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BobK71
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Conflict Is the Driving Force behind Bitcoin and Gold
Jun 8th, 2017 at 10:32am
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The more China is in conflict with the US, economically, financially and even militarily, the better it is for Bitcoin and gold.

The 'trilemma of international finance' is well-established, and says, of the three things usually desired by governments:

- A fixed exchange rate (more or less)
- Free flow of capital
- An independent monetary policy

It's said that you can have any two, but not all three.  Between the US and the eurozone, there is no fixed exchange rate.  Between Germany and Greece, there is no independent monetary policy (since a currency union is an extreme form of fixed exchange rate with no independent monetary policy.)  So Greece must suffer under a money supply from Frankfurt that is too tight for Greece's condition.

It seems the dynamic between the US and China is that China wants to give up free flow of capital, but the US wants China to give up its monetary independence.  (It makes sense, since the US will need all the political, military and financial support it can get for its imperial system, and it would have great leverage on a China that is forced to live under the Fed's policy, as Greece is under the German-dominated ECB.)

Over the last few years China has imposed capital controls so that its central bank can keep pumping money into the economy to keep its big credit bubble afloat.  (If Chinese people can't flee from yuans to dollars, then the central bank can hope to maintain confidence in the yuan while printing lots of money.)

Then comes Bitcoin, which is a way for the Chinese to escape the controls.  Effectively, Bitcoin is the weapon with which Washington can bring Beijing to heel.  Since it's impossible to control Bitcoin outside the exchanges, Beijing must also acquire bitcoins to fight Washington.  So, Bitcoin has risen.  (It's interesting that both the Japanese government and 'Japanese housewives' have moved in favor of Bitcoin.  Japan being a strong US ally, it seems, the 'proxy war' in North Korea is being supplemented by a 'financial proxy war' in Bitcoin, with Japan and S. Korea fighting on the US side.)

Somewhere inside the human system, there's a deep-seated connection between conflict among elites and non-state-issued money like gold.  When conflict arises, non-state assets go up.  Bitcoin is only playing the role of gold.
  
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merkelstan
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #1 - Jun 8th, 2017 at 12:08pm
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BobK71 wrote on Jun 8th, 2017 at 10:32am:
The more China is in conflict with the US, economically, financially and even militarily, the better it is for Bitcoin and gold.

...

Between Germany and Greece, there is no independent monetary policy (since a currency union is an extreme form of fixed exchange rate with no independent monetary policy.)  So Greece must suffer under a money supply from Frankfurt that is too tight for Greece's condition.


Nice to read an informed post, but I want to interject a question here: What is this 'condition' in Greece that makes the Euro a burden?

The introduction of the Euro created two major problems for the Greek economy:

1) The monetary union drove down the cost of the Greek government (and others) to take-on additional debt.  I don't have the chart handy but the interest rate demanded for Greek debt went down by a factor of 4 or so. Were investors naive? Or did they know something that we did not - namely that the northern European countries would be compelled to bail-out Greece, at the cost of her sovereignity and public assets?  I can only speculate.  Nonetheless, this cheap credit fueled a govenment spending binge the likes of which they had never seen, with all the attendant consequences we see today.

2) As Hans-Werner Sinn documents in copious detail, the unified currency resulted in Greek labor running soemthing around 14E/hour, whereas polish workers with similar productivity commanded half that.  Now this would not be a problem if Greece had a free-market system - wage rates would drop to competitive levels.  But their public policy made such a downward wage correction impossible.  To blame this on the common currency - to say this prevented the government from inflating the Drachma - is to implicitly advocate fiat inflation and all its' attendent harms, such as devaluing the assets of anyone who was prudent and industrious enough to accumulate savings.

In both points, it seems to me proper to place the blame for the Greek catastrophe firmly in the lap of their interventionist, socialist-leaning government and not the Euro.

BobK71 wrote on Jun 8th, 2017 at 10:32am:
It seems the dynamic between the US and China is that China wants to give up free flow of capital, but the US wants China to give up its monetary independence.  (It makes sense, since the US will need all the political, military and financial support it can get for its imperial system, and it would have great leverage on a China that is forced to live under the Fed's policy, as Greece is under the German-dominated ECB.)


Full ACK on US/China.

