important thing to do is to separate the accounts payable (taxes) from the accounts receivable (spending) and ensure that voters have the final say in how their money is spent. State and local governments could do this as well as foreign countries
I originally thought of this idea as solution, during the ’70s, to the Rhodesian problem. Rhodesia was a former British colony whose 270 thousand ‘whites’ paid 98% of the taxes and didn’t want to turn over political power to the then-6 million Africans. Rhodesia was forced to accept unlimited majority rule and turned into a hell-hole over the next 20 years.
I think you’re panicking unduly Tom. BTC is a very poor means of exchange. Pretty useless by 2021 standards. I am sitting here trying to make a trade knowing I have to wait an hour. An hour is an awful lot of percent in crypto – and prehistoric in terms of speed and functionality. So DCEP, and other laser focused cryptos, private and public, will render BTC totally obsolete as a middleman means of exchange. It will then really only exist as a store of value. So be it, the Chinese will say. There are many and varied stores of value. BTC is not the only game in town, either in crypto or beyond. If people want to pay millions for it, so be it. Free markets and all that. Frankly who cares? The world has moved on. China have their agenda. Maybe they want to be the GRC and so need a means to avoid the Triffin Dilemma. Maybe Gensell Coin answers the call. Or maybe they envisage a GRC basket; still, I am sure they have a meticulous plan and playbook.
Marcus,
When I talk bitcoin I’m talking crypto in general. Today Bitcoin is the means by which people are voting against the CB’s in all their forms.
Tom –
I have never been a fan of a singular digital monetary system, however when it comes to China and their current TESTING of the Digital Yuan, I would hold off criticism regarding the expiration date for perhaps a moment.
As noted, they are in the testing phase… thus once its testing in the consumer marketplace is done they will want to erase all outstanding digital issues. Secondly, they plan to use it as a means of exchange along the new Belt and Road and having it set with an expiration date will not garner ANY support from foreign countries.
However more importantly, it is the ability to lock anyone down by freezing their digital wallets etc.. that I think we agree upon is at the nefarious heart of what tyrannical govts. want to be able to do.
And I fear the US and Europe doing this MUCH more than China or Russia.
“proof of guns”. That’s very good. I had not heard that one before. It’s the most expensive, and destructive security algorithm ever.
Yeah, and I believe in leprechauns and unicorns!
History shows there’s a greater authority than DaUS money fakers and their disciples – whether in China or Chohunga.
Ill gotten gains work for so long and then there’s a reckoning – which is already on the way – but it’s hard to see when your freaking eyes are shut!
But the digital yuan will be redeemable against the yuan, ergo gold. [Otherwise no-one would want to accept it, obviously]. It’s just a way to make sure the money moves and is not hoarded; it is just a way to control money supply – and presumably to negate the negative side of the Triffin dilemma. If the yuan operates as a stable undebauched GRC backed by gold, everybody will lap it up, in all its forms.
Stores of value are fine, but in general we like value in action. Interesting challenging job, dynamic arts, culture, architecture, freedom, meeting people, travelling, extreme sports, sedate sports, and so on. Money was meant to be spent, not to be hoarded.
That is, itself, an interesting angle on that now that the Chinese have opened up the banking system to hold gold. We’ll see how that plays out, but from an international perspective there will be serious concerns about expiration dates.
If the threat is never used, all of this is very bullish for China.
One must never forget the CCP could confiscate all privately owned gold and replace it with the digital yuan and have immense backing. Perhaps that has been the purpose of promoting gold ownership to the Chinese people?
The expiration dates are an interesting concept. It would be self destructive for money. But maybe not for a currency.
If you consider crypto a currency, it could be argued that the an expiration date works to its advantage. Expiration guarantees velocity, and by some resonance of Gresham’s Law, could become the crypto you spend, rather than save.
Yes I suppose it’s possible that this disruptive technology was not anticipated by the globalists and now they are racing to take advantage.
More likely is that they smuggled this out into the public consciousness via an anonymous proxy (Nakamoto, who has suspiciously never cashed in any of his crypto) with every intention of retrieving it and forcing their version upon us once we had popularized it for them and were sufficiently enthralled by it.
In essence they have been showing us a door to a monetary dungeon in which they intend to imprison us forever, with the word “EXIT” painted on it.
HODLers are whooping loudly about their imminent freedom. They have been duped.
