Money’s Frightening Future: A Layman’s Take (Part One)

Not long ago in this forum, my esteemed colleague Byron King weighed in with a fine article about the “weaponization” of money here in America.

The gist of the piece is that the steady decline of cash and corresponding rise of credit and other electronic financial transactions — now kicked into high gear by the coronavirus — is giving the U.S. government even more power over We, the People. From a surveillance and informational standpoint. From a taxation standpoint. And from a prosecution (persecution?) standpoint…

Because the more our government knows about how we make, store, and use money, the easier it is for them to dominate and control us by various means. And through the byzantine federal tax code and other laws, they have nearly unlimited power to decide whether or not we’re using our money legally and correctly — and nearly unlimited ability to punish us if we don’t toe their Orwellian party line.

Byron’s article touched on another point I’ve often thought about, too: The idea that government can force us to continually spend our money, rather than saving it, with things like negative interest rates and “use by” dates on our currency. This last point doesn’t seem far-fetched to me at all — I was in Zimbabwe in the summer of 2007, during that period of time when their paper money carried such expiration dates.

I’m also convinced that ultra-punitive (or total) estate and inheritance taxes are coming. This will be yet another way of forcing people to pump their money into circulation to artificially boost the economy, for which the Party in Power will claim credit. Because if the choice is “spend it before you die or the government gets it,” what would you do?

Point is, these are all ways of not just controlling us — but also propping up failing and over-indulgent government financial policies with your money and mine. All of these things are plenty worrisome. But to my layman’s eyes, they’re not the only frightening and surreal aspects of the future of money in America…

This article, the first in a two-part series, explores one of them: Crypto-currencies.

Why cryptos interest me — but infuriate me and make me nervous, too

Literally for centuries, people much smarter and deeper than I am (not a terribly high bar, to be sure) have argued over the basic question, “What is money?” In fact, a fair number of folks who fit this description have debated that question in various Agora publications, this one included, over the last two decades or more…

Although I always found discussions of this question fascinating, I didn’t really worry that much about the answer to it until relatively recently. And since I’m a pretty regular guy — a decent barometer for the typical 50+ American, I think — I’ll bet that means a lot of folks reading this are also thinking about the true definition of money all of a sudden, too.

The idea that money should be a relatively constant store of value over long periods of time and a stable medium of everyday exchange may seem staid and outdated in this digital age. But with the rise of crypto-currencies, we’re being reminded daily in a very real sense of these simple, crucial, age-old properties of money.

It’s making many of us nostalgic for them, in fact.

Now don’t get me wrong — the concept of a stable digital currency that exists in a finite quantity, is outside the purview of government, and is very difficult to steal makes good sense. It has a lot of similar upsides to gold and gold-backed currencies, without some of the liabilities. The problem is that the reality of cryptos differs a bit from this ideal…

In the real world, a variety of factors including rampant speculation, lack of liquidity, and the comparatively low participation of larger financial institutions (a stabilizing influence), make crypto-currencies extremely volatile. This one fact alone makes it hard for me to understand why they’re still being seriously positioned or considered as money, in the truest sense of the word.

Just this past weekend, for instance, Bitcoin and several other cryptos crashed 15%, give or take, reportedly on nothing more than Twitter rumors about impending regulation by the U.S. Treasury. Such things are a very real threat to these currencies, and yet another way in which the reality of cryptos deviates from their mythology.

Meanwhile Dogecoin — which started off as a joke, quite literally — has suddenly become the fifth largest crypto by market value. As I’m writing these words, it’s up over 7,000% on the year, and worth $46 billion…

When you think about it, the very fact that I have to time-stamp that statement of fact (“as I’m writing these words”) sort of proves that cryptos aren’t really ideal for use as everyday money, doesn’t it?

But I digress. Another factor in the “it ain’t money” column: Less than 100 people currently hold 65% of the entire Dogecoin supply. And there can be no doubt that most of these holders are simply waiting for the right moment to cash out and become instant millionaires or billionaires.

Does any of that sound to you like what money ought to be?

It sounds like a great big scam to me. A bunch of technological geekery designed to make a small number of nerds and speculators very rich today on the promise of mass commercial viability in some utopian, all-digital tomorrow. And while it’s true that an increasing number of vendors are now accepting cryptos for payment…

I fail to see how they can go truly mainstream as a replacement for dollars in their current state of extreme volatility. As just one theoretical example to think about: You can now buy a Tesla with Bitcoin — indexed to its current exchange value with the U.S. dollar (of course). But taking that to the extreme, what if all car companies decided to price and sell their vehicles only in this crypto-currency?

