A series of videos refuting the myth of overpopulation:
5/9/2012 Portland, Oregon – Pop in your mints…
We would be remiss here at The Mint if we did not enquire and make an honest attempt to understand the phenomenon of bitcoins. Bitcoins, according to wikipedia, are units of a peer-to-peer digital currency. They are a purely digital attempt to solve the eternal problem of what to use as money. Are they to be trusted? Lets take a look.
First, we must look at them from a purely conceptual standpoint. Are they money? Yes, bitcoins, as we understand their operation, meet our pure definition of money in the sense that they are not debt.
However, they have a rather severe limitation in that universal or even regional recognition as money in exchange and convertibility to other forms of money could prove elusive. This is a psychological barrier that theoretically could be overcome, however, it is difficult to assume that a majority of persons would, in time, learn what a bitcoin is and then take the time to sign up for and monitor a bitcoin account.
The market penetration for bitcoins could be as large as the number of internet and mobile phone users in the world but would more likely be similar to that of banking customers who use online and mobile banking services. In other words, those who are comfortable storing a portion of their wealth in a digital media.
Given the barriers to recognition and acceptance, at this point, bitcoins are probably best thought of as a share of stock in an amorphous payment clearing mechanism whose business model consists of the free exchange of its own shares of stock between account holders and the constant validation of transactions and subsequent logging of ownership of said shares.
These shares, then, would need to be converted into a local currency to be of use outside of the realm of bitcoin account holders.
The validation of the exchange and the logging of ownership of the bitcoins must be done by someone for the bitcoins to maintain their integrity and therefore any value which others may attach to them apart from a fickle monetary premium which is, at present, compromised by the barriers of recognition and convertibility refered to above.
This validation is currently undertaken voluntarily by the bitcoin account owners themselves and is accomplished by the users offering their resources, in the form of computer processing power and the use of computer hardware and electricity which makes the processing possible, to the greater bitcoin network for this purpose.
In return for the computer processing power and use of hardware and electricity which they dedicate to these processes, the bitcoin account owner receives a quantity of newly created bitcoins in exchange for the completion of a set quantity of computing (read bookkeeping and auditing functions) completed. These newly issued bitcoins serve to dilute the overall stock of the existing bitcoins.
The process of bitcoin creation realized through computer processing is refered to as “mining,” a name which is a fairly accurate description of the way in which bitcoins come into creation, even though the process more resembles accounting than strip mining.
As of this writing, we understand that mining bitcoins on a small scale is not profitable, which in layman’s terms means that the cost of the electricity needed to perform the computer processing involved in mining is greater than the amount of bitcoins which would come into existence as a result of the computer processing performed.
This calculation is naturally expressed in dollars as we are not yet aware of a utility company which accepts bitcoins as payment for electric bills.
It would then follow that bitcoin creation would slow as long as this price relationship exists. We will ignore, for the sake of simplicity, the fact that a great deal of bitcoin “mining” is done via bots which use the electricity and computer processing capacity of unwitting hosts, which makes mining profitable for some at the expense of others, and simply state that bitcoin creation, on net, is currently a losing proposition.
The fact that the mining of bitcoins is not profitable should make the existing bitcoins more valuable in the future as the stock of bitcoins will either cease to be diluted will be diluted at a lower rate. This would theoretically cause the value of bitcoins to increase until it again became profitable to “mine” them, which in turn would lead to an increased rate of dilution of the bitcoin stock and lower relative value in exchange, etc.
In this sense, the economics of bitcoins is similar to that of mining precious metals. Another similarity that the bitcoin has to precious metals is that theoretically there is a logarithm which ultimately will place an absolute limit on the number of bitcoins in existence. The logarithm places a mathematical limit to the stock of bitcoins in the same way that nature places a theoretical limit on the extractable amounts of precious metals which can be used as money.
However, bitcoins have a distinct disadvantage to precious metals owed to the fact that bitcoins require constant bookkeeping and auditing to maintain the integrity and therefore value of the bitcoin as money. Precious metals, on the other hand, do not rely upon administrative functions to maintain their value and rely entirely upon their relative value in trade.
Further, we must assume that the bookkeeping and auditing needed to maintain the integrity of the bitcoin will increase exponentially as bitcoin production approaches its logarithmically imposed limit, just as the incentive to perform these functions (mining, as it were) continues to diminish.
