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September 16, 2021 | Crypto Conundrum

Is an American author of books and articles on economic and financial subjects. He is the founder and president of Agora Publishing, and author of the daily financial column, Diary of a Rogue Economist.

BALTIMORE, MARYLAND – New ideas come at you, whether you want them or not. Sometimes, they are as easy to understand as a Post-It Note.

But sometimes, you don’t know what to make of them. Useful? Silly? Valuable? Time waster?

The powers-that-be generally resist them. They fear the powers-that-will-be if they let things evolve freely. If they see a new idea as a threat, they try to drown it in the river… as though it were an unwanted kitten.

But often, new ideas are laughed at… or ignored. Or they spread far and wide… until it is too late to stop them.

Old versus Young

Unlike COVID-19 – which has a grudge against old people – new ideas seem to target the young, those with the least “life experience.”

They have not yet been scammed by hustlers, jilted by lovers, disappointed by politicians, and embarrassed by their own bell-bottom leisure suits. They seem to have little resistance to new ideas, and are willing to go along with almost anything.

The old-timer, meanwhile, guffaws and grouses.

“Damned nonsense,” he remarks. Invade Afghanistan? When was the last time that worked? Call a boy “they?” Fill deficit gaps with printing-press money? He despises almost all new ideas…

And he’s right… 90% of the time. Most of them never catch on… or they fail later.

Is he right about cryptos, too?

Best Move

Our guess: Yes and no. That is, it looks as though cryptos are proving useful.

As we saw yesterday, people are buying things… transferring money… and making deals, using cryptos as the means of exchange. Someone even bought a house from us in Nicaragua, and paid for it in bitcoin.

And imagine that you are in Venezuela… or Argentina…

In Venezuela, the local currency – the bolívar – has almost no value. In Argentina, the peso loses half its value every year.

In the U.S., the official rate of loss is 5% per year.

But if you buy a new house – now rising nationwide at an 18% rate – the 5% greatly understates your “inflation” challenge. An 18% increase on a $300,000 purchase takes a lot more out of your wallet than a 5% increase on a loaf of bread.

What can you do to protect yourself?

So far, going online and buying cryptos has proven to be about the best move you can make. The brand-name leader, bitcoin, rose 340% over the last year.

Marvelous Invention… In Theory

Or imagine that you just wanted to put your money someplace safe.

The whole idea of inflation is to rob the public. There is no other reason for it.

The feds control the money supply. If they didn’t want inflation, they could easily stop it; just stop “printing” more money. Or back it with gold, which they can’t print.

But honest money is the last thing they want. Dishonest money is much more convenient. They use it to pay their bribes and bamboozles. And they never have to ask the voters for a tax increase.

So, what a marvelous invention – a “crypto” currency that the feds can’t track… can’t control… and can’t use to rip you off.

It’s like gold… but you never have to dig a hole to bury it. Or pay for shipping.

You go online. You trade your government-issued money for cryptos. And then, you can send your wealth… at the speed of light… to anywhere in the world. There, it can be downloaded and exchanged for a house, a car, or a trip to the moon.

Practical Reality

At least, that’s the idea. In practice, houses, cars, and trips to the moon are traceable, controllable transactions. And the feds are likely to want to know where the money came from… and where it went.

Recall that the feds can be ruthless.

In practically all the world’s wars, people in the path of an invading army try to hide their food, their wealth, and their daughters. They are successful only when the invaders are not too determined. Otherwise, they’re tortured until they give up their secrets.

In the Ukraine, in the 1930s, it was food that the federales were after. The Kremlin elite suspected that the local people were hoarding food, trying to protect themselves from starvation. They sent thither a swarm of agents, who tortured and murdered people to get them to reveal their hiding places.

In the subsequent famine, at least five million people died.

Will the feds torture Americans to get them to open up their crypto accounts? We doubt it will be necessary. They will simply insist that all transactions pass through approved banking channels.

Crypto Use Cases

But let’s not get distracted.

From what we can tell, the crypto cat appears to be out of the bag. It’s too late to drown it.

Cryptos are being used in many ways… You can buy, sell, trade, gamble, borrow, lend…

Some of these uses will probably prove durable. We just don’t know which ones. Or how. Or when.

But does that mean you can put your money into cryptos and get rich… or even just protect your wealth? Do cryptos go up in price – always? Are they fairly priced today, with a good chance that they will be higher tomorrow?

Not necessarily.

As we saw yesterday, you can even put your cryptos on deposit… and earn 6% interest.

Fishy Conundrum

But how? Why?

In order for the lender to pay the depositor 6%, doesn’t he have to make, say, 10%?

And who is going to pay 10% interest to borrow a skyrocketing “money”… when he could borrow the dollar for 5%… and pay back the loan with a currency that is 5% cheaper?

Do you smell something fishy, Dear Reader?




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September 16th, 2021

Posted In: Bill Bonner's Diary

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