Predictions for 2015

by John Quiggin on January 15, 2015

Prediction is very difficult, especially about the future, as Niels Bohr is supposed to have said. I’ve certainly found it so. Apart from the obvious possibility of being wrong, there’s the risk that others will misrepresent you. But, as long as you don’t take it too seriously, it’s helpful to frame discussion around a sharp prediction. So here are three for 2015

1. Peak Oil: I predict that global oil production (conventional and shale etc) will decline in 2015 and will never again reach the peak level of 2014. My reasoning is that 2014 supply can’t be sustained at prices below, say, $75, and (given a downward underlying trend in the developed world), 2014 demand won’t be reached again at prices above $75.

2. The End of Bitcoin: I’ve written in the past that “Bitcoins will attain their true value of zero sooner or later, but it is impossible to say when.” However, I now think the necessary conditions are in place for most holders of Bitcoins to recognise that their asset consists of used-up computation cycles with zero value. In particular, because mainstream merchants now accept Bitcoin (which they immediately sell), it’s possible for hardcore believers to dispose of their holdings without explicitly betting that the price will fall. Of course, the price won’t fall precisely to zero, but it should be well below $100 by the end of the year, and below $10 not long after that.

3. The Paris conference on climate change, will produce a half-baked compromise, which nevertheless represents progress towards stabilization at 2 degrees of warming: OK, this is pretty much a no-brainer, given that this is what we’ve been seeing ever since Kyoto in 1997, but I want to be sure of getting at least one right.

{ 179 comments }

1

Harald K 01.15.15 at 7:39 am

Maybe you’re just imprecise. But you do know that bitcoin is issued not for meaningless computations, but for cryptographic work guaranteeing the integrity of the distributed ledger?

A distributed ledger sounds like it’s a thing which has uses, though how big they are remains to be seen. Via Steve Waldman of Interfluidity I found this piece going a little technical about that topic, the uses of the underlying technology. (Full disclosure: I hold bitcoin worth about 2 dollars at today’s prices.)

2

david 01.15.15 at 8:01 am

Yes, but what’s the economic value of this distributed ledger as opposed to another such ledger, or another such way of semi-anonymously exchanging funds over the Internet? EVE Online ISK is a far better store of value.

Greater adoption of bitcoin is working against its value: the more liquid it is, the less any given bitcoin is actually needed in circulation.

3

JakeB 01.15.15 at 8:05 am

The Paris conference on climate change, will produce a half-baked compromise

But still fully baked by 2150 or so, I am afraid.

4

Rakesh 01.15.15 at 8:13 am

5

Harald K 01.15.15 at 8:36 am

david:

Yes, but what’s the economic value of this distributed ledger as opposed to another such ledger

The distributed ledger technology doesn’t work unless it’s got something similar to a currency at the bottom. The “mining” rewards are necessary.

Sure, other distributed ledgers with a different currency-like thing at the bottom are possible, but thanks to the idea of sidechains, they don’t have much going for them any longer. It seems practical to stick to the established one.

6

reason 01.15.15 at 9:02 am

regarding point 3
I would have thought 2 degrees of warming was already a lost cause.

7

David J. Littleboy 01.15.15 at 9:13 am

“But you do know that bitcoin is issued not for meaningless computations, but for cryptographic work guaranteeing the integrity of the distributed ledger? “

There’s a certain circularity here: a distributed ledger is only interesting if bitcoins have value, yet the bitcoins’ value is in the computations for said distributed ledger. Sounds like meaningless computation to me…

8

reason 01.15.15 at 9:16 am

Perhaps what you mean is that with a nominal 2 degrees of warming target (not a realistic one).

9

David J. Littleboy 01.15.15 at 9:39 am

Your peak oil (prices falling because supply exceeds demand) is the opposite of the original peak oil (prices rising because limited resource supply approaches exhaustion). And it sure looks like that’s what’s going to (continue to) happen. It’s funny that the stock market is freaking out, because up to now, the pattern has been high oil prices precede crashes and low oil prices precede recoveries/booms.

The article linked by Rakesh @4 talks about Abenomics. While I think Abenomics is going to be a bust (mostly because, being a conservative, the only policies that Abe will actually implement will be ones that make life easier for rich folks*) the Japanese are getting an amazing break with the oil prices falling just as they decided to talk down the Yen. If the US fraking boom hadn’t freaked the Saudis, the Japanese would be in seriously bad shape today, and we’d be talking about Abenomics being the stupidest thing anyone can remember.

*: One of the big deal policies is making it easier for rich elderly to give their money to grandkids for school or whatever (Japanese gift and inheritance taxes are rather steep). But there just aren’t that many rich folks, so this policy will have zero macroeconomic effect. Abe, only having rich friends, doesn’t get it that 99% of us aren’t rich.

10

Torsten 01.15.15 at 10:27 am

Niels Bohr might have said it, but the origin of “Prediction is very difficult, especially about the future” is actually unknown.

T.

11

Zamfir 01.15.15 at 12:35 pm

@ David, he’s not predicting that prices will stay below $75. He’s saying that if prices rise above that level again, it will be in an environment with lower demand at those prices. And alternatively, prices might stay low but then supply will be restricted to a limited set of ‘easy’ sources.

In other words, he’s saying that the previous years were a unique anomaly, with both strongly rising prices and large scale development of ‘hard’ oil sources, and an economy (and technology) that could not strongly reduce demand in response to the high prices.

If I read JQ correct, his prediction is that those two factors will not return again together. There might be a new period with high prices and development of difficult sources, but only after the economy has already reduced consumption in the face of the new and elevated ‘normal’ prices.

12

QS 01.15.15 at 12:53 pm

One thing I am curious of, does the price of natural gas track that of petroleum?

13

QS 01.15.15 at 12:59 pm

Also, it’s pretty clear that compromise (given the bargaining positions) will get us nowhere near 2C. 2C will require a massive shift in resources, including capital flow from rich countries to China and India. I don’t see that one coming in Paris, where there will be “pledges” to contribute to the green climate fund, but nothing concrete and nowhere near the necessary amount to shut down coal.

14

David J. Littleboy 01.15.15 at 1:24 pm

Truth in advertising: I have the background to figure out bitcoin, but never thought it worth the effort to try. At the point I realized that alternative currencies are sleazes rich libertarians think about to avoid people (especially tax persons) knowing where their money is, I got bored. But I do like the title of this article:

Bitcoin revealed: a Ponzi scheme for redistributing wealth from one libertarian to another

http://www.washingtonpost.com/blogs/wonkblog/wp/2015/01/14/bitcoin-is-revealed-a-ponzi-scheme-for-redistributing-wealth-from-one-libertarian-to-another/

I can tell right off, though, that there’s at least one problem with the article: if running a supercomputer doesn’t make enough bitcoins to pay for the time used in the computations, you have to stop doing said computations immediately. Also, my understanding is that mining new bitcoins never gets easier (whereas the article implies that if people stop mining bitcoins, it’ll be easier for newbies to come in at a later date: that’d only be true if computation gets a lot cheaper over the period people aren’t doing much mining.)

15

Brett Bellmore 01.15.15 at 1:53 pm

My prediction for 2015: The half-baked compromise will promptly be ignored by everybody who matters.

16

Trader Joe 01.15.15 at 1:54 pm

#1 Peak oil

While its possible that weak pricing will induce production cuts that put 2015 supply below 2014 levels, the notion that 2014 represents “peak” production is entirely at odds with all projections. Oil production is slated to grow to over 100 mb/day by 2018 based only on projects that are already fully developed or substantially developed.

I fully agree with the linked article that demand in the developed world has likely peaked, but developed world demand hasn’t been the marginal buyer for sometime. China, Latin America and India have been the marginal buyers and their demand is still rising at a mid-single digit growth rate (or higher).

IEA.org has all kinds of forecasts that can be sliced and diced however one likes for those who like data with their assertions, even a pretty generous read would challenge this prediction.

If the timing was 2020 however, I’d be far more prepared to agree.

17

Omega Centauri 01.15.15 at 2:12 pm

By picking ultra-optimistic projects the climate compromise will claim that 2C is still possible, but any realistic assesment will put those odds at under 1%. There will be some hope for holding things to 3C, but this will require future progress that is questionable.

The car market will bifurcate into gas-hog, and hyper-efficient segments. Because gas is currently cheap, the former sector will be larger than the hyper-efficient sector.

France will regret having made such a big deal about Chrlie Hedbo, because in the new paranoid environment politics will lurch strongly rightward.

18

Bernard Yomtov 01.15.15 at 2:14 pm

Niels Bohr?

It was Yogi Berra – a different sort of scholar – I think.

19

david 01.15.15 at 2:20 pm

Apparently it was not Yogi “I never said most of the things I said” Berra, although it is disputed who came up with it.

20

MPAVictoria 01.15.15 at 2:52 pm

I am still entirely unsure of what problem bitcoins are supposed to solve….

21

Bloix 01.15.15 at 3:07 pm

“Prediction is very difficult, especially about the future”

People who study this sort of thing say that the first attribution to Bohr is in the Bulletin of the Atomic Scientists in 1971, which is almost a decade after Bohr’s death. Prior published versions (in English and Danish) call it a Danish proverb or a Danish saying. In Danish, apparently, there’s a pun involved. So perhaps Bohr did like to say it, or perhaps it got fastened onto him among English-speakers because he was Danish. It seems vaguely appropriate for Bohr because of his role as the founder of the Copenhagen interpretation of quantum mechanics, which states that certain sub-atomic events cannot be predicted.

Other attributions – Yogi Berra, Mark Twain, Sam Goldwyn – are just the usual crowd (along with Will Rogers and Churchill) that is summoned up when the originator of a saying is unknown.

See, e.g., http://quoteinvestigator.com/2013/10/20/no-predict/

22

AcademicLurker 01.15.15 at 3:07 pm

I am still entirely unsure of what problem bitcoins are supposed to solve….

The “not very bright libertarians who need a reason to believe they’re smarter than the rest of the sheeple” market was being underserved.

