Apr 222021
 
 April 22, 2021  Posted by at 8:50 am Finance Tagged with: , , , , , , , , , ,  50 Responses »


Giotto Lamentation 1306

 

Unvaccinated Worker Starts Outbreak In Mostly Vaccinated Nursing Home (NYT)
Mass Vaccination Sites Are Shutting Down Over ‘Decreased Demand’ (F.)
COVID Vaccine Blood Clot Risk Was Known, Ignored & Buried (Hudak)
Boris Johnson Says UK Will Have To ‘Learn To Live With Virus’ (RT)
The Covidian Cult – Part II (CJ Hopkins)
The Unraveling of the American Empire (Chris Hedges)
US Sanctions Only Make Russia’s Economy Even More Self-Sufficient (RT)
Putin Says Russia Developing High-Tech Nuclear & Laser Weapons (RT)
Prague Gives Moscow Ultimatum To Let Czech Diplomats Return (Y!)
Ukraine Encourages Western Allies To Kick Russia Out Of SWIFT (EurActiv)
Georgia & Ukraine Launch ‘Remarkable’ Attack On Academic Freedom (RT)
USPS ‘Covert Operations Program’ Monitors Americans’ Social Media Posts (Y!)
In Epic Hack, Signal Developer Turns Tables On Forensics Firm Cellebrite (AT)

 

 

 

 

Dr. Sucharit Bhakdi on blood clotting (full video below)

 

 

Sweden’s continuing success story.

 

 

If you can set off an outbreak where 90% is vaccinated, how can the answer be more vaccination and masks? Obviously, the vaccine doesn’t work as advertized.

And didn’t Pfizer-BioNTech say their contraption was 95% effective? Why then only 66% for these residents?

Note: The New York Times used the term “immunized” for the residents, but that doesn’t seem to be the same as “vaccinated”. Not anymore, at least.

Unvaccinated Worker Starts Outbreak In Mostly Vaccinated Nursing Home (NYT)

An unvaccinated health care worker set off a Covid-19 outbreak at a nursing home in Kentucky where the vast majority of residents had been vaccinated, leading to dozens of infections, including 22 cases among residents and employees who were already fully vaccinated, a new study reported Wednesday. Most of those who were infected with the coronavirus despite being vaccinated did not develop symptoms or require hospitalization, but one vaccinated individual, who was a resident of the nursing home, died, according to the study released by the Centers for Disease Control and Prevention. Altogether, 26 facility residents were infected, including 18 who had been vaccinated, and 20 health care personnel were infected, including four who had been vaccinated. Two unvaccinated residents also died.

The report underscores the importance of vaccinating both nursing home residents and health care workers who go in and out of the sites, the authors said. While 90 percent of the 83 residents at the Kentucky nursing home had been vaccinated, only half of the 116 employees had been vaccinated when the outbreak was identified in March of this year. The study, released in tandem with one involving Chicago nursing homes, underscored the importance of maintaining measures like use of protective gear, infection control protocols and routine testing, no matter the level of vaccination rates. The rise of virus variants also has increased concerns. Resistance to vaccines has been steep among nursing home staffs nationwide, and the low acceptance rates of vaccination increase the likelihood of outbreaks in facilities, according to the authors, a team of investigators from the C.D.C. and Kentucky’s public health department.

“To protect skilled nursing facility residents, it is imperative that health care providers, as well as skilled nursing facility residents, be vaccinated,” the authors of the Kentucky study wrote. The outbreak involved a variant of the virus that has multiple mutations in the spike protein, of the kind that make the vaccines less effective. Vaccinated residents and health care workers at the Kentucky facility were less likely to be infected than those who had not been vaccinated, and they were far less likely to develop symptoms. The study estimated that the vaccine, identified as Pfizer-BioNTech, showed effectiveness of 66 percent for residents and 75.9 percent for employees, and were 86 percent to 87 percent effective at protecting against symptomatic disease.

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The video is hilarious. Fauci claims that Texas is doing so well without lockdown because Texans behave so much better than locked down Michiganians.

Other than that, he doesn’t answer Jordan’s question, but the chairman says he did anyway. “Your time is up.” It’s like comedy hour.

Mass Vaccination Sites Are Shutting Down Over ‘Decreased Demand’ (F.)

Mass vaccination sites across the U.S. have announced plans to shut down in recent days due to insufficient demand, even though all U.S. adults are now eligible to receive coronavirus vaccines. Palm Beach County, Florida, is shutting down three mass vaccination sites in favor of new mobile vaccination efforts, the Palm Beach Post reported Wednesday, after the sites were operating at only 50% capacity this week. Mass vaccination sites in Clarkesville, Georgia, and North Carolina will shut down by the end of May, officials announced this week, and Summit County, Ohio, canceled a planned mass vaccination clinic on April 27 citing “decreased demand.”

Several Texas mass vaccination sites in Williamson and Galveston counties are shutting down, and Galveston officials asked the state not to send the county any vaccine next week as the number of residents making vaccine appointments declines. Waukesha County, Wisconsin, will likely shut down its mass vaccine site to new first doses by the end of the week, as the county hits its target of 60% of eligible residents being vaccinated. Some vaccination locations have made plans to close before this week: Sites in Las Vegas and Cascade County, Montana, were announced to be shutting down last week, for instance, while Mercer County, Ohio, shuttered their drive-through mass vaccine clinic earlier in April.

Officials are reporting noticeable decreases in the number of people getting inoculated in areas where sites are not closing, including in Texas, Idaho, Missouri, Alabama, Maine and Maryland, where Gov. Larry Hogan predicted Wednesday the state would be shutting down mass vaccination sites “at some point soon.” 3.02 million. That’s the seven-day average of Covid-19 vaccines administered in the U.S. each day as of Wednesday, according to Centers for Disease Control and Prevention data analyzed by the New York Times. That average has been steadily declining in recent days after peaking at approximately 3.3 million shots per day last week.

Jim Jordan Fauci

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Cerebral Venous Thrombosis: all of its symptoms seem to be identical to what we are told COVID-19 symptoms are.

COVID Vaccine Blood Clot Risk Was Known, Ignored & Buried (Hudak)

Joining us today is Dr. Sucharit Bhakdi, here to discuss the ‘dangerous mRNA vaccines’ and how he and his organization warned about the blood clots (and much else now coming to pass) that we are now seeing from the COVID-19 injections, months before they began. He stresses that it is important that we come to understand what Cerebral Venous Thrombosis is, and why all of its symptoms seem to be identical to what we are told COVID-19 symptoms are.

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So much for the vaccine success.

All of a sudden dexamethasone pops up again. Ivermectin next?!

Boris Johnson Says UK Will Have To ‘Learn To Live With Virus’ (RT)

The UK will be hit by yet another wave of Covid infections later this year, Prime Minister Boris Johnson has said as he revealed that the government was looking into treating people with tablets against the disease. “The majority of scientific opinion in this country is still firmly of the view that there will be another wave of Covid at some stage this year and so we must as far as possible learn to live with this disease,” he told a news briefing on Tuesday. The PM added that with record infection levels around the world, “we cannot delude ourselves that Covid has gone away.” He also said he saw nothing in the data to suggest the UK would have to deviate from its “cautious but irreversible” roadmap out of lockdown.


Johnson also announced the creation of a new antivirals taskforce to help with the search for new medicines and support their development in clinical trials in order to make them available by the autumn. He said the treatments could include a tablet that would stop people with Covid-19 becoming severely ill, or a pill to prevent someone contracting the virus from close contacts who are infected. The PM did not say if such treatments were currently being trialled. The UK was the first country to repurpose dexamethasone to treat Covid-19, Johnson said. The drug is usually used to treat severe allergies, skin conditions and inflammation.

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“..society has been transformed into something resembling an infectious disease ward, or an enormous hospital from which there is no escape.”

The Covidian Cult – Part II (CJ Hopkins)

How did we ever get to this point … to the point where, as I put it in The Covidian Cult, “instead of the cult existing as an island within the dominant culture, the cult has become the dominant culture, and those of us who have not joined the cult have become the isolated islands within it?” To understand this, one needs to understand how cults control the minds of their members, because totalitarian ideological movements operate more or less the same way, just on a much larger, societal scale. There is a wealth of research and knowledge on this subject (I mentioned Robert J. Lifton in my earlier essay), but, to keep things simple, I’ll just use Margaret Singer’s “Six Conditions of Mind Control” from her 1995 book, Cults in Our Midst, as a lens to view the Covidian Cult through.

Six Conditions of Mind Control

1. Keep the person unaware of what is going on and how she or he is being changed a step at a time. Potential new members are led, step by step, through a behavioral-change program without being aware of the final agenda or full content of the group. Looking back, it is easy to see how people were conditioned, step by step, to accept the “New Normal” ideology. They were bombarded with terrifying propaganda, locked down, stripped of their civil rights, forced to wear medical-looking masks in public, to act out absurd “social-distancing” rituals, submit to constant “testing,” and all the rest of it. Anyone not complying with this behavioral-change program or challenging the veracity and rationality of the new ideology was demonized as a “conspiracy theorist,” a “Covid denier,” an “anti-vaxxer,” in essence, an enemy of the cult, like a “suppresive person” in the Church of Scientology.

2. Control the person’s social and/or physical environment; especially control the person’s time. For over a year now, the “New Normal” authorities have controlled the social/physical environment, and how New Normals spend their time, with lockdowns, social-distancing rituals, closure of “non-essential” businesses, omnipresent propaganda, isolation of the elderly, travel restrictions, mandatory mask-rules, protest bans, and now the segregation of the “Unvaccinated.” Basically, society has been transformed into something resembling an infectious disease ward, or an enormous hospital from which there is no escape. You’ve seen the photos of the happy New Normals dining out at restaurants, relaxing at the beach, jogging, attending school, and so on, going about their “normal” lives with their medical-looking masks and prophylactic face shields. What you’re looking at is the pathologization of society, the pathologization of everyday life, the physical (social) manifestation of a morbid obsession with disease and death.

3. Systematically create a sense of powerlessness in the person. What kind of person could feel more powerless than an obedient New Normal sitting at home, obsessively logging the “Covid death” count, sharing photos of his medical-looking mask and post-“vaccination” bandage on Facebook, as he waits for permission from the authorities to go outdoors, visit his family, kiss his lover, or shake hands with a colleague? The fact that in the Covidian Cult the traditional charismatic cult leader has been replaced by a menagerie of medical experts and government officials does not change the utter dependency and abject powerlessness of its members, who have been reduced to a state approaching infancy. This abject powerlessness is not experienced as a negative; on the contrary, it is proudly celebrated. Thus the mantra-like repetition of the “New Normal” platitude “Trust the Science!” by people who, if you try to show them the science, melt down completely and start jabbering aggressive nonsense at you to shut you up.

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“War, when it is waged to serve utopian absurdities [..] descends into a quagmire.”

“All we really make anymore are weapons. Once this is understood, perpetual war makes sense, at least for those who profit from it.”

The Unraveling of the American Empire (Chris Hedges)

America’s defeat in Afghanistan is one in a string of catastrophic military blunders that herald the death of the American empire. With the exception of the first Gulf War, fought largely by mechanized units in the open desert that did not — wisely — attempt to occupy Iraq, the United States political and military leadership has stumbled from one military debacle to another. Korea. Vietnam. Lebanon. Afghanistan. Iraq. Syria. Libya. The trajectory of military fiascos mirrors the sad finales of the Chinese, Ottoman, Hapsburg, Russian, French, British, Dutch, Portuguese and Soviet empires. While each of these empires decayed with their own peculiarities, they all exhibited patterns of dissolution that characterize the American experiment.

Imperial ineptitude is matched by domestic ineptitude. The collapse of good government at home, with legislative, executive and judicial systems all seized by corporate power, ensures that the incompetent and the corrupt, those dedicated not to the national interest but to swelling the profits of the oligarchic elite, lead the country into a cul-de-sac. Rulers and military leaders, driven by venal self-interest, are often buffoonish characters in a grand comic operetta. How else to think of Allen Dulles, Dick Cheney, George W. Bush, Donald Trump or the hapless Joe Biden? While their intellectual and moral vacuity is often darkly amusing, it is murderous and savage when directed towards their victims.

There is not a single case since 1941 when the coups, political assassinations, election fraud, black propaganda, blackmail, kidnapping, brutal counter-insurgency campaigns, U.S. sanctioned massacres, torture in global black sites, proxy wars or military interventions carried out by the United States resulted in the establishment of a democratic government. The two-decade-long wars in the Middle East, the greatest strategic blunder in American history, have only left in their wake one failed state after another. Yet, no one in the ruling class is held accountable.

War, when it is waged to serve utopian absurdities, such as implanting a client government in Baghdad that will flip the region, including Iran, into U.S. protectorates, or when, as in Afghanistan, there is no vision at all, descends into a quagmire. The massive allocation of money and resources to the U.S. military, which includes Biden’s request for $715 billion for the Defense Department in fiscal year 2022, a $11.3 billion, or 1.6 percent increase, over 2021, is not in the end about national defense. The bloated military budget is designed, as Seymour Melman explained in his book, The Permanent War Economy, primarily to keep the American economy from collapsing. All we really make anymore are weapons. Once this is understood, perpetual war makes sense, at least for those who profit from it.

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For decades now.

US Sanctions Only Make Russia’s Economy Even More Self-Sufficient (RT)

As Washington threatens to impose more sanctions on Russia, analysts expect Moscow’s response to be the same as usual – speeding up the drive to make the nation’s economy more self-sufficient. “The Americans are saying: be careful or we could do more, but Russia is just going to continue down the path toward economic autarky,” the deputy chief economist at the Institute of International Finance in Washington, Elina Ribakova, told Bloomberg. The administration of US President Joe Biden on Sunday warned of “consequences” if opposition activist Alexey Navalny were to die in prison. The warning followed the introduction by Washington of new economic penalties over claims of Russian hacking and election interference. The measures include a ban on purchases of bonds on Russia’s primary market.

However, President Vladimir Putin’s spokesman, Dmitry Peskov, said on Friday that the fundamentals of the Russian economy were unaffected by the move. “Macroeconomic stability is fully ensured,” Peskov said, “and the efficiency of our economic bloc is recognized internationally. We have no reason to doubt this state of affairs.” International rating agencies confirm that Russia is well positioned for a near-term market disruption because it has a high cash buffer and demand from local banks is robust, according to Fitch. Moody’s said on Monday that Russia’s financial reserves will allow the country to cope with the negative effects of the sanctions. Ratings agency S&P also noted that the sanctions will not have a significant impact on the replenishment of the Russian budget and will not undermine the stability of the country’s financial markets.

Experts point out that during the seven years of Western sanctions on Russia over Ukraine, the Russian government and central bank reduced the country’s exposure to dollars, shifted assets out of the US, and sold a smaller share of its debt to foreigners. Russia has been reshaping its international holdings, cutting the share of the US dollar in favor of other currencies and gold. The country’s foreign reserve holdings have been steadily growing in recent years, and amounted to $580.5 billion as of April 9. Despite the coronavirus pandemic, the reserves surged by over $40 billion last year. The share of gold in Russia’s forex reserves jumped above dollars for the first time on record in 2020. The precious metal made up 24% of the central bank’s stockpile as of the end of September. The share of dollar assets was 22%, down from more than 40% in 2018.

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“I hope no one will think of crossing red lines in their relations with Russia. Where that line sits is ours to determine.”

Putin Says Russia Developing High-Tech Nuclear & Laser Weapons (RT)

Russian President Vladimir Putin has said that the vast majority of the country’s Soviet-era atomic stockpile will soon be replaced by modern weapons, warning that Moscow is intent on defending itself against foreign aggression. Speaking as part of his annual address to the Federal Assembly in Moscow on Wednesday, Putin said that his government “wants to have positive relationships with everyone on the international stage, including those with whom relations have broken down recently. We really don’t want to burn bridges.” At the same time, however, he cautioned that “those who mistake this stance for weakness need to know that Russia’s response [to any aggression] will be asymmetrical, swift and harsh.”

Those planning provocations, he said, “will regret their deeds in a way they have not regretted anything else for a long time.” As part of the country’s plans to defend itself, he said, its stockpile of strategic weapons is currently being overhauled, updating older Soviet-era equipment in favor of next-generation technology, such as “hypersonic and laser” armaments. Among the overhaul, he revealed that the advanced RS-28 Sarmat missile will be delivered to troops in the field from 2022. A heavy intercontinental ballistic rocket, it boasts up to 15 nuclear warheads which can be directed against individual targets and each deliver 350 kilotons of atomic hellfire. Ship-mounted missiles and other, “next-generation” projectiles are also slated for deployment in the near future.

According to the president, more than two-thirds of Russia’s military equipment will be “modern” at the end of the next three years, while more than 88% of nuclear weapons will be this year as well. Putin also referenced the Peresvet, a secretive laser cannon that is said to have the potential to shoot down both enemy aircraft and incoming missiles. The weapon has reportedly already been deployed to installations across the country. “We have patience, self-confidence and righteousness on our side,” Putin added. “I hope no one will think of crossing red lines in their relations with Russia. Where that line sits is ours to determine.”

The US is currently reportedly developing a $100 billion ground-based intercontinental ballistic missile system to replace its Cold War-era Minuteman-III rockets. However, it has come under criticism from experts, with the Federation of American Scientists arguing that the program has been driven by industry lobbying rather than a genuine need for the launch complex “in a post-Cold War security environment.”

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“We suggest Prague leave ultimatums for communication within NATO,” said spokeswoman Maria Zakharova. “With Russia such a tone is unacceptable.”

Prague Gives Moscow Ultimatum To Let Czech Diplomats Return (Y!)

The Czech government on Wednesday warned Moscow it might expel more Russian diplomats unless the 20 Czech nationals ejected from Russia were allowed to return to work within a day. Moscow responded by saying the ultimatum was “unacceptable”. On Saturday, Prague expelled 18 Russian embassy staff in a row over Russia’s alleged role in an explosion that killed two people in the Czech Republic in 2014. Moscow sent back the Czech diplomats in retaliation on Monday. “The Russian Federation has until 1200 tomorrow (1000 GMT) to allow the return of all expelled diplomats back to the Czech embassy in Moscow,” Jakub Kulhanek, the new Czech foreign minister, told reporters. “If they cannot return, I will cut the number of Russian embassy staff in Prague so it would correspond to the current situation at the Czech embassy in Moscow,” he added.

After summoning Russian ambassador Alexander Zmeyevski, Kulhanek said Moscow’s retaliation had been “disproportionate and it in fact paralysed the embassy”. The Russian foreign ministry condemned the Czech position. “We suggest Prague leave ultimatums for communication within NATO,” said spokeswoman Maria Zakharova. “With Russia such a tone is unacceptable.” The Czech ambassador would be summoned on Thursday, she added. Prague currently has five diplomats and 19 technical staff at the embassy in Moscow, far fewer than the Russian workforce in Prague. “The expulsion of 18 Russian diplomats in turn did not jeopardise the functioning of the Russian embassy,” said Kulhanek, who was only appointed as minister on Wednesday.

The EU backed the Czech Republic as its foreign policy chief Josep Borrell said the bloc stood “ready to support its further efforts to bring those responsible to justice”. “The EU condemns the disproportionate reaction and subsequent threats of Russian Federation towards the Czech Republic,” Borrell said in a statement, vowing “the staunchest resolve” in addressing disruptive acts by Russian intelligence on EU soil. Czech officials, including Interior Minister Jan Hamacek, who was standing in as foreign minister until Kulhanek’s appointment, said Tuesday that they might aim to reset relations with Russia — and that this could involve the expulsion of all Russian diplomats in Prague. [..] Hamacek also said that Prague would no longer consider buying Russia’s Sputnik V vaccine against Covid-19.

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Creating chaos through proxies.

Ukraine Encourages Western Allies To Kick Russia Out Of SWIFT (EurActiv)

Ukraine on Wednesday (21 April) urged Western allies to show they were prepared to punish Moscow with new sanctions, including kicking Russia out of the global SWIFT payments system, to deter the Kremlin from resorting to more military force against Ukraine. In an interview with Reuters, Foreign Minister Dmytro Kuleba said while Kyiv had no new information indicating that Russia had decided to take new military action against Ukraine, it was important for the West to act now to prevent that happening.Ukraine is trying to shore up international support in its standoff with Moscow over a build-up of Russian troops on its eastern border and in Crimea. “I have no information to state that the decision to launch a military operation against Ukraine has already been taken. So it can go in either direction now,” Kuleba said.

“And this is why the reaction of the West, the consolidated reaction of the West, is so important now, to prevent Putin … from making that decision.” Kyiv and Moscow have traded blame for a collapse in the ceasefire in the eastern Donbass region, where Ukrainian troops have battled Russian-backed forces in a conflict Kyiv says has killed 14,000 people since 2014. Kuleba said he asked Washington to supply “powerful means of electronic warfare” to counter Russia’s capacity to jam Ukrainian communications when he met US Secretary of State Antony Blinken last week. He also revealed he had urged a meeting of European Union foreign ministers on Monday to consider “banning Russia from SWIFT” as part of a package of new economic sanctions if Russia escalated the situation.

[..] Putin on Wednesday warned the West not to cross Russia’s “red lines”, saying Moscow would respond swiftly and harshly to any provocations. “I read the message of President Putin the following way: ‘we will be crossing your red lines, but you are not allowed to cross our red lines, and we will be defining where our red lines are,’” Kuleba said.

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The University’s riposte is great.

Georgia & Ukraine Launch ‘Remarkable’ Attack On Academic Freedom (RT)

A professor from Ireland’s Dublin City University has lambasted a “remarkable attempt to undermine academic freedom” from the embassies of Georgia and Ukraine after they complained about a course he teaches at the institution. Donnacha Ó Beacháin is an internationally-respected professor with extensive experience teaching students about politics in the countries that once formed the Soviet Union. He was targeted by two diplomats who claimed that his program, named ‘Russia and the post-Soviet space’, was spreading “disinformation and Russian propaganda narratives.” Georgia and Ukraine, who both have strained relationships with Moscow, are covered in the course.

In particular, Ó Beacháin was accused of inviting a “well-known Russian propagandist” to speak. In fact, the person in question was Sergey Markedonov, a visiting fellow at the Washington-based think tank CSIS, which receives funding from the US government. Ó Beacháin described him as “probably the leading authority in Russia on conflicts in the Caucasus.” As well as inviting Markedonov, the professor also pointed out that the course has had a guest speaker from Ukraine, and he even asked the current Georgian ambassador to address the students. “The module is called ‘Russia and the Former Soviet Space,’ but if the Georgia/Ukraine diplomats had their way, the only view we wouldn’t get is from Russia,” Ó Beacháin wrote on Twitter.

In a letter to the embassies, the university’s president, Dáire Keogh, stressed the importance of “academic freedom” and noted that the professor had “invited guests from different backgrounds to expose students to their points of view.” “Those invited to contribute to the module include speakers from Georgian and Ukrainian backgrounds, including former officials,” the letter said. Speaking to Ireland’s state broadcaster, RTE, Ó Beacháin’s colleague John Doyle blasted the complaints as “absolutely unprecedented,” noting that there has never been another issue when an embassy not only complained to a university professor, but also contacted the Department of Foreign Affairs – presumably attempting to create a diplomatic incident.

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The Postal Service? What’s next, the supermarket?

USPS ‘Covert Operations Program’ Monitors Americans’ Social Media Posts (Y!)

The law enforcement arm of the U.S. Postal Service has been quietly running a program that tracks and collects Americans’ social media posts, including those about planned protests, according to a document obtained by Yahoo News. The details of the surveillance effort, known as iCOP, or Internet Covert Operations Program, have not previously been made public. The work involves having analysts trawl through social media sites to look for what the document describes as “inflammatory” postings and then sharing that information across government agencies. “Analysts with the United States Postal Inspection Service (USPIS) Internet Covert Operations Program (iCOP) monitored significant activity regarding planned protests occurring internationally and domestically on March 20, 2021,” says the March 16 government bulletin, marked as “law enforcement sensitive” and distributed through the Department of Homeland Security’s fusion centers. “Locations and times have been identified for these protests, which are being distributed online across multiple social media platforms, to include right-wing leaning Parler and Telegram accounts.”


A number of groups were expected to gather in cities around the globe on March 20 as part of a World Wide Rally for Freedom and Democracy, to protest everything from lockdown measures to 5G. “Parler users have commented about their intent to use the rallies to engage in violence. Image 3 on the right is a screenshot from Parler indicating two users discussing the event as an opportunity to engage in a ‘fight’ and to ‘do serious damage,’” says the bulletin.

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Hacking the hackers turns out to be easy.

In Epic Hack, Signal Developer Turns Tables On Forensics Firm Cellebrite (AT)

For years, Israeli digital forensics firm Cellebrite has helped governments and police around the world break into confiscated mobile phones, mostly by exploiting vulnerabilities that went overlooked by device manufacturers. Now, Moxie Marlinspike—creator of the Signal messaging app—has turned the tables on Cellebrite. On Wednesday, Marlinspike published a post that reported vulnerabilities in Cellebrite software that allowed him to execute malicious code on the Windows computer used to analyze devices. The researcher and software engineer exploited the vulnerabilities by loading specially formatted files that can be embedded into any app installed on the device. “There are virtually no limits on the code that can be executed,” Marlinspike wrote.

He continued: “For example, by including a specially formatted but otherwise innocuous file in an app on a device that is then scanned by Cellebrite, it’s possible to execute code that modifies not just the Cellebrite report being created in that scan, but also all previous and future generated Cellebrite reports from all previously scanned devices and all future scanned devices in any arbitrary way (inserting or removing text, email, photos, contacts, files, or any other data), with no detectable timestamp changes or checksum failures. This could even be done at random, and would seriously call the data integrity of Cellebrite’s reports into question.”

Cellebrite provides two software packages: The UFED breaks through locks and encryption protections to collect deleted or hidden data, and a separate Physical Analyzer uncovers digital evidence (“trace events”). To do their job, both pieces of Cellebrite software must parse all kinds of untrusted data stored on the device being analyzed. Typically, software that is this promiscuous undergoes all kinds of security hardening to detect and fix any memory-corruption or parsing vulnerabilities that might allow hackers to execute malicious code. “Looking at both UFED and Physical Analyzer, though, we were surprised to find that very little care seems to have been given to Cellebrite’s own software security,” Marlinspike wrote. “Industry-standard exploit mitigation defenses are missing, and many opportunities for exploitation are present.”

