[7 min read] Dear Reader, Last week I waded into bitcoin territory. While I certainly don’t understand the price, I made the case that the underlying technology is revolutionary. Because the ‘blockchain’ is a distributed (decentralised) ledger and peer-to-peer payment system, it has the capacity to completely disrupt the traditional financial system (‘tradfi’ to the cool kids). How? By effectively removing the ‘centralised’ middleman from all transactions. No brokers, no banks, no custodians, no market makers, no clearing house function… All ticket clippers will become redundant under a blockchain-enabled financial system. But it’s not going to happen overnight. This is a 10-year-plus trend that will take out some traditional players faster than others. Take the banks for example. There are plenty of functions they fulfil that will become redundant in the years ahead. But their most important role is credit creation. Banks create money when a person or a business obtains a loan. That money then flows into the economy. Under a blockchain system, who creates the money? I know bitcoin is meant to be decentralised money, but right now it’s not fulfilling that function. It’s a store of wealth, too valuable to circulate as money. And anyway, as a form of money with a finite supply, bitcoin would be deflationary. We’ve already tried to operate a monetary system on limited supply money. It was called the gold standard, and it didn’t suit in the emerging age of democracy where the rise of special interests and power-hungry politicians wanted a far more elastic money supply. Currently, the new, decentralised financial system is getting around the bitcoin not being money problem by coming up with stablecoins. Buying and selling through the peer-to-peer system takes place with these stablecoins. But these coins are linked in some cases to the US dollar. They derive their value from fiat currency, which is the system it is trying to get away from. It’s early days of course. The system is still in its experimentation phase. But I guess the next phase would be where banks (or some other entity) create decentralised money, backed by the asset they are lending against. With no need for banks to act as, well, banks, safeguarding depositors’ money, I have no idea what these new banks would look like in reality. But I’m sure it’s in the planning phase. And you know the authorities are taking this very seriously as they are designing their own digital currency systems as well. China is at the forefront. Which makes sense. If there is any country threatened by a decentralised monetary system, it is China, the most politically-centralised country in the world, apart from maybe North Korea. The Wall Street Journal reports that China has created a digital currency, the first for a major power. Is this an Empire Strikes Back moment? ‘China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. By design, the digital yuan will negate one of bitcoin’s major draws: anonymity for the user. ‘Beijing is also positioning the digital yuan for international use and designing it to be untethered to the global financial system, where the U.S. dollar has been king since World War II. China is embracing digitization in many forms, including money, in a bid to gain more centralized control while getting a head start on technologies of the future that it regards as up for grabs.’ China’s foray into digital currency creation is about maintaining central government control. It’s that simple. Which is the complete opposite of what decentralised finance is all about…handing control back to the people and out of the hands of the sociopaths. How they expect the digital yuan will be in demand for international use is delusional. The only people who will use this currency are those citizens who are forced to. From the WSJ again: ‘Digitized money looks like a potential macroeconomic dream tool for the issuing government, usable to track people’s spending in real time, speed relief to disaster victims or flag criminal activity. With it, Beijing stands to gain vast new powers to tighten President Xi Jinping’s authoritarian rule. ‘Elements of this kind of control already exist in China, as digital payments have become the norm. Mr. Mu has said the central bank will limit how it tracks individuals, in what he calls “controllable anonymity.” ‘The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump start. ‘It’s also trackable, adding another tool to China’s heavy state surveillance. The government deploys hundreds of millions of facial-recognition cameras to monitor its population, sometimes using them to levy fines for activities such as jaywalking. A digital currency would make it possible to both mete out and collect fines as soon as an infraction was detected.’ It was always obvious that governments would not stand back and allow a new financial system to evolve without getting involved. Central banks all over the world are now developing their own digital currencies. What does this mean for the future of finance? Will these currencies knock bitcoin off its perch? Will it allow governments to wrest back control of the system? Stay tuned for answers on all this and more. We realise the financial system is at a revolutionary moment. And we’re working on a major new project to keep you up to date on all these developments. We’ll have more info for you shortly. Cheers, Greg Canavan, Editor, The Rum Rebellion ..............................Advertisement..............................In 2017, Ryan Dinse released a report called ‘The Blockchain Collision’… His blockchain collision stocks are currently up 211%, 763%, 35%, 85%, 394%, 19%, 280%, 28% and 69%. Not a single one has recorded a loss Blockchain technology — and its seeping into other sweeping trends — is one of the most revolutionary…and profitable…technological concepts I’ve ever covered. Its disruptions…and your chances to profit…are only just beginning. But it’s just one small part of an overarching new movement in technology that Ryan calls COLLISION SQUARED. Where, if you accept the risks, you can make colossal potential gains — by predicting how new unions of new technologies might pan out. To find out more, and the ‘collision plays’ being targeted next…click here. | ..........................................................................
The Feds’ Dumbbell Monetary Experiment Bill Bonner We’ve argued that the US is in decline. But if it is declining, it must be declining against something else. What?
