Bills, Bitcoins, Bullion and the Death of Cash?

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Today’s rant is about Money…As the Fed, prints another 85,000,000,000 crisp new dollar bills, we have to ask…

“Where does that money go?”  “Well, they don’t actually print that money do they?”  Well, that depends on who you ask.

The money gets loaned into existence, so perhaps no, they don’t really print off that money, it just gets lent to the Government via an I.O.U.  The Government gives the IOU to the Fed, who pays the government the money, then the Fed,, takes that IOU to the major Banks, They lend the money to the government at the prevailing interest rate (i.e. the discount rate), and the bond (IOU) then gets sold to the money markets who are essentially looking for a safe return on their surplus assets – you know, the money they don’t want to risk in the stock market, so that they can pay the pensions of those pensioners who have already retired, or the insurance companies, who need to have spare capital to pay out to claimants or for funerals etc..

The government of course get the money from taxes to pay the interest, (and the principal – that’s the money borrowed) and as long as the taxes covers the interest payable, the money markets really don’t give a damn.

However, when times are tough, and the economy suffers, the taxes the government collects go down, and their spending doesn’t, so the Fed steps into the breach, to fund the deficit.  Of course when a government is fighting a war, it needs even more money, and of course people in the military do not produce anything, so they don’t add to the stock of goods in the economy. And despite their protestations, they don’t really pay taxes, though they see it going out of the pay packets – If I give you $100.00 from the Tax coffers, and you give me $10.00 back by way of tax – how have you paid a tax? All you’ve done is give me back some of the money that others have earned…(and that goes for all government workers by the way) Anyway, that’s another story for another day.

Sometimes though the government spends way more than the economy can really accommodate, and that disincentivizes people, who don’t start a business, or who move overseas to escape the high taxation. In recent years the U.S. has experienced an increasing number of people who are renouncing their citizenship and moving overseas to escape the high taxation.

Of course, the inventive ones search for ways to escape taxes, and of course there are those who think government should be a lot smaller.

And that leads me to the meat of this rant… A Japanese man Satoshi Nakamoto decided to try to escape his governments free spending ways and as a software developer came up with a way for people to exchange values changing hands, and a way that wasn’t controlled by the government.  That was back in 2008. In 2011. Bitpay Inc., the company was founded, and Bitcoin became a worldwide success. Initially the Bitcoin, traded at a discount. However, in the last year, the price has risen and fallen, and risen some more.

During the last few weeks, the price reached the dizzy heights of $700, and briefly touched $878. On a Max Keiser show the other day, Max interviewed one of the early adopters, who suggested that Bitcoin was the future, and that the far east had become its main focus of attention as it had been more widely adopted there. He added that the U.S. had reluctantly adopted it, partly for technology reasons, as certain parts of the country lacked the technological infrastructure.

Bitcoin has been seen by its evangelists as the antidote to Big Government, and a rein on their free spending ways, which ultimately will rob government of its fiscal recklessness. However, as the value of Bitcoin has risen, alternatives have begun to spring up. Litecoin, and upto 80 others have begun to vie for the attention of the value exchanges.

In my own locality, the local Bus Company has a no cash payment system known as MIDAS. Here you load up a pre-pay card, and then when you board the bus, you deduct the payment electronically, and thus don’t need to carry cash.

This is one more nail in the coffin of cash, its exponents argue, but as lots of other alternatives compete for the investment dollars of the world, we have to ask… Is this so?

What is money?

As I’ve said in previous posts, money has to serve several functions to really be useful.

Its most important function is as a store of value, though portability, durability, fungibility and is widely accepted as such are others.

Bitcoins, Litecoins, and the 80+ others might serve some of those, but how do we know for example whether they are limited in supply?

When we buy a Bitcoin, we are buying software. Software is just a series of magnetized elements on a storage medium – 0s and 1s. However the software is written by humans, and unless we can see the source code, and the source code of the compiler used to translate the human readable code into the computer code, then we can’t  be REALLY 100% sure – Can we?.  And given that we humans are a trusting species, we tend to take on face value when we hear that a company has carried out the necessary checks – we have a tendency to trust them.

But as we have learned in recent years there are organisations who have been less than trust-worthy. The Banks for example.

JPM recently agreed to pay $13bn, as a result of its misdemeanours. HSBC agreed to pay £1.2bn (circa $1.9bn) for money laundering offences in December 2012, and was also fined $2.5bn in October 2013, with 16 major financial institutions colluding to rig the LIBOR rates. HSBC is also alleged to have been the recipient of $15 Trillion for onward transfer to other Banks in Europe (The full story can be read in – “The Coming Battle” ) – during the heat of the 2008 crisis

Gold and Silver, are only less useful these days as money, because the Banks have colluded to lower their true value, by market manipulations. The Fed which hasn’t been audited since 1953 properly gave a cursory glance to journalists in 1973, but has resisted all attempts since. In fact stories abound that the true amount of Gold that they are supposed to be holding, is far lower than the 8,700 tonnes for which they have entries on their Balance sheet.

So, why would we trust a software house, with millions of shareholders to satisfy, to limit, the number of these crypto-currencies.

We can but ask.

My firm belief is that sometime in the next 2-3 years, the Chinese government will announce to the world, that it has stored in its vaults 10,000 tonnes of the yellow metal, and if, (or when) that happens, then our current world currency system will come to an end, and if a world currency is to be formed, at its heart will be precious metals. And the price to buy will be perhaps 8 times what it is now.

A period of tumult is coming.

Gold and Silver will protect those with the foresight to prepare for this eventual re-organisation. The Coming battle is for a limited time available  – Sorry No longer available for FREE