The real money hustle

[7 min read]

Rocket ship builder and electric car promoter Elon Musk let his Dogechildren down. Musk hosted the unfunny and pretentious American so-called comedy show Saturday Night Live this past weekend. He called himself the Dogefather, after the made-up joke cryptocurrency invented in 2013.

In the lead up to the show, traders bid the coin up as high as 75 US cents. At one point, it had a market capitalisation of over US$72 billion — larger than Kraft Heinz (an actual company that makes food, something people eat to survive). Dogecoin fell over 30% during Musk’s appearance on the show. Why?

Musk played a fake financial advisor named Lloyd Ostertag in one sketch. Reporters kept asking him what Dogecoin is. He hemmed. He hawed. He ducked. He dived. He dodged. And finally, he conceded it was a ‘hustle’.

How disappointing. The highlight of the sketch was when the fake news reporter pulled out a dollar and showed it to Ostertag. The newsman said, ‘This is a dollar. It’s a real thing. Right?’ ‘Sort of,’ Ostertag replied.

That’s where the real comedy gold is — that paper money is a real thing. It’s not ‘sort of’ real. It’s just paper.

It’s only more real than Dogecoin in one important respect. Dogecoin is backed by the self-fulfilling belief of the people who buy it. Some of those people are buying it as protest — a statement that the government money system is fake. Some are buying it because they are morons expecting to get rich.

But if government has taught us anything over thousands of years, it’s that legal tender laws are enforced with the implicit or implied violence of the State (laws, guns, jails). Money can’t be anything you want it to when the State is involved. Even if it’s just bits of paper with pretty designs and colourful ink, it’s backed by the full faith, credit, and violence of government.

Given a real choice between the two, Dogecoin is the least psychopathic form of money. But it WAS started as a joke. And money is a serious business. For money to do its job as a medium of exchange, unit of account and a store of value, it has to have certain characteristics.

One of those is scarcity. There aren’t very many forms of money today (or things that claim to be money) that share that property. Gold is scarce. You have to find it, and then raise money to buy machines to mine it. Bitcoin makes the scarcity claim too, achieved by the programming which limits its supply and requires computing power to ‘mine’ it.

Real money requires real resources. But in a fake world, with fake money and fake news, the race is on to redefine what money is — so that it is literally no object. This is what all those acronyms — UBI, QE, MMT — are all about. If money can come from nothing, we can spend an infinite amount of money to create a better world, right?

Quantitative easing allows central banks (like the Reserve Bank of Australia, the Bank of England, the Bank of Japan, and the US Federal Reserve) to ‘print’ money and buy government bonds. This keeps bond prices high (for investors) and interest rates low (for borrowers, the biggest of which is government). QE is magic money to fund the relentless expansion of government. It’s a hustle with some menace.

Universal basic income is a hustle too. You can say that everyone deserves the right to a living wage. But something doesn’t come from nothing. Friday’s dismal payroll numbers in the US proved that if you pay people not to work, they won’t. Millions of jobs are unfilled in the US because the government is training people to do nothing and go on the dole. It’s a hustle.

Modern Monetary Theory (MMT) is the biggest hustle of all — but it’s one you might learn to like. Why? MMT says the government can spend money into existence. It doesn’t have to borrow it. Therefore, debt doesn’t matter, nor do deficits. There are no real limits to the power of government to do good things with fake money.

Here’s why you might learn to like it: if the government can spend money into existence to accomplish anything it sets its cold black heart to, why should anyone pay taxes, ever? If we don’t have to use government money to pay taxes, because the government doesn’t need to fund itself from our pocket anymore, can’t we just keep our money?

This is why MMT is such a dangerous idea to the monetary authorities. Taken to its logical conclusion, it will destroy what little belief people have in government money. People don’t really think about money much. Ask most people what a dollar is, and they’ll tell you it’s money, or a dollar, or something you can trade for other things.

If you live in a society where people have to think about what sound money is, you live in a society where the money is going bad. And if you were watching Saturday Night Live this weekend, you now know our money’s gone bad. It’s a punchline. A joke.

In the next monthly report for subscribers to The Bonner-Denning Letter, Bill and I are going to look at four ways to escape being the butt of a monetary joke. When it’s your retirement and quality life at stake, money is no laughing matter. Not even for fools.

Regards,

Dan Denning,
Editor, The Rum Rebellion

Buy Sneakers!
Bill Bonner

You’ve heard, of course, of the ‘greater fool’ theory, the strategy in which a buyer pays a foolish price for something, betting that someone else will pay even more.

