You might look around and wonder. I do. Here is Australian retail store Harvey Norman with their latest offer.
The offer has some interesting components:
- No interest for five years. Quite compelling, except that most things Harvey Norman sells will be obsolete in that time.
- The gift card is worth 5% if you spend $10,000 or more. That should yield you a television large enough for most castles.
For some consumers who might buy on credit card, this is actually a good offer versus what they might pay in interest on the debt. There is small print though:
- The offer applies only to “approved Latitude MasterCard Customers”.
- The Latitude MasterCard itself has an APR of 12.16% – 21.99% depending on your credit rating. Actually, not the worst I have seen.
- If you are unable to pay off the balance on your Harvey Norman loan the interest rate is 25.9% APR, which seems a touch excessive.
- There is a $25 establishment fee on the card and a $5.95 monthly service fee.
- The offer does not apply to Apple or Miele products (presumably because they might last longer than 5 years).
The general public are not stupid though. Most people realise the inherent cost of some of these offers, but they take them up anyway. Why?
It seems that people have worked out that all the government stimulus and QE goes to help those in debt. Monetary policy forces down the rate of interest, the Covid provisions have exempted directors from trading while insolvent, home owners with debt do not need to pay their bill until the end of their mortgage term, say in 20 years. No such provision for renters. The thing that ultimately sends individuals and companies over the edge is the inability to pay debts and so all the machinery of government is designed to prevent that from happening.
Look to the US for another example. Student loan repayments have been suspended all year, if you were prudent and paid it off, or didn’t take one at all, you don’t get the free money. If Joe Biden wins and goes for a full loan amnesty, imagine if you had spent $150,000 paying off your own loans only to see everyone else’s slate wiped clean.
Debt now has a potential economic return that saving does not. In all probability that return might actually increase due to amnesties.
Debt pays, prudence doesn’t. It is wrong, but it is true.
One little understood issue about money, is that it does not really belong to you. Save for hoarding bank notes (at considerable risk), you retain your wealth at the whim of the banking system and the government. Almost nobody believes this is an issue right up until the point it becomes one.
The latest example of the systemic weakness of fiat money comes from Switzerland.
You would think that if you walked into a Swiss Bank, with SFr 500,000 and asked to open an account, the manager would magically appear with a special gold pen for you to sign the documents before taking you out on a nice lunch on Lake Geneva.
Not so, they do not want your cash. In fact it is a problem for them for a number of reasons. Firstly, the interest rate is negative in Switzerland and holding the cash is in the words of the bank “value destructive for us”. Secondly, cash holdings are liabilities for banks, unless they can make loans against them. These days that is very difficult and so it can throw off their regulatory ratios.
Swiss banks are telling clients they can hold cash but only if they have an intention to deploy it into other financial assets with the bank. By which they mean, please buy bonds or equities and get this stuff off our balance sheet.
This can happen everywhere, charges for holding cash in a negative interest rate environment are a very real risk. Fiat money is not yours, you do not control it in the way you think.
In some countries like Cyprus, Venezuela, Turkey, Iran and Lebanon to name the most recent few, this has been a very expensive lesson for many people. It won’t happen to you though, until it does.
Updates to the bitcoin code base are extremely rare. They operate through a system known as BIPs (bitcoin improvement protocols). A developer will propose some code, it will go through many layers of review and perhaps be included in the code base if people choose to adopt it at some point in the future.
The latest BIP to land was BIP340. This proposes a change to the cryptographic signatures in bitcoin using something known as Schnorr signatures. These were invented (or more accurately discovered) by Professor Claus-Peter Schnorr in 1991. Even though they are superior they were not used in the initial bitcoin code base because they had been patented, a patent that has since expired.
They key advantage of Schnorr is that if you add two signatures together, the result is no larger than a single signature. In the current iteration of bitcoin, if you use a multi-signature wallet the size of the signature is additive, so mult-sig transactions are larger, and more expensive as a result. In theory you could now have thousands of parties to a transaction, all combining signatures at no cost in size. It actually makes smart contracts on bitcoin possible in a way that actually scales.
For example, you could settle an entire days trade of a stock exchange in single transaction by combining the signatures of the participants and it would be the same size as a transaction of me sending you 0.1 BTC. It is therefore profoundly useful.
Transaction size and block size will become increasingly important with time. The thing killing other blockchains is their sheer size and this is a big step towards greater transactional efficiency in bitcoin.
You will not read about Professor Schnorr in the Financial Times or the Wall Street Journal this year or next. In time though, his discovery will be on every syllabus around the world.
On the subject of patents, Bitcoin has in the last few years come under patent attack. It must be said, that while some of these attacks are well funded they are somewhat incredible. The most notable of them is led by the creators of the bitcoin fork known as Bitcoin SV. This is the brainchild of Australian Craig Wright and gambling billionaire Calvin Ayre.
They teamed up years ago to try and patent the bitcoin technology using the idea that Craig Wright is Satoshi Nakamoto. They started with Bitcoin Cash but fell out with one of the partners there and simply forked the coin again producing Bitcoin SV.
Amusingly, during a court discovery process, documents have been revealed from the Australian Tax Office. They conducted an audit on Craig Wright’s operations years ago and concluded that his claims were “a nullity based on a sham”.
It seems that Twitter founder Jack Dorsey (who owns Square Crypto) has had enough of all of this and has launched something known as the Open Patent Alliance. The idea is that people who produce technology for bitcoin can submit their patents to the alliance such that they are only used to defend the technology rather than hijack it.
As for bitcoin itself, the software was published under the creative commons license and so, is somewhat immune to attack. It won’t stop people trying though.
Hermes scarf lady Christine Lagarde was back in action recently, declaring that Europe’s recovery was underway. She upgraded growth forecasts and hinted at higher inflation trends.
It would have to be said that despite the bank’s attempts to get 2% inflation over the last 10 years they have had a strike rate of only 20%. You would reasonably have cause to wonder, might the outcome have been better if they had done absolutely nothing?
Lagarde went on to dismiss the current strength of the Euro (which is actually holding inflation back) indicating no policy changes or new stimulus were needed. That caused the Euro to rise another 0.5% which does not exactly help matters.
The situation then turned into a scene from Yes Minister. Lagarde had strayed off script clearly, cue diplomatic scrambling. The following day Philip Lane the ECB’s Chief Economist was rolled out
“It should be abundantly clear that there is no room for complacency, the Governing Council stands ready to adjust all of its instruments, as appropriate, to ensure that inflation moves toward its aim in a sustained manner.”
Some hours later, in what certainly looked like a coordinated clean up operation, he was followed by the Governor of the Bank of France who was anxious to point out that the exchange rate counts
More importantly though, the scarf was a new one. Cashmere? It certainly looks like it in the picture, which is an odd choice so early in the European Autumn.
Truly, French leaders know how it’s done. “I’ll wear Cashmere you eat cake”. Something along those lines.