wabuffo

Oil has its own supply/demand dynamics that are driving its price low. Even historically it is a commodity that swings wildly detached from any happenings of the USD. Compare oil-to-gold vs other commodities-to-gold. Much tighter range. Yes, supply-demand matters but the value of the dollar also matters. We'll see. Bill

Strange times indeed. I keep reading about the "debasement trade" but it is not showing up in bond yields. And, particularly, oil ( a commodity that trades in world markets in USD) and has had a historical dirty-peg to the gold price going back to post WWII. While it can vary, an oz of gold has historically "bought" 18 barrels of Brent crude +/- 10 bbls. At the current price of gold ($4330 per oz), Brent should be trading towards $240 per barrel rather than $60. So either gold falls back down, or oil shoots up, or they both move towards their historical equilibriums to each other. I mean gold shot up to $800 in the late 70s and was back down to $300s a decade or two later. Or it shot up to almost $2000 in 2011 and was down 50% just five years later. Bill

Not what you would expect from a "currency debasement" from oil and the yield on the 10-year when gold is blasting to new all-time highs.... Very weird times. Bill

It's all government IOUs whether you think you made a conscious decision to "lend" it to the government or not. gfp gets it. Sovereign govt IOUs are our financial assets. If one talks about paying down the debt then one talks about shrinking the govt IOUs outstanding. But that also means shrinking the private sector's financial assets outstanding too. That never ends well. Bill

here were US Civil War bonds with interest and principal paid in gold. Yeah, sorry, I should've been more clear. I'm talking in the current floating currency monetary regime where the US dollar is no longer convertible to gold. That system of pegging to gold was in place for only a few decades and didn't work very well (despite what the Austrians will tell you). A sovereign could CHOOSE not to repay debt denominated in a security it controls. Why on earth would any sovereign "CHOOSE" not to redeem debt denominated in a security it controls? Especially since typically on the same day (at least in the case of the US Treasury) it is also issuing debt denominated in a security it controls. Bill

Corp bonds could be issued in another currency Well that happens all the time - but as a natural hedge to business operations in the same country. See also BRK issuing debt in JPY to offset its ownership of the Japanese trading firms. could be backed by or pay interest in gold, Bitcoin, etc. if things got really bad. When has the ever issued Treasury securities denominated in anything other than US dollars? Why would it...ever...? the US remains such a bad debtor. Lol - the US is such a " bad debtor" that the rest of the world willingly net exports to the US in order to save a portion of its rising wealth in US dollars and US dollar assets. Bill

Yeah those texts book were written by Americans during our golden age (1950s) Truth is kingdoms, nations throughout history have defaulted fairly often. I feel this bears constant repeating. A sovereign cannot default on bonds/securities issued in a currency it controls and is in a floating regime (ie, not pegged to another currency or gold). I don't know anything about France but I know they no longer print francs and so do not control the currency in which their bonds/securities are issued. I expect at some point that may be true of US treasuries vs similar tenor mortgages in the US if they don't get spending under control. And yet I watch long US Treasury security prices keep going up (and yields down). Maybe the world actually wants and needs more US Treasury securities... Bill

I don't understand why "keep what you earn until YOU want to spend it Sounds good in theory, doesn't work in practice. Why should we limit annual money supply growth to 1.8% (the rate of new gold mined every year vs total theoretical above-ground inventory - or worse, a cryptocurrency that will eventually have zero supply growth?) What happens when you do that? What if the transactional needs of economy are greater than that (say, 3% annual growth). Then it follows that this will result in a rate of deflation at least equal to the rate of economic growth less the growth of money supply (1.8% - 3% = minus 1.2% for gold; 0 - 3% = minus 3% for crypto). Of course, there would also be periods of cyclical increase in the demand for money which would exceed those average rates of deflation. The offset would be total factor productivity - but its likely that the deflation rate would also exceed this safe limit. In reality, what tends to happen is that borrowing increases in order for the private sector economy to maintain consumption. Until it ends in a deflationary contraction and banking panic. And when it all ends in tears, the Austrians lecture us about cyles and malinvestment, without truly understanding the underlying monetary and economic forces. Deflation might be good for savers, but it absolutely destroys economies as debts increase in real terms and businesses are forced to lay off workers due to falling prices. The very bottom income earners without any meaningful savings get hurt the most. We've never had to live in a deflationary period though we came close in the early aughts that culminated in the GFC and the near collapse of most of the US banking sector. During the period of 1997-2007, the US actually started to pay down its debt. From 1997-2007, money supply as measured by Treasury securities outstanding in private sector hands grow by 1.8% CAGR (similar to gold). And the private sector as predicted had to add debt to maintain consumption until it all blew up. Every decade under the gold standard period (1870-1910) was like this with a GFC-like implosion at the end of each deflationary cycle, except there was no big fiscal response to rescue. While some harbor romantic feelings about this hard money standard, the reality is that it was rejected by the majority of the population because of the harm they suffered having to go through this destruction multiple times in their lives. So, maybe good for savers, but very, very bad for everyone else, and at the end not even good for savers either. Bill