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Apr 152019
 
 April 15, 2019  Posted by at 9:40 am Finance Tagged with: , , , , , , , , , , , , , ,  10 Responses »


Jack Delano South Puerto Rico Sugar Company plant, Ensenada, Puerto Rico 1942

 

Trump: The Stock Market Could Be As Much As 10,000 Points Higher (MW)
Pelosi Rips AOC, Says Her Posse In Congress Is ‘Like Five People’ (NYPost)
Assange Tried To Use Embassy As ‘Centre For Spying’ – Moreno (G.)
I’m Jumping Off the Trump Train: Assange Was the Last Straw (Jatras)
Democrats And Liberals Cheering Assange’s Arrest Are Foolish (Robinson)
Assange Is A Scapegoat, Distraction For Scandal-Ridden Ecuador Government (ZH)
Hackers Warn UK Gov: ‘Free Assange or Chaos is Coming for You’ (Cassandra)
American Airlines Extends Boeing 737 MAX Grounding Until Mid-August (RT)
Huawei Is ‘Open’ To Selling 5G Chips To Apple For iPhones (CNBC)
The Truth About Brexit In 135 Words (Eric Peters)
Brexit Cannot Break The Iron Triangle (HCG)

 

 

He gets very close to clamoring for a state-run economy. Let’s have a 5-year plan, shall we? It’s not that you couldn’t manipulate the ‘market’ 10,000 ponits higher right now, it’s what happens after that.

Trump: The Stock Market Could Be As Much As 10,000 Points Higher (MW)

The value of the U.S. stock market has risen by $9.1 trillion, or 35.6%, since Election Day in 2016, according to Wilshire Associates. For President Donald Trump, that’s not nearly enough. Lately, he’s been blasting the Federal Reserve for raising rates, and he’s steadily urged the central banks to revert to the policies that supported the market during the last crisis, including the resumption of the Fed’s bond-buying program. “I would say in terms of quantitative tightening, it should actually now be quantitative easing,” he said last week. “You would see a rocket ship.”


On Sunday, he put numbers to that potential “rocket ship” rally: ‘If the Fed had done its job properly, which it has not, the Stock Market would have been up 5000 to 10,000 additional points, and GDP would have been well over 4% instead of 3%… with almost no inflation. Quantitative tightening was a killer, should have done the exact opposite!’ Trump’s tweet comes amid opposition from the Senate over his two picks, Herman Cain and Stephen Moore, for open seats on the Federal Reserve’s Board of Governors. Cain, according to a report from ABC News on Friday, plans to remove his name from consideration.

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Pelosi is one scary woman, a talking mummy. She’s everything that’s wrong with Washington. But it’s sort of good that the young ones have to fight. Still, that should start with standing up for Assange, because that’s where the establishment’s ugliness shows most.

Pelosi Rips AOC, Says Her Posse In Congress Is ‘Like Five People’ (NYPost)

House Speaker Nancy Pelosi just sent some more shade to Rep. Alexandria Ocasio-Cortez. In a “60 Minutes” interview, correspondent Lesley Stahl pointed out the different groups within the House Democratic caucus. “You have these wings — AOC and her group on one side,” Stahl said. “That’s like five people,” Pelosi interrupted. Stahl corrected the snarky remark, saying that the “progressive group is more than five.” “Well, I’m progressive — I’m a progressive, yeah,” Pelosi responded. The Congressional Progressive Caucus has 98 members and is the second largest group of Democrats in the Congress. Ocasio-Cortez is one of the group’s most recognizable freshmen members.

Seven Democratic House members, including Ocasio-Cortez, are supported by the progressive political action the Justice Democrats, which Pelosi could also have been referring to. On several occasions now, Pelosi has downplayed any splits within her ranks — and also tried to dim some of Ocasio-Cortez’s star power. In a recent interview with USA Today, the House Speaker pointed out that votes are more significant than Twitter followers — a remark that was also interpreted to be a dig at AOC. “While there are people who have a large number of Twitter followers, what’s important is that we have a large number of votes on the floor of the House,” Pelosi said.

On “60 Minutes” Pelosi said her Democrats weren’t fractured by those loud voices on the left. “By and large, whatever orientation they came to Congress with, they know that we have to hold the center. That we have to … go down the mainstream,” Pelosi said. When asked by Stahl if they really know that, Pelosi answered in the affirmative. “They do,” she said.

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The Guardian’s carefully constructed smear. No shame. Expect more, and expect it to get more intense. The paper has built strong ties with Ecuador ever since Moreno was elected with the explicit goal of smearing Assange.

Assange Tried To Use Embassy As ‘Centre For Spying’ – Moreno (G.)

Julian Assange repeatedly violated his asylum conditions and tried to use the Ecuadorian embassy in London as a “centre for spying”, Ecuador’s president has said in an interview with the Guardian. Lenín Moreno also said he had been given written undertakings from Britain that Assange’s fundamental rights would be respected and that he would not be sent anywhere to face the death penalty. Assange, 47, was taken from the embassy by British police last Thursday after Ecuador revoked his political asylum, ending a stay there of nearly seven years. The WikiLeaks co-founder faces up to 12 months in prison after being found guilty of breaching his bail conditions when he entered the Ecuadorian embassy in 2012.

He made the move after losing a battle against extradition to Sweden where he faced allegations including of rape, which he denies. He is now expected to fight extradition to the US over an allegation that he conspired with the former army intelligence analyst Chelsea Manning to break into a classified government computer. Sweden is weighing up whether to reopen an investigation into the rape and sexual assault allegations. When there are competing extradition requests in the UK, the home secretary decides which country should take priority. Moreno’s move against Assange has proved controversial in Ecuador. The previous president, Rafael Correa, has accused his one-time political ally of “a crime humanity will never forget” and described Moreno as “the greatest traitor in Ecuadorian and Latin American history”.

In what may have been part of a campaign to weaken Moreno, WikiLeaks was linked to an anonymous website that claimed Moreno’s brother had created an offshore company, and it leaked material included private pictures of Moreno and his family. In his first interview with English-speaking media since Assange was ejected from the embassy, Moreno denied he had acted as a reprisal for the way in which documents about his family had been leaked, and said he regretted that Assange had allegedly used the embassy to interfere in other country’s democracies. “Any attempt to destabilise is a reprehensible act for Ecuador, because we are a sovereign nation and respectful of the politics of each country,” he said in the interview, which was conducted by email.

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Many will follow.

I’m Jumping Off the Trump Train: Assange Was the Last Straw (Jatras)

It’s plain and simple. The same entities (Deep State, permanent government, the oligarchy, the Borg, whatever term you like) that targeted Trump with the phony Russia collusion narrative want Assange’s scalp nailed to the wall. It’s one thing for favored outlets like the Washington Post and CNN to disseminate classified information that favors the Deep State, quite another to reveal information contrary to its interests. As the premier dispenser of embarrassing secrets that facilitates online dissidence from the established narrative (also under attack by governments and their tech giant accomplices) an example must be made of Assange pour encourager les autres.

He can count on being sentenced to rotting for decades in a nasty Office Space federal prison (the US will gladly waive the death penalty to spare the Brits’ prissy Euro-consciences) but may very well die soon enough of natural causes. An essential role in Assange’s betrayal by Moreno was played by Trump’s Veep Mike Pence and Secretary of State Mike Pompeo. Former President Rafael Correa says a direct condition of Moreno’s getting a $4.2 billion IMF loan was Assange’s head on a platter. That’s a lot more plausible than establishment media reports that Assange was ejected for transgressing the Ecuadorians’ fastidious hygiene standards, which (whether based in fact or not) are just cynical defamations to justify his upcoming lynching.

It’s irrelevant whether Trump – who theoretically is the boss of all US agency operatives working with their Brit colleagues to get their mitts on Assange – let the nab go forward because he was unwilling to order his minions to stand down or was powerless to do so. In that regard, it’s similar to pointlessly asking why he has the terrible, horrible, no good, very bad national security team he does. Is it because of “Javanka”? Is it because he’s beholden to a gaggle of oligarchs? (Supposedly his being a self-financed billionaire made him immune from such influences.) Is it a reflection of a personality disorder?

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“Charles Schumer said he hoped Assange “will soon be held to account for his meddling in our elections on behalf of Putin and the Russian government”. Let the lies continue. Why not.

Democrats And Liberals Cheering Assange’s Arrest Are Foolish (Robinson)

There has been plenty of over-the-top gloating about Assange’s arrest. In the Atlantic, Michael Weiss said Assange “got what he deserved”. Some Democratic politicians have been salivating at the possibility of prosecuting him. Hillary Clinton said that Assange needs to “answer for what he has done”. Charles Schumer said he hoped Assange “will soon be held to account for his meddling in our elections on behalf of Putin and the Russian government”. Dianne Feinstein has been calling for Assange to be brought here and prosecuted since 2010. West Virginia Democratic senator Joe Manchin went even further, with the truly disturbing comment that “now [Assange is] our property and we can get the facts and truth from him”.


Nor did Bernie Sanders speak up to defend Assange, opting for the same shameful silence he has taken on the imprisonment of whistleblower Chelsea Manning. The other 2020 candidates, with the exception of Mike Gravel and Tulsi Gabbard, have also stayed quiet. There’s a lot to be disturbed by here. First, it’s not clear that people like Schumer even care about the question of whether Assange broke any laws. Assange has been charged over allegedly helping Chelsea Manning to crack a Department of Defense password in 2010. The indictment has nothing to do with Putin or the 2016 election. Yet Democrats are thrilled enough to have a longtime villain in the clasps of the United States government that the actual charges, and their implications for free speech, are irrelevant.

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“Moreno has long been rumored to be preparing an early exit and his right-wing allies appear poised to take over the helm..”

Assange Is A Scapegoat, Distraction For Scandal-Ridden Ecuador Government (ZH)

Despite having been elected on a platform of continuing the leftist and nationalist policies of Rafael Correa’s Citizen’s Revolution, Moreno has actively attacked Correa’s legacy as well as the governments that ascribed to ‘21st century socialism.’ In recent months, Moreno’s government has restored a controversial fly-over program in the country with the US military, and also participated in the creation of the right-wing-led Prosur bloc as a measure to dismantle the Union of South American Nations created by Correa and allies such as the late Hugo Chavez. The Ecuadorian leader inked a $4.2 billion loan with the IMF, after spending months claiming Correa had driven the country into historic debt.

In light of these and other measures, Moreno’s move against Assange isn’t surprising, but the timing of it is about more than just appeasing his allies. “They want to use Julian Assange as a scapegoat to distract from the INA Papers scandal,” says Narvaez, referring to the allegations of corruption that have sullied Moreno, his family and other close associates. The Ecuadorian president is facing a political investigation over accusations of money laundering through offshore accounts and shell companies in Panama, including the INA Investment Corp, of which Moreno’s brother was the registered owner.

Documents obtained by an opposition lawmaker, as well as damning images and documents circulating on social media that were apparently hacked from Moreno’s telephone, have irreparably tarnished his image and his credibility as anti-corruption campaigner. Approval ratings for Moreno have since plummeted, and only 17 percent of Ecuadorians say they believe their president. Predictably, his party was punished at the polls in the country’s recent municipal elections, losing two-thirds of the territories they won previously. Risks of his impeachment are also growing.

[..] Impeachment or not, Moreno has long been rumored to be preparing an early exit and his right-wing allies appear poised to take over the helm in the Carondelet Palace. Nevertheless, his crusade against Correa’s Citizen’s Revolution has meant a dismantling of institutions and regulations, coupled with austerity measures that have included massive public layoffs. The country finds itself spiraling towards the political instability and disarray that characterized the Andean nation during the 1990s and early 2000s, and therefore laws and process may be insufficient to stop the extradition of Assange’s after his forced exit from Ecuador’s embassy. Assange is trapped in this Kafkaesque scenario, moved from one cage to another, waiting for his adversaries to determine his fate.

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Let’s see what you can do.

Hackers Warn UK Gov: ‘Free Assange or Chaos is Coming for You’ (Cassandra)

The Anonymous hackers who spent the weekend knocking Ecuadorian government websites offline have turned their attention to the United Kingdom, issuing a warning for the British government to “free Assange or chaos is coming for you. Speaking to the Gateway Pundit, a member of the hacker group who goes by the pseudonym ‘Nama’ declared they will be launching cyber attacks against the United States and Sweden after the UK. None of this was directed by WikiLeaks or Assange himself — the hackers say they are acting on their own as an act of protest. Over the weekend, the group took down or defaced over 30 Ecuadorian websites including the Central Bank of Ecuador, their Ministry of Interior, the Ecuadorian Assembly in the UK and the main website for the Government of Ecuador.


They also posted data dumps of 728 identification ID card numbers that appear to belong to people who work in the Ecuadorian government. After the websites had been offline for twelve hours, the hackers warned that if they were restored “we will fire again to burn their servers.” The official website of La Maná canton in Ecuador featured a picture of Assange for over twelve hours, along with a quote from him that read, “You have to start with the truth. The truth is the only way we can get anywhere. Because any decision-making based on lies or ignorance can not lead to a good conclusion.”

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Can’t really see other airlines not following. For American alone, it’s over 100 cancelled flights a day.

American Airlines Extends Boeing 737 MAX Grounding Until Mid-August (RT)

American Airlines has chosen to keep its fleet of Boeing 737 MAX grounded until at least August 19, even if it means canceling 115 flights a day in summer season, as probes into the troubled jet continue and new sales have frozen. The company, which owns 24 of the embattled jets that were involved in two recent deadly crashes, announced the decision in a letter to employees and customers. AA wants to ensure reliability “for the peak travel season and provide confidence to our customers and team members when it comes to their travel plans,” Chief Executive Doug Parker and President Robert Isom wrote.


Parker and Isom have at the same time expressed confidence in Boeing’s ability to fix the problem through software updates and changes to pilot training procedures. The US airline has 24 MAX planes in its fleet and is expected to get 16 more delivered this year. The grounding has already resulted in the cancelation of about 90 flights per day through early June, and the extension may put a strain on American’s ability to meet demand for seats during upcoming peak travel season. As many as 115 daily flights will have to be canceled in August, according to the letter.

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They’re now just trolling Trump, aren’t they?

Huawei Is ‘Open’ To Selling 5G Chips To Apple For iPhones (CNBC)

Huawei is “open” to selling high-speed 5G chips and other silicon to rival smartphone maker Apple, marking a significant shift in the Chinese tech giant’s thinking toward its own intellectual property. The world’s largest networking equipment maker has been in the consumer market for a relatively short amount of time with its own-brand smartphones, but it has quickly risen to become the third-largest vendor by market share. Huawei started by selling phones at low prices but in recent years has shifted focus to increase its market share in the high end of the market, battling Apple and Samsung. As part of that move, Huawei has developed its own chips, including a modem to give smartphones 5G connectivity, and a processor to power its devices.


5G is next-generation mobile internet, which delivers data at very high speeds. So far, those pieces of technology have been used only in Huawei’s devices. That could change. In an interview with CNBC that aired Monday, Huawei founder and CEO Ren Zhengfei said the company would consider selling its 5G chips to Apple. “We are open to Apple in this regard,” Ren said. The CEO spoke in Mandarin, which was translated into English by an official translator.

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“We’re split in two mate, we’re absolutely shattered.”

The Truth About Brexit In 135 Words (Eric Peters)

“They’re all liars mate,” said my London cabbie. “May was a Remainer. How were we going to get a good deal when our negotiators don’t want to leave?” he asked. I shrugged. “They’ll stall until they can say it’s not what people want no more – happened in every country that ever wanted a referendum or held one,” he said. “The EU paid to move a Land Rover factory from the Midlands to Slovakia where they earn 5 pound for every 25 we make – so our boys are out of work and the company makes more profit. How’s that right?,” he said. “For every two pound we put into the EU, we get one back.” So I asked if Brtiain held another referendum, which way it’d go? “We’re split in two mate, we’re absolutely shattered.”

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This is from January, I wouldn’t normally include it in the news overview, but someone sent it to me on Twitter.

I’ve known this principle forever, just not under a hefty name like Iron Triangle. For us it was: If someone tells you they want a job done Good, Fast and Cheap, you say: Pick Two.

I’m also not so sure it applies to Brexit, I think there are other issues with it. But here it is.

Brexit Cannot Break The Iron Triangle (HCG)

In all the chaos surrounding Brexit, I keep coming back to the same, simple fact: this is essentially a basic failure of project management. Experts are out of favour right now, but what I’m about to tell you is not expert knowledge: it’s something you instinctively do every day, but perhaps don’t have a name for. But in Project Management, something I did for 22 years, there is a name for the decisions we all make: The Iron Triangle.


I’ve managed projects to deliver everything from air-traffic control software to stock management and distribution for the world’s largest toy manufacturer. I’ve worked on software for Intel, Microsoft, international charities, hospitals, pension services, banking and warehousing. At the start of any project, I would draw this diagram. It’s called The Iron Triangle because it has three points, and describes an absolutely unbreakable rule: you can only have 2 things from the Iron Triangle. Never all three. All three is impossible.

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Jan 192018
 


Vincent van Gogh Red Vineyards at Arles 1888

 

The Most Sustainable Stock Market Bubble Ever (MW)
Global Debt Growing Three Times Faster than Global Wealth (Schiff)
US House Passes Stopgap Funding Bill and Sends It to Senate (BBG)
Conservatives Bring Russia Probe Demand to Shutdown Talks (BBG)
FISA Memo Set To Rock DC, “End Mueller Investigation” (ZH)
Hackers Have Walked Off With About 14% of Big Digital Currencies (BBG)
Blockchain Eyed for Mortgage Bundling That Caused 2008 Crisis (BBG)
SEC Says Bitcoin Funds Raise ‘Investor Protection Issues’ (R.)
Oliver Stone’s “Ukraine On Fire” Documentary Released In The West (Quinn)
Blood Test Could Use DNA To Spot Early-Stage Cancers (G.)
Adolescence Now Lasts From 10 to 24 (BBC)
Varoufakis Reveals Outburst Against ‘Stupid’ Tsipras (GR)
Greece Compliance Report Due Friday Ahead of Monday’s Eurogroup (R.)
UK and France Must Stop ‘Systematic Violation’ Of Calais Refugees (Ind.)
HRW Blames Greek Authorities For Abysmal Conditions At Hotspots (K.)

 

 

We’re having to find new semantics. Once sustainable bubbles become acceptable, anything goes…

The Most Sustainable Stock Market Bubble Ever (MW)

Is this the most sustainable stock market bubble ever? It’s rare to find the words “sustainable” and “bubble” in the same sentence, but the stock market rally from November 2016 until now has been relentless enough to at least discuss the notion of a “sustainable bubble.” In February 2016, the S&P 500 recorded three consecutive daily gains of more than 1.5%. The Profit Radar Report highlighted that this happened only eight other times. A year later, the S&P 500 was up 19.16%. The February 2016 kickoff rally continued to build momentum. One way to quantify momentum was shown in the Nov. 19, 2017, Profit Radar Report: “The S&P 500 was higher 8 of the first 9 months of 2017. This has only happened 8 other times (1936, 1950, 1954, 1958, 1964, 1995, 1996, 2006). 2, 3, 6, and 12 months later, the S&P was higher every time but one (0.7% loss 2 month later in 1964).

Such strong momentum readings (and they are seen across all time frames) are extremely rare. As mentioned in December 2016 and March 2017, stocks rarely top out at peak momentum. We have to go back to 1995/1996 to find similarly strong and persistent upside momentum. The stock market infrequently finds the delicate and potent balance between being hot, but not too hot. Tempered relentlessness best describes this market. How relentless? The S&P 500 has not closed more than 1.5% below its all-time high since Aug. 21, 2017. The only other time the S&P 500 has been similarly glued to its all-time high was in 1965. The S&P 500 has not dropped more than 5% below its all-time high since June 27, 2016, and has been above its 200-day simple moving average (SMA) since June 28, 2016.

How tempered? The S&P 500 has traded above its 200-day SMA for 391 days, but, until Jan. 5, also never traded more than 10% above its 200-day SMA. This “sweet spot” range is illustrated by the chart below. For the first time ever, the S&P 500 broke such a “controlled range-bound rally” streak (there’ve been two similar rallies in the 1960s and 1990s) by surging higher instead of falling lower.

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Once debt is subtracted, there’s very little wealth growth left. It’s a mirage.

Global Debt Growing Three Times Faster than Global Wealth (Schiff)

Global wealth increased to a new record of $280 trillion in 2017, according to Credit Suisse Global Wealth Report 2017. That seems like pretty good news until you consider global debt is increasing nearly three times as fast. According to the Wealth Report, total global wealth rose at a rate of 6.4%, the fastest pace since 2012 and reached $280 trillion, a gain of $16.7 trillion. This reflected widespread gains in equity markets matched by similar rises in non-financial assets, which moved above the pre-crisis year 2007’s level for the first time this year. Wealth growth also outpaced population growth, so that global mean wealth per adult grew by 4.9% and reached a new record high of $56,540 per adult.”

Increasing global wealth is one of the trends the World Gold Council identifies as a positive for the gold market in the next year. That’s all well and good. But we have to also look at the other side of the equation. The Institute of International Finance recently released its latest global debt analysis. It reported that global debt rose to a record $233 trillion at the end of Q3 2017. That is split up between $63 trillion in government debt, $58 trillion in financial sector corporate debt, $68 trillion in non-financial sector corporate debt, and $44 trillion in household indebtedness. In just nine months, there was an increase of $16 trillion in worldwide debt.

You really can’t talk about wealth without talking about debt. SRSrocco took a look at both factors in the equation. Even if global wealth surged in 2017, so did world debt. According to the data, global wealth increased by $16.7 trillion in 2017 while global debt expanded $16 trillion… nearly one to one. However, this is only part of the story. If we look at the increase in total world debt and total global wealth over the past 20 years, we can see a troubling sign, indeed: Since 1997, total global debt increased from $50 trillion to $233 trillion compared to the rise in global wealth from $120 trillion to $280 trillion. When you do the math, you find global debt has increased 366% vs. 133% increase in global wealth since 1997. That means net wealth was $70 trillion in 1997 versus $47 trillion in 2017.

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Shaky. A government shutdown could well be imminent.

US House Passes Stopgap Funding Bill and Sends It to Senate (BBG)

The House passed a spending bill Thursday to avoid a U.S. government shutdown, but Senate Democrats say they have the votes to block the measure in a bid to force Republicans and President Donald Trump to include protection for young immigrants. The 230-197 vote came just over a day before current funding is set to run out at midnight Friday. The bill would keep the government open through Feb. 16 while all sides negotiate on longer-term funding for defense and domestic programs. The Senate took an initial vote to advance the bill late Thursday, but was headed toward an additional procedural step requiring 60 votes, which Democrats say they will be able to block. The Senate adjourned until Friday morning without taking further action.

Shortly before the House vote, Trump wrote on Twitter: “House of Representatives needs to pass Government Funding Bill tonight. So important for our country – our Military needs it!” In a show of strength, House Republicans had enough support within their own ranks to pass the measure without help from Democrats. Some members of the conservative House Freedom Caucus withheld their support through much of the day Thursday, but reached a last-minute agreement with Speaker Paul Ryan to hold votes later on a conservative immigration bill and a measure to boost defense spending without increasing non-defense spending.

Still, Senate Democrats said they have the votes to block the measure in their chamber. At least 10 of the 18 Democrats who voted for a temporary funding measure in December have publicly announced their opposition, and a Democratic aide said there won’t be enough party members who support the House bill. Republicans would need at least a dozen Democratic votes to get the bill, H.R. 195, through the Senate after at least three of the 51 Republicans in the chamber said they would vote against it.

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The gloves are coming off.

Conservatives Bring Russia Probe Demand to Shutdown Talks (BBG)

House conservatives negotiating with GOP leaders over how to avert a government shutdown brought a fresh demand to the last-minute talks: release classified information they say raises questions about the origins of the FBI’s probe into President Donald Trump’s possible connections to Russia. A Republican lawmaker said they tried to pressure Speaker Paul Ryan to allow a vote on making public a document they say shows Justice Department and FBI misconduct and political bias in the investigation into Russian meddling in the 2016 presidential campaign and whether anyone close to Trump colluded in it. The facts contained in the memo from Republicans on the House Intelligence Committee are “jaw-dropping and demand full transparency,” said Matt Gaetz, a Florida Republican.

The top Democrat on the Intelligence Committee, Adam Schiff of California, criticized the move. He dismissed the committee document as “talking points” drafted by Republican staffers that he said were “profoundly misleading” and “rife” with inaccuracies. The odd juxtaposition of issues – tying the Russia inquiry to the debate over a stopgap spending bill – came as much of the government faced a threatened shutdown on Friday at midnight. Gaetz said the effort was led by Freedom Caucus Chairman Mark Meadows of North Carolina and caucus co-founder Jim Jordan of Ohio. Jordan confirmed that some conservatives had “highlighted” in continuing resolution talks that it was “extremely important” that the memo go public. He said it was not something they were requiring of the Republican leadership in return for votes.

“But it was something we definitely talked about – that needs to happen,” Jordan added. Meadows earlier referred to “subplots” of promises the Freedom Caucus was able to extract from the leadership before he agreed to support the continuing resolution. “Mr Meadows and Mr. Jordan and many conservatives want to include in this negotiation a requirement that the House make public intelligence documents that highlight the unfair treatment of the president” by the FBI and the Justice Department, Gaetz said. Gaetz said he couldn’t describe the contents of the entire memo put together by the House Intelligence Committee “because to do so would reveal classified information, in the absence of a vote to do so,” he said. “Just 218 votes and the American people can read this intelligence information that goes to the fundamentals of our democracy.”

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So let’s see it.

FISA Memo Set To Rock DC, “End Mueller Investigation” (ZH)

All hell is breaking loose in Washington D.C. tonight after a four-page memo detailing extensive FISA court abuse was made available to the entire House of Representatives Thursday. The contents of the memo are so explosive, says Journalist Sara Carter, that it could lead to the removal of senior officials in the FBI and the Department of Justice and the end of Robert Mueller’s special counsel investigation. “These sources say the report is “explosive,” stating they would not be surprised if it leads to the end of Robert Mueller’s Special Counsel investigation into President Trump and his associates.” -Sara Carter. A source close to the matter tells Fox News that “the memo details the Intelligence Committee’s oversight work for the FBI and Justice, including the controversy over unmasking and FISA surveillance.”