Given this inevitable dynamic, it is unclear if the integrity of the system can be maintained once the incentive to maintain the integrity of the system, which is currently supplied by the ability to “mine” bitcoins, is removed.
Having said all of that, it is now time to point out the obvious flaw in the bitcoin model, the flaw which lands bitcoins squarely in the realm of equity and makes them unfit for long-term use as money: The threat of competing digital currencies which would surely come into existence if the bitcoin were to gain widespread popularity and acceptance.
Even with the digital checks and balances on production which are mathematically built into the bitcoin model, the bitcoin, like gold, silver, seashells, and fiat currency, fails to completely solve the happy problem which has no solution:
That the infinite increases in trade due to the increased division of labor in the world will require money and debt markets with the flexibility and dynamism that only a completely free money supply can offer.
Gold and silver may hit physical limits, bitcoins may be limited by logarithms, and debt based fiat currencies tend to collapse upon themselves. This is proof that none of them, by virtue of physical and psychological limitations, completely fulfill the role of money for man. They were never meant to.
The determination of what will serve as money must be left in the hands of the people who are involved in trade. Left to their own devices, we would be amazed at the speed and efficiency with which the problem of what is money can be solved.
In other words, let those engaged in trade decide what is most suited as money at a given time and allow them to trade with it without hindrance.
For it is not the costs associated in the production of a monetary unit which remove value from the economy, rather, the administrative burdens, unnecessary conversion costs, and the rigidity of an imposed monetary unit which deals mortal blows to trade and consequently the ability of all humans to flourish to the greatest of their abilities.
Unnatural restrictions on the money supply, which solutions like bitcoin attempt to solve, are devastating to trade. The destruction wrought by monetary hegemony should surpass hunger, poverty, and climate change as global concerns, for allowing a free money supply to operate would serve to eradicate all of these problems and their symptoms, namely social unrest, terrorism, and health care crises.
Imagine.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for May 9, 2012
FED Target Rate: 0.16% ON AUTOPILOT, THE FED IS DEAD!
MINT Perceived Target Rate*: 0.25% AWAY WE GO!
Dow Jones Industrial Average: 12,835
11/8/2011 Portland, Oregon – Pop in your mints…
“Inflation is always and everywhere a monetary phenomenon in the sense that it is and can be produced only by a more rapid increase in the quantity of money than output” – Milton Friedman
Today we came across evidence that the massive amounts of money created out of thin air may no longer be benignly parked at the Federal Reserve. From Lee Adler at the wallstreetexaminer.com:
“The Fed was hit with withdrawals of $83.3 billion last Wednesday, the largest withdrawals from its deposit accounts that were not associated with quarterly tax payments since February of 2009…The Fed was apparently forced to take extraordinary measures to fund these withdrawals. These included the outright sale of nearly $24 billion in its Treasury note and bond holdings from the System Open Market Account. As a result, the Fed’s System Open Market Account (SOMA) fell to $2.611 trillion, some $43 billion below the Fed’s stated target of $2.654 trillion.”
Mr. Adler goes on to state that in order to meet these withdrawls, the FED had to borrow $43 billion from foreign central banks through “Reverse Repurchase Agreements (RRPs)”. In a sense, the FED had to make the equivalent of a good old fashioned margin call that foreign central banks had to scramble to make good on.
Could this be the reason that Italian Bonds yields are surging and the ECB cut rates unexpectedly last week?
Could this be the reason that the BoJ had to expand its Yen debasement program to the tune of 5 trillion yen?
Ever since the FED opened swap lines with foreign central banks, it has generally been the FED lending money to the foreign banks to assure liquidity. In this unexpected turn, the FED had to call in some of those loans to meet its own liquidity needs.
Could this be the first of what history will call a “Central Bank Run”? Only time will tell, but we would expect the FED to announce another, large scale dose of QE (Quantitative Easing) of its own in the next few weeks in an attempt to meet a similar event with fresh cash instead of a disruptive firing of its RRP revolvers.
In a way, this is the moment that the FED and all of the taxing authorities on the planet have been waiting for. Inflation is a government’s best friend. It allows the wealth destruction that these defense and welfare agencies engage in to continue while socializing the costs in a manner that is imperceptible to the untrained eye.
Even the Deficit Super Committee is onto this fact. They are now discussing the use of the “Chained Consumer Price Index (CPI)” in place of the current CPI calculation for everything from Social Security COLAs to tax brackets to welfare qualification thresholds. From AP:
“Just as 55 million Social Security recipients are about to get their first benefit increase in three years, Congress is looking at reducing future raises by adopting a new measure of inflation that also would increase taxes for most families –(with) the biggest impact falling on those with low incomes.
