In my last post titled "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests [22]" I told the tale of my trip to the UK to strum up interest in Veritaseum's UltraCoin (see excerpt at end of this post). During the dinner that was arranged for the prospective investors, of which I was the keynote speaker, several of the diners questioned the value of bitcoin as a "virtual' currency. In particular, they asked why should they believe that a bitcoin is really worth $375 or 280 pound sterling. I replied, "Let's look at this way, what is the pound worth?". I got back, it is worth 1.26 euro. Then I fired back, but if you accept that the pound is worth 1.26 euro, how do you have a problem accepting that bitcoin is woth 304 euro, or 371 US dollars? It is that circular logic that is somehow permitted in the evaluation of fiat currencies that is prejudiciously lacking on the valuation of cryptocurrencies.
The crowd then went on to say, well the pound and other fiat currencies are backed by the government. I said, "Very much like the bank insurance scheme of Cypriot bank account holders, or Zimbabwe currency or Argentinian pesos? Many people oft put too much faith in the 'full faith of the government'!" As you can guess, this really sparked this room of brainy people as I dared them to start thinking outside of the fiat box! Bitcoin is backe by math! The reserve currency is backed by the biggest guns on the globe (yes, it is and it always has been, looked it up if you don't believe me). Other fiat currencies are backed by faith! Faith can be quite fleeting and ephemeral, trust me. As a matter of fact, you don't have to trust me... I'm about to show you.
Friday, the Wall Street Journal ran a piece called Bring On the Currency Wars [23], of which I would like to quote a few choice lines, to wit:
Central bankers struggling against weak growth and falling inflation have come up with a cunning plan: shift the problems onto someone else. Finding it hard to stimulate domestic demand through cheap credit in a world of rock bottom interest rates, the next best solution central bankers have settled on is to generate growth by boosting net exports. And the way to do that is to devalue their currencies.
Now, the US has performed this stunt like a champion, but over the last few weeks I must admit, we've been outdone!
The Bank of Japan [24] has been the most aggressive at pursuing this policy [25], driving the yen down 15% against the dollar over the past year. The currency effects have been relatively slow at registering in Japanese trade numbers, but they’ve finally started to show up in the data. Japanese exports jumped 9.6% on the year in October, more than double market expectations.
Other central banks have noticed.
The European Central Bank has announced a number of policies over the past six months designed to boost its balance sheet. The more assets a central bank holds the more liquidity is available to the wider economy and thus cheaper credit–or so goes the theory. But even when interest rates are at rock bottom levels, massive central bank asset purchases by the Federal Reserve and BOJ have “led to a significant depreciation of their respective exchange rates,” noted ECB President [26]Mario Draghi [27] in a speech on Thursday. Implicitly, he was saying: if they can do it, so can we.
Then, on Friday morning, the People’s Bank of China launched its own measures [28], cutting its one year lending rate by 0.4 percentage points to 5.6% and its deposit rate by 0.25 percentage points to 2.75%. Ostensibly, the cuts were a response to domestic factors, namely falling inflation, a weakening economy and sliding house prices. But it seems clear that the underlying reason was the renminbi’s appreciation relative to the yen.
As one economy devalues, the impact is to force deflation onto its neighbors. With Japan putting downward pressure on the yen, the question now is how long can other Asian economies hold out from their own devaluations.
The currency devaluation game is relative, and its zero sum. If you devalue to increase your imports to another country, you do so at the expense of some other country. Contrary to popular Keynsian math, you really don't get something for nothing. 2 minus 1 does not equal 2, my dear friends. With this concept in mind, let's take a look at the headlines from around the world:
China ready to cut rates again on fears of deflation [29] 11/23/13: This would be the second time in as many weeks.
(Reuters) - China's leadership and central bank are ready to cut interest rates again and also loosen lending restrictions, concerned that falling prices could trigger a surge in debt defaults, business failures and job losses, said sources involved in policy-making. Friday's surprise cut in rates, the first in more than two years, reflects a change of course by Beijing and the central bank, which had persisted with modest stimulus measures before finally deciding last week that a bold monetary policy step was required to stabilize the world's second-largest economy [30].
Draghi Urgency for ECB Action Gets Final Reality Check: Economy [31]
Mario Draghi [32] is about to find out just how urgent his call for action has become. One week after the European Central Bank president vowed to revive inflation [33] “as fast as possible,” policy makers will receive a glimpse on just how feeble cost pressures are now. Economists forecast euro area data on Nov. 28 will show price growth matching the weakest since 2009, which would add to the drumroll for a stimulus debate at the Dec. 4 meeting. Bond yields from Spain [34] and Italy [35] fell to record lows and stocks gained today on speculation the ECB will buy sovereign debt. Draghi has stoked pressure toward purchases as panels of officials study possible new measures and prepare to cut their economic outlook.
What is the result of all of this devaluing? Well, the next time someone asks you how much is bitcoin worth, you should just say, "In a Currency War [36], more than the yen, yuan, pound sterling, and euro!"
The lasting message from the highly Centralized, Centrally Planned, Central Banks of the World? "We think, so you don't have to!"
As exceprted from "Come, Journey With Me On An Adventure of Fundraising, Massive Disintermediation and the Confrontation of the Worlds Most Powerful Vested Interests [22]""
After a couple of more meetings I headed over to the Cavalry & Guards Club on Piccadilly for the dinner. An interesting, old money club that is steeped in English military history.
The dinner began with quick tutorial on the history of the club and its importance re: the battle of Waterloo, etc. The dinner included over 40 extremely interesting people. Here's the place setting before we got started - each and everyone of the invtees placed at the table appeared. Standing room only - and all to hear what yours truly had to say about Bitcoin's investment potential.
The room was packed with brainpower - packed! Since they are big on privacy, I will not reveal names, but I can reveal statistics. Over $35 Billion dollars of assets under management directly controlled by the people sitting in those seats. Over $1.2 Trillion controlled by the corporate entities that they represented. Industries included banking, asset management, insurance, real estate, telecomm, energy, commodities trading and medical. Nearly half were successful serial entrepeneurs in their own right, with several having had their own multiple liquidity events. Even a member from the Bitcoin foundation was present. The vast majority were bitcoin skeptical. As for my presentation??? Let's say there's some big money, some olde money, and some money that many thought would never flow into this space any time soon that is quite anxious to investigate crashing the party.
