Category: Money Creation

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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.

The Fraud Of Creating Money As Debt

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?

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How Business Owners Take Cues From Interest Rates

https://www.zerohedge.com/news/2018-06-01/how-business-owners-take-cues-interest-rates

Authored by Frank Shostak via The Mises Institute,

[MD] The Mises Institute is professionally and universally clueless about money. But within that community, Frank Shostak holds the record for irrational thought. In the olden days his clarion call was “money pumping” … as if money could be pumped. Let’s see what he’s up to now.

According to the Austrian Business Cycle Theory (ABCT) the artificial lowering of interest rates by the central bank leads to a misallocation of resources because businesses undertake various capital projects that prior to the lowering of interest rates weren’t considered as viable. This misallocation of resources is commonly described as an economic boom.

[MD] According to the theory of park swings, if you push on a swing, it will oscillate. What in the world does Shostak think the business cycle is but the money changers farming operation? We here at MD know that a “real” money process does not allow any such perturbations … thus this is a non-sequitur. Now let’s watch him sequitur.

As a rule businessmen discover their error once the central bank – that was instrumental in the artificial lowering of interest rates – reverses its stance, which in turn brings to a halt capital expansion and an ensuing economic bust. From the ABCT one can infer that the artificial lowering of interest rates sets a trap for businessmen by luring them into unsustainable business activities that are only exposed once the central bank tightens its interest rate stance.

[MD] As we love to do here, we point out the nonsense that happens or is imagined to happen without a real money process in operation. What Frank writes about here “can not happen” with a real money process. INTEREST collections are in a bear hug with DEFAULTs experienced. Neither INTEREST nor DEFAULTs are a knob anyone can turn.

Critics of the ABCT maintain that there is no reason why businessmen should fall prey again and again to an artificial lowering of interest rates. Businessmen are likely to learn from experience, the critics argue, and not fall into the trap produced by an artificial lowering of interest rates. Correct expectations will undo or neutralize the whole process of the boom-bust cycle that is set in motion by the artificial lowering of interest rates. Hence, it is held, the ABCT is not a serious contender in the explanation of modern business cycle phenomena.

[MD] What Frank writes here would be true … if we had a real money process. But we don’t. We have a manipulated money process. What could be more obvious when we see them repeatedly use the term “monetary policy”. A real money process has no such capability … and never will. But the so-called “business cycle” which requires no theoretical examination … is a real tool of manipulation. And it does what it is intended to do … to put traders off balance in a “predictable way” … predictable to those turning the knobs … not to the traders suffering the manipulations.

According to a prominent critic of the ABCT, Gordon Tullock,

One would think that business people might be misled in the first couple of runs of the Rothbard cycle and not anticipate that the low interest rate will later be raised. That they would continue to be unable to figure this out, however, seems unlikely. Normally, Rothbard and other Austrians argue that entrepreneurs are well informed and make correct judgments. At the very least, one would assume that a well-informed businessperson interested in important matters concerned with the business would read Mises and Rothbard and, hence, anticipate the government action.1

[MD] Consider an inventory control analogy. If you know exactly what demand will be and have total control of supply, you can have a part arrive at the exact moment a customer comes in to buy it. But if either of those expectations cannot be expected, you must lay in “safety stock” (i.e. surplus for eventualities) to keep service percentage high. Now if someone is artificially manipulating demand or supply for their own benefit, you have two things: (1) A cheater benefiting from his behavior; and (2) A non-optimal process that must pay the cost of defending against the cheater. There’s enough of that going on in business without having it being done covertly and overtly to the money itself … especially in the name of “price stability” and “full employment”.

Even Mises himself had conceded that it is possible that some time in the future businessmen will stop responding to loose monetary policy thereby preventing the setting in motion of the boom-bust cycle.

[MD] No they won’t. In the inventory control example, the businessman statistically observed the supply and demand patterns. When they are noisy and unpredictably cyclical, he must lay in more safety stock. When they’re highly predictable, he can trim his safety stock dramatically. Let’s see what the “Mises” genius himself has to say on the subject.

In his reply to  Lachmann he wrote,

It may be that businessmen will in the future react to credit expansion in another manner than they did in the past. It may be that they will avoid using for an expansion of their operations the easy money available, because they will keep in mind the inevitable end of the boom. Some signs forebode such a change. But it is too early to make a positive statement.2

[MD] Idiot! The businessman has no choice. He must serve his customers in the face of any eventuality. Picture him going to his bank and saying he’s not going to pay his mortgage this month because of “tightening” but fear not, next month there will be “loosening” and I will make both payments then.

Do Expectations Matter?

Now, a businessman has to cater for consumers future requirements if he wants to succeed in his business.

So whenever he observes a lowering in interest rates he knows that this most likely will provide a boost to the demand for various goods and services in the months ahead. Hence, if he wants to make a profit he would have to make the necessary arrangements to meet the future demand.

[MD] What is Shostak arguing for? He hasn’t made a demand to institute a “real” money process to make this manipulation impossible.

For instance, if a builder refuses to act on the likely increase in the demand for houses because he believes that this is on account of the loose monetary policy of the central bank and cannot be sustainable, then he will be out of business very quickly. To be in the building business means that he must be in tune with the demand for housing.

[MD] Actually, he’s better to be in tune with the money changer’s farming operation. That’s the tune that is being played.

Likewise, any other businessman in a given field will have to respond to the likely changes in demand in the area of his involvement if he wants to stay in business.

If a businessman has decided to be in a given business this means that the businessman is likely to cater for changes in the demand in this particular business irrespective of the underlying causes behind changes in demand. Failing to do so will put him out of business very quickly.

[MD] But do you see these businessmen or Shostak demanding the institution of a real money process? I wonder if Shostak will demand anything to deal with this manipulation problem.

Hence, regardless of expectations once the central bank tightens its stance most businessmen will “get caught”. A tighter stance will undermine demand for goods and services and this will put pressure on various business activities that sprang up whilst the interest rate stance was loose. An economic bust emerges.

Furthermore, even if businessmen have correctly anticipated the interest rate stance of the central bank and the subsequent changes in the growth rate of money supply, because of the variable time lag from money changes to its effect on economic activity it will be impossible to establish the accurate timing of the boom-bust cycle.

[MD] Frank. Read some history! Thomas Jefferson wrote in 1802 “If the American people ever allow private banks to control the issue of their currency, first by inflation, then by deflation, the banks and corporations that will grow up around them will deprive the people of all property until their children wake up homeless on the continent their Fathers conquered…. I believe that banking institutions are more dangerous to our liberties than standing armies…. The issuing power should be taken from the banks and restored to the people, to whom it properly belongs.” And even if he didn’t write it, it’s absolutely true and obvious.

Due to the time lag, prior changes in money supply could continue to dominate the economic scene for an extended period. (Given that the time lag is variable, it is not possible to ascertain when a given change in the money supply growth rate is going to start to dominate the economic scene and when the effect of past changes in money supply is going to vanish).

We can conclude that correct expectations cannot prevent boom-bust cycles once the central bank has eased its interest rate stance.

The only way to stop the menace of boom-bust cycles is for the central bank to stop the tampering with financial markets.

[MD] And the only way to get them to do that … since they’re doing it “on purpose for their farming operation”  … is to INSTITUTE A REAL MONEY PROCESS TO COMPETE WITH THEM. Asking them kindly “please don’t do that” isn’t going to work.

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Blockchains versus Traditional Databases (Hackernoon.com)

HN: Shaan Ray
Feb 10
Blockchains versus Traditional Databases
https://towardsdatascience.com/blockchains-versus-traditional-databases-e496d8584dc

To understand the difference between a blockchain and a traditional database, it is worth considering how each of these is designed and maintained.
Distributed nodes on a blockchain.

Traditional Databases

Traditional databases use client-server network architecture.

MD: There is no such thing as a traditional database. Databases existed way before there was a client-server orientation. But we’ll assume your client-server model for purposes of this critique.

HN: Here, a user (known as a client) can modify data, which is stored on a centralized server. Control of the database remains with a designated authority, which authenticates a client’s credentials before providing access to the database.

MD: Do you think the DNS (Domain Name Service) databases fit this model?

HN: Since this authority is responsible for administration of the database, if the security of the authority is compromised, the data can be altered, or even deleted.

MD: Can we replace “authority” with “protocol” or “process” and still assume we are talking about the same thing?

HN: Traditional Databases.

Blockchain Databases

Blockchain databases consist of several decentralized nodes. Each node participates in administration: all nodes verify new additions to the blockchain, and are capable of entering new data into the database. For an addition to be made to the blockchain, the majority of nodes must reach consensus. This consensus mechanism guarantees the security of the network, making it difficult to tamper with.

MD: Don’t “shared” and “distributed” databases have this trait? If not, how can they possibly work? How about “journaled” databases?

HN: In Bitcoin, consensus is reached by mining (solving complex hashing puzzles), while Ethereum seeks to use proof of stake as its consensus mechanism. To learn more about the difference between these two consensus mechanisms, read my earlier post.

MD: See: https://moneydelusions.com/wp/2018/02/13/what-is-proof-of-stake/

HN: Integrity and Transparency

A key property of blockchain technology, which distinguishes it from traditional database technology, is public verifiability, which is enabled by integrity and transparency.