23

Brett Bellmore 01.15.15 at 3:19 pm

This libertarian is bright enough not to go anywhere near bitcoins. But I do understand the problem they purport to address. The tracability of dollar transactions facilitates the government regulating them, sometimes legally, sometimes extra-legally.

In theory if you could create a non-governmental, untracable currency, it would be much easier to circumvent government regulation.

24

MPAVictoria 01.15.15 at 3:31 pm

“In theory if you could create a non-governmental, untracable currency, it would be much easier to circumvent government regulation.”

Yes but currencies only have value within a state.

25

Ronan(rf) 01.15.15 at 3:46 pm

“I am still entirely unsure of what problem bitcoins are supposed to solve….”

It’s a tribal thing, meant to signal your allegiance to a specific DC caste. It seems to be an elite class tribal thing rather than an ideolgical one though, afaict, which is why Brett has the good sense to demure. It’s not about solving any problems so much as having something to talk about at Georgetown cocktail parties.

26

J Thomas 01.15.15 at 4:07 pm

#23 MPAV

“In theory if you could create a non-governmental, untracable currency, it would be much easier to circumvent government regulation.”

Yes but currencies only have value within a state.

Currencies have value among everybody who will trade them.

So for example the story goes that when Croesus (or Midas, depending on your story) invented the gold coin, they traveled far outside his kingdom. Since he made a profit on every one that was not exchanged for gold….

Dollars were traded by the Russian mafia. They are traded in some nations that have inflation problems, sometimes voluntarily by the governments.

Bitcoins trade internationally among everybody in the world who buys into the belief in their value.

Since they are backed primarily by the people who use them, if a lot of people stopped believing in them that would make their value go down. Similarly, if somebody figures out a way to falsify them, to counterfeit large numbers of them, that would do it too.

The same is true of gold, of course. Gold would be a useful industrial metal, but the people who want to hoard it have driven its price way up. If most of them stopped believing in it, the price would fall considerably.

But it’s not true for national currencies. A national currency is backed by its nation’s tanks and machine guns, and by the dedication of its army and police. That makes them less arbitrary than gold or bitcoins.

27

Trader Joe 01.15.15 at 4:10 pm

@23
“Yes but currencies only have value within a state.”

You’ve now partially answered your own question – bitcoins (and other similar) have value across all states, are untraceable and (if bitcoin producers are to be believed) will have a finite supply unlike every other currency in the world which is produced by fiat (with a mere handful of keystrokes the fed can produce billions more in virtual currency than the mints of the world have ever produced in physical currency). Their biggest potential merit is as a constructive store of value – something most currencies should aspire to.

That said, whether this will render bitcoins inflation resistant and less subject to value manipulation will depend upon them surviving long enough to test that thesis – color me skeptical. I do think the experiment has merits well beyond giving hipsters cocktail party fodder however.

28

MPAVictoria 01.15.15 at 4:19 pm

“Currencies have value among everybody who will trade them.”
Sure. And the reason people will trade in currencies, in the modern world, is because governments back them. Try buying something in Confederate Dollars and see how far you get.

29

MPAVictoria 01.15.15 at 4:21 pm

“You’ve now partially answered your own question – bitcoins (and other similar) have value across all states, are untraceable and (if bitcoin producers are to be believed) will have a finite supply unlike every other currency in the world which is produced by fiat (with a mere handful of keystrokes the fed can produce billions more in virtual currency than the mints of the world have ever produced in physical currency). Their biggest potential merit is as a constructive store of value – something most currencies should aspire to”

Yes but they aren’t backed by anyone and you can’t pay your taxes in bitcoins. Why use them instead of dollars? Because they are in theory untraceable? I guess maybe…
But how big a market is that?

30

Doug K 01.15.15 at 4:23 pm

MPAVictoria, my understanding is Bitcoin solves problems for libertarians and criminals. The libertarian problems are invisible or incomprehensible to normal human beings. The criminal problems can be solved by well-established money laundering services instead of Bitcoin.
One of the best coders I know called it ‘Beanie Babies for ultra-libertarian math nerds’.
http://dtrace.org/blogs/bmc/

There are a lot of gas development projects in the pipeline that are too far along to cancel, so I agree with Trader Joe, peak production is most likely still ahead. My contacts in the gas industry believe the current low prices are purely a question of the Saudis pumping furiously to hurt the Russians and the US fracking industry. Personally I wonder if there has been some scheming between US and our friends the Saudi potentates, to bring down Putin.

31

Ogden Wernstrom 01.15.15 at 4:31 pm

I was led to expect that children would have hoverboards by 2015. I suspect that bitcoin used most of the calculation cycles that would have been needed to develop hoverboards.

At a first approximation, a currency which requires so many calculation and communication resources to remain viable would be a risky store of value.

32

J Thomas 01.15.15 at 4:33 pm

#27 MPAV

And the reason people will trade in currencies, in the modern world, is because governments back them. Try buying something in Confederate Dollars and see how far you get.

As I understand it, Confederate dollars were never backed by anything from the first. The Confederacy did not collect taxes to back their dollars, they just printed more of them. It worked OK for 2 or 3 years because a lot of people believed in the confederacy. Then when the war went bad and people had lots of confederate dollars but nothing to buy with them, it stopped working.

Bitcoins have the problem that there is no way to control their rate of deflation. US dollars inflate at 2-5%/year. Bitcoins do not. So people who believe in them prefer to spend dollars and buy bitcoins. They are more a speculative inflation hedge than a currency.

If the time ever comes that people pay their mortgage etc with bitcoins, then bitcoins will have begone to achieve currency status.

33

Trader Joe 01.15.15 at 4:34 pm

“Yes but they aren’t backed by anyone and you can’t pay your taxes in bitcoins. Why use them instead of dollars?”

I’ve never really fancied myself as a spokesperson for bitcoins, but I think maybe you’re thinking about it too narrowly.

I can’t pay my taxes in cigarettes, M&Ms or bottles of wine but all of them are often used in barter between a willing buyer and a willing seller. If I want to buy the shirt you’re wearing right now you might ask for $50, but you could also ask me for 1 carton of smokes, 12 boxes of cherrios or 3/10ths of a bitcoin or for me to wash your car and cut your grass and depending on my interests I might readily agree to any one of those.

Being able to pay taxes with it isn’t the #1 characteristic of a currency. Being able to store value and use it as a medium of exchange is.

Don’t get me wrong, there are plenty of problems with bitcoin, but there are somethings it can do rather well and facilitate trade is one of them – although that’s not without cost of consequence.

34

Tom West 01.15.15 at 4:35 pm

I’m not certain why the bitterness towards bitcoins. It’s a tech-toy that brings people enjoyment the way that the 200-mile diet brings joy to a different set of people.

We all have our “I’m saving the planet” joys, most of which cost us money. Why begrudge other people theirs?

35

Ronan(rf) 01.15.15 at 4:42 pm

“I’m not certain why the bitterness towards bitcoins.”

It’s a tribal thing, meant to signal your allegiance to a specific caste. It’s not about principle so much as having something to talk about at Oxbridge cocktail parties.

36

MPAVictoria 01.15.15 at 4:45 pm

“We all have our “I’m saving the planet” joys, most of which cost us money. Why begrudge other people theirs?”

I guess because it just seems like such an obvious scam to me. But you are right, if someone gets joy out of it more power to them I guess.

“Don’t get me wrong, there are plenty of problems with bitcoin, but there are somethings it can do rather well and facilitate trade is one of them”
But Joe how does it facilitate trade better than Euros or Yen?
(Thank you for replying by the way. :-))

37

MPAVictoria 01.15.15 at 4:46 pm

“It’s a tribal thing, meant to signal your allegiance to a specific caste. It’s not about principle so much as having something to talk about at Oxbridge cocktail parties.”

And I wouldn’t say I was bitter towards bitcoins, just confused by what seems like an obvious con.

38

Ronan(rf) 01.15.15 at 4:47 pm

Im only joking MPA , my explanations are clearly idiotic ;)

39

MPAVictoria 01.15.15 at 4:51 pm

“Im only joking MPA , my explanations are clearly idiotic ;)”
Ha! I guess I need to have my irony sensor readjusted.

40

Barry 01.15.15 at 5:00 pm

“Don’t get me wrong, there are plenty of problems with bitcoin, but there are somethings it can do rather well and facilitate trade is one of them – although that’s not without cost of consequence.”

How does it do that better than dollars, pounds or Euros?

41

MPAVictoria 01.15.15 at 5:03 pm

Barry the least you could do is cite me on that question?

/ ;-)

42

J Thomas 01.15.15 at 5:06 pm

#36 MPAV

And I wouldn’t say I was bitter towards bitcoins, just confused by what seems like an obvious con.

Cons and noncons seem to grade into each other. People accept government money because everybody else does, but it can be just as much a con. A person could spend 20 years saving Reichsmarks, and then after1945 they were pretty much worthless. For a few years Germany ran mostly on a cigarette economy because they didn’t have a currency that worked.

Not to say bitcoins are definitely not a con, but government fiat currency can sometimes turn out to be a con. What can you do? You can invest in gold but that can be a con, plus somebody can steal it. Your cash in the bank can’t be stolen except by embezzlers and the government.

You can invest in real estate but you can’t be sure how much higher the government will tax it, they might take it away from you and pay you what they say it’s worth, leaving you to sue in government court for what you think it’s worth. In the 2008 crisis banks foreclosed loans on people who had paid off their loans, confiscating their houses.

You can gamble on the stock market.

Any method you use to try to store your wealth could turn into a con.

43

temp 01.15.15 at 5:20 pm

The main function of bit coin is to buy drugs on the internet, and it seems pretty ideal for that function.

44

Adam Bradley 01.15.15 at 5:22 pm

Maybe you’re just imprecise. But you do know that bitcoin is issued not for meaningless computations, but for cryptographic work guaranteeing the integrity of the distributed ledger?

Isn’t this problematic? My understanding is that there’s an absolute limit to the number of Bitcoins that will ever be created. At some point, there’s no incentive for doing these calculations, but you’ll still need the ledger.

