First Short Quiz & Crypto Currencies

[solutions]

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Subject: Your First Short Quiz & Crypto Currencies
From: Solutions
Date: Wed, December 15, 2021 1:43 pm PDT
To: ReadingLiberally-SaltLake@johnkarls.com
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Dear John,

I just finished reading your first short quiz and it struck me as a good history of economics except that you said nothing about crypto currencies.

I hope you won’t be offended by my observation that we are both “odd ducks” when it comes to economics.

You majored in economics undergrad and did well enough to proceed to Harvard Law School despite not studying economics at M.I.T.

I studied economics at M.I.T. undergrad but also went on to other disciplines.

Happy Holidays!

Your friend,

Solutions


---------------------------- Original Message -----------------------------
Subject: Re: Your First Short Quiz & Crypto Currencies
From: ReadingLiberally-SaltLake@johnkarls.com
Date: Thu, December 16, 2021 11:02 am MDT
To: Solutions
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Dear Solutions,

Thank you very much for your e-mail.

Though please permit me to comment on your claim that you “studied economics at M.I.T. but also went on to other disciplines.”

I never really “went on to other disciplines.”

You might recall (an old resume is available at viewtopic.php?f=211&t=752&sid=f8f9bfc17 ... 587c349373) that I also have an M.S. in Accounting and ranked 2d nationally among 28,788 candidates on the Fall, 1971 uniform CPA examination. When I served 1974-1987 as Senior Tax Counsel of Texaco Inc. (when it was still a Fortune-Ten company), the reason why I constantly received kudos from the other Aramco shareholders during the 8-year takeover by the Saudi Government and constantly received kudos from Chevron re Caltex (the 50-50 ownership of all of Texaco’s and Chevron’s refining and marketing operations east of Suez) was because my understanding of economics produced superior tax planning. So when I went on to serve 1988-1997 as Ernst & Young International’s Chief International Tax Partner (Technical) my primary activities were designing tax products for two leading investment banks (Goldman Sachs & CS First Boston) and structuring international acquisitions/dispositions for two leading LBO Funds (incl. Morgan Stanley). Then I took early retirement from Ernst & Young International to “cut out the middle man” and design & implement directly international financial products for multinational corporations as a Managing Director at another of the world's leading investment banks (Dresdner Kleinwort Wasserstein Ltd. - London).

The short answer to why I didn’t say anything in the First Short Quiz about crypto-currencies???

[Even though a lot of the concepts, such as “The Greater Fool Theory” and “fiat currencies,” could certainly be brought to bear in a discussion of crypto-currencies.]

Understanding crypto-currencies is NOT necessary to appreciating the implications and risks of MMT (Modern Monetary Theory as preached, perhaps most prominently, by our author Stephanie Kelton).

The long answer???

*****
FIRST, many countries do NOT have their own currency.

Many small countries consider it easier to let their economies run on another country’s currency – typically, the U.S. Dollar or the British Pound Sterling.

Another interesting case is the Euro which was established in 1998 and is the sole currency for 19 countries that are members of the European Union.

However, 8 countries that are members of the European Union do NOT use the Euro and have their own currencies - Bulgaria, Croatia, Czech Republic, Denmark, Hungary, Poland, Romania, and Sweden.

It should be noted that Switzerland is NOT a member of the European Union and, of course, has its own currency – the legendary Swiss Franc.

And the United Kingdom (Great Britain) which joined the European Union belatedly in 1973 and, in 2020, became the only country ever to leave the EU -- never adopted the Euro, proudly adhering to the British Pound Sterling.

*****
SECOND, you may recall that when our 2011 and 2013 meetings focused on “Annual Deficits and Accumulated Debt,” we did focus quite a bit of our attention on “fiat currencies such as Bitcoin.”

[That was why I posted as a so-called “reply” to Dennis Cecchini’s Original Proposal of Stephanie Kelton’s “Deficit Myth” a concise description of the wealth of information available on our website in connection with those 2011 and 2013 meetings. That so-called reply entitled “Resource Materials From Our 2011 and 2013 Meetings is available at viewtopic.php?f=671&t=2137&p=2908&hilit ... 9373#p2908.]

Bitcoin was the first crypto-currency to achieve notice. It made its debut in January 2009, shortly before our 2011 and 2013 meetings.

It is typical of most crypto-currencies that have debuted since 2009.

It is non-governmental. As such, it is a “fiat currency” – there is NOTHING to back up its value other than “The Greater Fool Theory”!!!

[Which is NOT to say that governmental currencies are NOT “fiat currencies” – most of them are.]

However, most governmental currencies (which we have often posited are nothing more than infinite-maturity zero-interest debt of the issuing government) feature TRANSPARENCY – you know who issued them and the policies employed in governing/regulating them.

During the early days of Bitcoin, there was NO TRANSPARENCY – nobody even knew who had issued them much less the policies governing them.

The reason for Bitcoin’s wild “success”???

BITCOIN IS EXTREMELY ATTRACTIVE TO CRIMINALS WHO DO NOT WANT THEIR FINANCIAL TRANSACTIONS TO BE SUBJECT TO ANY SCRUTINY WHATEVER – SUCH AS WOULD BE AUTOMATIC IF THEY USED GOVERNMENTAL CURRENCIES AND THE BANKING SYSTEM!!!