We don’t have to tell you, Dear Reader. You already know. Here’s the latest from The Wall Street Journal: ‘China Creates its Own Digital Currency, a First for Major Economy’. ‘A thousand years ago, when money meant coins, China invented paper currency. Now the Chinese government is minting cash digitally, in a re-imagination of money that could shake a pillar of American power. ‘It might seem money is already virtual, as credit cards and payment apps such as Apple Pay in the U.S. and WeChat in China eliminate the need for bills or coins. But those are just ways to move money electronically. China is turning legal tender itself into computer code. […] ‘China’s version of a digital currency is controlled by its central bank, which will issue the new electronic money. It is expected to give China’s government vast new tools to monitor both its economy and its people. […] ‘The money itself is programmable. Beijing has tested expiration dates to encourage users to spend it quickly, for times when the economy needs a jump-start. ‘It’s also trackable, adding another tool to China’s heavy state surveillance.’ More control As far as we can tell, almost all money today is nothing more than electronic notations. We buy a cup of coffee. We tap our debit card on the little machine. Somehow, one account is debited and another credited. We can later see a record of it to confirm that what happened was what we thought happened. But apart from the ‘information’, nothing has changed hands. A ‘digital currency’ might not change much. The transaction would remain the same, with information passed electronically from one bank to another. But as the Wall Street Journal notes, China’s new digital currency gives the government more control over the electrons. It will be able to decide who gets them…and who doesn’t. This is a major experiment, and one that the US will want to follow closely. Having money that comes directly from the Federal Reserve would give the federales whole new opportunities for mischief. New powers What’s more, in the US, gaining tighter control over ‘money’ may soon be a matter of desperate national importance. In the modern world, a nation rises in wealth and power by providing goods and services. In this regard, China has set new records — leaping from a hopeless backwater to a great world power in just a single generation. It did so by producing things on a gargantuan scale. This output was sold to people in other countries. They paid with ‘money’ which passes, typically, from the declining power to the rising one. How this new digital money will work out for China, we have no idea. It’s new. Never been tried. If it is stable, and backed by a sensible, reliable government, perhaps it will catch on…and help the Chinese attract more capital and become even richer and more powerful. Perhaps this new currency will cause other nations to dump the US dollar as a reserve currency and switch to China’s new money. Or perhaps the Chinese feds will be tempted to use their new powers the way bullies and bureaucrats always do…to stifle entrepreneurs, mislead businesses, and dull the sharp, dynamic edge that has been so successful for the Chinese so far. Again, we don’t know. Bribes and scams But meanwhile, back in the US…the feds are conducting their own monetary experiment. They’re seeing how much gas they can pump into an old-fashioned, ‘fiat’ money (with no gold-backing) system before the whole shebang blows up. This is an experiment that has been run before — many times. We believe we know how it will work out. US debt crossed the $28 trillion-mark last month… And the Biden Team has just proposed the most expensive boondoggle in US history, advertising that it would help us to ‘win the global competition with China’. The foolishness and boondogglishness of the latest ‘infrastructure’ proposal is almost comic. There is little infrastructure in it…and what is in it shouldn’t be. Except for the interstate highways, infrastructure is a matter for local communities and businesses, not for the feds. It is really just a monstrous grab bag full of giveaways, payoffs, bribes and scams. And each one of these boondoggles squanders real resources, energy and time. A few insiders get richer, but everybody else ends up poorer. ‘Never interrupt your enemy when he is making a mistake,’ said Napoleon. The Chinese haven’t said a word. Handy alternative In the feds’ fantasy world, money is unlimited. But in the real world, time and resources are not. And as the feds print more ‘money’, the rising tide of new dollars lifts prices for cement, soybeans, diapers, milk, houses, stocks, Graham crackers, tennis rackets, taxi fares…practically everything. At least, that was the outcome every other time this experiment was run. And by introducing a new currency, the Chinese could be hitting the US where it is most vulnerable. The US feds can control many elements in their fantasy world. They can create ‘money’ out of thin air. They can create make-work jobs. They can increase ersatz ‘demand’ — by giving away more fake money. They can goose up stock prices…and suppress interest rates. The thing they can’t do is control the value of their phony-baloney dollars. And when it becomes more obvious that the morons have lost control of the dollar, the new digital yuan may look like a handy alternative. Regards, Bill Bonner, For The Rum Rebellion ..............................Advertisement..............................A cash panic is beginning… Are you sitting in cash and ‘waiting things out’ before getting back into the market? BIG MISTAKE. That’s the message market veteran Greg Canavan is sharing. Greg believes we’re in the early stages of a ‘cash panic’ that will see vast sums of money rush out of bank accounts…and into the last place you’d expect. If you get ahead of this anticipated move, you could position yourself to profit. Or you could get left behind — trapped in cash as other people capitalise. Here’s what Greg recommends you do, urgently. | .......................................................................... | | Wishing You a Happy and Safe Easter | By James Woodburn | In celebration of the national holiday today, all the staff at Port Phillip Publishing and Fat Tail Media would like to wish you a happy Easter and Good Friday. |
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