45

AB 01.15.15 at 5:33 pm

Can I take this opportunity to recommend Andrew O’Hagan’s article in the current LRB. There are times when Bitcoin is more practical than a bank account. When you’re buying drugs or guns, say, or you don’t exist, or both.
I agree that it’s likely to stay niche, though.

46

MPAVictoria 01.15.15 at 5:35 pm

J are you arguing that all of those things are equally likely to be a con? Because if they are not equally likely then wouldn’t it make sense to minimize your risk?

47

Brett Bellmore 01.15.15 at 5:42 pm

Fiat currency is pretty much 100% likely to be a con. The only real question is when any particular fiat currency will transform from a long-term con to a short term con. During the long term con phase, fiat currencies are actually useful, though more so to the currency issuer than everybody else.

48

Brett 01.15.15 at 5:56 pm

1. I think we’re probably close to Peak Oil Production as well, although the down slope on that will be a lot smoother and more gradual than expected. At a certain price point, it becomes profitable to start turning coal and other carbon into liquid fuels (including CO2 from the air, or from coal-fired power plants) with Fischer-Tropsch.

It’s also why I’m not convinced we’ll see people move away from hydrocarbon fuels unless they’re legally required to. If we can make it for decades or longer at a price point of $200/barrel, then we will – we’ll just drive more efficient, smaller cars or eat the cost of gasoline.

3. We’ll see. I don’t think we’ll see meaningful action on climate change until the mid-to-late 2020s, when the effects of it will be so undeniable that all but the most diehard reactionaries will be accepting it by then. At which point much of the world will be frantically trying to come up with policies to restrain further warming, much like how we waited until an ozone hole opened up over Antarctica before we got meaningful action on ozone-destroying chemicals.

49

J Thomas 01.15.15 at 6:02 pm

#45 MPAV

J are you arguing that all of those things are equally likely to be a con? Because if they are not equally likely then wouldn’t it make sense to minimize your risk?

No, I don’t have any good way to bet how long any of those will last. It seems plausible to me that most government fiat currencies will outlast bitcoin, but you never really know.

You can minimize your perceived risk by choosing the investments that you think look least risky.

On the other hand you might feel speculative, and then you might choose to speculate in currencies that don’t seem so stable.

I occasionally hear stories like “A long time ago I heard about bitcoins so I put $100 into it just to see. I forgot it for awhile and then I looked and now it’s worth $38,000. So I guess I’ll just wait and see what happens, it only cost me $100.” It would make sense to me in that case to sell bits of it when you see things that look like better investments, or when the value is high and you need to spend the money. You have to pay tax on your winnings the year you cash them, right? So if you cash it all right now you’ll have a big tax burden and it starts inflating away. But if you leave the whole thing indefinitely then at some time it might turn completely worthless then you’re out $100.

50

MPAVictoria 01.15.15 at 6:08 pm

“No, I don’t have any good way to bet how long any of those will last. It seems plausible to me that most government fiat currencies will outlast bitcoin, but you never really know.”

So you do think it is more likely that the US dollar will be a better store of value then the bitcoin? Or don’t you? Or is this more oh a “hey we never really know anything?” comment? In which case, I guess you are right. I mean aliens might come to earth tomorrow and demand that all economic transactions take place in Qwatlos. But is that the way to bet?

51

MPAVictoria 01.15.15 at 6:09 pm

“Fiat currency is pretty much 100% likely to be a con. The only real question is when any particular fiat currency will transform from a long-term con to a short term con. During the long term con phase, fiat currencies are actually useful, though more so to the currency issuer than everybody else.”

Over the long term we are all dead. And hard money advocates have been pretty much wrong about everything for the last 100 years. So…..

52

Tom West 01.15.15 at 6:10 pm

It’s a tribal thing, meant to signal your allegiance to a specific caste. It’s not about principle so much as having something to talk about at Oxbridge cocktail parties.

I’m not certain it’s any more tribal than my buying organic, experimenting with solar cells, patronizing farmer’s markets, etc.

Sure, I make gentle fun of my friends bitcoin experiments (and yes, the link between Libertarian and bitcoin is moderately strong) and they make fun of my proclivities. But if they started taking great joy at my misfortunes in my hobbies, they’d be jerks and I’d drop them. Similarly, if I did the same, I’d be the jerk.

53

someguy88 01.15.15 at 6:13 pm

Anything can happen. India and China could go all in on coal. I could finally get the fusion powered flying car I have always wanted. Japan could tap a limitless supply of Methane. A huge solar break thru could happen.

I am not even sure this data is correct

http://www.indexmundi.com/map/?v=91000

but it seems to be the most common answer. When I run my mouse over Asia and Africa I see huge long term demand for oil.

Based on that and the current extraction revolution I would say eventually the Green River Formation becomes economically viable. No peak oil.

54

Tom West 01.15.15 at 6:19 pm

To MPAVictoria’s comment, is marriage a long con?

After all, at best, either I’ll predecease my spouse, and abandon her, or she’ll abandon me.

Yet somehow both our worlds are much better off by us being married.

(Okay, mine always, her’s, most days?)

Sure fiat currency is a confidence game, but short of holing up in a cabin with guns and food, *everything* is a confidence game.

Living in misery simply so that bad shocks can’t ever happen is not my idea of a winning strategy.

55

primedprimate 01.15.15 at 6:19 pm

IANAE, but Bitcoins are not really anonymous – a careful user can try to make Bitcoin transactions pseudonymous, but the entire architecture of Bitcoins is to make sure that every transaction is verified and tracked via the block-chain system. And government intelligence agencies can find ways to identify people via IP addresses etc. despite their efforts at pseudonymity.

Bitcoins are useful the way the Hawala system was useful until governments cracked down on it. Bitcoins, like Hawala, lowers nominal transactions costs and reduces/eliminates spreads earned by banks and governments on cross-border transactions.

I agree with JQ that Bitcoins are on their way out, but I think the block chain system of distributed verification is here to stay just like Wikipedia (some consider Wikipedia to be more reliable than governmental websites or websites run by private corporations) although perhaps not as a monetizable currency.

Cash is far more anonymous. Most illegal transactions occur via cash – mostly $100 bills.

56

AcademicLurker 01.15.15 at 6:24 pm

I mean aliens might come to earth tomorrow and demand that all economic transactions take place in Qwatlos.

Where can I purchase Qwatlos? If I convert all my $$ now, I’ll be rich when the aliens arrive!

57

primedprimate 01.15.15 at 6:24 pm

Adam Bradley @43, once the limit on Bitcoin production is reached, those maintaining the distributed ledger will get paid the revenue collected through a small automatic transaction fee imposed on all subsequent Bitcoin transactions.

58

Trader Joe 01.15.15 at 6:25 pm

“But Joe how does it facilitate trade better than Euros or Yen?”

Lets go back to me buying the shirt you’re wearing for $50. I can mail you a check or cash, which has its drawbacks. I can provide you or someone else a credit card number, which aslo has its drawbacks in terms of security albeit different ones that mailing checks or cash – or you can agree to accept my 0.3 of a bitcoin (or whatever we agree upon) and with a few key strokes we’re all done and neither of us has ever exchanged any identifying information. I’m pretty sure yen and Euros can’t do that.

The advantages are even greater if, which I think is the case, what you really want is C$50 when all I got is these lousy U.S. dollars…that saves us one more exchange cost.

As noted above, I’m not saying using bitcoins is without issue. The currency clearly fluctuates too widely in value and the security issues have proved to be not nearly as robust as was originally thought to be the case.

That said, the volumes of transactions utilizing it are many, many times greater than anyone would have anticipated and I don’t think that can all be put down to being a ‘toy’ or novelty. There is clearly some natural demand for a scrip or non-government sponsored currency and whether bitcoin is the one that figures out how to make it work or some other version of it proves more effective its an innovation in global transactions that will continue to draw a certain number of adherents. I don’t think it ever becomes a major form of payment, but I’m not sure its worthless either – there is some value added, in some cases, that make it viable alternative.

59

Brett Bellmore 01.15.15 at 6:28 pm

“It’s a tribal thing” is a tribal thing. It’s how liberals signal to other liberals, “I’m so liberal that I don’t even credit non-liberals with having rational reasons for what they do.”

Here’s a prediction: There will be a civil rights lawsuit challenging Operation Chokepoint.

60

J Thomas 01.15.15 at 6:31 pm

#49 MPAV

So you do think it is more likely that the US dollar will be a better store of value then the bitcoin? Or don’t you?

Judging from history, the US dollar has not been a very good store of value at all. It was intentionally supposed to be that way in the 20th century, and sometimes before. It is supposed to inflate at a low predictable rate.

From the history so far, bitcoins have been a far better store of value. Depending on where you get your data, they suffered a big sudden price jump in 2011 and then rather slowly lost 3/4 of it, and another big price jump in 2011 and so far have lost about 2/3 of it. If you bought bitcoins just before the 2014 spike they’ll still be worth about twice what you paid for them. Dollars have inflated about 3% in that time. On the other had if you bought them in 2014 your value is down and you might not get it back until the next big spike.

Holding dollars is a reliable way to lose value, usually slowly but with occasional crises. So far the result of holding bitcoins is mixed but strongly positive. But either one could collapse suddenly. The USSR looked like they could grind along forever and suddenly they just fell apart. The USA might possibly do the same at any time.

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MPAVictoria 01.15.15 at 6:35 pm

“Where can I purchase Qwatlos? If I convert all my $$ now, I’ll be rich when the aliens arrive!”

Simply send me your bank account information and password and I will get the process started for you…
;-)

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MPAVictoria 01.15.15 at 6:37 pm

“Holding dollars is a reliable way to lose value, usually slowly but with occasional crises. So far the result of holding bitcoins is mixed but strongly positive. But either one could collapse suddenly. The USSR looked like they could grind along forever and suddenly they just fell apart. The USA might possibly do the same at any time.”

So you do think that bitcoins are a better store of value over the long term then the US dollar? Or don’t you? I am confused.

