Mint the coin

October 08, 2021

Mint the coin

The annual debt ceiling dance is well underway in the US. It is nonsense as usual because there is zero chance that America can ever default. All their debt is denominated in dollars and they can create as many of them as they wish. Still, it's more fun that talking about Covid, so I'm happy to play along. 

The idea behind the $1 trillion coin is simply to circumvent the requirement for Congressional approval to raise the debt ceiling. It would work as follows:  The Treasury Department mint and issue platinum bullion coins in any denominations the Secretary of the Treasury may choose (in this case $1 trillion). It could deposit such coins at the Federal Reserve's Treasury account instead of issuing new debt. This would cause US Debt to fall below the current limit it now faces, allowing spending to continue. US Law allows for exactly this scenario. Many people are opposed to this strategy because they believe it is simply an artificial confection. The coin(s) are pretend, they would not worth more than a few thousand dollars. Those that object apparently do not to understand that the entire fiat currency system is exactly that, a confection. The beauty of the $1 trillion dollar coin is that it shines a light on the biggest financial fraud in history. That is the real reason politicians are scared to pull the trigger because it will cause people to ask very searching questions about the USD and the basis of its value proposition. So, for once, I'm with Krugman. Mint the coin! Show us the fraud in all its glory.

Remittance

Remittance is one the biggest industries of all. Around $700 billion is sent home by workers overseas each year. For many poorer countries it is also the largest component of their GDP. In Tonga, 40% of GDP is from remittance.

That's a direct quote from an MP in Tonga who wants to replicate El Salvador's bitcoin remittance network. Global remittance costs, thanks to bitcoin, are now effectively zero. Western Union is rapidly going to become the Blockbuster Video of finance and they deserve to because they have been gouging people for far too long. 

The cost of remittance has been falling for a long time but it still costs $10 to send $200 around the world. Shortly, that will become very close to zero. In 2009 the World Bank set a target for remittance costs of 5% by 2014, they failed to deliver. Bitcoin will now do the work for them and they will complain "not safe, Silk Road, KYC". It won't matter. If you are cleaning hotel rooms in Dubai and sending money to the Philippines you go with the best option, not the World Bank option. It will be the lightning network.  

Just as a footnote on how this works, take the Dubai example. I am paid locally in Dirham. I transfer them to my lightning app; it converts that money to bitcoin at the prevailing rate, you then instantly remit to the person on the receiving end via the lightning network (which has close to zero fees; 0.01% and less in most cases). The recipient's app gets the bitcoin and immediately converts to Philippine Peso at the market rate. It takes about 10 seconds, so there is no exchange rate risk on the bitcoin leg of the journey. If you use the Strike app you get a wholesale rate on the conversion at both ends. 

Public v Private v Bitcoin

If I was Andreesen Horowitz, I'm not sure I would have published this chart. It lays out the returns from companies while they were private v public. Going public in the 80s left mountains of value for the public to share in. Since then, Venture Capitalists have got better at valuing networked propositions. When businesses finally go public now, the feast is basically over, Amazon being perhaps the last to deliver in the public realm. A good example of this would be Coinbase. They didn't even issue any new shares when they went public and raised no new money. Since listing their share price has fallen sharply. It could be characterised like this:Public Company

  • Best gains gone while it was private

  • Entire management team working to enrich themselves personally at the expense of shareholders

  • Hard to progress at more than 10% per year

Private Company

  • Better if the founder is still there

  • Working to build value

  • Decent chance of good return

  • Still some alignment between management and shareholders

Digital Protocol (like bitcoin)

  • No staff. No insider enrichment

  • Zero costs

  • Network effect is the growth engine

  • Software sets the strategy on day 1 and doesn't change its mind

  • Software executes the strategy

  • Software never sleeps

  • Software doesn't have meetings

  • Software doesn't leave the company

You get the picture. If you wondered why the compound returns in digital protocols are so high, wonder no longer. 

Portfolio analysis

A reasonable heuristic for portfolio analysis. Nothing to add really.

Euro-Trash

Quarter end, and time to mark Christine's homework. First of all, I remain surprised at the relative strength of the Euro versus the Dollar. Up 3% since we began the challenge a little over a year ago. Some of that is clearly driven by the competitive levels of money printing by the world's largest central banks. Anything Christine can do; it seems Jay can do better. I'm inclined to think the Euro might be back below $1.10 by the time the year is out though. I must declare a conflict of interest here because I'm planning a trip and have a preference for cheaper cerveza. Fingers crossed. The less compelling statistic for our favourite central banker shows that the Euro has now lost 77% of its purchasing power against bitcoin over the same period.The problem is this:

By way of example, it seems Europe is running out of fuel and gas. This will flow through to manufacturing and industrial prices and winter hasn't even begun. I agree there is no need to over-react, but inflation in Europe is running riot and the only tool in the ECB toolkit is to pretend that it isn't. I think it is disingenuous and wrong.