Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme? | MishTalk HOME ADVERTISING CONTACT SITKA PACIFIC MishTalk ~ Mish's Global Economic Trend Analysis Get Mish! Don't Miss an Article Email Address Signup Here Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme? 28 Thursday Sep 2017 Posted by Mish | September 28, 2017 7:59:24 | Economics ≈ 85 Comments Jamie Dimon, JP Morgan CEO, made quite a headline splash last week when he proclaimed “Bitcoin ‘is a Fraud“. Is Bitcoin a fraud? Or are dollars, euros, yen, and yuan a collective set of frauds? Which, if any are Ponzi schemes? Modern Finance is the Fraud In an article that I wish I had written myself, Viktor Shvets, head of Macquarie’s AsiaPac equity strategy, accurately explains “Modern Finance”, Not Bitcoin, Is The Real Fraud. Paragraphs rearranged for clarity. “Bitcoin is a sort of tulip… it is an instrument of speculation but certainly not a currency and we don’t see it as a threat to central bank policy.” Vitor Constancio, ECB Vice President, September 2017 “You can’t have a business where people can invent a currency out of thin air… it is fraud and worse than tulips bulbs.” Jamie Dimon, CEO JP Morgan, September 2017 If one describes Bitcoin as a fraud, how would one describe a ‘financial cloud’ that is at least 4x-5x larger than the underlying economies? It is unlikely that US$400 trillion+ of financial instruments circulating around the world would ever be repaid and most are now backed by assets that are already either worthless or are diminishing in value. How does one describe rates and the yield curve that are either directly determined by Central Banks (BoJ or PBoC) or heavily influenced by them (Fed or ECB)? While we maintain that despite the presence of US$7.5 trillion of excess reserves (amongst G4+Swiss central banks), global deflationary pressures are so strong that break-out of inflationary pressures is unlikely. However, if public sectors continue to insist on suppressing business/capital market cycles, then some form of full credit market nationalization and/or currency debasement becomes inevitable. Dripping Irony Dimon’s statement on Bitcoin represents the irony of the year. Euros, dollars, etc. are precisely fabricated out of thin air. That was not always the case for dollars. They were once exchangeable for gold. But euros right from the start were a complete fabrication. The Eurozone problems we see today are a direct result of the fraudulent nature of Target2 guarantees on top of the fraudulent nature of the euro itself. Is Bitcoin a Currency? Of course, it is! It’s not very liquid but it is certainly more liquid than Yap Island Stones. Yap Island Stones, Gold, Bitcoin Although the official currency of Micronesia is the US dollar, limestone discs, some of which weigh more than a car, are also currency. People know who owns each stone and its value. Although the stones sit out in the open, there is no risk of theft. Yap Island Stones, Bitcoin, and physical gold ownership (in your home, at GoldMoney, at BitGold or other reputable storage locations), have one thing in common: All of them have no associated debt. They represent no liabilities of any counterparty. Fractional Reserve Lending Constitutes Fraud If someone had a Yap Island stone and wanted to lend out three of them, that would not be possible. Nor can one have $100,000 worth of gold or Bitcoin and legally lend out $1,000,000 of it. If someone tried to do so they would be convicted of fraud. Yet, via fractional reserve lending, banks can lend out money they do not have, and few think anything of it. There are two distinct problems with fractional reserve lending as it exists today. Duration Mismatches Money Creation Out of Thin Air CDs provide an easy to understand example duration mismatches. A person buying a 5-year CD gives up the right to use his money for 5-years in return for an agreed upon interest rate. Bank can and do lend out such money for 20 years. Historically, borrowing short and lending long caused numerous bank runs and financial crises. Note that there are no reserves on savings accounts. Banks can lend that money out while guaranteeing you availability. If everyone tried to get their money at once, the system would implode. We have seen numerous examples in Europe recently. Duration Mismatch Not the Only Problem Fractional reserve lending problems go far beyond duration mismatch. Here are few key points. Fraudulent lending (banks lending more than they have ownership of) pushes up assets prices and favors those with first access to cash (banks and the wealthy). The housing bubble was a result of such fraud. The existing fractional reserve system allows lending of money that is supposed to be available on demand. Lending of money banks have no ownership of is outright fraudulent. Excessive credit backed only by artificially inflated asset prices is simply another form of fraud. Moreover, such lending also sends false signals to the market about the true state of the economy. In the ensuing and inevitable busts, the central bank inevitably punishes savers by artificially holding rates too low. Reflections on “Legitimate” Right-To-Use Some Libertarians argue that as long as customers agree to various banking schemes it is OK. However, it’s not OK because such lending is nothing more than a gigantic kiting scheme. It affects others because it cheapens the value of money and pushes up asset prices for the benefit of those with first access to money, the banks and the wealthy. Logically, two people cannot have the right to use the same money at the same time, whether they agree to such a scheme or not! Fractional Reserve Lending is Fraudulent and Must Stop Entirely Lending what you do not have “ownership of” is the issue. Duration mismatch is a form of that problem, but it is not the only form of that problem. Numerous complications arise when multiple people have immediate access to the same money at the same time. Housing and credit lending bubbles constitute unmistakable proof that fractional reserve lending in any form is fraudulent and must stop entirely. The solution is to abolish the Fed (central banks in general) and have a free market in money. I am confident the public would select gold, but if the public selected Bitcoin or beaver pelts, I would not object. Confusing Bubbles and Capital Flight with Inherent Fraud Dimon’s comment that Bitcoin is widely used a the mechanism for capital flight from China is beside the point. That China needs capital flight rules reflects