Rat Poison

Five years ago in May of 2013 Charlie Munger quipped when asked about bitcoin that "I think it's rat poison".  You might be surprised to hear me say it but we should listen carefully to Charlie Munger et al., and that indeed there are a few ways that bitcoin is rat poison.  So it's been five years, have we poisoned any rats yet?  Well not so many.  It's slow acting rat poison.

You see public coin has no room for counterfeiters.  You can't counterfeit a public coin because the list of all valid coins is public and anyone can check your coin against it quickly and easily.  Counterfeiters, or private money issuers, are in some ways similar to rats living off the grain we have in our kitchen cupboards.  Without doing any useful work they can grow fat and lazy, and such behavior leads to the spread of disease and inefficiency, not to mention malinvestment, ecocide, and stagnation.

By using public coin, we can effectively kill the rats because they will have nothing to eat.  In such a way, bitcoin is indeed rat poison.  Are there some brokers profiting by overselling stocks which they don't really have?  Maybe.  If so, putting securities on public blockchains will poison such people.  Instead of having MyBroker[TM] tell you that you have 5 shares of MyCorp, and MyNewsPaper telling you that there are 10 million shares outstanding, you can now hold 5 share yourself, know which shares they are, and verify how many are outstanding yourself.

So bitcoin poisons the rats who are compromised private money issuers or issuance fraudsters.  Are there any other rats around for bitcoin to poison?

Well yeah.  Plenty.  As public coin continues it's rise towards eventual fiat jubilee there will be many who see this bubble as an opportunity to get rich quick.  The "get rich quick" folks might not be rats of the same caliber as the issuers but this is likely because they don't have the 关系 (they don't know the right other rats).  So instead they will push company coins, pump and dumps, and various other short term schemes which might look good for some short time but eventually leave the rats flat on their backs with their feet in the air.  The gamblers will get zhou tonged, trading on leverage.  Meanwhile the casino operators will get fat and lazy.  Both are victims of rat poison.

While the idea of some rat poison in our financial system is hugely appealing, we shouldn't get carried away with thinking that our extermination might be successful.  What doesn't kill the rats makes them stronger and we can count on graft, fraud, and other idiocy to continue in many forms.  After all it is the rat race.










150 billion funbux

It hardly seems noteworthy I know, you are disappointed already that I might have even noticed that this story had risen in media outlets.  The story is that Jeff Bezos of Amazon has 150 billion dollars worth of stock.  In the linked article Annie Lowry does a good job of giving respects, pointing out that the guy knew well how to navigate the financial waters, and points out various problems with the big picture here such as gross income inequality and consumerism.  However in this post we are going to treat this as a very basic lesson in fiat finances.

One might naively expect that Jeff Bezos made his fortune because Amazon makes money by earning it from sales to customers.  This is a traditional idea of a business, but in fact it isn't correct.  Sure, Amazon makes revenue from customers - and the revenue is greater than the expenditures (profit margin), and this produces earnings.  However the earnings reported by AMZN last year (trailing twelve months) were about $8 per share, which for 490M shares outstanding comes out to a total earnings just shy of $4 billion.

OK four billion funbux is serious earnings no doubt, but the first thing to note here is that there's no way Mr. Bezos made his fortune from the earnings of Amazon.  There just was never any 150 billion in earnings.  The total earnings since the company were founded are far less than 150 billion.  So where did his fortune come from?  In fact the question becomes more pertinent when we realize that the company has never paid a dividend, meaning the the earnings were always spent by the company rather than given to the owners.  We see that in fact Mr. Bezos never got a cent from the earnings of Amazon, at least not directly.

So where did his fortune come from then?  It came from investors.  Investors worried about FOMO and investors who were on the lower side of the interest rate apartheid walls.  Investors who were currency issuers or well connected to them.  It's the currency issuers that matter in the fiat economy, not the customers or the bottom line (unless indirectly because that matters to some investors and issuers).

