What Does MARA: Marathon Digital Holdings, Inc. do?

MD: Here’s the Wikipedia article on the company.

Marathon Digital Holdings, Inc. is a digital asset technology company, which engages in mining cryptocurrencies, with a focus on the blockchain ecosystem and the generation of digital assets. The company was founded on February 23, 2010 and is headquartered in Las Vegas, NV.[1]

MD: So… we know they ‘re clueless about money. And located in Las Vegas, NV… maybe know something about gambling… which is what Bitcoin is… betting on the sure thing until the music stops.

The company was formerly known as Marathon Patent Group and was the patent holding company that is the parent of Uniloc, allegedly a patent troll company.[2][3] Marathon purchased patents related to encryption in the 2010s[citation needed] and in 2021 it was known for its purchases of bitcoin[4] and bitcoin mining equipment[5] and a joint venture to use 37 MW from the Hardin Generating Station Montana coal plant to power an adjacently-constructed Marathon bitcoin data center.[6]

MD: So they’re leveraging leverage. A “patent holding company”. What’s not to love about the patent system. If there was anything that should be repealed, it’s definitely that part of the Constitution. But it is an open lesson into creative abuse of any system. These guys give patents value… when 99% of them clearly have no value, even if they do work. Looks like they actually got into the electricity wasting business which “is” Bitcoin mining. Why are they using coal in Montana? Has all the water in the Columbia River Gorge already been wasted?

The company changed its name to Marathon Digital Holdings, effective March 1, 2021. Its chief executive officer is Fred Thiel.[7]

MD: Fred Thiel. Wonder if he’s any relation to Peter Thiel… the claimed co-inventor of PayPal with Elon Musk… a trivial application to write BTW. We’ll look into that. Here’s what Wikipedia has to say about Thiel (… and doesn’t seem to have anything to do with Peter Thiel).

Fred Thiel
Born1960
NationalityAmerican
OccupationBusinessman
Board member ofMarathon Digital Holdings
NoCell Technologies
Oden Technologies
Sequent Software
OptConnect Inc.
Gatekeeper Systems

Fred Thiel (born 1960) is an American business executive and the current CEO of Thiel Advisors and Marathon Digital Holdings.[1][2] Thiel is the former CEO of GameSpy, Local Corporation, and Lantronix.

MD: How’s that for some big names and strong background?

Thiel serves as past chairman of the board of the Young Presidents’ Organization‘s technology network and is chairman of the Fintech subnetwork. He also serves on the boards of several other companies including Oden Technologies, OptConnect, Gatekeeper Systems, and Sequent Software.

MD: Sequent Software: Finally something I’ve heard of.

Career

Thiel was vice president and general manager of the business storage unit of CMD Technology in 1997.[3] From 1998 to 2002 Thiel was the CEO of Lantronix,[4] where he doubled the company’s revenue growth and led to its initial public offering in 2000.[5] Thiel was the CEO of GameSpy from 2003 to 2004 before GameSpy merged with IGN.[6] Thiel was the managing partner of the software group at Triton Pacific Capital Partners from 2007 to 2012.[7]

Thiel met Heath Clark, founder and CEO of Local Corporation though the Young Presidents’ Organization,[5] and joined Local Corporation’s board of directors in January 2013.[8] He became the chairman of the board of Local Corporation in January 2014, and CEO in May 2014 following Clark’s resignation due to health reasons.[9] Thiel was CEO until 2015, and was responsible for Local Corporation’s partnership with FraudLogix to prevent advertising fraud.[10]

MD: Two years at Local. And into fraud. The plot thickens.

Thiel has headed Thiel Advisors, an advisory firm, since 2013.[11] Through Thiel Advisors, Thiel advises organizations such as EQT Partners and Graham Partners, their portfolio companies, and various mid-sized companies on value creation strategies. Thiel was appointed to the board of directors of Marathon Patent Group in April 2018[12] and became CEO of Marathon Digital Holdings in April 2021[13]

MD: “Value Creation Strategies”: Money “is” value creation. I’ll bet Thiel has no clue what money is. But look… we still have no clue about any value proposition yet. How can that be?

Education

Thiel attended classes at the Stockholm School of Economics and executive classes at Harvard Business School. Thiel is also fluent in English, Spanish, Swedish and French.[14] Thiel is a frequent speaker on digital trends, IT,[15] and the transformation of industries by the “internet of things“.[16][11]

MD: I took an executive class at MIT once. Didn’t know that was a big deal. Well, looks like another dead end. I wonder what ChatGPT knows about this?

MD: What can you tell me about Fred Thiel?

ChatGPT

As of my last update in September 2021, Fred Thiel is a business executive and entrepreneur. However, please note that my information might not be up to date, and developments may have occurred after my last update.

At the time of my knowledge cutoff, Fred Thiel was known for his involvement in the technology and cybersecurity sectors. He served as the CEO of various cybersecurity companies and had extensive experience in managing and advising technology-focused organizations.

If you are looking for more recent and accurate information about Fred Thiel, I recommend conducting an online search or checking reliable news sources for the latest updates.

MD: How about Marathon Digital HoldingsChatGPT

As of my last update in September 2021, Marathon Digital Holdings (formerly known as Marathon Patent Group) is a digital asset technology company focused on cryptocurrency mining. Please note that my information might be outdated, and developments may have occurred after my last update.

At that time, Marathon Digital Holdings was primarily engaged in mining Bitcoin and had been working to expand its mining operations. They aimed to leverage their expertise in blockchain technology and data center operations to become a significant player in the Bitcoin mining industry.

It’s important to remember that the cryptocurrency space is highly dynamic and can experience rapid changes. For the most current and accurate information about Marathon Digital Holdings, I recommend checking their official website, recent news articles, or financial reports.

MD: Well, we come up empty again. Let’s look further for something concrete. Well, they have a very pretty website. That’s usually a negative for me. Let’s dissect it.

https://www.mara.com/

MD: Looks like they’re well lawyered up. You need to acknowledge this disclaimer to see inside their website:

Marathon Digital Holdings (“Marathon,” “MARA”) does not offer financial services, nor direct investment opportunities to the general public. We have no consumer facing products or services. We will never ask you to send money or open an account. Please remain vigilant and be wary of bad actors who may be misappropriating our brand and corporate identity.

MD: What does it mean when the boogeyman cautions you to watch out for the boogeyman?

About Us

Marathon Digital Holdings is one of the largest, most energy efficient, and most technologically advanced Bitcoin mining companies, as well as one of the largest holders of Bitcoin (“BTC”) among publicly traded companies in North America.

We differentiate by investing in the most advanced technologies and leveraging innovative techniques to convert energy into economic value while helping keep Bitcoin’s ledger up to date and secure, one block at a time.

MD: How can they consider themselves energy efficient when Bitcoin is a “pure waste of energy”. A “real money process” costs virtually nothing to operate. There is no mining involved. Good thing they’re doing it one block at a time… cause that’s how blockchain (or even chains without blocks) works.

Operations

Bitcoin is decentralized, and so are we. We use various strategies and business models, including outsourcing to third-party hosting providers or hosting our own operations, to maintain a diversified portfolio of Bitcoin mining sites in multiple states and countries.

MD: Wow… how innovative. These days with so many server farms out there this is pretty easy to do.

Investors

Marathon Digital Holdings is a publicly traded company (NASDAQ: MARA). Our investor relations website includes detailed information on our financial performance, our latest corporate updates, SEC filings, and more.

MD: Has anyone ever seen one of these “investor” thingies? We’ll go a little further and then see if we can find their annual report and dissect that.

Partner With Marathon

We work alongside companies, municipalities, and institutions that have stranded power, expertise in energy and microgrids, cutting edge Bitcoin mining technologies, and a keen interest in researching or supporting Bitcoin. We offer our partners access to our unique expertise in building and scaling Bitcoin mining operations as well as the opportunity to help support the Bitcoin network.

MD: “Stranded power”? That’s a new one. “Microgrids”? That’s another new one. “Keen interest in researching or supporting Bitcoin”? Why is that?

OK, so that’s their shingle. Let’s go in. They call it “Getting started”. They’ve got five more bullet points. I’ll scan them, but I think my assignment is to look at their annual report… so I need to move along

Funding & Mentorship

We support builders. We invest in smart people, who are passionate about leveraging technology to solve Bitcoin’s and the Bitcoin mining industry’s largest problem.

MD: Whoops. That eliminates me!

Company Profile

Marathon Digital Holdings (NASDAQ: MARA) is one of the largest, most agile, and most sustainably operated Bitcoin miners in North America. The company converts energy into economic value by processing Bitcoin transactions, creating newly minted Bitcoin (“BTC”), and keeping Bitcoin’s distributed ledger up to date and secure.

MD: Address is now in Ft. Lauderdale, Florida, not Las Vegas. Most Florida cons are operated over on the Tampa/St. Pete side. They say they process Bitcoin transactions. That means they know how to add and subtract. They create new Bitcoins (waste energy) and they keep Bitcoin’s distributed ledger up to date and secure (now that’s huge, because the whole Bitcoin concept says nobody can do that… because everybody does that. It’s kind of like the internet DNS). Before we look at their financials, we’ll look at the operations… it’s good to know what somebody claims to do.

Diversified Portfolio Approach to Bitcoin Mining

Each Bitcoin mining deployment comes with its own set of constraints, and each requires a curated approach. We adapt accordingly. Overtime, we have used different strategies and structures to build a portfolio of Bitcoin mining operations that is designed to diversify risk across our organization.

MD: Says they crank out 23 EH/s. Anybody know what an EH is? We’re about to find out. Poor Google. It thinks it’s about “Environment Health and Safety”. But gotta love ChatGPT. Here’s what she says:

In the context of Bitcoin, EH/s stands for “exahashes per second.” It is a unit used to measure the total combined computing power of the Bitcoin network, specifically in terms of how many cryptographic calculations (hashes) it can perform in one second.

Bitcoin mining is the process by which new transactions are added to the blockchain and new bitcoins are created. It involves solving complex mathematical puzzles, known as cryptographic hash functions, which require significant computational power. Miners compete to find the correct solution to the puzzle, and the first one to do so gets to add a new block to the blockchain and is rewarded with newly minted bitcoins and transaction fees.

The network’s total hash rate is the sum of all the miners’ computing power, and it is measured in EH/s. As technology advances and more powerful mining hardware is introduced, the total hash rate of the Bitcoin network increases. A higher hash rate implies a more secure and robust network, as it becomes increasingly difficult for any single entity or group to control the majority of the network’s computing power (known as a 51% attack).

MD: For those of you who aren’t into the really big numbers game, an exa is a quadrillion gigas. If you started right now, you probably wouldn’t be there by lunch tomorrow.
ChatGPT does pretty good, don’t you think? It’s not intelligent at all, but it sure has a good memory. MARA enumerates 6 sites where they do this wasting… and that is among “others”. It seems they are concerned with somebody getting more that 51% of the hashes. Trust me folks, you can’t waste enough energy in the whole universe… and all its black and grey and pink holes… to do that. I guess we know enough. We can now see how much money they claim to be making.

MD: I have obtained their earnings report dated May , 2023. Anybody can find their numbers. Here’s them applying creativity:

Q1, we grew our energized hash rate 64% from 7.0 exahashes to 11.5 exahashes. By
growing our hash rate faster than the rest of the network and improving our uptime, we also increased our bitcoin production. We produced a record 2,195 bitcoin during the first three months of this year, which is a 74% increase from the prior year.

MD: If they’re growing at 74% a year they’re doing better than the banking scam. The bank scam grows at just 40% a year. But I don’t think that’s fast enough to corner the Bitcoin market. They either have to quietly do that, or be among the first to bail out… and looks like they’ll have lots of bailing to do.

“In addition to our energized progress, we also improved our financial position during the quarter. We increased our cash position by $12 million, reduced our debt by $50 million, and increased our unrestricted bitcoin holdings by 3,132 bitcoin after we prepaid our term loan and terminated our credit facilities with Silvergate Bank.

MD: What in the world is an “unrestricted bitcoin holding?”. Who’s restricting? Takes these financial thieves almost no time at all to make something simple ridiculously complicated.

We exited the quarter with approximately $124.9 million in unrestricted cash and cash equivalents and 11,466 bitcoin, the market value of which was approximately $326.5 million on March 31.

MD: If Bitcoin is such magic, why in the world would they have cash and cash equivalents? Buy Bitcoin with it… mui pronto.

“With more hash rate coming online in the months ahead, Marathon remains on track to
reach our 23 exahash goal near the middle of this year. We remain optimistic that we can
achieve our primary growth targets and establish Marathon as one of the largest, most
energy efficient, and most technologically advanced Bitcoin mining operations globally.

MD: I asked ChatGPT who generates the most EH/s.

ChatGPT:

As mentioned earlier, the distribution of mining power in the Bitcoin network can change over time due to various factors. Some of the largest and most well-known mining pools in the past have been companies like Antpool, F2Pool, BTC.com, and Poolin. However, it’s important to note that the mining landscape is dynamic, and other pools or entities could have risen to prominence since my last knowledge update in September 2021.

To find the current information on the entities generating the greatest number of EH/s or the distribution of hash rate in the Bitcoin network, you can refer to real-time data provided by reputable sources that track the mining pools and hash rate distribution. Websites like Blockchain.com, BTC.com, and other blockchain explorers often provide such data. Additionally, specialized cryptocurrency news websites and forums might have updated information on this topic.

MD: Let’s see what Blockchain.com can tell us. It appears the current hash rate is 332.95 EH/s (https://www.coinwarz.com/mining/bitcoin/hashrate-chart). That’s more than 10 times MARA’s goal. I groped around a little while to see who the other big players were. I didn’t find what I was looking for… and of course I’m not interested in wasting more time on the subject. Would I invest in MARA? Stupid is as stupid does. I could have bought Bitcoin at $0.10. Instead I tried to explain to Andreson why it wasn’t, and never would be, money. Now he’s a gizzionaire… and I’m high, dry, looking for a ball player at the carnival.

Thanks for watching. Hit that “like” and “subscribe”. It really helps us here.

A dialog about money with “IMissLiberty” on substack.

MD: I had this dialog with someone calling themselves IMissLiberty on substack. We love to dissect these comments. In this conversation she is IML. I am TM (which is the same as MD). Here’s our dissection.

https://rubino.substack.com/p/next-generation-money-part-1-texas/comment/16562802#comment-16687203?utm_source=activity_item


IMissLIberty
May 29

IML: The value of things is based on what you are willing to pay for them.

TM: Correct… sort of. It’s determined by negotiation…and that takes two parties. Once created (by making a promise spanning time and space and certifying it) money serves as any other object in simple barter exchange [SBE]…until it is destroyed (on promise delivery). In the interim it’s just stuff…like gold or dollars or pork bellies…or bottled water.


IML: Money is for saving the value of work and cost you already paid to produce something you sell today, not today’s cost to mine more.


TM: Money once created serves as the most common object in any SBE.


IML: Further, an ounce of gold found in your great grandmother’s treasure box is worth the same as the one mined and refined today–even though the costs were completely different in dollars or in whatever currency the older ounce was made.


TM: An ounce of gold is not different than a cement block…or money (after creation and before destruction) . It’s simply an object of SBE. It doesn’t matter who created it, when they created, where they stored it, what they paid for it. It’s just stuff. It’s not money. It’s just a primtive substitute…and hasn’t served as money in my nearly 80 year life time.


IML: The mining cost sets a floor but it doesn’t control demand.


TM: Supply and demand for each object (as viewed by the traders for that particular trade) dictate the trade. It’s the “negotiation” stage of all trades…SBE or otherwise. The other two stages are “promise to deliver” and “delivery”…which in SBE in the “here and now” happen simultaneously.


IML: Supply and demand are both involved in the future price of something you earn today.


TM: The so-called “price” is the exchange rate for two objects in SBE. It is set by the traders in the “negotiation” phase of the trade. The future price is estimated by “self proclaimed artists…like appraisers”…and Black and Shoals…and manipulated by governments and banks…and other imagination figments like LIBOR. It’s always a figment of someone’s imagination. However, if we’re talking about money in a “real money process”, it is always in units of HUL’s (Hours of Unskilled Labor). This simplifies the trade by twice: Both parties now know the “real undisputed value” of one of the objects. (a) It is in perpetual free supply; (b) it is in perpetual perfect supply/demand balance; (c) it is free of external loads…like interest; (d) it has no time value…doesn’t gain of lose with time or over space; (e) it costs nothing to create or destroy; (f) and cannot be counterfeited. They are left to agreeing on the value of the other object in the SBE. Ask a HUL to take an hour to make a hole; measure the hole; you will “always” get the same size hole (other conditions being equal) in all time and space.