on the instability of the yuan and the US dollar more than anything else. There is nothing remotely fraudulent about bitcoin itself. And I fully understand why people want it to succeed. That does not mean I see value in bitcoin at these prices. Others do. That’s what makes a market. Inherent Fraud Trillions of dollars, euros, yen, and yuan backed by nothing and created out of nothing have been lent. Interest repayment is virtually impossible as soon as fiat currency kiting stops. That's fraud.https://t.co/EqxVh4E6E1 — Mike Mish Shedlock (@MishGEA) September 29, 2017 Bitcoin, Gold, and Yap Island stones have no such issues. We need a free market in money. Given a choice people would not freely select something inherently fraudulent. Related Articles Target2: Italy, Spain, and Greece owe close to a trillion euros to Germany that cannot possibly be paid back. The ECB guarantees those transactions against the founding charter of the Euro. That constitutes fraud on top of the fraudulent nature of the euro itself. For discussion, please see Another Look at Capital Flight in Italy and Spain: ECB’s Target2 Explanation is False Also consider Target2 and Secret Bailouts: Will Germany be Forced Into a Fiscal Union with Rest of Eurozone? Bitcoin Valuation: I do not like Bitcoin at these prices. Even if I did like Bitcoin at these prices I would be against the constant cheerleading and hype. For discussion, please see Bitcoin “Probably Worth Zero” (not my view but it could happen). Also consider Bitcoin Silliness, Myths, and Fatal Flaws. Gold Hype: I am consistent. I do not like the end-of-the-world talk regarding gold. On September 14, 2017, leading hypester Jim Rickards said “Next Financial Crisis 6-8 Months Away” Got Popcorn? Gold? In a search for the above, I stumbled across my May 27, 2014 article Interview With James Rickards, Author of “The Death of Money”. On August 31, 2017, James Rickards stated “The Fed can cause massive inflation in 15 minutes.” The idea was ludicrous. For discussion, please see Gold and Bitcoin Hype Hits Stratosphere (Part 1). Hyperinflation proponents are consistently amusing if nothing else. But hey, hype sells. Viktor Shvets’ viewpoint is similar if not identical to mine: “Global deflationary pressures are so strong that break-out of inflationary pressures is unlikely. However, if public sectors continue to insist on suppressing business/capital market cycles, then some form of full credit market nationalization and/or currency debasement becomes inevitable.” MMT Foolishness: Modern Monetary Theory (MMT) suggests that debt does not matter and governments can print at will creating a virtual utopia of constant growth. MMT, Keynesian, and Monetarism all suffer from the same fatal flaw: They promise something for nothing, in various ways. For discussion, please see Debunking MMT, Keynesianism, Monetarism: Reader asks “What theories do you believe?” Mish Reading List. Those who believe in the absurdity that a benevolent government would spend the money wisely, cancel all the debt or pay interest to itself and everyone will essentially live happily ever after, seriously needs to investigate my reading list. By the way, MMT cannot possibly be correct for a reason I have not heard anyone else state: It’s based on fraud. Final Comments I do agree with Rickards that a currency crisis is coming. I do not know if it starts tomorrow, five years from now, or a decade from now. Little would surprise me at this point. I believe gold will be the beneficiary, but I am unwilling to set a price target. However, the $10,000 target of Rickards on gold is far more realistic than the $1,000,000 price target of some Bitcoin advocates. Meanwhile, Jamie Dimon is far off base in more ways than one. Mike “Mish” Shedlock Share this: Click to share on Facebook (Opens in new window) Click to share on Twitter (Opens in new window) Click to share on LinkedIn (Opens in new window) Click to email a link to a friend (Opens in new window) Click to print (Opens in new window) Like this: Like Loading... About Mish Mike "Mish" Shedlock is a registered investment advisor representative for SitkaPacific Capital Management. View all posts by Mish » Post navigation ← Previous post Next post → Disclaimer: The content on this site is provided as general information only and should not be taken as investment advice. All site content, including advertisements, shall not be construed as a recommendation to buy or sell any security or financial instrument, or to participate in any particular trading or investment strategy. The ideas expressed on this site are solely the opinions of the author(s) and do not necessarily represent the opinions of sponsors or firms affiliated with the author(s). The author may or may not have a position in any company or advertiser referenced above. Any action that you take as a result of information, analysis, or advertisement on this site is ultimately your responsibility. Consult your investment adviser before making any investment decisions. 85 thoughts on “Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme?” Roger said: September 28, 2017 8:35:18 at 8:35 PM Currency’s are also weapons,the petro-yuan will soon compete with the dollar who is on it’s way out as world currency,petro-yuan will be backed by gold.The world is changing big time! Loading... Reply shamrock said: September 28, 2017 9:11:59 at 9:11 PM I wonder, suppose a thousand people deposit a thousand dollars at an “on demand” account in Chicago, and the bank moves $900,000 of it to a New York vault, leaving only $100,000 in Chicago to cover the deposits, is that fraud? What if all 1,000 people come in and want their money? It would take days to satisfy those demands. Loading... Reply Crysangle said: September 28, 2017 9:16:34 at 9:16 PM Excellent post. Reduced to a complete (over)simplification ( so no-one start on me please) fiat to my view works like this : A person approaches a bank, the bank lends him 1 and they both agree he owes 1 to the bank . They then decide to call that 1 a dollar ( or Yen or Euro) , a law is passed that says anything for sale must be able to be paid in dollars, and so must taxes. After that all the complexity of modern finance and banking are added to tailor a system. So is fiat in itself fraud? We know that a large part of the subsequent system is fraudulent in that its means are deceptive, that they create an ‘as if’ that dollar was sound (partly by being backed by force), but the initial base idea of creating 1 dollar