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MPAVictoria 01.15.15 at 6:38 pm

“– or you can agree to accept my 0.3 of a bitcoin (or whatever we agree upon) and with a few key strokes we’re all done and neither of us has ever exchanged any identifying information”

But why would I want to buy a shirt anonymously?

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William Berry 01.15.15 at 6:42 pm

Here’s my most confident prediction for 2015:

Many a CT thread— especially JQ threads, for whatever mysterious reason— will be driven into the ditch by J. Thomas and Brett Bellmore.

We’re off to a good start.

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primedprimate 01.15.15 at 6:48 pm

MPAV @62,

Again on the anonymity thing. Bitcoins are NOT anonymous. They are pseudonymous at best.

If you want to buy a shirt made of some contraband material (let’s say tiger skin), the seller needs to know where to send the shirt. So you cannot be completely anonymous from the seller no matter what (may be you could use a postbox mailing address or figure out some secret location to make a drop). But let’s set that issue aside.

For the transaction itself, you need to provide information regarding your Bitcoin account (this is pseudonymous like an email address – anyone can set one up). However, the block chain system though will make it publicly known that the person with your Bitcoin account paid some Bitcoins to the person with the seller’s Bitcoin account.

Governmental intelligence organizations or others can figure out who is associated with which Bitcoin account by tracing IPs etc. So there is an illusion of anonymity but at best all that users can get is pseudonymity accompanied by a completely public record of all transactions from all Bitcoin accounts.

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mpowell 01.15.15 at 6:49 pm

On peak oil I agree with Trader Joe @15, disagree with someguy88@52. The time frame for the prediction is wrong due to investments over the past few years and also due to the fact that developing world demand will continue growing for a long while. It is now clear that at higher price points quite a lot of extra oil is available. It is unclear what kind of price trend would be necessary to continue to see increasing supply because there are counter trends between reduced availability of cheap oil and reduction in cost of equivalently difficult extraction techniques over time. Regardless, if alternative energy sources did not exist peak oil might be a long way off. Alternatives do exist however and I expect that the reduction in cost of these energy sources will race ahead of the price curve for oil required for continually increasing production, eventually pulling oil production down in 5-10 years from now. But even this is not 100% certain. Every technology as it scales has factors both pushing cost up and down. For processing capability or cellular connectivity, for example, almost all the factors push down. But for energy production, once you scale to the equivalent of a sizable percentage of world oil consumption, the net price pressure is upwards for pretty much any technology.

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William Berry 01.15.15 at 6:50 pm

And yeah, agree with Tom West, above.

Whether it’s gold or gold-backed currency, greenbacks, or buffalo chips, all money must have a more-or-less set value that is determined by a community and typically established by a government or central bank.

One kind of money is just as much fiat money as any other kind if it is to be useful as money at all.

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MPAVictoria 01.15.15 at 6:50 pm

Ah thank you primedprimate. I must admit that I am far from an expert in this area. Your explanation is appreciated.

So if bitcoins are not even anonymous then what is the point Trader Joe?

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MPAVictoria 01.15.15 at 6:51 pm

“To MPAVictoria’s comment, is marriage a long con?”

I guess my response would be that I don’t see any reason for bit coins, someone is making money off of them and their value has been incredibly unstable. So I would classify them as a short con.

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William Berry 01.15.15 at 6:54 pm

Just to add: Goldbuggery is in the same category as fluoridation of water when it comes to nutbag tropes. The only purpose they serve is to define nutbaggery per se.

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AcademicLurker 01.15.15 at 7:03 pm

is marriage a long con?

Traditional analog marriage is, sure. But with my new online service, BitMarriage, people can get married anonymously through encrypted accounts. No danged government interference! And my transaction fees are very reasonable…

Add the convenience of not knowing who you’re married to, and what’s not to like?

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J Thomas 01.15.15 at 7:03 pm

#61 MPAV

So you do think that bitcoins are a better store of value over the long term then the US dollar? Or don’t you? I am confused.

I know you are. Why don’t you ask me some other simple question like which stock in the stock market will get you the best return?

Ask me who will win the next us presidential election.

Which football team will come in first?

Barring some big exploit, bitcoins will be viable as long as sufficient people believe in them. Will people stop believing in them in 2015? I don’t know. Maybe.

They are different from cash in that there will be a limited number of them. So they can’t inflate from increased supply, they can only inflate by falling demand. That’s an advantage they have over dollars, for some purposes. But a fixed supply leaves the value exposed to changes in demand. That’s a disadvantage for some purposes.

Dollars are a bad store of value, but your losses will probably be limited. Unless the government collapses or something. If the USA gets a GOP president and GOP congress there’s no telling what will happen. How likely is that? It won’t happen in 2015, if that’s what you care about.

You want me to give you investment advice? Free? You can sign up for my confidential newsletter, but it will cost you. However, the results are guaranteed.

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MPAVictoria 01.15.15 at 7:07 pm

“They are different from cash in that there will be a limited number of them. So they can’t inflate from increased supply, they can only inflate by falling demand. That’s an advantage they have over dollars, for some purposes. But a fixed supply leaves the value exposed to changes in demand. That’s a disadvantage for some purposes.”

So… yes? No? Maybe?

I mean you were quiet happy in the Civil War thread to just make stuff up but here you hesitate to give an opinion? Why is that?

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Ze Kraggash 01.15.15 at 7:13 pm

“Dollars are a bad store of value”

This morning it turned out that Swiss Francs were a good store of value. Too bad it wasn’t predicted.

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J Thomas 01.15.15 at 7:18 pm

#73 MPAV

So… yes? No? Maybe?

It depends.

I mean you were quiet happy in the Civil War thread to just make stuff up but here you hesitate to give an opinion? Why is that?

Because you didn’t ask for a fantasy alternate history, you’re asking for investment advice in reality, predicting the future.

I think there could easily be some bug in the bitcoin design that will come out and convince people they won’t work. We haven’t had enough years experience to be sure it won’t. That could collapse the whole thing and people would start out with some other system which appeared to have that bug patched, or if it was some special gotcha which made the whole thing clearly unworkable, they would give up. I can’t predict that. It’s likely in the long run but when?

Similarly, I can’t predict how long US dollars will be viable. My guess is more than 5 years, and 5 years is about as far as I can hope to look ahead. There’s the issue that if you live in north america and the US dollar becomes worthless, owning bitcoins might not do you a lot of good.

So good luck with predicting about the long run.

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primedprimate 01.15.15 at 7:19 pm

The illusion of anonymity is powerful. Look at people posting offensive and even illegal material on internet message boards. They think they are truly anonymous, but their IP addresses etc. can indeed be traced by intelligence agencies or others who need to know. You could, I suppose, if you are an expert in cyber security find ways to hide your identity, but from what I understand, it is trivially easy to identify regular joes who make up 99.9% of internet users. So Bitcoins could function as an ‘anonymous’ currency for true experts but not for others.

One big benefit of Bitcoins is the elimination of transaction fees. Suppose you want to buy the shirt from Bangladesh using regular currency, you need to pay the transaction fees associated with changing currency from dollars to takas as well as all other kinds of fees imposed by Western Union (or other Bank/Financial institution) and US and Bangaldeshi governments. You may also be subjected to various kinds of capital controls imposed by these governments. Finally, you will need to pay a sales tax. With Bitcoins you can avoid paying the transaction fees (semi-legally), circumvent capital controls (illegally), and evade the sales tax (illegally) with some degree of ease since the IRS is not in the business of cyber-security. However, agencies like the NSA can crackdown on you if they really want.

Another side benefit of Bitcoin is that introduced the block chain system of distributed ledger maintenance which I think is an idea that may catch on in some other form like Wikipedia. This, in my opinion, is the most valuable contribution of Bitcoin.

Some libertarians and technically sophisticated modern-day goldbugs also tout another beneficial feature of Bitcoins: by setting an upper limit on the total number of Bitcoins to be released, a Bitcoin based system would free monetary policy from government control. But I think that a non-responsive monetary policy would be a recipe for economic disaster. Most economists are divided on whether to have discretionary or rule-based monetary policy, but even the majority who favor rules prefer rules like inflation-targeting, NGDP targeting, Taylor rules etc. and none of those discretionary or rule-based policies are compatible with a Bitcoin style currency.

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J. Parnell Thomas 01.15.15 at 7:20 pm

My local donut shop has an old man who comes in every morning and starts bellowing about “THE FEDERAL RESERVE!”

I tried earplugs but the results were unsatisfactory, so I’ve stopped going there.

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J Thomas 01.15.15 at 7:31 pm

#76 primedprimate

Some libertarians and technically sophisticated modern-day goldbugs also tout another beneficial feature of Bitcoins: by setting an upper limit on the total number of Bitcoins to be released, a Bitcoin based system would free monetary policy from government control. But I think that a non-responsive monetary policy would be a recipe for economic disaster.

So we probably could not tolerate an economy that used only bitcoins as currency.

Could they occupy a niche market? Use them only for the things they’re especially good at? Yes, but.

At the moment it looks like what gives them their value is use for special kinds of transactions. But when the value goes up, people want to hoard them. It would be predictable (but I haven’t seen it) that when the value goes down, people would want to spend them faster. So the very thing that makes them valuable for hoarding is damaged by hoarding. Quick changes in value would make them more of a bother to use for transactions and so less valuable on average.

I dunno. We’ve had thousands of years experience with coins, hundreds of years experience with paper money, and 5 years experience with Bitcoin. It’s a little early to be sure what will happen.

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MPAVictoria 01.15.15 at 7:40 pm

Seems like anyone who has purchased bitcoins since the end of last year has been in for a rough ride.

“Since the beginning of the year, Bitcoin has lost more than 40 percent of its value — going from around $320 per bitcoin on Jan. 1 to around $185 as of posting.”

http://www.washingtonpost.com/blogs/the-switch/wp/2015/01/14/bitcoin-falls-below-200-the-lowest-price-since-2013/

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primedprimate 01.15.15 at 7:44 pm

#78 JT

Quick changes in value would make them more of a bother to use for transactions and so less valuable on average.

