Mount Fiat

[7 min read]

‘It’s difficult to breathe,’ said Prime Minister Ralph Gonsalves.

‘What goes up, must come down.’

The Prime Minister of the Caribbean island of St Vincent wasn’t talking about the stock market or bitcoin. He was talking about volcanic ash. A stratovolcano called La Soufriere has erupted on the island, forcing an evacuation.

Soufriere is French for ‘sulphur mine’, which gives you an idea of what the volcano must smell like. It’s a little spot of hell in beautiful island paradise. Thus, in the modern world, the appearance of wealth and leisure is at risk of imminent and mortal danger.

I don’t know much about stratovolcanoes. But apparently they’re the worse, most violent kind. They erupt violently and often without warning. This particular volcano has erupted four other times in recorded history: in 1718, 1812, 1902 and 1979.

It’s a little like a systemic financial crisis. You know they happen regularly. You just don’t know when. You don’t want to get caught on the island when there’s brimstone and blood in the streets. Krakatoa, which spewed ash 80km into the sky in 1883, was also a stratovolcano. So are Mount Fuji, Mount Kilimanjaro, and Mount Rainier.

Those last three mountains are beautiful to look at. Conical, snow-capped, majestic, and rising above their surroundings. And all patiently waiting to blow their stack and cause death and destruction in all directions.

But back to La Soufriere. I read earlier this morning that only those vaccinated against COVID-19 would be able to flee the island to neighbouring sanctuaries like Barbados, Grenada, and St Lucia. If you don’t have the jab, you can choke on the ash. Got it?

The story reminded me about the dilemma of money in the wrong form. If your money is trapped in a jurisdiction or currency where you can’t spend it, how useful is it? If it’s not liquid, and you can’t even get to it, it’s not very useful. If you can’t even prove that you own it and don’t actually possess it, you could argue it’s not even really your money. And what good is that?

Of course, that depends on how badly you need the money. If you’re saving in another currency (or moving money into digital assets in expectation of a monetary revolution) then you don’t need to worry about volcanoes or getting your cash out now. You can afford to wait. But for how long?

You may have seen the story last week that the communists in China are moving full steam ahead with digital cash. This is not your grandchildren’s bitcoin. This is fiat digital money issued either by a central bank or government Treasury. And its primary benefit is to them. Not to you. What is that benefit?

Total surveillance of your financial affairs. Permission-based commerce. The implementation of negative interest rates and money that expires as a macro-prudential/monetary policy tool for central planners. In other words, it’s the nightmarish fantasy of people who want to use money to control not just your wealth, but the choices you make with it.

Those two things — wealth and what you do with it — are inextricably linked. Some people want to get wealthy for its own sake. They use money as a way of keeping score in life. Am I doing better than my parents? Better than my siblings? Better than my arch-rival growing up, who made an underserved fortune flipping houses or got lucky inheriting money from his parents?

You can do whatever you like, of course. At some point in life, we all learn that you can’t choose what other people value. Value is subjective. And as the 19th century French economist Frederic Bastiat reminded us, value is only realised in an exchange, when two parties agree on terms.

But money is not the same thing as wealth. Wealth is more than just the sum total of all your financial and physical assets. It’s having enough money that you have security, peace of mind and leisure time. It’s being part of a family or community that supports you and whom you support. It’s the quality of those relationships that matter when you get fired, you run out of money, or your car gets repossessed.

When governments come after physical cash, it’s not because they want a more efficient payment system, although that might be one technical side effect. It’s because they now understand technology gives them the ability to exercise control over your life in ways never before imaginable. In order to realise that control, all they have to do is make the switch to a form of money which is solely controlled by them.

It’s like a looming monetary eruption. The mountain is smoking and spewing. The rise in stocks, the stratospheric rise in bitcoin, the growing interest in decentralised finance, non-fungible tokens, and digital assets in general — all these phenomena are similar to when flocks of birds, startled, take wing, and flee. Or dogs start barking before an earthquake.

At some natural, instinctual, non-cognitive level, people know something is building. On the one hand, that something could be something wonderful (like when Dave Bowman looks into the monolith in 2001). Or it could be something catastrophic.