like that is not fraud. Anyone can create a unit of account in a similar way, write on a piece of paper 1 Invention to represent it, and try to use it as money. I don’t think they will get far…Bitcoin is a much sounder method of the same. So the fraud starts the moment fiat is mandated as legal tender (forced to accept payment in), as without that it would face true market scrutiny of value. How can a law like legal tender be a fraud? Its aim in theory is just to harmonise a national payment and accounting unit. So the fraud is in choosing a unit that is not a unit, that is to say one that is manipulable in volume, therefore worth. Bankers will pretend new units are only created to represent new worth, this is patently false. New units are created by drawing from the existing worth of the pre-existing units and attributing that collected worth, at the expense of pre-existing holders, to something else. In theory, the whole structure is portrayed as being able to resolve itself, but because there is real world false allocation, as described above, it cannot, and instead relies on ever loosening policy to fill in the mis-construct, or allowing cyclical resets where some clearer meaning of value is re-established. I just wrote that straight off, so take it for contemplation, not meticulous writ. Loading... Reply Medex Man said: September 28, 2017 9:22:42 at 9:22 PM The big bank business model broke down sometime around 2005-2008, and has not been fixed. Despite accepting millions in pay and bonuses, Dimon has not transformed JPM into an entity that would be viable without perpetual ongoing Federal Reserve support…. seems like calling this has been company a bank is a bit of a fraud. Ward of the state is more accurate. Loading... Reply KPL said: September 28, 2017 9:22:50 at 9:22 PM Central Banks have usurped powers and now strut around as if they are demigods. On top of it they just do not seem to know how to keep their mouths shut. It appears all they do between their meetings is give speeches here and there acting as if they know everything and have everything in their control but if things go wrong they are able to conveniently lay the blame on someone’s else door or claim no one could have seen this and then use interest rates, buy up anything that is not nailed down and print as much money as needed to save their cronies (mind you it is all done for the main street or else the main street will be blown to smithereens). Where from these self-appointed guardians of the world draw their power from? If they get their salary from the tax-payers it is time these tax-payers funded largesse for these jackasses’ jaunts came to an end. This would happen only when people realize that they have been had by these guys and demand that they be put to rest. If there is one thing that is evident over the last decade it is that the central bankers are an infection on mankind that has to be eradicated. Only then will we have lasting prosperity. Loading... Reply Bam_Man said: September 28, 2017 9:31:29 at 9:31 PM The initial warning signs of the impending global currency crisis are already upon us and clearly evident in the absurd valuations of global equities and Bitcoin. I have said for the past two years that equities are either insanely over-valued or accurately anticipating a global currency crisis and a massive, across-the-board devaluation. Right now my money is on the latter. Loading... Reply Greg said: September 28, 2017 9:45:19 at 9:45 PM Nothing wrong with absurd valuations if you’re good enough to make the trades at the right time. I should have listened to my son who is much more in touch with the latest beliefs. Loading... Reply Stuki Moi said: September 29, 2017 8:27:00 at 8:27 AM Nothing wrong with slavery, as long as you’re not a nigger, I guess…………. Loading... Reply rvc said: October 2, 2017 11:57:45 at 11:57 AM Well stated….but to a central banker (or one of their owners like Jamie) we are all niggers regardless of our race or color. Loading... Reply SoundAndFury said: September 28, 2017 9:59:22 at 9:59 PM Bankers wear expensive suits because the bank does not have your money. Loading... Reply gerard said: September 28, 2017 10:28:15 at 10:28 PM You can bet Jaime and his friends shorted Bitcoin before his speech Loading... Reply Medex Man said: September 28, 2017 10:38:58 at 10:38 PM When Jamie Dimon loses HIS money, its a catastrophe. When he loses taxpayer money, its a tempest in a teapot. Loading... Reply CJ said: September 28, 2017 11:01:48 at 11:01 PM Reminds me of a quote by Keith Carradine that I just read: “I don’t pay much attention to awards; unless I win one”. Loading... Reply Greg said: September 28, 2017 10:49:34 at 10:49 PM If you are holding “physical” dollars at least you have some paper. Loading... Reply CJ said: September 28, 2017 11:07:48 at 11:07 PM This is a “physical” dollar: http://www.ebay.com/itm/1-Indian-Head-Gold-Type-3-Cleaned-SKU-55501/121837382673?hash=item1c5e12ec11%3Ag%3AVNQAAOxy3HJTHfh1 And then there are the old silver dollars made until 1935 which have .77344 oz. pure silver. Loading... Reply bradw2k said: September 28, 2017 11:31:26 at 11:31 PM Mish, how does a currency crisis look different from inflation? Loading... Reply Mish said: September 28, 2017 11:53:05 at 11:53 PM Think of the Eurozone crisis – Not much price inflation but bond yields soared. There are other ways it could play out as well, including a stock market collapse. Junk bonds would likely get smashed. Gold would likely soar Good question. Mish Loading... Reply JD said: September 29, 2017 12:05:05 at 12:05 AM Bond yields soared against what? There was no crisis in the issue of the ECB, or German bonds as I remember. If you take the flipside though, you could say there was massive inflation in German bonds & Euros against say, Italian bonds. Loading... Reply Mish said: September 29, 2017 2:36:37 at 2:36 AM Yields in Greece and Portugal went to the moon Loading... Reply shamrock said: September 29, 2017 8:34:59 at 8:34 AM Greek 10 year yield is 5.5 and Portugal is 2.5. What happened to the crisis? Loading... Professorlocknload said: September 29, 2017 12:08:35 at 12:08 AM A currency crisis could also include a definition along the lines of a “crisis in confidence.” Loading... Reply Crysangle said: September 29, 2017 7:30:39 at 7:30 AM Yep, it is sort of reversal of normal valuation. Normally people accept the currency as attributing the value of something… so and so is worth so many dollars, they don’t question what a dollar