Its tough being a global reserve currency. History tells us surviving more than 100 years is very hard. The Spanish hold the record with 110 years. That particular arrangement fell apart because of the collapse of the Iberian Union between Spain and Portugal. Portugal got tired of being told what to do by Spain, and following several border skirmishes, it all fell apart.
Sound familiar? European countries not really enjoying other European countries calling the shots. Happily, this time around the Eurozone has Christine Lagarde who will warp the path of history with her skillful economic management.
Anyway, in second place on 105 years, is Britain. Their dominance fell apart thanks to the great depression and over exertion in the first world war. Eventually Britain couldn’t pay its debts, came off the full gold standard and handed the baton to America. Expensive wars and depressions are bad for currencies, so look out for those.
Currently then, running third is the USA on 100 years. They have done a terrific job, albeit the value of the currency has been declining with time, roughly 90% down against gold. When historians look back they might very well point to Richard Nixon’s 1971 decision to renege on USD being redeemable for gold as the end. That would actually put them in last place on 54 years but for now, the dollar bubble lives on.
We talk a lot about monetary debasement, how it is done and the effect it has. It is actually very hard to visualise though. You cannot see a money supply and you cannot easily compute the impact of changes in that supply on your own purchasing power.
Debasement is everywhere though, even in chocolate bars. The Zimbabwe of chocolate is the Snickers bar which was reduced in size by 28% in four years. However, each bar in the Snickers seven pack has been reduced by only 13%, adding confusion and causing disruption in relative pricing, even within the same product line. You can see the ruse to push both margins and volume up. Simply, keep the price increases down by reducing the physical product and then make the volume purchase relatively more attractive.
The Jaffa Cake team have taken this to an extreme though. Their single packet is now 18.7% smaller but the three pack has actually increased in volume by 5.8%. Bond junkies might think of this as an inversion of the Jaffa Cake yield curve. You would have to be insane to not upgrade to the three pack while simultaneously selling off your excess supplies of single Jaffa Cakes. One day, three Jaffa Cakes collectively are worth three single Jaffa Cakes, the next they buy you barely two. Jaffa Cake futures are coming soon to the CME, with the full support of the Federal Reserve, who will buy them before every meeting.
This deception is everywhere though, particularly from governments. If we look closely at the chocolate trick, less is “good for you” and we have to do it because “some health directive”. You now pay more, for less.
Similarly with money, “we have to do it” because “some health/economy/war type reason”. You now pay more, for less. It’s easy and it’s everywhere.
While on the subject of debasement it isn’t just money and chocolate. Culture itself is arguably debased over time. The Nobel Prize is a fine example, back in 1931 when the Gold Standard collapsed the prize was being won by people like Carl Bosch, who invented the spark plug and was a genius with the high pressure industrial chemistry that is still in use today. By 2009, Barack Obama was winning the Nobel Peace prize, he had been President for 11 days before nominations closed. Possibly the shortest contribution to ever warrant a Peace Prize. It must be said, he went on to rather disappoint in the global peace stakes.
This week another Nobel Laureate was chiming in on the topic of global debt. Here he is on twitter this week.
He is right of course, however for most American’s they have incurred $20,000 each in additional borrowings on the governments account and received only $1,600 each in return. The other $18,400 went to JP Morgan and Co. Net, it makes little difference to America, but to 99% of Americans and their descendants it will make a big difference.
Krugman is the paid economic mouthpiece of the establishment, standing by rationalising the robbery of Peter to pay Paul, literally in his case.
I will take this opportunity to remind you that in 1998 Krugman noted that the “internet would have no more impact on the world than the fax machine”. Apologies in advance to those of you reading a faxed version of this note.
The news from the UK is steadily improving. Not only is the Prime Minister back from the jaws of death, the UK government is now able to get paid to borrow money, for the first time ever. Last Friday the UK Debt Management Office managed to offload £3.75 billion worth of three-year gilts at a yield of -0.003%. The market paid the government to lend them money.
This is a smidgen embarrassing for the new Governor of the Bank of England who on taking office in March, rejected negative rates as “not on the table”, the Governor has changed his tune and now they are “under active review”. He obviously doesn’t look at the bond market that much since it’s rather loudly telling him that they are already here.
Traders in the UK now are forecasting negative rates, they know the economy is tanking, they know prices will fall short term and this implies bankruptcies as revenues decline and debt burdens do not. If you don’t believe me, ask the Hertz Motor Company, or indeed Argentina, both of whom effectively went bankrupt this week for this very reason.
That alone is why people are paying to lend governments money. The person who prints the pounds isn’t running out of pounds anytime soon. If you leave it in the bank, the bank might not be here in three years time.
Craig Steven Wright
Last year his claims were put to the test, following the death of an early bitcoiner known as David Kleiman. Craig Wright laid claim to Kleiman’s bitcoin. It is somewhat convoluted tale but Mr Wright claimed that Kleiman’s bitcoin were held in something called the Tulip Trust which would transfer to Craig in January 2020 at which point he would have the final piece of the private key to these early bitcoins. He produced a document attempting to show that there was an agreement.The late Mr Kleiman’s brother Ira, has taken issue with this claim in the US courts. In essence his case is that none of Craig Wright’s claims are true but if they are true he owes Mr Kleiman billions of dollars. So the situation is rather odd, if Craig Wright is Satoshi Nakamoto, he owes a lot of money. If he isn’t then he has lied to the court and everybody else and his reputation is ruined.
So far the case has not gone well for Craig. The judge recently having said this:
The reference to ‘a constant in the code’ is referring to Bitcoin SV and its larger block size.
Now, you might claim simple error in including an incorrect address and that would be conceivable. However, this early bitcoiner signed 145 addresses that Craig Wright is claiming. One error is conceivable, two may be forgivable, but 145 is likely something else.
The court case resumes in one months time. Given the judges comments so far this could end very badly, his worst case outcome originally was a large legal bill. His worst case outcome now is perjury charges.
Meanwhile on the other side of the world, a discreet cryptographer is busy on twitter, busy denying he is Satoshi Nakamoto.
If you know anything about the early part of bitcoin development, some things are generally agreed. The inventor of bitcoin is likely an academic, an academic who knows cryptography and who can code in C+ in a certain style, that person worked UK hours and read The Times. There are very few of these people but Adam Back is one of them, he also happens to have been the inventor of Proof of Work, something even he cannot deny because it is listed in the Bitcoin Whitepaper.
In an interesting twist, Craig Wright sued Adam Back last year for claiming he was not Satoshi Nakamoto. The lawsuit barely made it out of the lawyers office, Craig Wright retreated and settled all of Back’s legal fees. Why? what did Adam Back’s lawyers write back with?
The whole saga has gone on long enough I look forward to the judgement of the court and the world giving much less air time to this man.