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Subject: Mar 16: Armstrong doesn't understand
crypto-currency will rise synchronously with the one world reserve currencyFrom: iamback
Date: Sun, March 15, 2015 4:55 pm
To: "Armstrong Economics" <
armstrongeconomics@gmail.com>
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Armstrong replied to my previous email in a series of discombobulated blog posts. I am going to attempt to reveal his errors coherently, but this won't be easy to achieve.
First he seems to think that I was suggesting Bitcoin could become a mainstream currency because its supply is said to be limited to 21 million coins:
http://armstrongeconomics.com/2015/03/15/bitcoin-will-be-capped-at-21-million/I am told that I will be wrong because Bitcoin has an arbitrary cap at 21 million so it cannot end up as the dollar. Sorry, if you cap it at 21 million and there are over 300 million Americans alone, just how is Bitcoin going to ever replace anything? That is the attempt of austerity and that cap would prevent it from ever being really accepted among any reasonable portion of society.
http://armstrongeconomics.com/2015/03/15/money-electronic-debasement/Unfortunately, way too many people think that money should not be debased. The first coinage in gold was debased pictured above. Some try to argue that somehow bitcoin prevents debasement.
I never suggested that the reason a crypto-currency would become widely adopted is due to cap on the money supply. In fact, I have often argued that an improved replacement for Bitcoin must have perpetual debasement. Arguably the cap on the number of Bitcoins can be subverted in the future, because Bitcoin is controlled by about 1 - 4 mining pools, thus in essence Bitcoin is controlled by the governments which can regulate those large mining pools. The advantage of crypto-currency is not a fixed money supply. And Bitcoin is the least likely of the crypto-currencies to become widely adopted because it isn't even decentralized and doesn't even have anonymity. A better crypto-currency than Bitcoin will rise soon.
Note Armstrong's analogy about 21 million coins for 300 million Americans shows that he ignorant about crypto-currency. BTC are divisible down to 1 Satoshi (0.00000001 BTC) thus there
isare enough fragments of BTC to supply every human on earth. Armstrong is correct that fixed money supply is deflationary and will never be accepted by the public-at-large, but he fails to articulate the reason why. The better explanation of why the public-at-large will not accept a deflationary currency is because it is incompatible with a fractional reserve banking system and thus incompatible with debt. And people love debt. Where there is no usury, there is no economy and nothing moves (as was evident in the Dark Age). The Middle East was similarly stuck going no where (still riding camels and living in tents in the desert) with their anti-usury stance, but the free money from oil and Armstrong teaching them how to hide usury in leasing gold, broke them free from that anti-usury abyss.
Armstrong seems to think that as long as the national government doesn't borrow, then my point about a reserve currency being an enslavement paradigm doesn't apply:
http://armstrongeconomics.com/2015/03/15/debt-reserve-currency/QUESTION: Marty, Would nations still issue debt in the reserve currency or their local currency? If countries issued debt in the reserve currency, wouldn’t that be the same problem you have pointed out with the euro?
You have made it clear that debt is the great destroyer of civilization. It seems that this is the one factor that wipes out the monetary system every time. Do you think it is possible to eliminate government debt?
iamback
ANSWER: ... Only a fool assumes that debt is some how a natural part of the system. They clearly do not know their history. The US debt was entirely paid off before the Civil War. Such people never heard of the sin of usury or the Arab culture of prohibiting interest. Is it possible to eliminate government debt? Of course it is. Government debt has not always existed.
In fact, not only was there no national debt, the US government did not issue paper money after the Revolution until the Civil War. So there is plenty of precedent to demonstrate that government can function without debt at the federal level. Keep in mind, that states still borrowed. There was a massive sovereign state default in the 1840s.
As I said, the public will always demand a fractional reserve banking system. Whether it is sanctioned by a central bank (e.g. the USA after 1913) or ad hoc by private banks (e.g. the USA in the 1800s) doesn't change the fact that the public love debt. Citizenry especially love when the debts are accrued by the collective (e.g. nation, state, province, city, school district, company retirement plan, etc) because they are under the illusion that they get all the benefits without the individual default risk. The citizenry are under the illusion that the default can't be taken directly from the individual. People are too stupid to realize they end up paying it in taxes or economic collapse.