is worth but just accept it “as worth” . With a currency crisis they are turning round and saying “what is this dollar worth” for some reason, and find they cannot place a solid reference to it. So with normal inflation they are not quite at the point of questioning the currency itself. When some references, not average public references but important market references, start really playing up, then people become cautious and most tend to look to their politicians for answers. Once the public see clear disruption in their currency as near, usually by resulting political events and heavy media…well they panic, and the rest is history. Loading... Reply Professorlocknload said: September 29, 2017 12:04:37 at 12:04 AM The real fraud lies in .gov forced taxpayer backing of fractional reserve lending schemes. Take away that “Put” and hold the scammers and their pyramid scheme participants liable for their actions, and watch how fast the practice disappears on its own. And yes, even gold has a history of fractional rehypothication,,,,in the creation of more “Receipts” than gold to back them. Only possession of real physical metals constitutes zero liability “Money.” Not paper receipts,Gold Money, Bitgold or shares of GLD. Hell, that’s why the currency is no longer gold or silver,,,,too many “Fracional Reserve” receipts (Silver Certificates and Gold Certificates) were issued against too little Au and Ag. Really, if we are talking a crisis sufficient to run the price of gold up to $5-10 k,,,well, that should be a big enough event to create “Government by Emergency.” And when desperate governments seize all these conveniently centralized private Gold vaults, how long will the line be at Eccles for folks to try and redeem their receipts? Might resemble an ATM line in Cypress? Only x10,000, and well armed, maybe? That said, anyone else here seen the Gordon Long interview on Greg Hunter? Any questions? Loading... Reply Jon Sellers said: September 29, 2017 6:02:01 at 6:02 AM The very purpose of the federal reserve initially was to have a big enough gold reserve to stop runs on member banks, completely due to bankers fraudulently creating too many banknotes. Loading... Reply Stuki Moi said: September 29, 2017 8:39:02 at 8:39 AM +1 As long as the buck (or lack thereof) stops with the bank who over issued claims to specie it has in it’s vaults, fractional reserving is perfectly fine. But that requires every paper dollar claiming to represent gold supposedly held by X, to include a mention of who X is. Then it is up to the one accepting the bill as payment, whether he trusts X to honor that claim or not. If not, he can demand payment in specie. Like virtually all else in the world, left to it’s own devices, without any government involvement, fractional reserving would be a-ok as well. But, as always, once government and government institutions get involved, things go the same way they always do once government gets involved. Loading... Reply Greg said: September 29, 2017 12:50:10 at 12:50 AM The Drive to Cryptocurrencies, Who is Really Driving This Bus, by Lynette Zang Loading... Reply Truth seeker said: September 29, 2017 1:00:17 at 1:00 AM Have interesting things to say Mish if allowed-tomorrow Loading... Reply Mish said: September 29, 2017 3:19:50 at 3:19 AM Go ahead Loading... Reply The_Fish said: September 29, 2017 1:55:59 at 1:55 AM Bitcoin has at least one thing the $ does not. SCARCITY (limited issuance). It can have another. NO CB CONTROL. It can have another. ANONYMITY. It can have another. EASY CROSS BORDER PORTABILITY. So Scarcity, Liberty, Anonymity, Portability. I don’t think of bitcoin as a currency but something along the lines of bitcoin could be so if backed by a real asset with the coin a claim on a share of that real asset. Downside of real assets is you can lose all the benefits unless someone guarantees them. Idea – buy an island, build vaults, stuff it with gold, allow ownership transfer via qty limited crypto currency. You’ll need some defence. Job done. A new global currency. Loading... Reply Golden Gekko said: September 29, 2017 3:58:53 at 3:58 AM Craptocurrencies including Bitcon are: — worthless digital nothings that are backed by nothing and therefore inherently valueless. Mere scarcity does not confer value — absolutely not anonymous if you buy them on an exchange, some of which are frauds. Maybe if you buy them with a suitcase full of cash in a back alley. Your risk. –accepted by virtually no merchants due to the volatility, tax liabilities and 100% speculative nature A craptocurrency could only attain a sort of “value” if it becomes backed, either by government force or by a tangible asset. Loading... Reply Mish said: September 29, 2017 10:44:36 at 10:44 AM There may or may not be value. If people value it, there is value, at least at the moment Loading... Reply The_Fish said: September 29, 2017 2:01:58 at 2:01 AM Lastly – JP MORGAN etc have problems. TRAPPED. A) They can’t set up a currency without upsetting TPTB that feed them. They have to sit and wait. B) They stand to see $100’s Million in transfer fees VAPORIZED. They need to respond to defend themselves but see A) above. C) They know that are sitting, waiting to be UBERIZED. No wonder Dimon was animated. Expect calls for regulation so TPTB come to defend the banks. First bank to break ranks could clear up imho. Loading... Reply The_Fish said: September 29, 2017 2:05:41 at 2:05 AM I do expect massive banking disruption so expect them to lobby every possible way to have controls put in to help defend them. In another way blockchain will help them by reducing some costs, it could even push up transaction volumes. Predicting exact outcomes is guess work but the genie is out of the bottle now. Loading... Reply C Jones said: September 29, 2017 3:07:13 at 3:07 AM Another great post Mish, thank you. If I had to start with a blank piece of paper, I agree that using a currency backed by something robust (e.g. gold) would be the best course of action. However ‘we are where we are’ as they say. And given the huge credit expansion it seems extraordinarily unlikely any alternative currency will be allowed to flourish. A currency that is not under direct government control is a threat. Governments are historically slow to react, but as they figure this out these alternative currencies will be outlawed. The Chinese have possibly made a start in this direction. Others will follow. It will be easy to outlaw because every financial transaction is already recorded (and