The Downright Sinister Rearrangement Of Riches

Authored by EconomicPrism"s MN Gordon, via Acting-Man.com,

Simple Classifications

Let’s begin with facts.  Cold hard unadorned facts. Water boils at 212 degrees Fahrenheit at standard atmospheric pressure.  Squaring the circle using a compass and straightedge is impossible.  The sun is a star.

The sun is not just a star, it is a benevolent star. Look, it is smiling…  sort of. [PT]

 

Facts, of course, must not be confused with opinions, which are based upon observations.  Barack Obama throws like a girl.  The Federal Register is for idiots.  Two slices of chocolate cake are one too many.  Are these opinions right or wrong?

The answer depends on who you ask.  What’s certain about opinions, however, is that like bellybuttons, everybody has one.  Moreover, unlike free drugs from the government, everyone is in fact entitled to their own opinion.

Moving on from facts and opinions, the next classification we encounter is the wholly asinine.  This broadly contains the absurd and ridiculous.  Take most university teachers, barring natural science professors, for instance.  They’re wholly asinine.  The wholly asinine also extends to editors at the New York Times, Washington Post, circus hunchbacks, and the like.

Lastly, we want to mention the downright sinister.  This includes sociopaths like Hillary Rodham Clinton, John McCain, nearly all of Congress, the Federal Reserve, fractional reserve banking, Washington lobbyists, a good part of Wall Street, and much, much more.  Clearly, such people and professions don’t represent honest work.  Rather, they epitomize less than honest work that’s performed by less than honest people.

Sinister mafia boss from Arkansas, possibly checking classified material on private phone… [PT]

 

Nixon Casts the Die

From this point forward, the weight of today’s reflection falls squarely on the shady shoulders of the downright sinister.  But within this category, we dig deeper and uncover a certain subcategory: grand larceny.  Namely, we want to better understand the incessant pilfering going on about us.  Where to begin?

When Tricky Dick Nixon closed the gold window in 1971, severing the last tether holding the money supply in orbit, the national debt was under $400 billion.  Today it’s over $20 trillion.  What’s more, it’s now common for a single year’s budget deficit to top $1 trillion.

But it’s not just government debt that has drifted into deep space due to the Federal Reserve’s ability to issue limitless credit.  Corporate and consumer debt has also drifted out of orbit.  Since 1971, nonfinancial corporate debt has increased over 3,200 percent.  And consumer debt is now at a record high of $12.8 trillion.

Total US credit market debt – ever since Nixon’s gold default and the adoption of a completely unanchored fiat money system, debt has grown at an explosive trajectory. At the same time, economic output growth has slowed ever more, decade after decade. This is a sign that the massive growth in the supply of money and credit has fostered malinvestment and capital consumption on a grand scale. [PT] – click to enlarge.

 

However, while public and private debt has radically increased, and the money supply has radically inflated, economic growth has lagged.  Certainly, one would expect this radical money supply inflation and debt growth to show up in consumer prices.  Yet somehow consumer prices are always reported as being nearly flat.

One reason for this is that the government’s statisticians at the Bureau of Labor Statistics have made a fine art of subtracting price inflation from their monthly propaganda reports.  Hedonic price adjustments.  Price deflators.  Seasonal adjustments.  These all serve to mask the rate of consumer price inflation and to conceal the effects of the Federal Reserve’s ongoing currency debasement program.

Specifically, these various adjustments and deflators paint an incomplete picture of what’s going on.  For what good is it if you can get a really powerful laptop computer for $500 and a new pair of jeans for $20, when half your paycheck goes to pay the rent and another quarter of it goes to cover medical insurance and transportation costs?  In addition, it has become near impossible to get a college education without going tens of thousands of dollars into debt.

 

The Downright Sinister Rearrangement of Riches

The discrepancy between low cost consumable goods and living, transportation, medical, and education costs illustrate the true effects of the government’s incessant pilfering of the wage earner, student debtor, and fixed income retiree.

Those who’ve never scratched below the surface to take a closer look at what’s going on may be unclear how Nixon’s closure of the gold window has been so destructive for so many people.  This is understandable; most are unable to diagnose it.  However, the ultimate effect of these actions, including debt servitude, has been demonstrated for millennia.