IML:One could buy gas and store it, but gas is too volatile to carry in one’s wallet and has a limited shelf life and thus lose value.


TM: True, but irrelevant when it comes to money. Gas is not and never will be money. It’s just stuff…an object of SBE.


IML: Gold and silver have a non-perishable advantage as a store of your past costs/work.


TM: So do cement blocks. They’re all just stuff. Cement blocks have outperformed gold and silver over the last five years. When traded for dollars, gold and silver have gone up and down…cement blocks have only gone up.


IML: If I babysat for an hour in 1966 and got paid in two quarters I could spend that 50 cents to buy two gallons of gas any time in the future, and maybe more as the cost of extracting gas gets more efficient–as long as the quarters were silver.


TM: Great choice of examples. I hired baby sitters in 1966. They were paid 6 quarters per hour (I think my wife paid them 2 quarters)…same as my summer job in 1962. If we had real money then I would have paid them one HUL per hour. It was SBE.


IML: If they weren’t silver (counterfeit, paper, digital) they would barely pay the gas tax.


TM: In 1964 I paid one quarter (containing silver) for one gallon of gas (SBE). In 1965 I traded one quarter (containing no silver) for one gallon of gas (SBE). It proved the quarter itself traded for the gas. What it was made of (i.e. its intrinsic value) played no role. It’s even more dramatic today. You pay 10+ quarters (containing zero silver…or 90% silver) for a gallon of gas. You’re foolish to trade the silver quarters because they trade for more value in a different context…e.g. in making photographic film. That’s how money works. And why commodity money doesn’t work. In the case of coin: (1)the cheaper you can make it; (2) the more durable you can make it; (3) the more precisely you can control its dimensions (ie. weight, diameter, thickness); (4) and the more difficult you can make counterfeiting…the better. But it’s still just stuff when it comes to SBE.


IML: “Compared to the dollar” a decaying rubber-band yardstick is no better at measuring carpet than a dollar price over time, except it will fail much sooner and be replaced with something more useful.


TM: And this is the same for any object of SBE. An 1848 ounce of gold was worth more than an 1850 ounce. Supply changed dramatically in those years. At the end of the 1800’s the value of gold and silver gyrated…until by law they claimed silver was not legal tender…only gold and so-called gold backed paper was legal tender (another government imagination figment). In 1973 the French were owed some huge amount of money…let’s say it was $1B. The USA claimed an ounce of gold could be purchased for $35. The French knew by experience it cost $70+ to trade (SBE) for an ounce of gold. The French said, keep your dollars USA. You agreed to settle the debt in gold and we’ll take the gold. Tilt went the so-called “lie” called the gold standard. Nixon didn’t cause the failure. He just could no longer lie about it as his predecessors had. If we were on a “real money process”, the units of the debt would have been HULs and guaranteed never to change their value over time and space. Such fictions as gold stability have existed over all time and space.

An interesting exercise when comparing and contrasting two competing choices. If one of the choices is current practice and the other one is a claimed improvement, reverse their positions. Assume the new choice is the current practice, and vice versa. Now which one is harder to sell? This technique removes the inertial advantage all current practice has. It illustrates dramatically how ridiculous most “conservative” practices are. Electric cars vs ICE (Internal Combustion Engine) cars is a good case to practice on.


IML: If 1913 had been gold instead of a central bank, the income tax would still only tax the top 1% as promised, and it would be enough for peace and prosperity, but not enough for war.


TM: This is the Achilles heel of all government controlled money. Governments collect taxes to pay interest to the money changers who institute them. Governments sustain themselves through counterfeiting of money they claim to control. Central Banks are figments of the money changers imagination forced upon governments. They need them for another figment of their imagination…that being “reserves”. In a “real money process” there are no reserves. No one has to put their savings in a bank for the bank to loan out ten times that savings at a 4% spread (i.e.40% which doubles in less than 2 years) . And thus there is no such thing as a “run on the bank”. All trades are completely separate and isolated.

This is an interesting definition of a capitalist…i.e. two years. They create a bank; capitalize it; accept deposits; loan out ten times the deposits at 4% spread; double their money in 2 years; take 1/2 off the table removing all their original risk; and wallah…look mom, I’m a capitalist. What’s not to love about capitalism.


IML: The miners and refiners produce more when the price offered is higher than the cost of production. They stop when they are not offered enough, and then the supply drops. If they are hungry, they will produce enough for food or for dollars for food–it’s a market price.


TM: You can say the same for farmers growing corn or raising pigs. They’re just stuff in SBE.


IML: There is always demand for metals. Try to imagine life without them.


TM: Try to imagine life without food…or without water where it doesn’t rain much. Both are just stuff in SBE. In the case of rain it is genuinely free. In the case of food…not so much. And in times of food and water shortages, metals play second fiddle.


IML: Imagine filling your cavity with bitcoin or paper.


TM: I have. See this to know about Bitcoin: https://moneydelusions.com/wp/?s=bitcoin. Bitcoin dramatically illustrates that DEFLATION is even worse than INFLATION. The only “proper” level of each is zero. No process can measure it. And only a “real money” process can guarantee it to be zero…it’s the nature of the process: INFLATION = DEFAULT – INTEREST = zero.


IML: There is no similar floor under fiat currencies. The dollar and bitcoin are ultimately worth their weight in gold ($0).


TM: When you know what money is (i.e. a promise to complete a trade over time and space); when you know where money comes from (i.e. created by traders like you an me buying stuff with time payments); when you know where money goes (i.e. returned and destroyed with each time payment…or mitigated by INTEREST collections of like amount when DEFAULTed). The operative relation is: INFLATION = DEFAULT – INTEREST = Zero.

I value gold these days at roughly $2,000 per ounce. If you take all the gold in the whole world and divide it by the number of people, you get about one ounce per person as I recall…i.e. roughly $2,000…i.e. roughly 200 HULs. First, that’s not near enough for anybody’s need in trade…not in the near term…certainly not over time and space. But more importantly, the HULs are the only object guaranteed to have exactly the same value in every SBE. Gold goes up and down. Dollars go up…until they call the loans…then they go down dramatically. And as usual with all fake money…up is down and down is up when you think about it.

Your serve IML.

The “Barbarous Relic” Helped Enable a World More Civilized than Today’s

The “Barbarous Relic” Helped Enable a World More Civilized than Today’s

https://mises.org/wire/barbarous-relic-helped-enable-world-more-civilized-todays

  • gold coins

12/12/2022George Ford Smith

MD: The Mises Monks are always great fodder for illustrating the spread of confusion and delusions as to what money “really” is. Let’s dissect this one.

One of history’s greatest ironies is that gold detractors refer to the metal as the barbarous relic. In fact, the abandonment of gold has put civilization as we know it at risk of extinction.

MD: How’s that for an opening line? The Monks never disappoint. “Greatest Ironies”; “gold detractors”;” barbarous relic”: Yet they never seem to be able to tell us what money really is. But this may be going too far. Removing “gold” will “risk extinctions”?

Gold’s main use is in jewelry and plating electrical contacts. Once used to fill teeth, it’s been a very long time since gold was used for that (except for Negros who use it to decorate their faces.) And in no lifetime of anyone living today has gold served as money. And silver ceased serving as money in 1965…almost 10 years before Nixon declared the obvious…that the so-called gold backing of the dollar was a giant fiction…a fraud on which the French called them out.

The only risk to extinction was use of mercury amalgamating silver to fill teeth. It was shown to be poison…like lead in paint and gasoline. Precious metals have never been money. They are just clumsy expensive stand-ins for what money really is…”a promise”. And what do these Monks call real money? They call it “fiat money”…and make it a derogatory slur. Since when is a “promise” derogatory. Let’s continue.

The gold coin standard that had served Western economies so brilliantly throughout most of the nineteenth century hit a brick wall in 1914 and was never able to recover, or so the story goes. As the Great War began, Europe turned from prosperity to destruction, or more precisely, toward prosperity for some and destruction for the rest. The gold coin standard had to be ditched for such a prodigious undertaking.

MD: Served economies “brilliantly”? Economic panics were as regular then as pandemics are becoming today. And in 1913 (a year before this so-called brick wall), the Federal Reserve Act began to plague us with the money we have today…a money that States freely counterfeit…and that money-changers collect interest on…and that both manipulate to deliver the so-called “business cycle”. “Prodigious undertaking”? Oh please!

If gold was money, and wars cost money, how was this even possible?

MD: A Mises Monk might be close to getting something right here. You can’t support a war if you can’t pay for it. And if gold is money…with only about one ounce per person on Earth (less than $2,000)…you’re not going to support war with gold. But you can by counterfeiting. They claim Lincoln did this to finance the USA Civil War in the 1860’s…and that’s correct. But when that counterfeit money (Greenbacks) was paid back, it ceased to be counterfeit. It “proved” to be “real” money. That hasn’t happened with any war since. The State just rolls its counterfeit money over by taking out new loans to pay off the old.

First, people were already in the habit of using money substitutes instead of money itself—banknotes instead of the gold coins they represented. People found it more convenient to carry paper around in their pockets than gold coins. Over time the paper itself came to be regarded as money, while gold became a clunky inconvenience from the old days.

MD: Well, the Monks being right didn’t last long did it? Here at Money Delusions we know money is an “in-process promise to complete a trade spanning time and space”. It is only created by traders like you and me. It begins as a ledger entry…open to all to see. And it ends with delivery on the promise and reversal of that ledger entry documenting the promise…again for all to see. In the interim it may remain a ledger entry; it may become a “demand deposit” (i.e. check); it may become a paper chit (currency); it may become a token (a coin). As such, it becomes the most common object of every simple barter exchange. But in the end it becomes a reversing entry in a ledger and is extinguished forever…for that trading promise. And if the promise is broken (defaulted) an “interest collection” of like amount is immediately made to recover the “orphaned” money. This guarantees perpetual perfect balance of supply and demand for the money itself…and thus zero “inflation”.

Second, banks had been in the habit of issuing more bank-notes and deposits than the value of the gold in their vaults. On occasion, this practice would arouse public suspicion that the notes were promises the banks could not keep. The courts sided with the banks and allowed them to suspend note redemption while staying in business, thus strengthening the government-bank alliance. Since the courts ruled that deposits belonged to the banks, bankers could not be accused of embezzlement. The occasional bank runs that erupted were interpreted as a self-fulfilling prophecy. If people lined up to withdraw their money because they believed their bank was insolvent, the bank soon would be. People had no idea their banks were loaning out most of their deposits. They did not know fractional reserve banking, a form of counterfeiting, was the norm.

MD: That’s not a “habit”…it’s by design. Money-changers instituted the State. The State chartered the Banks (owned by the Money-changers)…and gave them a 10x leverage advantage over traders like you and me. And when those scoundrels abused even that enormous privilege, the State they created defended them…as designed. It’s not a government-bank alliance. The State is a “creation and tool” of the Money-changers. And the State fiction of Laws sealed the deal. They pass one law that dilutes the golden rule and bammo…everything else that isn’t against the law (but violates the golden rule) is suddenly legal. And that obvious problem created here brings us 40,000 new laws each year…trying to put the Genie back in the bottle…trying to make us comply with that one simple golden rule.

And why didn’t the people know this was going on? Because there was “secrecy” in banking. Money requires “authentication” of the trader creating it and “transparency” of the promise to all lookers. And “defaults” are evident to all lookers “immediately”…and immediately mitigated by “interest collections” of like amount.

Here again, the Monks get close to saying what’s going down. Money “is” fiat…and that’s good. It’s what makes it so efficient in trade. But a “real” money process gives “no” trader an advantage…not even the Money-changers; their States; or their Banks. In this context, the “fraction” is not 10x…but rather infinite to the trader. And there is no reserve. Unlike a water well, you don’t have to prime the pump. But if you don’t replace the water you pump, you don’t get to pump again…until you replace that water. Lots of metaphors going on here.

Gold coin redemption requirements put limits on fractional reserve banking. Such limits were not welcomed by banks. Since banks could loan to the government, limitations also capped government spending, so the government did not like the limitations of gold coin redemption either.

MD: What “coin redemption requirements”? They were always a fiction. Gold coins were never used in my lifetime. And silver coins quit being used in 1964…and changed nothing in the behavior of traders… proving that precious metal was not money. Rather, it was the “token” that was money. At the same time, the paper money which said “Silver Certificate” changed to saying “Federal Reserve Note”…and as far as traders like you and me were concerned, nothing changed.

We never asked for the silver promised by those certificates. We had no use for it. It weighed too much and was too bulky. But for non-traders, the change was large. These non-traders are called “investors”. They’re really just gamblers. And they immediately gobbled up all the silver. You can now buy it on eBay (google “Silver Roosevelt Dimes 90% Junk Constitutional Circulated *Guaranteed Cheapest!”). It sells for (i.e. trades for) $4.50 for 10 dimes…dimes that used to trade for two candy bars…before State counterfeiting withered the dollar to its current condition.

And “government limitations”? Does anyone really believe there is such a thing as a government limitation? All governments are by their very definition “unlimited”!

Which brings us to the wall gold allegedly hit.

Preparing for War Means Preparing for Inflation

In his 1949 book, Economics and the Public Welfare, economist Benjamin Anderson tells us, “the war [in 1914] came as a great shock, not only to the masses of the American people, but also to most well-informed Americans—and, for that matter, to most Europeans.” And yet, Germany, Russia, and France began accumulating gold prior to the war (with Germany starting first in 1912). Gold was taken “out of the hands of the people” and carried to the reserves of the Reichsbank, the German central bank. People were given paper notes “to take the place of gold in circulation.”

MD: It goes all the way back to the Battle of Waterloo! … and for all time before that! All wars are “bankers” wars (i.e. money-changer wars). And if they had a “real money process” back then, they could have taken up all the gold they wanted. Traders had no use for it. There are no “reserves” in a real money process. It’s promises with which we deal. The only thing that can destroy a promise is to destroy the record of the promise…or destroy the person who made the promise. And a “real money process” mitigates such contingencies with “interest collections of like amount.” It’s simple arithmetic. Who pays the interest? Only traders who have a propensity to default pay it. And those traders have to work that much harder if they want to continue to trade at all, because once the defaults get too large, the marketplace ostracizes them.

When war broke out in August 1914, Gary North explains that the pre–World War I policy of gold coin redemption was

independently but almost simultaneously revoked by European governments. . . . They all then resorted to monetary inflation. This was a way to conceal from the public the true costs of the war. They imposed an inflation tax, and could then blame any price hikes on unpatriotic price gouging. This rested on widespread ignorance regarding economic cause and effects regarding monetary inflation and price inflation. They could not have done this if citizens had possessed the pre-war right to demand payment in gold coins at a fixed rate. They would have made a run on the banks. Governments could not have inflated without reneging on their promises to redeem their currencies for gold coins. So, they reneged while they still had the gold. Better early contract-breaking than late, they concluded.

MD: Earth to Monks. You just made our case. You’ve shown that precious metals are no cure to State deviance and malfeasance. A “real money process” has no State sponsorship. It has no Money-changer sponsorship. It has only trader and their marketplace sponsorship. And it depends on “authenticating” the trader and “accounting” for the trader’s promises. By the classical triple “A”s of trade: (1) Authentication; (2) Authority; (3) Accounting; all “responsible” traders (i.e. those with no propensity to default) have equal “authority” to create money. Those with non-zero propensity to default pay insurance “premiums” which are called “interest collections”. And they’re not arbitrarily set in the smokey rooms of LIBOR . They always equal “defaults incurred”. I’ve always wondered why banks always tell us the “prevailing interest”…but never show us the “prevailing defaults”. Now I no longer wonder. It enables their “business cycle”. It enables the “front running”of economic perturbations they themselves cause by “throttling” the money supply …supposedly in the interest of controlling inflation (which they cause) and maintaining full employment (which they can’t control at all).

If governments had not broken their promise to redeem paper notes for gold coins, they would have had to negotiate their differences rather than engage in one of the deadliest wars in history. Abandoning the gold coin standard, which had always been under government control, was the deciding factor in going to war.