MD: Actually “public” is a relative term. Corporations have databases that do this without blockchain technology for their own “public” that can be very large and use very distributed database technologies. And airline reservations do this through federation with franchised travel agents … all without blockchain.

HN: Integrity: every user can be sure that the data they are retrieving is uncorrupted and unaltered since the moment it was recorded

MD: Only if they are believers. The only users with anything close to such an assurance are the “developers” who supposedly know “all” the complicated mechanism involved. A distributed public transparent data organization, where “anyone” can see everything gives better assurance. This is the mechanism favored by a “proper” MOE process.

HN: Transparency: every user can verify how the blockchain has been appended over time

MD: By using “trusted” API’s. There’s no way they can know the API’s they’re using should be trusted. They’re too complicated … and they’re not open.

HN: A map of Dashcoin masternodes distributed across the world.

CRUD vs Read & Write Operations

In a traditional database, a client can perform four functions on data: Create, Read, Update, and Delete (collectively known as the CRUD commands).

MD: And if the database is distributed and journaled they can do this without the “delete” and “update” … a necessary requirement for “true” transparency.

HN: The blockchain is designed to be an append only structure. A user can only add more data, in the form of additional blocks.

MD: And this causes unnecessary and undesirable latency (which is killing Bitcoin right now). Ideally, every transaction journaled into the database is “related” by hash to every other “related” transaction. What is needed is a hash linking the journal entries … and that is very easy to provide by including an input and output hash into the hashing process itself. Most transactions in a so-called blockchain block have no relevance to each other. It makes more sense to keep “related” transaction chains together rather than “all” transaction chains. This reduces latency and synchronization problems enormously.

HN: All previous data is permanently stored and cannot be altered. Therefore, the only operations associated with blockchains are:
Read Operations: these query and retrieve data from the blockchain
Write Operations: these add more data onto the blockchain

MD: Which I have described above is not “novel” at all. We have had it with journaled distributed databases for a very long time now. We have many of the mechanisms in the various forms of RAID (Random Array of Inexpensive Drives).

HN: Validating and Writing

The blockchain allows for two functions: validation of a transaction, and writing of a new transaction. A transaction is an operation that changes the state of data that lives on the blockchain. While past entries on the blockchain must always remain the same, a new entry can change the state of the data in the past entries.

MD: This is deceptive. The data in past entries never changes. The state of the current data changes by adding transactions to previous states. And you can mitigate corruption of this process with an input and output hash linking them and included in the hash of the new transactions. No block is required. Just a journal entry with two hashes … an input hash and an output hash which includes the input hash. The input hash can be verified back in time as far as the user chooses to do so … and all users my choose to do so any time they want to prove the process integrity.

HN: For example, if the blockchain has recorded that my Bitcoin wallet has 1 million BTC, that figure is permanently stored in the blockchain.

MD: A “real” money process has no such thing as a “bitcoin” wallet. It only has to prove that something claiming to be a bitcoin is not a counterfeit. A huge flaw in the bitcoin process is the fractioning of bitcoins. This is not different in end result than the fractioning of Indian (native American) lands … where they have been fractioned so many times the parcels are too small to be of use and they cannot be practically re-aggregated.

HN: When I spend 200,000 BTC, that transaction is recorded onto the blockchain, bringing my balance to 800,000 BTC.

MD: A “real” and “proper” process cares nothing about the money once it is created by traders. It only cares that it cannot be counterfeited and that the promise creating it is delivered as promised. No money is in circulation without a relation (albeit not direct) to a trader’s “in-process” promise. For any given creation, money does not exist before the promise, nor after the promise is fulfilled. In the mean time it is the most common object in every simple barter exchange … because it works. And it works because it never changes value over time an space. The “process” or “protocol” guarantees it and cannot be manipulated.

HN: However, since the blockchain can only be appended, my pre-transaction balance of 1 million BTC also remains on the blockchain permanently, for those who care to look. This is why the blockchain is often referred to as an immutable and distributed ledger.

MD: With a “real” process, the money “used” by traders is totally anonymous and unaudited. It is usually just a ledger entry in a “trusted” account … trusted by the traders using it. It may temporarily be in use as a coin or currency and returned to a ledger entry. The coin and currency are just uncounterfeitable tokens that when converted to a ledger entry are placed in storage and have no value at all. “Creation” and “destruction” and “default” and “interest” collection are a different matter (than “usage”) entirely. The traders are known and singular. They aren’t groups. They aren’t aliases. Their locations are known and they can be visited. That’s what keeps the process honest and leads other traders to “use” the money. As an example, we all “create” money when we buy a house on time. The documents recording our “promise” are recorded by the county clerk and available for all to see. We know how to do this. We also know how to streamline it (by using things like credit bureaus and title companies). As we pay back our “mortgage” we return money and it is destroyed. We don’t return the same money we created … that’s just not necessary nor can it work in practice.

HN: Centralized vs. peer to peer.

In short, the difference is Decentralized Control

Decentralized control eliminates the risks of centralized control. Anybody with sufficient access to a centralized database can destroy or corrupt the data within it. Users are therefore reliant on the security infrastructure of the database administrator.

MD: And as I have illustrated, that is not the difference, because a distributed journaled database of any kind “must” have decentralized control. What is central and known is the “process” or “protocol”.

HN: Blockchain technology uses decentralized data storage to sidestep this issue, thereby building security into its very structure.

MD: The blockchain has nothing to do with centralization or decentralization. It has everything to do with mitigating “forging” and “counterfeiting” and it does it unnecessarily inefficiently, expensively, slowly, and in an unnecessarily complicated fashion.

HN: Though blockchain technology is well-suited to record certain kinds of information, traditional databases are better suited for other kinds of information. It is crucial for every organization to understand what it wants from a database, and gauge this against the strengths and vulnerabilities of each kind of database, before selecting one.

MD: A journaled database can just manage documents or links … or links to links … or links to links to links. That is irrelevant. What is relevant is transparency of what it is managing and who is interacting with it. That’s what journaling does.

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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.

Posted on

The pot calls the kettle black again

MD: You can’t get so-called crypto currencies right if you don’t know what money is. Money is obviously and provably “an in-process promise to complete a trade over time and space.” Money is always, and “only” created by traders making such promises. Money is destroyed as those traders deliver as promised. And if they fail to deliver as promised the resulting DEFAULT is immediately reclaimed by INTEREST collections from new money-creating traders with a like propensity to default.

Knowing this, let’s parse this article and expose this writer’s delusions.

The “Experts” Are Getting Crypto All Wrong

Currency January 22, 2018January 22, 2018 Ted Bauman
The crypto-token ether sure seems like a currency. But ether isn’t a currency. Because most people who trade it don’t really understand or care about its true purpose, the price of ether has bubbled and frothed like bitcoin in recent weeks.

Back on January 1, I made the following prediction:

Bitcoin suffers a big correction after swinging wildly in the last 10 days of December. … Sometime in the next three months we will see a sell-off as latecomers panic and sell. Long-term investors will remain in bitcoin and it will creep back up, but will not revisit its December highs.

MD:  Admission of failure. “Real” money doesn’t have big corrections and swings.

I nailed it.

Bitcoin peaked about a month ago, on December 17, at a high of nearly $20,000. As I write, the cryptocurrency is under $11,000 … a loss of about 45%. That’s more than $150 billion in lost market cap.

The crypto-token ether sure seems like a currency. But ether isn’t a currency. Because most people who trade it don’t really understand or care about its true purpose, the price of ether has bubbled and frothed like bitcoin in recent weeks.Cue much hand-wringing and gnashing of teeth in the crypto-commentariat. It’s neck-and-neck, but I think the “I-told-you-so” crowd has the edge over the “excuse-makers.”

Here’s the thing: Unless you just lost your shirt on bitcoin, this doesn’t matter at all. And chances are, the “experts” you may see in the press aren’t telling you why.

In fact, bitcoin’s crash is wonderful … because it means we can all just stop thinking about cryptocurrencies altogether.

The Death of Bitcoin…

In a year or so, people won’t be talking about bitcoin in the line at the grocery store or on the bus, as they are now. Here’s why.

Bitcoin is the product of justified frustration. Its designer explicitly said the cryptocurrency was a reaction to government abuse of fiat currencies like the dollar or euro. It was supposed to provide an independent, peer-to-peer payment system based on a virtual currency that couldn’t be debased, since there was a finite number of them.

MD: Delusion admission: When you’re talking about “real” money, there is a perpetual perfect balance between supply and demand for the money itself. And of course both are finite and both vary in lock step.

That dream has long since been jettisoned in favor of raw speculation. Ironically, most people care about bitcoin because it seems like an easy way to get more fiat currency! They don’t own it because they want to buy pizzas or gas with it.

MD: Common slur from those deluded about money. They call it “fiat” currency. Since all money represents a promise, and all promises are fiat, all money is fiat

Besides being a terrible way to transact electronically — it’s agonizingly slow — bitcoin’s success as a speculative play has made it useless as a currency. Why would anyone spend it if it’s appreciating so fast? Who would accept one when it’s depreciating rapidly?