There is a tremendous difference between issuing debt in a reserve currency and a domestic issue. You are correct. If there is a reserve currency and governments issued their debt in the reserve, you would end up with total chaos just as you have in the Euro. That would also tend to suggest the requirement of a central control, and that is not likely for nations will not surrender their sovereignty in such a manner.
A reserve currency simply replaces the dollar. That is the political goal of China and Russia. It also makes sense for it separates the problem of the reserve currency being impacted by domestic policy objectives which become exported. The Fed lowered rates sharply to bail out US banks and other nations issue dollar debt because of the low interest rates.
Armstrong is failing to acknowledge the fact that the nations don't get to decide which currency debt will be issued in, rather the investors and public make those decisions in a decentralized manner. The massive loans in Europe denominated in Swiss francs are one example. Now those loans will default because of the abrupt and egregious rise in the value of the Swiss franc when the peg to the Euro failed. Ditto all the dollar loans in the developing world which will default when the dollar rises through the roof after 2015.75.
Even if a country, state, city, or entity issues their debt denominated in a national currency, they pay a premium (a carrying cost) which is approximately the Black-Scholes implied volatility between that unit-of-account and the more stable reserve currency unit-of-account. The deep math point is that whoever controls the reserve currency has their hands on the levers that can cause massive booms and busts in all economies that are not transacted in the reserve currency unit-of-account.
The debt crisis is separate and distinct from the reserve problem.
Absolutely false! This proves that I am a much more sophisticated macro-economist than Armstrong.
The reserve currency issue enabled for example China to repress their consumption sector (c.f. China expert Michael Pettis PhD) and radically overinvest in fixed capital investment, which afforded the West another decade of debt expansion on the back of the unsustainably repressed Chinese consumer and empowered Western consumer.
Andrew Jackson’s war against the Bank of the United States eliminated a central bank and set in motion total chaos. Jackson unleashed the age of Wildcat Banking where private banks issued their own paper money that nobody knew even where these banks were located.. The currency issued by Oxford County Bank of Fryeburg, Maine, was actually issued by speculators who then sold their currency wholesale at deep discounts in New York City. A fraud market emerged because there were countless banks all issuing money (receipts) based upon pretend deposits without a central bank regulating anything.
...
The US debt is linked to the reserve currency insofar as there is a deep dollar bond market unlike other currencies. The US debt can be used as reserves and is to the extent of about 40%. This is what will eventually force the evolution to a reserve currency replacement. When I am in meetings around the world, this much seems to be understood as inevitable. So the nut-jobs can tout some impractical new currency to strip government of power as if that will ever get a vote and the bankers will fight hard to keep the government borrowing so they can make a commission. Between these two extremes lies reality.
I entirely agree with Armstrong. There is no way the debt market will agree to be denominated in some decentralized crypto-currency with no regulation. Because debt operates by leverage and fractional reserves, and thus the people prefer to be lied to and told that defaults will never happen and so the ultimate default is delayed by grouping everyone together in a collective with a central bank. This is more desirable to the public than individual failures haphazardly and more frequently.
Thus a one world reserve currency is coming, and it will not be a crypto-currency. Rather it will be something controlled politically by the powers that be. Everyone who participates in the mainstream debt and bond markets will be operating in that reserve currency dominated system (even if there is a 2-tier system with some nations retaining their own national currencies that float against the reserve unit-of-account).
But my point is orthogonal to that reality. Debt is basically useless in the coming shift from the Industrial Age to the Knowledge Age. Most of all the productive value produced in the future will be from knowledge work. This is not labor. It is not fungible like labor is. Thus it can't be financed. If Armstrong would read my essays, he would understand that there is radical paradigm shift underway which will make the debt based economy wither.
Thus those in the debt based economy with their stored money capital will be in the one world currency enslavement system.
The knowledge age workers do not need any monetary capital. We can generate earnings that are 100s or 1000s times our housing and other expenses. We don't get a rats ass about storing money. We want to save up and store more knowledge.