If adopted across the government, the inflation measure would have widespread ramifications. Future increases in veterans’ benefits and pensions for federal workers and military personnel would be smaller. And over time, fewer people would qualify for Medicaid, Head Start, food stamps, school lunch programs and home heating assistance than under the current measure.
Taxes would go up by $60 billion over the next decade because annual adjustments to the tax brackets would be smaller, resulting in more people jumping into higher tax brackets because their wages rose faster than the new inflation measure. Annual increases in the standard deduction and personal exemptions would become smaller.”
Do you see how it works, fellow taxpayer? Inflation, combined with statistical shenanigans intended to mask it, is the magic pill for broken government finances. It is no secret that the Government’s finances are a disaster, which is why we expect to inflation in generous doses.
How exactly does “Chained CPI” differ from the current CPI calculation? The article goes on to explain:
“Many economists argue that the chained CPI is more accurate because it assumes that as prices increase, consumers switch to lower cost alternatives, reducing the amount of inflation they experience.
For example, if the price of beef increases while the price of pork does not, people will buy more pork. Or, as opponents mockingly argue, if the price of home heating oil goes up, people will turn down their heat and wear more sweaters.”
Are you laughing yet? Perhaps crying? Now listen to how the Government justifies it:
“A report by the Moment of Truth Project, a group formed to promote the deficit reduction package produced by President Barack Obama’s deficit commission late last year, supports a new inflation measure. “Rather than serving to raise taxes and cut benefits, switching to the chained CPI would simply be fulfilling the mission of properly adjusting for cost of living,” it argues.”
If you are not yet laughing, crying, or laughing to avoid crying, allow us to assist you. What they are trying to say is that in the parallel universe in which the Government operates, the need to substitute more expensive goods for cheaper ones does not constitute a real loss of the purchasing power of the currency with which those goods are purchased.
After all, you can always put on a sweater, right?
Where the Government’s logic, and ultimately society, begins to break down is at the point when all prices, beef, pork, heating oil, and sweaters begin to rise astronomically in tandem with each other. At that point, it becomes painfully obvious that the problem lies in the currency, not with the producers.
Unfortunately, at that point, the Government will have long since vilified and persecuted speculators and producers for alleged price gouging to the point that the productive part of society, those who grow food and produce raw materials, will have completely ceased to produce and/or fled the country. The subsequent lack of production will result in an increasingly scarce stock of real goods being quickly priced and re-priced in a currency which is produced at an incredible surplus.
In layman’s terms, these events will be summed up in the phrase “hyperinflation.”
If the FED has to draw once again on its RRP revolvers, it will be clear that the benign growth in the M2 money supply will have become malignant, and that hyperinflation will soon be in full bloom.
Stay tuned and Trust Jesus.
Stay Fresh!
Email: davidminteconomics@gmail.com
Key Indicators for November 8, 2011
Copper Price per Lb: $3.54
Oil Price per Barrel: $96.44
Corn Price per Bushel: $6.63
10 Yr US Treasury Bond: 2.01%
FED Target Rate: 0.09% ON AUTOPILOT, THE FED IS DEAD!
Gold Price Per Ounce: $1,737 PERMANENT UNCERTAINTY
MINT Perceived Target Rate*: 2.00%
Unemployment Rate: 9.0%
Inflation Rate (CPI): 0.3%
Dow Jones Industrial Average: 12,040
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
Far from signaling economic recovery, the action appears to be further evidence that what Nadeem Walayat at the Market Oracle calls the Inflation Mega-Trend (and consequent Stealth Bull Market in stocks) is firmly in place.
Think about it, while the FED, ECB, BoJ, and nearly every other Central Bank in the world pump money into their financial systems in order to “fight deflation” or “stimulate the export market,” the average person has watched gas, food, and the price of nearly everything else (besides their paycheck) steadily rise over the past decade.
Will all of this freshly printed money really be content to simply die a quiet death, never having run through an ATM or point of sale transaction in the real world?
M1 Monetary Base: $2,122,700,000,000 RED ALERT!!! THE ANIMALS ARE LEAVING THE ZOO!!!
M2 Monetary Base: $9,507,600,000,000 YIKES UP $1 Trillion in one year!!!!!!!
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