An educated guess by anyone who’s been paying attention for the last year leads to the obvious conclusion that the report reveals extensive abuse of power and highly illegal collusion between the Obama administration, the FBI, the DOJ and the Clinton Campaign against Donald Trump and his team during and after the 2016 presidential election. Lawmakers who have seen the memo are calling for its immediate release, while the phrases “explosive,” “shocking,” “troubling,” and “alarming” have all been used in all sincerity. One congressman even likened the report’s details to KGB activity in Russia. “It is so alarming the American people have to see this,” Ohio Rep. Jim Jordan told Fox News. “It’s troubling. It is shocking,” North Carolina Rep. Mark Meadows said. “Part of me wishes that I didn’t read it because I don’t want to believe that those kinds of things could be happening in this country that I call home and love so much.”

“Rep. Peter King, R-N.Y., offered the motion on Thursday to make the Republican majority-authored report available to the members. “The document shows a troubling course of conduct and we need to make the document available, so the public can see it,” said a senior government official, who spoke on condition of anonymity due to the sensitivity of the document. “Once the public sees it, we can hold the people involved accountable in a number of ways.” The government official said that after reading the document “some of these people should no longer be in the government.” -Sara Carter

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And there’s no guarantee this won’t continue.

Hackers Have Walked Off With About 14% of Big Digital Currencies (BBG)

Digital currencies and the software developed to track them have become attractive targets for cybercriminals while also creating a lucrative new market for computer-security firms. In less than a decade, hackers have stolen $1.2 billion worth of Bitcoin and rival currency Ether, according to Lex Sokolin at Autonomous Research. Given the currencies’ explosive surge at the end of 2017, the cost in today’s money is much higher. “It looks like crypto hacking is a $200 million annual revenue industry,” Sokolin said. Hackers have compromised more than 14% of the Bitcoin and Ether supply, he said. All told, hacks involving cryptocurrencies like Bitcoin have cost companies and governments $11.3 billion through lost potential tax revenue from coin sales and illegitimate transactions, according to Susan Eustis, CEO of WinterGreen Research.

The blockchain ecosystem – the decentralized “distributed ledgers” that track crypto transactions – is also vulnerable. Those losses could snowball as more companies and investors rush into the white-hot cryptocurrency market without weighing the dangers or taking steps to protect themselves. Blockchain records are shared, making them hard to alter, so some users see them as super-secure. But in many ways they are no safer than any other software, Matt Suiche, who runs the blockchain security company Comae Technologies, said. And since the market is immature, blockchains may even be more vulnerable than other software. There are thousands of them, each with its own bugs. Until the field is winnowed to a few favorites, as happened with web browsers, securing them all will be a challenge. “Each implementation is going to have its own problems,” Suiche said. “The more implementations, the harder it is to cover all of them.”

[..] In a Dec. 25 paper, researchers at the Institute of Electrical and Electronics Engineers outlined ways hackers can spend the same Bitcoins twice, the very thing blockchains are meant to prevent. In a Balance Attack, for instance, hackers delay network communications between subgroups of miners, whose computers verify blockchain transactions, to allow for double spending. “We have no evidence that such attacks have already been performed on Bitcoin,” the IEEE researchers said. “However, we believe that some of the important characteristics of Bitcoin make these attacks practical and potentially highly disruptive.”

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Predictable. Securitizing hasn’t exactly benefitted Jill and John, has it?

Blockchain Eyed for Mortgage Bundling That Caused 2008 Crisis (BBG)

A group of big financial institutions wants to use the blockchain to help resurrect the packaging of home mortgages into securities, a business that almost destroyed the global banking system in 2008. Credit Suisse, U.S. Bancorp, Wells and Western Asset Management. said Thursday that they successfully tested the distributed ledger technology as a way to make it easier to track securitized home loans. Before the 2008 crisis, bundling home loans together and then selling those baskets to investors was a huge profit center for banks. But this was the primary cause of the meltdown after many borrowers couldn’t repay their debt and the value of the securitized loans crashed, causing trillions of dollars in losses.

The business then shrank dramatically. There were about $823 billion of securitized private-label residential mortgage bonds outstanding in early 2017, according to the Securities Industry and Financial Markets Association, down from a peak of $2.7 trillion in 2007. “Structuring securities is complex, involving many different parties, manual processes, duplicated documents and data in different formats,” David Rutter, chief executive officer of blockchain startup R3, which is organizing the consortium, said in a statement Thursday. While the group is starting with residential mortgages that aren’t backed by the U.S. government, it plans to expand to other types of asset-backed securities. The next step is delivering a commercially viable product, R3 said.

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Any regulation will need to concern all crypto, not just bitcoin. Does the SEC have the knowledge to do that?

SEC Says Bitcoin Funds Raise ‘Investor Protection Issues’ (R.)

The U.S. securities regulator on Thursday raised alarm about the safety of bitcoin-themed investments, telling the fund industry they want answers to their concerns before endorsing more than a dozen proposed products based on cryptocurrencies. A top division chief at the U.S. Securities and Exchange Commission detailed the agency’s concerns about the wild-trading investment in a letter to two trade groups representing fund managers who unleashed a range of proposals for funds holding bitcoin or related assets. The SEC’s division of investment management demanded answers to at least 31 detailed questions about how mutual funds or exchange-traded funds based on bitcoin would store, safeguard, and price that asset. They also asked whether investors can understand the risks and how to address concerns that bitcoin markets could be manipulated.

“There are a number of significant investor protection issues that need to be examined before sponsors begin offering these funds to investors,” said the letter signed by Dalia Blass, the SEC’s director of investment management. Bitcoin’s 1,500% surge last year stoked investor demand for any product with exposure to the red-hot asset. A host of companies are jostling to launch exchange-traded funds which would open up the cryptocurrency to a broad retail market. The SEC in March denied a request to list an ETF from investors Cameron and Tyler Winklevoss, owners of the Gemini bitcoin exchange. The Winklevoss fund is seeking to invest in bitcoin directly. Other fund firms staked their hopes on recently launched U.S.-listed bitcoin futures contracts, which promised a more stable base for ETFs than the largely unregulated virtual currency spot market. Many of those proposals were withdrawn last week at the request of the SEC.

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Haven’t watched it yet.

Oliver Stone’s “Ukraine On Fire” Documentary Released In The West (Quinn)

Oliver Stone’s seminal documentary Ukraine on Fire has finally been made available to watch in the West. Investigative journalist Robert Parry reveals how US-funded political NGOs and media companies have emerged since the 1980s, replacing the CIA in promoting America’s geopolitical agenda abroad. As Russia-Insider details, Ukraine on Fire provides a historical perspective for the deep divisions in the region which led to the 2004 Orange Revolution, the 2014 uprisings, and the violent overthrow of democratically-elected Yanukovych. Covered by Western media as a ‘popular revolution’, it was in fact a coup d’état scripted and staged by ultra-nationalist groups and the US State Department.

Executive producer Oliver Stone gained unprecedented access to the inside story through his on-camera interviews with former President Viktor Yanukovych and Minister of Internal Affairs Vitaliy Zakharchenko, who explain how the US Ambassador and factions in Washington actively plotted for regime change. And, in his first meeting with Russian President Vladimir Putin, Stone solicits Putin’s take on the significance of Crimea, NATO and the US’s history of interference in elections and regime change in the region. The film was originally released in 2016, but unsurprisingly, Stone came up against problems distributing the film in the US and western countries. A Russian-dubbed version was available almost immediately and was aired on TV in Russia, but people in the ‘free world’ were left without access to the full film.

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Seems quite obvious. If you can train dogs to discover cancer early on, why not DNA?

Blood Test Could Use DNA To Spot Early-Stage Cancers (G.)

Scientists have made a major advance towards developing a blood test for cancer that could identify tumours long before a person becomes aware of symptoms. The new test, which is sensitive to both mutated DNA that floats freely in the blood and cancer-related proteins, gave a positive result approximately 70% of the time across eight of the most common cancers when tested in more than 1,000 patients. In the future, such a test could be used in routine screening programmes to significantly increase the proportion of patients who get treatment early, at a time before cancer would typically show up on conventional scans. “The use of a combination of selected biomarkers for early detection has the potential to change the way we screen for cancer, and it is based on the same rationale for using combinations of drugs to treat cancers,” said Nickolas Papadopoulos, professor of oncology at Johns Hopkins University and senior author on the paper.

The test could also identify the form of cancer that a patient had, a goal that previous cancer blood tests have failed to achieve. It works by detecting free-floating mutated DNA, released into the bloodstream by dying cancer cells. The test screened for the presence of errors in 16 genes that are frequently mutated in different kinds of cancer. The blood of patients was also tested for eight known protein biomarkers which are seen to differing degrees depending on where in the body a tumour is located. In blood samples from 1,005 patients, the test detected between 33% and 98% of cases of disease. Ovarian cancer was the easiest to detect, followed by liver, stomach, pancreas, oesophageal, colorectal, lung and breast cancers. For the five cancers that currently have no screening tests – ovarian, liver, stomach, pancreatic and oesophageal cancers – sensitivity ranged from 69% to 98%.

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They’re all still living with mom and dad anyway.

Adolescence Now Lasts From 10 to 24 (BBC)

Adolescence now lasts from the ages of 10 to 24, although it used to be thought to end at 19, scientists say. Young people continuing their education for longer, as well as delayed marriage and parenthood, has pushed back popular perceptions of when adulthood begins. And changing the definition is vital to ensure laws and government policy stay appropriate, they say in the Lancet Child & Adolescent Health journal. But another expert warns doing so risks “further infantilising young people”. Puberty is considered to start when the part of the brain known as the hypothalamus starts releasing a hormone that activates the body’s pituitary and gonadal glands. This used to happen around the age of 14 but has dropped with improved health and nutrition in much of the developed world to around the age of 10.

As a consequence, in industrialised countries such as the UK the average age for a girl’s first menstruation has dropped by four years in the past 150 years. Half of all females now have their period by 12 or 13 years of age. There are also biological arguments for why the definition of adolescence should be extended, including that the body continues to develop. For example, the brain continues to mature beyond the age of 20, working faster and more efficiently. And many people’s wisdom teeth don’t come through until the age of 25. Young people are also getting married and having children later. According to the Office of National Statistics, the average age for a man to enter their first marriage in 2013 was 32.5 years and 30.6 years for women across England and Wales. This represented an increase of almost eight years since 1973.

Lead author Prof Susan Sawyer, director of the centre for adolescent health at the Royal Children’s Hospital in Melbourne, writes: “Although many adult legal privileges start at age 18 years, the adoption of adult roles and responsibilities generally occurs later.” She says delayed partnering, parenting and economic independence means the “semi-dependency” that characterises adolescence has expanded.

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The 3.5% surplus is the opposite of what’s good for Greece; there should be a 3.5% deficit, with all 7% of it invested in the economy.

Varoufakis Reveals Outburst Against ‘Stupid’ Tsipras (GR)

Former Greek Finance Minister Yanis Varoufakis has revealed he accused Prime Minister Alexis Tsipras of being “totally stupid” in accepting a demand by Greece’s creditors for big primary surpluses. During an interview with Greece’s Parapolitika radio, Varoufakis said when he learned that Tsipras in 2015 accepted, without consulting him, a primary surplus target of 3.5% he confronted the premier: “I told him: ‘Are you totally stupid? What have they given you in return?’ And he replied: ‘Oh, maybe I was stupid. I will retract from the promise’.” Varoufakis said he actually used a stronger word than “stupid”.

In the same interview, the former finance minister repeated claims that Tsipras did not really want to win in the infamous July 2015 referendum on the bailout. Varoufakis said he remembered that everyone at the prime minister’s office that evening was sad. “I do not know when exactly Tsipras decided to capitulate,” he added. Referring to his successor, Euclid Tsakalotos, he said: “I can no longer recognize him.” “Euclid became a yes man on July 6 [2015] .. The case of Euclid hurts, because I was an eyewitness of his total transformation,” he added. Varoufakis also confirmed that he still has in his possession recordings of the Eurogroup meetings of the turbulent first half of 2015.

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And also, the 3.5% surplus is a perfect way to make Greece a debt slave forever.

Greece Compliance Report Due Friday Ahead of Monday’s Eurogroup (R.)

Eurozone finance ministers could decide on Monday, or soon afterward, to release the next tranche of bailout loans to Greece after the country pushed through a batch of laws to meet reform agreements with its creditors, a senior European Union official has said. Finance ministers from the 19 countries sharing the euro meet for monthly talks on Monday and a review of Greek reforms is one of the top items on the agenda. Last Monday, the Greek Parliament approved a bill for fiscal, energy and labor reforms requested by international lenders. This is likely to complete the third and penultimate review of Greek reforms, unlocking new loans. “We are extremely well on our way towards the completion of the third review,” the senior EU official said.

“There are a number of administrative measures to be taken still. As of yet we cannot say that all the preconditions [for disbursements] have been successfully completed simply because the time lines are as they are,” the official said. Lenders’ experts, who are now translating and checking the Greek laws, are to issue a report on their compliance with the bailout’s requirements on Friday. The new loans would be between 6 and 7 billion euros, disbursed to Greece in more than one tranche, the official said. Greece would use the money to redeem maturing debt, pay arrears and create a cash buffer for when it leaves its third bailout in August. “We can be confident that the disbursements will… start in February, probably in the second half,” the official said.

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It’s not about people, it’s about money and politics. Welcome to the real Europe.

UK and France Must Stop ‘Systematic Violation’ Of Calais Refugees (Ind.)

The UK and France must urgently put an end to the “systematic violation” of refugees in Calais, a group of charities has warned. In a letter shared exclusively with The Independent, eight aid organisations urged leaders Theresa May and Emmanuel Macron to uphold their commitment to human rights law, as conditions for the thousands living on the border become increasingly perilous. The group, which includes l’Auberge des Migrants, Help Refugees, Safe Passage and Utopia56, wrote to the leaders on the same day Ms May welcomed the French President to the UK-France Summit at the Royal Military Academy in Sandhurst. “We are writing to ask that any new agreement relating to the French-British border bear in mind the human rights of displaced people currently residing in Calais,” the letter states.

“We are deeply concerned that the human rights of refugees and displaced people in northern France are being systematically violated on French territory. We moreover lament the heightened risk of sexual violence, exploitation and trafficking to which children and youth in Calais are exposed, as well as the many avoidable deaths occurring at the border.” Ahead of the visit, the Prime Minister announced the UK will take more child refugees from Calais and spend £44.5m on additional security at the French port. Ms May and Mr Macron subsequently signed a deal on migrants called the Sandhurst Treaty, designed to ease the suffering of some of the thousands of people camped near the French port who currently wait six months to have their cases settled. However, No 10 was keen to play down suggestions that Ms May had agreed to accept more refugees, insisting it would simply speed up the process of settling claims.

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And Germany now blames the island mayors.

HRW Blames Greek Authorities For Abysmal Conditions At Hotspots (K.)

In its annual review for 2018, Human Rights Watch (HRW) said the failure of Greek authorities to properly identify vulnerable asylum seekers for transfer to the mainland has “impeded their access to proper care and services.” The watchdog group also said that policy formed under the deal between the European Union and Turkey to stem the flow of migrants to the continent has led to thousands being “trapped in Greece in overcrowded and abysmal conditions, while denying most access to adequate asylum procedures or refugee protection.” “The policies, conditions, uncertainty and the slow pace of decision-making contributed to deteriorating mental health for some asylum seekers and other migrants on the islands, while creating tensions that sometimes erupted into violence,” it said.

More than 50,000 refugees and migrants are stranded in Greece. Meanwhile, five eastern Aegean island mayors are calling for a meeting with the German ambassador in Athens after coming under fire from German Interior Minister Thomas de Maiziere, who said on Wednesday that they were to blame for the appalling living conditions of refugees and migrants trapped in the hotspots. De Maiziere accused the island mayors of not making use of the aid that is being offered in order to force the government to transfer them to the Greek mainland.

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Dec 122017
 
 December 12, 2017  Posted by at 3:03 pm Finance Tagged with: , , , , , , , , ,  3 Responses »


Gustave Courbet Seascape 1874

 

 

Bitcoin Doesn’t Exist was written exclusively for the Automatic Earth by Dr. D and first published as a five-part series there. The Full Story combines these five parts. Given the length and the amount of information, we suggest you might want to save or bookmark it. And you can of course always express your appreciation of the Automatic Earth through Paypal.

 

 

Dr. D: Bitcoin is all the rage today, and as it crosses over $10,000, a 10-bagger for the year, we should look at what it is, what it isn’t, and why it’s become so popular. Note my observations are those of a layman – which may be more useful than those of a programmer – but also those of a skeptic, which I’ll get to at the end.

First, what is Bitcoin? Well, the idea of digital money goes back to the first digits, financial mainframes. In fact, the “money” in use today throughout the financial system have long been no more than virtual 1’s and 0’s on a spinning hard drive somewhere, but the idea of Bitcoin-money, private-money, goes back further still. I mean, what is “money”? At its core, it’s no more than the most-tradable good in a given society, a trading chit we use as a measurement tool, a token recording how much value we created or are owed. Arguably the first money was not gold, not seashells or even barter, but a promise. Let me borrow your net and I’ll give you a couple fish from the work. Why? Because you might break the net or I might use it, so I need to get paid for my risk, reward for my effort in making and storing the net to begin with.

So money at its most austere is simply a promise. But a promise to whom for what? And that’s the problem. No matter what good you use, people place differing values on it, different time-preferences, and most especially ways to cheat, game the system, and renege. This is bad among businesses, banks – who are after all only men – especially bad among governments, but worst of all among government and banks combined. Because, should the banks lie, renege, default, abuse their privilege, who then would hold them to task?

In the past, over and over, groups have created their own “money”. The whole 19th century was marked by general stores extending credit, bank notes issued by thousands of private banks, each with their own strength and solvency and geography and discounted accordingly. In the 20th century, with central banks controlling money, many cities issued local “scrip” – promises to pay – in Detroit in the Depression, or California in the budget crunch of 2009, or “Ithaca Dollars” in NY as a sort of ongoing Ivy League experiment. But the problem with these only highlight the problems with money generally:who can issue them? Everyone? A central authority? Can they deliver goods? And what can they buy, not just in value but in location?

Ithaca Dollars or California Tax Vouchers are not much good to buy oil from Texas or tea from China. People will always prefer a good that is accepted everywhere, with no decay and no discount, because ultimately the money flows away, offshore or to central taxation, which makes local currencies ever-less valuable. But even if successful it leads to a new set of problems: if Detroit or Ithaca Dollars were in high demand, there would be ever-stronger incentive to counterfeit, cheat, and double-spend them. Thus from the Renaissance to now we used reputable banks backed by force of governments, through the Gold standard and the Fiat age until today.

Enter the hackers.

It’s not that these problems are unknown, or haven’t been approached or attempted before. Every generation, when they find the banks + government take a percentage for their costs to insure the system, thinks how can we do away with these guys, who both take too much and end up in an unapproachable seat of power? I mean, aren’t we supposed to be a Democracy? How can we have a fair society if the Iron Bank is both backing all governments at once, on both sides of a war? What good is it to work if compounding interest invariably leads to their winning Boardwalk and Park Place 100% of the time? But despite several digital attempts – some immediately shut down by government – no one had a solution until Satoshi Nakamoto.

We don’t know who Satoshi Nakamoto is, but since several of the well-meaning developers were immediately jailed for even attempting private money on reasons arguably groundless, we can suppose he had good incentive to remain anonymous. And speculation aside, it doesn’t matter: Satoshi’s addition was not “Bitcoin” per se, but simply an idea that made private currency possible. The domain Bitcoin.org was registered in 2008, showing intent, and the open-source code was promoted to a small cryptography group in January 2009. But what was it? What did it solve?

Double-spending. Basically, the problem of money comes down to trust. Trust between individuals, between the system, but also partly trust in non-interference of governments or other powerful groups. Bitcoin is a trust machine.

How does it work? Well, the basic problem of cheating was one of not creating fake, hidden registers of value, as the U.S. Government, J.P. Morgan, and the Comex do every day. If they asked Yellen to type some extra zeros on the U.S. ledger, print a few pallets of $100 bills to send to Ukraine, who would know? Who could stop them? So with Bitcoin, the “value”, the register is created by essentially solving a math problem, akin to discovering prime numbers. Why do something so pointless? Simple: math doesn’t lie. Unlike U.S. Dollars, there are only so many prime numbers. We can be certain you won’t reach 11-digits and discover an unexpected trove of a thousand primes in the row. Can’t happen. However useless, Math is certainty. In this case, math is also limited. It’s also known and provable, unlike the U.S. budget or Federal Reserve accounting.

The second problem of cheating was someone simply claiming chits they did not own. This was solved by having the participants talk back and forth with each other, creating a public record or ledger. In fact, Bitcoin is nothing more than a very, very long accounting ledger of where every coin came from, and how every coin has moved since then, something computers do very well. These accounting lines register amongst all participants using a process of confirmed consensus.

Double-spending is when someone writes a check either against money they don’t have (yet) and round-robin in the money for the one second of clearing, or else write a check against money they DO have, but then cancel the check before it clears, walking away with the goods. In a standard commerce, the bank backfills fraud and loss and the government arrests, tries, and imprisons people, but it’s no small cost to do so. Although there is still a small possibility of double-spending, Satoshi’s plan effectively closed the issue: the ledger is either written, or unwritten. There is no time in the middle to exploit.

 

Great for him, but if I buy coins by Satoshi and the original cryptogroup, won’t I just be transferring all my value to make them rich? Although Bitcoin supply may be limited by mathematics, this is the issuer problem. It is solved because as a free, open source code, everyone has an equal opportunity to solve the next calculation. Bitcoin starts with the original 50 coins mined in 2009, so yes, early adopters get more: but they took more risk and trouble back when it was a novelty valuable only as proof-of-concept. The original cash transaction was between hackers to buy two pizzas for 10,000 BTC ($98M today). Why shouldn’t they get preference? At the same time, we are not buying all 20 Million eventual coins from Satoshi and his close friends, which is arguably the case with the Federal Reserve and other central banks. Bitcoin is bought and created from equal participants who have been actively mining as the coins appear, that is, from doing electronic work.

This leads to the next challenge: why would anyone bother keeping their computers on to process this increasingly long accounting ledger? Electricity isn’t free. The process of “mining” is the recording of Bitcoin transactions. The discovery of coins therefore effectively pays for the time and trouble of participating in a public accounting experiment. Even should that stop, the act of using Bitcoin itself cannot be accomplished without turning on a node and adding lines to process the ledger. So we can reasonably expect that people will keep Bitcoin software “on” to help us all get Bitcoin work done. That’s why it’s a group project: public domain shareware.

What if they shut it down? What if it’s hacked? This leads to the next problem: resiliency. You have to go back a step and understand what Bitcoin is: a ledger. Anyone can store one, and in fact participants MUST store one. If Bitcoin were “shut off” as it were, it would be stored with each and every miner until they turned their computers back on. If it’s “off” there’s no problem, because no one transferred any Bitcoin. If it’s “on” then people somewhere are recording transactions. Think of it like a bowling group keeping a yearly prize of the ugliest shirt. Is there an actual shirt? No, the shirt is not the prize. Is there a gold trophy? No, “prize” is simply the knowledge of who won it. There is no “there”, no physical object at all. Strangely, that’s why it works.

 

This is important for the next problem: intervention. Many private monies have been attempted, notably e-gold within Bitcoin’s own origin. But the problem was, if there was anything real, like a gold bar, it could be encumbered, confiscated, and stolen. You’d have to trust the vault, the owner, the auditor and we’re back in the old system. At the same time, if Satoshi were keeping the Bitcoin record and had any human power over it at all, government could imprison him, pass a law, create a cease-and-desist, or demand he tamper with the record, which they did with e-gold. But Satoshi does not have that power, and no one else does either.

Why? Precisely because Bitcoin DOESN’T exist. It’s not a real thing. Or rather, the only “real” thing is the ledger itself which is already public to everyone everywhere. You can’t demand the secret keys to Bitcoin privacy because it’s already completely, entirely public. What would a government demand? Suppose they ordered a miner to alter the record: the other miners would instantly reject it and it would fail. Suppose they confiscated the ledger: they now own what everyone already has. Suppose they unplugged it: they would have to unplug the entire internet, and everything else on it, or every Bitcoin node, one-by-one, worldwide. If any nodes were ever turned on, all Bitcoin would exist again.

Can they track them down? Not really. In theory, Bitcoin can be written on paper without an Internet. In practice, any public or private keys certainly can be. So even chasing down the Internet it would be very difficult to stop it given sufficient motivation, like the Venezuelan hyperinflation where they are chasing down miners, wallets, and participants, and failing despite overwhelming force.

What about privacy? A completely public ledger recording every person and every transaction seems like a police state’s dream of enforcement and taxation. Is it private? Yes and no. The Bitcoin ledger is not written like “Senator Smith spent .0001 BTC on August 21st, 2015 to buy a sex toy from Guangzhou,” but Wallet #Hash2# transferred .00017 BTC to wallet #Hash3# at UTC 13:43:12 21:11:2017 – or not even that: it’s encrypted. Who is #Hash2#? You can go back, but it will only say #Hash2# exists and was created on Time:Date. Who is #Hash3#? The ledger only says #Hash3# was created a minute ago to receive the transaction. In fact, #Hash2# may have been created solely to mask the coin transferred from #Hash1#. So is it anonymous? Not exactly. Given enough nodes, enough access to the world’s routers, enough encryption, you might see #Hash2# was created in Pawtucket, and if #Hash2# is not using active countermeasures, perhaps begin to bring a cloudy metadata of #Hash2# possible transactions into focus, tying it to Amazon, then a home address, but the time and resources required to break through would be astronomical.