However, it's common to claim that the ECB is under German domination but ECB policies should call that into question.  Most notable is the case of the ECB's decision to exceed its mandate by instituting the OMT programme, whereby it began issuing money to individual governments. This is a violation of EU treaty agreements. The German high court protested but didn't have the backbone to make a legally binding ruling and ultimately deferred to an EU court decision in favor. 

The ECB, much like the Fed and other central banks, Is not chartered under any national law.

BobK71 wrote on Jun 8th, 2017 at 10:32am:
Over the last few years China has imposed capital controls so that its central bank can keep pumping money into the economy to keep its big credit bubble afloat.  (If Chinese people can't flee from yuans to dollars, then the central bank can hope to maintain confidence in the yuan while printing lots of money.)

Then comes Bitcoin, which is a way for the Chinese to escape the controls.  Effectively, Bitcoin is the weapon with which Washington can bring Beijing to heel.  Since it's impossible to control Bitcoin outside the exchanges, Beijing must also acquire bitcoins to fight Washington.  So, Bitcoin has risen.  (It's interesting that both the Japanese government and 'Japanese housewives' have moved in favor of Bitcoin.  Japan being a strong US ally, it seems, the 'proxy war' in North Korea is being supplemented by a 'financial proxy war' in Bitcoin, with Japan and S. Korea fighting on the US side.)

Somewhere inside the human system, there's a deep-seated connection between conflict among elites and non-state-issued money like gold.  When conflict arises, non-state assets go up.  Bitcoin is only playing the role of gold.


While I know that many individual chinese buy Bitcoin to evade capital-flight restrictions, I haven't seen anyone claim that the Chinese government itself is buying Bitcoin.  Do you have any sources for this? 

Even if true, I question whether Beijing acquiring some Bitcoin with a current market cap. of 44 billion USD would have any significant effect on dollar/yuan relations when the M2 money supply is upwards of 10,000 billion USD and China owns hundreds of billions of US debt.

Now to address your larger point: That people are fleeing to Gold and Bitcoin due to global instability.  This has long been true for Gold.

But Bitcoin is a speculative, risky asset enjoying huge gains this year. It seems more likely to me that chasing returns is the motivation for US BTC buyers and not a 'flight to safety'.
  

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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #2 - Jun 8th, 2017 at 12:38pm
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BobK71 wrote on Jun 8th, 2017 at 10:32am:
It seems the dynamic between the US and China is that China wants to give up free flow of capital, but the US wants China to give up its monetary independence. 

I heard that China is positioning itself to emerge as a (the) New World Reserve Currency.  An interesting dynamic is the fact that the Yuan has become the first [IMF]SDR basket currency to belong to a country that is not an ally of the US.  This only serves to strengthen the BRICSA monetary independence.
  
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BobK71
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #3 - Jun 10th, 2017 at 9:20pm
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merkelstan wrote on Jun 8th, 2017 at 12:08pm:
Nice to read an informed post, but I want to interject a question here: What is this 'condition' in Greece that makes the Euro a burden?

Thank you for your thoughtful reply!  We need more -stans like you...

As you may be able to tell, the 'condition' is the aftermath of a debt bubble bust, with deflationary pain that, under all conventional economics, calls for stimulus rather than tightening.

merkelstan wrote on Jun 8th, 2017 at 12:08pm:
The introduction of the Euro created two major problems for the Greek economy:

1) The monetary union drove down the cost of the Greek government (and others) to take-on additional debt .... this cheap credit fueled a govenment spending binge the likes of which they had never seen, with all the attendant consequences we see today.

2) As Hans-Werner Sinn documents in copious detail, the unified currency resulted in Greek labor running soemthing around 14E/hour, whereas polish workers with similar productivity commanded half that.  Now this would not be a problem if Greece had a free-market system - wage rates would drop to competitive levels.  But their public policy made such a downward wage correction impossible.  To blame this on the common currency - to say this prevented the government from inflating the Drachma - is to implicitly advocate fiat inflation and all its' attendent harms, such as devaluing the assets of anyone who was prudent and industrious enough to accumulate savings.

In both points, it seems to me proper to place the blame for the Greek catastrophe firmly in the lap of their interventionist, socialist-leaning government and not the Euro.


I'm fully aware of these facts and arguments.  Nevertheless, I take a different approach.  The real issue is not whether government is well-behaved WRT the creation of money and debt, but rather the perverse incentives built into the core of the system through government's ability to prop up 'money' and debt.

