Bitcoin's 'Message' & Tax Reform's 'Hidden Agenda'

Authored by James Howard Kunstler via,

The hidden agenda in the so-called tax reform bill is to act as stop-gap quantitative easing to plug the “liquidity” hole that is opening up as the Federal Reserve (America’s central bank) makes a few gestures to winding down its balance sheet and “normalizing” interest rates. Thus, the aim of the tax bill is to prop up capital markets, and the apprehension of this lately is what keeps stocks making daily record highs. Okay, sorry, a lot to unpack there.

Primer: quantitative easing (QE) is a the Federal Reserve’s weasel phrase for its practice of just creating “money” out of thin air, which it uses to buy US Treasury bonds (and other stuff). The Fed buys this stuff through intermediary Too Big To Fail banks which allows them to cream off a cut and, theoretically, pump the “money” into the economy. This “money” is the “liquidity.” As it happens, most of that money ends up in the capital markets. Stocks go up and up and bond yields stay ultra low with bond prices ultra high. What remains on the balance sheets are a shit-load of IOUs.

The third round of QE was officially halted in 2014 in the USA. However, the world’s other main central banks acted in rotation — passing the baton of QE, like in a relay race — so that when the US slacked off, Japan, Britain, the European Central Bank, and the Bank of China, took over money-printing duties. And because money flies easily around the world via digital banking, a lot of that foreign money ended up in “sure-thing” US capital markets (as well as their own ). Mega-tons of “money” were created out of thin air around the world since the near-collapse of the system in 2008.

And magically, with no negative consequences! Yet. Now, Europe and Japan are making noises about dropping their batons. China’s banking system is so opaque and perverse — because it is unaccountable except to the ruling party with its own agenda — that it’s quite impossible to tell what they are really doing, though the signs of mal-investment are obvious and startling. And the UK’s finances are tied up in its messy divorce proceedings with the EU (with the British standard of living dropping markedly meanwhile). In short, the torrent of global “liquidity” looks to be slowing to a trickle.

The expectation is that this would make stock markets go down and bond interest rates to go up (fewer buyers), perhaps a lot. The dirty open secret here is that these central bank interventions are the only means for keeping the capital markets up, and that the markets are just a Potemkin false front for Western economies that are drying up and blowing away. That is certainly the experience here in the USA, where banking hocus-pocus now accounts for about 30 percent of GDP, and most of that activity is either out-and-out fraud or swindling, or collecting rents and dividends on past frauds and swindles.

Dem/Prog America in its Silicon Valley gourmet employee bistros and Hamptons lawn parties thinks that the flyover Trumpist Red State world of meth, joblessness, and anomie is some kind of a Netflix hallucination. But no, it’s for real. The center of the ole US of A is hollowed out.

The bad news is that it probably has enough juice left in its disaffected youth, and certainly enough weaponry, to start a very serious insurrection if it continues to get dissed.

Enter the joker in the deck: Bitcoin.

Though it pulled back a couple of thou overnight, this strange investment vehicle blasted through $18,000-per-Bitcoin in the past 24 hours, roughly tripling from $6000 in one month. It even endured the hacking of one of its exchanges, NiceHash, where $70 million was looted without so much as a stutter in the upward thrust of the chart. Whatever else Bitcoin is — and I would suggest a “Ponzie,” a “mania,” a “con” — this thing is a message.

The message is that financial circulatory system of the global economy is in some kind of distress. Another take-away is that the rush into Bitcoin represents a loss of faith in matrix of rackets that world banking has become, and a flight to perceived safety in a putative financial instrument beyond the clutches and the lying propaganda of nervous, self-interested governments.

For the moment, Bitcoin is doing the job that gold used to do: indexing the loss of value in paper currencies and the things that affect to represent them. Except that Bitcoin has no material reality. It is a figment of mathematics. The vaunted blockchain “technology” is just a formula for packaging information and assigning it to live in various places. It appears to have some worth as a ledger system, for keeping track of accumulated value in an allegedly transparent and honest mode. But the thing it is toting up and sending chits around the world for — Bitcoin — has no value in and of itself.