“It’s easier to trick a man than convince him he has been tricked”
Ivor,
If you believe that SHA-256 has an NSA backdoor then what you wrote is potentially correct. Here’s the first big problem, there are other encryption protocols.
The next argument against that perspective is one I’ve written about extensively. If there is a SHA-256 backdoor why haven’t they used it yet? It’s a multi-trillion dollar problem now which will have serious blowback on them if it fails now.
Third, if there was a SHA-256 backdoor, the institutions would know about it by now and would not be piling in…. i.e. VISA, MC, Blackrock, JPM, GS, etc… are all in crypto now.
The better argument is that they are gobbling up the BTC in order to control it the same way they control gold… by controlling most of the stock and then using that control to control the leverage in the futures market.
I’m sorry but none of these fear-based arguments hold water and no matter how much gold bugs like Schiff and MacLeod stamp their feet, technology moves society along and the fight is now.
But to clarify, this doesn’t mean gold doesn’t have a place in the future. Of course it does, at least for the next couple of generations, but crypto is the way out of their trap and you can convince yourself of the opposite all you want but you will miss two very important things.
1) the opportunity to make life changing wealth
2) the opportunity to use that life changing wealth to change the world.
Anyone at this point that continues to make these kinds of arguments is actually doing the CB’s and the WEF’s work for them.
Because once there’s enough money and infrastructure in the crypto-space there’s no need for people to go back to dollars and EXIT. Bitcoin et.al. are the EXIT strategy.
Hi Tom,
Thanks – I don’t imagine they bothered.
Stampeding almost all private crypto into their version can surely just be done using the law – “Bitcoin is being used by criminals and terrorists, so to keep you safe we are launching one backed by the IMF and regulated by the SEC – private crypto will be banned next month so fork into our version now or lose everything”
And that would do it.
I believe they have already run their preferred vehicle through some oversight theatre for our benefit and we’ll soon see it “gifted to humanity” by a pet crony.
Facebook’s Diem.
They even named it after the daily allowance given to a slave – how very Great Reset.
I actually suspect that allowing the wealthy private crypto HODLers to fork into Diem and not lose their wealth will cause many HODLers to become cheerleaders for Diem.
No doubt they will buy land with the proceeds.
I wouldn’t equate Alisdair MacLeod with Schiff. Nor would i call MacLeod a gold bug. His experience is formidable and his conclusions difficult to refute. And he sees a future role for crypto. Most prudent investors accept reality. In an age of redefinition, unfashionable gold is the most patient element in the periodic table. It sits and watches history flow by. And it lets you sleep well. Just my thoughts.
I’ve been reading MacLeod for twenty years. He is smart and very capable and wrong about crypto
If there is a backdoor to BTC, I doubt if the NSA holds it. The US intelligence services arepopulated by self-serving careerists lacking the sophistication or talent to create such a devious plot.More likely, its one of the CERN protoges and we will learn of it when the greatest short in history is launched. Meanwhile,enjoy your hyperprofits as I doubt they will pull the plug until the market exceeds several more trillion. As for myself, speculate in BTC and ALTS and buy gold.
Re Peter Schiff Tom. Peter believes that gold’s value derives from it being useful. I therefore see no reason why cryptocurrencies can’t have value, enormous value, by this metric. [Personally I think gold is money precisely because it is not very useful for anything. It would be very stupid to use some vital and very scarce rare earth as money].
I think some of these guys maybe are, as you say, hurting, because they’ve missed the chance for themselves and others to make wealth. But maybe like a boat listing badly to port, the water can suddenly move to starboard, and the money is then to be made in precious metals. And if it is really all about profiting in season, then we should also be open to this. These are early days still.
I went back and read your February weekly reports about crypto. And the comments, lively. Knowing better where you stand, I find myself in agreement that not having a small percentage of your assets in crypto is short-sighted. Lots of people are rabid on the subject or brag about their total ignorance of it, but don’t want to learn, either. This just doesn’t seem like the best time for inflexibility based solely on history. I chose to rely on physical metals for savings only and was fortunate to convert at much lower price than current. Now it’s time to dip a toe into several secondary and tertiary crypto products with reasonable potential, a small toe to be sure.