MD: Bitcoin’s major flaw in this regard is its insistence on keeping track of every single trade (and thus fractioning) of the bitcoins once created. This is totally unnecessary. All you must keep track of is the creation of “real” money by traders and the destruction of it as they deliver. You must keep track of defaults and meet them immediately with like interest collections. Beyond that, the “real” money trades totally anonymously.

Bitcoin is also a major source of pollution. It takes 351 kilowatt-hours of electricity just to process one transaction — which also releases 172 kilograms of carbon dioxide into the atmosphere. That’s enough to power one U.S. household for a year. The energy consumed by all bitcoin mining to date could power almost 4 million U.S. households for a year.

MD: Tying the Bitcoin nonsense to the global warming nonsense is truly humorous. That not-withstanding, a “real” money process consumes virtually zero energy. The trees have to look elsewhere for their carbon dioxide.

Paradoxically, bitcoin’s success as an old-fashioned speculative play — not its envisaged libertarian uses — has attracted government crackdown.

MD: Governments are helpless (in a competitive sense) in defending themselves against a “real” money process. Once people see it, the nonsense of government itself is quickly exposed and governments wilt on the vine … a bloodless war ending quickly

China, South Korea, Germany, Switzerland and France have implemented, or are considering, bans or limitations on bitcoin trading. Several intergovernmental organizations have called for concerted action to rein in the obvious bubble. The U.S. Securities and Exchange Commission, which once seemed likely to approve bitcoin-based financial derivatives, now seems hesitant.

And according to Investing.com: “The European Union is implementing stricter rules to prevent money laundering and terrorism financing on virtual currency platforms. It’s also looking into limits on cryptocurrency trading.”

We may see a functional, widely accepted cryptocurrency someday, but it won’t be bitcoin.

MD: All will fail just as bitcoin will fail. Why? Because none of them behave as real money. Nothing can out-compete real money. At best, it can only tie.

…But a Boost for Cryptoassets

Good. Getting over bitcoin allows us to see where the real value of cryptoassets lies. Here’s how.

To use the New York subway system, you need tokens. You can’t use them to buy anything else … although you could sell them to someone who wanted to use the subway more than you.

In fact, if subway tokens were in limited supply, a lively market for them might spring up. They might even trade for a lot more than they originally cost. It all depends on how much people want to use the subway.

MD: Subway tokens are close to “real” money. They are created by those intending to travel. They are destroyed as they complete their trip. In the process, there is perfect balance between supply and demand for them. They fail as real money because they can only be used in one very narrow marketplace … the subway.

That, in a nutshell, is the scenario for the most promising “cryptocurrencies” other than bitcoin. They’re not money, they’re tokens — “crypto-tokens,” if you will. They aren’t used as general currency. They are only good within the platform for which they were designed.

MD: With real money, there is no distinction between tokens, coins, currency, or ledger entries. The money can move from one form to the other with perfect freedom. Just like a baton plays no role in running a race, the tokens themselves play no role in actual trading. They are simply a score keeping mechanism.

If those platforms deliver valuable services, people will want those crypto-tokens, and that will determine their price. In other words, crypto-tokens will have value to the extent that people value the things you can get for them from their associated platform.

MD: Nonsense. The proper unit of measure of real money would be the HUL (Hour of Unskilled Labor). It never changes its value over time and space. It always trades for the same size hole in the ground. So does real money.

That will make them real assets, with intrinsic value — because they can be used to obtain something that people value. That means you can reliably expect a stream of revenue or services from owning such crypto-tokens. Critically, you can measure that stream of future returns against the price of the crypto-token, just as we do when we calculate the price/earnings ratio (P/E) of a stock.

MD: Tokens and currency are real assets with “recorded” value, not intrinsic value. If I have currency and I exchange it for a ledger entry, that currency (which has never had intrinsic value but does have trading value) can be burned and there is no change in value anywhere. Money in the form of currency or tokens is only money when it is involved in trade. And if someone puts them under a mattress, it “is” involved in trade. However, if the process exchanges it for a ledger entry and the currency or token is placed on a pallet, in  that store it has zero value … just like a baton sitting in a locker before or after a race plays no role in a race.

Bitcoin, by contrast, has no intrinsic value. It only has a price — the price set by supply and demand. It can’t produce future streams of revenue, and you can’t measure anything like a P/E ratio for it.

MD: This is a major major delusion. Money has a unit of measure (ideally the HUL – Hour of Unskilled Labor) but no price. This is because the supply/demand ratio is guaranteed to be perpetually unity.

One day it will be worthless because it doesn’t get you anything real.

MD: Real money will always have value as long as “responsible” traders exist. Responsible traders don’t default. They use money as it should be used … as an in-process promise to complete a trade over time and space. And the vast majority of us are responsible traders. There are really very few deadbeats and the proper money process quickly makes them uncompetitive traders and they are naturally ostracized from the marketplace.

(For more of my thoughts on the differences between cryptocurrencies and crypto-tokens, click on the video below.)

Ether and Other Cryptoassets Are the Future

The crypto-token ether sure seems like a currency. It’s traded on cryptocurrency exchanges under the code ETH. Its symbol is the Greek uppercase Xi character (Ξ). It’s mined in a similar (but less energy-intensive) process to bitcoin.

MD: Oh really? What is the distinction? What is the difference?

But ether isn’t a currency. Its designers describe it as “a fuel for operating the distributed application platform Ethereum. It is a form of payment made by the clients of the platform to the machines executing the requested operations.”

MD: With real money a process is needed to keep track of things. But that cost is negligible compared to the cost of the things being tracked.

Ether tokens get you access to one of the world’s most sophisticated distributed computational networks. It’s so promising that big companies are falling all over each other to develop practical, real-world uses for it.

Because most people who trade it don’t really understand or care about its true purpose, the price of ether has bubbled and frothed like bitcoin in recent weeks.

MD: This isn’t because of misunderstanding. It’s because there is not guaranteed perpetual balance between supply and demand for the stuff.

But eventually, ether will revert to a stable price based on the demand for the computational services it can “buy” for people. That price will represent real value that can be priced into the future. There’ll be a futures market for it, and exchange-traded funds (ETFs), because everyone will have a way to assess its underlying value over time. Just as we do with stocks.

MD: Does this suggest it somehow maintains perfect supply/demand balance for the money itself? How does it do that???

What will that value be? I have no idea. But I know it will be a lot more than bitcoin.

MD: Proving you are deluded. If you knew what money was and you knew what you speak of to be money, you know perpetually what its value will “always” be.

My advice: Get rid of your bitcoin, and buy ether at the next dip.

MD: This reminds me of the quip “you have to love standards … there are so many to choose from”.

Kind regards,

I'm going to stick my neck out and make a few calls for Wall Street 2018 based on evidence, logic … and history. And we have all year to see how I do…

Ted Bauman

Editor, The Bauman Letter

Posted on

Can Central Banks Keep Control of Interest Rates?

MD: I haven’t posted for some time but this article was too pertinent, silly, and misguided to pass up (revealing total cluelessness … and/or corruption … of our current Medium of Exchange (MOE) process.) The article is from the great see-er of all things money oriented … the Wall Street Journal. This is the link to the article which is likely to go away in a short period of time.

Can Central Banks Keep Control of Interest Rates?

 

MD: As usual, the title itself exposes the total lack of understanding of what money is. As anyone knows who has been paying attention here, interest rates are “not” controlled by anyone or anything in a “proper” MOE process. INTEREST collections are perpetually and immediately made to meet DEFAULTs experienced … and if that is under anyone’s control, it is the trader defaulting.

Inflation-adjusted—or ‘real’—rates remain low, lending support to booming , prices for stocks, property and other assets. But some worry that could vanish sooner than markets realize

MD: Actually, what we’re seeing here is the banks farming operation in action. They’ve loaded up the wagon with energized traders’ expectations and resulting risk taking behavior, and they will soon pull the rug out from under them.

By Jon Sindreu
Dec. 26, 2017 7:47 a.m. ET

Investors are elated by a booming global economy and the promise of central banks to tighten monetary policy only gradually. But a question haunts them: Will interest rates develop a mind of their own?

MD: “Will interest rates develop a mind of their own?” Can a stupider question be posed? Interest “rates” are a function of two things. In the numerator, they are a function of continuously accumulated DEFAULT experience. In the denominator they are a function of what someone chooses that denominator to be.  In a “proper” MOE process, the denominator would be related to cumulative defaults for each money-creating class, according to their actuarial propensity to DEFAULT.

While central banks set short-term rates—the 1.5% rate that the Federal Reserve publishes on its website—economists disagree about how much control they have over long-term borrowing costs. These are gauged by government-bond yields, especially those with returns tied to inflation.

MD: These so-called short-term rates are arbitrarily set by our current system. In general, they are about what their target rate of INFLATION is. They target 2%, have historically delivered 4%, while the proper value of inflation is 0%.

Low inflation-indexed—or “real”—rates push money into risky assets, because investors get little extra purchasing power for holding safer securities. According to a new report by BlackRock Inc., the world’s biggest asset manager, subdued real rates have been 2017’s main driver of returns in global infrastructure debt and investment-grade corporate debt. They also boost gold and real estate, analysts say, which don’t pay coupons but don’t lose value when inflation rises.