that’s aside from the vast surveillance state the west has developed). Outlawing alternative currencies is inevitable in order to maintain the current order. That I would happily bet on. I could not imagine a bigger threat to the fiat money system that what we saw in 2007-9. It encompassed every area of the market … from real estate to money market, from stocks to sovereign bonds … every asset class got tested (got hammered) and governments just gave us more of the same to maintain the status quo. Outlawing alternative currencies looks like a baby step compared to the legal (moral?) hurdles public institutions had to cross in 2007-9. I’d love to see a move away from fiat currency, but alas in the real world it just won’t happen. Loading... Reply Stuki Moi said: September 29, 2017 9:00:13 at 9:00 AM The move will come from outside of the totalitarian Juntas running the West. Particularly from actors in direct opposition to said Juntas. BTC has seeinuse for rug running. since it’s inception. The drug trade needs guns. Guns threaten the juntas as well, so that trade is also attempted “regulated.” Hence benefits from a more anonymous way of making payments. Then “terror funding” intersects with the gun trade, as terrorists also tend to like guns, and also have a need to keep their dealings anonymous. And terrorists also intersect with less internationally focused militias. Which also needs to keep dealings away from the locals juntas they are fighting…… In many, more and more as the banksters extend and deepen their robbery efforts, societies, a substantial chunk of the economy revolve around drugs (and other “crimes”), militia/guerrilla activity, and such. So it becomes advantageous for merchants who want to sell to those segments, to make accepting the currency those use, as cheap and easy as possible. So you’ll have bleedover into “regular” sectors. And then, those guys are potential customers for others, and so on and so on……. In general, the more cumbersome, risky and expensive the juntas make dealing with the “state approved” financial system, the more payments will move to less confiscatory currencies and payment networks. Loading... Reply C Jones said: October 5, 2017 6:41:56 at 6:41 AM Update: ECB are on the case. Bloomberg: The governing body has also been considering regulation specifically geared toward initial coin offerings, or ICOs. “We’re discussing in the ECB to put concrete legal restrictions in place,” Nowotny said. Loading... Reply jayfindling said: September 29, 2017 4:07:23 at 4:07 AM Great post!! Loading... Reply Jon Sellers said: September 29, 2017 6:11:37 at 6:11 AM I don’t understand why you have to get rid of the Fed Reserve in order to have a free market in currency. Is it against the law for me to trade silver dollars for something else, with anyone else, in the USA? I don’t believe it is. I think the issue is different. Limited liability corporations, being government sponsored organizations, only want to deal in government designated money because they have a liability to the government. So I don’t think you would ever see Amazon taking bitcoin or silver as payment. If I want the private property protection of government, IP protection, contract enforcement and other emoluments I have to support the government in whatever way the government says I must. Loading... Reply Terry Reiber said: September 29, 2017 7:12:28 at 7:12 AM Hi Jon, I, for one, do not want the property protection, IP protection, contract enforcement or other emoluments of the government. I’d prefer if these features were available in the private sector. Loading... Reply Stuki Moi said: September 29, 2017 9:16:58 at 9:16 AM For a market to be free, it is required that both supply and demand is unrestricted. You wouldn’t have a free market in cell phones, if only some outfit with a state sanction was allowed to produce them, regardless of whether you were allowed to sell yours on ebay. As long as there were no laws barring anyone from going into competition with the Fed in the dollar printing business, and government showed no preference for one producer’s dollars over another’s when it came to collect taxes, I guess the Fed would be OK. That’s pretty far from what we currently have, though. Loading... Reply madashellowell said: September 29, 2017 9:44:12 at 9:44 AM That’s the beauty of it. You can believe what you like, each finding security and value in their own little den of delusion. We can scream at each other that we are living in delusion simply because yours looks different than mine. Loading... Reply FlyOver Country said: September 29, 2017 6:56:50 at 6:56 AM Dollar has the worlds most powerful standing army and ‘relatively’ stable government behind it. Bitcoin, goes poof if you turn off the lights. Loading... Reply Bam_Man said: September 29, 2017 7:32:54 at 7:32 AM Yes – ask the people in Puerto Rico how much they like Bitcoin right now. People are sending relatives down there bundles of physical CASH, because cash and barter are the only games in town right now – and probably will be for the next several MONTHS. Loading... Reply Crysangle said: September 29, 2017 7:35:46 at 7:35 AM So does the relatively stable government. Loading... Reply Crysangle said: September 29, 2017 8:29:50 at 8:29 AM Though admittedly cash would normally be better to hold than BTC… at an extreme though you could imagine a circumstance where dollar (e.g.) was worthless at a global level, but BTC not. Loading... Reply whirlaway said: September 29, 2017 8:22:30 at 8:22 AM Both are conjured out of thin air. But the dollar has the world’s largest military force and the US taxing authority behind it. Bitcoin has nothing. Even the crappiest fiat currency has some kind of standing army and taxing authority, however inefficient and corrupt it may be. Bitcoin (and other digital currencies) has nothing. Loading... Reply BarryRose said: September 29, 2017 8:22:32 at 8:22 AM This ‘fraudulent currency’ argument has been going on a long time. “It is well enough that people of the nation do not understand our banking and monetary system, for if they did, I believe there would be a revolution before tomorrow morning.” ~ Henry Ford “All money is a matter of belief.” ~ Adam Smith Talk is easy – how do we facilitate the change to a stable, backed currency? Loading... Reply Mish said: September 29, 2017 10:42:59 at 10:42 AM Ron Paul made a proposal I would personally phase it into a 100% reserve system Loading... Reply prinjon said: September 30, 2017 1:15:11 at 