Nixon “temporarily” suspends the gold standard and concurrently imposes tariffs and price controls. The usual bromides and economic falsehoods are provided as justifications, including the standard attack on “shadowy foreign speculators” who are supposedly attacking an innocent US dollar. This is an excellent demonstration of a fact people need to be reminded of over and over again: governments lie. [PT]

 

Ironically, John Maynard Keynes, the godfather of modern day economic intervention by governments, confessed to this fact.  If you didn’t know, Keynes provided one of the better explanations of the relationship between money debasement and the economy.  What follows is an excerpt of Keynes from The Economic Consequences of the Peace, written in 1919.

“Lenin is said to have declared that the best way to destroy the capitalist system was to debauch the currency.  By a continuing process of inflation, governments can confiscate, secretly and unobserved, an important part of the wealth of their citizens.  By this method they not only confiscate, but they confiscate arbitrarily; and, while the process impoverishes many, it actually enriches some.  The sight of this arbitrary rearrangement of riches strikes not only at security, but at confidence in the equity of the existing distribution of wealth.

 

“Those to whom the system brings windfalls, beyond their deserts and even beyond their expectations or desires, become “profiteers,” who are the object of the hatred of the bourgeoisie, whom the inflationism has impoverished, not less than of the proletariat.  As the inflation proceeds and the real value of the currency fluctuates wildly from month to month, all permanent relations between debtors and creditors, which form the ultimate foundation of capitalism, become so utterly disordered as to be almost meaningless; and the process of wealth-getting degenerates into a gamble and a lottery.

 

“Lenin was certainly right.  There is no subtler, no surer means of overturning the existing basis of society than to debauch the currency.  The process engages all the hidden forces of economic law on the side of destruction, and does it in a manner which not one man in a million is able to diagnose.”

Could there be a more accurate characterization of the present structure of systematic grand larceny?  More importantly, what should one do?

Politburo members Lev Kamenev, Vladimir Lenin and Leon Trotsky in 1920. What did Lenin actually say about currency debauchment? The complete quote was: “Experience has taught us it is impossible to root out the evils of capitalism merely by confiscation and expropriation, for however ruthlessly such measures may be applied, astute speculators and obstinate survivors of the capitalist classes will always manage to evade them and continue to corrupt the life of the community. The simplest way to exterminate the very spirit of capitalism is therefore to flood the country with notes of a high face-value without financial guarantees of any sort. Already even a hundred-ruble note is almost valueless in Russia. Soon even the simplest peasant will realize that it is only a scrap of paper, not worth more than the rags from which it is manufactured. Men will cease to covet and hoard it so soon as they discover it will not buy anything, and the great illusion of the value and power of money, on which the capitalist state is based will have been definitely destroyed. This is the real reason why our presses are printing ruble bills day and night, without rest.” [PT]

 

First, one should grin and bear it.  Then one should grin and bear it some more.  After that, one should buy gold.

Bitcoin Spikes Back To $6000: Five Reasons Why It"s Not A Bubble

Bitcoin is surging once again this morning, up over 8.5% to retest $6000 once again (after dropping to $5366 just 2 days ago), but according to Nasdaq, "Bitcoin is not a bubble," citing five reasons demonstrating why it"s nothing like Tulip Mania...

Via Nasdaq"s Alex Lielacher,

The digital currency bitcoin rallied by over 300 percent since the start of the year and has recently surpassed the $4,000 mark. Unsurprisingly, many financial markets pundits consider such a sharp rally the creation of an asset bubble.

In all fairness, the returns that bitcoin and its digital peers in the crypto assets space are experiencing have not been seen since the day and age of the internet bubble in the late 1990s. However, Bitcoin has very different fundamentals than early internet stocks and a much more promising growth trajectory.

1. The Growing Acceptance of Bitcoin as Legal Tender

One of Bitcoin’s biggest challenges so far has been acceptance by lawmakers and financial regulators due to its decentralized nature and its unfortunate association with criminal activities carried out on the dark web. However, Bitcoin’s “official” acceptance is on the rise.

 

In April 2017, Japan announced that it would officially begin accepting Bitcoin as a legal payment method, which immediately boosted the price of bitcoin and has led to a substantial increase in merchant adoption across Japan.

 

In the Philippines, citizens have been increasingly using Bitcoin to send and receive low-cost remittances. This has not gone unnoticed by the country’s central bank, which announced in February 2017 that it will regulate Bitcoin so that the digital currency can be used as an officially accepted remittance system and, thereby, granting it full legal status.

 

Countries such as Australia and Russia have recently made similar statements that could lead to Bitcoin becoming a fully accepted medium of exchange in their respective countries. This is a trend that is likely to continue, given the growing demand for Bitcoin as an investment as well as an online payment system.