I agree it might continue to work for niche markets, but even within those markets, I don’t think Bitcoins will work as a unit of account (one of the key features of ‘money’) at least until folks start to price items in Bitcoins, which I feel is very, very unlikely.

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Zamfir 01.15.15 at 7:53 pm

@primedprimate, I dont understand the part about ‘no transaction fees’ The buyer has to buy bitcoin, the seller has to sell them. Thats 2 transactions requiring some othern payment systemr. And even ignoring that aspect, the market makers from which buy andnsell butcoins require a spread to cover their costs and risks.

It’s not clear to me why those costs would, n large scales, be lower than a ‘traditional’ payment system. As far as I can tell,people who use bitcoins have lower costs when they accept less guarantees than they would accept normally in payment systems.

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Trader Joe 01.15.15 at 7:54 pm

‘So if bitcoins are not even anonymous then what is the point Trader Joe?’

I guess to reverse the question if several billion dollars of transactions have been done in them, can their possibly be no point for all of them?

As someone noted upstrand, while its possible to crack the identity of a bitcoin user, its probably not something the average user is trying to do nor has the means to do. If I ask you to send the shirt to my P.O. Box or to the NY Midtown – Hilton care of Trader Joe…you still don’t know all that much about me do you apart from maybe what zipcode I might frequent? That covers the physical side of the trade, using bitcoin provides a similar anonymity to the financial stide of the trade.

Don’t forget the security bit too – neither of us has exchanged credit card or bank info with one another or a third party. Irrespective of whether we are dealing in something quasi-illicit or not, either of us might have an interest in completing our trade with an anonymous counterparty without such info involved.

The goal isn’t necessarily six sigma anonymity but its certainly far beyond highly hack-able bank/credit info.

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MPAVictoria 01.15.15 at 8:03 pm

“I guess to reverse the question if several billion dollars of transactions have been done in them, can their possibly be no point for all of them?”

Could the explanation be that people are gullible?

“Don’t forget the security bit too – neither of us has exchanged credit card or bank info with one another or a third party.”
But don’t all of the high profile collapses of bitcoin banks show that bitcoins have their own security risks?

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primedprimate 01.15.15 at 8:10 pm

@Zamfir, there is a transaction fee when you go from one form of currency to Bitcoin, but no transaction fee if all you’re using is Bitcoin.

To restate my Bangladesh tiger-skin shirt example, if I were to buy the shirt using Western Union, I would have to pay the spread on the currency exchange rate (the number of takas I can buy for a dollar is different from the number of takas needed to buy a dollar) as well as Western Union’s fees.

With Bitcoin, if I don’t intend to convert it to a currency (just use it to buy products for consumption directly or use it while selling products I make/own directly), I don’t suffer from the exchange rate spread and I don’t need to pay Western Union’s fees either.

@TraderJoe, I agree there is much more privacy with Bitcoin than other forms of payment. However, if the aim of the traders is anonymity from the authorities rather than from each other, it is hard to find anything as effective as US $ bills.

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Trader Joe 01.15.15 at 8:15 pm

@83
My defense here has never been without caveats. I don’t think its the greatest transaction system ever designed by any means. It seems to solve some problems at the cost of others and I don’t doubt that gullibility, novelty and plain histerism entered into more than a few transactions.

That said, as a monetary experiment for some number of transactions, it can have its uses and the whole ledger system thing (which I won’t even fake understanding) I’m told is a good and worthwhile thing. I’m not about to cut up my AMEX, melt down my gold or withdraw all funds from my free lolipop giving financial institution, but I do see some applications and why some people, in some cases, might find such a system worth having and supporting….I wish them good luck.

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primedprimate 01.15.15 at 8:16 pm

@Zamfir, also there is actually much less risk for transaction fraud using Bitcoin due to the distributed ledger system.

But please don’t categorize me among supporters of Bitcoin, at least as it currently exists.

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MPAVictoria 01.15.15 at 8:21 pm

“My defense here has never been without caveats. “
Totally understood. :-)

“I do see some applications and why some people, in some cases, might find such a system worth having and supporting….I wish them good luck.”
I very much wish them only misfortune and ruin as it seems two of the main purposes of the Bitcoin are to avoid taxes and fund criminals.

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Adam Hammond 01.15.15 at 8:31 pm

So … Seychelles should institute an extremely cheap international transfer protocol of their rupee. If I want to send my dollars to a gal in Cologne who wants deutschmarks, we just go to the Seychellois website, I buy rupees at the current rate, they transfer these rupees to Cologne, she sells them for deutchmarks, one of us pays the transfer fee. Nobody (almost) bothers to hold rupees and it doesn’t matter what the current value of the rupee is as long as the three exchange rates add up.

That is the lasting value of Bitcoins for everyone beyond those that invest in them.

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Stephen Long 01.15.15 at 8:36 pm

I started mining Bitcoins back when they were less than a dollar apiece because I thought the technology was absolutely fascinating. I never thought it would actually go anywhere, so I sold them off at $15 a coin.

(Hey, I was a teen, they paid for my fancy gaming card!)

I have always preferred digital currencies like those in games to dealing with actual money. I also like the ability to “tip” people just by clicking a button next to their name, I like the dogecoin puppies an artist friend of mine drew for tips, I like the idea of currencies integrated with a distributed network.

http://fortune.com/2014/01/21/bitcoin-is-not-just-digital-currency-its-napster-for-finance/

Some possibilities include escrow, time-locking, mediation, and automatic disbursement in ways which are not otherwise possible to automate without trusting someone (rather than the integrity of the network itself.)

Are BTC a scam? I don’t think so, though there are a whole lot of scams involved with BTC since the community is full of golddiggers. I think that says more about humanity in general than BTC, though – if we think we can get rich off something, that’s sometimes our first impulse instead of the cool new things we could do with it.

I am *not* a libertarian, I think a strong tax system is necessary. The BTC community may have ballooned because it’s attractive to libertarians, like Satoshi predicted – but not all of us are.

At any rate, the idea that I have a small cranium and a low IQ (quite possibly true) just because I like BTC is a bit of a bummer.

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Zamfir 01.15.15 at 8:38 pm

@pp, that would only work if bitcoins were a fairly complete economic sector. Where you could earn bitcoin wages in most professions, and shops could buy most of their supplies in bitcoins. At which point all the political power plays of monetary policy and exchange rates would apply. The eurozone on global scale.

That’s what boggles me about bitcoins. People suggest it has an advantage as a decentralized, efficient alternative to PayPal. Wikipaypal. Which sounds attractive, if it could fulfill that moderatambitious goal within the existing

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Zamfir 01.15.15 at 8:43 pm

currency framework. But to work that way, it would have to be a viable currency on par with major currencies, except without state support. Incredibly ambitious.

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Adam Hammond 01.15.15 at 8:46 pm

@primedprimate. There is absolutely a transaction fee for transferring Bitcoins from one account to another. The setting of that fee is a constant debate. Ultimately, the people desiring the transfer have to offer some amount of value to have the transfer rapidly added to the block chain – unless one of the participants is a miner who does it for free.

It always sounds like I’m talking about an online game …

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Collin Street 01.15.15 at 8:49 pm

My local donut shop has an old man who comes in every morning and starts bellowing about “THE FEDERAL RESERVE!”

The federal reserve actually has severe problems — the coupon-stripped nature of a federal-reserve bill, the bank-centric management structure — that have nothing to do with the role of fiat currency. That’s a conversation that can’t be had, though: I’m not cynic enough to suggest that anti–fiat-money activism is promoted to render sensible debate about the US federal reserve impossible, but it certainly doesn’t help.

[but that said, governmental structures that are egregiously fucked up and yet impossible to fix in the face of support for just-plain-insane “reform” proposals seems to be a common thing in the US. Look at Obamacare.]

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Matt 01.15.15 at 8:53 pm

My previous postings here should establish that I’m not an ultra-libertarian or an attendee of Georgetown cocktail parties. Math nerd, perhaps. I have never bought Bitcoins or bought equipment specifically dedicated to their production. I did however hear about it early enough, and start mining on a lark, that I once accumulated hundreds of them using nothing more than $10 of electricity on an ordinary desktop computer I already owned. It helps that I live in a region where abundant hydropower makes electricity cheap. If I had sold at the Bitcoin peak I could have bought a house in Seattle. But if I knew when prices of things were going to peak I’d be a lot richer than that by now.

I think that Bitcoin is a lousy store of value. Just look at the chaotic fluctuations in exchange rate vs. USD or commodities over the past few years.

I think that Bitcoin is useful as a medium of exchange for a couple of cases:

1) Buying, selling, or donating in contravention of government desires. Most but not all of this activity is illegal. I’ve never bought scheduled drugs online but I used Bitcoin to donate to Wikileaks after “legitimate” businesses abandoned serving them under government pressure. I used Paypal to donate to them back before they attracted notoriety and US government wrath, but that’s no longer an option. The protocol itself only has pseudonymity but connecting to the network through TOR and using mixing services provides pretty good anonymity. Since I never did anything illegal via Bitcoin I never added a mixing service on top of TOR.

2) International money transfers for amounts under a few thousand dollars, depending on the source and destination countries. I used Bitcoin to send money to individuals I wanted to help in Poland and the Czech Republic a few years ago. At the time I did the transactions, Western Union was slower and fees were higher for the same-size transactions than the overhead from Bitcoin protocol fees and exchange fees converting to/from local currencies.

In both of these use cases you want to minimize the amount of time funds are actually held as Bitcoin. If both participants are already registered with exchanges the in-flight time for holding Bitcoin can be as low as a couple of hours. Since its creation Bitcoin has been more volatile than any currency issued by a national government. It looks like it could continue to support payment systems for a couple of niche use cases, at least until all major economies outlaw Bitcoin exchanges or until a fatal technical flaw is found in the protocol.

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Zamfir 01.15.15 at 9:03 pm

@pp, I understand you’re not a supporter. It’s just that this distant-payment aspect sounds to me like the only part of bitcoin that would be attractive to non-Believers. If it could work (and keep working) in a mostly non-bitcoin world.