What about theft? Yes, like anything else it can be stolen. If you break into my house and tie me up, you can probably get the keys. This is also true online as you must log on, type a password that can be logged on a screen that can be logged over a network that can be logged, but think again about what you’re doing: does it make sense to break into every participant’s computer one by one? Most Bitcoin is held by a few early adopters, and probably those wallets were lost when their hard drives crashed, the users lost their passwords, or died before this computer experiment had any value. We know for a fact that all of Satoshi’s original coins, 2.2 million of them, have NEVER been spent, never moved on the ledger, suggesting either death or the austerity of a saint.

So even today hacking a wallet, is far more likely to net $1.00 than $1M. Take a page from Willie Sutton: when asked why he robbed banks, he said, “that’s where the money is.” So today. Where is the real money stolen, transferred? From the ’08 bailout, the kiting of fake bonds in the market, the MF Globals, the rigging of LIBOR or the fake purchase of EU bonds. You know, where the money is. At $160B market cap, Bitcoin is still one week’s purchase of central bank bond buying, i.e. a rounding error, no money at all. Hack a home wallet? I guess, but hacking Uber or Equifax once is a lot easier than hacking 100,000 wallets on 100,000 different computers. At least you know you’ll get something.

But MT Gox was hacked and 650,000 coins went missing. Surely Coinbase, Gemini, Poloniex are the same. Well…not exactly.

 

 


Gustave Courbet The wave 1870

 

 

Dr. D: You have to understand what exchanges are and are not. An exchange is a central point where owners post collateral and thereby join and trade on the exchange. The exchange backs the trades with their solvency and reputation, but it’s not a barter system, and it’s not free: the exchange has to make money too. Look at the Comex, which reaches back to the early history of commodities exchange which was founded to match buyers of say, wheat, like General Mills, with producers, the farmers. But why not just have the farmer drive to the local silo and sell there? Two reasons: one, unlike manufacturing, harvests are lumpy. To have everyone buy or sell at one time of the year would cripple the demand for money in that season. This may be why market crashes happen historically at harvest when the demand for money (i.e. Deflation) was highest. Secondly, however, suppose the weather turned bad: all farmers would be ruined simultaneously.

Suppose the weather then recovered: the previous low prices are erased and any who delayed selling would be rich. This sort of random, uncontrolled, uninsurable event is no way to run an economy, so they added a small group of speculators into the middle. You could sell wheat today for delivery in June, and the buyer would lock in a price. This had the effect of moderating prices, insuring both buyers AND sellers, at the small cost of paying the traders and speculators for their time, basically providing insurance. But the exchange is neither buyer, seller, nor speculator. They only keep the doors open to trade and vet the participants. What’s not immediately apparent is these Contracts of Wheat are only wheat promises, not wheat itself. Although amounts vary, almost all commodities trade contracts in excess of what is actually delivered, and what may exist on earth. I mean the wheat they’re selling, millions of tons, haven’t even been planted yet. So they are synthetic wheat, fantasy wheat that the exchange is selling.

A Bitcoin exchange is the same thing. You post your Bitcoin to the exchange, and trade it within the exchange with other customers like you. But none of the Bitcoin you trade on the exchange is yours, just like none of the wheat traded is actual wheat moving on trucks between silos. They are Bitcoin vouchers, Bitcoin PROMISES, not actual Bitcoin. So? So although prices are being set on the exchanges – slightly different prices in each one – none of the transfers are recorded on the actual Bitcoin Ledger. So how do you think exchanges stay open? Like Brokers and Banks, they take in the Bitcoin at say 100 units, but claim within themselves to have 104.

 

Why? Like any other fractional reserve system, they know that at any given moment 104 users will not demand delivery. This is their “float” and their profit, which they need to have, and this works well as far as it goes. However, it leads to the problem at Mt. Gox, and indeed Bear Sterns, Lehman and DeutscheBank: a sudden lack of confidence will always lead to a collapse, leaving a number of claims unfulfilled. That’s the bank run you know so well from Mary Poppins’ “Fidelity Fiduciary Bank”. It is suspected to be particularly bad in the case of Mt. Gox, which was unregulated. How unregulated? Well, not only were there zero laws concerning Bitcoin, but MTGOX actually stands for “Magic The Gathering Online eXchange”; that is, they were traders of comic books and Pokemon cards, not a brokerage. Prepare accordingly.

The important thing here is that an exchange is not Bitcoin. On an exchange, you own a claim on Bitcoin, through the legal entity of the exchange, subject only to jurisdiction and bankruptcy law. You do not own Bitcoin. But maybe Mt.Gox didn’t inflate their holdings but was indeed hacked? Yes, as an exchange, they can be hacked. Now you only need infiltrate one central point to gain access to millions of coins and although their security is far better, it’s now worth a hacker’s time. Arguably, most coins are held on an exchange, which is one reason for the incredibly skewed numbers regarding Bitcoin concentration. Just remember, if you don’t hold it, you don’t own it. In a hack, your coins are gone.

If the exchange is lying or gets in trouble, your coins are gone. If someone is embezzling, your coins are gone. If the Government stops the exchange, your coins are gone. If the economy cracks, the exchange will be cash-strapped and your coins are frozen and/or gone. None of these are true if YOU own your coins in a true peer-to-peer manner, but few do. But this is also true of paper dollars, gold bars, safe deposit boxes, and everything else of value. This accounts for some of the variety of opinions on the safety of Bitcoin. So if Polinex or Coinbase gets “hacked” it doesn’t mean “Bitcoin” was hacked any more than if the Comex or MF Global fails, that corn or Yen were “hacked”. The exchange is not Bitcoin: it’s the exchange. There are exchange risks and Bitcoin risks. Being a ledger Bitcoin is wide open and public. How would you hack it? You already have it. And so does everybody else.

So we’ve covered the main aspects of Bitcoin and why it is eligible to be money. Classically, money has these things:

1. Durable- the medium of exchange must not weather, rot, fall apart, or become unusable.

2. Portable- relative to its size, it must be easily movable and hold a large amount of value.

3. Divisible- it should be relatively easy to divide with all parts identical.

4. Intrinsically Valuable- should be valuable in itself and its value should be independent of any other object. Essentially, the item must be rare.

5. Money is a “Unit of Account”, that is, people measure other things, time and value, using the units of value to THINK about the world, and thus is an part of psychology. Strangely that makes this both the weakest and strongest aspect of:

6. “The Network Effect”. Its social and monetary inertia. That is, it’s money to you because you believe other people will accept it in exchange.

The Score:

1. Bitcoin is durable and anti-fragile. As long as there is an Internet – or even without one – it can continue to exist without decay, written on a clay tablet with a stylus.

2. Bitcoin is more portable than anything on earth. A single number — which can be memorized – can transport $160B across a border with only your mind, or across the world on the Internet. Its portability is not subject to any inspection or confiscation, unlike silver, gold, or diamonds.

3. Bitcoin is not infinitely divisible, but neither is gold or silver, which have a discrete number of atoms. At the moment the smallest Bitcoin denomination or “Satoshi” is 0.00000001 Bitcoin or about a millionth of a penny. That’s pretty small, but with a software change it can become smaller. In that way, Bitcoin, subject only to math is MORE divisible than silver or gold, and far easier. As numbers all Bitcoin are exactly the same.

4. Bitcoin has intrinsic value. Actually, the problem is NOTHING has “intrinsic” value. Things have value only because they are useful to yourself personally or because someone else wants them. Water is valuable on a desert island and gold is worthless. In fact, gold has few uses and is fundamentally a rock we dig up from one hole to bury in another, yet we say it has “intrinsic” value – which is good as Number 4 said it had to be unrelated to any other object, i.e. useless. Bitcoin and Gold are certainly useless. Like gold, Bitcoin may not have “Intrinsic value” but it DOES have intrinsic cost, that is, the cost in time and energy it took to mine it. Like gold, Bitcoin has a cost to mine measurable in BTU’s. As nothing has value outside of human action, you can’t say the electric cost in dollars is a price-floor, but suggests a floor, and that would be equally true of gold, silver, copper, etc. In fact, Bitcoin is more rare than Rhodium: we mine rare metals at 2%/year while the number of Bitcoins stops at 22 Million. Strangely, due to math, computer digits are made harder to get and have than real things.

5. Bitcoin is a unit of account. As a psychological effect, it’s difficult to quantify. Which comes first, the use of a thing, or its pricing? Neither, they grow together as one replaces another, side-by-side. This happened when gold replaced iron or salt or when bank notes replaced physical gold, or even when the U.S. moved from Pounds and Pence to Dollars and Cents. At first it was adopted by a few, but managed to get a critical mass, accepted, and eventually adopted by the population and entirely forgotten. At the moment Bitcoin enthusiasts do in fact mentally price things in Bitcoins, especially on exchanges where cross-crypto prices are marked vs BTC. Some never use their home currency at all, living entirely according to crypto-prices until home conversion at the moment of sale, or as hundreds or thousands of businesses are now accepting cryptocurrencies, even beyond. For them it is a unit of account the way Fahrenheit is a unit within the United States.

6. Bitcoin has the network effect. That is, it is widely accepted and publicly considered money. It’s in the news, has a wide following worldwide, and exchanges are signing up 40,000 new users a month. It’s accepted by thousands of vendors and can be used for purchases at Microsoft, Tesla, PayPal, Overstock, or with some work, Amazon. It’s translatable through point-of-sale vendor Square, and from many debit card providers such as Shift. At this point it is already very close to being money, i.e. a commonly accepted good. Note that without special arrangements none of these vendors will accept silver coins, nor price products in them. I expect if Mark Dice offered a candy bar, a silver bar, or a Bitcoin barcode, more people would pick the Bitcoin. In that way Bitcoin is more money than gold and silver are. You could say the same thing about Canadian Dollars or Thai Bhat: they’re respected currencies, but not accepted by everyone, everywhere. For that matter, neither are U.S. dollars.

 

Note what is not on the list: money is not a unit created or regulated by a central authority, although governments would like us to think so. In fact, no central authority is necessary or even desirable. For centuries the lack of monetary authority was historic fact, back with medieval markets through to private banks, until 1913, 1933, 1971, and the modern evolution into today’s near-total digital fiat. Besides the technical challenge, eliminating their overhead, oversight, control and corruption is the point of Bitcoin. And right now the government’s response to Bitcoin is a strange mixture of antipathy, ignorance, oppression, and opportunity. At $160 Billion it hardly merits the interest of a nation with a $500 Billion trade deficit, and that’s spread worldwide.

This leads into one of the spurious claims on Bitcoin: that it’s a refuge for drug smugglers and illegal activities. I assure you mathematically, that is not true. According to the U.N. the world drug trade is $435B, 4 times the total, and strictly theoretical value of Bitcoin, coins locked, lost, and all. Besides if you owned $160B coins, who would you transfer them to? You’re the only user. $435B/year can only be trafficked by major banks like as HSBC, who have paid public fines because money flows that large can’t be hidden. This is so well-known the U.N. suggested the drug-money flows may be one reason global banks were solvent in ‘08. Even $160B misrepresents Bitcoin because it had a 10-fold increase this year alone. So imagine $16B total market cap. That’s half the size of the yearly budget of Los Angeles, one city. Even that overstates it, because through most of its life it’s been around $250, so imagine a $4B market cap, the budget of West Virginia.

So you’re a drug dealer in illicit trades and you sell to your customers because all your buyers have Bitcoin accounts? Your pushers have street terminals? This doesn’t make sense. And remember as much as the price of Bitcoin has risen 40-fold, the number of participants has too. Even now, even with Coinbase, even with Dell and Overstock, even with BTC $10,000 almost no one has Bitcoin, even in N.Y.C. or S.F.. So who are these supposed illegal people with illegal activities that couldn’t fit any significant value?

That’s not to say illegal activities don’t happen, but it’s the other half of the spurious argument to say people don’t do illegal acts using cash, personal influence, offshore havens, international banks like Wells Fargo, or lately, Amazon Gift Cards and Tide Detergent. As long as there is crime, mediums of value will be used to pay for it. But comparing Bitcoin with a $16B market cap to the existing banking system which the U.N. openly declares is being supported by the transfer of illicit drug funds is insanity.

Let’s look at it another way: would you rather: a) transfer drugs using cash or secret bank records that can be erased or altered later or b) an public worldwide record of every transaction, where if one DEA bust could get your codes, they could be tracked backwards some distance through the buy chain? I thought so. Bitcoin is the LEAST best choice for illegal activities, and at the personal level where we’re being accused, it’s even worse than cash.

We showed that Bitcoin can be money, but we already have a monetary and financial system. What you’re talking about is building another system next to the existing one, and doubling the costs and confusions. That’s great as a mental exercise but why would anyone do that?

In a word: 2008.

It’s probably not an accident Bitcoin arrived immediately after the Global Financial Crisis. The technology to make it possible existed even on IRC chat boards, but human attention wasn’t focused on solving a new problem using computer software until the GFC captured the public imagination, and hackers started to say, “This stinks. This system is garbage. How do we fix this?” And with no loyalty to the past, but strictly on a present basis, built the best mousetrap. How do we know it’s a better mousetrap? Easy. If it isn’t noticeably better than the existing system, no one will bother and it will remain an interesting novelty stored in some basements, like Confederate Dollars and Chuck-e-Cheez tokens. To have any chance of succeeding, it has to work better, good enough to overcome the last most critical aspect money has: Inertia.

So given that Bitcoin is unfamiliar, less accepted, harder to use, costs real money to keep online, why does it keep gaining traction, and rising in price with increasing speed? No one would build a Bitcoin. Ever. No one would ever use a Bitcoin. Ever. It’s too much work and too much nuisance. Like any product, they would only use Bitcoin because it solves expensive problems confronting us each day. The only chance Bitcoin would have is if our present system failed us, and fails more every day. They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value. They are the ones who could stop Bitcoin and shut it down by fixing the present, easy, familiar system. But they won’t.

 

Where has our present system gone wrong? The criticisms of the existing monetary system are short but glaring. First, everyone is disturbed by the constant increase in quantity. And this is more than an offhand accusation. In 2007 the Fed had $750B in assets. In 2017 they have $4.7 Trillion, a 7-fold increase. Where did that money come from? Nowhere. They printed it up, digitally.

 

 

The TARP audit ultimately showed $23 trillion created. Nor was the distribution the same. Who received the money the Fed printed? Bondholders, Large Corporations, Hedge Funds and the like. Pa’s Diner? Not so much. So unlike Bitcoin, there not only was a sudden, secret, unapproved, unexpected, unaccountable increase in quantity, but little to no chance for the population to also “mine” some of these new “coins”. Which leads to this:

 

 

Near-perfect income disparity, with near-perfect distribution of new “coins” to those with access to the “development team”, and zero or even negative returns for those without inside access. Does this seem like a winning model you could sell to the public? Nor is this unique to the U.S.; Japan had long ago put such methods to use, and by 2017 the Bank of Japan owns a mind-bending 75% of Japanese ETFs:

 

 

So this unelected, unaccountable bank, which creates its coin from nothing without limit or restraint, now owns 75% of the actual hard labor, assets, indeed, the entire wealth HISTORY of Japan? It took from the Edo Period in 1603 through Japan-takes-the-world 1980s until 2017 to create the wealth of Japan, and Kuroda only 6 years to buy it all? What madness is this?

Nor is Europe better. Mario Draghi has now printed so much money, he has run out of bonds to buy. This is in a Eurozone with a debt measuring Trillions, with $10 Trillion of that yielding negative rates. That’s a direct transfer from all savers to all debtors, and still the economy is sinking fast. Aside from how via these bonds, the ECB came to own all the houses, businesses, and governments of Europe in a few short years, does this sound like a business model you want to participate in?

So the volume of issuance is bad, and unfairness of who the coins are issued to is as bad as humanly possible, giving incredible advantages to issuers to transfer all wealth to themselves, either new or existing.

But if the currency is functional day-to-day, surely the issuance can be overlooked. Is it? Inflation is devilishly hard to measure, but here’s a chart of commodities:

 

 

CPI:

 

 

The US Dollar:

 

 

or vs Gold (/silver):

 

 

Does that look stable to you? And not that Bitcoin is stable, but at least Bitcoin goes UP at the same rate these charts are going DOWN. One store coupon declines in value at 4% a year, or may even start negative, while the other gives steady gains to loyal customers. Which business model would you prefer?

But that’s not all.

 

 


Gustave Courbet The wave 1870

 

 

Dr. D: The money, the unaccountable, uninhibited release of tokens can do more than just buy centuries of hard labor in seconds, it‘s also a method of control. Banks, our present issuers of money, can approve or destroy businesses by denying loans. They can do this to individuals, like denying loans to unpopular figures, or to whole sectors, like gun shops. They can also offer money for free to Amazon, Facebook, and Tesla, which have no profitable business model or any hope of getting one, and deny loans to power plants, railroads, farms, and bridges as they fall into the Mississippi.

The result is banks and their attending insiders are a de facto Committee of Central Planners in the great Soviet style. What is fashionable and exciting to them can happen, and what they dislike or disapprove of for any reason can never happen. And once on a completely fiat system, this is how capital is allocated through our entire system: badly. What’s worse has been a 20-year turn toward Disaster Capitalism, whereby loans are extended to a business, sector, person, or nation, and then suddenly cut off, leading to the rapid foreclosure and confiscation of companies, assets, or continents by the “Development Team.”

Imagine a Bitcoin where Satoshi could erase your coins in your wallet for giving him a bad haircut. Or because he likes your wife. Nor is there any help for independent nations like Iran, or even nuclear powers like Russia. Both have been cut off, their funds suspended at a whim with no recourse. Even being a fellow insider is no insurance, as the NY banks cut off Lehman from funds they were owed, driving it into bankruptcy to buy the pieces in receivership. Unpopular Billionaires are treated likewise. This is a system with no justice, no order, no rules, and no predictability. Anyone within it is at grave and total risk. And yet before Bitcoin it was the only system we had, short of returning to the 19th century, it was the only way for modern commerce to deliver food, water, power, or function at all.

This is seen in its abuses, but also by its effects. The present system not only controls whether you are a winner or loser, whether you may go or stay, whether you may live or die, but also tracks every purchase, every location, in effect, every action throughout your entire life. These records will describe what books you read, what movies you watch, what associates you have, in real time Already these daily actions are being approved or denied. Take out a variable-rate jumbo loan? We’ll give you 110% of the value, paying you to be irresponsible (we’ll foreclose later). Want to buy gas when driving through Cheyenne 3:30 at night? Sorry, we disabled your card as a suspicious transaction. Sorry about you dying there of crime or of cold; we didn’t know and didn’t care. All your base are belong to us.

 

You say you don’t care if JP Morgan has your pay stubs to disturbing porn sites and Uber purchases to see your mistress? Well the future Mayor of Atlanta will, and he hasn’t graduated college yet. With those records it’s child’s play to blackmail policemen, reporters, judges, senators, or generals, even Presidents. And all those future Presidents are making those purchases right now, the ones that can be spun into political hay, real or unreal. So if you don’t worry what everyone knows about you, that’s fine, but imagine reading the open bank records, the life histories of every political opponent from now until doomsday. Then Don’t. Do. It. The people who have those records – not you – then have not just all the assets, not just all the money, but all the power and influence. Forever.

Are you signing up for that? Bitcoin doesn’t. Bitcoin doesn’t care who you are and with some care can make it very difficult to track you. And without tracking you, it makes it impossible to boycott you. And without a central repository, it’s impossible to march in with tanks and make them give you the records, turn money on or off, to make other people live or die and bend to your will by violence.

No one will care about that, because no one cares about it now unless, like Russia or China, it’s directed at them personally and then it’s too late. The real adoption of Bitcoin is far more mundane.

The long-term interest rate is 5%. Historically banks would lend at 8%, pay at 4%, and be on the golf course by 5. No one thought much about it because like a public utility, banking was a slow, boring affair of letting business do business. You know, farming, mining, manufacturing, all that stuff we no longer do. For decades, centuries even, banking was 5%-15% of a nation’s GDP, facilitating borrowers and lenders and timescales, paying for themselves with the business efficiencies they engender.

 

 

 

 

All that changed after WWII. Banks rose in proportion to the rest of the economy, passing the average, then the previous high, then when that level reached “Irrational Exuberance”, Greenspan started the printing presses, free money was created, and Senators and Presidents whose bank records were visible suddenly repealed Glass-Steagall. An economy stretched to breaking with free, centrally-allocated and misallocated money crashed and shrank, yet the banks– now known as the FIRE stocks: Finance, Insurance, and Real Estate – kept growing. How can banks and finance keep growing with a shrinking economy? By selling their only product: debt.

How do you sell it? Reduce the qualifications past zero to NINJA-levels, and use your free money to FORCE people to take it via government deficits and subsidized loans. No normal economy could do this. No normal business model could do this. Only a business now based on nothing, issuing nothing, with no restraint and no oversight. And the FIRE sector kept growing, through 15%, 20%, 25% until today most of U.S. GDP is either Finance selling the same instruments back and forth by borrowing new money or GDP created by governments borrowing and spending.

Remember when we started, banks paid 4% and charged at 8%. Now they openly take savings with negative interest rates, and charge at 30% or higher on a credit card balance averaging $16,000. And still claim they need bailouts comprising trillions a year because they don’t make money. The sector that once facilitated trade by absorbing 5% of GDP is now 5x larger. There’s a word for a body whose one organ has grown 5x larger: Cancer. Unstopped, it kills the host.

 

What does this have to do with Bitcoin? Simple. They’re charging too much. They’re making too much both personally and as a group. They’re overpriced. And anything that’s overpriced is ripe for competition. And the higher the markup, the more incentive, the more pressure, the more profit there is to join the upstart. Bitcoin can economize banking because what does banking do? It saves money safely, which Bitcoin can do. It transfers money on demand, which Bitcoin can do. It pays you interest, which mining or appreciation can do.

It also can lend, register stocks and ownership, rate credit risks, and allocate capital which other non-Bitcoin Tokens can do. In short, it can replace the 25% overpricing of the financial sector. If it could reduce the overhead of outsized profit, the misuse of expensive brainpower, of Wall Street and London office space, and reduce financial costs to merely 10% GDP, it could free up 20% of GDP for productive purposes. Why did you think Detroit and Baltimore fell in on themselves while N.Y. and D.C. boomed? That’s the 30% they took, $4B a year, from every other state, every year for 40 years.

That money and that brainpower could be much better allocated elsewhere, but so long as the Finance sector can print free money and buy free influence, they will never stop on their own. Only an upstart to their monopoly can cure the cancer and bring them back to a healthy size and purpose. Bitcoin can do this only because they charge too much and do too little. Of course, they could go back to paying 4% and charging 8% with a CEO:employee pay ratio of 20:1 but history says it will never happen. Only a conflict, a collapse, or competition can reform them, and however long it takes, competition is by far the best option.

 

 

So why would people pick Bitcoin? It costs less and does more. Amongst adopters, it’s simpler and more direct. It pays the right people and not the wrong ones. It rewards good behavior instead of bad, and can help producers instead of parasites. It’s equitable instead of hierarchical. What else? While not Bitcoin proper, as a truth machine Blockchain technology is the prime cure for the present system’s main problem: fraud. There is so much fraud at the moment, libraries of books have been written merely recording the highlights of fraud since 2001. But merely recording the epic, world-wide, multi-trillion dollar frauds clearly does not cure it. Like other human problems, no one cares about your problems, only your solutions, and Blockchain has the solution.

While the details of fraud are complex, the essence of fraud is quite simple: you lie about something in order to steal it. That’s it. It could be small or large, simple or complex, but basically fraud is all about claiming what didn’t happen. However, the Blockchain is all about truth, that is, creating consensus about what happened, and then preserving it. Take the Robosigning scandal: accidental or deliberate, the mortgage brokers, banks, and MBS funds lost the paperwork for millions of houses. A house could be paid off could be foreclosed, as happened, or it could be owned 5 times, as happened. Like the Sneeches, no one knew which one was who, and the only certainty was that the official authority – county courthouses – did not know because to register there would have cost Wall Street and inconvenient millions or billions in shared tax stamps.

The system broke down, and to this day no one has attempted to define ownership, choosing instead to usher all the questionable (and therefore worthless) material into the central bank and hiding it there until the mortgage terms expire, forcing the taxpayers to bail out a multi-trillion dollar bank fraud at full value. And this is just one messy example. The S&L crisis was not dissimilar, nor are we accounting for constant overhead of fees, mortgage transfers, re-surveys, and title searches nationwide.

 

With Blockchain it’s simple: you take line one, write the information, the owner, title, date, and transfer, and share it with a group. They confirm it and add mortgage #2, then #3 and so on. It’s a public ledger like the courthouse, but the system pays the fees. It also can’t be tampered with, as everyone has a copy and there is no central place to bribe, steal, and subvert as happened in 2006 but also in history like the 1930s or the railroad and mining boom of the 1800s. If there are questions, you refer to the consensus If it’s transferred, it is transferred on the ledger. If it isn’t on the ledger, it isn’t transferred, same as the courthouse. Essentially, that’s what “ownership” is: the consensus that you own something. Therefore you do not have a mortgage due disappear, or 4 different owners clamoring to get paid or take possession of the same property, or the financial terrorism of shattering the system if you even attempt to prosecute fraud.

It’s not just mortgages: stocks have the same problem. Since the digital age began, the problem of clearing stock trades has steadily increased. Eventually, the NYSE trading volume was so large they couldn’t clear at all, and the SEC let trading houses net their internal trades, only rectifying the mismatches between brokerages. Eventually, that was too large, and they created the DTCC as a central holder and clearing house. Yet, in an age of online trading and high-frequency trading mainframes, it became apparent there was no way to clear even residual trades, and they effectively no longer try, and the SEC, instead of forcing them to compliance, lets them. There are 300M failed stock trades a day and $50B a day in bond failures, or $12 Trillion year in bonds alone. And so? If you sell your stocks and bonds, the brokerage makes it come out whole, so what?

 

 


Gustave Courbet The wave 1871

 

 

Dr. D: Well, all parts of the system rely on accurate record-keeping. Look at voting rights: we had a security company where 20% more people voted than there were shares. Think you could direct corporate, even national power that way? Without records of transfer, how do you know you own it? Morgan transferred a stock to Schwab but forgot to clear it. Doesn’t that mean it’s listed in both Morgan and Schwab? In fact, didn’t you just double-count and double-value that share? Suppose you fail to clear just a few each day. Before long, compounding the double ownership leads to pension funds owning 2% fake shares, then 5%, then 10%, until stock market and the national value itself becomes unreal. And how would you unwind it?