Will never understand how people can defend the US policy of stealing the value of preserved labor via inflation and call it a good thing... Another view - this time the bottom quintile. Seems like an hour of their time still buys more now generally than it did in the past.

Will never understand how people can defend the US policy of stealing the value of preserved labor via inflation and call it a good thing... The horror, the horror,.... lolz. Labor is doing just fine, man, at least, in the USA.

It wasn't rejected. You need to research the populism growing against the gold standard by the late 1890s. People were fed up with the frequent crashes in economic activity and the disruption to human lives because of it. https://en.wikipedia.org/wiki/Cross_of_Gold_speech Anyhoo. Thanks for the conversation. All the best. Bill

Yes in a country run (lobbied) by the elite, they chose to favor economic growth over purchasing power. lolz. I said BALANCE/WITH not FAVOR/OVER. However, I don't favor a world where there is an economic depression every 10 years that causes widespread unemployment and misery because the only thing that should matter is making money a scarce asset and forcing deflation. Not sure that is a better world, brother! Society has been there and done that and has rejected it. I dunno, but the current economic environment feels pretty good to me. I guess, that makes me a Fiat Maxi! lolz. We've drifted from the original point, which was that BTC will never be a currency. Again I mean no ill will to the crypto romantics. Bill

Kingdoms and countries hoarding gold isn't what made gold a bad medium of exchange. It's precisely why it was one. And yet, gold is no longer a monetary asset. I wonder why it's been rejected. Maybe there's a reason society has favored optimizing: 1) economic growth AND price stability, and not 2) only price stability. Bill

Even me, who believes in the technology, is hoarding my BTC. And this is the reason it has failed as a currency. It is like a can of shite! https://en.wikipedia.org/wiki/Artist's_Shit From $37 USD in 1961 to $308,000 USD in 2016 (using Aug 2016 forex rate for USD/EUR). Hope you have a sense of humor. My point is that lots of things go up in value (rare comic books, baseball cards, beanie babies, art, etc) but that doesn't make them currencies. I don't have a problem if BTC continues to go up in value but it has utterly failed as a currency and never will become one. Bill

Feel free to elaborate on that one, considering the first BTC payment was done >10 years ago and BTC payments are still occurring daily... There have been many examples and all ended because BTC is too volatile to be used as a transaction medium (Stripe in 2018 among many others). The most thorough example was El Salvador's attempt to introduce BTC as a national payment medium in 2021. Here was a perfect real world laboratory that had all the necessary ingredients: - a third world country with a less-than-developed banking system with most of the population un-banked. - a weak national currency with high inflation, and, most importantly, - the power of the State using all of its coercive muscle to force acceptance among merchants and citizens. And it failed. Utterly. Earlier this year El Salvador pulled the plug on the whole thing. This substack article goes into great detail and catalogs the failure of BTC as a national payment medium of exchange in El Salvador. https://www.moneyness.ca/2025/02/the-end-of-el-salvadors-bitcoin.html I don't see how BTC is going to ever replace national currencies of developed countries, if it can't even succeed in a third world country that puts its full support behind it. Bill

there will come a time when you can settle them in BTC. BTC has already failed as a medium of payment. Only the crypto-romantics still believe it is digital e-money. lolz

This is the second time Kraft (Old Kraft-Mondelez) has burned Warren in a major transaction but avoiding a shareholder vote. Back in 2010, (pre-Heinz merger) Mondelez bought Cadbury but avoided a shareholder vote by selling its Pizza business in a low-ball sale to avoid issuing enough shares in the deal that would've triggered a shareholder vote. Buffett panned both the Cadbury deal and the Pizza sale but it all went through anyway and Warren was publicly furious in a CNBC interview. Shortly thereafter Mondelez and Kraft split up into two companies. Bill

