In case you didn't catch this tidbit, Long Island Iced Tea Corp. got a 289% spike in their price shares. Why? They did a pointless, stupid rebranding. They used the word, "blockchain," in their name. Those of us who remember the dot-com bubble remember those companies that did nothing and had no business plan, but added ".com" to their names, or some other such nonsense, and venture capitalists threw money at them. This is how you know there's a bubble.
Aaaand, right on cue, we get a drop of over 20% in bitcoin trading value in 24 hours. Yes, that's bitcoin, inflating! So, all that nonsense about how bitcoin is a solution to inflation because governments don't control it and they can't print money? Yeah. Not so much.
And that's sort of where I left off with Part V and the relationship between bitcoin and gold. Neither is a "solution" to inflation. Bitcoin just inflated, tremendously, in 24 hours. It lost 20% of its value in a fucking day! That sounds like a shitty fuckin' currency to me! Does that mean the bubble has popped? I don't know. It really could deflate again (meaning, have the value go up-- I'm using currency terminology here). If you buy some bitcoin now, there's a chance you could make a shitload of dollars. Bitcoin is nuts. It's also bullshit.
I was going somewhere else at the end of Part V, though. In Parts I through IV, I was arguing that bitcoin is bullshit by ignoring the common arguments used by bitcoin enthusiasts. I started addressing the arguments of bitcoin advocates in Part V. In Part V, I argued that the fact that no government "controls" bitcoin is quite bad, from a macroeconomic perspective, not good. Fiat currency solves a basic problem in economics. Now, international trade.
This one is tricky. Remember transaction costs? Parts III and IV were all about transaction costs-- extra money you have to pay, beyond the cost of what you are buying, just to conduct the transaction itself. The problem with bitcoin is that since no government accepts tax payments in bitcoin, any legal transaction requires everyone switching some currency back and forth to pay their taxes. Therefore, bitcoin is intrinsically inefficient.
But, what if everyone around the world did switch to bitcoin. No more transaction costs for international trade.
That's... um... true.
...
Yeah. That's true.
You're waiting for me to call bullshit on this, aren't you?
Nope. This is true. There are just some big buts. Do you like big buts? Don't lie. (I truly hate myself for writing that.) First... ain't gonna happen, for the reason I already pointed out. You have to have that worldwide transition, which can't happen because no functioning government will let people pay their taxes with bitcoin (see Part II), and that makes transactions in bitcoin within countries intrinsically inefficient.
Without a worldwide transition to bitcoin, conducting international transactions in bitcoin just means a different set of transaction costs because everyone still has to switch currencies on each end. You've just traded one set of transaction costs for another.
Next, though, there is an even bigger cost. Remember Greece? Yes, we're back to Greece. After their economy collapsed, they had few options. One of the things that normally happens to a country with a shitty economy is that its currency trades at a lower value, relative to the rest of the world. If, say, the peso weakens relative to the dollar because of a recession in Mexico, we buy more Mexican goods because we can get them more cheaply. That helps the Mexican economy recover without the Mexican government having to do much of anything. (And we get cheap stuff, which is good for consumers here, so fuck you, you idiot monetarists!) They don't have to adjust their monetary or fiscal policy. If their currency just trades on the international market, it happens by market forces.
This isn't without cost for Mexico. The cost is that Mexicans can't buy as many American goods, because the peso doesn't get as much from the US. However, it is a hell of a lot easier than some of the other methods of economic recovery, in some ways.
Idiot monetarists who can't think beyond chest-thumping don't like the idea of this kind of thing because of the terminology applied: "devaluing" your currency. Your currency gets "weaker." Weakness is bad! Actually, no, a weaker currency can help your country recover from a recession. Then, the pendulum swings back when countries' economic performances change. There is a delicate balance between domestic economic forces and currency exchange rates because one country's ability to buy from another depends on its domestic economy, and that affects the exchange rate, which affects trade, which is a component of Gross National Product, which... you get the point, hopefully.
When Greece's economy collapsed, though, they couldn't recover in this manner. Their currency couldn't devalue relative to Germany's, thereby encouraging Germany to buy more Greek goods, allowing Greece to recover without the government expenditures that they couldn't afford. Why not?
Because Greece and Germany were on the same fucking currency.
They were both on the euro. Greece's adoption of the euro meant that their currency couldn't devalue unless the euro devalued, and it couldn't devalue relative to any country within the euro zone. So, Greece couldn't have the exchange rate encourage other countries to buy their exports. If they could, that would have allowed exports to give them a recovery option other than the government expenditures that they couldn't afford because the government had no money and couldn't borrow because... they weren't on their own fucking currency.
Do you see what happens, Larry?
So, here's what happens if everyone is on the same currency. Transaction costs for international trade go away. True. But, countries lose the ability to recover from recessions through currency devaluation. Greece's trap becomes an even bigger problem, compounded again by the inability of the country to manage monetary or fiscal policy because they don't control their own currency.
There's a whole subfield in economics about this. "Optimum currency area." Which regions should share the same currency? Greece and Germany shouldn't be on the same currency, if you go by economics alone. Greece needed to be able to devalue their currency to respond to their crisis, but they couldn't.
There is a big debate about the euro itself. In economic terms, the euro zone doesn't quite work. It puts countries on the same currency when they shouldn't be. Politically, it may serve a purpose, but economically, it's a canine that has had unnatural acts performed on it.
And that's just most of a continent.
So, what if we all just moved to bitcoin? Would bitcoin handle this any better? Mathematically, it can't. The more you expand the area using the same currency, the more you multiply the problems.
Bitcoin isn't magic, and it doesn't magically solve economic problems. No, bitcoin is just bullshit.
What is going on with bitcoin now, and where does it go from here? I've got plenty more to write. Holidays and all, I may be filling time with more bitcoin rants, although politics may also intrude.
I guess I am supposedly a political scientist, right?
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