Are you a deflationist? Or an inflationist? No matter which way you believe the wind will blow, the truth is this: it’s up in the air. But, as Jim Rickards explains, there are things you can do to cover your assets, no matter which one wins the tug-of-war. Read on…
Smart meters are supposed to be our saving grace. Reduce pollution… reduce blackouts… and keep you and your family safe. The truth, though, is the exact opposite. What’s the true agenda behind smart meters? And why are you being lied to? Read on…
You hear a lot about gold these days. But what about silver? Chris Campbell speaks out about the moon metal with one shocking confession. Read on…
Markets have you spooked? You’re not the only one. In today’s Laissez Faire Today, you’ll hear from three market experts on how to stay safe, no matter what direction the overall market heads. Read on…
Savvy investors: Two experts weigh in on why having your own personal gold standard… and betting that Ebola will get worse… could be your best investment decisions of 2014. Read on…
Where do great investors come from?I’m not sure what the hurdle rate for greatness is, but Guy Spier has put up impressive results. His Aquamarine Fund has returned 463% since inception in 1997, versus just 167% for the S&P 500 (a broad proxy for the market). Put another way, $1 million invested at inception is […]
America has about 4% of the world’s population, yet houses 25% of the world’s incarcerated. What’s going on here? Chris Campbell digs deep into the industry to figure out the truth. While many blame the private prison industry, the real culprit, says Chris, begins right outside your door. Read on…
Bitcoin has been pretty quiet lately. But that doesn’t mean big things aren’t taking place behind-the-scenes for the digital currency. In today’s Laissez Faire Today, Chris Campbell pulls back the curtain and shows you how Bitcoin is quietly slipping into the mainstream. He also shows you why now could be the time to buy now, or forever hold your peace. Read on…
Want to get rich? Don’t listen to financial “gurus,” says Chris Campbell. In today’s Laissez Faire Today, Chris shares a Zen proverb and shows how understanding it is the only real way to get rich (and live a rich life). Read on…
Ben Franklin once said, “An ounce of prevention is worth a pound of cure.” In today’s Laissez Faire Today, you’ll learn about one FREE website that has the potential to not only keep your family safe – but also open your eyes to what’s happening in your own neighborhood. Chris Campbell has all the details. Read on…
Next year is the 65th anniversary of the Peanuts comic strip. And Charlie Brown, Snoopy, Lucy and the rest of the gang will appear in their first full-length feature film in 35 years.One small company has the license to the Peanuts brand. The cash flow due to this company could be enormous. In late October, […]
All over the world, power is dying. The dictators and tyrants of the world are no longer able to wield it like they once used to. And they’re losing it to the “little guy.” Chris Campbell shows you how to be the king of your castle by taking advantage of this fact. Today, you’ll learn how to grab “power gaps” in the market and channel them into your product idea or project. Read on…
The fireflies along the tidal rivers of Malaysia show "feats of synchrony that occur spontaneously, almost as if nature has an eerie yearning for order." Chris Campbell tells you where else this might occur in the world. Also, new technology may revolutionize the agriculture industry and what we think of as a farm.
Jeff Davis is running for Governor in Hawaii and has an interesting campaign strategy. Also, what motivates hackers is revealed and the findings might surprise you. Finally, Ferguson is discussed in a new light. Chris Campbell has more...
The so-called recovery is only built on debt and printed cash declares our own Byron King. In the long term, the only option for the government to continue financing it's operations is to print too many dollars. Money printing has it's limits, however. It's Byron's opinion that at some point, perhaps very soon, the government will have to turn to more desperate measures. Namely, capital controls. In the following featured essay, Byron outlines 4 probably ways the government will take your cash and one play you can buy through your broker to prepare today. Read on...
Who can forget Robert Louis Stevenson’s Treasure Island? That map, marked with an “x,” is the stuff of high adventure.There is a modern-day equivalent of a treasure map, and it is just as coveted by those who seek reservoirs of oil and gas. It’s called seismic data.What are seismic data? In essence, they’re collected from […]
When’s the best time to invest in something? When everyone else is trying to get their money out of it. It might go against conventional thinking, but following the crowd usually makes you miss the real opportunities. At one monetary metal conference recently, the smartest guys in the industry sat down to discuss where these real hidden gems lay.
