American Consequences - July 2017

Fed could create savings out of thin air. Bernanke stumbled and couldn’t provide a coherent answer. Paul explained that saving is the setting aside of present production for future consumption. It’s real wealth represented by money. The government can create credit with bookkeeping entries, but only private individuals who create wealth can save. If people stop saving, the government can print up all the money it wants, but it cannot replace the real wealth people aren’t saving. This is the distinction between “credit” and “savings.” I’m quite sure that Bernanke is not the only central banker that would struggle with this basic question. Many are of a similar mindset, and believe ridiculous things like “a little bit of inflation is a good thing.” This conversation is the perfect example of why I place zero confidence in central banks. As for bitcoin, my own view is that it is more of a transfer mechanism than an actual currency right now. Bitcoin and the blockchain may very well represent a new paradigm in monetary systems, though. In any case, it is still a very new technology. It still needs many years to establish and prove its worth as a long-term store of value before it could compete with gold, which has thousands of years of history as a monetary standard. So, out of the three choices, I come back to gold as the monetary standard in

which I have the most confidence. 2. I own gold in physical form and gold mining stocks. It’s probably too much of my portfolio. I also own bitcoin and other cryptocurrencies, as well as shares in a related company. It’s probably not a large enough part of my portfolio. 3. Probably the biggest mistake of my life – if I could quantify it – was not getting in to bitcoin at $2 when I had the opportunity. I think there’s a great chance that bitcoin and the blockchain are revolutionary technologies that will soon, in one way or another, touch most people. It’s sort of like how e-mail was in the early ‘90s. While there is a mania building in the space, I don’t think the excitement is necessarily unjustified. So the biggest risk in my view is missing out on the upside of cryptocurrencies and blockchain technologies. I’m working on ways to rectify that. Scott Garliss, trader and senior market analyst 1. I would have the most faith in the gold money standard because I view paper currency and bitcoin as much more intrinsic value versus having a concrete asset in hand. I personally see bitcoin as a disaster because the hacking community would love nothing more than for people to get all of their net worth as digital.

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