No government is truly well-behaved, but the system sustains itself by making sure 'lesser' countries behave even worse than the 'core' countries.  This is critical to understanding the world system.  The 'core' countries are, then, able to export the problems of their own asset bubbles to the 'lesser' countries, and blame everything on the victim countries, to boot.

Why were German banks and savers willing to lend money to Greece at such low rates?  They were 'encouraged' to do so by the asset inflation of the 'north' itself.

Ultimately, no human beings can resist the temptations of asset inflation from the modern system.  That some resist less than others is not of much importance.  All humans will fail the test.  Blaming the problem on the peripheral countries will only deflect attention from the real problem.

Sorry, I'll have to continue with this later...

  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #4 - Jun 11th, 2017 at 8:15am
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BobK71 wrote on Jun 10th, 2017 at 9:20pm:
As you may be able to tell, the 'condition' is the aftermath of a debt bubble bust, with deflationary pain that, under all conventional economics, calls for stimulus rather than tightening.


By "conventional economics" you mean Keynesian economics. Why not say that?

What you are saying is inflating a bubble that will inevitably burst and cause a recession should be "fixed" by immediately starting to inflate another bubble. Cheesy

There is no evidence that Keynesian ("conventional") economics has ever done what it promises to do. It is a sure and certain producer of stagflation, economic bubbles and the inevitable crashes the bubbles result in.
  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #5 - Jun 11th, 2017 at 6:23pm
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merkelstan wrote on Jun 8th, 2017 at 12:08pm:
2) As Hans-Werner Sinn documents in copious detail, the unified currency resulted in Greek labor running soemthing around 14E/hour, whereas polish workers with similar productivity commanded half that.  Now this would not be a problem if Greece had a free-market system - wage rates would drop to competitive levels.  But their public policy made such a downward wage correction impossible.


Greece was unable to go through the deflationary pain of allowing the 'free market' to reduce wages to Hungarian levels. Part of joining the euro at an unreasonably high exchange rate (which I'm sure the German elites insisted on) was becoming uncompetitive against both Germans and non-euro countries. 

In reality, the system always makes sure, one way or another, that the periphery is weaker than the center, so financial toxicity created at the center can flow to the periphery, if necessary, to maintain confidence in the center.  In practice, this meant Germans lent too much money at cheap interest to a Greek government that was only too happy to borrow it while confidence lasted.

The US did the same to postwar Japan.  In that case, since Japan was a naturally industrious population, the technique of choice was to greatly *undervalue* its currency, but burden its system with terrible incentives for the central bank.  Japan still hasn't recovered from the last bust.

In their own interest, the Greeks should have either: 1. never joined the euro, or 2. joined at a cheap exchange rate.  But the way the imperial system works is that peripheral-country elites in effect work with the center and sell out their own people.  Even now, when the solution in the Greek interest is to get out of the euro, the Greek elites are still working for the German interest and putting Greece through pain with no end in sight.

merkelstan wrote on Jun 8th, 2017 at 12:08pm:
To blame this on the common currency - to say this prevented the government from inflating the Drachma - is to implicitly advocate fiat inflation and all its' attendent harms, such as devaluing the assets of anyone who was prudent and industrious enough to accumulate savings.

In both points, it seems to me proper to place the blame for the Greek catastrophe firmly in the lap of their interventionist, socialist-leaning government and not the Euro.


While I totally understand this line of reasoning (I was an advocate of it in my youth!) it is simply impossible to draw moral conclusions within a system that is fundamentally immoral.  (That is, a system that allows the elites to use state power to prop up asset values artificially to benefit themselves at the cost of everyone else.)

So, the only moral arguments I can see are: (1) to dismantle this system altogether, and thus truly safeguard the value of savings; and (2) to see the entire world clearly as an impossible-to-untangle moral swamp, and take a purely humanitarian line to minimize human suffering.  If that line happens to help expose the system, even better.  (The latter is why the elites are so afraid of Grexit.  Why do you think righteous northerners would be so 'generous' as to give Greece bailout after bailout?)

To be continued...
  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #6 - Jun 11th, 2017 at 6:37pm
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BobK71 wrote on Jun 11th, 2017 at 6:23pm:
Greece was unable to go through the deflationary pain of allowing the 'free market' to reduce wages to Hungarian levels.
I don't know about the Hungarian shit, but I know there hasn't been much free market in Greece in my lifetime unless it was illegal stuff.