MD: Duh! How about we do an “iterative secession”. How about we do without government altogether.

Though the US did not formally abandon gold during its late participation in the war, it discouraged redemption while roughly doubling the money supply. Blanchard Economic Research discusses the situation in “War and Inflation”:

MD: If gold is money, how did they “double” the money supply? These Monks are beyond stupid. In a “real money process”, you can only double money supply by doubling trader promises. And traders don’t make promises they can’t see clear to delivering. But get rid of government and the money-changers that create it and bammo…a doubling of trade would be minuscule.

War also causes the type of inflation that results from a rapid expansion of money and credit. “In World War I, the American people were characteristically unwilling to finance the total war effort out of increased taxes. This had been true in the Civil War and would also be so in World War II and the Vietnam War. Much of the expenditures in World War I, were financed out of the inflationary increases in the money supply.”

MD: When it comes to money, there’s only one type of inflation. That is when supply exceeds demand for the money itself. And this is impossible in a “real money process”. And as we pointed out earlier, the Civil War was different from all following wars. The Greenbacks were “all” recovered (“Greenbacks then became freely convertible into gold“)

Governments had a choice to make: fight a long, bloody war for specious reasons, or retain the gold coin standard. They chose war. US leaders found their decision irresistible. It was not J.P. Morgan, Woodrow Wilson, Edward Mandell House, or Benjamin Strong who would be fighting in the trenches.

MD: Wars happen when the money-changers’ “economic hitmen” fail. See “The New Confessions of an Economic Hitman” by Perkins.

When we hear that “going off gold” was the prerequisite for global peace and harmony, we should remember places such as the Meuse-Argonne American Cemetery in France, where grave markers seemingly extend to infinity. These are mostly the graves of young men who died for nothing but the lies of politicians and the profits of the politically connected. Gold wanted no part in the slaughter. But politicians and bankers knew a paper fiat standard was the monetary prerequisite to achieving their goals.

MD: Every time I ask one of the Mises Monks how you can use gold as money when there’s only one ounce per person on Earth? …i.e. less than $2,000…1/2 what someone at Home Depot makes in a month! The line goes dead.

Conclusion

John Maynard Keynes, who coined the term “barbarous relic” in reference to the gold standard, wrote about the world that was lost when gold was abandoned:

What an extraordinary episode in the economic progress of man that age was which came to an end in August, 1914! . . . The inhabitant of London could order by telephone, sipping his morning tea in bed, the various products of the whole earth, in such quantity as he might see fit, and reasonably expect their early delivery upon his doorstep. . . . He could secure forthwith, if he wished it, cheap and comfortable means of transit to any country or climate without passport or other formality, could despatch his servant to the neighboring office of a bank for such supply of the precious metals as might seem convenient, and could then proceed abroad to foreign quarters, without knowledge of their religion, language, or customs, bearing coined wealth upon his person, and would consider himself greatly aggrieved and much surprised at the least interference. But, most important of all, he regarded this state of affairs as normal, certain, and permanent, except in the direction of further improvement, and any deviation from it as aberrant, scandalous, and avoidable.

If Keynes had read what he wrote, he might have been a better economist. And we might be living in a better world today.

MD: This is shades of the Red vs. Blue; The Donkeys vs. the Elephants; the Harlem Globe Trotters vs. the Washington Generals; the Keynesians vs the Mises Monks. You’re never going to solve a problem when you’re given two choices, both bad, and both controlled by a single non-choice. Such is democracy. Long live democracy.

Author:

George Ford Smith

George Ford Smith is a former mainframe and PC programmer and technology instructor, the author of eight books including a novel about a renegade Fed chairman (Flight of the Barbarous Relic), a filmmaker (Do Not Consent), and an advocate of stateless market government.  He welcomes speaking engagements and can be reached at gfs543@icloud.com

 

 

Money Is A Shared Delusion: Why How We Think About Money Matters

MD: Quickly scanning this article it appears this writer does not get it. Let’s dissect it and see.

https://explorewhatworks.com/money-shared-delusion-why-how-we-think-about-money-matters/Money Is A Shared Delusion: Why How We Think About Money Matters

Feb 10, 2022 | Mindset & Identity, Money & Life, Productivity

Tara McMullin is a writer, podcaster, and producer who explores what it takes to navigate the 21st-century economy with your humanity intact. Click here to support this work.

“Time is money.”

MD: A common provocative phrase. Money is an “in-process promise to complete a trade over time and space.” Well, substituting this provable definition for the “money” in the phrase, we essentially get “time is an in-process promise”. Obviously, it is not. Rather it is a fourth dimension defining “when” something is located “where.” Further we know that money is “always and only created by traders like you and me.” Well, you and I don’t create time. So how can time be money. The real principle is the “time value of money”. Does money today have a different value than money last year…or money a year from now. The simple answer: In a “real money process”, the value of money never changes…not over time…not over space. Thus, we can’t say it has time value.

It’s a phrase you’ve heard before. And probably a phrase you’ve accepted as truth. And it’s certainly true that there are plenty of ways that time and money relate to each other.

But a few months ago, I started to wonder: Is time really money? And if not, how does that change the way I think about my time and my money?

MD: Shouldn’t you begin by defining both “time” and “money”?

Today begins a series exploring those questions. I’ll tackle them from different angles and different aspects of entrepreneurship so that we can make more intentional decisions about how we spend our time and our money.

MD: How we “spend” our time and our money? That’s like “making more intentional decisions about how we trade.” There are only two ways: (1) Simple barter exchange in the here and now. (2) Exchange spanning time and space.”

First, a little context.

“Remember, time is money” is a line from Benjamin Franklin’s 1748 essay, “Advice to a Young Tradesman.” He encourages the reader to consider the money they might spend if they take a day off, as well as the money they’d lose for not working. I don’t know about you, but I feel like I’ve been running that calculation on repeat since I was sixteen years old! At least in the US, it seems we’re born with this idea already encoded into our brains.

MD: This is kind of a false choice. When you’re working, you’re in the process of making a trade. Not all work results in useful gain. Further, when you’re idle you’re in the process of doing something besides trading your “time and effort” for something. “Rest” is just such a thing…and if you don’t make that trade regularly you will die of exhaustion. Regardless, this has nothing to do with money.

Max Weber cites this aphorism repeatedly in his book, The Protestant Ethic and the Spirit of Capitalism. He sees it as a sort of semiotic turning point—a shift from the godly ethic of vocation to the secular ethic of capitalism. And remember, this phrase dates back to at least 1748. That’s 274 years of cultural indoctrination to this idea.

Now, if all of that sounds like I’m firmly against considering time as money (or money as time), I’m not. But I do think it’s an incredibly complicated truism that’s worth interrogating instead of merely accepting as immutable.

To kick off this deep dive into the question of whether time is actually money, I wanted to talk about money. And what money actually is, how we think about it, why the way we think about money matters. So I called up Paco de Leon, who just released a fantastic new book called, Finance For The People. She’s also the founder of The Hell Yeah Bookkeeping, which serves production companies and creative agencies. Paco knows more than a thing or two about money. But I wanted to start with the basics:

https://bookshop.org/widgets/book/book_featured/17354/9780143136255


This article is also available as Episode 382 of What Works.
Click here to find it on your favorite podcast player.


MD: Well, let’s see if Paco does indeed know a thing or two about money.

What is money?

At its most fundamental level, Paco told me, “Money is a shared delusion.” Money is valuable because we believe it’s valuable, not because it has inherent worth. If you’ve ever heard the term “fiat currency,” this is what it refers to: money that’s based on an agreement rather than an intrinsic value.

MD: Does a promise have value? Yes…of course it does. We value promises continually throughout our lives. And some promises we come to “not” value…because we know they won’t be kept. But knowing “all” promises creating money “will” be kept, either by the creator of the promise (and thus the money), or by the process that “guarantees” that the promise is delivered…and thus has value.

How is this guarantee accomplished? Well, it’s a lot like “casualty insurance”. You can send a ship of goods half way around the word. You can buy an insurance policy to guarantee “you” get paid for those goods and your ship returns. This is called a “PREMIUM”. And if your ship doesn’t return, you make “CLAIM” on the insurance provider. And in the insurance business, the operative relation is: PREMIUMS = CLAIMS. The money is made on the “investment income” from the PREMIUMS.

The operative relation for money is INFLATION = DEFAULT-INTEREST =zero. If the promise is not delivered, that is DEFAULT. Mitigating DEFAULTs with immediate INTEREST collections of like amount “guarantees” zero INFLATION. The crucial issue is “how” do you collect INTEREST and who do you collect it from?

That answer is you put the INTEREST load on irresponsible traders who have a non-zero propensity to DEFAULT. This is the same as the actuarial process of insurance: those who have the most CLAIMs pay the HIGHEST premiums.

About 10 or 11 years ago, I went to a lecture on money & meaning at my alma mater. Yes, I am that kind of nerd. That was the first time I was introduced to this idea—this fact, really. Money becomes valuable because you and I (and millions of other people) believe it is valuable. We believe it strongly enough to use money as a means of exchange and pay taxes and wages. The government incentivizes us to believe that—but ultimately, without the trust of US consumers, the dollar just wouldn’t be as valuable.

MD: So the lecture didn’t tell you that government is a dead-beat trader? If someone repeatedly lies to you, does that incentivize you to believe them? Of course not. You are admitting…you are deluded by government. A “real” money process gives money value buy guaranteeing the completion of a trading promise spanning time and space. It doesn’t require government. In fact, government behavior precludes it from creating money…i.e. a promise it is known never to deliver…but rather to just roll over with a new promise…to deliver on a failed promise with a new promise, also guaranteed to fail.

Further, this lecturer explained money exists to make exchanging goods—buying and selling—easier. Instead of every trade being a negotiation of how many eggs are worth a pound of wheat, we can assign a monetary value to each product and then independently decide whether we want to trade our money for the eggs or the wheat or a new phone.

MD: The common unit of measure is only part of the story. Our current money process gives a name to a certain amount of gold and/or silver. That name is the “dollar”. It assumes that the value of gold and silver never changes. That assumption is a delusion. If they had chose the name HUL (standing for Hours of Unskilled Labor), that would have been better. A HUL trades for the same size hold in the ground over all time.

We’re seeing this play out in real-time right now with cryptocurrency, my current research obsession. What do people believe bitcoin or ether is worth? And how does that value fluctuate based on the number of people who believe in its value? How is a quote-unquote currency impacted if few sellers accept it as payment from buyers? If you’re curious about how this “money is a shared delusion” thing plays out practically, learn about crypto and all the wild things happening in that market. (Hint: it’s not great.)

MD: Crypto (specifically Bitcoin) claims a solution to the “byzantine general’s problem”. Basically it tries to guarantee truth. It does this with a concept it calls “proof of work” and therefore proof of value. It’s another delusion. You don’t create value by digging a hole and then filling it in again. But you do expend work. A real money process makes no claims whatever about the value of the “promise” (i.e. money). It just guarantees that is ultimately delivered on…and destroyed. In the interim it trades as the most common object in simple barter exchange.

Back to the kind of money we have a stable agreement about. It can be hard to integrate the idea that money is a shared delusion because it’s so integral to the way we navigate the world. Our survival, in many ways, depends on how we earn and spend money. Paco was fascinated with that duality; money is both imaginary and key to our contemporary existence. She said, “Once we start to examine what [money] is at its core, we can start to ourselves, ‘If this thing is based on belief, well, how else is the way I interact with it based on beliefs?’”

MD: Do you describe “insurance” as a “shared delusion”…because it’s so integral to the way we make promises? Our survival depends on being of value. And that means trading our time for sustenance. Paco evidently failed in her examination of what [money] is at its core. You plant seeds with the belief that they will grow into a plant that you can eat. If you have a brown thumb like I have, you don’t believe it. But you can see skilled farmers making things grow. For me, I choose not to trade my time in planting. Rather, I trade it for something the farmer wants…and I trade that for the fruits of “his” planting. Don’t make this more complicated than it is.

What we believe about money impacts how we interact with it.

It’s the reason you and I can make drastically different money decisions, and they’re still the right decisions for us. Money isn’t an immutable, universal Truth—but a fluid, relative representation of value, which is always individual. What I value is not what you value. What you value is not what I value. What we each value will be decided by our circumstances, values, personal preferences, and priorities. And even within that relativity, there’s also the question of how value is related to available resources. For instance, I might understand and appreciate the value of investing in a house in Montana right now. It’s where we plan to move in about five years. But saying the market there is volatile would be an extreme understatement. Could I put together a down payment to buy property there? Sure. But I have to weigh the value of that money against the potential risk of buying now versus purchasing a few years from now.

Money isn’t an immutable, universal Truth—but a fluid, relative representation of value, which is always individual.

Paco gave me an even better example. Imagine you’re at a restaurant with a friend, and the Happy Hour special is $1 oysters. If you’re not an oyster fan, know that that price is a steal. You say to your friend, “I love oysters! Let’s get a dozen—that’s such a good price.” But your friend is dubious. “$1 oysters?” they say, “That’s… suspicious.” Maybe they are old. Perhaps the restaurant got them from an unscrupulous purveyor. Maybe they’re just not very good. You and your friend are working with the same financial information on the surface. It’s Happy Hour, and the oysters are $1 each. But you bring your beliefs about money and value to the table, and your friend brings theirs. The result is two drastically different approaches to the potential purchase.

MD: But none of that has to do with money. That has to do with trade. Trade has three stages: (1) Negotiation; (2) Promise to deliver; (3) Delivery as promised. In simple barter exchange, (2) and (3) happen simultaneously in the here and now. Money enables (2) and (3) to happen over time and space. And money has nothing to do with “belief”. That’s all taken care of in stage (1)…and it only applies to the two parties involved.

Our values, personal histories, upbringing, geographic location, culture, class… all these things and more influence the way we approach the proverbial $1 oyster. So do the beliefs that we have about ourselves. Paco told me that many of her original stories about money were informed by her belief that she wasn’t good enough. It might be easy to write it off as a “money mindset thing.” Yet, her anxiety about not being good enough was based on real experiences. She told me, “Being queer and a woman of color has not been a nice day at the beach. I’ve heard family members talking about so-and-so being gay. I remember hearing that story and being like: okay, noted, not okay to be gay.” She also picked up the “not good enough” message from thirteen years of Catholic school—a privilege in many ways, but also a daily immersion into a story about being fundamentally flawed.

MD: If Paco was this easily conflicted about money, what did she have to say about trade? Could she compare and contrast the two? I think you were wasting your time with Paco. In the land of the blind, the one eyed person is most value. In the land of the queer, the straight person has a value deficiency in at least one category of trade…that being an inter-personal relationship…which is the most equitable trade possible.

The worry about not being good enough coalesced into a story that she should take what she’s given and be grateful for it, grateful to be included, to belong. But eventually, she started to shift that story—and decided to go out on her own in order so she could take control of the value of her work on the open market. And… still, she was undercharging for bookkeeping services and consulting. “I was that $1 oyster,” she said. So the work continued. She pursued therapy and other ways of processing her beliefs and experiences to unpack why she was perennially coming up short on decisions about price.

MD: Again, this has nothing to do with money. She is addressing the (1) Negotiation state of trader.

This is what we mean when we talk about understanding your money mindset. It’s not about “charging what you’re worth” or investing in yourself. It’s really a process of unpacking unconscious stories, weighing them against cultural conditioning, and finding ways to resource yourself to shift your thinking. “Thinking bigger” is just a bandaid over a much bigger issue. If you try to cover your money wounds with “charge what you’re worth,” you won’t get very far without bleeding out. This is why so much money mindset advice feels like a panacea. Before we can write a more effective money story, we actually have to root out and process the old one.

Before we can write a more effective money story, we actually have to root out and process the old one.

“The quality of your thinking impacts the decisions you make,” Paco told me. That’s why she cares about really getting to the heart of how we think about money, rather than trying to plaster over it with affirmations and financial advice. When you say something like “charge what you’re worth” to cover over feelings of inadequacy, the inadequacy is going to leak through. Those unexamined feelings influence your decision-making. So you find a way to rationalize a decision prompted by your original, negative money story rather than the one you think you’re telling. Paco says:

“Just feel your damn feelings on the upfront! Recognize that you’re an emotional creature. Sometimes your feelings are going to get in the way. Feel them and manage them and regulate your nervous system.”

MD: Again…is irrelevant to money.