Work backwards to 1999 where the original drop happened? Remove 10% of CALPERs or Chicago’s already devastated pension money? How about the GDP and national assets that 10% represents? Do you tell Sachs they now need to raise $100B more in capital reserves because they didn’t have the assets they thought they have? Think I’m exaggerating? There have been several companies who tired of these games and took themselves back private, buying up every share…only to find their stock trading briskly the next morning. When that can happen without even a comment, you know fraud knows no bounds, a story Financial Sense called “The Crime of the Century.” No one blinked.

But it doesn’t stop there. You don’t only buy stocks, you sell them. And you can sell them by borrowing them from a shareholder. But what if there’s no record of delivery? You can short or sell a stock without owning any. And the more you sell, the more it drives the price down and the more money you make. In fact, profits are infinite if you can sell enough that the company goes bankrupt: you never have to repay the stock at all. And this “naked” short selling can only occur if there’s openly bad recording and enough failures-to-deliver to hide it. You could literally own nothing, borrow nothing, post nothing, and with no more than insider access to an exchange, drive a company out of business. That’s how crucial recording is.

And while for appearance’s sake, they only attack and destroy small plausibly weak stocks, Overstock.com with a $1.45B market cap fought these naked short sellers for years. Publicly, openly, vocally, with the SEC. Besides eroding their capital, besides their legal fees, besides that e.g. Amazon could pay to have their competition run out of business with fraudulent shorting, the unlimited incentive to short instead of long on small companies could suppress the entire stock market, indeed the national wealth and GDP. It may account for some of the small caps underperforming their potential for years, and why an outsized portion of stock value to be in just the 5 protected FAANG or DOW 30 stocks. …We don’t know, because we have no honesty, no accounting, and nothing to compare it to. But no one cares, because it’s been going on for 20 years, and if they cared, they’d do something about it. Again, no one cares about your problems, only your solutions. Even if the nation falls.

 

Look at it from their point of view: if you’re a business owner, now you can’t rationally list your corporation. Your stock could be manipulated; your business could be bankrupted for no reason at all. We’ve seen the NYSE shrink as businesses start to list in more honest jurisdictions, and even Presidents can’t convince them to come back. Traders and Fund Managers retire in public interviews, telling the world there is no longer any sense or price discovery, and therefore there is market madness.

Yet we just said that to clean up the market would discover 10%, 20%, 40% fake shares, fake business values, fake pension values, therefore fake GDP values, and fake GDP to Debt ratios, and therefore would perhaps lead to an accurate Debt to GDP of 140%, which would crash the U.S. dollar and possibly the nation. Would a complete U.S. financial collapse lead to a nuclear war? And it all goes back to fraud we didn’t stop 20 years ago. How do you solve the problem? The only way out without collapse is to build an honest system parallel to the existing system and slowly transfer assets from the rotten, sinking ship to the new one. The captains of the old ship may not like it, but look at the incentives. No one can tolerate the old ship except the pirate captain; even the crew, the stock traders, don’t want or control it any more.

However, what if you created an honest stock market Blockchain that actually had the stock certificates and actually transferred them, cheaply and reliably without false duplication? This is what is happening in the Jamaican Stock Market. A new company can choose to list on the stock Blockchain and avoid the old system. Other companies or even the whole exchange can clean up the books, slowly, stock by stock, and move it to the new honest system. Because they’re honest? No way! No one cares about truth or honesty, clearly. Because they can sell their stock exchange as superior, solving the existing problems. Stopping fraud, theft, the stealing or crippling of companies, fake voting, depression of Main Street and outsiders in favor of Wall Street and insiders, this is what Blockchain can do. In short, it would work better, cheaper.

What else can Blockchain do?

Blockchain is just software written by programmers so it’s as versatile as any other software. So why not program things into it with a “Smart Contract”? Suppose you make a bet: IF the Packers beat the Lions on November 12, 2017, THEN I will pay you $50. You set up the contract, and the bot itself can look for the headlines and transfer the money when the conditions are met.

That’s pointless but how about this: You run a jewelry business on Etsy and need to buy $500 in beads from Hong Kong. Normally, you would need to pay an importer, a currency exchange, bank account, tire transfer, escrow account, and a lawyer, or their proxies within the system, plus two weeks’ clearing time. That’s a lot of overhead for a small transaction. In contrast, a smart contract such as Ethereum could post the value of the coin (escrow), and when Long Beach or FedEx confirms delivery, releases the Ethereum, a coin of value, to the seller in Hong Kong. Instantly. Why? The existing financial system is charging too much and doing too little. That’s a huge incentive to get around their slow, overpriced monopoly.

 

Once you cut the costs, have a more direct method, and reduce the time to minutes, not weeks, the choice is obvious, which may explain why Microsoft, Intel, and others are deep in ETH development. Why overpay for bad service, and support the overpriced bonuses of men who will use their power to turn on or shut off your livelihood at will? Blockchain costs less and does more. Being just software, there are many other software products serving hundreds of other business plans. These use-coins are generally called “Tokens”, whereas“Coins” are meant to be pure currencies. There are Tokens for a wide variety of business purposes: online gambling? Yes. Tokens to buy marijuana in certain states? Sure.

But how about a Token like Populous that contains the credit information of small businesses worldwide, so you can make modest income lending against their accounts receivable? You get more income, business worldwide gets better service and lower costs. Why? The existing financial system is charging too much and doing too little. How about a Token like Salt for personal loans and perfecting collateral? They will lend cash against your Cryptocurrencies, because if your loan falls short, they can sell your collateral instantly. No foreclosures, no repossessions, no overhead.

This is what banks do when they hold your savings and checking accounts, yet sell you a personal loan. But the banks are giving you no interest on savings, while charging origination fees and high interest. They’re charging too much and doing too little. Well, you say, this sounds too good to be true: a parallel system to replace our existing corrupt, broken, overpriced one. One that doesn’t have to confront existing power or reform the system, but beyond price appreciation has its own incentives to join? Surely there are problems.

Oh, yes. So many problems. The first is often mentioned: it’s fine that Bitcoin is a finite commodity with only 22M coins, and if Bitcoin were the only coin, that would work. But there are over 1,000 coins now, and more every day. Isn’t that just another avenue to unlimited issuance and inflation by unlimited, unregistered people? Well, yes and no. It’s true that anyone can start their own Bitcoin – Litecoin for example is a faster duplicate of Bitcoin – but it’s also true that anyone can start their own Facebook. MySpace certainly did.

 

So why don’t they? Basically because of financial inertia, the Network Effect, a coin you start and only you use is worthless. The value is in the belief that other people will use it. Without that, you’re banished to MySpace Siberia. Still, with a 1,000 coins, don’t they all compete? Yes, and that’s a good thing, not bad. This is no different than the competing Bank Notes of the 19th century. If you like this bank and believe in them, you prefer their notes to others. Or you might use one note in Missouri and another in Louisiana. So with Cryptos. You might choose Bitcoin, with slow traffic and high costs to pay for a house. But you would choose Litecoin to pay for coffee.

You already do this, no different than using cash to buy a hot dog, your debit card for groceries, and a bank transfer for a car. It’s overlooked because they’re all called “dollars,” but they’re not. One is currency, one is a short-term credit, and one is a banking ledger. Because of the Network Effect, you can’t have 1,000 equal coins and have them all work. The market will prefer some over others until there are only a few, just as AskJeeves and Infoseek gave way to Google, which may someday give way to someone else. Just as you can’t start a new Google today, there are only a few top coins, easily updated, and little space for new coins.

In addition, the “1,000 coins” are not actually coins. Most of the new coins are Tokens, which are not “currencies” like Bitcoin and a means of exchange, but business models and services. Like Bank Notes, the market is self-limiting, but evolving. But if there are a variety of coins, and like Litecoin they can suddenly appear and change, what reassurance do you have that your Bitcoin “money” is worth anything? Like 19th century Bank Notes or AskJeeves, your responsibility is to be aware of the market and the changing values and react accordingly. And in a mature market, “everyone knows” the histories and reputations, but in a young market, like Dell and Gateway in 1992, no one knows. But that’s also why there is more profit now as well as more risk. But we’re also watching volatility and risk in Pounds, Lira, Gold, or even outright defaults like Argentine Pesos or Rubles. We already carry that risk, but it’s familiar and taken for granted.

If coins can just “change” and “fork” whenever they want, then isn’t it like buying Australian Dollars, then waking up and finding they’re Yen? Yes and no. Like other cryptos, Bitcoin is just software written by men. So a group of developers may think Bitcoin should remain the same while the old team thinks it should be improved so much that they do the work, write the updates, and release it. Well you have a “fork”, but what happens next is the Network Effect. So you’re a miner and a user of Bitcoin. You now have a choice: do you use the new software, the old software, or both? Everyone expected one to be adopted, and the old one to wither into oblivion. Since a Fork gives you one unit of each, the eventual outcome was a wash within the user group. But that doesn’t seem to be happening.

Ethereum forked, and Ethereum Classic still exists, and trades steadily but far less. Bitcoin Cash Forked and although 1/10th the price, both are trading briskly. No one knows what will happen, because it’s never existed before. So yes, you could wake up and find you don’t like what Bitcoin decided to do, just as you could wake up and not like your new bank manager or CFO of Dell, and then you sell that asset and choose another. That’s your responsibility. That’s competition.

Besides unexpectedly finding both forks have value, there is an upside to the downside. If some new advance in speed or encryption appears in Litecoin or Dash, Bitcoin can also adopt it. This not only improves the market, but reduces sudden upsets as new advances shouldn’t unseat popular coins but are adopted by them. Indeed, this was the purpose of Bitcoin Cash fork: to improve speed and cost. Yet now they both exist for different purposes in the market. Another objection is that cryptos depend on electricity and an expensive, functioning Internet. True. But while I’m no fan of technology, which is full of problems, so does everything else. Without electricity, the western world would stop, with no water, no heat, and no light.

Without Internet, our just-in-time inventory halts, food and parts stop moving, banking and commerce fail. You’re talking Mad Max. TEOTWAWKI. That’s a grave problem, but not unique to Bitcoin.

 

 


Gustave Courbet Sunset on Lake Geneva 1876

 

 

Dr. D: Bitcoin can be stolen. Although “Bitcoin” can’t be hacked, it’s only software and has many vulnerabilities. If held on an exchange, you have legal and financial risk. If held at home, you could have a hard drive fail and lose your passwords. If it’s on a hardware fob like a Trezor, the circuits could fail. For a robust system, computers themselves are pretty fragile. You could write down your passwords on paper, and have a house fire. You could print out several copies, but if any of the copies are found, they have full access to your account and stolen without you knowing. You could have your passwords stolen by your family, or have a trojan take a screen or keystroke capture.

Hackers could find a vulnerability not in Bitcoin, but in Android or AppleOS, slowly load the virus on 10,000 devices, then steal 10,000 passwords and clear 10,000 accounts in an hour. There are so many things that can go wrong, not because of the software, but at the point where you interface with the software. Every vault has a door. The door is what makes a vault useful, but is also the vault’s weakness. This is no different than leaving blank checks around, losing your debit card, or leaving cash on your dashboard, but it’s not true that there are no drawbacks. However the risks are less obvious and more unfamiliar.

Bitcoin isn’t truly anonymous. If someone, the NSA, wanted to track your drug purchases on SilkRoad, they could follow the router traffic, they could steal or work out your keys, they could eventually identify your wallet, and from there have a perfect legal record of all your transactions. Defenders will say that wallets are anonymous, that like Swiss accounts, we have a number, but not a name, and you can create new numbers, new wallets endlessly at will. Fair enough, but if I can see the transfers from the old to the new, it can be tracked. If I can get your account number by any means, I can see the flows. To some extent it’s speculation because we don’t know what technology they have available to crack codes, to see into routers, Internet traffic and servers.

Could there be a hidden exploit not in “Bitcoin” but in AES256 or the Internet itself? Maybe. Are there secret code-breaking mainframes? Possibly. But given enough interest, we can be sure that they could always get a warrant and enter your house, hack your computer, and watch your keyboard. However, this is no different than cash. If necessary, they can already track every serial number of every bill as it leaves an ATM or a drug sting. Then you follow those serial numbers as they are deposited and reappear. I expect Bitcoin is not very different, and like cash, is only casually anonymous. But is this a problem with cash? Or with Bitcoin? Your intent as a citizen is to follow the law, pay your taxes, and not hurt others. If government or other power centers are willing to expend that much effort to track you, perhaps the problem should be addressed with proper oversight on warrants and privacy.

Bitcoin is slow and expensive. Very true. Bitcoin Core has gotten so outsized from its origins that it may soon cost $5 to buy a $1 coffee and 48 hours to confirm the purchase. That’s clearly not cheaper, faster, OR better. It’s worse: far, far worse. Nor can it improve. Since Blockchain writes the ledger, the longer the ledger, the bigger it is. Technically, it can only clear a few transactions per second. This problem may not doom it, but it would relegate it to only huge, slow transactions like moving container ships. That is, a form of digital gold note. We don’t actually ship gold or whatever to pay for transactions; it just sits in the background, an asset. Per Satoshi, Bitcoin is a “Digital Asset.”

 

And the core team seems to like this more secure, higher value direction, where these obstacles are acceptable. But without a larger, deeper market, it’s the plaything of billionaires and then who sets the price? It becomes another experiment, an antique. Luckily, the story doesn’t stop there. Because it’s only software, you can always change it if you can convince the participants to use the new version. Bitcoin Cash is a fork that it larger, faster, and cheaper, reducing the limitations for now. And it can become Segwit2 or Cash2 later if the community agrees. But by design Bitcoin is not meant to be instant nor free, and probably never will be. Like gold, it is meant to be expensive, vaulted, and rarely moved. If you want fast and cheap, LiteCoin, Dash, and many others are vying to be the digital silver or digital payment card. That’s not very different from the gold standard, or even payments today.

Bitcoin is a huge electric and Internet drain. This is true. However, it’s also misrepresented. What is the electric overhead of every bank, every terminal, every mainframe on the NYSE, every point-of-sale card machine, every cash register and router in retail? Don’t we use an awful lot of electric to keep those running? What about their cost, the repairmen, the creation of new systems every year from mine to market, from idea to update release, to replace them? We also personally have our computers and routers, the whole Internet on and idling. What’s the base cost? Is it fair to compare as if it were a pasture before Bitcoin arrived?

We built the existing system this way because it gained efficiency. Time in the clearing, price in not running typewriters and mail worldwide, and of course taxes. We’re talking about creating a parallel financial system here. If the old one is replaced, is the new one better, or worse? Mining takes a lot of power, but the math in Bitcoin is meant to get increasingly harder to compensate for increasing computer speed. The computers are supposed to be on to confirm transactions. That means that the more people use it, the more power consumed, but that’s true of everything. The more people that drive cars, the more gas is used. So is the car doing something useful and being used well? Is it replacing a less efficient horse, or just wasting energy better used elsewhere? These are complex questions.

At the least, Bitcoin uses far, far too much energy in the design, and because of the speculation, far too many people are mining it without using it. However, all of the subsequent coins were concerned about this, and their power consumption is far, far less. As Bitcoin is near its hardest stage and stops at 22 Million, power consumption is near peak, but should stabilize, or even fork to a low-energy proof-of-stake model. As Bitcoin is not well-suited to worldwide transactions, it should be replaced with less-power intensive alternatives, and because of this, may get smaller. And if it replaces some of the existing system, it can generate an offset. But yes, if it uses too much power, is too inefficient by design, it will be too expensive, abandoned, and fail.

 

Are Cryptos a scam? Probably not: we pointed out some legitimate uses above for both coins and tokens. But there’s one coin that arguably is a Ponzi, a dozen coins that are scams, scores that are terrible ideas like Pets.com and will fail, and another dozen good, well-meaning tokens that are honest but ultimately won’t succeed. Yet, like the .Com 90’s, there are probably some like Apple that rise far more than it seems they should, and by surviving, effectively give 16% compounded returns for 40 years, front-loaded. That’s the nature of business. But are many coins and tokens open scams that run off with your money? Yes. Are others worthless? Yes. It’s also true of the stock and bond market and can’t be helped. Buyer beware.

Is Bitcoin a Ponzi? It’s not a Ponzi by definition because there is no central thief, nor are new investors paying off old investors. So is it a fraud, misrepresenting a few hours of electricity as worth $10,000? Well, that depends on what you think its value is. Is it providing value, a service? If so, what is that service worth to you? We already said it has the operational elements of money, with the addition of being extremely transmissible and transportable. If that has value to you, fine, if not, perhaps gold or bonds are more appropriate. But that’s the problem of what gives Bitcoin value.

A stock or bond you can look at the underlying asset, the profit or income flows, the book value. But Canadian or New Zealand dollars? What gives them value? They’re also backed by nothing. What gives gold value? It has no income, just popularity. Likewise Bitcoin: what gives it value is that other people want it. If they stop wanting it, it has no value, but that’s psychological and can’t be directly measured. With that in mind, is its fair value $1K or $1B? No one knows. Can its value fall from $10k to $5k? Yes, and it has many times. Only the market, that is, we can decide what it’s worth to us, and the market is small and immature, with no price history and prone to wild swings.

Shouldn’t the exchanges set the price? Yes, and they do, but how is that accomplished? We already said the Exchanges do internal trading off-ledger, outside Bitcoin. So aren’t they setting the price on the exchange instead of the people setting the price peer-to-peer? It would seem so. So aren’t they subject to market manipulation? Although at the moment they have a fairer design, and smaller pipelines to the larger market of money, yes. So if they launch a Bitcoin future, a tracker, a triple-short ETF, internally inflate their holdings, wouldn’t that make it subject to corruption and thus back into the existing system?

No one knows: it’s never been done before. I suspect not, but only because the people want Bitcoin specifically because it is Outside-system, Anti-fraud and watch these things carefully. But it’s run by humans and reflect human nature: that means over time some new form of exchange and corruption can grow up around it as before. While the ability to rig Bitcoin is limited because the quantity of Bitcoin is limited and riggers must first buy Bitcoin fairly, the Exchanges and the price-setting are an issue, and especially into the future.

 

Central Banks and existing powers can outlaw or replace it. Bitcoin is still small, almost irrelevant, yet it has been driven down or outlawed in several places, for example North Korea, Venezuela, and New York. That’s right New York, you’re in proud company. North Korea outlaws everything and there is little internet access, so that’s no example. New York is simply regulating Bitcoin which creates business obstacles, but is still available via the few companies willing to do extensive paperwork. Venezuela, however, is actively suppressing Bitcoin which competes with the Bolivar, and is in fact seeking out and shutting down miners.

They do this on the premise that Bitcoin is consuming valuable (and free) national electric that could be better used powering a small town. Point taken. However, Bitcoin users are able to defend themselves against a terrible, lingering hyperinflation that is starving the nation to death, cutting off food, medicine, and services. Mining Bitcoin with national electric – or even having any – can be the difference between life or death. With Bitcoin, you can order food and medicine on Amazon. Without it, you can’t. So a ferocious national government has attempted to halt Bitcoin at gunpoint from both the users and the vendors. Like other currency oppressions, the USD in Zimbabwe for example, it hasn’t worked. Bitcoin is suppressed, but when the need for commerce is high enough, people make a way.

So maybe they will replace it with their own coin. Go ahead: this is a free market, freely competing. Banks already made a coin called Ripple, which trades in volume on exchanges, but is not open and public. If people choose it, I can’t stop them. Suppressing Bitcoin may make the incentives to choose the legal option far higher. But ultimately the point of Bitcoin is to be open, fair, and uncontrolled. A coin that is closed, controlled, and operated by some untrustworthy men has no incentive. But it can happen: people have chosen against their better interest before.

And that’s my real reservation. Suppose Bitcoin works. Suppose it replaces currency. Suppose it is adequately private. Suppose it can be made fast enough, cheap enough, and slim enough. Suppose the old system fades and we all get used to having our lives entirely on the Blockchain. Your every post is perfectly recorded and provably yours on Steemit. Your every photograph is saved and stamped to you. Every medical experience is indelibly written. Every purchase, every trade, it’s all on a blockchain somewhere. And even suppose it’s private. What then? I mean, isn’t this the system we had in 1900, under the former society and former gold standard? So what happened?

Being comfortable and familiar with Blockchain ledgers, taking them as for granted as Millennials do Facebook, and someone says, “Hey, rather than waste power on this inefficient, creaking system of writing everywhere for a fraction of the power the Federal Reserve Block can keep it for you. Think of the whales.” Sound silly? That’s exactly what they did in 1913, and again in 1933 – replace a direct, messy, competitive system with a more efficient one run by smarter men. The people didn’t protest then any more than they do now, so why would we expect them to in 2050 or 2070? No one cares about corruption and murder: we’re only moving to this system now because it’s better and cheaper. If the Fed Reserve Block is cheaper, won’t we move then?

 

I can’t solve the next generation’s problems. We’ll be lucky to survive our own. But I can warn you that even now this generation will never accept a digital mark without which you cannot buy or sell, not voluntarily and not by force. It’s too far to reach and social trust is too compromised. But could they get us halfway there and just make it official later, when everything’s fixed again? I think absolutely.

Once that’s in, you can finish all the plans written in the bank and government white papers: perfect, inescapable taxation. Perfect, indelible records of everyone you talked to, everything you said, everything you bought, everywhere you were, everyone you know. Not today, but in the future. And that is the purgatory or paradise they seek today. The price of Liberty is eternal vigilance. The system we have wasn’t always bad: a small cadre of bad men worked tirelessly while complacent citizens shirked their duty. So when we move to a new system softly, without real purge, real morality, real reform, what makes you think the same thing won’t happen to your new system? Only far, far more dangerous. But I can’t prevent that. Think, and plan accordingly.

 

 

Dec 102017
 
 December 10, 2017  Posted by at 2:33 pm Finance Tagged with: , , , , , , , , ,  13 Responses »


Gustave Courbet Sunset on Lake Geneva 1876

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 3 is here: Bitcoin Doesn’t Exist – 3

Chapter 4 is here: Bitcoin Doesn’t Exist – 4

Next up: all 5 chapters combined in one big essay.

 

 

Dr. D: Bitcoin can be stolen. Although “Bitcoin” can’t be hacked, it’s only software and has many vulnerabilities. If held on an exchange, you have legal and financial risk. If held at home, you could have a hard drive fail and lose your passwords. If it’s on a hardware fob like a Trezor, the circuits could fail. For a robust system, computers themselves are pretty fragile. You could write down your passwords on paper, and have a house fire. You could print out several copies, but if any of the copies are found, they have full access to your account and stolen without you knowing. You could have your passwords stolen by your family, or have a trojan take a screen or keystroke capture.

Hackers could find a vulnerability not in Bitcoin, but in Android or AppleOS, slowly load the virus on 10,000 devices, then steal 10,000 passwords and clear 10,000 accounts in an hour. There are so many things that can go wrong, not because of the software, but at the point where you interface with the software. Every vault has a door. The door is what makes a vault useful, but is also the vault’s weakness. This is no different than leaving blank checks around, losing your debit card, or leaving cash on your dashboard, but it’s not true that there are no drawbacks. However the risks are less obvious and more unfamiliar.

Bitcoin isn’t truly anonymous. If someone, the NSA, wanted to track your drug purchases on SilkRoad, they could follow the router traffic, they could steal or work out your keys, they could eventually identify your wallet, and from there have a perfect legal record of all your transactions. Defenders will say that wallets are anonymous, that like Swiss accounts, we have a number, but not a name, and you can create new numbers, new wallets endlessly at will. Fair enough, but if I can see the transfers from the old to the new, it can be tracked. If I can get your account number by any means, I can see the flows. To some extent it’s speculation because we don’t know what technology they have available to crack codes, to see into routers, Internet traffic and servers.

Could there be a hidden exploit not in “Bitcoin” but in AES256 or the Internet itself? Maybe. Are there secret code-breaking mainframes? Possibly. But given enough interest, we can be sure that they could always get a warrant and enter your house, hack your computer, and watch your keyboard. However, this is no different than cash. If necessary, they can already track every serial number of every bill as it leaves an ATM or a drug sting. Then you follow those serial numbers as they are deposited and reappear. I expect Bitcoin is not very different, and like cash, is only casually anonymous. But is this a problem with cash? Or with Bitcoin? Your intent as a citizen is to follow the law, pay your taxes, and not hurt others. If government or other power centers are willing to expend that much effort to track you, perhaps the problem should be addressed with proper oversight on warrants and privacy.

Bitcoin is slow and expensive. Very true. Bitcoin Core has gotten so outsized from its origins that it may soon cost $5 to buy a $1 coffee and 48 hours to confirm the purchase. That’s clearly not cheaper, faster, OR better. It’s worse: far, far worse. Nor can it improve. Since Blockchain writes the ledger, the longer the ledger, the bigger it is. Technically, it can only clear a few transactions per second. This problem may not doom it, but it would relegate it to only huge, slow transactions like moving container ships. That is, a form of digital gold note. We don’t actually ship gold or whatever to pay for transactions; it just sits in the background, an asset. Per Satoshi, Bitcoin is a “Digital Asset.”

 

And the core team seems to like this more secure, higher value direction, where these obstacles are acceptable. But without a larger, deeper market, it’s the plaything of billionaires and then who sets the price? It becomes another experiment, an antique. Luckily, the story doesn’t stop there. Because it’s only software, you can always change it if you can convince the participants to use the new version. Bitcoin Cash is a fork that it larger, faster, and cheaper, reducing the limitations for now. And it can become Segwit2 or Cash2 later if the community agrees. But by design Bitcoin is not meant to be instant nor free, and probably never will be. Like gold, it is meant to be expensive, vaulted, and rarely moved. If you want fast and cheap, LiteCoin, Dash, and many others are vying to be the digital silver or digital payment card. That’s not very different from the gold standard, or even payments today.

Bitcoin is a huge electric and Internet drain. This is true. However, it’s also misrepresented. What is the electric overhead of every bank, every terminal, every mainframe on the NYSE, every point-of-sale card machine, every cash register and router in retail? Don’t we use an awful lot of electric to keep those running? What about their cost, the repairmen, the creation of new systems every year from mine to market, from idea to update release, to replace them? We also personally have our computers and routers, the whole Internet on and idling. What’s the base cost? Is it fair to compare as if it were a pasture before Bitcoin arrived?