Well, on Monday, it looked like the greatest fool of all had finally shown up at an auction house. Bloomberg’s Matt Levine is on the story:

‘On Monday, Sotheby’s announced it had brokered a $1.8 million sale of Kanye West’s Nike Air Yeezy 1 sneakers, making them the most expensive pair of (known) shoes to sell, ever.

‘But the sneakers weren’t purchased by a footwear-loving collector. Instead, they were acquired by the company Rares, which plans to fractionalize pieces of the shoes as an investment.’

That’s right. ‘Investors’ are expected to buy shares in the shoes…hoping to sell them to other ‘investors’ at even more lunatic prices.

Weird and wacky

Question: What’s the return on investment on a pair of used kicks?

Answer: No less than on the 40% of the companies traded on the Russell 2000 that are losing money.

So why not? If companies that don’t make money are valuable…why not a pair of shoes?

And why not a thing that is no thing at all…an asset that neither toils to make money nor spins in the light of day for the amusement of onlookers?

That’s right, whenever you think the greater fool theory has run its race, along comes an even bigger dumbkopf sprinting ahead.

Active shooters

Investors are becoming unhinged.

The Federal Reserve’s money printing (over US$7 trillion so far this century…now increasing at about US$4 billion per DAY) and its negative real interest rates (for most of the last 11 years) are turning them into active shooters, senselessly killing decent wealth and honest capital.

And now, the Fed itself is trapped in the theatre…hiding between the seats. Here’s CNBC:

‘Rising asset prices are posing increasing threats to the financial system, the Federal Reserve warned in a report Thursday.

‘Fed Governor Lael Brainard said the situation bears watching and points up the importance of making sure the system has proper safeguards.

‘“Asset prices may be vulnerable to significant declines should risk appetite fall,” the central bank said.’

Sshh!

The Fed has created a bubble — with perhaps US$30–50 trillion in bad, or merely overpriced, ‘investments’. The bubble threatens to pop.

But the Fed dasn’t raise interest rates — or it will bring itself under fire and trigger the very disaster it has sworn to avoid.

The only way to keep the bubble world from popping now is to blow in more air. Then, the bubble gets bigger…and investors become even more deranged.

Any dope — even a Federal Reserve governor — can see that this will end badly. But the damage will be much deeper and longer lasting than most people realise.

Not real investing

‘Investing’ in a pair of sneakers is not the same as building a factory. The investment promoter won’t learn to make precision tools or to finish concrete. No one will ever punch a time clock and go to work in the sneakers.

And the ‘investors’ who spend their time studying the ‘investment’ will not be figuring out how to add real wealth by providing more goods and services; they will be subtracting wealth, by allocating scarce capital to dead-end projects.

Like it or not, while the Fed’s funny money may be unlimited, the things needed to produce real wealth are not.

Time, attention, energy, organisation, skill, savings, innovation, intelligence, raw materials, space — if you ‘invest’ them in building pyramids, you get pyramids.

Put them to work producing fractionalised sneaker assets…and that’s what you get.

Catastrophic correction coming

And for all the research and theorising about the rise and fall of civilisations, the basic template is very simple: The more resources (including people and time) that are misspent…the poorer people get.

This week, we’ve been wondering how the bad investments — caused by the Fed’s numbskull policies — eventually get corrected. ‘Catastrophically’ is the answer.

The elite control the government. The elite benefit from policies that encourage bad investments (because they transfer wealth to the few at the expense of the many). The bad investments continue.

In the private sector, at least, the fools are wasting their own money. And the whole show could be corrected quickly — in minutes, after Mr Market calls the cops.

But over in the public sector, it’s the deciders themselves who are on the rampage.

Just yesterday came word that Alexandria Ocasio-Cortez (AOC) wants to create a US$10 billion taxpayer-funded ‘Climate Corp’. She says she would recruit some 1.5 million civilian soldiers to battle with Planet Earth. Our planet is heating up, she claims; the new climate warriors will stop it.

Everything Ms AOC wants to do is already being done by dozens of federal programs. But why not another one?

If started, the Climate Corp — like the Peace Corps (still in business after more than a half-century of improving the world…with a US$410 million budget and not a single volunteer in the field!) — will be with us forever…

And as long as the money printing continues, so will the bad ‘investments’.

We’ll count the bodies later.

Regards,

Bill Bonner,
For The Rum Rebellion