The Moral Quality of Money

When we start talking about how our beliefs impact our decisions with money, we inevitably land on assumptions about the moral quality of money. Money and what we do with it seem to signal whether we’re a good or bad person, a good citizen or a bad citizen.

MD: This is nonsense. If you have grapes and you want strawberries money gives you an option. You can “sell” your grapes for some number of HULs …hours of unskilled labor. You know a HUL value because you traded in them at some point in your life…usually a job during high school. You then take those HULs and find someone with strawberries. And you negotiate that trade. Using money you have two negotiation steps. (1) grapes for HULs; (2) HULs for strawberries. If you make a bad trade on you grapes, you still have a chance of correcting it on your trade for strawberries. Or you can gain on both trades or you can lose on both trades. It’s about your ability to trade. It’s not about money.

The messages around this can come from the oddest places—or, maybe, the most predictable least helpful places. For instance, in an interview on cable news, former Labor Secretary Elaine Chao said that low-wage workers had a patriotic duty to get back to work. Prosperity gospel preachers tell you that wealth is a sign of god’s favor. And the vast majority of the political machine in the US has been touting the welfare queen as the ultimate moral villain since Reagan.

MD: And again, be that as it may, it has nothing to do with money.

These messages aren’t the whole of the moral lessons we learn about money—they’re just the tip of the iceberg. They’re signposts of a pervasive, inescapable message about money; having money is good and, if you don’t have it, you better work your ass off for more of it so you can be good.

Paco said:

“We are overly focused on our own personal shortcomings, right? You did this wrong. You are bad. You are not disciplined. But what I really think what we need to focus on when we feel these negative feelings of shame and guilt is exploring and understanding where they came from. Who taught you that you should be ashamed of this? Where did you pick that up? Was it a move? Was it a song? Was it your grandparents?”

MD: I wonder what Paco would have to say about trading for art?

She said we pick up these expectations from family, friends, and society. When we violate that behavior, we feel bad. The answer? Paco says that financial pros need to help people heal the parts of them that are broken to help the people they serve to heal.

MD: And don’t forget the things we pick up from advertising and other forms of information and/or brainwashing.

Nowhere is moralizing more prevalent than in discussion about debt. But as Trump and other billionaires have proved repeatedly, debt only seems to be bad when you’re the wrong kind of person with that debt on your balance sheet. So I asked Paco: what’s the deal with debt?

MD: While you were at it did you ask her “what the deal with a promise”? Is a promise a debt? Of course it is.

As is her gift, Paco gave me a great analogy. Debt is like fire, she said. Fire has benefits—it lets us cook our food, for instance. But if that fire gets out of control? Well, then there’s a problem. Debt has significant benefits. Without the invention of the 30-year mortgage, many of us would not be able to own real estate. Without a loan or a business credit card, we might not be able to make investments in the growth of our companies. But debt can quickly get out of control. And that’s when it becomes a problem. “We shouldn’t look at things with this tunnel vision of ‘debt is bad,’” Paco said. Black and white thinking rarely (maybe never?) benefits us.

MD: The “30 year mortgage” illustrates the scam that is our existing money system. (1) It assumes someone is “lending” you the money when in actuality, “you” are “creating” it. (2) It assumes you must pay “interest” on the money you have still not returned. Both are false in a “real” money process. In a “real” money process, money is in perpetually free supply. It never changes its value. And it imposes no resistance to trading (e.g. interest load).

Is time money?

As I mentioned, I’m really interested in exploring the maxim, “time is money.” In what ways is that true? In what ways is it not true? And how might a fundamental, unexamined belief that time is money benefit or harm us and our work? So I asked Paco for her thoughts. She told me that there was a long time where she definitely ascribed to this philosophy. She’d make calculations about what she wanted to buy and whether the price was worth the amount of time it would take to earn that amount. She said it wasn’t a horrible way to think about money—but it’s certainly not the only way to think about the relationship between time and money.

MD: You took time to write this article. I took time to make these annotations. I received nothing in trade for my effort. That makes me a fool. What did you receive for writing the article?

For instance, when she started hiring, she realized that she could create leverage with other people’s time. As a business owner, she could use their work to earn more. She also thinks about how money can buy time, “Time is a non-renewable resource. Money is a renewable resource.” And, of course, she’s very interested in investing in a way that produces more money without more time spent on work.

MD: “Money is a non-renewable resource”: Try this? You can make money writing this article. You can obtain a hole by digging. If you need a hole, would you choose to spend your time writing this article for money…then trading that money for a guy to dig your hole? What if it takes twice as long to dig the hole yourself than to have the guy do it. Did you “reclaim” some non-renewable time? You know the old axiom: work smarter, not harder.

Paco and I agree that the danger in believing “time is money” is that it often reinforces conditioning around productivity and usefulness. We learn at an early age that the goal is to get as much done in a certain period of time as possible—the more ways we can hack our time to produce more, the more we’re rewarded. We’re also taught to evaluate our worth to society from the perspective of productivity. Taking time off, therefore, risks getting you labeled as lazy. And that brings us back to the core belief Paco (and I) have had to wrestle with: Am I enough? Am I doing enough?

MD: And again, that’s all irrelevant.

“Am I deserving of the space to just be a human appreciating the sunshine on my face? I want to normalize wanting to chill,” she told me.

“To me, money is freedom and it’s power. It allows me to live a life of dignity.”

MD: And if sea shells were money does that make picking up sea shells bring you more freedom and power? You know it doesn’t. You can’t just call something money and make it be so. It’s the process that brings the value.

As we started to wrap things up, Paco told me that she really wants people to be able to live a life of dignity. Yes, we need to concern ourselves with our own personal finances. But we should also be concerned about the public policies that would allow all people to live dignified lives. She said, “let’s just solve that problem first. And then luxury will follow.”

MD: If “all” people just took care of themselves “all” would be fine. That’s everyone’s first task…take care of yourself.

I’ve been rolling the idea of “dignity” around in my mind since I talked to Paco. Who is denied dignity? What are the mechanisms that enforce that denial? What does a dignified life look like, and how much does it cost?

Paco does such a great job of addressing the things we can control about money. And she also does a great job acknowledging that there is much that’s out of our control. This is certainly true when it comes to dignity, as well. We can do a lot for ourselves to ensure a dignified life. But for many of us, factors out of our control make it incredibly difficult. So, what policy changes could we advocate for so that all people could have access to a dignified life? What community care projects could help more people live with dignity?

MD: If you have money and you created it, you must eventually return it as you promised and it is destroyed. If you obtained your money in trade, it’s no different than grapes you obtained in trade…except for the process. With a “real” money process, you can put your money under a rock for 10 years…then take it out and trade it for the same size hole in the ground as you could 10 years ago. With grapes…well, they rotted 10 years ago. And with our counterfeit dollar, you can trade for a hole that is 2/3rds as big…assuming 4% inflation caused by government counterfeiting.

We all have room to work on our beliefs about money, and many of us have enough space to start changing the larger conversation, too.

MD: Actually, everything in your article is about “trade”…not “money”.

Five Warning Signs The End Of Dollar Hegemony Is Near… Here’s What Happens Next


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Five Warning Signs The End Of Dollar Hegemony Is Near… Here’s What Happens Next

https://www.zerohedge.com/geopolitical/five-warning-signs-end-dollar-hegemony-near-heres-what-happens-next

Tyler Durden's Photoby Tyler DurdenSaturday, May 21, 2022 – 01:30 PM

Authored by Nick Giambruno via InternationalMan.com,

MD: This article is so typical of what we see coming out of ZeroHedge.com. These people actually believe what they write. As usual, we’ll dissect the article in place and expose the delusions. We’ve done it repeatedly before. The trouble is, they either will never get it…or the are an active part of the scam.

It’s no secret that China and Russia have been stashing away as much gold as possible for many years.

MD: And if they had a clue they wouldn’t be doing that. At the point where gold can have meaning in economics, the game is already over. There is only enough gold on the planet for each person to have less than 2 ounces…less than $4,000. If gold were actually the media of exchange, it would have to trade for a few orders of magnitude greater than that. And if it did, people would be digging up their own back yards looking for the stuff. It’s beyond stupid. Miners who actually know how to find and refine gold would become enormously wealthy, but could never create enough for the rest of us to use it in trade…i.e. as money.

China is the world’s largest producer and buyer of gold. Russia is number two. Most of that gold finds its way into the Russian and Chinese governments’ treasuries.

MD: Where it does absolutely nothing for the benefit of anyone.

Russia has over 2,300 tonnes—or nearly 74 million troy ounces—of gold, one of the largest stashes in the world. Nobody knows the exact amount of gold China has, but most observers believe it is even larger than Russia’s stash.

MD: Ok. Take that number. 74,000,000 ounces. Divide that by the 7 billion people on the planet. That comes to about 0.01 ounces per person on the planet. Times $4,000 per ounce you have $40. That’s 4 trips to McDonalds. Now what?

Russia and China’s gold gives them access to an apolitical neutral form of money with no counterparty risk.

MD: Counterparty risk? What does that have to do with anything. Money is an “in-process promise to complete a trade over time and space.” It is always, and only, created by traders like you and me. And it is always properly destroyed when we deliver as promised. In the mean time it circulates as the most common object of every simple barter exchange. It’s a record keeping problem…and a discipline problem if the trader fails to deliver as promised.

Remember, gold has been mankind’s most enduring form of money for over 2,500 years because of unique characteristics that make it suitable to store and exchange value.

MD: This stupid argument won’t even play in Peoria… let alone throughout the world.

Gold is durable, divisible, consistent, convenient, scarce, and most importantly, the “hardest” of all physical commodities.

MD: And here we have an open admission of ignorance about money. Durable isn’t an issue. An open record keeping system (e.g. ledger) is durable. Divisible? You can divide a number to any number of pieces you choose. If you buy a car by creating $70,000 in new money, that money can circulate as any denomination the marketplace requires. In the USA the smallest denomination is one cent…and most people won’t bend over to pick one up. Consistent? What does that mean? A promise is a promise. Delivery is delivery. What’s to be inconsistent? Convenient? What in the world is more convenient than a record keeping system? Create checks, currency, coins, … they’re just convenient place holders for what is recorded in the ledger. Scarce? This is the one that gets me most. The media of exchange should never be scarce. Quite the contrary, it should be in perpetual free supply. It should resist trade not at all. Hardest? As in harder than a Hershey bar? How ridiculous! And the one they left out…which is historically the biggest problem with any substitute for “real” money…it must be non-counterfeitable! And who is the biggest counterfeiter in “all” cases? Government!

In other words, gold is the one physical commodity that is the “hardest to produce” (relative to existing stockpiles) and, therefore, the most resistant to inflation. That’s what gives gold its superior monetary properties.

MD: Another open admission to stupidity. The money relation is: INFLATION = DEFAULT – INTEREST. Counterfeiting, the biggest cause of default not mitigated by interest collection, is the biggest source of inflation. It’s a very small fraction of traders who don’t deliver as promised. And when that happens, a “real money process” makes an immediate and equal interest collection of like amount. This guarantees that inflation will be perpetually zero.

Russia and China can use their gold to engage in international trade and perhaps back the currencies.

MD: Only as long as ignorance regarding real money prevails.

That’s why gold represents a genuine monetary alternative to the US dollar, and Russia and China have a lot of it.

MD: And of course there is no shortage of “stupid” people who think that matters. Real traders will “create” a “real money process” every time if not conflicted by the money-changers and the governments they institute. I’m now going to let him spew on as long he purveys the same ridiculous fiction. If he comes up with some new nonsense I’ll break back in.

Today it’s clear why China and Russia have had an insatiable demand for gold.

They’ve been waiting for the right moment to pull the rug from beneath the US dollar. And now is that moment…

This is a big problem for the US government, which reaps an unfathomable amount of power because the US dollar is the world’s premier reserve currency. It allows the US to print fake money out of thin air and export it to the rest of the world for real goods and services—a privileged racket no other country has.

Russia and China’s gold could form the foundation of a new monetary system outside of the control of the US. Such moves would be the final nail in the coffin of dollar dominance.

Five recent developments are a giant flashing red sign that something big could be imminent.

Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money”

In the wake of Russia’s invasion of Ukraine, the US government has launched its most aggressive sanctions campaign ever.

Exceeding even Iran and North Korea, Russia is now the most sanctioned nation in the world.

As part of this, the US government seized the US dollar reserves of the Russian central bank—the accumulated savings of the nation.

MD: Oh I would so like to have Putin’s ear here. The best thing he could do is institute a “real money process” and use his gold to allay his doubters…he’d never have to touch any of it. In fact, I would like to see Elon Musk do it, rather than buy Twitter (that will bury him in criminal lawsuits should he succeed there).

It was a stunning illustration of the dollar’s political risk. The US government can seize another sovereign country’s dollar reserves at the flip of a switch.

MD: …until its counterfeiting is so obvious and egregious it deals itself out of the game all together.

The Wall Street Journal, in an article titled “If Russian Currency Reserves Aren’t Really Money, the World Is in for a Shock,” noted:

“Sanctions have shown that currency reserves accumulated by central banks can be taken away. With China taking note, this may reshape geopolitics, economic management and even the international role of the U.S. dollar.”

MD: Is anyone getting the dozen or so calls a day that I’m getting…from so-called investors who want to trade dollars for my real property? Why do that unless you know the dollars you hold are about to be worthless.

Russian President Putin said the US had defaulted on its obligations and that the dollar is no longer a reliable currency.

The incident has eroded trust in the US dollar as the global reserve currency and catalyzed significant countries to use alternatives in trade and their reserves.

China, India, Iran, and Turkey, among other countries, announced, or already are, doing business with Russia in their local currencies instead of the US dollar. These countries represent a market of over three billion people that no longer need to use the US dollar to trade with one another.

The US government has incentivized almost half of mankind to find alternatives to the dollar by attempting to isolate Russia.

MD: I vote for a competitive HUL (Hour of Unskilled Labor) based “real money process”. The HUL is valued today (i.e. trades for the same size hole in the ground) as it has for all time…recorded or otherwise.

Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities

Russia is the world’s largest exporter of natural gas, lumber, wheat, fertilizer, and palladium (a crucial component in cars).

It is the second-largest exporter of oil and aluminum and the third-largest exporter of nickel and coal.

Russia is a major producer and processor of uranium for nuclear power plants. Enriched uranium from Russia and its allies provides electricity to 20% of the homes in the US.

Aside from China, Russia produces more gold than any other country, accounting for more than 10% of global production.

These are just a handful of examples. There are many strategic commodities that Russia dominates.

In short, Russia is not just an oil and gas powerhouse but a commodity superpower.

After the US government seized Russia’s US dollar reserves, Moscow has little use for the US dollar. Moscow does not want to exchange its scarce and valuable commodities for politicized money that its rivals can take away on a whim. Would the US government ever tolerate a situation where the US Treasury held its reserves in rubles in Russia?

The head of the Russian Parliament recently called the US dollar a “candy wrapper” but not the candy itself. In other words, the dollar has the outward appearance of money but is not real money.

That’s why Russia is no longer accepting US dollars (or euros) in exchange for its energy. They are of no use to Russia. So instead, Moscow is demanding payment in rubles.

MD: Bingo. Game over for the Earth’s, and History’s, most egregious counterfeiter.

That’s an urgent problem for Europe, which cannot survive without Russian commodities. The Europeans have no alternative to Russian energy and have no choice but to comply.

European buyers must now first buy rubles with their euros and use them to pay for Russian gas, oil, and other exports.

This is a big reason why the ruble has recovered all of the value it lost in the initial days of the Ukraine invasion and then made further gains.

In addition to rubles, the top Russian energy official said Moscow would also accept gold or Bitcoin in return for its commodities.

“If they want to buy, let them pay either in hard currency—and this is gold for us… you can also trade Bitcoins.”

Here’s the bottom line. US dollars are no longer needed (or wanted) to buy Russian commodities.

Warning Sign #3: The Petrodollar System Flirts With Collapse

MD: I’m really skimming now. This guy is so far off the tracks there’s no hope of bringing him back. I think I’ll quit here.

Oil is by far the largest and most strategic commodity market.

For the last 50 years, virtually anyone who wanted to import oil needed US dollars to pay for it.

That’s because, in the early ’70s, the US made an agreement to protect Saudi Arabia in exchange for ensuring, among other things, all OPEC producers only accept US dollars for their oil.