We built the existing system this way because it gained efficiency. Time in the clearing, price in not running typewriters and mail worldwide, and of course taxes. We’re talking about creating a parallel financial system here. If the old one is replaced, is the new one better, or worse? Mining takes a lot of power, but the math in Bitcoin is meant to get increasingly harder to compensate for increasing computer speed. The computers are supposed to be on to confirm transactions. That means that the more people use it, the more power consumed, but that’s true of everything. The more people that drive cars, the more gas is used. So is the car doing something useful and being used well? Is it replacing a less efficient horse, or just wasting energy better used elsewhere? These are complex questions.

At the least, Bitcoin uses far, far too much energy in the design, and because of the speculation, far too many people are mining it without using it. However, all of the subsequent coins were concerned about this, and their power consumption is far, far less. As Bitcoin is near its hardest stage and stops at 22 Million, power consumption is near peak, but should stabilize, or even fork to a low-energy proof-of-stake model. As Bitcoin is not well-suited to worldwide transactions, it should be replaced with less-power intensive alternatives, and because of this, may get smaller. And if it replaces some of the existing system, it can generate an offset. But yes, if it uses too much power, is too inefficient by design, it will be too expensive, abandoned, and fail.

 

Are Cryptos a scam? Probably not: we pointed out some legitimate uses above for both coins and tokens. But there’s one coin that arguably is a Ponzi, a dozen coins that are scams, scores that are terrible ideas like Pets.com and will fail, and another dozen good, well-meaning tokens that are honest but ultimately won’t succeed. Yet, like the .Com 90’s, there are probably some like Apple that rise far more than it seems they should, and by surviving, effectively give 16% compounded returns for 40 years, front-loaded. That’s the nature of business. But are many coins and tokens open scams that run off with your money? Yes. Are others worthless? Yes. It’s also true of the stock and bond market and can’t be helped. Buyer beware.

Is Bitcoin a Ponzi? It’s not a Ponzi by definition because there is no central thief, nor are new investors paying off old investors. So is it a fraud, misrepresenting a few hours of electricity as worth $10,000? Well, that depends on what you think its value is. Is it providing value, a service? If so, what is that service worth to you? We already said it has the operational elements of money, with the addition of being extremely transmissible and transportable. If that has value to you, fine, if not, perhaps gold or bonds are more appropriate. But that’s the problem of what gives Bitcoin value.

A stock or bond you can look at the underlying asset, the profit or income flows, the book value. But Canadian or New Zealand dollars? What gives them value? They’re also backed by nothing. What gives gold value? It has no income, just popularity. Likewise Bitcoin: what gives it value is that other people want it. If they stop wanting it, it has no value, but that’s psychological and can’t be directly measured. With that in mind, is its fair value $1K or $1B? No one knows. Can its value fall from $10k to $5k? Yes, and it has many times. Only the market, that is, we can decide what it’s worth to us, and the market is small and immature, with no price history and prone to wild swings.

Shouldn’t the exchanges set the price? Yes, and they do, but how is that accomplished? We already said the Exchanges do internal trading off-ledger, outside Bitcoin. So aren’t they setting the price on the exchange instead of the people setting the price peer-to-peer? It would seem so. So aren’t they subject to market manipulation? Although at the moment they have a fairer design, and smaller pipelines to the larger market of money, yes. So if they launch a Bitcoin future, a tracker, a triple-short ETF, internally inflate their holdings, wouldn’t that make it subject to corruption and thus back into the existing system?

No one knows: it’s never been done before. I suspect not, but only because the people want Bitcoin specifically because it is Outside-system, Anti-fraud and watch these things carefully. But it’s run by humans and reflect human nature: that means over time some new form of exchange and corruption can grow up around it as before. While the ability to rig Bitcoin is limited because the quantity of Bitcoin is limited and riggers must first buy Bitcoin fairly, the Exchanges and the price-setting are an issue, and especially into the future.

 

Central Banks and existing powers can outlaw or replace it. Bitcoin is still small, almost irrelevant, yet it has been driven down or outlawed in several places, for example North Korea, Venezuela, and New York. That’s right New York, you’re in proud company. North Korea outlaws everything and there is little internet access, so that’s no example. New York is simply regulating Bitcoin which creates business obstacles, but is still available via the few companies willing to do extensive paperwork. Venezuela, however, is actively suppressing Bitcoin which competes with the Bolivar, and is in fact seeking out and shutting down miners.

They do this on the premise that Bitcoin is consuming valuable (and free) national electric that could be better used powering a small town. Point taken. However, Bitcoin users are able to defend themselves against a terrible, lingering hyperinflation that is starving the nation to death, cutting off food, medicine, and services. Mining Bitcoin with national electric – or even having any – can be the difference between life or death. With Bitcoin, you can order food and medicine on Amazon. Without it, you can’t. So a ferocious national government has attempted to halt Bitcoin at gunpoint from both the users and the vendors. Like other currency oppressions, the USD in Zimbabwe for example, it hasn’t worked. Bitcoin is suppressed, but when the need for commerce is high enough, people make a way.

So maybe they will replace it with their own coin. Go ahead: this is a free market, freely competing. Banks already made a coin called Ripple, which trades in volume on exchanges, but is not open and public. If people choose it, I can’t stop them. Suppressing Bitcoin may make the incentives to choose the legal option far higher. But ultimately the point of Bitcoin is to be open, fair, and uncontrolled. A coin that is closed, controlled, and operated by some untrustworthy men has no incentive. But it can happen: people have chosen against their better interest before.

And that’s my real reservation. Suppose Bitcoin works. Suppose it replaces currency. Suppose it is adequately private. Suppose can be made fast enough, cheap enough, and slim enough. Suppose the old system fades and we all get used to having our lives entirely on the Blockchain. Your every post is perfectly recorded and provably yours on Steemit. Your every photograph is saved and stamped to you. Every medical experience is indelibly written. Every purchase, every trade, it’s all on a blockchain somewhere. And even suppose it’s private. What then? I mean, isn’t this the system we had in 1900, under the former society and former gold standard? So what happened?

Being comfortable and familiar with Blockchain ledgers, taking them as for granted as Millennials do Facebook, and someone says, “Hey, rather than waste power on this inefficient, creaking system of writing everywhere for a fraction of the power the Federal Reserve Block can keep it for you. Think of the whales.” Sound silly? That’s exactly what they did in 1913, and again in 1933 – replace a direct, messy, competitive system with a more efficient one run by smarter men. The people didn’t protest then any more than they do now, so why would we expect them to in 2050 or 2070? No one cares about corruption and murder: we’re only moving to this system now because it’s better and cheaper. If the Fed Reserve Block is cheaper, won’t we move then?

 

I can’t solve the next generation’s problems. We’ll be lucky to survive our own. But I can warn you that even now this generation will never accept a digital mark without which you cannot buy or sell, not voluntarily and not by force. It’s too far to reach and social trust is too compromised. But could they get us halfway there and just make it official later, when everything’s fixed again? I think absolutely.

Once that’s in, you can finish all the plans written in the bank and government white papers: perfect, inescapable taxation. Perfect, indelible records of everyone you talked to, everything you said, everything you bought, everywhere you were, everyone you know. Not today, but in the future. And that is the purgatory or paradise they seek today. The price of Liberty is eternal vigilance. The system we have wasn’t always bad: a small cadre of bad men worked tirelessly while complacent citizens shirked their duty. So when we move to a new system softly, without real purge, real morality, real reform, what makes you think the same thing won’t happen to your new system? Only far, far more dangerous. But I can’t prevent that. Think, and plan accordingly.

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 3 is here: Bitcoin Doesn’t Exist – 3

Chapter 4 is here: Bitcoin Doesn’t Exist – 4

Next up: all 5 chapters combined in one big essay.

 

 

Dec 092017
 
 December 9, 2017  Posted by at 12:44 pm Finance Tagged with: , , , , , , , , ,  5 Responses »


Gustave Courbet The wave 1871

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1 .

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 3 is here: Bitcoin Doesn’t Exist – 3

Chapter 5 will follow shortly. And after that, all 5 chapters combined in one big essay.

 

 

Dr. D: Well, all parts of the system rely on accurate record-keeping. Look at voting rights: we had a security company where 20% more people voted than there were shares. Think you could direct corporate, even national power that way? Without records of transfer, how do you know you own it? Morgan transferred a stock to Schwab but forgot to clear it. Doesn’t that mean it’s listed in both Morgan and Schwab? In fact, didn’t you just double-count and double-value that share? Suppose you fail to clear just a few each day. Before long, compounding the double ownership leads to pension funds owning 2% fake shares, then 5%, then 10%, until stock market and the national value itself becomes unreal. And how would you unwind it?

Work backwards to 1999 where the original drop happened? Remove 10% of CALPERs or Chicago’s already devastated pension money? How about the GDP and national assets that 10% represents? Do you tell Sachs they now need to raise $100B more in capital reserves because they didn’t have the assets they thought they have? Think I’m exaggerating? There have been several companies who tired of these games and took themselves back private, buying up every share…only to find their stock trading briskly the next morning. When that can happen without even a comment, you know fraud knows no bounds, a story Financial Sense called “The Crime of the Century.” No one blinked.

But it doesn’t stop there. You don’t only buy stocks, you sell them. And you can sell them by borrowing them from a shareholder. But what if there’s no record of delivery? You can short or sell a stock without owning any. And the more you sell, the more it drives the price down and the more money you make. In fact, profits are infinite if you can sell enough that the company goes bankrupt: you never have to repay the stock at all. And this “naked” short selling can only occur if there’s openly bad recording and enough failures-to-deliver to hide it. You could literally own nothing, borrow nothing, post nothing, and with no more than insider access to an exchange, drive a company out of business. That’s how crucial recording is.

And while for appearance’s sake, they only attack and destroy small plausibly weak stocks, Overstock.com with a $1.45B market cap fought these naked short sellers for years. Publicly, openly, vocally, with the SEC. Besides eroding their capital, besides their legal fees, besides that e.g. Amazon could pay to have their competition run out of business with fraudulent shorting, the unlimited incentive to short instead of long on small companies could suppress the entire stock market, indeed the national wealth and GDP. It may account for some of the small caps underperforming their potential for years, and why an outsized portion of stock value to be in just the 5 protected FAANG or DOW 30 stocks. …We don’t know, because we have no honesty, no accounting, and nothing to compare it to. But no one cares, because it’s been going on for 20 years, and if they cared, they’d do something about it. Again, no one cares about your problems, only your solutions. Even if the nation falls.

 

Look at it from their point of view: if you’re a business owner, now you can’t rationally list your corporation. Your stock could be manipulated; your business could be bankrupted for no reason at all. We’ve seen the NYSE shrink as businesses start to list in more honest jurisdictions, and even Presidents can’t convince them to come back. Traders and Fund Managers retire in public interviews, telling the world there is no longer any sense or price discovery, and therefore there is market madness.

Yet we just said that to clean up the market would discover 10%, 20%, 40% fake shares, fake business values, fake pension values, therefore fake GDP values, and fake GDP to Debt ratios, and therefore would perhaps lead to an accurate Debt to GDP of 140%, which would crash the U.S. dollar and possibly the nation. Would a complete U.S. financial collapse lead to a nuclear war? And it all goes back to fraud we didn’t stop 20 years ago. How do you solve the problem? The only way out without collapse is to build an honest system parallel to the existing system and slowly transfer assets from the rotten, sinking ship to the new one. The captains of the old ship may not like it, but look at the incentives. No one can tolerate the old ship except the pirate captain; even the crew, the stock traders, don’t want or control it any more.

However, what if you created an honest stock market Blockchain that actually had the stock certificates and actually transferred them, cheaply and reliably without false duplication? This is what is happening in the Jamaican Stock Market. A new company can choose to list on the stock Blockchain and avoid the old system. Other companies or even the whole exchange can clean up the books, slowly, stock by stock, and move it to the new honest system. Because they’re honest? No way! No one cares about truth or honesty, clearly. Because they can sell their stock exchange as superior, solving the existing problems. Stopping fraud, theft, the stealing or crippling of companies, fake voting, depression of Main Street and outsiders in favor of Wall Street and insiders, this is what Blockchain can do. In short, it would work better, cheaper.

What else can Blockchain do?

Blockchain is just software written by programmers so it’s as versatile as any other software. So why not program things into it with a “Smart Contract”? Suppose you make a bet: IF the Packers beat the Lions on November 12, 2017, THEN I will pay you $50. You set up the contract, and the bot itself can look for the headlines and transfer the money when the conditions are met.

That’s pointless but how about this: You run a jewelry business on Etsy and need to buy $500 in beads from Hong Kong. Normally, you would need to pay an importer, a currency exchange, bank account, tire transfer, escrow account, and a lawyer, or their proxies within the system, plus two weeks’ clearing time. That’s a lot of overhead for a small transaction. In contrast, a smart contract such as Ethereum could post the value of the coin (escrow), and when Long Beach or FedEx confirms delivery, releases the Ethereum, a coin of value, to the seller in Hong Kong. Instantly. Why? The existing financial system is charging too much and doing too little. That’s a huge incentive to get around their slow, overpriced monopoly.

 

Once you cut the costs, have a more direct method, and reduce the time to minutes, not weeks, the choice is obvious, which may explain why Microsoft, Intel, and others are deep in ETH development. Why overpay for bad service, and support the overpriced bonuses of men who will use their power to turn on or shut off your livelihood at will? Blockchain costs less and does more. Being just software, there are many other software products serving hundreds of other business plans. These use-coins are generally called “Tokens”, whereas“Coins” are meant to be pure currencies. There are Tokens for a wide variety of business purposes: online gambling? Yes. Tokens to buy marijuana in certain states? Sure.

But how about a Token like Populous that contains the credit information of small businesses worldwide, so you can make modest income lending against their accounts receivable? You get more income, business worldwide gets better service and lower costs. Why? The existing financial system is charging too much and doing too little. How about a Token like Salt for personal loans and perfecting collateral? They will lend cash against your Cryptocurrencies, because if your loan falls short, they can sell your collateral instantly. No foreclosures, no repossessions, no overhead.

This is what banks do when they hold your savings and checking accounts, yet sell you a personal loan. But the banks are giving you no interest on savings, while charging origination fees and high interest. They’re charging too much and doing too little. Well, you say, this sounds too good to be true: a parallel system to replace our existing corrupt, broken, overpriced one. One that doesn’t have to confront existing power or reform the system, but beyond price appreciation has its own incentives to join? Surely there are problems.

Oh, yes. So many problems. The first is often mentioned: it’s fine that Bitcoin is a finite commodity with only 22M coins, and if Bitcoin were the only coin, that would work. But there are over 1,000 coins now, and more every day. Isn’t that just another avenue to unlimited issuance and inflation by unlimited, unregistered people? Well, yes and no. It’s true that anyone can start their own Bitcoin – Litecoin for example is a faster duplicate of Bitcoin – but it’s also true that anyone can start their own Facebook. MySpace certainly did.

 

So why don’t they? Basically because of financial inertia, the Network Effect, a coin you start and only you use is worthless. The value is in the belief that other people will use it. Without that, you’re banished to MySpace Siberia. Still, with a 1,000 coins, don’t they all compete? Yes, and that’s a good thing, not bad. This is no different than the competing Bank Notes of the 19th century. If you like this bank and believe in them, you prefer their notes to others. Or you might use one note in Missouri and another in Louisiana. So with Cryptos. You might choose Bitcoin, with slow traffic and high costs to pay for a house. But you would choose Litecoin to pay for coffee.

You already do this, no different than using cash to buy a hot dog, your debit card for groceries, and a bank transfer for a car. It’s overlooked because they’re all called “dollars,” but they’re not. One is currency, one is a short-term credit, and one is a banking ledger. Because of the Network Effect, you can’t have 1,000 equal coins and have them all work. The market will prefer some over others until there are only a few, just as AskJeeves and Infoseek gave way to Google, which may someday give way to someone else. Just as you can’t start a new Google today, there are only a few top coins, easily updated, and little space for new coins.

In addition, the “1,000 coins” are not actually coins. Most of the new coins are Tokens, which are not “currencies” like Bitcoin and a means of exchange, but business models and services. Like Bank Notes, the market is self-limiting, but evolving. But if there are a variety of coins, and like Litecoin they can suddenly appear and change, what reassurance do you have that your Bitcoin “money” is worth anything? Like 19th century Bank Notes or AskJeeves, your responsibility is to be aware of the market and the changing values and react accordingly. And in a mature market, “everyone knows” the histories and reputations, but in a young market, like Dell and Gateway in 1992, no one knows. But that’s also why there is more profit now as well as more risk. But we’re also watching volatility and risk in Pounds, Lira, Gold, or even outright defaults like Argentine Pesos or Rubles. We already carry that risk, but it’s familiar and taken for granted.

If coins can just “change” and “fork” whenever they want, then isn’t it like buying Australian Dollars, then waking up and finding they’re Yen? Yes and no. Like other cryptos, Bitcoin is just software written by men. So a group of developers may think Bitcoin should remain the same while the old team thinks it should be improved so much that they do the work, write the updates, and release it. Well you have a “fork”, but what happens next is the Network Effect. So you’re a miner and a user of Bitcoin. You now have a choice: do you use the new software, the old software, or both? Everyone expected one to be adopted, and the old one to wither into oblivion. Since a Fork gives you one unit of each, the eventual outcome was a wash within the user group. But that doesn’t seem to be happening.

Ethereum forked, and Ethereum Classic still exists, and trades steadily but far less. Bitcoin Cash Forked and although 1/10th the price, both are trading briskly. No one knows what will happen, because it’s never existed before. So yes, you could wake up and find you don’t like what Bitcoin decided to do, just as you could wake up and not like your new bank manager or CFO of Dell, and then you sell that asset and choose another. That’s your responsibility. That’s competition.

Besides unexpectedly finding both forks have value, there is an upside to the downside. If some new advance in speed or encryption appears in Litecoin or Dash, Bitcoin can also adopt it. This not only improves the market, but reduces sudden upsets as new advances shouldn’t unseat popular coins but are adopted by them. Indeed, this was the purpose of Bitcoin Cash fork: to improve speed and cost. Yet now they both exist for different purposes in the market. Another objection is that cryptos depend on electricity and an expensive, functioning Internet. True. But while I’m no fan of technology, which is full of problems, so does everything else. Without electricity, the western world would stop, with no water, no heat, and no light.

Without Internet, our just-in-time inventory halts, food and parts stop moving, banking and commerce fail. You’re talking Mad Max. TEOTWAWKI. That’s a grave problem, but not unique to Bitcoin.

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1 .

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 3 is here: Bitcoin Doesn’t Exist – 3

Chapter 5 will follow shortly. And after that, all 5 chapters combined in one big essay.

 

 

Dec 072017
 
 December 7, 2017  Posted by at 12:25 pm Finance Tagged with: , , , , , , , , ,  15 Responses »


Gustave Courbet The wave 1870

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1 .

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 4 will follow shortly.

 

 

Dr. D: The money, the unaccountable, uninhibited release of tokens can do more than just buy centuries of hard labor in seconds, it‘s also a method of control. Banks, our present issuers of money, can approve or destroy businesses by denying loans. They can do this to individuals, like denying loans to unpopular figures, or to whole sectors, like gun shops. They can also offer money for free to Amazon, Facebook, and Tesla, which have no profitable business model or any hope of getting one, and deny loans to power plants, railroads, farms, and bridges as they fall into the Mississippi.

The result is banks and their attending insiders are a de facto Committee of Central Planners in the great Soviet style. What is fashionable and exciting to them can happen, and what they dislike or disapprove of for any reason can never happen. And once on a completely fiat system, this is how capital is allocated through our entire system: badly. What’s worse has been a 20-year turn toward Disaster Capitalism, whereby loans are extended to a business, sector, person, or nation, and then suddenly cut off, leading to the rapid foreclosure and confiscation of companies, assets, or continents by the “Development Team.”

Imagine a Bitcoin where Satoshi could erase your coins in your wallet for giving him a bad haircut. Or because he likes your wife. Nor is there any help for independent nations like Iran, or even nuclear powers like Russia. Both have been cut off, their funds suspended at a whim with no recourse. Even being a fellow insider is no insurance, as the NY banks cut off Lehman from funds they were owed, driving it into bankruptcy to buy the pieces in receivership. Unpopular Billionaires are treated likewise. This is a system with no justice, no order, no rules, and no predictability. Anyone within it is at grave and total risk. And yet before Bitcoin it was the only system we had, short of returning to the 19th century, it was the only way for modern commerce to deliver food, water, power, or function at all.

This is seen in its abuses, but also by its effects. The present system not only controls whether you are a winner or loser, whether you may go or stay, whether you may live or die, but also tracks every purchase, every location, in effect, every action throughout your entire life. These records will describe what books you read, what movies you watch, what associates you have, in real time Already these daily actions are being approved or denied. Take out a variable-rate jumbo loan? We’ll give you 110% of the value, paying you to be irresponsible (we’ll foreclose later). Want to buy gas when driving through Cheyenne 3:30 at night? Sorry, we disabled your card as a suspicious transaction. Sorry about you dying there of crime or of cold; we didn’t know and didn’t care. All your base are belong to us.

 

You say you don’t care if JP Morgan has your pay stubs to disturbing porn sites and Uber purchases to see your mistress? Well the future Mayor of Atlanta will, and he hasn’t graduated college yet. With those records it’s child’s play to blackmail policemen, reporters, judges, senators, or generals, even Presidents. And all those future Presidents are making those purchases right now, the ones that can be spun into political hay, real or unreal. So if you don’t worry what everyone knows about you, that’s fine, but imagine reading the open bank records, the life histories of every political opponent from now until doomsday. Then Don’t. Do. It. The people who have those records – not you – then have not just all the assets, not just all the money, but all the power and influence. Forever.

Are you signing up for that? Bitcoin doesn’t. Bitcoin doesn’t care who you are and with some care can make it very difficult to track you. And without tracking you, it makes it impossible to boycott you. And without a central repository, it’s impossible to march in with tanks and make them give you the records, turn money on or off, to make other people live or die and bend to your will by violence.

No one will care about that, because no one cares about it now unless, like Russia or China, it’s directed at them personally and then it’s too late. The real adoption of Bitcoin is far more mundane.

The long-term interest rate is 5%. Historically banks would lend at 8%, pay at 4%, and be on the golf course by 5. No one thought much about it because like a public utility, banking was a slow, boring affair of letting business do business. You know, farming, mining, manufacturing, all that stuff we no longer do. For decades, centuries even, banking was 5%-15% of a nation’s GDP, facilitating borrowers and lenders and timescales, paying for themselves with the business efficiencies they engender.

 

 

 

 

All that changed after WWII. Banks rose in proportion to the rest of the economy, passing the average, then the previous high, then when that level reached “Irrational Exuberance”, Greenspan started the printing presses, free money was created, and Senators and Presidents whose bank records were visible suddenly repealed Glass-Steagall. An economy stretched to breaking with free, centrally-allocated and misallocated money crashed and shrank, yet the banks– now known as the FIRE stocks: Finance, Insurance, and Real Estate – kept growing. How can banks and finance keep growing with a shrinking economy? By selling their only product: debt.

How do you sell it? Reduce the qualifications past zero to NINJA-levels, and use your free money to FORCE people to take it via government deficits and subsidized loans. No normal economy could do this. No normal business model could do this. Only a business now based on nothing, issuing nothing, with no restraint and no oversight. And the FIRE sector kept growing, through 15%, 20%, 25% until today most of U.S. GDP is either Finance selling the same instruments back and forth by borrowing new money or GDP created by governments borrowing and spending.

Remember when we started, banks paid 4% and charged at 8%. Now they openly take savings with negative interest rates, and charge at 30% or higher on a credit card balance averaging $16,000. And still claim they need bailouts comprising trillions a year because they don’t make money. The sector that once facilitated trade by absorbing 5% of GDP is now 5x larger. There’s a word for a body whose one organ has grown 5x larger: Cancer. Unstopped, it kills the host.

 

What does this have to do with Bitcoin? Simple. They’re charging too much. They’re making too much both personally and as a group. They’re overpriced. And anything that’s overpriced is ripe for competition. And the higher the markup, the more incentive, the more pressure, the more profit there is to join the upstart. Bitcoin can economize banking because what does banking do? It saves money safely, which Bitcoin can do. It transfers money on demand, which Bitcoin can do. It pays you interest, which mining or appreciation can do.

It also can lend, register stocks and ownership, rate credit risks, and allocate capital which other non-Bitcoin Tokens can do. In short, it can replace the 25% overpricing of the financial sector. If it could reduce the overhead of outsized profit, the misuse of expensive brainpower, of Wall Street and London office space, and reduce financial costs to merely 10% GDP, it could free up 20% of GDP for productive purposes. Why did you think Detroit and Baltimore fell in on themselves while N.Y. and D.C. boomed? That’s the 30% they took, $4B a year, from every other state, every year for 40 years.

That money and that brainpower could be much better allocated elsewhere, but so long as the Finance sector can print free money and buy free influence, they will never stop on their own. Only an upstart to their monopoly can cure the cancer and bring them back to a healthy size and purpose. Bitcoin can do this only because they charge too much and do too little. Of course, they could go back to paying 4% and charging 8% with a CEO:employee pay ratio of 20:1 but history says it will never happen. Only a conflict, a collapse, or competition can reform them, and however long it takes, competition is by far the best option.

 

 

So why would people pick Bitcoin? It costs less and does more. Amongst adopters, it’s simpler and more direct. It pays the right people and not the wrong ones. It rewards good behavior instead of bad, and can help producers instead of parasites. It’s equitable instead of hierarchical. What else? While not Bitcoin proper, as a truth machine Blockchain technology is the prime cure for the present system’s main problem: fraud. There is so much fraud at the moment, libraries of books have been written merely recording the highlights of fraud since 2001. But merely recording the epic, world-wide, multi-trillion dollar frauds clearly does not cure it. Like other human problems, no one cares about your problems, only your solutions, and Blockchain has the solution.