Other folks have even claimed Bezos is the richest person in history.  Certainly Mansa Musa appears to be a vastly stronger contender for that title.  Mansa Musa was in fact a currency producer (issuer, in this case controlling gold mines), in the golden age.  Currency issuers today can create trillions of dollars with the press of a button.  I'm sure they laugh at the notion that Bezos is the richest.  For the rest of us however, who cares?  It's what you do that matters - not what numbers are written on your bank statement.  Sure, measuring wealth in fiat is insane, but really - measuring wealth in gold or bitcoin still isn't all that much of a useful metric in the long run.








Issuance Malfeasance

What is the problem that cryptocurrencies solve?   ..asks the noted economist and New York Times columnist Paul Krugman [link].

We have addressed this question before in this forum.  The question today is how somebody could be a serious scholar of economics, or even open ones eyes in any populated area of the planet, and somehow not know the problem that cryptocurrencies solve.  This problem is everywhere.  The valuations of stocks, the urban development, the Dubais and the Vegases, the Venezuealas and the Zimbabwes, the Pentagon and the DC Lobbyists, the bicycle sharing overproduction, the Monacos and the Caymans, and the communist party loyalists with suitcases full of house deeds.  London real estate prices.  Bitcoin prices.  Quantitative easing and the deep state.  All related to issuance malfeasance.  How could somebody not know about this problem?  Well they should, so it behooves us to state clearly once again the problem (and the solution).

“The power to make a small piece of paper, not worth one cent, by the inscribing of a few names, to be worth a thousand dollars, was a power too high to be entrusted to the hands of mortal man.” [John C. Calhoun, speech, U.S. Senate, Dec. 29, 1841]

Counterfeiting is unauthorized currency issuance.  But what if you are an authorized currency issuer?  What if somebody then puts a gun to your head and asks for a million fresh dollars which you can easily create with the push of a button?  Who do you need to pay off to maintain your position as issuer?  Who do you issue money to and how often?  What if you could create 5 trillion dollars with the push of a button, what would you do?  It doesn't take more than a rudimentary imagination to understand the answers to these questions.  Creating money without telling the public about it is suspicious don't you think?  We refer to this authorized issuance of currency, in a manner unjust and hidden from parties not privy to the issuance, as issuance malfeasance.

Cryptocurrencies handle the problem of issuance malfeasance by requiring that all issuance events are public - with no exceptions.  Therefore counterfeiting and other issuance malfeasance are simply impossible.  Well, that's not entirely true.  Those public coins which are centralized and have provisions for issuance events (such as e.g. USDT) still have some room for issuance malfeasance.  At least for these curreencies however, the public does know how much was issued and when.

To treat this situation in all generality we are left with three possibilities here concerning Krugman's claim that he doesn't see the problem solved by cryptocurrencies:

1-- There really is no problem of issuance malfeasance, all currency issuers are benevolent authorized players who not only don't create any more then exactly what society needs to be created but also fend off all less benevolent people who might seek that power, with no exceptions.  This of course seems impossible to me but who knows, it could be that I am somehow blind here.  If you think this is what's going on please do comment and let me know.

2-- Krugman understands the problem of issuance malfeasance but is a paid mouthpiece of people who wish to badmouth cryptocurrencies at this juncture for one reason or another, or simply is hiding his knowledge of the problem for his own purposes.  This seems exceedingly unlikely to me for a few reasons.  One is that it doesn't really matter to public opinion all that much what he says.  Another is that cryptocurencies are not a problem for the rich and powerful, even for those who are benefitting from issuance malfeasance.  In fact cryptocurreencies are a boon for these people because they can be obtained via trade for newly issued currency, thus enabling issuers to ensure their personal wealth in perpetuity.  Finally I don't believe the guy is lying to us, he seems like an honest bloke to me and I know some people who know him personally who agree.

3-- This leaves us with the final option, which is some kind of self delusion.  When something surrounds us our whole life, we sometimes don't see it as anything out of the ordinary or worth reporting - especially when doing so might tear down other symbolic structures we might have built up in our attempting to label the world around us.  If currency malfeasance is just the way the world works, then we don't see it as a problem.

What do you think, is issuance malfeasance enabled by the use of fiat currencies a problem worth solving?  Let me know in the comments please.