Wealth catastrophes happen when events, history, or a financial calamity overtakes your ability to time the market and make the right move to keep your money and your family safe. Bill and I believe that the biggest and most urgent challenge for investors is protecting what you have from the coming calamity. Don’t get stuck on a financial island with no way out.

Regards,

Dan Denning,
Editor, The Rum Rebellion

Time to Get out of Dodge?
Bill Bonner

A German movie, title long forgotten, showed a group of children whose parents were killed near the end of the Second World War. The four children were orphaned into chaos, ruins, and hunger.

With no family nearby, no functioning government, no communications or social services available, and neither law nor order to protect them, what could they do?

The children set off, making their way across Germany in 1945 — amid scenes of desperation, violence, and depravity.

The redeeming thing was not only that the children were resourceful and intrepid, and succeeded in reaching their grandmother’s house…but that when they got there, they found it just as they remembered it — an oasis of tranquility…untouched by five years of brutal warfare.

When things fall apart, in other words, is a good time to be where they don’t fall apart.

On the move

Suppose you were in Russia in 1917…or in Germany in 1933…or in Venezuela in 2010.

If you were clever or lucky, you might have found a way to prosper safely. But the better strategy was to get out when the going was still good.

Two million Russians emigrated during the Civil War, 1917–22. 130,000 Jews fled Germany between 1933–37. And more than four million people have left Venezuela in the last 10 years.

And now…partly in response and partly in anticipation…Americans seem to be on the move, too.

Some are fed up with politics…with their neighbours…or just with the weather.

Others, like animals moving to higher ground before a tsunami, may be sensing danger. ‘Zoom Towns’ are booming. And prices in some areas are soaring.

Curiously, if masking up, closing down, and staying away help reduce death rates from COVID-19…

…Americans must not fear death. Because last year, they moved from places with fairly strict control measures to places without them.

This remark should not be confused with ‘the science’. It’s just an observation passed along by a French colleague, Simone Wapler.

She reports that 16 million Americans packed up last year and sent us the latest figures compiled by moving company, United Van Lines. They show on the left, the states people abandoned…and on the right, where they went.

Writes Simone:

‘People left the towns where local taxes were high, and states where people were locked down — such as California, New York, and Illinois. They found more moderate taxation and less confinement in states such as Florida, Idaho, and Tennessee.’

Getting out

Others seem to be moving out of the US completely.

Yesterday, we talked with a colleague, Ronan McMahon, an expert on real estate in the resort communities of Central America.

‘Most of the buyers used to be older people,’ Ronan explained. ‘American retirees.’

‘I’m in Cabo San Lucas, Mexico. Here in my building, it used to be very quiet, with a couple of common rooms for meetings and cocktail parties. Now, the place is full of families — some with young children. And the meeting rooms have been turned into digital workstations.

‘And over on the East Coast of Mexico, I’ve never seen so much activity. Restaurants are full. Beaches are crowded. Americans are buying places sight unseen. They seem almost desperate to get out of the U.S.’

Trouble ahead

The US is clearly headed for trouble.

Deeply in debt already, it proposes to solve its problems — real and imagined — by borrowing (and printing) more money.

Eventually, the whole money system will blow up. Most likely, the supermarket shelves will empty…and the headlines will fill up with reports of violence, corruption, and jackassery.

How bad will it get? We have no way of knowing. Maybe we will muddle through with only financial losses. Or maybe millions will die in a coming ‘Dark Age’ of starvation and civil war.

When will things get rough? We don’t know that, either.

Typically, disasters take much longer to begin than you expect. Then, they happen faster than you expect. And finally, they get worse than you ever imagined.

Whatever happens, some places are less likely to fall apart than others.

In the meantime, we are ‘locked down’ in our own little bolthole in Ireland…waiting for the country to open up again…and for the birth of a grandchild. (Any day now!)

But you don’t have to leave the US to find relative safety.

The US’ small towns still provide some of the easiest and most agreeable living opportunities in the world.

Regards,

Bill Bonner,
For The Rum Rebellion