Naturally, because stable coins are backed by USD, it's less likely. But because of that fact, there may be too much comfort and loose policies around institutions and their holdings, and lending practices that become too concentrated. Especially with this administration now loosening the reins in a big way on crypto and banking both at the same time! Any thoughts? Its not an issue with stablecoins, but crypto has a lot of implied leverage. People on some of the platforms like Coinbase talk about getting paid interest, but crypto produces no income, so this has to be based on "number go up" leverage collateralized by crypto. You're right that this administration is pushing crypto - so we'll see how much bigger it gets. But BTC is around $3.4T in total asset value, IIRC, of which maybe 50% is held by US holders. But total US household financial assets (per the Fed's latest Z1 report) is around $128.8T. So its a little more than 1% which won't cause much financial damage if it unravels. Maybe it will be concentrated on a small segment but that's about it, I think. By comparison, primary residence is a $49T asset. No wonder the GFC caused so much pain. Bill

Putting aside for a moment some foreign leakage, do those proceeds go back into the U.S. banking system as a deposit? Bingo - deposits come right back to the banking system (probably a custody bank at first like BNY Mellon). The banking system doesn't leak deposits. even if banks experiment with tokenized deposits). Banks could set up tokenized deposits today if they wanted to. They would be identical to how BaaS banks work. For example, CASH's fintech partner has a single omnibus deposit account for all of its customer deposits in total, but CASH sets up a sub-ledger for each fintech customer's individual deposit account. In the case of a tokenized deposit, the sub-ledger would be on-chain but otherwise identical to a BaaS bank deposit (fully-FDIC insured, pays interest, etc). They know how to do this. Stablecoins are not a threat, IMHO, to the banking system, despite all the hype. Federally-chartered banks have an important monopoly in payment clearing at Fedwire. That is the secret sauce that keeps them competitively insulated from non-bank financial competitors and allows them to create deposits out of thin air. Other financial institutions, like stablecoins, have to gather deposits.... and then pay platforms to take them. Generating an IOU liability isn't difficult, getting people to accept them as payment is the challenge. And CRCL for example, has to pay almost two-thirds of its reserve income for crypto platforms to accept USDC. Anyhoo - great discussion. This will be interesting to watch. Bill

banks at the end of the day are intermediaries for turning inert cash on deposit into consumer credit instruments Wrong - the US banking system doesn't gather deposits first in order to lend. The act of extending a loan creates a deposit. In effect, banks monetize your IOU into a spendable deposit. I don't think stablecoins are a threat to the banking sector. In fact, banks can/will create tokenized deposits that will provide the benefit of both FDIC insurance and interest income (both of which aren't offered by stablecoins). Stablecoins are basically are used for crypto. They don't have much value anywhere else. And the idea that they will dollarize foreign countries won't happen, because foreign governments won't allow it to happen if it becomes a threat. Bill

It's value prop is in having all of the requirements of a hard money system while being superior to gold in most ways - including scarcity. Scarcity unto itself isn't valuable - but it is a requirement for something to be valuable in a monetary use-case. The only issue I see is that crypto has no alternate uses (which I think of as a requirement for currency). Gold has alternate uses in jewelry and industrial applications even if it no longer has a monetary use. Paper (fi-ut! lolz) money has an alternate use as it is the only thing a sovereign will accept in payment of tax obligations, judgements and fees the sovereign imposes on its citizens/residents. This alternate use requirement is important as it sets a floor. Scarcity, alone, is not a use case by itself. Crypto has no alternate use cases, so in theory, it has no floor. The floor is zero. No one even pretends anymore that it is digital money to be used in transactions. Instead it has devolved into a gambling game that is profitable (and fun) - but the vast majority of holders do not pretend its a currency any more (except for maybe a few crypto romantics who still believe this). Bill

Really appreciate these National Indemnity filings, gfp! Thank you. Bill

hey, gfp - do you think BHE pushes back some of its natural gas conversions in favor of coal. Many of its PacifiCorp power plants have coal supply right next door. And those coal mines have seen the royalty rates they pay for mining coal on Federal lands slashed due to the OBBB just passed. Bill

What likely happens in that scenario? It seems like it would create a big increase in bank reserves if there were no treasury issuance (or additional taxation) to soak them up. The Federal Reserve would/could just go unlimited reverse repo as its balance sheet expanded. In effect, reverse repo is the central bank issuing overnight, revolving "debt". I've often said that the Fed should also be able to issue short-term debt as another lever for its monetary policy. I think that's a better mechanism vs bank deposits in terms of offering safe cash equivalents to the private sector and its ever larger cash pools. Bill

Are you guys referring to MMT? Chartalism. A merger of two old economic models: 1) State Theory of Money (1905) - Georg Friedrich Knapp 2) Credit Theory of Money (1914) - Alfred Mitchell-Innes Bill