Every country needs oil. And if foreign countries need US dollars to buy oil, they have a compelling reason to hold large dollar reserves.

This creates a huge artificial market for US dollars and forces foreigners to soak up many of the new currency units the Fed creates. Naturally, this gives a tremendous boost to the value of the dollar.

The system has helped create a deeper, more liquid market for the dollar and US Treasuries. It also allows the US government to keep interest rates artificially low, thereby financing enormous deficits it otherwise would be unable to.

In short, the petrodollar system has been the bedrock of the US financial system for the past 50 years.

But that’s all about to change… and soon.

After it invaded Ukraine, the US government kicked Russia out of the dollar system and seized hundreds of billions in dollar reserves of the Russian central bank.

Washington has threatened to do the same to China for years. These threats helped ensure that China cracked down on North Korea, didn’t invade Taiwan, and did other things the US wanted.

These threats against China may be a bluff, but if the US government carried them out—as it recently did against Russia—it would be like dropping a financial nuclear bomb on Beijing. Without access to dollars, China would struggle to import oil and engage in international trade. As a result, its economy would come to a grinding halt, an intolerable threat to the Chinese government.

China would rather not depend on an adversary like this. This is one of the main reasons it created an alternative to the petrodollar system.

After years of preparation, the Shanghai International Energy Exchange (INE) launched a crude oil futures contract denominated in Chinese yuan in 2017. Since then, any oil producer can sell its oil for something besides US dollars… in this case, the Chinese yuan.

There’s one big issue, though. Most oil producers don’t want to accumulate a large yuan reserve, and China knows this.

That’s why China has explicitly linked the crude futures contract with the ability to convert yuan into physical gold—without touching China’s official reserves—through gold exchanges in Shanghai (the world’s largest physical gold market) and Hong Kong.

PetroChina and Sinopec, two Chinese oil companies, provide liquidity to the yuan crude futures by being big buyers. So, if any oil producer wants to sell their oil in yuan (and gold indirectly), there will always be a bid.

After years of growth and working out the kinks, the INE yuan oil future contract is now ready for prime time.

And now that the US has banned Russia from the dollar system, there is an urgent need for a credible system capable of handling hundreds of billions worth of oil sales outside of the US dollar and financial system.

The Shanghai International Energy Exchange is that system.

Back to Saudi Arabia…

For nearly 50 years, the Saudis had always insisted anyone wanting their oil would need to pay with US dollars, upholding their end of the petrodollar system.

But that could all change soon…

Remember, China is already the world’s largest oil importer. Moreover, the amount of oil it imports continues to grow as it fuels an economy of over 1.4 billion people (more than 4x larger than the US).

China is Saudi Arabia’s top customer. Beijing buys over 25% of Saudi oil exports and wants to buy more.

The Chinese would rather not have to use the US dollar, the currency of their adversary, to buy an essential commodity.

In this context, The Wall Street Journal recently reported that the Chinese and the Saudis had entered into serious discussions to accept yuan as payment for Saudi oil exports instead of dollars.

The WSJ article claims the Saudis are angry at the US for not supporting it enough in its war against Yemen. They were further dismayed by the US withdrawal from Afghanistan and the nuclear negotiations with Iran.

In short, the Saudis don’t think the US is holding up its end of the deal. So they don’t feel like they need to hold up their part.

Even the WSJ admits such a move would be disastrous for the US dollar.

“The Saudi move could chip away at the supremacy of the US dollar in the international financial system, which Washington has relied on for decades to print Treasury bills it uses to finance its budget deficit.”

Here’s the bottom line.

Saudi Arabia—the linchpin of the petrodollar system—is flirting in the open with China about selling its oil in yuan. One way or another—and probably soon—the Chinese will find a way to compel the Saudis to accept the yuan.

The sheer size of the Chinese market makes it impossible for Saudi Arabia—and other oil exporters—to ignore China’s demands to pay in yuan indefinitely. Moreover, using the INE to exchange oil for gold further sweetens the deal for oil exporters.

Sometime soon, there will be a lot of extra dollars floating around suddenly looking for a home now that they are not needed to purchase oil.

It signals an imminent and enormous change for anyone holding US dollars. It would be incredibly foolish to ignore this giant red warning sign.

Warning Sign #4: Out of Control Money Printing and Record Price Increases

In March of 2020, the chair of the Federal Reserve, Jerome Powell, exercised unfathomable power…

At the time, it was the height of the stock market crash amid the COVID hysteria. People were panicking as they watched the market plummet, and they turned to the Fed to do something.

In a matter of days, the Fed created more dollars out of thin air than it had for the US’s nearly 250-year existence. It was an unprecedented amount of money printing that amounted to more than $4 trillion and nearly doubled the US money supply in less than a year.

One trillion dollars is almost an unfathomable amount of money. The human mind has trouble wrapping itself around such figures. Let me try to put it into perspective.

One million seconds ago was about 11 days ago.

One billion seconds ago was 1988.

One trillion seconds ago was 30,000 BC.

For further perspective, the daily economic output of all 331 million people in the US is about $58 billion.

At the push of a button, the Fed was creating more dollars out of thin air than the economic output of the entire country.

The Fed’s actions during the Covid hysteria—which are ongoing—amounted to the biggest monetary explosion that has ever occurred in the US.

When the Fed initiated this program, it assured the American people its actions wouldn’t cause severe price increases. But unfortunately, it didn’t take long to prove that absurd assertion false.

As soon as rising prices became apparent, the mainstream media and Fed claimed that the inflation was only “transitory” and that there was nothing to be worried about.

Of course, they were dead wrong, and they knew it—they were gaslighting.

The truth is that inflation is out of control, and nothing can stop it.

Even according to the government’s own crooked CPI statistics, which understates reality, inflation is rising. That means the actual situation is much worse.

Recently the CPI hit a 40-year high and shows little sign of slowing down.

I wouldn’t be surprised to see the CPI exceed its previous highs in the early 1980s as the situation gets out of control.

After all, the money printing going on right now is orders of magnitude greater than it was then.

Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead

“It’s possible to have more than one reserve currency.”

These are the recent words of Jerome Powell, the Chairman of the Federal Reserve.

It’s a stunning admission from the one person who has the most control over the US dollar, the current world reserve currency.

It would be as ridiculous as Mike Tyson saying that it’s possible to have more than one heavyweight champion.

In other words, the jig is up.

Not even the Chairman of the Federal Reserve can go along with the farce of maintaining the dollar’s supremacy anymore… and neither should you.

Conclusion

It’s clear the US dollar’s days of unchallenged dominance are quickly ending—something even the Fed Chairman openly admits.

To recap, here are the five imminent, flashing red warning signs the end of dollar hegemony is near.

  • Warning Sign #1: Russia Sanctions Prove Dollar Reserves “Aren’t Really Money”
  • Warning Sign #2: Rubles, Gold, and Bitcoin for Gas, Oil, and Other Commodities
  • Warning Sign #3: The Petrodollar System Flirts With Collapse
  • Warning Sign #4: Out of Control Money Printing and Record Price Increases
  • Warning Sign #5: Fed Chair Admits Dollar Supremacy Is Dead

If we take a step back and zoom out, the Big Picture is clear.

We are likely on the cusp of a historic shift… and what’s coming next could change everything.

*  *  *

The economic trajectory is troubling. Unfortunately, there’s little any individual can practically do to change the course of these trends in motion. The best you can and should do is to stay informed so that you can protect yourself in the best way possible, and even profit from the situation. That’s precisely why bestselling author Doug Casey and his colleagues just released an urgent new PDF report that explains what could come next and what you can do about it. Click here to download it now.511

MoE As a Unique Type of Economic Good

  • David Lawant David Lawant this is my bio More posts by David Lawant.

MD: This blog named MoneyDelusion.com (note singular, not plural like this one) I tripped over. It was created in 2020. MoneyDelusions.com (note plural…was created three years earlier in 2017). This David Lawant is likely a Mises Monk. He’s posted three articles to his blog…one each day for three days…and then nothing. I wonder what he thinks he’s up to. Let’s see if he knows anything about money. If he does he’ll be the first Mises Monk I’ve found who does…and wouldn’t that be exciting!

David Lawant

28 Oct 2020 • 7 min read

MoE As a Unique Type of Economic Good

A Medium of exchange (MoE) is an economic good that is used in exchange for other goods. Money is nothing more than a special case of media of exchange that happens to be universally accepted through a process that has already been well described elsewhere. Under this definition Bitcoin is not money because it’s not commonly accepted (yet), but it certainly is a MoE. For this text you can read these two concepts as synonyms, as everything here about money can be generalized to media of exchange without any loss in meaning.

MD: Right off the bat it looks like he doesn’t get it. A “medium” is the environment (control) within which “media” exists. It’s a minor point…unless his confusion goes deeper. Nope: Second sentence his thinks “money” is a special case of “media”. This is wrong. Money “is” the media. Different “cases” would be like ledger entries, demand deposits, coins, currency, etc. And what is this “universally accepted process described elsewhere”? Now he swerves into correctness…Bitcoin “is” not money…but it looks like it’s “acceptance” that is not mature enough…and thus will eventually be money. He’s wrong. It’s not created correctly. That’s what keeps it from ever being money. That’s what makes it just being stuff of simple barter exchange like gold and silver. And read that last sentence again. He is “money deluded”…that’s for sure.

Media of exchange are not a payment system, as Pierre Rochard correctly and insistently emphasizes. Although a payment system might be a nice-to-have feature to transfer a MoE form one hand to another, it is important to understand that these are completely orthogonal concepts. The channel through which a good is exchanged is not important for the economic analysis of a MoE. What matters is that the good is primarily used to be exchanged for other goods. Ludwig von Mises traced this confusion to a juridical view of money:

…the principal, although not exclusive, motive of the law for concerning itself with money is the problem of payment. When it seeks to answer the question ‘What is money?’ it is in order to determine how monetary liabilities can be discharged. For the jurist, money is a medium of payment. The economist, to whom the problem of money presents a different aspect, may not adopt this point of view if he does not wish at the very outset to prejudice his prospects of contributing to the advancement of economic theory.

MD: See…I told you he was a Mises Monk…and his brain is thoroughly contaminated. We here know that money is “an in-process promise to complete a trade over time and space.” It is always, and only, created by traders like you and me. It may never circulate as an object of simple barter exchange…but virtually always does. And when it does, it trades like any other object that two traders are willing to exchange. But its process is what makes it special. Real money has zero intrinsic value. But when properly protected from counterfeiting, it is the most efficient and most trusted of any object of simple barter exchange. This is because its value never changes over time and space. This is because there is no interest load associated with using it. And it is because the “process (e.g. medium) guarantees this to be so. It cannot operate any other way.

Some Bitcoiners question whether it makes sense to stress so much the MoE aspect of money if it is only a stage in the evolutionary process brilliantly depicted by Nick Szabo (collectible, store of value, medium of exchange, and unit of account). The point, as Szabo points out, is that something special happens when an economic good becomes a medium of exchange.

MD: Here you see a very common attribute of the Mises Monks…that is worship of other Mises Monks. They’re truly a mutual admiration society. It is a religion…and misguided like all religions. But the key thing to note here: An economic good does not “become” a medium of exchange (or even properly a “media” of exchange). Money is not an economic good…it is a “promise”. And “real” money is a promise that is guaranteed to be kept. It’s designed into the process. The sidebar explains it in very simple terms.

Categorization of Economic Goods

One of the most basic distinctions in economics is the one between consumption and production goods, usually called by Austrian economists as first-order and higher-order (second-order, third-order, etc…) goods. We can get away for now with the following simplified definition: first-order (consumption) goods satisfy direct human needs and higher-order (production) goods are used to produce lower-order goods.

MD: Money has no interest in what it is being traded for or how it will be used…or why it is being traded. Why should it? Why do they make this complicated? If I trade money for a hammer, do I care if it’s used to pound nails or to blacksmith wrought iron…or just to hang on the wall? If this article tells us why “he” cares we’ll correct him at that instant.

There’s nothing intrinsic about whether a good is first or higher order. For example: I can consume a certain amount of water to satisfy my thirst (i.e., water as a first-order good) or alternatively I can provide this same amount of water to cattle which I will ultimately consume as food (i.e., water as a second-order good and cattle as a first-order good).

First- and higher-order economic goods, albeit ultimately connected to a fundamental theory of value, are different enough to be treated separately in many instances. As Jesus Huerta de Soto puts it: “this classification and terminology were conceived by Carl Menger, whose theory on economic goods of different order is one of the most important logical consequences of his subjectivist conception of economics”.

Peter Paul Rubens’ representation of an altcoiner trying to spin up a monetary system (c. 1614–1616)

MD: More praise for fellow Mises Monks. Look how far we are into this article and he still has said nothing that has to do with money. He’s just tried to act like an intellectual. We know that as “double talk”. And watch out for creation of a new “..ist”…in this instance “subjectivist”. Does the world really need any more “ists”?

We have thus defined that media of exchange are goods that have no real “utility” aside from being exchanged for other goods, which in turn have real “utility” of their own. So how do we classify media of exchange? Are they first-order (consumption) or higher-order (production) economic goods? Is there anything especial about media of exchange that warrants a special analysis of them?

MD: When you realize that it’s the entire trading universe that is the “medium” of exchange, you don’t have to classify anything. In trading, those who prefer to trade for gold know its value. If they trade in silver, they know its value. What is different about “real” money is “its value never changes.” This can’t be said for any other object of simple barter exchange.

MD: The preferred unit for money is the HUL (Hour of Unskilled Labor). For all time in the past it has traded for the same size hole in the ground. And in a “real” money process, it will trade for the same size hole in the future. It is the traders who decide in their personal trades how many HULs is being traded.

MD: And this is a great simplification over the complicated process he alludes to. In his process you have to know the changing value of every good and service …in your mind. But when it comes to “real money” as one of the exchanged objects, you always know its value. When you were in high school (i.e. unskilled labor) you knew exactly what people were willing to pay for it. With the improperly managed dollar, people were willing to pay me $1.50 for a HUL. Today they are willing to pay $8.00. Why? Because the improper “dollar process” has allowed counterfeiting. They have allowed the supply/demand balance to change over time…and it is with supply continually outstripping demand through government counterfeiting (i.e. making promises they never keep)…counterfeiting “inflates” the supply. It’s just that simple.

Media of Exchange Are a Sui Generis Type of Economic Good

The number of economists who don’t have good answers to these questions is astounding. Most simply classify media of exchange as a higher-order good by exclusion. They don’t have direct “utility”, so they cannot be first-order economic goods.

MD: Here we see the pot calling the kettle black. I’m going to just let him spew on here. To put what he writes in context, he thinks gold is money. He thinks money “always” has intrinsic value. Gold thus gets its value by digging dirt and refining it. But dirt in your back yard isn’t going to give you any gold…no matter how much you refine it. And you can argue until you’re blue in the face that you put as much work into your backyard dirt as the gold professional put into his. He got gold…you didn’t. He got something to trade for his HULs…you didn’t. But when you know money is a promise, and you know “real” money comes from a process that “guarantees promises”, you don’t need to screw around with things like gold. I’ll let you read on yourself for a while. These guys make me tired..

Austrian economists think this approach is simplistic and inconsistent. They defend a three-fold categorization of economic goods: first-order (consumption) goods, higher-order (production) goods and media of exchange. This is a key proposition in Ludwig von Mises’ indispensable Theory of Money and Credit. He even criticizes his master Eugen von Böhm-Bawerk and defends the position of Karl Knies, economist of the rival German historical school, in this respect:

Production goods derive their value from that of their products. Not so money; for no increase in the welfare of the members of a society can result from the availability of an additional quantity of money. The laws which govern the value of money are different from those which govern the value of production goods and from those which govern the value of consumption goods.

The peculiarity of media of exchange, and by extent of money, as economic goods is clearly exposed by a simple conundrum. We know intuitively that every economic good can command a price because it has “utility”. If the “utility” of a MoE is to have purchasing power (i.e., a price), how to we get out of this circular reference to understand how money has value? Mises derived his famous regression theorem to solve this apparent circularity by introducing the time element, but this is outside the scope of this text. What matters for us is that media of exchange are unique because their “utility” and purchasing power coincide. As Murray Rothbard puts it:

Without a price, or an objective exchange-value, any other good would be snapped up as a welcome free gift; but money, without a price, would not be used at all, since its entire use consists in its command of other goods on the market. The sole use of money is to be exchanged for goods, and if it had no price and therefore no exchange-value, it could not be exchanged and would no longer be used.