NEVER UNDER-ESTIMATE THE EXTENT/VOLUME OF ORGANIZED CRIME!!!

*****
A public-service announcement re Organized Crime???

Trafficking human slaves is more profitable for organized crime than illegal guns or illegal drugs.

Our 9/18/2019 meeting on Modern Slavery focused on the United Nations’ now-21-year-old “War Against Trafficking in Persons.” From U.N. documents and from reports of Harvard Prof. Siddharth Kara (Director of Harvard’s Program on Human Trafficking and Modern Slavery) we learned -

1. There are more slaves today than ever throughout history!!!

2. Indeed, at least TWICE AS MANY people are CURRENTLY TRAPPED in some form of slavery as were traded throughout the 350 years of the transatlantic slave industry!!!

3. And virtually all of the slaves come from refugee camps where they are easily enticed by the false promise of a better life!!!

4. Indeed, the retail price of a slave delivered in the U.S. is only $5,250 as a result of which the average price of a sex act is only $27.50 which has unleashed incredible demand!!!

5. And the average sex slave performs 3,296 sex acts per year for $90,648 of gross income which means that the net return after expenses (meals, bribery of officials, etc.) is an ANNUAL net profit of MANY TIMES the initial investment – with no workforce training!!!

6. Of course, you can use your slave for anything you want including working in your vineyard or on your farm under whatever inhumane working conditions you like and, of course, for no remuneration other than enough calories to keep the slave alive!!!

7. AND QUITE A FEW SLAVES ARE PURCHASED FOR ORGAN HARVESTING!!!

8. Is it any wonder that the average sex slave is dead by age 35???

A WEALTH OF INFORMATION IS AVAILABLE RE “MODERN SLAVERY” IN –

1. THE “REFERENCE MATERIALS” SECTION FOR OUR 9/18/2019 MEETING (available at viewforum.php?f=552&sid=64fb01252565462 ... 656636d784) and

2. THE “PARTICIPANTS COMMENTS SECTION FOR OUR 9/18/2019 MEETING (available at viewforum.php?f=554&sid=64fb01252565462 ... 656636d784).

One final observation on “Modern Slavery.”

The last time we checked, you could NOT YET order your slave for $5,250 delivered in the U.S. from Amazon.com.

But you can easily obtain your slave for $5,250 delivered in the U.S. from your “friendly neighborhood organized-crime dealer” – most of whom will let you give one of their slaves in inventory a “test drive”!!!

*****
THIRD – Bitcoin and Crypto-Currencies as “Investments”

As mentioned in the “SECOND” section above, Bitcoin “is a “fiat currency” – there is NOTHING to back up its value other than “The Greater Fool Theory”!!!”

Its “value” which has mushroomed is ultimately due ENTIRELY to Organized Crime.

So yes, employing “The Greater Fool Theory,” an investor might view Bitcoin (and other crypto-currencies favored by Organized Crime) as investment opportunities.

And not merely quick “in and out” secret mediums of exchange the way Organized Crime treats them.

Historically, wealthy individuals have typically made their long-term investments in fine art because, for example, there was only one Leonardo da Vinci, there is only an extremely-limited number of da Vinci paintings (since he is long-since dead), and you will never be swindled because the provenance of each painting is well documented.

Not to mention all of the tax advantages – no wealth taxes, no capital-gains taxes if you never sell your fine art, and only estate/inheritance taxes which are only a problem for your heirs and which they can minimize by “talking down” the value in negotiating with the tax collector.

In other words, fine art is NOT a fiat currency!!! There are enough “true lovers” of fine art to support its value!!!

*****
Bitcoin and CBS’ new “FBI International” Series

“FBI International” is a new weekly whodunnit series that debuted 9/21/2021.

And one of their early episodes focused on a multi-zillionaire who was sending a collection of Bitcoins to a SUPER-SAFE VAULT embedded in a Swiss mountain.

[“Spoiler Alert” – the European equivalent of the Brinks Truck carrying the Bitcoins to the vault was successfully attacked by organized crime which had recruited an employee of the vault to provide them with inside info on what valuable items were in transit to the vault.]

The reason for mentioning this???

Bitcoin has achieved such visibility in the public consciousness that the CBS script writers thought an episode featuring Bitcoin was “low hanging fruit”!!!

But reality???

The multi-zillionaire victim was a Philistine!!!

No appreciation for fine art – either for itself or as a far-superior investment to Bitcoin!!! Tsk, tsk!!!

*****
FINALLY, I hope that garbaging you with so much info about Bitcoin and crypto-currencies has convinced you that focusing on them more than the First Short Quiz’s passing oblique references to such things as fiat currencies and The Greater Fool Theory – is really a waste of time in understanding and appreciating the implications and risks of Modern Monetary Theory as preached by Stephanie Kelton.

Your friend,

John K.

PS: If you’re wondering why you received this e-mail mid-day implying I am not out on the ski slopes today, I pulled a muscle in my back yesterday and am trying to distract myself by working on the keyboard today. The same principle as La Maze breathing – focus one something else and you won’t notice your pain. Including, in my case, not only the physical muscle pain but also the mental pain that growing old (80 in February) is the reason for the pulled muscle!!!