Crypto conundrum

Friday, 17 September 2021 — Maryland, Baltimore

[6 min read]

Dear Reader,

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 [BTC].

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 US, 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 US$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.

Marvellous 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 marvellous 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?

Regards,

Bill Bonner,
For The Rum Rebellion

Finally, the government has seen some sense and abandoned the appalling French submarine contract.

It was the worst defence deal in the history of the country (and that is a high benchmark), arranged by what many consider to be the worst defence and prime ministers ever.

Christopher Pyne and Malcolm Turnbull did the country a disservice and it has cost us years and billions of dollars. However, the price to get out of it is worth it.

The government have announced a deal on nuclear submarines in concert with the US and the UK. It’s a good move and the start of what I hope is a nuclear industry here in Australia.

That will take bipartisan support but a nuclear subs deal is a good start and given the need, it will be very difficult for Labor to put up too much resistance.

We do need nuclear submarines but we need diesel/electric ones too.

They fulfil different roles in our defence and surveillance capability.

The diesel subs are good for shallow water quick missions. When running in electric mode, they have little heat signature and are quite fast over relatively short distances before they need to resurface.

In this respect, they’re ideal for use in the shallow South China Sea for deployment of special forces and similar stealth missions.

A nuclear sub is a different beast.

They can remain submerged almost indefinitely and are ideal as long-term surveillance or tactical battle craft. However, they do their best work in deep water, where the heat signature can be dispersed effectively to make them very hard to detect.

That’s why Australia needs both. It’s also why the original decision of Pyne and Turnbull was such a bad one.

The original plan under the Abbott government was to purchase some diesel/electric submarines from Japan or Germany, which could be built in Australia at a reasonable cost.

This would have enabled future nuclear submarines to have been procured later while also ensuring our defence requirements were met in a timely and effective manner.

This proposal was torpedoed by a Turnbull-supporting former senator from South Australia (Sean Edwards), who claimed he wanted a ‘competitive tender’.

I suspect it was more about making political problems for Abbott.

This resulted in delays and when eventually Turnbull became PM, he signed the French deal.

It was hastily announced to save Pyne’s seat at a cost of tens of billions of dollars and a dud submarine deal with the French.

Many would say they jeopardised Australia’s national defence in the process of propping up a marginal seat.
It was (and is) a national disgrace, and is compounded by the defence ‘consultancy’ pursued by Pyne immediately after leaving politics.

While the government deserves credit for this important development, it’s independent senator for South Australia, Rex Patrick, who deserves applause.
As a former submariner, he has relentlessly pursued the idiocy of the French contract for years, and exposed just how bad it was for Australia.

The subs saga has demonstrated the best and worst of politics.

The worst being the shameless misuse of our defence needs for political purposes, and the best being the relentless exposure of it by those who truly care about the country.

Enjoy your weekend.

Best,

Cory Bernardi,
For The Rum Rebellion

PS: To sign up to Cory’s free weekly email, Cory Bernardi Confidential, click here.