1:15 AM You mean 1 dollar at the bank can be lent but not 2 ? Since a currency is not redeemable for a physical asset at the bank, this rule remains illogical and unnatural. So no differing with current system of creation of value by the strong and wealthy out of thin air. All a matter of belief, we have to admit our human limitation. Loading... Reply Jon Sellers said: September 29, 2017 12:00:10 at 12:00 PM The US dollar is a “backed” currency. It is backed by the stuff you can buy with it. Loading... Reply Crysangle said: September 29, 2017 12:07:42 at 12:07 PM Backed by “Or else.” you mean. Loading... Reply madashellowell said: September 29, 2017 8:55:59 at 8:55 AM Currencies are constructed as nothing more than a mental artifact of confidence, a confidence destined for abuse as most are. Every “advancement” has been justified with security and convenience….our two greatest weaknesses. Our “markets” tend to try and satisfy our emotional demands with “supply”, and governments are happily doing so. It is the reason for existence. The argument between types or architecture of this “confidence scheme” seem a bit pointless. The ONLY currency that offers any resistance to fraud is gold, as it (as of yet) cannot be easily defrauded, the turning of lead or any other element into another. We should always remember that all currencies have been derived from scarcity and that scarcity once evolved into currency has created the demand to eliminate its scarcity/value. We saw it with dilution of metals and eventually metal backed paper, which made dilution of value even easier. And even though paper money long since surrendered its connection to metals, we see it evolve again with ETFs selling paper gold and silver, again originally tied to metal ounces, now set afloat. We want to believe in block-chain technology, in its ability to prevent or eliminate fraud, but even its “mining” is done in the dark secret hold of a computer somewhere. We want to pretend that technology can protect us, when ultimately we are seeking protection FROM technology….the bigger stick, the stronger steel, the more powerful gun, the more destructive bomb, the more invasive surveillance, the bigger brain, the more all-seeing eye of transparency and the future (a future that we cannot yet see but have effectively already bought and sold using another artifact of convenience, diluting the value of currency, (DEBT)), when in reality there is no security beyond what we can possess in our own hands and minds. Ultimately I think speculation is driven by greed but also by the inherent knowledge that our monetary system is BASED upon fraud, everyone seeking shelter from it in yet ANOTHER fraud. That has always been the advertised point of inflation….to “stimulate” financial “activity”, and the great dread of deflation incentivizing the opposite. As long as people find profit in fraud, and as long as it is condoned and fostered, fraud will become the dominant theme of commerce, each transaction NOT based upon exchange of value for value, but for the opportunity to STEAL. Hail CRYPTO-CURRENCIES! the next big thing. Anything less would be, well….inconvenient. I know, I’m such a downer. Loading... Reply Winston said: September 29, 2017 9:09:16 at 9:09 AM The fundamental flaws: Digital ‘Currencies’ Are ALL A Scam Guest Post by Karl Denninger https://www.theburningplatform.com/2017/06/17/digital-currencies-are-all-a-scam/ Loading... Reply Seenitallbefore said: September 29, 2017 9:27:29 at 9:27 AM The Bitcoin debate is not about the whether it is a fraud or ponzi scheme, it is about control. Jamie Dimon and his ilk cannot control crypto currencies so they do not like them. If they had control of them they would be all for it. Look past the debate to the real issue. Institutions like finance and government hate anything they cannot control and regulate. Loading... Reply madashellowell said: September 29, 2017 9:59:59 at 9:59 AM But ALL currency is fraud if it can be secretly diluted or replicated. Does any of us here have the requisite knowledge to truly know real crypto from conjured? We are forced to assume, to accept that what is presented to us a “money” is truly money. Fortunately we typically don’t care as long as the next guy is at least as indifferent or accepting as we are. And if it has the “good housekeeping seal” of full faith and credit of our government, or FDIC above the door of the bank, we’re good, when in no way do those guarantors have the ability to truly back anything without outright theft from the very people they claim to protect. A Ponzi is a fraud, another deception. Does it matter if we classify its type? Most frauds share the common thread of offering something for nothing while providing nothing for something. Loading... Reply Seenitallbefore said: September 29, 2017 1:01:42 at 1:01 PM Would you feel better if we were trading gold coins instead of bitcoins. Anything is only worth what the next guy will pay for it. The real fear is bitcoins will catch on as a legitimate means of commerce. I see a real possibility for it in a digital age except every government and financial institution in the world will publicly hate it while secretly socking assets into it in case of the next disaster. Loading... Reply madashellowell said: September 29, 2017 2:59:44 at 2:59 PM I have no doubt that crypto currencies will eventually reign, and yes, “value” is ultimately in the eyes of the holder. The one difference to me is that crypto’s value may be a variable like gold’s, by but gold does not evaporate from existence or instantly transfer ownership with a keystroke if physically held. Every technological invention to provide security is in response to technological threats. The assumption that block-chain is infallible is simply begging for innovations to prove that is not true. The hidden or subtle motivation for all this however is convenience. There is no reason on earth why gold could not be currency except of convenience. Transfer is costly and and responsibility is too apparent. Who IS guarding your Bitcoin? Nobody, right, because they say the technology doesn’t require it. perfect. And gold is too heavy to carry around. It says something about our world and our money that we have so much we just can’t carry it around. Funny thing is, Venezuela is saying the same about paper money right now. They really need crypto there for sure! Maybe Equifax can be in charge. Loading... Reply thimk said: September 29, 2017 9:31:56 at 9:31 AM mish, regarding the statement