MD: Here is a good time to comment on this thing they call “price”. It’s how much of the stuff you have and are willing to trade for how much of the stuff your trading partner has and is willing to trade. If the “stuff” is real money, you both know exactly what is being traded…one hour of unskilled labor…and it’s guaranteed. You can convert that to dollars, marks, franks, ounces of gold, or pork bellies. It’s up to you to decide on that conversion. But one thing you don’t have to do with “real” money. You don’t have to decide what a HUL is worth. You always know, because at one point in your life your were one…an hour of unskilled labor. So if you’re using “real” money, your trade just got less risky by a factor of two (i.e. one of the objects being traded is “guaranteed” not to change over time and space). Let’s let him blab on further for a while..

This special relationship between “utility” and price for media of exchange makes its analysis unique and leads to conclusions that might seem counter-intuitive compared to the analysis of typical commodities. As Mises points out: the real problem of the value of money only begins where it leaves off in the case of commodity-values. Rothbard agrees with Mises on this point:

In the case of consumers’ goods, we do not go behind their subjective utilities on people’s value scales to investigate why they were preferred; economics must stop once the ranking has been made. In the case of money, however, we are confronted with a different problem. For the utility of money (setting aside the nonmonetary use of the money commodity) depends solely on its prospective use as the general medium of exchange. Hence the subjective utility of money is dependent on the objective exchange-value of money, and we must pursue our analysis of the demand for money further than would otherwise be required.

MD: This is a lot like hearing someone quote bible verses isn’t it.

This is the first stepping stone to intellectually justify why immutability and censorship resistance are such important concepts for media of exchange. As we will see in future texts, it will lead to the Austrian view that, contrary to other types of economic goods, increasing the supply of a MoE will only benefit some at the expense of others. On the other hand, reductions in the supply of a MoE do not make society worse off. The purchasing power that is hoarded is transmitted to others in the exact same proportion.

MD: So what do you think it will take for these “intellectuals” to grasp the concept of perpetual supply/demand balance…guaranteed? They’re beating a dead red herring…to mix a metaphor.

B2C, B2B and… B2MoE?

The singularities of different types goods are not just an abstraction — the business and investing communities also understand this well. The contrasts any executive or investor sees between business-to-consumer (B2C) and business-to-business (B2B) companies are too obvious to state here. Financial professionals are also familiar with the division between retail and wholesale banking. It is very to easy to understand that these are fundamentally different businesses that have unique challenges.

One of the reasons why Bitcoin is so novel is that companies and investors have never dealt directly with media of exchange before, but only with services built on top of an established MoE. These services are just typical consumer or production goods, not media of exchange. Trying to fit the standard toolkit to such a unique type of economic good without first considering its idiosyncrasies might lead to expensive mistakes.

Bitcoiners, possibly due to their Austro-Hungarian DNA traces, understand these concepts fully. Still, it is important to be mindful of them and make them explicit, especially as more new people start to get involved with Bitcoin. Most arguments against Bitcoin can be traced down to a misunderstanding of how media of exchange actually work. Traditional economists are generally not better positioned to understand this either, as monetary economics has been reduced to reading FOMC tea leaves and computing econometric analyses.

The next time someone points a laughable obsession over the 21 million hard cap or satellite dishes, try to gauge his understanding of some basic monetary concepts like the ones discussed here. Then think again about what is actually laughable. The next time someone tries to shill another “blockchain” that optimizes for a number of features, or for any specific feature, at the expense of immutability and censorship resistance, try to understand whether this person has considered the fact that media of exchange work under different rules.

MD: Do you think he could be more clueless? I ask you, as a trader and given the choice of an inflating money, a deflating money, or a money guaranteed to have zero inflation or deflation, which would you choose? Now that you have chosen, would your trading partner make the same choice as you in this instance? For both trading partners to be on an equal footing as far as money is concerned, the money itself must “never” change value. Does the dollar have this attribute? The Zimbabwe or Weimer Germany money? How about gold? How about cement blocks? My cement blocks have held their value better than gold.

The positions of Bitcoin proponents are usually grounded on air-tight logic and sound economic theory that extends back for a long time. This is neither dogmatism nor tribalism. Contrary to what many believe, the Austrian School of Economics does not take individual freedom and property rights as an axiom, but it arrives at those ideals through rigorous deductive logic. It certainly is a longer route to appreciate the free market system, but it might be the only one that does not lead one astray over time.

PS: An upcoming text in this series will delve deeper into the concept of utility and will probably be a required companion to this text. For now, I’m working with the oversimplified concept of utility as the satisfaction of someone’s needs. For that reason, “utility” is used in quotes throughout this text.

In that sense, a more rigorous way to transmit the main message of this text is (to paraphrase Mises): “In the case of money, subjective use-value and subjective exchange-value coincide. Both are derived from objective exchange-value, for money has no utility other than that arising from the possibility of obtaining other economic goods in exchange for it”.

MD: As always, I couldn’t be more relieved to have reached the end of this article. And look at the help from his Mises Monk pals and scrutiny he got. Pretty scary isn’t it.

Acknowledgements

A draft of this text was improved on by invaluable feedback from Saifedean Ammous, Michael Goldstein, Shaine Kennedy, Stephan Livera, Acrual and Sosthéne. Stay toxic, friends!

References

Free Post Projection and Throwness Bitcoin’s 10x Advantage Over Gold Might Not Lie Where You ThinkI have been thinking for a while about why sound money survived for thousands of years but was quickly

  • David Lawant

David Lawant 29 Oct 2020 • 7 min read Free Post Institutions Versus Organizations Governance by Laws Without LegislationCarl Menger, the founder of the Austrian school of economics, is a remarkably popular economist in crypto twitter because Bitcoin builds on so many of his

  • David Lawant

David Lawant 27 Oct 2020 • 6 min read Money Delusion © 2022 HomeSignupTwitter Published with Ghost

If The Fed Starts A Digital Currency, It Had Better Guarantee Privacy

If The Fed Starts A Digital Currency, It Had Better Guarantee Privacy
Tyler Durden’s Photo
by Tyler Durden
Tuesday, Apr 05, 2022 – 08:00 PM

MD: As always, Money Delusions will use the true definition of “real” money to annotate this article. The article appear in ZeroHedge.com as “If the Fed Starts A Digital Currency, It Had Better Guarantee Privacy”. And the title itself reveals confusion about what money is…and what its characteristics are. This begins by knowing what money is (i.e “an in-process promise to complete a trade over time and space”); how money is created (i.e. transparently in plain view by traders like you and me); how money is destroyed (i.e. also transparently by the trader delivering as promised); what happens if the trader “defaults” (i.e. “interest” of like amount is immediately collected); and how money trades in the interim (i.e. anonymously as any other object of simple-barter-exchange). Let’s get started:

Authored by By Andrew M. Bailey & William J. Luther via RealClearPolicy.com,

President Biden’s latest executive order calls for extensive research on digital assets and may usher in a U.S. central bank digital currency (CBDC), eventually allowing individuals to maintain accounts with the Federal Reserve. Other central banks are already on the job. The People’s Bank of China began piloting a digital renminbi in April 2021. India’s Reserve Bank intends to launch a digital rupee as early as this year.

MD: They immediately exhibit that they don’t know what money is. “Banks” have nothing to do with “real” money at all. It is the most obvious corruption of real money. And “digital” is just one of many forms of money.

Most commonly, money is just an entry in a ledger. In some cases it is in the form of coins and currency…both carefully designed to resist counterfeiting. In some cases it is in the form of a check (i.e. against a demand deposit). And we already have a fairly digital form of money in “debit cards”…a link to your ledger records that you carry in your purse. “Credit cards” are not an example of money. Rather, they are an example of “money creation”.

When you charge something on a credit card, “you” are creating money…a promise to complete a trade over time and space. When you use a “debit card” you are merely submitting proof that you hold some previously created money.

A CBDC may upgrade the physical cash the Federal Reserve already issues – but only if its designers appreciate the value of financial privacy.

Cash is a 7th century technology, with obvious drawbacks today. It pays no interest, is less secure than a bank deposit, and is difficult to insure against loss or theft. It is unwieldy for large transactions, and also requires those transacting to be at the same place at the same time — a big problem in an increasingly digital world.

MD: And before cash we had the tally stick…which claims to be the best implementation of money. And tally sticks were “real” money. They represented a promise to complete a trade over time and space. They worked better than gold. In fact, they could claim any kind of “backing” the trader’s agreed to (e.g. pork bellies). But nobody “traded” tally sticks. Thus, in that respect they weren’t money at all. They really were close to “crypto” in that respect…but much cheaper to create. You could create a tally stick with a twig and a knife. Today’s crypto requires insane amounts of electricity waste to create. They call it “proof of work”…which of course is nonsense.

Nonetheless, cash remains popular. Circulating U.S. currency exceeded $2.2 trillion in January 2022, more than doubling over the last decade. The inflation-adjusted value of circulating notes grew more than 5.5 percent per year over the period. And U.S. consumers used cash in 19 percent of transactions in 2020.

MD: Actually, the money changers are revealing the imminent collapse of cash. They hold lots of cash (counterfeited by government) and are doing everything they can to exchange it for real “property”. I get a dozen calls a day from “so-called investors” who want to “buy” my property. It’s a game of musical chairs. They don’t want to holding it when the “reset” comes as they know it will be instantly worthless. And also note, with “real” money, inflation is perpetually zero. No adjusted valuation is ever necessary.

Why is cash so popular, despite its drawbacks? Cash is easy to use. There are no bank or merchant terminal fees associated with cash. And, most importantly, it offers more financial privacy than the available alternatives.

MD: In actuality, cash is “not” easy to use. You almost never see it being used…even in restaurants and bars. I use it in bars just to keep score. I take a certain amount of cash, which when I’ve used it up I know I’m about to have had too much to drink. I spend lots of time explaining to other patrons why I can’t let them buy me a beer.

When you use cash, no one other than the recipient needs to know. Unlike a check or debit card transaction, there’s no bank recording how you spend your money. You can donate to a political or religious cause, buy controversial books or magazines, or secure medicine or medical treatment without much concern that governments, corporations, or snoopy neighbors will ever find out.

MD: With a “real” money implementation, there is no need for banks to be involved. All that is necessary is a “block chain” like implementation that resists the “three general problem” and counterfeiting. And when properly implemented, the “block chain” implementation is cost free. It has no use for “proof of work”. It “knows” it’s keeping track of performance on promises.

Privacy means you get to decide whether to disclose the intimate details of your life. Some will happily share. That is their choice. But others will prefer to keep those details private.

MD: But keep in mind, while “real” money used in trade is “always anonymous”, it’s creation is always “open and transparent”. Awareness of this distinction is crucial.

In a digital world, personal information can spread far and wide. And it can be used to exclude or exploit people on the margins. The choice about what information to share is important. For some, flourishing depends on carefully choosing how much others know about their politics, religion, relationships, or medical conditions.

Financial privacy matters just as much as privacy in other areas. What we do reveals much more about who we are than what we say. And what we do often requires spending money. In many cases, meaningful privacy requires financial privacy.

MD: Again, keep in mind that money is only concerned with the problem of “counterfeiting”. It cares not at all who is using it and for what. But people using it must know and expect it is genuine…i.e. not counterfeited. And of course we all know the principal counterfeiters of money are governments. For a “real” money process to exist, it’s operation must be transparent and impervious to any attempts to control or to counterfeit it. It is simply about record keeping.

Privacy also operationalizes the presumption of innocence and promotes due process. You are not obliged to testify against yourself. If law enforcement believes you have done something unlawful, they must convince a judge to issue a warrant before rifling through your things. Likewise, financial privacy prevents authorities from monitoring your transactions without authorization.

MD: Law doesn’t apply to a “real” money process. But open communication and mitigation is crucial. Again, it’s about making counterfeiting impossible. And when detected it must reveal who did the counterfeiting; see that the counterfeiting doesn’t happen again; and treat the counterfeiting for what it is… a “default”. And thus it immediately mitigates it with “interest” collection of like amount. This must be totally transparent…so the marketplace can ostracize the perps. Who pays the interest? Other irresponsible traders.

The recent executive order, to the administration’s credit, notes that a CBDC should “maintain privacy; and shield against arbitrary or unlawful surveillance, which can contribute to human rights abuses.” But a reasonable person might worry that the government is paying lip service to privacy concerns.

MD: A principle “axiom” must be observed at all times. If you are considering a government solution to any problem, you are still looking for a solution. Government is “never” the solution to any problem. It is just a magnifier of the problem.

A recent paper from the Fed, offered as “the first step in a public discussion” about CBDCs, suggests the central bank has no interest in guaranteeing privacy at the design stage. Instead, it maintains that a “CBDC would need to strike an appropriate balance […] between safeguarding the privacy rights of consumers and affording the transparency necessary to deter criminal activity.” The Fed then solicits comments on how a CBDC might “provide privacy to consumers without providing complete anonymity,” which it seems to equate with “facilitating illicit financial activity.” A U.S. CBDC, in other words, will likely offer much less privacy than cash.

MD: No central entity (especially a central bank) is ever involved in a “real” money process. Rather, it is the “process” that is the entity. As such, the process is universally used and totally transparent to all traders at all times.

We do not deny that financial privacy benefits criminals and tax cheats. Such claims tend to be exaggerated, though. In reality, it is a small price to pay for civil liberty. That due process applies to everyone — criminals included — is no reason to scrap the Fourth or Fifth Amendments.

MD: Taxes implies government…so it is a non-starter. If government participation was ever a valid option, it would be the “only” viable option. You would pay taxes (and only taxes) for everything. Your gasoline, your groceries, your clothing…all would be free. You would just pay tax and it would be covered out of that. Some people call this communism. Some call it insurance. It’s all nonsense.

Policymakers may be tempted to compromise on financial privacy when implementing a CBDC. Instead, they should attempt to replicate the privacy afforded by cash. Like non-alcoholic beer, the Fed’s “digital form of paper money” would superficially resemble the real McCoy while lacking its defining feature.

MD: Policy is the the marker here. No process is every properly governed by policy. The closest we should ever come to adopting policy is the “golden rule”. Policy is different from process. Money is a “process”. It cares nothing about policies like full employment and setting inflation at 2% (while continuously failing by a factor of 2).

In Unprecedented Move, Congress Proposes Taxpayer-Funded Bailout Of $550 Billion CMBS Industry

Profile picture for user Tyler Durden

by Tyler Durden

Wed, 07/29/2020 – 22:05

MD: Note: There are charts embedded in this article which link back to the original. In time they will likely get broken.

MD: A proper MOE (Medium of Exchange or Money) Process treats all “traders” equally. But this instance does bring on to the stage an important case. What limits should be placed on the size of “promises” it will embrace…and why?

The case is fairly simple for individuals. It easily embraces the case for viable shelter (buying a house). It easily embraces the case for viable transportation (buying a car). It easily embraces the case for unanticipated medical needs (supplementing insurance). But how does it deal with the case for highly leveraged promises?

I will answer this question as I read the article and intersperse my comments. Hopefully it will address these issues. The most important issues are regarding “leverage” and detection of “rollovers”.

The only way to get really wealthy in any society is through unusual leverage.

Banks grant themselves 10x the leverage you and I have. As individuals we have no leverage. We work an hour…we make some number of HULS (note: HULs…Hours of Unskilled Labor… are the ideal MOE measure). We must be really really good at what we do (e.g. neurosurgery) to be worth 10x what we were in high school).

The mom and pop shop has almost no leverage. They “are” the business. But as they grow they hire help. And that is the beginning of their leverage growth. They take a piece of their workers’ labor as if they performed it themselves. As they grow they retain earnings but may also take on debt (i.e. they make money creating promises) or they take on partners (sell shares in their company). The money creating case is problematic. You can’t just say I want to create a car company and create $100B (or 10B HULS).

Then we have the financial wizards. They claim to be able to deploy surplus HULs better those who earn those HULs. And they take a piece of the action if they succeed. They don’t suffer if they fail; their clients do the suffering. They use options, derivatives, high speed trading, and myriad other tricks to multiply the natural leverage this game brings them.