 

2. Increasing Merchant Adoption

In the early years of Bitcoin, merchant adoption was limited to a few brave ecommerce stores, usually run by early-stage Bitcoin enthusiasts. This, however, has changed substantially as leading tech companies and ecommerce platforms have chosen to accept Bitcoin as a payment method. Microsoft, Rakuten and Overstock are three of the largest companies to accept Bitcoin payments.

 

With bitcoin’s sharp price rally, increased media coverage and newfound acceptance in places such as Japan, Bitcoin merchant adoption is on the rise and this trend will likely continue.

 

The arguments for online merchants to accept Bitcoin are actually very strong; fees are lower than for credit card payments, chargeback fraud is entirely eliminated, new customers can be reached in underbanked regions and a new, tech-savvy consumer base can be attracted.

 

The more that merchant adoption increases globally, the more there will be regular and stable demand for the digital currency. And given the current low rate of merchant adoption, there is a substantial room for upside.

 

3. Bitcoin Is Increasingly Acting as a Store of Wealth in Distressed Economies

Another reason why Bitcoin is most likely not a bubble is that is has a much-need real world application in economically distressed countries. In places such as Venezuela, Bolivia and Zimbabwe, for example, bitcoin has been acting as a store of wealth and as an alternative spending currency as local currencies are weakening into worthlessness. This can be witnessed by increasing bitcoin trading volumes that are negatively correlated with the performance of local currencies and economic growth in distressed regions.

 

Bitcoin also allows individuals and businesses in countries with strict capital controls, such as Venezuela, to receive much-needed remittances to stay financially afloat. In other words, wherever there is economic distress, Bitcoin demand will likely rise and Bitcoin adoption will grow.

 

4. Bitcoin Has Only Just Gone Mainstream

You could say that 2017 has been the year in which Bitcoin has finally gone mainstream. Five years ago, if you would have asked the average person on the street what Bitcoin is, they would have most likely given you a bewildered look. Today, most people have at least heard of Bitcoin and many even know that one bitcoin is worth more than an ounce of gold.

 

Now that Bitcoin has become mainstream, the buying potential from new investors is immense, especially as institutional investors have started to open up to the idea of investing in bitcoin and other digital currencies.

 

5. Bitcoin’s Supply Is Limited

Finally, one of the key reason why Bitcoin has become so valuable is that its increasing demand is met with a fixed limited supply.

 

Because of the way Bitcoin was created, only 21 million coins can ever be mined. Furthermore, the rate at which new coins are created slows down over time, which means the increasing demand for the digital currency is not only met with a limited total supply but also with a continuously slowing supply.

 

The discussion of whether Bitcoin is a bubble or not will likely continue indefinitely, but the comparison between Bitcoin and early internet stocks does not hold true due to the fundamental differences between the two asset classes.

*  *  *

As CoinTelegraph notes, countering no shortage of criticism from traditional financial circles that Bitcoin’s price had grown too quickly and would inevitably crash, the new-found faith in Bitcoin and its maturing as a medium of exchange has become apparent in its increasing resilience to ‘FUD’ or other bad news.

Mainstream forecasters now predict further upward momentum for prices, with TradingView eyeing a new all-time high of $6,800 for November despite the uncertainty surrounding the SegWit2x hard fork.

 

A Look Inside The Secret Swiss Bunker Where The Ultra Rich Hide Their Bitcoins

Somewhere in the mountains near Switzerland’s Lake Lucerne lies a hidden underground vault containing a vast fortune.

It’s no ordinary vault, according to Quartz. Built inside a decommissioned Swiss military bunker dug into a granite mountain, it’s precise location is a closely guarded secret, and access is limited by myriad security precautions.

But instead of gold bars, the bunker contains hard drives on which customers’ bitcoins are being kept in what’s call “cold storage” – i.e. the owners’ private keys are protected by an air-gapped hard drive. The vault is one of many operated by Xapo, an early bitcoin company known for its cold storage wallet products and a debit card that pays for transactions in digital currencies.

The company won’t disclose how much bitcoin is stored in the vault, but one employee who spoke with Quartz said he sometimes takes customers with millions of dollars in bitcoin on tours of the vaults where their fortune is stored. Xapo was founded by Argentinian entrepreneur and current CEO Wences Casares, whom Quartz describes as “patient zero” of bitcoin among Silicon Valley’s elite. Cesares reportedly gave Bill Gates and Reed Hoffman their first bitcoins.