In a 2009 article, the Huffington Post went into considerable detail about the number of people with PhD degrees in economics employed by the Board of Governors of the Federal Reserve System. This is the government’s branch of the Federal Reserve. It is not one of the 12 regional Federal Reserve banks, all of which […]
Greetings from Maine! Right now, I’m writing from within foghorn distance of the sea. And this gives me an opportunity to tell you a down east tale that should serve as a warning to every investor: Maine’s Great Gold Swindle.I’m not talking about central banks, or manipulation of today’s markets. I’m talking about something from […]
The U.S. dollar is the dominant global reserve currency. All markets, including stocks, bonds, commodities, and foreign exchange are affected by the value of the dollar.The value of the dollar, in effect, its “price” is determined by interest rates. When the Federal Reserve manipulates interest rates, it is manipulating, and therefore distorting, every market in […]
I bet you use different kinds of money all the time, sometimes without even realizing it.In various online accounts, I currently have: some dollars, some pounds, and some euros. I have some air miles from two different credit card companies. I have some supermarket rewards points from three different companies. And I also have some […]
Let’s head back in time…In 2004, a mere decade ago, the US national debt rang the register at $7.4 trillion. That represents “debt per citizen” of over $25,000. You, me, your neighbor, your 4-yr old grandson, you name it and they’re portion of the U.S. debt is $25k.But flash forward to today and you’ll see […]
Alexander Hamilton was America’s first Secretary of Treasury under President George Washington. When he first entered office in 1789, America was an agricultural nation of just 4 million still broke from its financially costly victory over the British Empire in the Revolutionary War.The states had accumulated relatively massive debts to finance that war, which mostly […]
Remember that correction we’ve been quietly talking about over the past couple of months?Well, it might be right around the corner. Stocks waited until the last day of the month to nose-dive. The S&P 500 posted its first 2% down day since April — and the Dow wasn’t far behind. Early this morning, futures continue […]
A great technology solves a problem that we didn’t know we had. It makes us aware of deprivations we didn’t know existed until we discover the new thing. Once discovered, we can’t go back.People in the 1950s, for example, never missed the smart phone. They were pleased to have a phone at all. But today, […]
I’m sure you’ve seen the news. As if recent, past U.S. policy fiascos in Libya, Egypt and Syria were not enough, the wheels are now coming off the proverbial bus in Iraq, site of so much blood and treasure spent in the last decade.Radical Islamist armies are marching toward Baghdad, slicing through Iraqi government troops […]
In early July 1944, delegates from 44 countries gathered at the Mount Washington Hotel in Bretton Woods, New Hampshire. A three-week summit took place, at which a new system was agreed to regulate the international monetary and financial order after the Second World War.The U.S. was already the world’s commercial powerhouse, having eclipsed the British […]
When you type a website address into a browser, you might have noticed that the letters “http” appear at the front. “HTTP” stands for Hypertext Transfer Protocol. In typing a Web address, you are actually sending an HTTP command to transmit that website to you. Hypertext Transfer Protocol is the means by which information is […]
In 2012, money mandarins running the European Union chose stagnation over restructuring. Here’s a consequence of that choice: expectations for a self-sustaining economic recovery keep getting crushed.Two years ago, European Central Bank (ECB) chief Mario Draghi promised to do “whatever it takes” to hold the eurozone together. He bluffed nervous investors into believing in a […]
Here’s a fun fact: Although we all hate the U.S. dollar, as it continues to hemorrhage wealth, its foothold as the world’s reserve currency isn’t going to disappear overnight.A Russian gas deal with China won’t change that — as we’ll highlight below.But before we get to the nitty-gritty, let’s dive into a story that’s right […]
In 1995, American agriculture underwent a profound, dangerous change.In that year, Monsanto and other companies pushed through approval for a handful of genetically modified (GM) organisms. These included canola oil tweaked to improve its flavor, potatoes modified to resist pesticide dousing, and tomatoes gene-spliced to delay ripening.“About half of all the crops planted on American […]
Franklin Delano Roosevelt famously used the term “forgotten man” in a 1932 speech to describe those at the bottom of the economic pyramid who, he felt, government should aid.But the originator of the phrase “forgotten man” had a whole different meaning in mind. He aimed to expose the seeming good intentions of government to reveal […]
“As the nation’s central bank, the Federal Reserve derives its authority from the Congress of the United States. It is considered an independent central bank because its monetary policy decisions do not have to be approved by the President or anyone else in the executive or legislative branches of government, it does not receive funding […]
Now that Bitcoin seems to be on the way toward monetization, or at least the long process is noticeably under way, there are a number of issues that are troubling people. I will deal with a few here. Note this crucial distinction that is somehow lost on many commentators on the Bitcoin issue. The flaws are not with the technological unit itself, but with its mode of delivery in real market conditions.