MD: “Subdued real rates?” What more direct evidence could their be of the banks farming operation? Do these so-called “asset managers” just accept this? Or are they actually part of the farming operation themselves?  “Main driver of returns?” In a “proper” money process, supply/demand ratios for each product and service are the main … and only real … driver of returns. If the ratio is high, the return will be low and vice-versa. Money has nothing to do with it because its perpetual supply/demand ratio is 1.000.

Many markets could climb off record highs if real rates rise. But it is hard to forecast, said Kevin Gardiner, global investment strategist at Rothschild Wealth Management, because “nobody knows exactly what sets interest rates.”

MD: “Climb off?” … don’t they mean “fall off?”.  Interest rates in the current process only benefit the money changers. With their special privilege, a 1% increase in interest rates yields them a 10% increase in return. In a proper process with perpetual 0% inflation, their privilege becomes no privilege at all … ten times zero is zero (10x 0.0000 = 0.0000)

Real rates have often moved in lockstep with central-bank policy—but not always. In the 1970s, runaway inflation pushed real rates down even as the Fed and other central banks increased nominal rates.

MD: With a “proper” process, the only “policy” is that DEFAULTs are immediately met with INTEREST collections of equal amount. That policy never ever changes. A “proper” process cannot be farmed.

Yields on 10-year inflation-linked Treasurys are currently below 0.5%. Before the 2008 financial crisis, they hovered at around 2%. After the Fed unleashed unseen amounts of monetary stimulus, they hit a record-low of minus 0.87% in 2013. Many analysts and investors see it as a sign that policy makers have strong control over real rates.

MD: With a “proper” process there is no such thing as “monetary stimulus”. Money is in perpetual free supply. That supply is perpetually identical to demand for the money yielding perpetual zero inflation.

“We are overweight global indexed bonds,” said Paul Rayner, head of government bonds at Royal London Asset Management. “We’ve done a lot of analysis on this, and ultimately the biggest driver of government bond yields still remains central bank activity, even for [inflation-linked bonds].”

MD: With a proper MOE process, Rayner is out of work. There is no “lot of analysis” to be done. Their worshiped relation  ((1+”i”)^”n”) … they call it the time value of money … is neutered when “i” is perpetually zero.

With a “proper” MOE process, there are no “government bonds”. Governments are simply no different than any other trader. If they are responsible, they create money without any interest load. If they are deadbeats, they pay interest accordingly. And since governments “never” return the money they create (they just roll their trading promises over … which is default), the interest paid by them perpetually equals the money they wish to create. In other words, they “can’t” create money.

But classic economic theory says that central banks can only influence rates at first, as people ultimately see through their meddling. So unless officials set policy to reflect the economy’s long-term economic trends—which is how the Fed’s Janet Yellen and Mark Carney at the Bank of England have justified keeping rates low in recent years—inflation or deflation will follow.

MD: “Classic economic theory?” You mean “classic economic stupidity!” don’t you? People never see through banks meddling. It is the farming operation and it has worked as long as the governments they institute protect the operation. Again, this is an open realization that banks have an enormously profitable farming operation. A competing “proper” MOE process would make that farming operation experience perpetual crop failure and/or market opposition.

According to this view, rates are so low because people are saving a lot and these saved funds can be lent out and used to invest, a copious supply that pulls down the cost of borrowing.

MD: Stupid is as stupid does … or as stupid has been duped to think. In our current process there is the illusion that savings play a role. And the 10x leverage privilege retail banks enjoy is directly affected by that. But in the final analysis, it is the Rothschilds that control everything through their control of all but two central banks in the entire world … and of the Bank of International Settlements. They do whatever they please. With a competing process they would be out of business almost instantaneously, never to raise their ugly head and influence again … ever!

Some money managers and analysts now warn that the tide is about to shift, whether central banks keep policy easy or not. By looking at the share of the population aged between 35 and 64—when people save the most—research firm Gavekal predicts real rates will soon rise as people retire and spend their life savings, eroding gains in stock markets.

MD: Boy … this guy is deluded beyond repair I think. The Rothschilds are in total control. The theoretical mechanisms the writer thinks are at work have been propagandized into his head. Yes, a degree in economics is just buying self imposed propaganda. With a proper MOE process, there are no economics … just trading decisions made on a perfectly static level playing field … i.e. buying and selling and producing decisions.

It “could happen tomorrow or 10 years from now, but I’m not counting on the latter,” said Gavekal analyst Will Denyer.

J.P. Morgan Asset Management argues that aging is already starting to push rates higher, meaning that 10-year real yields will be 0.75 percentage point higher over the next 10 years.

Other investors have a different worry: They fear that yields will stay low even if central banks try to tighten policy because they are concerned a recession may be coming. This year, the Fed has nudged up rates three times and yields on long-term government bonds—both nominal and inflation-linked debt—have stayed unchanged or declined, echoing similar issues that then Fed Chairman Alan Greenspan had in 2005.

MD: Translation: “a recession may be coming” means “harvest time may be coming”. It’s pretty easy to see when it’s time to harvest. You look at how ripe the crop is … i.e. how thoroughly the traders have been sucked in. The farming analogy is near perfect.

Indeed, the yield curve—the yield gap between short and long-term Treasurys—is now at its flattest since 2007, and many investors underscore that, in the past, this has often preceded an economic slowdown in the U.S.

“Unless the evidence is very compelling that’s a false signal, I think the market’s going to be nervous,” said David Riley, head of credit strategy at BlueBay Asset Management, who is now investing more cautiously.

MD: Booga booga … buy gold advises the great see-er.

Still, investors may read too much into what yields say about the economy, said the Bank for International Settlements, a consortium of central banks. In new research looking at 18 countries since 1870, the BIS found no clear link between rates and factors like demographics and productivity—it is mostly central-bank policy that matters.

MD: “A consortium of central banks?”…  Rothschield’s holding company you mean?

Does this mean investors can rest easy because rates won’t creep up on them? Not so fast, said Claudio Borio, head of the monetary and economic department at the BIS, because officials may still raise them to contain market optimism. Central banks in Canada, Sweden, Norway and Thailand are thinking along these lines, analysts said.

MD: “Not so fast” says Rothschild’s weather man. We can do anything to the crop we choose to do … when we choose to do it.

If central banks control real rates, then it is inflation that has a life of its own—it isn’t just a reaction to officials deviating from economic trends—and it could explain why central bankers have failed to stoke it for years. So officials might as well raise rates to quash bubbles instead of “fine-tuning inflation so much,” Mr. Borio said.

MD: Anyone who has followed MoneyDelusions analysis of these ridiculous articles has to be holding their sides in pain from laughing too hard.

Still, Isabelle Mateos y Lago, global macro strategist at BlackRock Investment Institute, thinks investors don’t have to worry about this yet.

“The conversation is moving this way, but I don’t think central bankers have a fully articulated view,” she said.

MD: “Central banks don’t have a fully articulated view?” Dream on. They do control the weather of this farming operation you know. And they control the farmers ability to buy seed and tractors and land. But having dropped the obligatory number of names, the write concludes his nonsense for now.

Write to Jon Sindreu at jon.sindreu@wsj.com
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MD: Please do write Jon as he begs … and send him a link to this exposure of his Money Delusion.

Posted on

FT: The virtual currency boom echoes dotcom fever

The virtual currency boom echoes dotcom fever

MD: Remembering what money really is … “an in-process promise to complete a trade over time and space” … that it is only created by traders … and that for any given trading promise, it only exists for the duration of that promise … and that during that interim time, there is perpetual perfect supply/demand (i.e. zero inflation) of that money created … knowing all that, look how silly such articles like this become.

by Izabella Kaminska

In 1999, the actor Whoopi Goldberg made a bold decision. Rather than be paid for an endorsement for a dotcom start-up, she took a 10 per cent stake in the business. It seemed wise. At the time, everyone was investing in internet businesses and a rush of initial public offerings was making early investors into millionaires. I was reminded of this amid a flurry of news about the new boom in cryptocurrencies — and their celebrity backers. Ms Goldberg’s venture, Flooz, was billed as the future of money in a digital world and it hoped one day to rival the dollar.

MD: Let’s see if there is evidence that they had any clue about what money is before starting this venture. Nope!

The way it worked, however, was much less revolutionary. The service resembled a gift certificate: customers paid in dollars and received Flooz balances. These could be redeemed at participating merchants, with the hope that credits would one day circulate as money in their own right.

MD: What’s the point? How were they supposed to work without dollars kicking them off in the first place? When they replaced the dollar, what was going to create them?

The problem for Flooz was that little prevented mass replication of its model. One prominent competitor, Beenz, differed only slightly, by allowing its units to trade at fluctuating market prices.

MD: A “proper” MOE process can have no competitors. A competitor either does the exact same thing as this proper MOE process, or it isn’t competitive. And since there is no money to be made in the process (contrasted to the similar casualty insurance process where money is made on investment income), it’s not going to attract many competitors. It would be the trading commons themselves who would steward the process. We have experience with this. The internet is just such a process example … a technology commons.

Like banking syndicates before them, the ventures decided to club together for mutual benefit by accepting each other’s currencies in their networks. Even so, by 2001 both companies had failed, brought down by a lack of the one ingredient that counts most in finance: trust. Flooz was knocked by security concerns after it transpired that a Russian crime syndicate had taken advantage of its currency, while the fluctuating value of Beenz soon put users off.