When Bitcoin can shed 15% or more of its value practically overnight, how would these carmakers be able to honor advertised prices, or even advertise prices at all, during a month-long sales event? And day in and day out, how would individual car dealers be able to recoup the money they laid out for their in-stock vehicles weeks or months ago — or make any sort of profit on them — without constantly having to adjust their prices for the day’s Bitcoin value?

The same analogy holds true with any other big-ticket, low-markup, long-term inventory item, too. There’s no way the makers and sellers of such things could sustain the radical swings in crypto-currency values without massive and ongoing re-computation. It’d be an accounting nightmare, and an incredible waste of energy and labor that could actually increase prices for consumers.

As I see it, the only places where crypto-commerce can really work as things stand right now is in services — or in certain consumable items that have a lot of profit built-in, that turn over fast, and for which prices can be quickly and easily adjusted.

But all this is academic. The underlying question is this: As long as the value of crypto-currencies in America continues to be framed in terms of their exchange rate against dollars, and as long as vendors are immediately converting cryptos into dollars and other real money (see PayPal)…

What’s the point of using them in the first place?

Besides novelty, there isn’t a good reason, in my view. At least not until cryptos are as stable and fungible in domestic commerce over the short- to medium-term as dollars are — and until they’re no longer a vehicle for popular speculation.

The future of U.S. dollars: Replacement and debasement?

Call me anachronistic, but I see money as the tool you use to speculate in other things, not the thing you actually speculate in, unless you’re a very skilled currency trader or arbitrageur…

And even in those cases, you’re speculating within very specific and specialized parameters: Minute inconsistencies in a currency’s value in different regions of the globe, or fluctuations in its exchange price against other monies — not on wild swings in that currency’s purchasing ability in your own backyard.

But again, I’m just a regular guy, trying to make sense of what money is becoming. I’m not an economist, after all. And I freely admit that I could be wide of the target on some of this crypto stuff. I’m also sure any number of Bitcoin evangelists could wrestle me to a rhetorical draw with a bunch of fancy techno-jargon proving how cryptos really are the only pure currencies, the money of the future, etc. etc….

And full disclosure: I do find crypto-currencies interesting and cool, because at least so far, they’re decentralized and decoupled from government monetary policy. Of course, this will change when The Fed starts issuing its own digital currency — and that day is coming, too. But all that aside, a part of me wants to believe that cryptos will one day become a viable and ubiquitous alternative form of money.

But nothing I’ve seen so far, or that I see coming down the pike right now, convinces me of that possibility or eventuality. I still see cryptos as vulnerable to regulation or policy whims, prone to scams and abuse, and too volatile for transactions or as a vehicle for savings — especially since those savings would not be federally insured, like the U.S. dollars we keep in our bank accounts.

And to come full-circle to my opening point here (Byron’s, actually) about privacy, despite the hype about cryptos being untraceable and anonymous…

I’m almost 100% certain that transactions in Bitcoin and other crypto-currencies are totally traceable by financial authorities. There are also policy changes being weighed in Washington right now that could soon make crypto-tracking even easier for the money cops, and the advent of “Fedcoin” will make it easier still.

In other words: If you don’t want the government to be able to find out everything you’re doing with your money, cryptos aren’t the panacea they were promised to be. Cash and precious metals are, still.

For me — and I suspect for a lot of other people, too — the bottom line is this…

I need to know how changes in the universe of money are going to affect my own prospects for retirement someday. And from my admittedly old-school perspective, I perceive anything that replaces or debases the dollar as potentially threatening to my financial future, since almost my entire nest-egg is denominated in U.S. dollars.

It seems to me that crypto-currencies could do that, to one degree or another. But only if the government allows it to happen, and why would they? Until I see real evidence that cryptos are more than just a speculative investment vehicle you can also buy coffee with, I’m confident I’ll be able to keep my anxiety over them in some sort of perspective.

But here’s the terrifying twist: There’s something else afoot on the American financial scene that I absolutely cannot control my anxiety over…

Because by all outward appearances, it’s going to destroy the value of every dollar I’ve been able to save or earn in my entire adult life. Yours, too.

I’m not being the least bit hyperbolic when I say that, either.

You’ll see why in Part Two of this series, coming soon.

Anxiously Yours,

Jim Amrhein

Jim Amrhein
Freedoms Editor, Whiskey & Gunpowder
WhiskeyAndGunpowderFeedback@StPaulResearch.com

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Jim Amrhein

Just like he was 15 years ago, when first he sullied the pages of the original Whiskey & Gunpowder e-Letter and various other forums, Jim is still ornery, opinionated, politically incorrect, and shamelessly patriotic. He’s also more convinced than ever before that government can’t do much of anything right — except expand in scope and...

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