When do we know it is money? As I was preparing a report for subscribers of the Laissez Faire Club, I was going through the list of goods and services currently priced in Bitcoins and available on the Web. It is mind-boggling how many there are. I’m not sure I knew just how much you can get right now. The conspicuous hole in this panoply are local merchants — the pizza joint down the street, the rent, the cab fare. Otherwise, anything you can buy on the Web, you can buy with Bitcoin.
Then it suddenly occurred to me.
If you put this list together and look at the total, what you find are more goods and services available right now using Bitcoin than have been available to most everyone in all times and places using any money that has ever existed in all of human history except for the past few years.
True, you can buy more with dollars now, but you can get more stuff with BTC now than you could get with dollars in the 1980s or any earlier time in history. You can buy more varieties of grain, cereal, and spices now than you could get with government money at the local grocery back then. You can buy smartphones, tablets, scanners, and cameras that didn’t even exist back then. You can get clothing at prices that were unthinkable back then.
In other words, from a broad historical perspective, Bitcoin is already one of the most functional currencies in the history of humanity.
What keeps it from being money — Bitcoin’s value is constantly assessed in terms of its exchange ratios with government currency — is not its usability, but its stage of development. Its volatility is a problem that raises other problems. The other problem has to do with current infrastructure of Bitcoin that is not sufficiently mature to justify calling it a full-blown money at this point. All the signs look great, but we are not there yet.
For example, many in the Bitcoin world today are enormously frustrated with Mt. Gox, the Bitcoin exchange in Japan that processes some 67% of the Bitcoin business on the Web. That’s down from its near-monopoly status just two years ago, and its percentage of overall business will continue to decline.
One factor that troubles many is that Mt. Gox is highly conventional in its political relationships with the state. Just getting an account requires a great deal of information, more than most people would give even to open up a local bank account. There is no anonymity — not even close. However, this situation will surely be short-lived. The more government money moves to digital currency, the more exchanges can rely on a self-sustaining Bitcoin economy. The problem of state-connected, privacy-violating corporations is a feature of the transition, but not of the long-term operation of the system.
The process toward this self-sustainability will follow no predictable course. In the digital age, conditions can change extremely rapidly. As we saw with Cyprus, if people believe that government can rob them of their money, they will do what they can to move it, regardless of ideology. No one likes to be robbed. A technology that can prevent that can go from obscurity to ubiquity in days.
But there are other problems with Mt. Gox. It has borne the brunt of anger for several instances of technical failure since 2009. Most recently, the runup of the BTC-to-dollar exchange ratio from $30 to $266 in a matter of days overwhelmed Mt. Gox’s servers. At the same time, the service was hit by DDoS attacks. After the onslaught and constant crashes that drove a selling panic, the company finally declared a cooling-off period of 12 hours while it upgraded its servers.
Right now we are watching a mad scramble for other services that can provide more reliable service and thereby diversify the Bitcoin trade. Many people sense that the market function of price discovery is being inhibited by industrial concentration in the world of Bitcoin. It seems unsustainable for there to exist tens of thousands of Bitcoin retailers and services but for one company to so thoroughly dominate the producer end.
