As we wait for the market to come down from the pharmaceutical driven high it must be on, after melting higher despite CPI higher, PPI higher, retail sales worse etc. In these bubbles, logic and reason are a casualty for awhile and it looks like forever in times like this. However, it is just camouflaged by flows, great big flows of new money chasing higher the dream of quick riches. When new money comes in to buy, it just wants a place at the table. It doesn’t care about value or logic nearly as much as I do.
Let’s think about Bitcoin for a minute as an example. I’m not pro or con necessarily, I’m just not interested in it for me, but the price action is interesting at the very least. When it began, the founder Satoshi got the first million or so Bitcoin and was never heard of again. He wrote a white paper and set out his minions into the world to chase the dream of digital money. It has been adopted by some people and is now trading at $70,000 a Bitcoin, a record high. There are the diamond hands, people who buy Bitcoin and never sell. These people also bought and have held on to their coins supposedly. Bitcoin has a limited number of Bitcoins. The total amount will someday be around 21 million and they are priced in dollars per Bitcoin. We know that the value of the US dollar is going down so Bitcoin will go up forever in theory correct. Yes, I would argue because it has a limited amount I theory and the US dollar does not. Now, here is what fascinates me, how many Bitcoins are changing hands? The Bitcoin ETFS just started a few weeks ago and that is new money that is buying the few Bitcoins that are available on the market. The diamond hands investors claim they will never sell their Bitcoin, so these new buyers have to purchase their coins in what is called the float. A market is where a buyer and a seller agree on exchange at a price. So somebody is selling in this market. When the price of something is very dependent on new money coming in to drive the price of something higher, when the previous owners of something get rich by the creation of new buyers, and when every other ad on financial radio/tv/social media is about crypto it makes me very nervous about a Ponzi scheme type apparatus. Now on the other hand, I could say I can buy a tractor and if there are very few tractors in the area and I have people that need to use my tractor I can work it or rent it out and I can charge higher prices because of a limited supply of tractors. There is a limited supply of Bitcoin, but I don’t know the work feature or what utility it provides other than not being backed by the Federal government, which is what I like most about Bitcoin. It is a digital code that lives on a blockchain, but its value is derived from others believing that it has value. As long as it does, it can be a currency alternative. I like to think of it as an asset because you buy assets to go up in price. There is only 2 Dalis of this type, then they are valuable because other people value Dali and due to limited supply, and more demand than supply the price usually rises for rare art.
I wanted to investigate Bitcoin in this manner because of what I really want to discuss this week which is the BRICS currency development. They are attempting to move away from the dollar being the world’s hegemonic financial goliath. John Cody of Remix News writes “German Finance Minister Christian Lindner is warning his own government that state finances are quickly growing out of hand, and the government needs to change course and implement austerity measures. “ Germany has felt the wrath of American sanctions on Russia far more than Russia has. They had a source of cheap energy and now they don’t. They had a manufacturing economy that could compete on the world stage and now they don’t. Very simple. They chose poorly much as the Nazis did in their quest for the holy grail against Indiana Jones and his father. The Germans with means can see that their country is slowly tipping into recession, their prospects of advancement getting darker by the day, and they are looking for a solution.
China is also struggling. Their real estate sector is frozen much as is our own. They overbuilt entire cities, we are simply abandoning ours to crime, homelessness, and liberal politics. Their people are savers and ours are spendthrifts. Their people bought many of these empty or never built apartments and are realizing that they overinvested in something that didn’t have a limited supply. Ours just buy discretionary items and services. They are looking for a new place to invest their savings, they are also looking for a solution.