that the fractional reserve system creates money: is it not true only the central banks can “create money ” ? the fractional reserve system allows banks reserves to be released/loaned upon deposit of additional funds. The banks own the reserves. I don’t see any evidence that that the banks lend out money the don’t own. Maybe lending out borrowed money as an arbitrage could be the exception. Are you sure this meme that “banks create money” by the fractional reserve system is correct.? Loading... Reply Mish said: September 29, 2017 10:41:18 at 10:41 AM Banks create money by lending If they lend guaranteed deposits, then they lend money they do not have ownership of Loading... Reply thimk said: September 29, 2017 2:18:18 at 2:18 PM ok , but to clarify the money they lend out is on loan to them or maybe from profits . It is not created in the same manner the feds do . The dollars must be in their account prior to lending. The banks do not increase the money supply directly. They “release money” into the system keeping 10 % in reserves for redemption . Is this somewhat correct ? thanks Loading... Reply Maximus Minimus said: September 29, 2017 11:04:39 at 11:04 AM Bill Gross has a funny insight about it. Banks do create money: https://en-us.janushenderson.com/advisor/show-me-the-money/ Loading... Reply Maximus Minimus said: September 29, 2017 11:47:16 at 11:47 AM More in-depth reading. The Problem of Fractional Reserve Banking, Part 1 http://www.acting-man.com/?p=3723 The Problem of Fractional Reserve Banking, Part 2 http://www.acting-man.com/?p=3867 Loading... Reply wootendw said: September 29, 2017 10:21:29 at 10:21 AM “Some Libertarians argue that as long as customers agree to various banking schemes it is OK.” I need to earn some money and I have experience mowing lawns. I borrow $500 from my neighbor, Mr. Jones, to purchase a lawn mower and agree to pay him back during the next three months at a reasonable interest rate for a 3-month loan. I buy a lawn mower from Mr. Smith using the $500 Mr. Jones loaned me. Mr. Smith has sold me a lawn mower and doesn’t care where I got the $500 from. He doesn’t need to use the money now so he loans it to a dancer, Isadora Duncan, who has an affectation for long, expensive silk scarves. Isadora agrees to pay Mr. Jones back plus interest over a period of one year, expecting to earn the money dancing with her scarves. The rest is history. The same money I borrowed money for three months was loaned out for one year. Where is the fraud? Loading... Reply Mish said: September 29, 2017 10:38:03 at 10:38 AM There isn’t any. Nor are there any guarantees on any of those loans Nor did you create any money in any of your transactions Banks create money by lending Banks also guarantee deposits Banks are subject to runs on the banks None of that applies to your transactions Loading... Reply wootendw said: September 29, 2017 11:23:15 at 11:23 AM “Banks create money by lending Banks also guarantee deposits” My point here is that duration mismatch isn’t really the problem even though deposits in savings accounts have a duration of zero. Guaranteeing (savings) deposits (which are really loans) is a problem. Rather than ban fractional, or zero, reserve lending, the simpler solution is for all loans to be collateralized with no (legal) recourse to the lender other than collateral recovery should the borrower decide to walk away. LTV ratios would typically lower under this scenario. For deposits in bank savings account, which are loans to the bank, the collateral would be some kind of shares in the bank’s portfolio. This collateral would normally have a higher value than the amount deposited at the time of the deposit. If the portfolio declined in value to less than the account balance, the bank could simply hand over the shares and keep your deposit even if it weren’t lost to a bad loan. As long as the depositor understands the deal, there is no fraud and all lending would be limited to what has already been saved. Loading... Reply Maximus Minimus said: September 29, 2017 12:03:50 at 12:03 PM Banks create money by lending. This is a puerile case. They also issue bonds, and some lenders only issue bonds. It’s actually scary that the banks that offer high interest accounts are the most risky for bank runs. Banks guarantee deposits. This is only indirectly through deposit insurance corporation which might not have enough to cover a big event (and at any rate has it’s money invested), eventually the taxpayer is the guarantor. Loading... Reply KPL said: September 29, 2017 11:19:10 at 11:19 AM Since Mr.Smith is on his own he lends $500 to dancer, Isadora Duncan. If the dancer does not pay the interest or principal back Mr.Smith loses $500. But If Mr.Smith were a bank with $500 he could have lent to ten dancers. And if the ten dancers do not return the capital or interest, he gets bailed out by the Fed with the tax-payers. In the first instance, Mr.Smith is screwed (and rightly so) In the second instance, the tax-payers are screwed (to save the tax-payers). If there were no Fed guarantees, Mr.Smith the bank needs to be as prudent as Mr.Smith the individual. This makes a LOT OF DIFFERENCE as it becomes your money to lose and you will not be made whole. That is why the whole central bankers bailout screws the financial system. Let people eat what they deserve! Loading... Reply wootendw said: September 29, 2017 11:40:11 at 11:40 AM “And if the ten dancers do not return the capital or interest, he gets bailed out by the Fed with the tax-payers.” You could still have fractional reserve lending without the Fed. That was why the Fed was created in the first place – to bail the banks out. Without the Fed and the FDIC, etc., a bank run only matters to imprudent depositors who put their money in imprudent or fraudulent banks. Loading... Reply madashellowell said: September 29, 2017 12:05:04 at 12:05 PM But another insurance plan put in place to protect the innocent citizens from the wolves, but instead simply sets the dinner table for them. The FDIC was established to create the appearance of safety in banks, so the consumer would not need trouble themselves with concerns of safety and fidelity. Who cares if a thief owns your bank? Got FDIC? Lets keep in mind, EVERYTHING they do is for US. Loading... Reply Jon Sellers said: September 29, 2017 12:12:29 at 12:12 PM The original paper money was produced by banks. You gave a banker 500 gold coins in Paris and got 500 “1 gold coin note” in exchange. Then you could travel to Florence