I am honestly open to the idea that this would be possible, but I have never found a convincing (to me) explanation. I would want to minimise my exposure to bitcoins, to subseconds preferably. Both as consumer and a shop.

The wikipaypal thing seems unworkable if most people think like me. It needs people who willingly hold a substantial amount of bitcoins, just as people willingly hold Euros without bing compensated for it.

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marcel proust 01.15.15 at 9:06 pm

some consider Wikipedia to be more reliable than governmental websites or websites run by private corporations

You, or rather they haven’t met my then 12 y.o. nephew, who had a nice run for several weeks on Wikipedia editing entries about a particular kind of animal that has long fascinated him (before being banned for life for vandalism!). You may respond that Wikipedia resolved that situation nicely, to which my rejoinder is “Not before some of my nephews ‘facts’ were included in a memoir reviewed in the NYTimes.”

I’m being deliberately vague to protect the guilty. My sister remains quite chagrined by the whole affair and in retelling it mentioned that she tried to explain the notion of the social contract to her son. My adult son cracked up and told her that the social contract is an alien concept to teenage boys in pretty much every conceivable way (3rd person, 2nd person and first person). Much family hilarity has ensued from this escapade.

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marcel proust 01.15.15 at 9:06 pm

So much for closing tags!

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John Quiggin 01.15.15 at 9:37 pm

@64 That reminds me of my New Year’s resolution

J Thomas and Brett Bellmore: From now on, a maximum of one comment per thread per day on any of my threads, unless otherwise advised.

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Quite Likely 01.15.15 at 9:55 pm

I’m not sure if falling bitcoin prices imply “the end of bitcoin”. The coins have the same value they always did: as a medium of exchange. The issue has always been what benefit there is to using this less convenient medium of exchange rather than a conventional one. The answer is that you can use it to get around government restrictions, whether it’s buying drugs, donating money to Wikileaks, moving money across international borders, or whatever else you want to do with your money that the state is trying to prevent you from doing.

Bitcoin price fluctuations thus far have had almost nothing to do with any actual utility of bitcoin, and everything to do with speculation. Ironically, this screws with attempts to actually use the currency for anything, since who wants to use a currency that’s so volatile? For a while they could claim that the reason was that it would always just keep accumulating value, but anyone not caught up in the bitcoin bubble (two different kinds of metaphorical bubbles actually, speculative and information) knew that was not going to happen.

So now hopefully the bubble is finally bursting and bitcoin can find a little more stability as a niche product for people fighting the man.

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MPAVictoria 01.15.15 at 9:58 pm

“a niche product for people fighting the man.”

That could be their motto!

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Andrew Smith 01.15.15 at 10:24 pm

The “Get the government out of my currency” people who think bitcoins are useful are in for a big surprise. The NSA invented all of the cryptography used in bitcoins (and everything else, basically).

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Andrew Smith 01.15.15 at 10:32 pm

Fiat currency is pretty much 100% likely to be a con. The only real question is when any particular fiat currency will transform from a long-term con to a short term con. During the long term con phase, fiat currencies are actually useful, though more so to the currency issuer than everybody else.

What? Fiat currency keeps me out of jail every April up here in Seattle. That’s pretty useful.

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Collin Street 01.15.15 at 10:51 pm

> The NSA invented all of the cryptography used in bitcoins (and everything else, basically).

I said this before, but it seems pretty likely they developed bitcoin in the first place: beyond the “it’s complex crypto”, the way the transaction record works is particularly amenable to their network-analysis tools, and the way all the initial reports told essentially the same story about bitcoin [great for criminals!] looked more like a marketing campaign than a viral story breakout.

Apropos of nothing

Apropos

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primedprimate 01.15.15 at 11:01 pm

@Adam Hammond: Yes, indeed – I was wrong in my previous comment(s) on this point. There are transaction fees needed to incentivize ledger entry by miners unless the miners are participating in the transaction themselves. However these tend to be less than the transaction fees for credit cards etc.

On another note, I agree with everyone above who thinks that a niche market could exist for Bitcoins where the value of each Bitcoin is low enough to compensate for its volatility and low-usability equilibrium.

I am more optimistic about the prospects for the block chain technology but I am unable to predict how exactly it will be useful.

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Abbe Faria 01.15.15 at 11:46 pm

“But Joe how does [Bitcoin] facilitate trade better than Euros or Yen?”

You can make a 3rd-party confirmed timestamped publicly verifiable transaction which finalises in about 10 mins, with no intermediary. That’s not possible with Euro or Yen.

No other technology does this. Bitcoin’s the only global real time gross settlement system. If you have 15 mins to confirm a payment to someone in China, Bitcoin is it. Any other system for making a payment at distance runs you through an intermediary (with counterparty/credit risk) and/or (likely several) net based clearing systems and will take days before finalisation.

In terms of volatility, a bitcoin transaction finalises in 10mins. That’s compared to what can be days for international bank clearing system transactions. So volatility is more, but if your holding period is less it doesn’t mean your risk is.

I’m ambivalent about the currency. But the accounting technology is amazing.

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dm 01.15.15 at 11:51 pm

@Collin Street
I came to the same conclusion based on not knowing anything except how the technology is supposed to work (read the white paper). A coin that carries with it an encrypted history of where its been. Seems like a spook/forensic accountant’s dream.

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Bruce Wilder 01.16.15 at 12:36 am

I do respect JQ’s willingness to offer a sharp prediction, as a way of testing one’s understanding. I am particularly intrigued by JQ’s views on peak oil and the implications for oil prices, and of oil prices, for international climate change melioration policy.

The apocalyptic view of non-economists that fossil fuel prices would assume a permanently high plateau as peak oil took hold do not seem to be borne out. There’s a more realistic intuition regarding the future shape of fossil fuels trying to emerge here, though I’m not as sure as JQ seems to me that it is reason to be optimistic. Still, I’d like to see it thrashed out (more than I want to hear any more about bitcoin).

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Andrew F. 01.16.15 at 1:01 am

My reasoning is that 2014 supply can’t be sustained at prices below, say, $75, and (given a downward underlying trend in the developed world), 2014 demand won’t be reached again at prices above $75.

Just curious – why do you say $75? Just an impression from reports, or something else?

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js. 01.16.15 at 1:20 am

more than I want to hear any more about bitcoin

Amen to that.

(My prediction for 2015: New Zealand win the World Cup. [Frankly, this would be a lot funnier if this post were by one of our English hosts, and I would’ve “predicted” that England would win the World Cup.] Sorry—amazingly OT!)

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Matt 01.16.15 at 1:25 am

2014 was a lackluster-to-dreadful year for operators of coal-fired power plants and coal mines, at least in China, Poland, Germany, the UK, USA, and Australia. Have seaborne coal prices bottomed out? Will we see a rebound in 2015, or more mine closures, plant closures, and bankruptcies? In the USA there’s about 12 gigawatts of coal capacity scheduled for permanent shutdown in the next couple of years. There’s another ~40 gigawatts scheduled to shut down if the EPA’s mercury emission standards survive court review. If coal stays really cheap, part of the benefits from plant shutdowns will be reversed by remaining plants operating at higher capacity factors.

I have some hope that the terrible market conditions for coal miners will continue to worsen or prevail a year longer, so as to send panicked investors stampeding herd-like away from coal and staying away for the next few years, above and beyond the retreat justified by recent “long term market fundamentals.” In other words I hope recent predictions of fossil assets becoming stranded by CO2 limits might come to pass as a self-fulfilling prophecy among investors, at least for coal, even if there isn’t a global legal framework to force it.

111

quanticle 01.16.15 at 1:45 am

I’m no Bitcoin fan, but I feel like there’s a pretty big misconception in this thread re: the traceability of Bitcoin. Bitcoins are extremely traceable. Every Bitcoin transaction is recorded in a distributed public ledger. If you want, you can right now, see every single wallet a particular Bitcoin has ever touched. In that sense, Bitcoin has a much greater level of traceability than cash, or even current banking systems.

The reason that Bitcoin has a reputation for “untraceable” transactions is because Bitcoin accounts (or, in the parlance, “wallets”) are mere numbers. So, to analogize to systems that we’re more familiar with, Bitcoin is a banking system where everybody has numbered accounts, but every dollar has a RFID chip which writes the source and destination account number every time money changes hands.

On the face of it, this looks pretty secure. But, as we learned with the Snowden revelations re: metadata collection, traffic analysis is a powerful, powerful weapon. You might not be able to immediately query a name. But if you can watch all the transactions that a wallet participates in (a capability guaranteed by the fundamental mathematics of Bitcoin), you can quickly build up a “social graph” for the wallet you’re interested in and quickly narrow down your list of suspects.

tl;dr: Bitcoin is only “anonymous” because the NSA hasn’t started looking at it yet.

112

William Timberman 01.16.15 at 2:03 am

What surprises me — a little — is that oil from frakking in the Bakken shale formation is considered tight oil. I’d been under the impression that while it wasn’t as cheap to produce as Middle East Oil, it would require way less investment than deeper Gulf of Mexico oil production, or production from Canadian tar sands.

Mmmm…. So it now appears that oil from frakking was overhyped not only in terms of how safe it is to recover, but also in terms of its price of production. (I suppose I should have gotten some idea when people started talking about 50,000 wells in the North Dakota/Montana area once full production was reached, and noting in the fine print that the the production life-spans of individual wells were expected to be relatively short.)

Profitable only above $75 a barrel — that seems to me to be a real game-changer, and also makes a lot of the early hype about the U.S. becoming the new Saudia Arabia look even less honest than we suspected. Maybe JQ is right. If secular stagnation and suppressed aggregate demand are to be the new normal, investments in sustainable energy may begin to look more viable again. In any case, the fat lady hasn’t sung just yet.

113

Omega Centauri 01.16.15 at 3:41 am

William: It is considered to be tightoil becuase it requires unconventional means to produce. Fracking is brute force cracking of rock to get the stuff out. The fact that it requires fairly high prices to breakeven/ make a profit is also indicative of this.