MD: Fluctuating value turning users off is a good sign. Users aren’t as clueless as these entrepreneurs.

Their loss turned into PayPal’s gain, the latter succeeding precisely because it had set its aspirations much lower. Rather than replace established currencies, PayPal focused on improving the dollar’s online mobility, notably by creating a secure network that gained public support. This, it turned out, is what people really wanted.

MD: And PayPal missed the real opportunity by not following up. If they had gone ahead and implemented micro-transactions, I would be paying a tiny (what 1 cent; 5 cents?) price for reading this article. That day has to come. Supporting the likes of FT with advertising and subscriptions is just plain nonsense.

Did we learn anything from the failures of the internet boom? Apparently not. In what is looking increasingly like a new incarnation of dotcom fever, celebrities are endorsing virtual currency systems. Heiress and reality TV star Paris Hilton tweeted this week that she would be backing fundraising for LydianCoin, a digital token still at concept stage. It offers redemption against online artificial intelligence-assisted advertising campaigns.

MD: Advertising campaigns “are” artificial intelligence. We know it as propaganda. It’s annoying … and really dangerous when it reaches the minds of the stupid.

Baroness Michelle Mone, a businesswoman, announced she would be accepting bitcoin in exchange for luxury Dubai flats. What is particularly striking about this path to riches is its “growing money on trees” character.

MD: What is “particularly striking” is that someone would part with their bitcoins for one of her flats … knowing the extraordinary deflationary nature of bitcoins.

While the internet boom was dominated by IPOs, linked to a potentially profitable venture to come, this time it is “initial coin offerings” igniting investor fervour. Most ICOs do not aspire to deliver profits or returns. Indeed, from a regulatory standpoint, they cannot — most lawyers agree doing so could classify them as securities, drawing regulatory intervention which would force them into stringent listing processes.

MD: If they knew what real money was, they would know that every trader (like you and me contracting for a house or car with monthly payments) is making an ICO. What in the world is it going to take to get these brilliant idiots to recognize and understand the obvious?

That opinion was substantiated in July when the US Securities and Exchange Commission warned: “Virtual coins or tokens may be securities and subject to the federal securities laws” and that “it is relatively easy for anyone to use blockchain technology to create an ICO that looks impressive, even though it might actually be a scam.”

MD: Now isn’t that the pot calling the kettle black. The SEC is itself a scam.

So most ICOs make do by selling tokens for pre-existing virtual currencies for promises of direct redemption against online goods, services or concepts, or simply in the hope the tokens themselves will rocket in value despite offering nothing specific in return.

MD: Stupid is as stupid does. If you know that zero inflation is the right number for any money you don’t go looking for “rocketing” value. An ideal unit for money is the HUL (Hour of Unskilled Labor). We were all a HUL doing summer jobs in high-school so we can relate to them any time in our lives … and to any trade we make. The HUL itself has not changed over all time. It trades for the same size hole in the ground. With median income now at about $50,000 per year, the median person is able to trade his skilled hours for about 3.5 HULs these days.

They still think they can succeed where other parallel currency systems have failed, by bolting into pre- established blockchain-distributed currency systems such as Ethereum or bitcoin.

MD: A proper MOE process is totally transparent when it comes to the money creation/destruction parts of the process. Block-chain techniques (i.e. universally accessible ledger) would be helpful to enhance that transparency. But there would be no mining involved. New blocks would have to be created at any time at zero cost.

These already come with a network of token-owning users. But with the numbers of conventional merchants that will accept these currencies falling rather than rising, these holders need something more compelling to spend their digital wealth on. As it stands, the real economy can only be accessed by cashing out digital currency for conventional money at cryptocurrency exchanges. This comes at some expense.

MD: So far, the expense is insignificant … because of the enormous “guaranteed” continual deflation of the cryptocurrency itself (their ridiculous mining process). It’s kind of like the reverse of our government run lotteries. With government lotteries, you are guaranteed to lose (except for the minuscule chance you win). With cryptocurrency, you are guaranteed to win (until everyone loses as what is essentially a Ponzi scheme … with no Ponzi … comes down).

But with regulators clamping down on how exchanges are governed, token holders who cannot or do not want to pass through know-your-customer and anti-money laundering procedures remain frozen out.

MD: What’s disconcerting is the knowledge that if we instituted a “proper” MOE process, the regulators would clamp down on it too. It would make their current counterfeiting impossible … and it would make it impossible for money changers to demand tribute. That would just not stand. Regulators and governments everywhere are a major part of our problem.

That leaves their holdings good for only three things: virtual currency speculation, which is ultimately a zero-sum game; redemption against dark-market goods or capital control circumvention. It is assumed ICOs offering real goods, services or real estate in exchange for cryptocurrencies can somehow tap into this sizeable, albeit potentially illicit and restricted, wealth pool.

MD: Real estate wants positive inflation. Money changers in real estate do not want real money (there’s no leverage in it … time value of real money is guaranteed to be perpetually 1.0000) … and for sure they don’t want money that is guaranteed deflationary.

Yet if competing unregulated economies really start gaining traction, governments will act. China’s central bank has already branded ICOs an illegal form of crowdfunding and more rulings are expected from other jurisdictions in coming weeks.

Then again, if history teaches us anything, the system’s own propensity to cultivate fraud and unnecessary complexity in the face of more secure and regulated competition may be the more likely thing to bring it down.

MD: Actually, if you crowd the money changers existing con … “they” are likely to bring it down. “Real” money crowds money changers out of existence. That will not stand. Too bad for us traders and producers in society.

When given the choice, people usually opt for security.

MD: Which of course we don’t have … if you call government taking 3/4ths of everything we make …. you can’t call that security. I call it slavery. If you call money changers taking “all” taxes we pay as tribute … leaving governments (which the money changers instituted to protect their con) to sustain themselves by counterfeiting … I call that criminal.

izabella.kaminska@ft.com Copyright The Financial Times Limited 2017. All rights reserved. You may share using our article tools. Please don’t copy articles from FT.com and redistribute by email or post to the web.

MD: I am openly violating this request. My comments are far more valuable than anything to be learned in this article. And the fairest way to make my comments is to intersperse them in the disinformation that these articles present.

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Deviant Investor: War on Cash Backfires

War on Cash Backfires

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Guest Post from Clint Siegner, Money Metals Exchange

Indian Prime Minister Narendra Modi launched a surprise attack on cash in late 2016. He gave Indians a few days to convert the two largest denomination bills then circulating to bank deposits, after which point any undeposited notes would become worthless. The move was intensely controversial. Transactions completed using cash represented the vast majority of economic activity in the country.  [Editor: See note below!]

MD: When looking at individual transactions, cash represents the majority of economic activity in any country. When you’re talking about “real” money, “all” transactions are in cash. And all cash transactions are totally anonymous. This is different than saying “money creation” is anonymous. With “real” money, “all” money creation is transparent. This means anyone can see who is creating the money and under what terms and how they are performing on delivering on those terms. And they can see this is real time.

In order to sell the program Modi employed a familiar strategy. He vilified the users of cash as tax cheats and criminals. He promised the measure would punish black marketeers, boost the Indian economy, and increase tax revenues. The latter may be true – forcing transactions onto the grid is good for nosy bureaucrats trying to impose taxes and controls.

But it now appears Modi’s claims about the amount of criminal activity tied to cash and promises of economic growth were nonsense.

 

The official argument was that cash is an indispensable tool for black marketeers. The reform would catch many of these “criminals” with piles of cash they would be unwilling to declare and deposit. That argument fell apart last week when the Indian central bank reported that 99% of the outlawed bills were converted to deposits. Turns out very few “criminals” were punished.

MD: So, did they reverse the policy?

Meanwhile the Indian economy is paying the price. Growth has slowed significantly and some estimate as many as 5 million jobs have been destroyed by the demonetization of cash. More and more Indians are angry.

MD: Why would that be? What transactions that were being done in large denominations quit being done altogether?

They didn’t enjoy the upside promised by Modi. Instead, they suffered massive economic disruption and loss of privacy. Perhaps India’s experience will provide an object lesson elsewhere in the world where bankers and the political elite are waging a similar war on cash.

Clint Siegner is a Director at Money Metals Exchange, the national precious metals company named 2015 “Dealer of the Year” in the United States by an independent global ratings group. A graduate of Linfield College in Oregon, Siegner puts his experience in business management along with his passion for personal liberty, limited government, and honest money into the development of Money Metals’ brand and reach. This includes writing extensively on the bullion markets and their intersection with policy and world affairs.

Thanks to Clint Siegner, Money Metals Exchange

Note: Voltaire understood the process over two centuries ago. He said, “Paper money eventually returns to its intrinsic value – zero.” (Voltaire, 1694-1778)

MD: And that is correct. It’s only money when the promised delivery is in process. On delivery, the money is returned and destroyed.  And during the delivery process, the money itself never has intrinsic value. It doesn’t need it … just like 1965 when we proved that coins didn’t need silver content to be useful to traders. So what?

Unbacked debt based fiat currencies (dollars, euros, pounds and most others) that possess no intrinsic value are devalued by central bankers and governments.