These other countries, Germany and China are just two, look to the United States and see safety. Are they buying US treasuries, no, the world has largely been a net seller of bonds for a decade, but they are a buyer of US stocks and in particular tech. They use and understand that our technology companies are strong. They see safety and they have been buying. I think some of this remarkable rally is because as I have heard so eloquently, America is the cleanest shirt in the hamper, it is the prettiest horse in the glue factory, or it is the EV with the most charge in a blizzard. Ok, I haven’t heard that last one, I just made it up, but it fits. I think the flows are driving us higher from our internal expansion of money fueled by fiscal deficits. We are spending on EV infrastructure and those dollars are hitting the economy, we are spending on social programs and that too is hitting the economy, and eventually after changing hands a few times it settles into the hands of someone that buys and ETF that is laden with these top tech names. The flows of cash are coming into the US stock market. This is all driven by dollars, because the world trusts the dollar. They have dollars and use them to buy the stock market, but what happens when the dollar isn’t so trustworthy.
We have $34.5 trillion in debt and that is why the world stopped buying most of our bonds a decade ago. They didn’t stop trusting America, only the American government. This debt fueled mania has been rocket fueled by the last two presidents, who are the two candidates left standing to be the next president. Is it any wonder? Spend money and the people will love you, not an original political theme. So the Brics are looking at this and working. They declined to roll out their currency last year, and that could perhaps be the case again this year. Pepe Escobar writes for TheCradle.co “Last week, top Kremlin adviser Yury Ushakov announced that BRICS will work towards setting up an independent payment system based on digital currencies and blockchain. Ushakov specifically emphasized “state-of-the-art tools such as digital technologies and blockchain. The main thing is to make sure it is convenient for governments, common people, and businesses, as well as cost-effective and free of politics.” What they are trying to do is create a balance of payments system. No one really wants to be the reserve currency as we have discussed Triffin’s dilemma. The US has to supply dollars as the world reserve currency to allow the world to grow, but it runs deficits doing so. Do you do what is best for your own country or the world system? The Brics have studied their history so when proud patriots pound their chests and ask how the Chinese currency can replace the dollar, the Chinese just shake their head and say no shit, but you don’t even understand the question. No one wants to, but they do want to exchange in trade. They also don’t want to hold worthless paper like the dollar is quickly becoming. When a house goes up from $200k to $400k in just a few years like in the US, ask yourself did the house grow or did the US dollar get weaker? They don’t want 50% less purchasing power and that is why gold has traditionally been used to be this constant in many systems. It doesn’t have to be the constant per se, but it can be used to balance the scales after the trading has been done. Flying airplanes full of gold around is certainly a poor way to conduct trade, but settling in gold, but be acceptable and that is what the Brics are trying to do. The Brics want a system that allows trade and serves as the ledger, aka blockchain, and then they will likely settle in gold to keep people from manipulating their own currencies for trading advantage. If you trading partner ends up with more of your currency, it will repatriate it back home in exchange for gold. Gold that the first country must buy at a higher price in their own currency to settle the account. This is a project that must be created in parallel to a US government that doesn’t want to relinquish its advantage.
The Brics might be offering a world solution… conduct business and if you don’t respect your own currency no one else with either and you will have to pay up to balance the trades in gold. Sounds logical right? Can the dollar survive a logical solution, no. Is Brics going to be the solution, too soon to tell. Will the dollar survive, no? It will disappear in a globally changing world, a hyper-inflation, or another calamity but fiat always fails. Irresponsible fiats fail sooner and that is what we have, but there are lots of people saying it is different and it isn’t. What I do know is the people trying to hold it all together are crafty and will try with all their tools and might to keep it together. They have kicked the can down the road a long time, but now the debt is going parabolic and the debt payments are too.
People are seeing this and making investments in gold and Bitcoin, but the amount of people that are doing so is so small that it is hardly noticeable, but when even a trickly of money hits these markets it will become a torrent. Prices usually stabilize. At the end of the 1970s the Dow and gold were roughly equal in price. Gold would have to go up 19x now or the Dow comes down and gold goes up to meet it. I think they will meet in the middle.
Sincerely Yours,
C Thomas Printer
On this date in history… 170 years ago to be exact, the Republican Party was formed.
Also born on this date…one of the greatest comedians of all time, Carl Reiner.
Thank you for listening today and you can find all of our articles and more on our website cthomasprinter.com.