I’m not convinced the Saudis are deliberately using oil as a weapon. There has always been strong pressure for anyone owning a well to produce flat out regardless of market conditions. Usually there are interest payments to be made. Also ther is rust. One of the favorite statements in the oil patch is “rust never sleeps”. So someone who has drilled a well isn’t going to slow/stop production waiting for better prices, as the drill pipes and other infrastruture are rusting, and delay could easily mean haveing to redrillor abandon it. But, in any case, if it is a strategic thing, as opposed to simple inertia thats motivating them, another target is renewables -and especially electrified transport.

My impression of bitcoin mining, is that it is rife with cybercriminality. Mining doesn’t pay if you have to pay for the computer resources, but if you can infect other’s machines, and trick them into mining for you the economics can be very favorable.

114

Guest 01.16.15 at 4:07 am

Speaking of bitcoin and criminal activity; Anyone heard of cryptowall? Malware that encrypts all your data holding it hostage for a set ransom to be paid by bitcoin. Comes complete with a handy countdown clock on the display of your captured computer. Nice recent story in the NYT; “How My Mom Got Hacked”
BTW I’d like to predict 11 named Atlantic tropical systems with 5 major Hurricanes and 4 storms making landfall.

115

Peter T 01.16.15 at 6:57 am

re the bitcoin discussion:

In what other fields of knowledge is it possible for informed – some expert – participants to have a discussion where it is clear that they disagree on a fundamental concept? Except philosophy.

116

Harald K 01.16.15 at 8:46 am

I see a lot of sneering at libertarians as argument to reject bitcoin here. This does not surprise me, I’ve seen plenty of it from people who ought to know better, but come on guys and girls. That libertarians like bitcoin for dumb reasons doesn’t mean you shouldn’t try to understand it. Waldman has, you can too.

Bitcoin is not untraceable. This is a myth both libertarian lovers and anti-libertarian haters believe. Bitcoin is in fact perfectly traceable, that being the point of a ledger. What is difficult is assigning human identities to the accounts in the ledger, but that isn’t anything unusual. Money laundering in bitcoin is very similar to money laundering in the conventional economy, once governments manage to wrap their heads around the technology it’ll probably be harder than with cash.

And David J. Littleboy, numbers in a ledger don’t need an intrinsic value. They just need a meaning. If I transfer three points to you, it’s inherently neat to be able to document that sort of thing in a distributed manner, whatever the points mean in the big picture. The thing sidechains and similar projects do, is precisely to attach various more specific meanings to the entries in the ledger.

MPAVictoria: You’re uncertain what problem bitcoin is supposed to solve. Are you comfortable then, that the electronic payments infrastructure is almost entirely in the hands of two closely entangled private companies? Who have been known to deny services for political reasons? Everyday services are not a small deal, as the unbanked can tell you. Is Bitcoin the perfect VISA-killer? No. But the technology at the heart of it, the blockchain, probably is part of the solution.

117

Ze Kraggash 01.16.15 at 10:16 am

“Who have been known to deny services for political reasons?”

Including this, about a month ago: http://www.reuters.com/article/2014/12/26/russia-crisis-visa-crimea-idUSL6N0UA0XJ20141226

Global infrastructure – and a tool of imperial domination.
I know, sounds like a proclamation of the People’s Front of Judea, but true nevertheless.

118

Brett Bellmore 01.16.15 at 10:18 am

If you’re pissed off about two private companies denying service for political reasons, (And I am, too, won’t have anything to do with PayPal.) how about federal regulators forcing banks to shut off service to perfectly legal businesses, for political reasons?

Again, my prediction: This is the year Operation Choke Point explodes. Stops being a minor scandal, and becomes a major court case: The administration is using regulatory threats to force banks to cut off financial services to perfectly legal businesses, because the administration doesn’t LIKE those businesses, not for any valid legal reason.

The rug is going to get snatched off this pile this year, that’s my prediction.

And my one comment today, JQ.

119

stubydoo 01.16.15 at 1:08 pm

Brett B,

“federal regulators forcing banks to shut off service to perfectly legal businesses”.

Are you referring to Marijuana dealers in Colorado/Washington?

That is not perfectly legal, it’s still illegal.

120

MPAVictoria 01.16.15 at 2:50 pm

“You’re uncertain what problem bitcoin is supposed to solve. Are you comfortable then, that the electronic payments infrastructure is almost entirely in the hands of two closely entangled private companies? “

Good point! But why not set up a new electronic payment service as opposed to a new type of “currency”?

121

Trader Joe 01.16.15 at 4:14 pm

“So someone who has drilled a well isn’t going to slow/stop production waiting for better prices”

Exactly so. Pundits like to say that this field or that well need $60 or $70 or some other dollar oil to be profitable, that’s true as far as the accounting, but has nothing to do with the cash flows. If you’ve already incurred all of the fixed costs, the point at which you’d choose to abandon these costs (and usually incur other ones to close or cap) rather than produce and sell for the cash flow is far, far lower probably in the $20-30s for many.

Perversely its the wind and solar producers that best exemplify this. Their ‘breakeven’ energy price is routinely much higher than carbon producers, but once the infrastructure is put in place, the marginal cost is much lower – while low oil prices might discourage new investment, it provides no reason whatsoever to stop producing.

122

TM 01.16.15 at 5:41 pm

“Dollars are a bad store of value”

I really like that. It’s like that other old saying: dollars are the worst store of value – except for all the others. There IS no real way to store value in the long run. The closest you can come to actually storing value is by hoarding cans of food, which gives you the certainty that years from now you will have at least that food (unless of course you already ate it or somebody stole it). Other than that there is no investment imaginable that is guaranteed to still have value when you need it decades in the future. There just isn’t. A lot of bad economic thinking comes from not getting this point, especially when it comes to retirement provision. While state organized pension systems like Social Security are always subject to political tinkering, for the vast majority of people such pensions are a far more reliable source of retirement provision than personal savings.

123

TM 01.16.15 at 7:19 pm

Britain is going to pass a law that legally requires the government to do everything in its power to maximize the country’s oil production. Of course, other countries including the US are doing the same thing without the need to enshrine the disastrous policy in law.

http://www.monbiot.com/2015/01/09/produce-more-consume-less/

The vagaries of the petroleum market are irrelevant in the long run. Fossil fuels will continue to be mined and burned no matter the price point unless deliberate policies are put into place to limit production or at least significantly raise the price.

124

Ze Kraggash 01.16.15 at 7:53 pm

“dollars are the worst store of value – except for all the others”

Arguably (I’m pretty sure), well-raised children are a better store of value.

125

MPAVictoria 01.16.15 at 7:58 pm

“Arguably (I’m pretty sure), well-raised children are a better store of value.”

Wow. Fantastic. :-)

126

TM 01.16.15 at 9:23 pm

I’m not so sure. The market for children is too volatile.

127

TM 01.16.15 at 9:23 pm

… for my taste.

128

Trader Joe 01.16.15 at 9:33 pm

@124
I’ve not reached the point where they are storing value so much as the point where they are consuming dollars and producing eye-rolls.

129

The Temporary Name 01.16.15 at 9:37 pm

Dollars don’t have a whole lot of good fibre in them.

130

J Thomas 01.16.15 at 9:44 pm

#122 TM

“Dollars are a bad store of value”

I really like that. It’s like that other old saying: dollars are the worst store of value – except for all the others. There IS no real way to store value in the long run.

Yes! Agreed!

The closest you can come to actually storing value is by hoarding cans of food, which gives you the certainty that years from now you will have at least that food (unless of course you already ate it or somebody stole it).

Canned goods depreciate. After 5 or 6 years it just isn’t as good any more. Canned tomatoes are especially bad. If there’s one spot near the seam where the enamel has a tiny hole, the entire contents will be contaminated with iron rust etc. It might even corrode all the way through and leak, and spoil.

Other than that there is no investment imaginable that is guaranteed to still have value when you need it decades in the future. There just isn’t.

Agreed. On average the value of land goes up. They mostly aren’t making any more of it. (And if the oceans rise there will be less.) While dollars are mostly guaranteed to inflate, the rate will probably be slow. But there is no guarantee that your particular land will increase in value. Even if you have prime land in a prospering city and you’re sure it will increase in value, all it takes is one terrorist incident that spreads radioactivity on it, and its value will stay low until people forget. Or the government might eminent-domain it and give it to somebody else to develop. Or raise the taxes until you can’t afford to keep it. Or zone it residential, rent-controlled.

There are no safe investments, no, not one. If you believe in efficient markets then you might believe that genius investors will look for bargains and bid up the prices on everything that is underpriced, and find ways to sell short or otherwise drop the prices on everything that’s overpriced, and so you get what you pay for. But my observation is that if you don’t do sufficient due diligence yourself, you will find that the bad deals you get are a part of the slow process of making markets more efficient. Markets are surprisingly efficient at separating fools from their money, but they can’t get you until you actually make a transaction. If you stay in cash you’re guaranteed a loss, but it might be a slow loss.

131

John Quiggin 01.17.15 at 2:18 am

Andrew F @108

On the supply side, I wanted a price below estimates of the marginal cost of new oil, currently around $90. That means that, as existing wells run out, it won’t be profitable to replace them.

On the demand side, I wanted a price in the range that has been observed for the last ten years or so, during which we have seen a lot of substitution away from oil, reductions in driving and so on.

http://www.forecast-chart.com/chart-crude-oil.html

Looking at these, I should probably have picked a slightly higher price, say $85, still below MC, and clearly too high for consumers to keep increasing demand.

132

Ze Kraggash 01.17.15 at 10:14 am

128 “consuming dollars and producing eye-rolls”

Ha-ha, I like that. Fair enough. I should’ve said: traditionally that was the way to store value. These days, in many parts of the world you probably won’t be able to store much this way. Although, I’ve met someone recently, the guy belongs to some, what sounds like, Christian cult, and he and his wife have 10 children. I talked to the oldest (university student): very polite and respectful, no eye-rolls. So, still possible, if uncommon.

133

Brett Bellmore 01.17.15 at 11:27 am

Stubydoo: “Are you referring to Marijuana dealers in Colorado/Washington?