MD: This is nonsense. When you know what money is, you know “all” money is “fiat” … and that is no issue at all. Governments counterfeit money. They don’t create it with a trading promise on which they intend to deliver. And counterfeit money is obviously not real money and is not tolerated at all in a proper MOE process.

And with “real” money there is no such thing as a central bank. There is no need for one. And with “real” money, the value of the money itself never changes. That is guaranteed by the process itself … a process that maintains perpetual perfect balance between supply and demand for the money itself.

With “real” money, the ideal unit of measure is the HUL (Hour of Unskilled Labor). This unit (like the ounce … and unlike the ounce of gold) has never changed over all time. It has always traded for the same size hole in the ground.

They do it because it benefits the political and financial elite and appears beneficial in the short-term. History shows the supposed benefits of devaluation are nonsense, but they keep trying…..

MD: And they couldn’t keep trying with a “proper” MOE process and “real” money. The process would exclude them from the playing field with its natural negative feedback system … i.e. mitigating defaults immediately with interest collections of like amount.

Fiat paper money and political power do not mix well. The people — not the political or financial elite — pay the price.

MD: Counterfeiting and political power are a “natural” mix. And it is correct: counterfeiting results in inflation … and that hurts responsible traders. The problem is not in the “fiat”ness of the money … it’s in the counterfeiting by the governments.

It has happened before and will happen again. Gold and silver are good alternatives to devaluations by governments and central bankers.

MD: Gold and silver are only good for a very short time when counterfeiting finally results in a reset. In the normal operation of a “real” MOE process, gold and silver play no role whatever. They are just clumsy inefficient stand-ins for real money. They can’t compete with real money except at reset time … which never occurs with a “proper” MOE process … because counterfeiting is not tolerated by a proper MOE process. With our current process (and all historical MOE processes), counterfeiting is not only tolerated, it is required. Governments need the inflation to sustain themselves and the money changers, that institute those governments for their protection, need the fictional “time value of money” to demand tribute and run their farming operation (i.e. business cycle).

Gary Christenson

The Deviant Investor

MD: Gary Christenson and the Deviant Investor need to “get a clue” … but they won’t because they’re in the gold selling business.

 

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Wikipedia: Nash – Ideal Money

 MD: It has been suggested that we at MD study Nash’s “ideal money” as an assignment (presumably to see it disproves our case) … by someone who won’t admit what we describe here is indisputable … or even give evidence they have even read the less than 500 words that present the principles of “real” money. As usual the assignment comes from those who resort to just handing out reading assignments … rather than reading our simple 500 words. This one is of particular interest because it claims “ideal money”. The “proper” MOE process described here at MD maintains the only “real” money imaginable … so it “has” to be as ideal as anything out there or proposed to be out there:
  • It is in perpetual free supply;
  • it maintains perpetual perfect supply demand balance of the money itself (zero inflation);
  • it imposes no restraint nor interest load on responsible traders;
  • it is fair in imposing interest loads on irresponsible traders commensurate with their propensity to default;
  • it maintains perpetual perfect transparency of the creation and destruction of the money process itself;
  • it requires no resources (reserves) at all;
  • the cost of its operation is negligable;
  • it is measured using an unvarying scale (the HUL);
  • there is not money to made in operating it (as there is in insurance … i.e. investment income)
  • and its behavior is totally objective and the results easily provable;
There is “nothing” more ideal … so this should be interesting. Nash looks like an egghead … I presume he will think like one too. Expect lots of footnotes.

Ideal money

From Wikipedia, the free encyclopedia

John Forbes Nash, Jr.

Ideal money is a theoretical notion promulgated by John Nash (Nobel Laureate in Economics), to stabilize international currencies. It is a solution to the Triffin dilemma which is generally about the conflict of economic interests between the short-term domestic and long-term international objectives when a currency used in a country is also a world reserve currency in the meantime.

MD: “To stabilize international currencies”? Tilt!!! Real money is an inherently and perfectly stable process. It has the automatic negative feedback mechanism of immediately mopping up defaults with interest collections of like amount. Now, with a statement like that first thing out of the chute, we here at MD know its silly to read further. But we’ve been given the assignment. We trudge on.

“Triffin dilemma”? Conflict of economic interests? A “proper” MOE process has no sensitivities to such things at all. There is no difference between short term and long term. The time value of money is provably 1.0000. When a proper MOE process exists anywhere, there is no such thing as a world reserve currency. “All” monies either come from a proper process or they are competed out of existence in an instant. Thus all moneys exchange at a constant rate … 1.000 if denominated in HULs (Hours of Unskilled Labor). And no “real” money requires “reserves” of any kind whatever!

Contents

Introduction

How does the idea of Ideal Money appear

“Money can be recognized as a technological development comparable to the wheel and of similar antiquity. Among the more recent developments in the technology that facilitates transfers of utility (in the sense of game theory) are systems like those of EZ Pass, by means of which vehicles traversing toll bridges or toll highways can pay their toll fees without stopping for the attention of human personnel manning the toll booths. In this lecture, I present remarks about the history of monetary systems and about issues of comparative quality or merit , along with a specific proposal about how a system or systems of ‘ideal money’might be established and employed.”[1]

MD: He describes a transfer system. The real money process is insensitive to the myriad of transfer systems employed in the money’s circulation. The process itself is only interested in its media’s creation and destruction and prevention of “all” leaks. He talks of a technological development. Exotic transfer systems are not it. There is nothing technical in addition and subtraction. That’s just simple accounting. I’m going to ignore all his noise about history. I’m just going to look for his solution to all the historical failings. We here at MD already know the best … and yet untried solution.

Main value standard of ideal money

Ideal money is working in the theory similar to the gold standard, but it is generally based on a Nonpolitical Value Standard. “A possible nonpolitical basis for a value standard that could be used for money would be a good industrial consumption price index(ICPI) statistic. This statistic could be calculated from the international price of commodities such as copper, silver, tungsten, and so forth that are used in industrial activities.”[1] John Nash said in his lecture.

MD: Tilt!!!   All money is a perception held by two traders at an instant in time. One has money. The other has an object they will trade for money. In the negotiation step (1) of a trade, they decide how much money is involved. In all our illustrations our money will be measured in units of HULs (Hours of Unskilled Labor). A HUL has traded for the same size hole in the ground for all time … and is expected to do so in all future time. There is no “standard” … .political or otherwise. If the trade is made using existing money, the trade is complete  for both traders. Promise to deliver (2) and Delivery (3) happen simultaneously on-the-spot. That trade is done. It has no impact on any other trade in the entire trading environment. It is just between those two traders. While the trade “uses” money, it doesn’t “create” money.

Money is “created” when one trader promises to do the trade over time and space. And we have all done that. We have bought a house, a car, a washing machine, or a steak dinner by creating money and then returning it a little bit at a time. Our trading promise is certified, the person with the house, the car, the washing machine, or the steak gets money (which we created on the spot). We then go about working to return that money and destroy it as we promised to do. If we are responsible traders (i.e. we don’t default), we pay no interest. If we have a propensity to default, we pay interest actuarially based on that weakness.

So Nash need not make this more complicated than it has to be. We can ignore references to anything “political” for example.

Why gold can not be an ideal money

MD: Not only can gold not be “ideal” money. It can’t be money at all. Anyone holding gold is doing just that … holding gold. They’re no more holding money than someone holding a ribeye steak.

The gold does not reach the standard of ideal money, despite its merits. The main problem is because the silver and gold do not have a constant value all the time.

MD: One gold star for Nash. Real money guarantees perpetual perfect balance between supply and demand for the money itself.

“To the undiscerning minds of the mass of men a pound sterling of gold, a silver five-franc piece, or a paper dollar, represents always a definite unit.

MD: So does a pound of ribeye steak. The pound is the unit … what it is a pound of can play no role at all. We choose the HUL as the best candidate for unit. It is related to time, which is unvarying, and what can be delivered in that time … which is relatively unvarying. Who knows how big a hole an ounce of gold traded for 100 years ago? Most don’t even know what it trades for today. But everyone can put a spade in their hand and in one hour make a hole that is one HUL in size. And they can know that their hole, for all intents and purposes, is the same size hole a HUL would have produced 100 or 5,000 years ago. We don’t need to search the Dead Sea Scrolls for proof.

It has not escaped attention, however, that a given amount of money buys much less at one time than another.”[2]

MD: May have to take back Nash’s gold star. A given amount of “real” money will always trade for the same size hole in the ground … always! It may trade for a different size car or different size ribeye steak or a different number of gold ounces … but that’s because of the supply/demand relation of those things themselves. The supply/demand for the money itself is perpetually perfect and plays no role whatever in the pricing.

in other words, people are used to measuring the value of goods by money, but due to some reasons the value of money itself changes, which causes the value of silver or gold changes. We can’t tell the constant value of the metal, and the fixed mind-sets can not easily be changed.

MD: What he says is only true of an “improper” MOE process like that run by the Fed and every other central bank which ever existed. if everyone does the same thing wrong, that is only one thing being done wrong. People thinking in HULs will never have this problem. Thinking in dollars, a HUL was $1.50 when I was one. It is about $8.00 for those who are HULs today. In both cases, it trades for the same size hole in the ground.