Selling shares is not problematic. Each shareholder has to decide how he’s going to come up with the money to pay for his share. And the business itself decides how it will reward his participation. There are many games being played in this space to help mom and pop keep control as they grow. For example, they can give themselves options to buy shares as payment. They can mix debt and equity instruments as warrants. The options have proven to be inexhaustible…their consequences unknowable and unsupportable.

Such tactics are of no concern to the MOE process. Its only interest is in the “reasonableness” of the money creation and tracking its return and destruction. That means assessing the trader’s propensity to default and monitoring his performance in real time. And we know how to address such issues. We call them actuaries. They have great experience in the mutual casualty insurance business.

So now lets see how we address this very unusual but real instance of a threat to the MOE process. More importantly, we see how the MOE process places the responsibility exactly where it belongs…with the promise maker and with the process behavior. This characteristic gives some assurance of self discipline.

If the trader screws up, the trader must back his failed promise or he must pay the consequences (i.e. be banned from creating money…as we know all governments will be banned if they don’t change their behavior).

If the process screws up (i.e. supports an irresponsible trader), it must penalize oncoming traders (responsible or irresponsible) immediately. They pay INTEREST (which is returned if they prove to be responsible).

Now to the article. My interspersed comments appear formatted as this pretext is formatted. And please bear with me…I’m thinking through this as I write and it’s worth at least what you’re paying for it.

==================

Well, with everyone and everything else getting a bailout, may as well go all the way.

MD: What a remarkable opening. Is that like “if rape is inevitable, relax and enjoy it”?

Two months after we reported that the state of California is trying to turn centuries of finance on its head by allowing businesses to walk away from commercial leases – in other words to make commercial debt non-recourse – a move the California Business Properties Association said “could cause a financial collapse”, attempts to bail out commercial lenders have reached the Federal level, with the WSJ reporting that lawmakers have introduced a bill to provide cash to struggling hotels and shopping centers that weren’t able to pause mortgage payments after the coronavirus shut down the U.S. Economy.

MD: Well, the concept of “throwing good money after bad” is well known. And this likely falls into that category. Shopping malls have become a thing of the past. They had their 50years in the sun and have now been made obsolete by a better idea (.e.g. Amazon). The handwriting was on the wall way before the COVID-19 hoax and government lock-down suspended trade. COVID-19 is a neutron bomb attack. It kills people but doesn’t destroy things. For those still alive, a restart should be a simple process. Suspend the delivery on existing money creating promises until the external restrictions have been lifted. Continue to support new money creating promises using regular actuarial principles. Such principles will detect “rollover” attempts and reject them.

I think the obvious solution is to recognize the situation and do an “automatic extension” of promise time terms (the “time” part of the time and space spanning trade) of all affected promises, and move painlessly on down the road. Nobody gets hurt.

The bill would set up a government-backed funding vehicle which companies could tap to stay current on their mortgages. It is meant in particular to help those who borrowed in the $550 billion CMBS market in which mortgages are re-packaged into bonds and sold to Wall Street. What it really represents, is a bailout of the only group of borrowers that had so far not found access to the Fed’s various generous rescue facilities: and that’s where Congress comes in.

MD: The problem as expressed here does not exist with a proper MOE process. Money is not “backed” by anything but the process. So there is no such thing as a CMBS market or mortgage-backed securities and bonds. If we had a proper MOE process, such techniques could still exist for those who want the risk of non-responsible traders. But that is no concern or responsibility of the money process. And the phrase “government-backed funding vehicle” is a marker. This is not a viable proposal with the word “government” in it.

To be sure, the commercial real estate market is imploding, and as we reported at the start of the month, some 10% of loans in commercial mortgage-backed securities were 30 or more days delinquent at the end of June, including nearly a quarter of loans tied to the hard-hit hotel industry, according to Trepp LLC.

MD: And if those leases were taken on by trader created money, then an automatic 30 day extension would have already been applied to their promise. Such extensions could go on indefinitely. There are no so-called investors involved at all. Mom and pop created the money (they created money for the full lease as if it was a purchase…but is paid out to the seller monthly) and this is one of those unavoidable occurrences that the money process naturally accommodates. Loan sharks anticipate this too. They take the property. Moving these leases into the MOE process space stops the domino effect such instances create.

MD: The above curve illustrates the superiority of the MOE process solution. In April, the COVID-19 hoax lock down occurred. Up until then the market was healthy and getting more healthy. Then wammo!. With the MOE process, the above curve would go flat…or maybe even continue to go down. And a new curve would start up. That curve would be the automatic extensions of the time component of the money creating promises. There is no pain to anyone anywhere…and everyone is still responsible for their promise. Note, this concept also applies to floor plans purchased in anticipation of normal business sales performance…now interrupted by the lock down. Such provisions are now provided by banks through lines of credit or compensating balance loans…and they profit exorbitantly.

“The numbers are getting more dire and the projections are getting more stern,” said Rep. Van Taylor (R., Texas), who is sponsoring the bill alongside Rep. Al Lawson (D., Fla.).

MD: In our system “sponsoring a bill” means “bowing to a lobbyist”. That’s how our corrupt system works. That’s what gives the wealthy so much leverage over the mom and pops. A proper MOE process levels the playing field…at no cost or risk to anyone.

Van Taylor (R-Texas) is sponsoring the bill to aid hotels and shopping centers.

Under the proposal, banks would extend money to help these borrowers and the facility would provide a Treasury Department guarantee that banks are repaid. The funding would come from a $454 billion pot set aside for distressed businesses in the earlier stimulus bill.

MD: You’ve got to love that phrase “banks would extend money”. Folks. The banks don’t have money. They have a 10x leverage privilege. A proper MOE process makes that privilege unnecessary. Let the banks continue to exist if they want to. But the 10x privilege is an anachronism.

Richard Pietrafesa owns three hotels on the East Coast that were financed with CMBS loans. They have recently had occupancy of around 50% or less, which doesn’t bring in enough revenue to make mortgage payments, he said.

MD: And here is a case where we have to ask: where does the money come from? When you buy a house over time you can securely make that money creating promise. You know what you expect to make and purchase a house accordingly. But if the income is interrupted its your problem to find a replacement for it.

But Pietrafesa has no way of replacing his interruption. Such deals are heavily leveraged (OPM…other people’s money). He couldn’t get the MOE process to allow this money creating trade in the first place. He would have to rely on forming a collective to get his hotel deal done. And if the collective fails, well, as individuals in the collective, they have an incentive to keep it from failing or they lose their share. The MOE process may allow their trading promise to Pietrafesa…but would not allow Pietrafesa’s promise to the owner of the hotel he purchased. For example, just like buying a house with time payments, they could actuarially show they could buy a piece of a hotel with time payments…and be responsible if it fails.

He said he is now two months behind on payments for one of his properties, a Fairfield Inn & Suites in Charleston, S.C. He has money set aside in a separate reserve, he said, but his special servicer hasn’t allowed him to access it to make debt payments.

MD: Here we have the domino effect. He’s paying a “special servicer” to cover this risk. He’s buying insurance. It’s an actuarial problem. And insurance companies are the ultimate leveragor. In insurance CLAIMs = PREMIUMS. The money is made on the investment income. But with a real MOE process which guarantees zero INFLATION, investment income can’t benefit from the leverage INFLATION gives. The insurance business becomes a risk mitigation business with a proper MOE process…as it should be.

“It’s like a debtor’s prison,” Mr. Pietrafesa said.

MD: An MOE process does not have a provision for penalizing. It only has a provision for naturally ostracizing. Pietrafesa would have to pay INTEREST if he DEFAULTs and tries to create money again. And he has to make up that DEFAULT to become a responsible money creating trader again. It’s the natural negative feedback stabilizing loop of the process.

Those magic words, it would appear, is all one needs to say these days to get a government and/or Fed-sanctioned bailout. Because in a world taken over by zombies, failure is no longer an option.

MD: These days are no different than other days. In the olden days the zombies were taken over by the Rothschilds…through their J.P.Morgan agency. It was and is a protection racket…just like the mafia runs. A proper MOE process removes the leverage and drives them out of business…kind of like legalizing drugs drives those dealers them out of that business. Ultimately, people need to be responsible for their own stupidity…but not for the stupidity of others.

While any struggling commercial borrower that was previously in good financial standing would be eligible to apply for funds to cover mortgage payments, the facility is designed specifically for CMBS borrowers.

MD: Thus, the leverage is in the ability to lobby. Such advantage needs to be eliminated…in a very natural, not legislative, manner. A proper MOE process goes far in enabling that.

It gets better, because not only are taxpayers ultimately on the hook via the various Fed-Treasury JVs that will fund these programs, but the new money will by default be junior to existing insolvent debt. As the Journal explains, “many of these borrowers have provisions in their initial loan documents that forbid them from taking on more debt without additional approval from their servicers. The proposed facility would instead structure the cash infusions as preferred equity, which isn’t subject to the debt restrictions.

MD: The taxpayers are not on the hook. Our current process with no stabilizing negative feedback will just keep escalating until it blows itself up. Then most people (not in the inner circle with advance warning) lose; it resets; and starts all over again…with the insiders picking up the pieces for pennies on the dollar. We now pay over 3/4ths of what we earn to governments. Where does communism begin? Where does slavery begin?. It’s not a good system folks. We’ve been duped. And praising the constitution and wrapping ourselves in the flag is not going to fix it. It was broken when it was installed…the anti-federalists got it right but lost the argument.

Yes, it’s also means that the new capital is JUNIOR to the debt, which means that if there is another economic downturn, the taxpayer funds get wiped out first while the pre-existing debt – the debt which was unreapayble to begin with – will remain on the books!

MD: When a building collapses, it’s kind of immaterial whether the lower floors or the upper floors collapse first. When this calamity happens, the dirt this house of cards stands on is the only thing of value.

Perhaps sensing the shitstorm that this proposal would create, the WSJ admits that “the preferred equity would be considered junior to other debt but must be repaid with interest before the property owner can pull money out of the business.”

MD: And this is how we get 40,000 new laws every year. They start with a bad process (i.e. principles diluted by laws) and are stuck with a huge maintenance problem.

What was left completely unsaid is that the existing impaired CMBS debt will instantly become money good thanks to the junior capital infusion from – drumroll – idiot taxpayers who won’t even understand what is going on.

MD: “will instantly become money”: Let’s examine this. We know what money is. So somehow he’s saying that some trader instantly makes a promise spanning time and space here. Who’s the trader, the taxpayer? Well that’s no different than what we have now with government doing perpetual rollovers of their trading promises. That’s not money creation. That’s counterfeiting. We already know that.

How did this ridiculously audacious proposal come to being? Well, Taylor led a bipartisan group of more than 100 lawmakers who last month signed a letter asking the Federal Reserve and Treasury to come up with a solution for the CMBS issues. Treasury Secretary Steven Mnuchin and Fed Chairman Jerome Powell have indicated that this may be an issue best addressed by Congress.

MD: “asking the Federal Reserve and Treasury to come up with a solution”? They’re the problem. Institute a proper MOE process and we drive out the problem. That allows us to address issues in a “proper” context rather than an “opportunist” context.

In other words, while the Fed will be providing the special purpose bailout vehicle, it is ultimately a decision for Congress whether to bail out thousands of insolvent hotels and malls.

MD: The malls have no future. They are the buggy whip of a previous era. They need to be plowed under and reseeded. But the hotels are viable. They are just suspended in time. If they’re collectively owned they are the responsibility of the members of the collective. They are suspended in time. They are not failing. And suspension carries no cost in this instance except maintenance. Remember, with a propper MOE process, money has zero time value.

Failure? That’s something else again. It all get’s back to the individual traders’ responsibility and recourse. A proper MOE process should allow small traders to create money to tide themselves over the temporary situation. It should not support large highly leveraged traders to do so. It’s an actuarial problem.

And if some in the industry have warned that an attempt to rescue the CMBS market would disproportionately benefit a handful of large real-estate owners, rather than small-business owners, it is because they are precisely right: roughly 80% of CMBS debt is held by a handful of funds who will be the ultimate beneficiaries of this unprecedented bailout; funds which have spent a lot of money lobbying Messrs Taylor and Lawson.

MD: Handful of “funds”. What is a fund but a collective… where the manager gets the gains and the participants get the losses. People who buy into a fund roll their own dice. When the fund is a pension fund, only the pensioner should have control. With perpetual zero inflation, placing their pension under a rock is a viable solution.

Of course, none of this will be revealed and instead the talking points will focus on reaching the dumbest common denominator. Taylor said the legislation is focused on – what else – saving jobs. What he didn’t say is that each job that is saved will end up getting lost just months later, and meanwhile it will cost millions of dollars “per job” just to make sure that the billionaires who hold the CMBS debt – such as Tom Barrack who recently urged a margin call moratorium in the CMBS market – come out whole.

MD: Saving jobs “is” the issue. These workers are suspended in time. It’s their responsibility to provide for themselves. They can do this by creating money to tide themselves over (say for a year or two if necessary). A proper MOE process could actuarially support this money creation.

Say we have the maitre-d of the hotel restaurant. It’s pragmatic for him to span this interruption and go back to work as if nothing happened. So he creates a time and space spanning money creating promise. He creates two years of normal income to be paid back 1/100th monthly. The payback begins two years hence and proceeds 100 months. When he goes back to work he begins paying back, essentially cutting his own salary a manageable amount. And while suspended, he can put up dry-wall and make some pin money.

For the bar-back it’s a little different. He may make a money creating promise covering 3 months income to be paid back monthly beginning in three months over a two year span. And he immediately goes looking for a replacement job…maybe putting up dry-wall. His job is not his “career”.

“This started with employees in my district calling and saying ‘I lost my job’,” Taylor said, clearly hoping that he is dealing with absolute idiots.

MD: An idiot institutes processes that have built in domino effect.

And while it is unclear if this bill will pass – at this point there is literally money flying out of helicopters and the US deficit is exploding by hundreds of billions every month so who really gives a shit if a few more billionaires are bailed out by taxpayers – should this happen, well readers may want to close out the trade we called the “The Next Big Short“, namely CMBX 9, whose outlier exposure to hotels which had emerged as the most impacted sector from the pandemic.

MD: The money flying out of the helicopters is counterfeit. It will go directly to producing INFLATION. It will only create taxes to the extent the money-changers demand their tribute payments…that’s where “all” taxes go.

With a proper MOE process the domino effect is mitigated; a natural stabilizing negative feedback mechanism prevails; and a pragmatic self controlled recovery is instituted. Remember. When you have a government solution to a problem, you just have the same problem multiplied and are still looking for a solution.

Alternatively, those who wish to piggyback on this latest egregious abuse of taxpayer funds, this crucifxion of capitalism and latest glorification of moral hazard, and make some cash in the process should do the opposite of the “Next Big Short” and buy up the BBB- (or any other deeply impaired) tranche of the CMBX Series 9, which will quickly soar to par if this bailout is ever voted through.

MD: And the real character of so-called “investors” is revealed and amplified. Without a proper MOE process, money is the chips in an opportunist, privileged casino called capitalism. Traderism is where real money lives.

MD: So here we have another good example where a proper MOE process doesn’t “treat” a problem; rather it anticipates it and prevents its effect.

The Fraud of Money as Debt

[MD] The provocative (and ill-informed) title of this article begs some annotation. At Money Delusions, it is obvious and provable to us that  not only is money debt, it always has been and it always will be. Money is a promise to complete a trade over time and space … and a promise is obviously a debt.

So let’s see what this moron Shorty Dawkins has to say on the subject.

When the Federal Reserve System was established in 1913, it transferred the power of the US Treasury vis-a-vis the creation of money, into the hands of the Federal Reserve. The Fed creates money out of thin air and loans it to the US Treasury in the form of interest bearing debt instruments. Thus, the money of the US is based on debt. With over $20 trillion in Federal debt, the interest paid on that debt in fiscal year 2018 is estimated to be $310 billion. That’s no small amount!

[MD] What was actually transferred was the propensity to counterfeit.  Neither the Treasury nor the Fed create money. Only traders create money. You can’t give a single example where money is created that a trader is not involved and did not initiate it … that is, unless it is created by counterfeiting. And regarding the interest paid: If the process is a “real” process, the interest paid is exactly equal to the defaults experienced. Why don’t we ever see these people quoting defaults experienced?

What if money were not created out of debt? Is that possible? Sure. If the powers of the Federal Reserve were taken back by the US Treasury, it would be possible to spend money into existence, rather than into existence as debt.