and trade those notes for 500 gold coins. Then people figured out they could trade those notes along the way for food and lodging. And paper money came into being. Then the bankers figured out they could hand out “1 gold coin note” without ever having taken in a gold coin to back it. And fiat money creation was born. Loading... Reply wootendw said: September 29, 2017 12:24:15 at 12:24 PM “Then the bankers figured out they could hand out “1 gold coin note” without ever having taken in a gold coin to back it. And fiat money creation was born.” As long as the bank is not creating NEW notes with no backing, there should be no problem loaning out the notes. No that is not FIAT money. Fiat money is ‘money’ only because the government says it is money. Loading... Maximus Minimus said: September 29, 2017 11:34:03 at 11:34 AM What you describe is not a fractional system. If Isadora does not return the money, it will hurt Mr. Smith (which he deserves), but Mr. Jones will have his fully paid lawn mover, and other customers (or deserve to go down with Mr. Smith). Loading... Reply wootendw said: September 29, 2017 11:47:00 at 11:47 AM “What you describe is not a fractional system.” I was mainly referring to duration mismatch. I should have put that as the subject of my comment. Moreover, it may not be fractional reserve but the effect is the same. All the money loaned to me has been re-loaned with no reserve. Loading... Reply madashellowell said: September 29, 2017 12:17:28 at 12:17 PM Did mr. Jones “create” the $500 or did he earn it, or dig it from the earth? Loading... Reply wootendw said: September 29, 2017 12:27:32 at 12:27 PM The problem is not fractional reserve banking. The problem is government guaranteeing deposits. Loading... Reply Maximus Minimus said: September 29, 2017 10:59:58 at 10:59 AM “Bitcoin vs Dollars: Which One is a Fraud? Which One is a Ponzi Scheme?” I would say, it’s a toss-up. Loading... Reply KPL said: September 29, 2017 11:15:33 at 11:15 AM Since Mr.Smith is on his own he lends $500 to dancer, Isadora Duncan. If the dancer does not pay the interest or principal back Mr.Smith loses $500. But If Mr.Smith were a bank with $500 he could have lent to ten dancers. And if the ten dancers do not return the capital or interest, he gets bailed out by the Fed with the tax-payers. In the first instance, Mr.Smith is screwed (and rightly so) In the second instance, the tax-payers are screwed (to save the tax-payers). If there were no Fed guarantees, Mr.Smith the bank needs to be as prudent as Mr.Smith the individual. This makes a LOT OF DIFFERENCE as it becomes your money to lose and you will not be made whole. That is why the whole central bankers bailout screws the financial system. Let people eat what they deserve! Loading... Reply wootendw said: September 29, 2017 11:57:31 at 11:57 AM What fraction of a depositor’s money does a money market fund hold in reserve? Loading... Reply Kpl said: September 29, 2017 2:05:03 at 2:05 PM 10%. So Mr.Smith the banker will lend $5000, 4500 of which has come from thin air and which has to be replenished by taxpayers when it goes up in smoke. Pray tell me why i should .pay for the mistake of Mr.Smith the banker. Loading... Reply wootendw said: September 29, 2017 5:55:43 at 5:55 PM “Pray tell me why i should .pay for the mistake of Mr.Smith the banker.” I did not say you should pay. Nor the FDIC nor the Fed, etc, none of which should exist. I am asking why lenders cannot lend out what others have loaned them, reserve or no reserve. Loading... Reply KPL said: September 29, 2017 10:36:20 at 10:36 PM Reserve enable more lending ($5000 vs $500). I am sure there are no issues in lending $500, the money Mr.Smith, the Banker, has got. Again with the caveat that he eats the result.You cannot separate the result from your action and expect the banker to act rationally. Why should he, when he is sure to be bailed out. He is going to get $500 anyway so prudence and diligence go for a toss. This is the issue with the market now. It is as if the participants know that come what may the markets will not be allowed to fall. Whether the Fed will allow it or not is now besides the point. The question is whether the Fed can be the market for ever. I personally do not think so. But I cannot make any money out of this conviction since I am not capable of timing it. Loading... Reply jcs said: September 29, 2017 7:49:05 at 7:49 PM “You can’t have a business where people can invent a currency out of thin air… it is fraud and worse than tulips bulbs” “Dimon’s statement on Bitcoin represents the irony of the year. Euros, dollars, etc. are precisely fabricated out of thin air.” @Mish, is dimon’s statement still ironic if “people” is understood to be non-banksters? i fully expect that’s what he meant. Loading... Reply Toni Marino said: September 30, 2017 3:24:36 at 3:24 AM Bitcoin is itself a valuable. He doesn’t need gold or another standard. This is a big plus! Loading... Reply Frog said: October 2, 2017 6:54:39 at 6:54 AM For me the clue is in the technology. Block chain ‘mail.’ It is a Ponzi scheme and favours first time and early users. But once the number of fools is exhausted it implodes. No-one prices in BTC. As it is too volatile. Therefore why would joe blogs convert from USD to BTC to USD to buy anything. There is a cost of two bid/offer spreads. It is purely a speculative asset, that potentially has value for some to facilitate somewhat dubious activities. They talk of anonymity. With that comes the issue of how do you prove title to same. They talk of finite supply. There are potentially an infinite number of cryptocurrencies. (e.g if I bought all 21 M BTC – ironically it would actually be worthless since it would have no real raison d’etre). BTCs are so easy to pump and dump. And so Ponzi schemes are great if you are just not last leaving the party. But hey Bernie Madoff did time for running his last Ponzi scheme. Caveat emptor. Loading... Reply Mish said: October 2, 2017 10:50:15 at 10:50 AM It is irrelevant (outside of something like Yap Island stones) what something is priced in Loading... Reply Leave a Reply to Mish Cancel reply Subscribe via Email Enter your email address to receive notifications of new posts by email. Note: You'll have to confirm your address after sign-up. Please check your spam folder if you do not receive a confirmation email. Email Address Subscribe Join 5,606 other subscribers Twitter Follow MishTalk economic tweets. 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