Related factors mentioned in Nash’s lecture

Welfare Economics

“A related topic is that of the considerations to be given by society and the national state to ‘social equity’ and the general ‘economic welfare’.

MD: But we at MD know that (welfare) has nothing whatever to do with money. So we should be able to skip this whole topic … but of course we can’t because we’ve been given this study assignment.

Here the key viewpoint is methodological, as we see it. How should society and the state authorities seek to improve economic welfare generally and what should be done at times of abnormal economic difficulties or ‘depression’?

MD: I don’t know and don’t care … as long as they don’t try to do it by manipulating the MOE process.

We can’t go into it all, but we feel that actions which are clearly understandable as designed for the purpose of achieving a ‘social welfare’ result are best.

MD: Best for whom? “real” money is not concerned. People can “use” it to do the things they feel are good. They can even “create” it to do so … as long as they also return and destroy as they promise to do. But they absolutely cannot “counterfeit” it to do the good things they want to do. That results in bad things for others … and a “proper” MOE process cares nothing about good or bad. It just cares about strict adherence to the process, thereby achieving the predicted and desired result … with zero outside meddling.

And in particular, programs of unemployment compensation seem to be comparatively well structured so that they can operate in proportion to the need.”[3]

MD: Unemployment compensation is no different than broken car compensation. If you can’t cover the risk through self insurance, you better be buying insurance. Regardless, that is no concern of a “proper” MOE process. Nash, this is oh so easy! Are you being paid to give these lectures?

Generally, the social welfare is what we always expect to be improved, and if there is really an ideal money, the whole economy would be influenced, including the social welfare.

MD: Why say the ideal money should do it? Why not say the ideal drug should do it. Or the ideal bullet should do it? “Social welfare” is not the business of money. Trading over time and space is the business of money.

Money, Utility, and Game Theory

MD: You gotta love it when they throw in game theory. Can string theory be far behind? How about global warming?

The concept of utility generally appears in the field of economics but it can be connected with the game theory in mathematics. In the game theory of economics, “utility” is a very important and essential factor. In the book (on game theory and economic behavior) written by the mathematician John von Neumann and the economist Oskar Morgenstern, a utility function is proved, which can be used to put the individual’s preference on the interval scale, and the utility is always preferred to be maximized. (More details can be found in Von Neumann–Morgenstern utility theorem.)

MD: And this is the exact same kind of nonsense Mises spends most of his really boring words on. When it comes to money, why traders make the trades they do is completely irrelevant. We see time and time again “buyers remorse”. It can happen in a day. Or it can happen over several years (e.g. in the case of a boat purchase … two days of glee, the day they buy it and the day they sell it … other than that, it’s just a hole in the water into which they throw money). That’s all irrelevant to the subject of money. But we have our assignment to study this nonsense!

In John Nash’s lecture about ideal money, he gave the opinion that we can through observing the changing relationship between the money and the utility transfer to see “how the ‘quality’ of a money standard can strongly affect the areas of the economy involving financing with longer-term credits.

MD: With a “proper” MOE process, quality is in the transparency and the efficacy of the process. The quality of the governor on a diesel engine is more complicated than that … its parts can break. The MOE process is either operating objectively as dictated … or it is not. Only in the former case does it have quality of any kind … and that quality is of the perfect kind.

And also, we can see that money itself is a sort of ‘utility’, using the word in another sense, comparable to supplies of water, electric energy or telecommunications.

MD: Absolute nonsense. It is never proper to think of money “supply”. A proper MOE process has media is perpetual free supply. There is always exactly as much there as is needed … no more … no less. Nash … no gold stars for you!

And then, if we think about it, money may become as comparable to the quality of some ‘public utility’like the supply of electric energy or of water.”[3] The game theory of economics is a good way to check whether the quality of a money is ideal or not.

MD: The way to check the quality of money is by observing its universal acceptance in use … and observing its trait (built in) of perpetual zero inflation of the money itself. The latter will enable and result in the former.

“Keynesians“

“The thinking of J. M. Keynes was actually multidimensional and consequently there are quite different varieties of persons at the present time who follow, in one way or another, some of the thinking of Keynes.

MD: “Multidimensional”? As in wishy washy? … yep … as in wishy washy.

A very famous saying of Keynes was ‘…in the long run we will all be dead…’”[3] Keynesian economics gives the opinion: in the short run, the change in economic output has a strongly relationship with the change in aggregate demand, the output is always affected by the demand.

MD: How about this from us here at MD: In the long run, inflation of real money will be zero; and in the short run inflation of real money will be zero. It’s more true than what Keynes said … some people die before the long run.

And look what they’re talking about: “aggregate demand”. Money doesn’t care about demand. It is in free supply. There is always in circulation the exact amount that is needed … or some trader is creating it as we speak.

If there is an ideal money which can be stable in a very long period, we do not really need to worry about lots of problems in the long run.

MD: Real money is perfectly stable … perpetually … as is a HUL and the size hole it trades for. It never worries about any problems … long run or short. It perpetually mitigates defaults experienced with interest collections of like amount and this is a stabilizing negative feedback loop.

Asymptotically ideal money

MD: OH PLEASE!!!!!

Main idea

Asymptotically ideal money is the currency close to but still not ideal money. In John Nash’s lecture, “Ideal Money and Asymptotically Ideal Money” focused on” the connection between fluctuation in inflation and exchange rates and the perceived long-term value of money”, he mentioned that: “‘Good money’ is money that is expected to maintain its value over time. ‘Bad money’ is expected to lose value over time, as under conditions of inflation.

MD: So money from a “proper” MOE process (i.e. real money) is “good money”. It (the process) guarantees it (the media) will hold its value in HULs over all time everywhere. It cannot be made to do otherwise without violating the process … at which point it is no longer “the process” … it is no longer “real” money.

The policy of inflation targeting, whereby central banks set monetary policy with the objective of stabilizing inflation at a particular rate, leads in the long run to what Nash called ‘asymptotically ideal money’ – currency that, while not achieving perfect stability, becomes more stable over time.”[4] That means if a currency has shown a trend to be more stable，it could become an asymptotically ideal money or even the ideal money in the future.

MD: A “proper” MOE process is subject to no such manipulation. Thus it can only produce “ideal” results. But the results are only ideal for the traders. They are far from ideal for the money changers or the governments they institute for their protection and force in applying their scam. And they are not ideal results for those in the business of finance. Their cherished and worshiped expression (1+i)^n from which they claim the time value of money … well, it always produces 1.000 … i.e. “real” money has zero time value. So those in the scam of finance need to find other work.

Euro

Currencies may become (asymptotically) ideal money

Euro

John Nash mentioned in his lecture that Euro might become an ideal money in the future, because Euro is used in a large range of places and has a good stability.

MD: We here at MD wished they talked to us when they created the Euro. We could have told them exactly how to do it to make it perfect “real” money (for traders that is). But the Euro was created by money changers to gain control over lots of countries at the same time. It is an open scam … and BREXIT is saying, we’re out … we want to run our own scam. Note, the Euro scam, like our own Constitution scam has no buy/sell agreement.

It is the currency used by the Institutions of the European Union and is the official currency of the eurozone which consists of 18 of the 28 member states of the European Union. In general, Euro has a macroeconomic stability, people in Europe owning large amounts of euros are “served by high stability and low inflation.” Moreover, in March 2014, Euro was commented as “an island of stability” by the head of the European Central Bank.[5]

MD: Every one of those individual entities in the European Union could have instituted their own “proper” MOE process. Ideally, they all would have adopted the HUL as the logical choice for unit of measure. If they had done that, all their money would be freely exchanged with a constant exchange rate … that being 1.000. Had they done that, there would have been no reason to “unionize”. And there wouldn’t be a European Central Bank; or 18 central banks; or 28 central banks. there would be “no central banks”. Just certified certifiers with transparent operations employing a “proper” MOE process. What’s not to love about the simple and the obvious?

References

  1. “ECB boss Draghi brands euro an ‘island of stability’ despite sluggish growth and high unemployment”.

External links

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Deviant Investor: Debt, Dollars, DOW, War, Silver and Shirts

MD: The Deviant Investor is a gold salesman. He will do whatever it takes to make a market for his gold. It is easy to find the delusions in his articles. In fact, he “knows” the truth … he just has too big a stake in the delusion to admit it. He won’t pass my comments through his moderation. That was one of my principal motivations for creating this site. It gives me a chance of mitigating the blocks “all” the Mises Monks throw up against me. If you’re dealing in the truth, you don’t have to block anything. The truth always prevails.

Let’s see what kind of delusions … and propaganda … this article contains. It’s always fun.

Debt, Dollars, DOW, War, Silver and Shirts

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Yes, they are connected.

Dollars are created as debt. More dollars in circulation = more debt.

MD: He gets it right. Notice, he hasn’t said dollars are money. They obviously “are” money … but from an “improper” MOE process. They obviously do represent “in-process promises to complete trades over time and space”. And all of them created by government promises are counterfeit … and indistinguishable from all others in circulation. That’s why we have inflation … 4% per year compounding.

More debt means consumption is “pulled forward” from the future so consumption can occur now. This usually ends badly.