[MD] Can he say anything more stupid? “Spend money into existence?” And if not into debt, into “existence” as what? Kind of left something out didn’t you Shorty?

The Federal budget for 2018 is: Total expenditures‎: ‎$4.094 trillion. The total estimated revenue‎: ‎$3.654 trillion. This leaves a projected deficit‎ of ‎$440 billion. Since the deficit must, under the current Federal Reserve System, be borrowed from them, at interest. Thus the deficit grows and next year’s interest payment will increase.

[MD] If a “real” money process were in existence, the government creating this debt would only do it once … and then be excluded from the marketplace as a trader. Deadbeat traders are automatically excluded when their interest load (due to their propensity to default) comes to equal the trading promises they seek to have certified.

However, if the US Treasury were to create the money, it could simply spend it into existence to cover the deficit. No interest need be paid! As the previous debt interests of the Federal Reserve came due, they could be paid off by money created by the US Treasury in the same manner. Eventually, the entire debt could be paid off in this manner.

[MD] “No interest need be paid” is true only for responsible traders. Governments are not responsible traders. In fact they never deliver. They just roll over their trading promises … and that is default … and purposeful default is counterfeiting! I’ll bet Shorty has a perpetual motion machine he would like to show us as well.

Beware! This is not free money!

[MD] In a “real” money process, money is “always in free supply”. That’s not to say it is “free money”. Rather, it says money “never” restricts the trading intentions of responsible traders who create it. They “always” deliver on their promises.

It may sound like free money, but it isn’t. As more money is spent into creation, inflation takes its toll. The true definition of inflation is the increase of the money supply above the value of goods and services produced. When the money supply increases faster than the value of production, there is more money chasing fewer goods and prices rise, as the value of the money decreases. If too many dollars are created, the value of the dollar decreases. Under the Federal Reserve System the value of the dollar has decreased by 98%, meaning that something bought in 1913 for $1 would now cost $98, disregarding any increases in productivity of a particular product.

[MD] In a “real” money process, inflation takes no toll … it  is guaranteed to be perpetually zero. The true definition of inflation is the amount that supply of the money itself exceeds the demand for the money … and we know in a “real” money process, supply and demand for the money itself is perpetually in perfect balance.

The fraud of the Federal Reserve System is that it was sold as a means of preserving the value of the dollar and that it would prevent crashes in the economy. Both of these selling points have not proven accurate. There have been multiple crashes of the economy since the Fed was established, including the Great Depression.

Ideally, the US dollar should be backed by gold and silver, or some tangible item, but that discussion is for later. First things first. We must End the Fed.

[MD] Gold and silver and any other commodity cannot maintain perpetual perfect balance of supply and demand for themselves. So obviously they are useless as money. Thus, your later discussion can be suspended. You don’t know what your talking about Shorty … and that is easy to prove.

The Federal Reserve has never been good for the public. It has only been good for the big banks. They love it, because it makes them money. Who pays? We do. We are slaves to debt. Isn’t it time to eliminate the Fed and turn its powers over to the US Treasury, where it belongs?

[MD] Even the blind squirrel occasionally finds an acorn. Congratulations Shorty. Governments are created by the money changers … always have been, always will be … unless we can effect iterative secession and have it our way in our own space.

[MD] It brought some amusement. It was easy fodder for illustrating how stupid the gold bugs are.

Shorty Dawkins

I am a writer of novels, currently living in the woods of Montana. My 5 novels can be seen here: https://oathkeepers.org/my-5-books-shorty-dawkins/

[MD] Frightening. Hopefully that doesn’t lead to the natural conclusion that there are people reading your novels. Stupidity is already widespread enough don’t you think Shorty?

What is “Proof of Stake”

HN: Hacker Noon
By Shaan Ray

What is “Proof of Stake”
https://hackernoon.com/what-is-proof-of-stake-8e0433018256

Oct 6, 2017

The proof of stake system is attracting a lot of attention these days, with Ethereum switching over to this system from the proof of work system.

MD:
The Bitcoin (i.e. blockchain) people claim it’s main asset is that there is no central authority. But there is certainly a central process or “switching over” wouldn’t be possible. The RFC process of the entire internet has shown us it is possible to have a universally accepted process … without cryptography and without block chains and without a central authority. The DNS (Domain Name System) is a distributed database protocol that has many attributes useful for a distributed database system with no central authority. And of course it has some serious issues.

HN: Proof of stake is an alternative process for transaction verification on a blockchain. It is increasing in popularity and being adopted by several cryptocurrencies. To understand proof of stake, it is important to have a basic idea of proof of work. As of this writing, the proof of work method is used by Bitcoin, Ethereum and most other major cryptocurrencies.

MD: At MD we know for “real” money you don’t need “proof” of anything. What you need is universal transparency to things. Those things are the “creation and delivery on time and space spanning promises made by traders.”

HN: Proof of work

Proof of work is a mining process in which a user installs a powerful computer or mining rig to solve complex mathematical puzzles (known as proof of work problems). Once several calculations are successfully performed for various transactions, the verified transactions are bundled together and stored on a new ‘block’ on a distributed ledger or public blockchain. Mining verifies the legitimacy of a transaction and creates new currency units
.
MD: Digging a hole and filling it right back in is work … totally useless work. A money system that relies on useless work is an open admission that the “money” itself has zero value. Rather it “represents” something of “perceived” value … and that perception must be universal. Thus, here we have open admission of a failure of the “proof of work” scheme.

HN: The work must be moderately difficult for the miner to perform, but easy for the network to check. Multiple miners on the network attempt to be the first to find a solution for the mathematical problem concerning the candidate block. The first miner to solve the problem announces their solution simultaneously to the entire network, in turn receiving the newly created cryptocurrency unit provided by the protocol as a reward.

MD: This is admission that this scheme is even more stupid than using precious metals as money (being proof of work). At least with precious metals all miners are creating something of “real” value. And when someone else gets there first, they don’t lose their work.

HN: As more computing power is added to the network and more coins are mined, the average number of calculations required to create a new block increases, thereby increasing the difficulty level for the miner to win a reward. In proof of work currencies, miners need to recover hardware and electricity costs. This creates downward pressure on the price of the cryptocurrency from newly generated coins, thus encouraging miners to keep improving the efficiency of their mining rigs and find cheaper sources of electricity.

MD: Another open admission of the absurdity of this process. We see the predictable today. So-called “miners” use exotic bots to “steal” computer cycles from internet users. They sneak onto government owned super computers. They also create faster machines that quickly obsolete existing machines thus wasting more “real” resources. It’s not unusual for brand new state of the art ASIC and FPGA based machines to pay themselves off in one to three months … and be totally obsolete in three to six months. In the meantime, they make so much noise they drive their owners out. But they do have an advantage. They use so much electricity, they can mask a hidden marijuana operation.

HN: Bitcoin is an example of a cryptocurrency that uses the proof of work system.

MD: There is no need for the “currency” to be encrypted. In fact, in a “real” money process, the traders, the process, and the terms must be in universal plain view … and unchangeable. This is easily accomplished with simple universal hashing protocols.

HN: Mining rigs in a bitcoin mining facility.

Proof of Stake

Unlike the proof of work system, in which the user validates transactions and creates new blocks by performing a certain amount of computational work, a proof of stake system requires the user to show ownership of a certain number of cryptocurrency units.

MD: In a “real” money system, new traders creating money don’t have to be existing large money changers. Here is open admission that the “proof of stake” system copies a myth from our existing flawed (rigged actually) Medium of Exchange (MOE) process.

HN: The creator of a new block is chosen in a pseudo-random way, depending on the user’s wealth, also defined as ‘stake’. In the proof of stake system, blocks are said to be ‘forged’ or ‘minted’, not mined. Users who validate transactions and create new blocks in this system are referred to as forgers.

MD: In any MOE system, counterfeiters are often “forgers”. Interesting choice of terms isn’t it. Presumably they’re using the “forge” metaphor where existing metal is hammered into different shapes. But there is also the “faking” form where signatures and whole documents are forged. Any MOE process must prevent this. In a “real” MOE process, it is the only leak possible and is mitigated by total transparency of the money creation and destruction activity.

HN: In most proof of stake cases, digital currency units are created at the launch of the currency and their number is fixed.

MD: Bad idea. This fixing of the number “guarantees” the process will be deflationary. In a “real” process, inflation (deflation) is perpetually zero.

HN: Therefore, rather than using cryptocurrency units as reward, the forgers receive transaction fees as rewards. In a few cases, new currency units can be created by inflating the coin supply, and forgers can be rewarded with new currency units created as rewards, rather than transaction fees.

MD: What are these cases? If this can be done, how can they say the number is fixed? Also notice that their process seems to “require” that the creators of the money be “rewarded”. This is also taken from our flawed (corrupt) existing system. They implement a process of elites with power and privilege and ability to demand tribute … just like our current flawed system.

HN: In order to validate transactions and create blocks, a forger must first put their own coins at ‘stake’. Think of this as their holdings being held in an escrow account: if they validate a fraudulent transaction, they lose their holdings, as well as their rights to participate as a forger in the future.

MD: So they take their fake wealth and risk it … like putting it up as collateral. This is also from our existing flawed system. The capitalists take just two years to reclaim their stake (they collect 40%/year interest which doubles in two years). After that, they are forever playing with OPM (Other People’s Money) and risk nothing themselves at all.  A “proper” MOE process uses perfect “transparency” and “interest collection according to propensity to default” to keep the players honest and provide negative feedback for stability. In a proper process, these deadbeats can pay back their defaults and return to good standing.

HN: Once the forger puts their stake up, they can partake in the forging process, and because they have staked their own money, they are in theory now incentivized to validate the right transactions.

MD: Myth in the open. Putting up a stake does not mean putting up their own money. They’ve gotten back their own money through deflation very quickly.

HN: This system does not provide a way to handle the initial distribution of coins at the founding phase of the cryptocurrency, so cryptocurrencies which use this system either begin with an ICO and sell their pre-mined coins, or begin with the proof of work system, and switch over to the proof of stake system later.

MD: Now they’re borrowing from the corporate model where a group can create a vision, sell a little less than half to suckers (in the form of stocks), hype the vision, pull out their stake but leave themselves in control, and bingo … you have another form of elite gaming of the system. And again, how do they switch systems later.?This sounds like they’re destroying the money and then using it to buy gold. Our current MOE manipulators call this the “business cycle”. It’s their “farming operation”.

HN: Cyptocurrencies that currently run the proof of stake system are BlackCoin, Lisk, Nxt and Peercoin, among others.
Proof of work mining versus proof of stake forging.
Block Selection Methods
For a proof of stake method to work effectively, there needs to be a way to select which user gets to forge the next valid block in the blockchain.

MD: There must be privileged users. In our present corrupt system we call them bankers (and sometimes governments) and they get 10x leverage over the rest of us.

HN: Selecting the forger by the size of their account balance alone would result in a permanent advantage for the richer forgers who decide to stake more of their cryptocurrency units. To counter this problem, several unique methods of selection have been created. The most popular of these methods are the ‘Randomized Block Selection’ and the ‘Coin Age Based Selection’ methods.

MD: This is characteristic of processes invented by very smart people with very good memories. Rather than seeing the rudimentary flaws in what they are doing, scrapping it, and starting over with a better concept, they run into obvious flaws we less smart people see immediately, and come up with more and more complicated workarounds … and the process soon stops because no one understands it.

HN: Randomized block selection

In the randomized block selection method of selection, a formula which looks for the user with the combination of the lowest hash value and the size of their stake, is used to select the next forger. Since the size of the stakes are public, each node is usually able to predict which user will be selected to forge the next block. Nxt and BlackCoin are two proof of work cryptocurrencies that use the randomized block selection method.

MD: This looks like an open invitation to corruption and manipulation. And when you have a “randomizing” process, the pseudo-random number generator must be open and fixed. Everyone must use the same process. The same random seed must yield the same next random number. This is problematic for obvious reasons.

HN: Coin Age based selection

The coin age based system selects the next forger based on the ‘coin age’ of the stake the potential forger has put up. Coin age is calculated by multiplying the number of days the cryptocurrency coins have been held as stake by the number of coins that are being staked.

MD: Look how long Bitcoin ran before people started to pay attention  … it was several years. During that time they were giving coins away just to make it look like there was activity. Mining costs were trivial and the supply grew very quickly with the demand not growing at all. Now that it is starting to catch on (the hook is getting set), these early worthless “coins” own the process. What’s not to like about that? Duh? A Ponzi scheme with no Ponzi.

HN: Coins must have been held for a minimum of 30 days before they can compete for a block.

MD: This is building a time constant into the process … and is open for manipulation. A proper MOE process has no openings for manipulation at all.

HN: Users who have staked older and larger sets of coins have a greater chance of being assigned to forge the next block. Once a user has forged a block, their coin age is reset to zero and then they must wait at least 30 days again before they can sign another block
.
MD: How is this done? Does this mean the “timestamps” for the coins … used for determining age … can be manipulated too? What’s not to like?

HN: The user is assigned to forge the next block within a maximum period of 90 days, this prevents users with very old and large stakes from dominating the blockchain thereby making the network more secure.

MD: Another knob to manipulate … another opening for fraud and corruption … by regulators.

HN: Because a forger’s chance of success goes up the longer they fail to create a block, forgers can expect to create blocks more regularly. This mechanism promotes a healthy, decentralized forging community.

MD: This is classic complication delivering fairness. Hint people: Fairness is not complicated. But it does go against something that is current flawed wisdom … wisdom that says centralization is good. This says centralization is “not” good. So let’s apply that wisdom … iterative secession. BTW: With a “proper” MOE process, there can be any number of independent processes as long as they all deliver the same transparency and follow the same simple rule (DEFAULT perpetually equals INTEREST collected). No system can be better in any way so all competing systems are equal in performance to the traders using it.

HN: Peercoin is a proof-of-stake system based cryptocurrency which uses the coin age selection process combined with the randomized selection method. Peercoin’s developers claim that this makes a malicious attack on the network more difficult, since purchasing more than half of the coins is likely costlier than acquiring 51% of proof-of-work hashing power.

MD: Notice how all these “complicated” processes have “developers” making “claims” and solving open flaws in other complicated processes … such flaws being prone to “malicious attacks” … opened by their complexity.

HN: Most proof of stake coins that pay a reward in the form of a transaction fee for verifying transactions and creating new blocks, set a target interest rate which users can expect to earn from staking their coins.

MD: Another knob (interest) that a proper MOE process knows should never exist but rather should be an automatic negative feedback mechanism with no opening for intervention. A proper MOE process has no monetary policy. Rather, it precludes it totally.

HN: In the case of cryptocurrencies where forgers create new coins, this rate also becomes the maximum rate at which the currency supply is inflated over time.

MD: “Maximum rate”? For inflation? Over time? What a joke. They clearly have no understanding of what money is. Hint: Don’t try to create a money process without know what money is. Hint: Money is “an in-process promise to complete a trade over time and space and is “always” and only created by traders”.

HN: Proof of stake systems are more environmentally friendly and efficient, as the electricity and hardware costs are much lower than the costs associated with mining in a proof of work system.

MD: A “proper” MOE process is “perfectly” environmentally friendly and efficient. It costs nothing to create and destroy money. There is no “profit” to be made in the process anywhere. The total cost is always borne by the traders and is trivial to the size of their trades. Ideally, it is absorbed as an implicit default and is paid through interest collections on deadbeat traders. Responsible traders pay nothing at all.

HN: A greater number of people are encouraged to run nodes and get involved because it is easy and affordable to participate in this system; this results in more decentralization.

MD: In a proper MOE process, the only incentive to become a node is to decrease latency … and that is a huge incentive. It’s like a communication system with no backbone. Rather it is a mesh system where all nodes make up the connection path. This would be an obvious improvement over the current (easily manipulated) internet process. Can you say “network neutrality?”

HN: This is only a general guide to the proof of stake system. Each cryptocurrency issuer will most likely customize this system with a unique set of rules and provisions of their own as they issue their currency or switch over from the proof of work system.

MD: But the different monies  themselves must be indistinguishable to the “users” (as opposed to the “creators”) of the money. And they must be non-counterfeit able.

HN: Additionally, this is a rapidly evolving industry, and apart from proof of work and proof of stake, there are currently several other systems and methodologies of transaction verification and block creation being tested and experimented with.

MD: All equally complicated and demented I’m sure.