As Quartz explains, the bitcoin vault doesn’t store actual bitcoin units. Instead, what’s being stored are the owners’ private cryptographic keys that allow the owner to access and transfer his or her bitcoins by matching the key with a public key that’s used to identify the coin on the blockchain. Gaining unauthorized access to someone’s private keys is akin to making off with a gold bar.

The inexorable rise in bitcoin’s valuation has been marred by notable hacking incidents like the collapse of Mt. Gox, which ushered in the longest bear market in bitcoin’s history. Security fears appear to have subsided as bitcoin’s price has soared to all-time highs, but incidents like the collapse of the DAO have inspired investors with substantial bitcoin wealth to look into protecting it.

To store the coins, Xapos contracts Deltalis, the company that technically operates the 10,000-square-foot data-center that now inhabits the decommissioned bunker.

Server racks for banks, and any client who needs secure data processing, fill a cavity dug over 320 meters deep in the granite mountain. The Swiss military built the facility in 1947, and it served as the army’s secret headquarters during the Cold War, Agence-France Presse has reported. Inside, walls covered with detailed maps and ancient radio electronics serve as vestiges of its military past.

To enter Xapo’s private vault in the Deltalis data center, visitors must endure an exhausting series of security procedures.

Streiff leads us to a concrete facade jutting out of the mountainside, the bunker’s entrance. We step through about a foot of concrete and enter the lobby. I sign in as I would at any office building, except I also have to present my fingerprints and be photographed. After that I step through a “man-trap”—a phone booth-sized cylinder made of bullet-proof glass that shuts me in until an operator opens the door on the opposite side.

Once through the man-trap, we touch our ID cards and pass through a set of steel revolving doors, then walk down a 100-meter long passageway through the granite. At the end of the passageway are two red steel doors that I’m told can survive a nuclear blast. Streiff invites me to try to close one—my 90 kg (198 pound) frame can’t budge it. “They’re closed every night,” he tells me, showing me how to hang off the handle and use his body’s momentum to gradually swing it shut.

Streiff and Kon are taking me to see Xapo’s “private suite,” an ultra-secure, customized, portion of the data center. We pass through a second man-trap and then end up in front of a nondescript white door. “This is further than anyone outside Xapo has been,” Streiff tells me, as he unlocks it. Inside is a space about the size of a walk-in closet containing a cooling unit, and yet another door. But that’s as far as they’ll let me go, and I’m not allowed to take photographs.

Security is similarly tight inside the vault. Nobody is allowed the enter the “cold room” where the bitcoins are stored on air-gapped hard drives. To protect against an electromagnetic pulse attack, the cold room is equipped with a Faraday cage, a type of barrier meant to block electromagnetic fields.

Beyond that door, I rely on what Carlos Rienzi, Xapo’s head of security, tells me later, when I’m back in London. Rienzi chose the vault for Xapo, and he designed the private suite and its security protocols. His “threat model,” as computer security jargon goes, is to protect against attacks from “well-funded terrorist groups or hackers.”

There are two more portals inside the suite: the first leads to an operators’ room, and the second to a “cold room.” The cold room is encircled with steel slabs to form a Faraday cage: a barrier that protects against a possible electromagnetic pulse (EMP) attack that could wipe out the data—and thus the keys to the bitcoin—stored in the room. For digital assets like bitcoin, thick walls and a secret location are not enough. A shield against invisible modes of attack like an EMP bomb must be provided for.

No one, not even the operator, enters the cold room. Its door is sealed with tape—like a crime scene—to ensure it’s not tampered with. The cold room contains hardware, which is never connected to the internet, used to sign bitcoin transactions. Signing a transaction can be performed offline. The operator accesses that hardware using “special cabling,” sending encrypted data to the hardware for signing. Finally, before a transaction can be approved, two more sign-offs, in two other vaults located on separate continents, must be performed.

I ask Rienzi if he feels pretty confident about the security measures he has in place in Switzerland. “We are under attack 24/7,” he tells me, referring to the terrorists and hackers he designed the vault to guard against. “This is not a race. It is a chess game. You have to think about the opponent’s next movement. You can never relax.”

Of course, all the security measures in the world can’t protect investors from a sudden plunge in the bitcoin price. However, the digital currency’s indomitable - for now - performance has silenced at least one of its most prominent critics. Then said, unlike precious metal specie, one carefully targeted EMP would be all it takes to sever the ownership chain for a long, long time.

Still, with the digital currency recently reaching yet another record high, despite relentless jawboning and rhetoric by everyone from Jamie Dimon to central bankers to China, we can only imagine the business of protecting bitcoin fortunes is set to boom.