More experimental money - The Daily Reckoning
The Daily Reckoning by Bill Bonner
On This Day - 21 November 2013
More experimental money A  A  A

Delray Beach, Florida

Stocks down yesterday. Gold too.

But at least Tim Geithner has found a job. Now, he can give up the food stamps...and get off the unemployment rolls. The cronies are taking back one of their own. He's back on Wall Street, at Warburg Pincus.

"When they approached me, they clearly wanted me to play a substantial role in running the company," Geithner told the Wall Street Journal.

What does he know about running a major private equity house? Nothing. But sometimes who you know is more important than what you know. It won't hurt Warburg Pincus that its new CEO knows his way around Washington. And it didn't hurt the bankers, when the bad debt hit the fan in 2008, that they had their man Tim in the Treasury Department. The record shows that Goldman chief Lloyd Blankfeld got on the phone with Mr. Geithner, a former Goldman employee, no fewer than 18 times in one 24-hour period. Apparently, those were calls well worth making. Geithner came to the Street's aid almost overnight...with $700 federal guarantees worth, according to the former Inspector General of the TARP program, $21 trillion.

Where does a government that is already running in the red...and whose elected representatives are dead set against raising taxes...get that kind of money? Ah...dear reader, where have you been? We live in new era of experimental money. The supply of cash and credit can be expanded easily and almost infinitely - making it possible for the feds to do this kind of thing.

But now, here's the remarkable story: the experimental money of the '71-'13 period is now threatened by another monetary experiment. We explained it to our 94-year-old mother:

"What is Bitcoin?" she asked.

"It's a new virtual currency. You know, it was created by someone on the internet. You can use it to buy things."

"Who created it?"

"Nobody knows. He is said to have been a Japanese programmer."

"Do you have a Bitcoin? Could I see it?"

"No, it only exists in cyberspace."

"Where does it come from?"

"You have to find it in cyberspace, using a computer program, which limits the supply."

"Oh. Well, I guess everyone with a computer is looking for them. How much is the new money worth?"

"It depends. It trades freely in cyberspace."

"But what makes it valuable?"

"Nothing...except that people are using it. We're going to begin using it in our business."

"But why would a merchant trade his valuable merchandise for something that has no value?"

"Well...that's what we do with the dollar."

"But the government guarantees the value of the dollar. They may not always do a good job of it. But at least they stand behind it. Who's guaranteeing the value of the Bitcoin?"


"You mean...nobody knows where it came from. Nobody has ever seen it. Nobody knows what it is worth. Nobody knows where to find it. And nobody stands behind it. Seems crazy to me."

Yes, dear reader, amazing things are beginning to happen.

When Bitcoin first came along we didn't know what to make of it. We dismissed it as a silly fantasy perpetrated by techie dreamers. Money you can't see? Money you can't hold in your hand or put in your safe? Money with no precious metal backing...that no one stands behind? It sounded crazy.

At least the paper US dollar has the full faith and credit of the United States of America backing it, for whatever that is worth.

The euro has the ECB and Brussels more or less behind it.

The pound sterling has the Bank of England, Parliament and the crown.

What has Bitcoin got? Nothing.

And yet...what currency has outperformed all others? Bitcoin.

Hmmm....what to make of it?

We don't know. Our friend Max Keiser tweets that "Bill Bonner is Bullish on Bitcoin." But we're not bullish on the new money...we're buggish. That is, we like Bitcoin like we like gold. Only less. Will it go up in price? We don't know.

But what we like about Bitcoin is the same thing the feds don't like about it. They can't control it. So, they can't use it to steal from people. And they can't use it to bail out their zombies...or finance pointless wars.

Nor can they use Bitcoin to cover their deficits or to manipulate the economy.

But wait. Why can't the feds put their enormous computing power to work mining for Bitcoin? That way, if Bitcoin becomes the coin of the realm, they could still control it...with a huge reserve of their own.

Are they too busy spying on people?

Are they too thick to see the potential?

Are we missing something?
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Bill Bonner is the President & Founder of Agora Inc, an international publisher of financial and special interest books and newsletters.

The views mentioned above are of the author only. Data and charts, if used, in the article have been sourced from available information and have not been authenticated by any statutory authority. The author and Equitymaster do not claim it to be accurate nor accept any responsibility for the same. The views constitute only the opinions and do not constitute any guidelines or recommendation on any course of action to be followed by the reader. Please read the detailed Terms of Use of the web site.

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1 Responses to "More experimental money"


Nov 21, 2013

Bitcoin mining, as i understand is NOT that simple... it becomes exponentially hard to mine the bitcoins after a while.. (the last coin might take a million years..) The value comes because we cant keep mining for coins and we know that the no of coins is going to be limited!! If Feds try to mine bitcoins and control them, the simple thing to do is.. chuck bitcoins, change the algorithm a little, call it Bit Coin-2 and start from scratch!.. But the point being the existing bitcoins will fall in value since the value comes from the network, number of users who use it.

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