@MKI: What “put a fork in gold” was the habit of deficit spending adopted by government, especially the US, and the “endless summers” scenario of ever-increasing resource consumption that we’d been on since WWII. The global problem was that the restoration of Europe’s War-devastated economies had largely taken place, so the wealth-generating productivity of the US was facing increased competition. Our high standard of living could no be longer maintained on the back of mostly one-sided international sales. As the world increasingly provided its own domestic goods, our markets were closing, but no politician here wanted to encourage Americans to shift to a lower relative standard of material consumption. It’s no mistake that planned obsolescence has gone hand in hand with debt-based economics.
IMO, the US did not abandon Bretton Woods because the gold standard could not keep pace with GDP growth. The problem was the government needed to be able to spend more than it brought in to realize the “American Dream” for all Americans as the working population grew while international markets contracted. “American Dream” was defined as “ever-increasing consumption,” which is not identical to “high standard of living.” Deficit spending and increased consumption, together, dictated going off the gold standard, not rising GDP. It was a political decision to support vote purchasing, and a business decision to benefit the high-production factory owners - both at the expense of the long-term welfare of the American people and environment (about which few thought very much at the time).
Had we stayed on the gold standard, we would not see our wealth inflating away. Rather, we’d see our wealth growing as increased productivity/hour and (essentially) non-existent government spending caused goods prices to decrease. Quite likely, were our earnings not taxed and inflated away to provide us “benefits,” the once-vaunted promise of more leisure and less wage-work through increasing production efficiencies could have been realized.
We wouldn’t need government benefits in such a case. Personal savings would be strong if tomorrow a dollar will buy more than it does today, so consumption would reduce as people adopt long time horizons and make more prudent decisions about what artifacts are “must have’s.” Planned obsolescence goes out the window, too, as people demand longer-lasting consumer goods. So there enters the resource-use discipline we’re lacking and can’t seem to instill despite long, costly educational campaigns.
As Munger said: “Show me the incentive and I’ll show you the outcome.”
Bitcoin offers an opportunity to opt for a non-State coin that has the same hard money characteristics as a gold standard. It’s virtue is that it remains constantly hard, and increases in nominal value as fiats continue to be inflated toward worthlessness.
Can BTC be outlawed? Yes. Can it be suppressed? Well, even Venezuela and China are finding it incredibly difficult to curtail its use. Can the US do better? Possibly, if our government becomes as oppressive, but so far people less accustomed to individual liberty than us have resisted, and have used BTC to preserve wealth and move it outside of national boundaries.
What we actually see, however, is the US government slowly embracing crypto in general, and BTC in particular. Thus the new Special Purpose Depository Institution (SPDI) legal framework codified in Wyoming a year ago this month; and now the first approved SPDI bank charter - given this month to Kraken, a cryptocurrency exchange. There is at least one more SPDI bank charter coming soon, to a startup called Avanti.
These banks will be operating within a year, able to custody both dollars and cryptocurrencies across the US, in the same bank accounts, and offer all of the services banks normally offer. The one thing they cannot do that all other US banks do, is take possession of customer deposits and redeploy them as the bank chooses. SPDIs are custodians; they custody monetary assets as a custodian depository for gold custodies customer gold - each in its own silo, forever owned by the person who placed it there for safekeeping.
This development is not the path of segregating and forbidding crypto; quite the opposite. And as increasing big-money financial firms add crypto (esp. and mostly BTC) into their investment portfolios, politicians on the receiving end of big money contributions lose appetite for suppression. This is not 1971, and we are headed in an opposite trajectory because those same commercial interests that made real money by abandoning gold now see that the real money in the future is not in overly inflated and hypothesized currency. Debt expansion, like resource consumption, is reaching its end-point. The future is in hard money currencies. (Thus Russia, China, India, Brazil, and even Western European countries are reclaiming gold stored out-of-country, and are adding to their sovereign gold holdings.)
Bitcoin plays into that hard-money scenario, and smart money knows it. So Jaime Dimon loudly tells the retail investor there’s no future in BTC while JPMorgan Chase busily establishes a large crypto trading desk, effectively front-running Joe and Jane Sixpack for still-inexpensive crypto assets. (Kinda reminds me of Coronavirus “masks don’t work” assertions back in February and March while the government scarfed up all the masks it could find.)
The incentive today is in owning cryptocurrencies, especially BTC. Smart money - whether individual high-net-worth investors, or hedge funds, or family offices, or institutional investment houses, or retirement account managers, or corporations with excess cash - are either starting to buy or are looking closely. The limiting factor for many large firms is not the question of whether BTC is the future, it’s the problem of the BTC market still being too small for them to be able to move in with the quantity of dollars they need to use to make a difference for them, without destabilizing the coin price. That is, the BTC market is not yet liquid enough; the market cap is too small. But that’s changing as smaller “big money” entities take stakes. That organically grows the market cap, which entices the next tranche of investors, building momentum.
Wide-spread adoption is already happening. We’re watching another example of “case, case, cluster, cluster, boom.” We’re now moving into the “cluster, cluster” phase. We know what comes next.