But there’s a beautiful thing going on here. There are no restrictions on establishing a Bitcoin exchange. The barriers to entry are extremely low, and there are not yet any prohibitive legal barriers. This means the competition for handling coins is already very intense. For Mt. Gox to survive in this environment will require it to be unrelentingly innovative.
Is it? All services like this wear their flaws on their sleeves, because they are seen by 100% of users. When things go wrong, we lunge for our rotten tomatoes and start hurling them. Having been on the other side of this for many years, my sympathies go out to any company faced with these sorts of problems.
In the world of server administration and website management, problems are preludes to solutions. The failures serve a profoundly important purpose: They draw attention to the weak points of the current server and database configuration. Things have to break in order for them to be fixed properly and with precision. One hates for this to happen in real-time, but such is the way with markets. This is no perfection out of the box, and this is the way it must be. The upheavals are more productive in a market economy than the stability. And again, these problems have nothing to do with Bitcoin, but rather with the infrastructure in which it is being introduced to the market.
A larger problem with Bitcoin concerns its essential structure that lends itself to growing value in terms of goods and services over time. This is also known as deflation. With a supply that grows on a predictable basis leading to a final fixed supply, it will always buy more and more. Why would that be a problem? Deflation poses special problems for merchants.
Let’s say that for 100 Bitcoin, you buy five tablets that you intend to resell at a profit. But by the time they enter the market, the value of Bitcoin has risen and you can’t resell them at a reasonable markup. This is a similar situation many merchants found themselves in with memory sticks and thumb drives over the last 10 years. They bought them and ended up eating them, given their falling retail prices.
How can merchants deal with this? Well, we can be inspired by the software and computer markets over the last 20 years. Deflation has been the rule. The retailers who have made it through have proven themselves to be radically “antifragile,” in the neologism of Nassim Nicholas Taleb. They have adapted through limited inventory, providing top service, excellent marketing, and a general reliance on relentless improvements in product quality to carry the day. These have been gigantically profitable industries in spite of the constant fall of prices of their goods relative to money.
If Bitcoin does, indeed, grow in value over time, savers will be rewarded. But never forget this fundamental truth: The only point of saving is eventual spending. Those who are hoarding Bitcoins today will be on the market for Bitcoin products and services tomorrow. This is a truth that Keynesians of all sorts turn away from, but it highlights the reality that hoarding is actually a productive force in the market economy.
Still, replicating that model with today’s wild volatility of Bitcoin seems implausible. But this raises another issue. Why should this volatility matter in our minds at all? Because the market is still in its infancy. We are accustomed to constantly checking the price of Bitcoin in terms of other currencies. It does not always have to be this way. For example, most people today couldn’t tell you anything about the dollar-euro exchange rate, because it just doesn’t matter. The more we deal in one currency, the more we think in terms of that currency, not its exchange rate.
Bitcoin will have matured as a currency when people concern themselves not with the exchange rate in terms of other monies, but with its value against the goods and services it buys. At that point, it will not be necessary for merchants to constantly adjust prices. The prices in Bitcoin will have meaning on their own. Even now, Bitcoin users grow tired and frustrated with the relentless focus on its dollar price. This focus tempts people to think of Bitcoin as a speculative product or investment, rather than what it seeks to be: an emerging unit of account.
Part of the irony of Bitcoin’s volatility is that it is a sign of its success. The markets are testing it, flitting between belief and doubt based on events such as bank runs and currency upheavals. It is a viable alternative today to government currencies, which is why we are seeing panic rushes to buy, followed by panic rushes to sell. Once the futures markets of Bitcoin have matured, we will start seeing those ups and downs smoothed over in a way that at least incorporates the speculative judgments of the players with skin in the game.
So yes, there are myriad problems between where we are today and where I think we will eventually be, with money finally leaving the analog age and entering the digital age. But the trajectory is clear, and those who see this and act on it will be ahead of the historical curve.
A version of this piece was published at the Daily Anarchist.