In our economy, we will be using a fully anonymous and decentralized crypto-currency (that is perpetually debased so it forces rapid dissemination into more knowledge production). We won't pay any taxes, except for the portion of our income that we choose to declare to justify our lifestyle to the tax authorities. The vast majority of our economy will go untaxable.
And our economy will be growing very fast while the debt based economy will be shrinking or growing very slowly.
We can peg our currency to the one world reserve currency using an options market, at some carrying cost (determined by relative volatility). We will choose to use our crypto-currency because our freedom and innovation requires we not be dictated to by a central authority, whether it be taxes, the tsuris of kafkaesque KYC and AML which interfere for example with micropayments, FCC regulation of the internet, etc..
Thus in the end, our currency wins and decentralization wins; and central banks and debt die. The one world reserve currency will be an ephemeral failing paradigm. It will be where all the unproductive people hangout and leech off the collective and default on the lenders. It will go into pernicious and terminal decline into an abyss or Dark Age. While our economy will rise up and take over.
Thus Armstrong, you are entirely missing the big picture. You will get your silly one world reserve currency, but it won't last long.
http://armstrongeconomics.com/2015/03/15/fiat-and-the-abuse-of-using-this-term/The wealth of a nation is not its tangible objects, but its people’s productive capacity.
And that is why the Knowledge Age will destroy the one world reserve currency debt based economy.
This is why we will eventually be driven into a representative form of an electronic reserve currency as a political compromise, not that this would be the ultimate solution. There is a difference between PRACTICAL ideas and LOFTY THEORIES of a perfect world to which you can never reach.
There won't be a perfect world. The one world reserve currency will be another collective debt morass over time. While the Knowledge Age will be rising up from very small. Eventually when the Knowledge Age becomes the dominant portion of the global economy, then the public will find some way to tax it and clawback to the collectivized failures that human nature prefers. They will do this by put a chip inside everyone's body that can track thoughts. This is the 666 system written in Revelation. But that is some decade or decades from now. The Achilles heel of the Knowledge Age decentralization ultimately rests on the fact that we can't yet operate our mind without our physical bodies.
Our problem is not what is money, it is government and its endless historical evolution toward corruption.
Incorrect! Our problem is the human nature that people love debt, because they like to consume before they earn. Wealth is power law distributed. That is a fact. Thus the middle and lower classes envy collective debt as a way to redistribute from the wealthy back to the lazy. They don't understand that this honey is what attracts the flies of government corruption.
Direct democracy will never be a solution, because human nature doesn't change.
The Knowledge Age is a technological paradigm shift which renders the collective powerless to tax (most of the economic activity which won't be tangible thus can't be tracked once we have good anonymity technology implemented).
But even the Knowledge Age will eventually succumb to this pernicious human nature.
We can come up with a solution for now, but eventually the cycle will kick in and we will return to where we are once again. The wheel of fortune always returns to where it began. Because of cycles, there will never be a permanent solution and only a fool would think so like Karl Marx.
Exactly agreed. But realize that the one world reserve currency and reforming governments is not the only solution in play at this juncture. The Knowledge Age is also rising. Armstrong seems to view this as either-or; i.e. mutually exclusive choices. Rather both of these "solutions" will be ongoing simultaneously.
They have cameras tracking where you drive by license plates. Face recognition just entering a post office. Come on. And you think they will not close down absolutely every avenue? There will most likely be an underground economy, but that will probably be limited.
This is why I have suggested ... silver coins ... That might be a hard sell to someone younger who pays with their cell phone.
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The downside of the precious metals, which is a concern, is that you cannot hop on a plane with them anymore. It is considered money laundering to store them in most safe deposit boxes. The governments require refiners to report every ounce in and out and where it went. It is illegal to mail money today. Read between the lines here. Government is trying to shut down even the precious metals as an alternative. They are gradually forcing everyone into electronic money.
This is precisely why the Knowledge Age will move to our coming anonymous crypto-currency. The governments will not be able to track it, nor can they shut it down, even if they shut down the internet. Sorry we hackers are smarter than them. We win. They lose.
Armstrong doesn't understand crypto-currency. Thus he doesn't understand what is possible. I am an expert programmer in crypto-currency. I know. Armstrong doesn't. Period.
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