If “money” can be said to represent a future claim on work, or energy, or things that they produce, then Bitcoin is not money at all because it only represents energy burned in the computer exertions necessary to “mine” the Bitcoins.  In other words, it costs a lot of energy to create Bitcoins, and there’s no claim on future energy, or work — it’s already gone. That energy use is catching the world’s attention and is beginning to look pretty profligate. Like, if Bitcoin happened to shoot up over $100,000-per-unit, it would hog an unseemly portion of the worlds electric power.

Anyway, that’s only one interpretation of the Bitcoin rush. In the end, I believe it’s simply telling us that the global financial system is headed for some serious trouble. It is vectoring right smack into the same lane as the gathering political crisis in the US government, as a fight to death between Donald Trump and his adversaries comes darkly into view.


???ö? Gaius Frakkin'… Fri, 12/08/2017 - 13:11 Permalink

Part I:Lets examine the sins of the bankers and the politicians and legal system that support the banking cabal.  ZIRP. Bail-ins. QE. Civil seizure. Foreign Exchange fee of 3%. $10000 currency limit at customs. ID theft.  Credit card hacking.  Robo-signing mortgage fraud. Debit card non-protection. Illegal credit collection with auto-dialing. Credit history exposure.  And the list goes on and on. The bankers and politicians have done a really bad job.  They are corrupt and their systems are decades obsolete. And still some people wonder in disbelief why cryptocurrency is going up?  It's going up because people don't trust banks, courts, politicians or law enforcement anymore.  Do you blame them once you consider the facts?  Part II:Litecoin is still hugely undervalued.If Litecoin had a market cap equal to mere Paypal, the Litecoin price would be $1300.If Litecoin had a market cap equal to the 5 major credit cards, the Litecoin price would be $9000. Only a matter of time.  

In reply to by Gaius Frakkin'…

Automatic Choke ???ö? Fri, 12/08/2017 - 13:54 Permalink

QUESTION FOR DISCUSSION:Will dark transactions (cryptos & such) finally make income tax obsolete?   Myself, I've got skepticism about the blockchain concept, but some variant may yet turn into a successful alt currency.   If crypto currencies can evade govt attempts to regulate and "own" the ledger, then it is possible that payments really can cross boundaries and be invisible to govt reporting.    I think the outcome of that would be fantastic ---  collection by govts would have to revert to a federal sales tax, and the whole bloated corrupt tax reporting industry could be got rid of.    Comments? 

In reply to by ???ö?

MonetaryApostate Automatic Choke Fri, 12/08/2017 - 15:48 Permalink

Historically the gov has massive bond creation before major wars, obviously the push against Asia is no laughing matter, but with the invasion of immigrants, how will they defend their homelands?

Has the author forgot QE is before fractional reserve lending, eg $90 loaned out for every $1 on deposit?

#EveryoneVsTheMoneyPrinters !

Fake money, fake debt, fake value, fake news, fake investments, fake markets, fake history, yes, fake everything!

In reply to by Automatic Choke

BlindMonkey GooseShtepping Moron Fri, 12/08/2017 - 14:07 Permalink

The problem is imputing characteristics beyond the definition of medium of exchange and store of value. There is no inherent claim on anything from the future regarding a medium of exchange. The contract is agreed and executed at the time for goods and services in exchange for whatever the merchant will take as money.  What Kuntzler did is the same shuck and jive strawman we hear all the time in liberal arguments.  He offers a definition and then attacks what he defined.  Tally sticks worked just fine up to a certain level of scale and economic complexity.  Blockchain is the next Gen of tally sticks and will handle scale and economic complexity far beyond tally sticks or double ledger. 