MD: Fallacy number 1: A trading promise spanning time and space says nothing about consumption. If I create money to build a house and engage a contractor, I cannot consume that house until the contractor completes it. The contract can be written so I give him a certain amount of money when the contract is agreed to; a certain amount along the way; a certain amount when he delivers the house; a certain amount sometime after that when I confirm he has met the terms of the contract in his delivery … none of which assumes consumption. And it hardly ever ends badly.

But he says consumption “can” occur now. That too does not end badly. Most people buy a house that already exists. They move in and make monthly payments. It is far and away the minority that default on this trading promise spanning time.

Commercial banks and central banks have created trillions of new dollars. Each new dollar devalues every other dollar currently in circulation, in savings, and in pension accounts. Prices rise!

MD: No bank of any kind has “ever” created money. In “all” case, it is a trader who creates the money. The banks have just reserved for themselves the privilege of certifying that money … and the privilege of collecting tribute on that certification … to the tune of 10x the amount of their “so-called” stake in the creation … which after two years is provably zero.

Wars are costly, kill people and produce little. Governments like wars because they create demand for production of war materials.

MD: Governments do not profit from production of war materials … only the money changers do. Governments are instituted by the money changers … not by the people. They “protect” the money changers privileges … first by laws … then by force. They also use this force to expand the money changers privileges … by empire-building wars. The money changers retain hold on the reins at all times All but two of the central banks in the world are controlled by a single family … the Rothschields.

Further, governments are sustained by inflation. “All” taxes collected go directly to the money changers in the form of tribute. Neither governments nor money changers can function without inflation. They need their cherished (1+i)^n to give them a value greater than the 1.00000 a proper MOE process guarantees. They call it the “time value of money”. And they get away with it.

More production means a higher GDP (even if the concept means little). Politicians point to higher GDP and claim it is good. More production creates employment. Everyone wins, unless the bomb fell on you. Unless the drone targeted you. Unless you live on a fixed income and prices continue to rise. Unless you are a soldier and were injured or killed.

MD: GDP is unmeasurable … as is inflation. A “proper” MOE process cares nothing about GDP … and it “guarantees” zero inflation of the exchange media itself … it doesn’t have to measure it.  It cares nothing about employment. It cares nothing about prices but the zero inflation guarantee assures any price changes are strictly associated with the supply/demand balance of the object of the exchange … not the supply/demand of the money itself … which is always perfect at 1.0000.

As dollars are devalued, prices rise for most goods and services. Yes, televisions are less expensive, but have you checked the price of beer, medical care, cigarettes, cars, Whisky, college tuition, food, and 101 other items we need?

MD: Irrelevant to a proper MOE process. Further, a proper MOE media would ideally be in units of HULs (Hours of Unskilled Labor). The value of a HUL has never changed. Today it trades for the same size hole in the ground as it ever did or ever will. And we have all been HULs at one point in our lives, so we can all identify with them and hold them in perpetual perspective. This certainly isn’t true of an ounce of anything.

As dollars are devalued, the price of silver rises. Each dollar buys a smaller piece of silver. Wars burn many dollars, many ounces of silver, and consume other commodities, which rise in price. Demand for silver increases, dollars buy less, and supply increases slowly, if at all. Prices for silver rise because of supply, demand, and devaluation.

MD: Which is a straw man red herring argument when it comes to a “proper” MOE process … and “real” money.

The DOW is higher because each dollar buys less. Central bank “printing” of many extra dollars supports the DOW. Wall Street hype helps also. Regardless of the hype, a good crash occurs every decade or so, and after the crash the stock market rises again. Most people buy high, watch it crash, and sell low. How many people will take profits near the top in this market? BUY SILVER!

MD: When you take measurements with a rubber band … that constantly stretches like our inflating money … or constantly contracts like gold and its foolish copier Bitcoin, you add a degree of freedom that just makes life difficult for traders. But we have always seen this variable added … because it enables the “controllers” to take their pound of flesh from the traders. DI wants that pound of flesh … and so do the money changers. But then again, DI is just a money changer. It just needs to stir the pot.

As prices rise, shirts cost more.

MD: Ok. For what follows, DI is going to describe what to it is “rocket science”. To we here at MD, we know it is just the obvious result of “improper” MOE process practices … and thus irrelevant to a “proper” MOE process. Read it and smirk. Scan down to my next comment if you don’t need a dose of this levity.

Debt, dollars, DOW, war, silver, and shirts are connected. They rise and will continue to rise, two steps higher and one lower, as long as we use debt based fiat dollars.

Examples:

Money supply and debt increase. Look at official national debt since 1913. Can you think of a single reason why it will reverse a century-long exponential trend (debt doubles every 8 to 9 years) and turn lower?

Wars will continue and prices will rise. The helmet for an F-35 will cost $400,000. The price for a World War II P-51 aircraft was $52,000.

Silver prices have increased for 90 years and will continue to increase.

The price for shirts is higher, much higher. Dollar devaluation increases prices.

This dress shirt is currently available from Nordstrom for $175.00

Debt, dollars, DOW, war, silver, and shirts are connected.

MD: Ok, I’ll break back in here. One thing I failed to note was another obvious attribute that a “proper” MOE process cares nothing about … that being the “money supply” … and that being the associated manipulation they call “monetary policy”. Everyone here already knows that nonsense for what it is … irrelevant nonsense. “All” money in circulation (created by traders … not supplied) represents “in-process trading promises”. It doesn’t exist before the trading promise is made nor after delivery is achieved as promised … unless there is defaulting and counterfeiting not mitigated immediately by interest collections of like amount. The “unless” results in INFLATION … and that’s what little Gary is describing. It need not exist. But if he has his way we will have DEFLATION (with his gold-is-money by edict nonsense). And that will strangle trade. You’re not going to part with any of your money today when tomorrow it will trade for much more stuff. Zero is obviously the only right value for inflation … and gold can never deliver that value, let alone perpetually guarantee it.

Option One:

Reduce Federal government expenditures, declare peace, balance the budget, let it crash … and DREAM ON!

MD: Institute a “competitive and proper MOE process” in competition with the current money changer instituted “improper” process … and watch money changers and governments wilt. No dreaming and no legislation required. The process is totally transparent so no regulation is required. The process is totally decentralized and can have any number of participants … just like Mutual Casualty Insurance Companies. The most competitive ones giving the best service to traders prevail.

Option Two:

More of the same. More debt, dollars in circulation, continuing wars, and higher silver prices. Shirts will cost $500 instead of $1.00 in 1934 and $175.00 today.

Option Two – so what?

Taxes increase as dollar devaluation continues. Can you afford higher taxes? Will your income rise enough to meet your increased expenses and higher taxes? Will Social Security and your pension pay you in mini-dollars, or micro-dollars? Can you live on pension payments denominated in micro-dollars?

MD: Did you ever stop to think that 3/4ths of the fruits of your labor already go to taxes … and that of the 1/4th that remains, most goes to money changer tribute and insurance companies.

You retain almost none of the fruits of your labor … right now! It goes like this: You start with things like 8% sales tax; then add federal tax … then state tax … then taxes and fees on things like gasoline and your phone and your beer and the lottery (if you’re stupid enough to play it) and everything else you touch. It is not a difficult exercise at all to see that you pay 50% in these “sort of” overt taxes.

But then look at every product and service you buy. The entity producing it is paying over 50% too … and they’re passing that on to you. So of the 50% you have left after paying your taxes, you’re buying products that have 50% taxes in their price. That takes you to 75% (i.e. 3/4ths).

And remember that 100% of these taxes go to the money changers in the form of tribute (they call it interest). “All” the services you think these taxes are buying are actually coming from INFLATION (a designed in leak which the money changers feign targeted at 2% and deliver at 4%).

That’s what “all” government lives off of … inflation. They make trading promises (create money) just like you and I. But they never deliver. They just roll them over. That is counterfeiting. And all money, defaults or counterfeits, that is not reclaimed by “legitimate interest collections” … not by money changer tribute … causes inflation by the operative relation: INFLATION = DEFAULT – INTEREST.

DI cannot dispute anything I have just presented … so they don’t even try. My comments don’t even make it through their moderation.

CONCLUSIONS:

 

  • Debt, dollars, DOW, war, silver, and shirts are connected.
  • Prices for food, housing, transportation, clothing and most other items will increase. Believe the “low” consumer price inflation myth at your own peril.
  • The future may look like the 1930s – where debt killed. Or, more likely, it will look like the 1970s – continual price increases, stagflation, weak economy, rapidly rising gold and silver prices, and increased global stress.
  • My bet is 1970s inflation and worse. Do you own due diligence but remember dollars will be devalued further and higher prices are inevitable.

  • Do you own enough silver?

MD: If you own any gold and silver and you’re not a jeweler or dentist or electronics manufacturer, you are a fool. And “I” admit to being a fool. I drank the coolade and bought quite a bit of the stuff before I realized the truth. I can’t sell it because it’s doesn’t even trade for the dollars I gave up for it … let alone the dollars I need to cover the inflation. Luckily, I also bought land in a low tax, low services county in Texas, which gives me a sustainable retirement.

What I really hope we achieve is “iterative secession”. But it’s not going to happen in my lifetime … and it’s not going to happen with people like Gary Christenson spreading confusion and delusion like this.

Gary Christenson

The Deviant Investor