While the details of fraud are complex, the essence of fraud is quite simple: you lie about something in order to steal it. That’s it. It could be small or large, simple or complex, but basically fraud is all about claiming what didn’t happen. However, the Blockchain is all about truth, that is, creating consensus about what happened, and then preserving it. Take the Robosigning scandal: accidental or deliberate, the mortgage brokers, banks, and MBS funds lost the paperwork for millions of houses. A house could be paid off could be foreclosed, as happened, or it could be owned 5 times, as happened. Like the Sneeches, no one knew which one was who, and the only certainty was that the official authority – county courthouses – did not know because to register there would have cost Wall Street and inconvenient millions or billions in shared tax stamps.

The system broke down, and to this day no one has attempted to define ownership, choosing instead to usher all the questionable (and therefore worthless) material into the central bank and hiding it there until the mortgage terms expire, forcing the taxpayers to bail out a multi-trillion dollar bank fraud at full value. And this is just one messy example. The S&L crisis was not dissimilar, nor are we accounting for constant overhead of fees, mortgage transfers, re-surveys, and title searches nationwide.

 

With Blockchain it’s simple: you take line one, write the information, the owner, title, date, and transfer, and share it with a group. They confirm it and add mortgage #2, then #3 and so on. It’s a public ledger like the courthouse, but the system pays the fees. It also can’t be tampered with, as everyone has a copy and there is no central place to bribe, steal, and subvert as happened in 2006 but also in history like the 1930s or the railroad and mining boom of the 1800s. If there are questions, you refer to the consensus If it’s transferred, it is transferred on the ledger. If it isn’t on the ledger, it isn’t transferred, same as the courthouse. Essentially, that’s what “ownership” is: the consensus that you own something. Therefore you do not have a mortgage due disappear, or 4 different owners clamoring to get paid or take possession of the same property, or the financial terrorism of shattering the system if you even attempt to prosecute fraud.

It’s not just mortgages: stocks have the same problem. Since the digital age began, the problem of clearing stock trades has steadily increased. Eventually, the NYSE trading volume was so large they couldn’t clear at all, and the SEC let trading houses net their internal trades, only rectifying the mismatches between brokerages. Eventually, that was too large, and they created the DTCC as a central holder and clearing house. Yet, in an age of online trading and high-frequency trading mainframes, it became apparent there was no way to clear even residual trades, and they effectively no longer try, and the SEC, instead of forcing them to compliance, lets them. There are 300M failed stock trades a day and $50B a day in bond failures, or $12 Trillion year in bonds alone. And so? If you sell your stocks and bonds, the brokerage makes it come out whole, so what?

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1 .

Chapter 2 is here: Bitcoin Doesn’t Exist – 2

Chapter 4 will follow shortly.

 

 

Dec 062017
 
 December 6, 2017  Posted by at 12:24 pm Finance Tagged with: , , , , , , , , ,  11 Responses »


Gustave Courbet The wave 1870

 

 

Chapter 1 of this five-part series by Dr. D is here: Bitcoin Doesn’t Exist – 1

Chapter 3 will follow shortly.

 

 

Dr. D: You have to understand what exchanges are and are not. An exchange is a central point where owners post collateral and thereby join and trade on the exchange. The exchange backs the trades with their solvency and reputation, but it’s not a barter system, and it’s not free: the exchange has to make money too. Look at the Comex, which reaches back to the early history of commodities exchange which was founded to match buyers of say, wheat, like General Mills, with producers, the farmers. But why not just have the farmer drive to the local silo and sell there? Two reasons: one, unlike manufacturing, harvests are lumpy. To have everyone buy or sell at one time of the year would cripple the demand for money in that season. This may be why market crashes happen historically at harvest when the demand for money (i.e. Deflation) was highest. Secondly, however, suppose the weather turned bad: all farmers would be ruined simultaneously.

Suppose the weather then recovered: the previous low prices are erased and any who delayed selling would be rich. This sort of random, uncontrolled, uninsurable event is no way to run an economy, so they added a small group of speculators into the middle. You could sell wheat today for delivery in June, and the buyer would lock in a price. This had the effect of moderating prices, insuring both buyers AND sellers, at the small cost of paying the traders and speculators for their time, basically providing insurance. But the exchange is neither buyer, seller, nor speculator. They only keep the doors open to trade and vet the participants. What’s not immediately apparent is these Contracts of Wheat are only wheat promises, not wheat itself. Although amounts vary, almost all commodities trade contracts in excess of what is actually delivered, and what may exist on earth. I mean the wheat they’re selling, millions of tons, haven’t even been planted yet. So they are synthetic wheat, fantasy wheat that the exchange is selling.

A Bitcoin exchange is the same thing. You post your Bitcoin to the exchange, and trade it within the exchange with other customers like you. But none of the Bitcoin you trade on the exchange is yours, just like none of the wheat traded is actual wheat moving on trucks between silos. They are Bitcoin vouchers, Bitcoin PROMISES, not actual Bitcoin. So? So although prices are being set on the exchanges – slightly different prices in each one – none of the transfers are recorded on the actual Bitcoin Ledger. So how do you think exchanges stay open? Like Brokers and Banks, they take in the Bitcoin at say 100 units, but claim within themselves to have 104.

 

Why? Like any other fractional reserve system, they know that at any given moment 104 users will not demand delivery. This is their “float” and their profit, which they need to have, and this works well as far as it goes. However, it leads to the problem at Mt. Gox, and indeed Bear Sterns, Lehman and DeutscheBank: a sudden lack of confidence will always lead to a collapse, leaving a number of claims unfulfilled. That’s the bank run you know so well from Mary Poppins’ “Fidelity Fiduciary Bank”. It is suspected to be particularly bad in the case of Mt. Gox, which was unregulated. How unregulated? Well, not only were there zero laws concerning Bitcoin, but MTGOX actually stands for “Magic The Gathering Online eXchange”; that is, they were traders of comic books and Pokemon cards, not a brokerage. Prepare accordingly.

The important thing here is that an exchange is not Bitcoin. On an exchange, you own a claim on Bitcoin, through the legal entity of the exchange, subject only to jurisdiction and bankruptcy law. You do not own Bitcoin. But maybe Mt.Gox didn’t inflate their holdings but was indeed hacked? Yes, as an exchange, they can be hacked. Now you only need infiltrate one central point to gain access to millions of coins and although their security is far better, it’s now worth a hacker’s time. Arguably, most coins are held on an exchange, which is one reason for the incredibly skewed numbers regarding Bitcoin concentration. Just remember, if you don’t hold it, you don’t own it. In a hack, your coins are gone.

If the exchange is lying or gets in trouble, your coins are gone. If someone is embezzling, your coins are gone. If the Government stops the exchange, your coins are gone. If the economy cracks, the exchange will be cash-strapped and your coins are frozen and/or gone. None of these are true if YOU own your coins in a true peer-to-peer manner, but few do. But this is also true of paper dollars, gold bars, safe deposit boxes, and everything else of value. This accounts for some of the variety of opinions on the safety of Bitcoin. So if Polinex or Coinbase gets “hacked” it doesn’t mean “Bitcoin” was hacked any more than if the Comex or MF Global fails, that corn or Yen were “hacked”. The exchange is not Bitcoin: it’s the exchange. There are exchange risks and Bitcoin risks. Being a ledger Bitcoin is wide open and public. How would you hack it? You already have it. And so does everybody else.

So we’ve covered the main aspects of Bitcoin and why it is eligible to be money. Classically, money has these things:

1. Durable- the medium of exchange must not weather, rot, fall apart, or become unusable.

2. Portable- relative to its size, it must be easily movable and hold a large amount of value.

3. Divisible- it should be relatively easy to divide with all parts identical.

4. Intrinsically Valuable- should be valuable in itself and its value should be independent of any other object. Essentially, the item must be rare.

5. Money is a “Unit of Account”, that is, people measure other things, time and value, using the units of value to THINK about the world, and thus is an part of psychology. Strangely that makes this both the weakest and strongest aspect of:

6. “The Network Effect”. Its social and monetary inertia. That is, it’s money to you because you believe other people will accept it in exchange.

The Score:

1. Bitcoin is durable and anti-fragile. As long as there is an Internet – or even without one – it can continue to exist without decay, written on a clay tablet with a stylus.

2. Bitcoin is more portable than anything on earth. A single number — which can be memorized – can transport $160B across a border with only your mind, or across the world on the Internet. Its portability is not subject to any inspection or confiscation, unlike silver, gold, or diamonds.

3. Bitcoin is not infinitely divisible, but neither is gold or silver, which have a discrete number of atoms. At the moment the smallest Bitcoin denomination or “Satoshi” is 0.00000001 Bitcoin or about a millionth of a penny. That’s pretty small, but with a software change it can become smaller. In that way, Bitcoin, subject only to math is MORE divisible than silver or gold, and far easier. As numbers all Bitcoin are exactly the same.

4. Bitcoin has intrinsic value. Actually, the problem is NOTHING has “intrinsic” value. Things have value only because they are useful to yourself personally or because someone else wants them. Water is valuable on a desert island and gold is worthless. In fact, gold has few uses and is fundamentally a rock we dig up from one hole to bury in another, yet we say it has “intrinsic” value – which is good as Number 4 said it had to be unrelated to any other object, i.e. useless. Bitcoin and Gold are certainly useless. Like gold, Bitcoin may not have “Intrinsic value” but it DOES have intrinsic cost, that is, the cost in time and energy it took to mine it. Like gold, Bitcoin has a cost to mine measurable in BTU’s. As nothing has value outside of human action, you can’t say the electric cost in dollars is a price-floor, but suggests a floor, and that would be equally true of gold, silver, copper, etc. In fact, Bitcoin is more rare than Rhodium: we mine rare metals at 2%/year while the number of Bitcoins stops at 22 Million. Strangely, due to math, computer digits are made harder to get and have than real things.

5. Bitcoin is a unit of account. As a psychological effect, it’s difficult to quantify. Which comes first, the use of a thing, or its pricing? Neither, they grow together as one replaces another, side-by-side. This happened when gold replaced iron or salt or when bank notes replaced physical gold, or even when the U.S. moved from Pounds and Pence to Dollars and Cents. At first it was adopted by a few, but managed to get a critical mass, accepted, and eventually adopted by the population and entirely forgotten. At the moment Bitcoin enthusiasts do in fact mentally price things in Bitcoins, especially on exchanges where cross-crypto prices are marked vs BTC. Some never use their home currency at all, living entirely according to crypto-prices until home conversion at the moment of sale, or as hundreds or thousands of businesses are now accepting cryptocurrencies, even beyond. For them it is a unit of account the way Fahrenheit is a unit within the United States.

6. Bitcoin has the network effect. That is, it is widely accepted and publicly considered money. It’s in the news, has a wide following worldwide, and exchanges are signing up 40,000 new users a month. It’s accepted by thousands of vendors and can be used for purchases at Microsoft, Tesla, PayPal, Overstock, or with some work, Amazon. It’s translatable through point-of-sale vendor Square, and from many debit card providers such as Shift. At this point it is already very close to being money, i.e. a commonly accepted good. Note that without special arrangements none of these vendors will accept silver coins, nor price products in them. I expect if Mark Dice offered a candy bar, a silver bar, or a Bitcoin barcode, more people would pick the Bitcoin. In that way Bitcoin is more money than gold and silver are. You could say the same thing about Canadian Dollars or Thai Bhat: they’re respected currencies, but not accepted by everyone, everywhere. For that matter, neither are U.S. dollars.

 

Note what is not on the list: money is not a unit created or regulated by a central authority, although governments would like us to think so. In fact, no central authority is necessary or even desirable. For centuries the lack of monetary authority was historic fact, back with medieval markets through to private banks, until 1913, 1933, 1971, and the modern evolution into today’s near-total digital fiat. Besides the technical challenge, eliminating their overhead, oversight, control and corruption is the point of Bitcoin. And right now the government’s response to Bitcoin is a strange mixture of antipathy, ignorance, oppression, and opportunity. At $160 Billion it hardly merits the interest of a nation with a $500 Billion trade deficit, and that’s spread worldwide.

This leads into one of the spurious claims on Bitcoin: that it’s a refuge for drug smugglers and illegal activities. I assure you mathematically, that is not true. According to the U.N. the world drug trade is $435B, 4 times the total, and strictly theoretical value of Bitcoin, coins locked, lost, and all. Besides if you owned $160B coins, who would you transfer them to? You’re the only user. $435B/year can only be trafficked by major banks like as HSBC, who have paid public fines because money flows that large can’t be hidden. This is so well-known the U.N. suggested the drug-money flows may be one reason global banks were solvent in ‘08. Even $160B misrepresents Bitcoin because it had a 10-fold increase this year alone. So imagine $16B total market cap. That’s half the size of the yearly budget of Los Angeles, one city. Even that overstates it, because through most of its life it’s been around $250, so imagine a $4B market cap, the budget of West Virginia.

So you’re a drug dealer in illicit trades and you sell to your customers because all your buyers have Bitcoin accounts? Your pushers have street terminals? This doesn’t make sense. And remember as much as the price of Bitcoin has risen 40-fold, the number of participants has too. Even now, even with Coinbase, even with Dell and Overstock, even with BTC $10,000 almost no one has Bitcoin, even in N.Y.C. or S.F.. So who are these supposed illegal people with illegal activities that couldn’t fit any significant value?

That’s not to say illegal activities don’t happen, but it’s the other half of the spurious argument to say people don’t do illegal acts using cash, personal influence, offshore havens, international banks like Wells Fargo, or lately, Amazon Gift Cards and Tide Detergent. As long as there is crime, mediums of value will be used to pay for it. But comparing Bitcoin with a $16B market cap to the existing banking system which the U.N. openly declares is being supported by the transfer of illicit drug funds is insanity.

Let’s look at it another way: would you rather: a) transfer drugs using cash or secret bank records that can be erased or altered later or b) an public worldwide record of every transaction, where if one DEA bust could get your codes, they could be tracked backwards some distance through the buy chain? I thought so. Bitcoin is the LEAST best choice for illegal activities, and at the personal level where we’re being accused, it’s even worse than cash.

We showed that Bitcoin can be money, but we already have a monetary and financial system. What you’re talking about is building another system next to the existing one, and doubling the costs and confusions. That’s great as a mental exercise but why would anyone do that?

In a word: 2008.

It’s probably not an accident Bitcoin arrived immediately after the Global Financial Crisis. The technology to make it possible existed even on IRC chat boards, but human attention wasn’t focused on solving a new problem using computer software until the GFC captured the public imagination, and hackers started to say, “This stinks. This system is garbage. How do we fix this?” And with no loyalty to the past, but strictly on a present basis, built the best mousetrap. How do we know it’s a better mousetrap? Easy. If it isn’t noticeably better than the existing system, no one will bother and it will remain an interesting novelty stored in some basements, like Confederate Dollars and Chuck-e-Cheez tokens. To have any chance of succeeding, it has to work better, good enough to overcome the last most critical aspect money has: Inertia.

So given that Bitcoin is unfamiliar, less accepted, harder to use, costs real money to keep online, why does it keep gaining traction, and rising in price with increasing speed? No one would build a Bitcoin. Ever. No one would ever use a Bitcoin. Ever. It’s too much work and too much nuisance. Like any product, they would only use Bitcoin because it solves expensive problems confronting us each day. The only chance Bitcoin would have is if our present system failed us, and fails more every day. They, our present system-keepers, are the ones who are giving Bitcoin exponentially more value. They are the ones who could stop Bitcoin and shut it down by fixing the present, easy, familiar system. But they won’t.

 

Where has our present system gone wrong? The criticisms of the existing monetary system are short but glaring. First, everyone is disturbed by the constant increase in quantity. And this is more than an offhand accusation. In 2007 the Fed had $750B in assets. In 2017 they have $4.7 Trillion, a 7-fold increase. Where did that money come from? Nowhere. They printed it up, digitally.

 

 

The TARP audit ultimately showed $23 trillion created. Nor was the distribution the same. Who received the money the Fed printed? Bondholders, Large Corporations, Hedge Funds and the like. Pa’s Diner? Not so much. So unlike Bitcoin, there not only was a sudden, secret, unapproved, unexpected, unaccountable increase in quantity, but little to no chance for the population to also “mine” some of these new “coins”. Which leads to this:

 

 

Near-perfect income disparity, with near-perfect distribution of new “coins” to those with access to the “development team”, and zero or even negative returns for those without inside access. Does this seem like a winning model you could sell to the public? Nor is this unique to the U.S.; Japan had long ago put such methods to use, and by 2017 the Bank of Japan owns a mind-bending 75% of Japanese ETFs:

 

 

So this unelected, unaccountable bank, which creates its coin from nothing without limit or restraint, now owns 75% of the actual hard labor, assets, indeed, the entire wealth HISTORY of Japan? It took from the Edo Period in 1603 through Japan-takes-the-world 1980s until 2017 to create the wealth of Japan, and Kuroda only 6 years to buy it all? What madness is this?

Nor is Europe better. Mario Draghi has now printed so much money, he has run out of bonds to buy. This is in a Eurozone with a debt measuring Trillions, with $10 Trillion of that yielding negative rates. That’s a direct transfer from all savers to all debtors, and still the economy is sinking fast. Aside from how via these bonds, the ECB came to own all the houses, businesses, and governments of Europe in a few short years, does this sound like a business model you want to participate in?

So the volume of issuance is bad, and unfairness of who the coins are issued to is as bad as humanly possible, giving incredible advantages to issuers to transfer all wealth to themselves, either new or existing.

But if the currency is functional day-to-day, surely the issuance can be overlooked. Is it? Inflation is devilishly hard to measure, but here’s a chart of commodities:

 

 

CPI:

 

 

The US Dollar:

 

 

or vs Gold (/silver):

 

 

Does that look stable to you? And not that Bitcoin is stable, but at least Bitcoin goes UP at the same rate these charts are going DOWN. One store coupon declines in value at 4% a year, or may even start negative, while the other gives steady gains to loyal customers. Which business model would you prefer?

But that’s not all.

 

 

Chapter 1 of this five-part series is here: Bitcoin Doesn’t Exist – 1

Chapter 3 will follow shortly.

 

 

Dec 052017
 
 December 5, 2017  Posted by at 12:14 pm Finance Tagged with: , , , , , , , , , ,  7 Responses »


Gustave Courbet The wave 1869

 

 

A while ago, I asked a regular commenter at the Automatic Earth, who goes by the moniker Dr. D, to try and write an article for us. Not long after, I received no less than 31 pages, and an even 12345 words. Way too long for today’s digital attention spans. We decided to split it into 5 chapters. After we work through those 5, we’ll post it as one piece as well. Dr. D, who insists on sticking with his nom de plume, picked his own topic, and it’s -fittingly- bitcoin. A topic about which one can cover a lot of ground in 12345 words.

Now, I wouldn’t be me if I didn’t throw in my own two Satoshis: Dr. D claims that “..everyone has an equal opportunity to solve the next calculation..”, but while that may perhaps have been sort of true at the very start, it isn’t now. It’s not true for the computerless or computer-illiterate, for those too poor to afford the electricity required by bitcoin mining, and for various other -very large- groups of people.

The equal opportunity idea sounds nice, but I think bitcoin runs the risk of creating just another set of elites, while reinforcing existing elites, who can afford to either buy bitcoin at whatever price at some point in time, or spend large sums to build mining ‘installations’ in locations where electricity is cheap. And sure, there will be losers among elites too, but inequality itself will not change; only the faces of winners and losers will, while the world’s real losers will remain just that.

It’s nothing new of course, inequality is our society’s middle name, but maybe that is precisely the problem. Maybe bitcoin should have come with an inbuilt way to spread wealth, not just shift it around.

Then again, it may all just be a giant bubble. Or a bubble inside a bubble inside a bubble.

 

Here’s your Dr.:

 

 

Dr. D: Bitcoin is all the rage today, and as it crosses over $10,000, a 10-bagger for the year, we should look at what it is, what it isn’t, and why it’s become so popular. Note my observations are those of a layman – which may be more useful than those of a programmer – but also those of a skeptic, which I’ll get to at the end.

First, what is Bitcoin? Well, the idea of digital money goes back to the first digits, financial mainframes. In fact, the “money” in use today throughout the financial system have long been no more than virtual 1’s and 0’s on a spinning hard drive somewhere, but the idea of Bitcoin-money, private-money, goes back further still. I mean, what is “money”? At its core, it’s no more than the most-tradable good in a given society, a trading chit we use as a measurement tool, a token recording how much value we created or are owed. Arguably the first money was not gold, not seashells or even barter, but a promise. Let me borrow your net and I’ll give you a couple fish from the work. Why? Because you might break the net or I might use it, so I need to get paid for my risk, reward for my effort in making and storing the net to begin with.

So money at its most austere is simply a promise. But a promise to whom for what? And that’s the problem. No matter what good you use, people place differing values on it, different time-preferences, and most especially ways to cheat, game the system, and renege. This is bad among businesses, banks – who are after all only men – especially bad among governments, but worst of all among government and banks combined. Because, should the banks lie, renege, default, abuse their privilege, who then would hold them to task?

In the past, over and over, groups have created their own “money”. The whole 19th century was marked by general stores extending credit, bank notes issued by thousands of private banks, each with their own strength and solvency and geography and discounted accordingly. In the 20th century, with central banks controlling money, many cities issued local “scrip” – promises to pay – in Detroit in the Depression, or California in the budget crunch of 2009, or “Ithaca Dollars” in NY as a sort of ongoing Ivy League experiment. But the problem with these only highlight the problems with money generally:who can issue them? Everyone? A central authority? Can they deliver goods? And what can they buy, not just in value but in location?

Ithaca Dollars or California Tax Vouchers are not much good to buy oil from Texas or tea from China. People will always prefer a good that is accepted everywhere, with no decay and no discount, because ultimately the money flows away, offshore or to central taxation, which makes local currencies ever-less valuable. But even if successful it leads to a new set of problems: if Detroit or Ithaca Dollars were in high demand, there would be ever-stronger incentive to counterfeit, cheat, and double-spend them. Thus from the Renaissance to now we used reputable banks backed by force of governments, through the Gold standard and the Fiat age until today.

Enter the hackers.

It’s not that these problems are unknown, or haven’t been approached or attempted before. Every generation, when they find the banks + government take a percentage for their costs to insure the system, thinks how can we do away with these guys, who both take too much and end up in an unapproachable seat of power? I mean, aren’t we supposed to be a Democracy? How can we have a fair society if the Iron Bank is both backing all governments at once, on both sides of a war? What good is it to work if compounding interest invariably leads to their winning Boardwalk and Park Place 100% of the time? But despite several digital attempts – some immediately shut down by government – no one had a solution until Satoshi Nakamoto.

We don’t know who Satoshi Nakamoto is, but since several of the well-meaning developers were immediately jailed for even attempting private money on reasons arguably groundless, we can suppose he had good incentive to remain anonymous. And speculation aside, it doesn’t matter: Satoshi’s addition was not “Bitcoin” per se, but simply an idea that made private currency possible. The domain Bitcoin.org was registered in 2008, showing intent, and the open-source code was promoted to a small cryptography group in January 2009. But what was it? What did it solve?

Double-spending. Basically, the problem of money comes down to trust. Trust between individuals, between the system, but also partly trust in non-interference of governments or other powerful groups. Bitcoin is a trust machine.

How does it work? Well, the basic problem of cheating was one of not creating fake, hidden registers of value, as the U.S. Government, J.P. Morgan, and the Comex do every day. If they asked Yellen to type some extra zeros on the U.S. ledger, print a few pallets of $100 bills to send to Ukraine, who would know? Who could stop them? So with Bitcoin, the “value”, the register is created by essentially solving a math problem, akin to discovering prime numbers. Why do something so pointless? Simple: math doesn’t lie. Unlike U.S. Dollars, there are only so many prime numbers. We can be certain you won’t reach 11-digits and discover an unexpected trove of a thousand primes in the row. Can’t happen. However useless, Math is certainty. In this case, math is also limited. It’s also known and provable, unlike the U.S. budget or Federal Reserve accounting.

The second problem of cheating was someone simply claiming chits they did not own. This was solved by having the participants talk back and forth with each other, creating a public record or ledger. In fact, Bitcoin is nothing more than a very, very long accounting ledger of where every coin came from, and how every coin has moved since then, something computers do very well. These accounting lines register amongst all participants using a process of confirmed consensus.

Double-spending is when someone writes a check either against money they don’t have (yet) and round-robin in the money for the one second of clearing, or else write a check against money they DO have, but then cancel the check before it clears, walking away with the goods. In a standard commerce, the bank backfills fraud and loss and the government arrests, tries, and imprisons people, but it’s no small cost to do so. Although there is still a small possibility of double-spending, Satoshi’s plan effectively closed the issue: the ledger is either written, or unwritten. There is no time in the middle to exploit.

 

Great for him, but if I buy coins by Satoshi and the original cryptogroup, won’t I just be transferring all my value to make them rich? Although Bitcoin supply may be limited by mathematics, this is the issuer problem. It is solved because as a free, open source code, everyone has an equal opportunity to solve the next calculation. Bitcoin starts with the original 50 coins mined in 2009, so yes, early adopters get more: but they took more risk and trouble back when it was a novelty valuable only as proof-of-concept. The original cash transaction was between hackers to buy two pizzas for 10,000 BTC ($98M today). Why shouldn’t they get preference? At the same time, we are not buying all 20 Million eventual coins from Satoshi and his close friends, which is arguably the case with the Federal Reserve and other central banks. Bitcoin is bought and created from equal participants who have been actively mining as the coins appear, that is, from doing electronic work.

This leads to the next challenge: why would anyone bother keeping their computers on to process this increasingly long accounting ledger? Electricity isn’t free. The process of “mining” is the recording of Bitcoin transactions. The discovery of coins therefore effectively pays for the time and trouble of participating in a public accounting experiment. Even should that stop, the act of using Bitcoin itself cannot be accomplished without turning on a node and adding lines to process the ledger. So we can reasonably expect that people will keep Bitcoin software “on” to help us all get Bitcoin work done. That’s why it’s a group project: public domain shareware.

What if they shut it down? What if it’s hacked? This leads to the next problem: resiliency. You have to go back a step and understand what Bitcoin is: a ledger. Anyone can store one, and in fact participants MUST store one. If Bitcoin were “shut off” as it were, it would be stored with each and every miner until they turned their computers back on. If it’s “off” there’s no problem, because no one transferred any Bitcoin. If it’s “on” then people somewhere are recording transactions. Think of it like a bowling group keeping a yearly prize of the ugliest shirt. Is there an actual shirt? No, the shirt is not the prize. Is there a gold trophy? No, “prize” is simply the knowledge of who won it. There is no “there”, no physical object at all. Strangely, that’s why it works.