In reply to by GooseShtepping Moron

Endgame Napoleon nope-1004 Fri, 12/08/2017 - 13:27 Permalink

It is no more or less of a dream-like illusion that what those of us who live with progressives hear all the time from the MSM chat heads. I just heard another cheery chorus. The typical, childbearing-age MSM “expert,” modestly clad these days to avoid the constant scourge of men with poor impulse control around every corner, panting to engage in sexual harassment, fed the illusion that these news entertainers have been selling all through the reigns of multi Uniparty hacks with the same, exact middle-class-killing policies: Clinton, Bush, Obama........Thé middle class is almost gone now. But they are still claiming that the economy is doing great—GREAT—not just stocks, but the employment numbers. Anyone who has been out there, looking for jobs and working a series of part-time, low-wage, high-turnover, temp and gig jobs, knows what a perpetual lie machine this is. When almost every employee except managers has major household bills covered by unearned income from a spouse, a child support check or free rent, free EBT groceries, monthly cash assistance and child tax-credit welfare between $3,400 and $6,318, only the manager is really [employed] in any meaningful sense. Unearned income for womb productivity is what covers the major household bills of most in many industries, not the low wages from part-time / churn jobs.

In reply to by nope-1004

dark fiber Luc X. Ifer Fri, 12/08/2017 - 13:00 Permalink

Bitcoin has proven two things.1) People don't trust banks and desperately want out of the fiat system and the banking system in general2) People are too lazy to get off their asses to buy and properly store a real asset and prefer bitcoin as an alternative they can (pretend to) hold from the convenience of their living room.  This is a mistake.  There is no free lunch. Remember, Beati possidentes. 

In reply to by Luc X. Ifer

Endgame Napoleon dark fiber Fri, 12/08/2017 - 13:41 Permalink

Maybe, it is because the people who have the extra money to splurge on Bitcoin are afraid the government will not bail out too-big-to-fail banks this time. Although the government backs their deposits up to a point, they know that while the structural defects in the economy can be ignored by fake-feminist, sex-gossiping MSM anchors in their scanty and selective coverage of the economy, the government will not be able to ignore an avalanche of debt or a currency collapse, possibly not even in the case of legally binding commitments to depositors. Of course, if that happens, the US will lose its standing in the world. That is one reason why they bailed them out in the first place. For Bitcoin to look like a safe harbor, exceeding the safety of the FDIC, the investor class must either be seriously worried about the stability of the economy or just trying to cash in on the Bitblub mania. Some others may be attracted to Bitcoin just because it is anti-Establishment and designed by programmers instead of suits.

In reply to by dark fiber

dark fiber Endgame Napoleon Fri, 12/08/2017 - 14:35 Permalink

The economy falls apart but the people running the internet backbones and the core routers will show up for work.  Do you grasp the underlying stupidity of the whole situation?  The more complex the infrastructure, the more sensitive it is to shocks.  If something major happens, the internet will be one of the first things to go.Que canned responses from idiots with an arts degree who read an article on Wired about how the internet is resilient to all attacks and disasters.  It isn't.

In reply to by Endgame Napoleon

silverserfer GUS100CORRINA Fri, 12/08/2017 - 12:56 Permalink

was just going to say, at $15.70/oz silver is sure as hell not being proped up. Its "subsidized"so rememer silver was not a bubble, there was a central bank hit on it with massive overwhelming intervention  take down the price. Free market forces were driving up the price and physical supply was being bought to support tyhe price. CB manipulation took out the movement at the knees. Some similarities may become aparetnt with bitcoin next week after futures start. We shall see. 

In reply to by GUS100CORRINA

quesnay Fri, 12/08/2017 - 12:46 Permalink

Bitcoin - gag. You know what ZH needs? More articles about bitcoin! 50% of articles is not enough! Vote to change zerohedge to bitcoinhedge! Downvote means yes!

Raffie quesnay Fri, 12/08/2017 - 12:59 Permalink

nice you talking about power loss CME and EMP... you must have done a ton of research to come up with this ground breaking information that has never been mentioned get out there and tell the world all about it and the steps you did to arrive at your Earth shattering conclusion. 

In reply to by quesnay

Endgame Napoleon Rockatanski Fri, 12/08/2017 - 13:53 Permalink

I still think land is your best bet in the event of a total, economic cataclysm, unleashing a return to a barter economy. Only problem: While progressives fret about the poor mommas and babies around the globe, it is Americans who have lost the skills to farm and to survive in such spartan circumstances. It is kind of arrogant to take those things for granted, thinking that we are so civilized, and they are so needy, while ignoring the prospects of a crash and a return to rudiments.

In reply to by Rockatanski