There are a bunch of technical problems cited by the rabid-but-no-foam-showing crypto critics. I figure technical progress needs a problem to chew on, and we seem to find solutions in relative silence while the news is yelling another crisis. The underlying validity of the larger mechanism is dimly emerging behind the Bitcoin-specific media hype, and it’s scaring some perceptive money management guys in the boardrooms into joining up pre-emptively. If they like it, I love it. From ridicule to violent opposition to acceptance as self-evident, as Schopenhauer said.
You diversify and read , that’s profitable for everyone. And you’ve been reading Alisdair MacLeod for quite some time longer than I. I’ll reread a few of his next, you’ve got me curious now. Thanks rick
Rick,
Outstanding sir! Thank you for taking the time to look into my arguments more deeply. I love both gold and crypto. I own both, recommend both and feel very strongly that none of us have a real crystal ball into the future. It pains me to watch people be this inflexible because I think it’s clear they are now being useful idiots carrying water for the very people they think they are still fighting.
MacLeod is a smart, committed, knowledgeable man and in the long run may be right, but it may be crypto that breaks the central banks first and then gold that breaks crypto later. Everything in its time and place.
Bravo sir.
I suppose one thing that will ensure BTC deflation over the next two generations is the amount of BTC that perishes along the way. The nice thing about a bunch of gold bars in the cellar is that they are not very easy to lose. Degradation of hardware, and dropping your Trezor wallet down the toilet are considerably more possible. Re the generations….I imagine dividing up a family fortune over one wallet and one set of keys could be an interesting recipe as well – assuming Grandad hasn’t already got Alzheimer’s and forgotten to write down his keys before drifting into senility….
I am sure BTC will be a store of value for a long time to come, I am just not writing off the competition.
I’m betting heavily on the competition
The closer the globalists get to launching their own global CBDC, the more the regulatory hammers will come down on private crypto.
By the time they actually launch it, private crypto will be thoroughly demonised and almost certainly illegal to buy or sell. If not, windfall taxed to death.
If you’re lucky, they might let you preserve your wealth by forking into their version.
Or, by the time they get around to launching theirs, the private crypto space will be so large and have its hooks deep enough into the financial system that they won’t be able to compete.
Reality always trumps fantasy. Truth always beats lies. And CBDC’s will have to be superior to private crypto (not possible if they want to maintain power) or they will lose in the long run. Proof of Guns is not a long-term workable strategy. If it was they wouldn’t be flailing around as they are now.
Like the last US election, that is a bit of a contentious statement.
I thought the bedrock of Austrian Theory was that value is subjective.
Money is what we choose. It is an aesthetic value if you like, and Schiff is a neo-Platonist.
Hopefully the Dollar is Atlantis.
If Bitcoin completely displaces Gold, it surely invalidates itself.
If 5000 years of value is shown to be ephemeral, it is hard to see how Bitcoin,
with say 50 years under its belt, cannot be but awaiting a successor.
Like Mozart, it would be inadvertently writing its own Requiem.
I think the original paper money, whether in China, Europe, or wherever, was in the form of goldsmiths receipts for deposited bullion. Leaving the gold and future fractionalization of reserves aside, those receipts represented a new technology that was a far more compact and negotiable store of value than it’s operating predecessor, the metal itself. Likewise, private crypto is a new technology that is far easier to transfer, is being adopted by the biggest corporate entities, and it’s creation appears much more finite than the circulating paper money du jour. if it wasn’t showing volatility after only eleven years it would be a very bad sign for it’s future. It’s possible that the launch window is passing for CBDC to be successful even short term. Any opportunity for stomping the cryptosphere into submission is gone, as I’m guessing Turkey and India will find out. People can be pretty smart when it’s their money at stake, they’re learning about the alternatives without a commissioned sales guy in their ear and making their mistakes earlier and more cheaply. Thankfully the young don’t listen to us old dudes either. I may have to ask one of them how to buy crypto, but I’ve never understood their explanations of streaming either. It may become like how legalization in the western states has resulted in an expensive, regulated product in cannabis boutiques while the illegal but cheaper weed outsells it. The central banks may have no alternative but to go along to get along. And to retain their relevance, possibly their deepest fear.
“Leaving the gold and future fractionalization of reserves aside, those receipts represented a new technology that was a far more compact and negotiable store of value than it’s operating predecessor, the metal itself.“
Close, the (warehouse/safe) receipts were not a store of value. They were redeemable in stores of value. As such, they were useful, convenient, substitutes. Money has to be a store of value. Currency does not.