 

This is important for the next problem: intervention. Many private monies have been attempted, notably e-gold within Bitcoin’s own origin. But the problem was, if there was anything real, like a gold bar, it could be encumbered, confiscated, and stolen. You’d have to trust the vault, the owner, the auditor and we’re back in the old system. At the same time, if Satoshi were keeping the Bitcoin record and had any human power over it at all, government could imprison him, pass a law, create a cease-and-desist, or demand he tamper with the record, which they did with e-gold. But Satoshi does not have that power, and no one else does either.

Why? Precisely because Bitcoin DOESN’T exist. It’s not a real thing. Or rather, the only “real” thing is the ledger itself which is already public to everyone everywhere. You can’t demand the secret keys to Bitcoin privacy because it’s already completely, entirely public. What would a government demand? Suppose they ordered a miner to alter the record: the other miners would instantly reject it and it would fail. Suppose they confiscated the ledger: they now own what everyone already has. Suppose they unplugged it: they would have to unplug the entire internet, and everything else on it, or every Bitcoin node, one-by-one, worldwide. If any nodes were ever turned on, all Bitcoin would exist again.

Can they track them down? Not really. In theory, Bitcoin can be written on paper without an Internet. In practice, any public or private keys certainly can be. So even chasing down the Internet it would be very difficult to stop it given sufficient motivation, like the Venezuelan hyperinflation where they are chasing down miners, wallets, and participants, and failing despite overwhelming force.

What about privacy? A completely public ledger recording every person and every transaction seems like a police state’s dream of enforcement and taxation. Is it private? Yes and no. The Bitcoin ledger is not written like “Senator Smith spent .0001 BTC on August 21st, 2015 to buy a sex toy from Guangzhou,” but Wallet #Hash2# transferred .00017 BTC to wallet #Hash3# at UTC 13:43:12 21:11:2017 – or not even that: it’s encrypted. Who is #Hash2#? You can go back, but it will only say #Hash2# exists and was created on Time:Date. Who is #Hash3#? The ledger only says #Hash3# was created a minute ago to receive the transaction. In fact, #Hash2# may have been created solely to mask the coin transferred from #Hash1#. So is it anonymous? Not exactly. Given enough nodes, enough access to the world’s routers, enough encryption, you might see #Hash2# was created in Pawtucket, and if #Hash2# is not using active countermeasures, perhaps begin to bring a cloudy metadata of #Hash2# possible transactions into focus, tying it to Amazon, then a home address, but the time and resources required to break through would be astronomical.

What about theft? Yes, like anything else it can be stolen. If you break into my house and tie me up, you can probably get the keys. This is also true online as you must log on, type a password that can be logged on a screen that can be logged over a network that can be logged, but think again about what you’re doing: does it make sense to break into every participant’s computer one by one? Most Bitcoin is held by a few early adopters, and probably those wallets were lost when their hard drives crashed, the users lost their passwords, or died before this computer experiment had any value. We know for a fact that all of Satoshi’s original coins, 2.2 million of them, have NEVER been spent, never moved on the ledger, suggesting either death or the austerity of a saint.

So even today hacking a wallet, is far more likely to net $1.00 than $1M. Take a page from Willie Sutton: when asked why he robbed banks, he said, “that’s where the money is.” So today. Where is the real money stolen, transferred? From the ’08 bailout, the kiting of fake bonds in the market, the MF Globals, the rigging of LIBOR or the fake purchase of EU bonds. You know, where the money is. At $160B market cap, Bitcoin is still one week’s purchase of central bank bond buying, i.e. a rounding error, no money at all. Hack a home wallet? I guess, but hacking Uber or Equifax once is a lot easier than hacking 100,000 wallets on 100,000 different computers. At least you know you’ll get something.

But MT Gox was hacked and 650,000 coins went missing. Surely Coinbase, Gemini, Poloniex are the same. Well…not exactly.

 

 

Check in for Chapter 2 tomorrow.

 

 

Dec 292016
 
 December 29, 2016  Posted by at 10:36 am Finance Tagged with: , , , , , , , , ,  5 Responses »


Esther Bubley Negro alley dwellings near the Capitol, Washington DC 1943

 

Trump On Russia Sanctions: ‘We Ought To Get On With Our Lives’ (R.)
Moscow Says It’s “Tired Of The Lie About The ‘Russian Hackers'” (Ptv)
Talking about Starwars: What is Henry Kissinger Up To? (PCR)
US Escalates Tensions With Israel (WSJ)
Hillary Clinton Could Face New Email Probe After Explosive Ruling
House Flipping Makes a Comeback as Home Prices Rise (WSJ)
A China-Watcher’s Guide to 2017 (Balding)
China’s ‘Godfather of Real Estate’ Pitches Reverse Mortgages (NYT)
China Slashes First Round Of Oil Products Export Quotas (R.)
China Fault Lines: Where Economic Turbulence Could Erupt in 2017 (BBG)
Trump Tax Reforms Could Depend On Little-Known ‘Scoring’ Panel (R.)
Greek Migration Minister Vows To Improve Conditions At Camps (Kath.)

 

 

It’s very simple: either the White House shows us prrof of hacking today when sanctions are announced, or all credibility is shot, across US intelligence.

Trump On Russia Sanctions: ‘We Ought To Get On With Our Lives’ (R.)

U.S. President-elect Donald Trump on Wednesday suggested that the United States and Russia lay to rest the controversy over Moscow’s computer hacking of Democratic Party computers, saying, “We ought to get on with our lives.” Trump has cast doubt on the findings of U.S. intelligence agencies that Russian hackers took information from Democratic Party computers and individuals and posted it online to help Trump win the election. The Obama administration plans to announce on Thursday a series of retaliatory measures against Russia for hacking into U.S. political institutions and individuals and leaking information, two U.S. officials said on Wednesday.

Asked by reporters if the United States should sanction Russia, Trump replied: “I think we ought to get on with our lives. I think that computers have complicated lives very greatly. The whole age of computer has made it where nobody knows exactly what’s going on.” Trump made his remarks at Mar-a-Lago, his seaside Florida resort where he is spending the Christmas and New Year’s holidays while also interviewing candidates for administration jobs. Trump said he was not familiar with remarks earlier on Wednesday by Republican Senator Lindsey Graham, who said Russia and President Vladimir Putin should expect tough sanctions for the cyber attacks. “We have speed. We have a lot of other things but I’m not sure you have the kind of security that you need. But I have not spoken with the senators and I certainly will be over a period of time,” he said.

Read more …

Again: proof or ridicule.

Moscow Says It’s “Tired Of The Lie About The ‘Russian Hackers'” (Ptv)

Moscow has vowed retaliation if Washington issues further economic sanctions over alleged Russian cyber attacks during the US presidential elections. “To be honest, we are tired of the lie about the ‘Russian hackers’, which is being poured down in the United States from the very top,” said Russian Foreign Ministry spokeswoman Maria Zakharova on Wednesday. She warned that her country would respond to any manner of “hostile steps” the US decides to undertake. “It concerns any actions against the Russian diplomatic missions in the US which will immediately ricochet the American diplomats in Russia,” she added.

Zakharova went on to stress that the US was attempting to intimidate Moscow with extending sanctions, taking diplomatic measures and sabotage against Russian computer systems, in retaliation for alleged Russian hacking interference during the US presidential elections in November. Earlier in the day, US Republican Senator Lindsey Graham of South Carolina said that Moscow needed to understand it had gone too far during the election, and that new sanctions would target Russian President Vladimir Putin. “It is now time for Russia to understand – enough is enough,” he said. “You can expect that the Congress will investigate the Russian involvement in our elections and there will be bipartisan sanctions coming that will hit Russia hard, particularly Putin as an individual,” he added.

Read more …

Oh, right, Starwars. Paul Craig Roberts contends the neocons are still as strong as ever in the US, even under Trump.

Talking about Starwars: What is Henry Kissinger Up To? (PCR)

The myth is widespread that President Reagan won the cold war by breaking the Soviet Union financially with an arms race. As one who was involved in Reagan’s effort to end the cold war, I find myself yet again correcting the record. Reagan never spoke of winning the cold war. He spoke of ending it. Other officials in his government have said the same thing, and Pat Buchanan can verify it. Reagan wanted to end the Cold War, not win it. He spoke of those “godawful” nuclear weapons. He thought the Soviet economy was in too much difficulty to compete in an arms race. He thought that if he could first cure the stagflation that afflicted the US economy, he could force the Soviets to the negotiating table by going through the motion of launching an arms race. “Star wars” was mainly hype. (Whether or nor the Soviets believed the arms race threat, the American leftwing clearly did and has never got over it.)

Reagan had no intention of dominating the Soviet Union or collapsing it. Unlike Clinton, George W. Bush, and Obama, he was not controlled by neoconservatives. Reagan fired and prosecuted the neoconservatives in his administration when they operated behind his back and broke the law. The Soviet Union did not collapse because of Reagan’s determination to end the Cold War. The Soviet collapse was the work of hardline communists, who believed that Gorbachev was loosening the Communist Party’s hold so quickly that Gorbachev was a threat to the existence of the Soviet Union and placed him under house arrest. It was the hardline communist coup against Gorbachev that led to the rise of Yeltsin. No one expected the collapse of the Soviet Union.

The US military/security complex did not want Reagan to end the Cold War, as the Cold War was the foundation of profit and power for the complex. The CIA told Reagan that if he renewed the arms race, the Soviets would win, because the Soviets controlled investment and could allocate a larger share of the economy to the military than Reagan could. Reagan did not believe the CIA’s claim that the Soviet Union could prevail in an arms race. He formed a secret committee and gave the committee the power to investigate the CIA’s claim that the US would lose an arms race with the Soviet Union. The committee concluded that the CIA was protecting its prerogatives. I know this because I was a member of the committee.

Read more …

Place this in the context of what’s being said about Russian hackers at the same time.

US Escalates Tensions With Israel (WSJ)

Secretary of State John Kerry rebuked Israel for its settlement policy and warned in unusually harsh terms that a two-state solution was in serious jeopardy as the Obama administration raced to preserve its approach to the Middle East weeks before President-elect Donald Trump takes power. Mr. Kerry’s speech on Wednesday—in which he defended a U.S. decision to allow a United Nations resolution condemning Israel’s settlements—was seen by Israeli leaders as a parting shot from an unfriendly American administration in its final weeks. But the address appeared equally intended as a message to the incoming Trump team.

Mr. Kerry spelled out principles that have long been largely consistent in American policy—the goal of Israel existing alongside a separate Palestinian state, the notion that the settlements are an impediment to peace, and the idea that Jerusalem should be the capital of both an Israeli and a Palestinian state. Mr. Trump has suggested he would consider breaking with those principles. “President Obama and I know that the incoming administration has signaled that they may take a different path,” Mr. Kerry said at the State Department. “But we cannot in good conscience do nothing, and say nothing, when we see the hope of peace slipping away.”

Read more …

“This ruling means that the Trump Justice Department will have to decide if it wants to finally enforce the rule of law..”

Hillary Clinton Could Face New Email Probe After Explosive Ruling

The U.S. Court of Appeals for the District of Columbia has ruled in favor of a conservative group’s lawsuit against the State Department over whether or not enough was done to try to restore Clinton’s missing emails, opening a potential further probe into Clinton’s emails by the Trump administration. Back in January, a District Court judge ruled that the lawsuit brought by the conservative group Judicial Watch, against the State Department, had no validity because it had there had been a “sustained effort” to recover the emails. In the new ruling, however, Judge Stephen Williams wrote that this wasn’t enough.

“The Department has not explained why shaking the tree harder – e.g., by following the statutory mandate to seek action by the Attorney General – might not bear more still,” wrote Williams. He added: “Absent a showing that the requested enforcement action could not shake loose a few more emails, the case is not moot.” Williams also said that it’s “abundantly clear that, in terms of assuring government recovery of emails” the conservative group that brought the lawsuit hasn’t “been given everything [they] asked for.” Additionally, because former State Secretary Clinton used her Blackberry email account during the first few weeks of her term, the judge felt that efforts to restore just the messages from Clinton’s private email server weren’t sufficient either.

“Because the complaints sought recovery of emails from all of the former Secretary’s accounts, the FBI’s recovery of a server that hosted only one account does not moot the suits,” he wrote. Judicial Watch president Tom Fitton issued a statement after the ruling, claiming “The courts seem to be fed up with the Obama administration’s refusal to enforce the rule of law on the Clinton emails.” Fitton added, “This ruling means that the Trump Justice Department will have to decide if it wants to finally enforce the rule of law and try to retrieve all the emails Clinton and her aides unlawfully took with them when they left the State Department,” he added.

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Homes are definitely not places for people to live in. Not in the US.

House Flipping Makes a Comeback as Home Prices Rise (WSJ)

House flipping, a potent symbol of the real-estate market’s excess in the run-up to the financial crisis, is once again becoming hot, fueled by a combination of skyrocketing home prices, venture-backed startups and Wall Street cash. After nearly being felled by real-estate forays almost a decade ago, a number of banks are now arranging financing vehicles for house flippers, who aim to make a profit by buying and selling homes in a matter of months. The sector is small—participants say roughly several hundred million dollars in financing deals have been made in recent months—but is expected to keep growing. In recent months, big banks, including Wells Fargo, Goldman Sachs and JP Morgan have started extending credit lines to companies that specialize in lending to home flippers.

[..] Over the past year, 37-year-old David Franco has collected profits of more than $200,000 on houses that he has quickly refurbished and resold, turning a hobby into an unexpectedly lucrative business. “There’s plenty of money to be made,” says Mr. Franco, who lives just outside of Los Angeles. House-flipping television shows and training “schools” for new investors are proliferating. One “super-intense, hardcore” house-flipping boot camp in Bourne, Mass., promised to teach students about real-estate investing in three days to make “REALLY MASSIVE PROFITS,” according to marketing literature. The increasing amount of speculative housing in recent months is “concerning,” ATTOM noted in a recent report. “We’re starting to see home flipping hit some milestones not seen since prior to the financial crisis.”

ATTOM said profit margins are getting squeezed in some markets. While house flippers typically aim to purchase a house at a 30% discount to the market, in some areas they’re buying homes at a 15% or 10% discount, said Senior Vice President Daren Blomquist. The research firm noted that the number of smaller, inexperienced house flippers entering the market is a sign of rising speculation. George Geronsin, 36, a Southern California real-estate agent and house-flipper who has been in the business since 2008, said he recently sold the majority of the homes he was working on and is sitting on cash “until the next big correction” in the housing market. “Anybody and everybody is getting into the business of house-flipping—that’s when you know it’s the end of the rope,” said Mr. Geronsin.

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Chris Balding confirms what I wrote yesterday.

A China-Watcher’s Guide to 2017 (Balding)

Last year, China’s leaders were touting plans for deleveraging and supply-side reform. This year, they’re touting yet more plans for deleveraging and supply-side reform. In between, total outstanding credit rose from 246% of gross domestic product to about 265%… Although reining in credit is essential for addressing many of China’s economic problems, the government is still targeting 6.5% growth next year, much of which will be reliant on yet more debt. So pay less attention to the talk and more to the data – specifically, metrics such as credit growth and real-estate prices.

Follow the Fed.China remains tied to the U.S. economy, whether it wants to be or not. Unfortunately, not everything that’s good for the U.S. is good for China. With the U.S. labor market tightening, and President-elect Donald Trump promising a $1 trillion economic stimulus, it is all but certain that the Federal Reserve will continue raising interest rates in 2017. That could have some positive effects for China’s real economy, but it will also put pressure on the People’s Bank of China to raise its own interest rates or risk breaking the soft peg of the yuan to the U.S. dollar. Higher rates, in turn, would raise borrowing costs for heavily indebted Chinese companies, many of which could end up in bankruptcy. How fast the U.S. economy grows, and how many times the Fed raises rates, could have as much impact on China’s economy as anything next year.

The cure can be worse than the disease. Rising asset prices in China have helped prop up everything from coal and steel firms to consumer sentiment. But with potential bubbles popping up everywhere, the government seems to be laying the groundwork for reform. That could mean raising interest rates, applying new restrictions on trading or tightening other regulations. Remember that such measures, however necessary, carry risks of their own. For example, given that China has some of the world’s most expensive housing relative to income, and extremely low turnover, withdrawing credit could result in a real-estate price shock. That might cause indebted developers to fail, or lead to much stronger government action to prevent a hard landing. As regulators try to rein in other asset prices, watch for similar turmoil in bonds and the yuan.

Expect the unexpected. China has long been plagued by poor-quality data, with even senior leadership expressing frustration at getting inaccurate information from the provinces. Unreliable data makes it nearly impossible to properly assess risk, which raises the probability of some type of internal shock. It could come from the nearly $4 trillion market in murky wealth-management products. It could come from social instability tied to hidden unemployment. It could come from something totally unexpected: With the bond market in turmoil, liquidity concerns mounting and defaults rising, there are many ways in which a panic could materialize.

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Prey on the elderly.

China’s ‘Godfather of Real Estate’ Pitches Reverse Mortgages (NYT)

He is known in China as the “godfather of real estate,” helping lay the groundwork for private homeownership in China, a move that enriched millions and laid the foundations for a vibrant and thriving Chinese middle class. Now, Meng Xiaosu wants a lot of Chinese — the older ones, specifically — to cash out. Older people need to mortgage their homes to address China’s looming demographic bust, Mr. Meng argues. Because of China’s now-defunct one-child policy and other social trends, the country has a rapidly graying population that someday soon may become too expensive for the Chinese government to support. Mr. Meng’s proposed solution is to bring reverse mortgages to China. Called a house-for-pension plan in China, a reverse mortgage allows homeowners to tap the equity in their homes by taking out loans against it.

His argument faces deep business and cultural opposition – mortgaging homes is a tough sell in a country where parents traditionally passed them on to their children – and only a few dozen people in all the country have signed up so far. But he argues that China may have little choice. “China’s elderly do not have much money,” said Mr. Meng, who drew much of his inspiration about the Chinese property market from a stint studying in America, “but they have valuable homes.” China is increasingly pondering tough questions as it looks to a graying future. Right now, China’s 215 million elderly people account for 15% of the total population. By 2050, that number is expected to rise to 350 million – nearly one-quarter of the population.

That has China scrambling to find a more sustainable pension system for its people. In the 1990s, the government dismantled the cradle-to-grave welfare system and borrowed money from younger workers to pay older ones. The country’s pension fund will be $116 trillion in the red by 2050, according to the Chinese Academy of Social Sciences, a top government think tank. Enter Mr. Meng.

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What I see between the lines is a huge glut building. They simply can’t sell it anymore. Oh, and what was that question? Market economy?

China Slashes First Round Of Oil Products Export Quotas (R.)

China has cut oil product export quotas to the nation’s four oil majors by 40% in the first round of licences for 2017, according to two sources who have seen the documents, even as traders expect allowances for overseas sales to meet or exceed this year’s record levels. The notice did not include quotas for independent refiners, known as “teapots”, in line with a report by Reuters earlier this month that the government has ditched the small refiners from its export program. In a notice dated Dec. 23, the Ministry of Commerce and the General Administration of Customs said the four state majors will be allowed to sell 12.4 million tonnes of gasoline, gasoil and jet fuel abroad next year.

That’s down from 20.54 million tonnes in the same round this year. Still, the cut is likely to bring little relief to the stubbornly saturated Asian oil market as China’s majors did not use up the huge quotas issued at the start of last year, and have simply applied for more realistic quotas this year, traders said. “The shrinking quota doesn’t reflect shrinking demand from overseas. Instead, it reflects a shift in company exporting strategy,” said a China-based trader who declined to be named, adding that companies were better matching exports to quotas. “We expect the total quota for 2017 to be on par or a bit higher than 2016,” the trader added. China issued allowances for a record 46.08 million tonnes of oil products in 2016, up 80% from 2015. In the first 11 months of the year, it exported 43 million tonnes of oil products – including products other than gasoline, gasoil and jet fuel – up 35% on a year earlier.

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“The real nightmare for Beijing – and for markets – is a vicious cycle of capital outflows triggering bigger devaluations of the yuan that in turn drive bigger and faster outflows..”

China Fault Lines: Where Economic Turbulence Could Erupt in 2017 (BBG)

China’s balancing act isn’t getting any easier. Policy makers are grappling with how to attack excessive borrowing and rein in soaring property prices while maintaining rapid growth. They’re also battling yuan depreciation and capital outflow pressures as U.S. interest rates rise, while on the horizon looms the risk of confrontation with America’s President-elect Donald Trump on trade and Taiwan. It’s a high-wire act with the potential to produce shocks, like the one erupting in the bond market as tighter liquidity threatens financing for small companies. President Xi Jinping told top officials he’s open to growth below the 6.5% target to 2020 if it carries too much risk, a person familiar with the situation said last week. Leaders have pledged to reduce hazards for 2017.

While forecasters have been raising growth estimates for next year and don’t expect major turbulence, the following are among areas they flag as having the potential to trigger a plunge in growth or systemic risk in the financial system: Outflows will exceed $200 billion in the fourth quarter and rise further in the first quarter, said Pauline Loong, managing director at research firm Asia-Analytica in Hong Kong. Capital is leaving for more fundamental reasons than rising U.S. rates and a stronger dollar, she said. Drivers include rising expectations of yuan weakness, fears of an abrupt policy U-turn trapping funds in the country, and a lack of profitable investment opportunities at home amid rising costs and slowing growth.

“The real nightmare for Beijing – and for markets – is a vicious cycle of capital outflows triggering bigger devaluations of the yuan that in turn drive bigger and faster outflows,” Loong said. “We expect capital outflows to increase in the coming months as Chinese money seeks to maximize exit quotas in case of more stringent restrictions later on.”

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Clueless prognosticators.

Trump Tax Reforms Could Depend On Little-Known ‘Scoring’ Panel (R.)

President-elect Donald Trump’s goal of overhauling the U.S. tax code in 2017 will depend partly on the work of an obscure congressional committee tasked with estimating how much future economic growth will result from tax cuts. Known as the Joint Committee on Taxation, or JCT, the nonpartisan panel assigns “dynamic scores” to major tax bills in Congress, based on economic models, to forecast a bill’s ultimate impact on the federal budget. The higher a tax bill’s dynamic score, the more likely it is seen as spurring growth, raising tax revenues and keeping the federal deficit in check. As Trump and Republicans in Congress plan the biggest tax reform package in a generation, the JCT has come under pressure from corporate lobbyists and other tax cut advocates who worry that too low a dynamic score could show the legislation to add billions, if not trillions of dollars to the federal deficit.

“The problem is that the Joint Committee staff has adopted a whole series of assumptions that truly minimize the effects and underestimate the impact that a properly done tax reform could have,” said David Burton at the conservative Heritage Foundation think tank. A low dynamic score could force Republicans to scale back tax cuts or make the reforms temporary, severely limiting the scope of what was one of Trump’s top campaign pledges. Other analysts warn that pressure for a robust dynamic score raises the danger of a politically expedient number that could help reform pass Congress but lead to higher deficits down the road. Until last year, JCT used a variety of economic models in its arcane calculations, reflecting the uncertainties in such work. But House of Representatives Republicans changed the rules in 2015 to require that a bill’s score reflect only a single estimate of the estimated impact on the wider economy and resulting impact on tax revenues.

Next year’s anticipated tax reform package would be the biggest piece of legislation that JCT has scored using this new, narrower approach, presenting the committee with a daunting challenge. JCT Chief of Staff Thomas Barthold acknowledged the challenge of dynamic scoring in an interview with Reuters. “The U.S. economy is so darn complex, you really can’t have one model that picks up all of the complexity and nuance. So the essence of modeling is to try to slim things down, try to emphasize certain points,” he said. Tax reform is still months away. But the initial legislation expected in 2017 is likely to fall somewhere between two similar but separate plans, one backed by Trump and the other by House Republicans including Speaker Paul Ryan.

[..]The Tax Foundation estimates that the House Republican tax plan would lead to a 9.1% higher GDP over the long term, 7.7% higher wages and 1.7 million new full-time-equivalent jobs. It predicts the plan would reduce government revenue by $2.4 trillion over a decade, not counting macroeconomic effects, but by only $191 billion once economic growth is taken into account. By contrast, the centrist Tax Policy Center estimates the House plan would add 1% to GDP over 10 years and erase $2.5 trillion of revenue, even with positive macroeconomic feedback, due to higher federal debt interest.

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Biometric data cards and €400 a month allowances in a country where many pensioners don’t even get that much.

Greek Migration Minister Vows To Improve Conditions At Camps (Kath.)

Migration Policy Minister Yiannis Mouzalas vowed on Wednesday to improve living conditions for migrants stranded on the islands, boost policing and create detention centers. “We are planning to have new, small venues on the islands, either by setting up small, two-story houses, in order to empty the tents, or by finding other places… to improve conditions,” he said, adding that it will take time but “we will do it.” Overcrowded conditions, coupled with the slow processing of asylum requests, have fueled tensions, while outbreaks of violence are not uncommon – especially on the islands, where some 15,000 migrants are crammed into ill-equipped camps. Mouzalas, however, insisted that the situation is better on the mainland and all refugees in the 36 camps there are staying in sheltered, heated areas.

The exception, he said, is the camp at Elliniko, southern Athens, where some migrants are still living outdoors in 70 tents. He also announced that by March, soup kitchens at camps around the country will be abolished. Instead, he said, migrants will be given money – no more than the minimum wage of €400. Mouzalas said Greece will hire more staff to deal with the slow pace of processing asylum requests, which he called an Achilles’ heel. Moreover, he said that migrants living legally in Greece will receive an electronic card that will replace their residence permits. The card, he said, will contain biometric data and other information, and will be given to migrants who want to renew their residence permits or to new arrivals.

The cards will be ready by April, he said, adding that they are part of the effort to modernize the system that processes residence permits, and to help fight forgeries. Roughly 60,000 migrants – mostly Syrians, Iraqis and Afghans fleeing war and poverty – are scattered throughout the country, many living in overcrowded and poor living conditions.

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