Modern Greece has been crappity smacked by anarchists and communists and 'socialists' and EU crony capitalists and the general stupidity of government.

Individual liberty, the rule of law, property rights and free markets were sadly absent in the demise of modern Greece.
  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #7 - Jun 11th, 2017 at 8:02pm
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merkelstan wrote on Jun 8th, 2017 at 12:08pm:
However, it's common to claim that the ECB is under German domination but ECB policies should call that into question.  Most notable is the case of the ECB's decision to exceed its mandate by instituting the OMT programme, whereby it began issuing money to individual governments. This is a violation of EU treaty agreements. The German high court protested but didn't have the backbone to make a legally binding ruling and ultimately deferred to an EU court decision in favor. 

The ECB, much like the Fed and other central banks, Is not chartered under any national law.

The real objective of the European elites was to keep their debt bubbles afloat.  If OMT was required to accomplish that, so be it.  German voters are only the most important population that the alliance among politicians and bankers need to bribe -- they don't run the show, any more than American voters do, even though America is said to be at the top of the world's imperial system.  (Legality?  What's that?)

merkelstan wrote on Jun 8th, 2017 at 12:08pm:
While I know that many individual chinese buy Bitcoin to evade capital-flight restrictions, I haven't seen anyone claim that the Chinese government itself is buying Bitcoin.  Do you have any sources for this? 

There is no way to know, but it makes sense.  (Bitcoin's blockchain only shows what money flows to what addresses.  No one knows who owns each address, unless the owner identifies themselves.)  If China wants to control Bitcoin's rise, it has to have enough to sell to suppress its value in future.  Bitcoin's big rise over the last couple of months suggests big buyers behind the scenes.
merkelstan wrote on Jun 8th, 2017 at 12:08pm:
Even if true, I question whether Beijing acquiring some Bitcoin with a current market cap. of 44 billion USD would have any significant effect on dollar/yuan relations when the M2 money supply is upwards of 10,000 billion USD and China owns hundreds of billions of US debt.


This would be reasonable, if capital flight was mainly from yuans into bitcoins.  But it is probably into dollars.  If Chinese savers buy Bitcoin with yuan just to sell it for dollars, they can cause an arbitrarily large outflow into dollars without affecting the market cap of Bitcoin with this action.

Bitcoin is not the store of value Chinese escape to.  The dollar is.  Bitcoin is only a way around Chinese government controls.  This is why the US would want to promote Bitcoin.  That is my theory anyway.

merkelstan wrote on Jun 8th, 2017 at 12:08pm:
Now to address your larger point: That people are fleeing to Gold and Bitcoin due to global instability.  This has long been true for Gold.

But Bitcoin is a speculative, risky asset enjoying huge gains this year. It seems more likely to me that chasing returns is the motivation for US BTC buyers and not a 'flight to safety'.


The Chinese dynamic has been playing out in India, but with gold.  The Indian government has been taxing gold imports, among other gold-suppressing actions.  Indians have responded by smuggling gold, but it's a tug-of-war.  You can see how Bitcoin is better than gold for escaping capital controls.

Certainly, gold's long standing status as a store of value gives it a big advantage over Bitcoin, but gold is also hundreds of times more expensive.  We never know the future, but I believe Bitcoin is still a good value for buying as an insurance against elite abandonment of gold and silver.
  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #8 - Jun 11th, 2017 at 8:07pm
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BobK71 wrote on Jun 11th, 2017 at 8:02pm:
The real objective of the European elites was to keep their debt bubbles afloat.
If "elites" are stupid enough to imagine that debt bubbles can be kept "afloat"... Well, I don't know, what should we do with such simple minded idiots? Keep them out of "power" is my idea... but how can we do it?

Limit the power of government? Could that work?

Make sure simple minded idiots can't use the power of government to blow bubbles.
  
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Re: Conflict Is the Driving Force behind Bitcoin and Gold
Reply #9 - Jun 12th, 2017 at 12:42pm
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Bitcoin is only representative of an attempt to fix the tyranny that is the US government. In actual fact, it's destructive of a normal working society that needs to be taxed in order to survive.

It's obviously not going to contribute to the greater good of society but libertarians think they can make use of it because it's an attempt at the anti-establishment agenda in which they have faith.

Faith! Another example of grasping at faith as in Xtianity, instead of facing up to the real world. The real world that can only be gained by turning to the left and accepting real change that is so desperately needed in the land of the gun.
  
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