That is not perfectly legal, it’s still illegal.”

Didn’t bother following the link, did you? A list of business categories that are being “choked”, most of them, yes, perfectly legal:

Ammunition Sales (Not just legal, a civil right!)
Cable Box De-scramblers
Coin Dealers
Credit Card Schemes
Credit Repair Services
Dating Services
Debt Consolidation Scams
Drug Paraphernalia
Escort Services
Firearms Sales (Not just legal, a civil right!)
Fireworks Sales
Get Rich Products
Government Grants
Home-Based Charities
Life-Time Guarantees
Life-Time Memberships
Lottery Sales
Mailing Lists/Personal Info
Money Transfer Networks
On-line Gambling
Payday Loans
Pharmaceutical Sales
Ponzi Schemes
Pornography
Pyramid-Type Sales
Racist Materials (Again, a civil right, even if you don’t like them.)
Surveillance Equipment
Telemarketing
Tobacco Sales
Travel Clubs

Notice pot dealers on the list? Neither did I. A few of these, such as Ponzi schemes, are illegal, most are not. The point of Operation Choke Point is to use regulatory abuse to force banks to close the accounts of legal businesses. The Justice department doesn’t need to resort to such indirect means to go after illegal businesses.

More on Operation Choke Point.

134

Hidari 01.17.15 at 11:46 am

@123
Precisely and it’s actually worse than that. Nature has recently stated how much oil/gas/coal etc. has to be left in the ground if we are to have a chance to beat this thing.

To quote Monbiot:

“To deliver a 50% probability (which is not exactly reassuring) of no more than 2° of warming this century, the world would have to leave two-thirds of its fossil fuel reserves unexploited.

I should point out that reserves are just a small fraction of resources (which means all the minerals in the Earth’s crust). The reserve is that proportion of a mineral resource which has been discovered, quantified and is viable to exploit in current conditions: in other words that’s good to go.

The Nature paper estimates that a third of the world’s oil reserves, half its gas reserves and 80% of its coal reserves must be left untouched to avert extremely dangerous levels of global warming. Two degrees is dangerous enough; at present we are on course for around five by the time the century ends, with no obvious end in sight beyond 2100.

The only sensible response to such findings, which some of us have been advocating for years, is a global agreement to leave these unburnable fossil fuels in the ground. But it’s not just that no such agreement exists, no such agreement has ever been mooted.”

Monbiot continues: ‘Researching Don’t Even Think About It, which I see as the most important book published on climate change in the past few years, George Marshall discovered that there has not been a single proposal, debate or even position paper on limiting fossil fuel production put forward during international climate negotiations.

“From the very outset fossil fuel production lay outside the frame of the discussions and, as with other forms of socially constructed silence, the social norms among the negotiators and policy specialists kept it that way.”’

Therefore, all, without exception, climate change agreements, proposals, meetings etc, up until now have proposed (let alone accomplished) literally nothing that will have any major impact on AGW.

In other words, to put it bluntly, the idea that we are going to meet the 2 degrees limit is absolutely and precisely zero. We are going to zoom past it and into a new world, and relatively quickly, too.

http://www.nature.com/nature/journal/v517/n7533/full/nature14016.html

http://www.monbiot.com/2015/01/09/produce-more-consume-less/

135

Harald K 01.17.15 at 5:48 pm

TM@122: “The closest you can come to actually storing value is by hoarding cans of food.”

And in the event of food not being all that scarce in the future either, you can open the cans, eat the contents and post it on the net. I must admit I’ve enjoyed some such videos, although I’m worried certain youtube stars will get botulinum toxin poisoning one of these days.

MPAVictoria@120: Why not compete with the same sort of technology the current payment providers uses? Well, I would face the problem of lacking capital, political clout, and trust. It’s not easy for any single person or entity to take up the battle with VISA/Mastercard and Paypal. But that’s where a distributed solution becomes so nice. Individually, you probably wouldn’t trust many bitcoin users to run a payment provider, but the technology helps a lot to address that problem.

136

Bruce Wilder 01.17.15 at 8:42 pm

At risk of introducing actual economics into this discussion of “storing value”, I would point out that what people do is hold a portfolio against uncertainty. Institutions can increase the power of individual people to assemble or make practical use of a portfolio.

The usefulness of a currency as a store of value is incidental to the competence of a system of institutions: banks, a payments system, a marketable national debt, insurance, financial markets, and so on.

The usefulness of a financial system as a tool of exploitation, control and extraction should not be overlooked, because there is an on-going political contest over whether the system of monetary and financial institutions should serve one purpose or the other. Doing one function well undermines the other.

Paranoia, which underwrites so much goldbuggery and bitcoin enthusiasm as well as apocalyptic anticipation, may be stupid, but it is not wrong: “they” really are out to get the rest of us.

What is harder for me to understand is the reluctance on the left to demand acknowledgement of this state of affairs from the center and from the technicians.

Part of the problem may simply be that any workable financial system, whether it works well for good or ill is too complicated to be popularly understood, even by educated people. Any slogans expressing even minimal idealism become prescriptions for impractical simplicity or transparency. One of bitcoin’s virtues may be the difficulty of understanding it.

137

J Thomas 01.17.15 at 9:40 pm

#134 BW

Part of the problem may simply be that any workable financial system, whether it works well for good or ill is too complicated to be popularly understood, even by educated people.

Is that necessary?

Could it possibly happen someone could say what it means for a system to “work well” in ways that educated people could understand?

Of course the details will always be so complicated that we won’t understand them, except by stories. Like, Herodotus told a story that in his time, merchants noticed a shortage of amphoras in a place in Egypt and didn’t know why. He claimed the reason was that there was a gold mine out in the desert, and they carried water in the amphoras to the mine and then left the empty amphoras there.

Kind of similarly, at one time there were a whole lot of missions available to truckers taking loads to Dallas/Fort Worth from various places in the USA, but there were hardly any pickups taking stuff from there to elsewhere. Truckers who took those jobs had to deadhead to their next stop, so it didn’t pay well. (High demand for truckers = low pay. Free market.) I never heard anybody had any idea what that was about. Herodotas was ahead of the game.

Of course there will be lots of details that don’t make sense. But is it necessary that the system in general has to not make sense or else it won’t work?

138

Andrew F. 01.17.15 at 10:12 pm

John @131: Thanks! I noticed that the estimates for the marginal cost of production in shale were a couple of years old. Goldman published a research note last week which, while not necessarily predicting differently than you re production in 2015, indicated lower estimates for the marginal cost of production, and drawing some interesting, hedged, conclusions.

There’s a very good article in FT’s Alphaville on the subject.

From Goldman’s note:

To keep all capital sidelined and curtail investment in shale until the market has rebalanced, we believe prices need to stay lower for longer. As short cycle shale production is a 12 month investment proposition, producers typically hedge out 9 to 12 months. As a result, fresh E&P capital primarily focuses on the 12 to 24 month strip in making investment decisions.

As a result, the market anchor is shifting to this ‘one-year-ahead’ swap which creates the level of investment to balance future physical markets. It is therefore this forward price that needs to remain below full-cycle costs to curtail investment, not the spot price. Due to significant evidence of cost deflation and efficiency gains, we are lowering our estimates for the marginal cost of production to $65/bbl and $70/bbl for WTI and Brent from $80/bbl and $90/bbl, respectively. These are our new ‘normal’ price forecasts. As a result, we forecast that the one-year-ahead WTI swap needs to remain below the $65/bbl marginal cost, near $55/bbl for the next year to sideline capital and keep investment low enough to allow for a physical rebalancing of the market.

139

Brett Bellmore 01.17.15 at 11:35 pm

Hey, JQ, was that once a day, or once a day, and it spends eternity in moderation? ‘Cause I can’t see what you’d object to about my comment 133, that’s been sitting there since early this morning.

140

John Quiggin 01.18.15 at 12:53 am

Brett, you do know about time zones, don’t you? Early morning for you is bedtime for me, I expect.

If you want the 24-hour service version of the blog, you’ll have to send me bitcoins

141

Bernard Yomtov 01.18.15 at 12:54 am

It is amazing to me that bitcoin fans can claim it’s wonderful because there is no inflation* and at the same time see huge fluctuations in dollar value. If bitcoins lose half their value against the dollar bitcoin prices double.

(*This is not necessarily a good thing in itself, and a fixed supply of currency will produce deflation, which is usually a bad thing.)

142

Peter 01.18.15 at 3:17 am

WRT 21: Didn’t Jesus Christ say it?

143

Just another commenter 01.18.15 at 3:20 am

Since we’re surmising wildly here: the only reason bitcoin transactions appear reasonably anonymous is that Facebook has not yet implemented “I just spent X btc on Y” as a standard notification. The moment they do so, the traffic analysis needed to determine 99% of the identities behind transactions will become trivially easy from the large majority who will willingly or carelessly unmask themselves.

144

Peter 01.18.15 at 3:26 am

I’m betting on Qwatlos. Starting now. (50)

145

Hidari 01.18.15 at 8:56 am

I’m with @126 here: I don’t really get the scorn and contempt heaped on Bitcoin here. Sure some on the Libertarian fringe have become far too excited over its potential for ‘overthrowing the state’ (or whatever) but then libertarians tend to get excited by anything that has diodes and flashing lights and isn’t associated with the State, so their views can be safely disregarded.

Don’t get me wrong. I’m not saying that Bitcoin is a fantastic idea (it’s certainly not doing too well at the moment) but compared to a really and genuinely stupid and insane idea, like the Euro, it’s pure da Vinci-esque genius.

Incidentally, given the possibility of Syriza winning the Greek elections on Sunday, this might be the endgame for the Euro, and possibly for the EU, so that’s my prediction for 2015, although it is to be taken in the lighthearted ‘let’s face it I’m probably wrong’ spirit in which these predictions are normally given.

146

Bernard Yomtov 01.18.15 at 4:45 pm

Here is an example of Brett’s “proof.”

From the web site he links to comes a quote:

“I opened a new account at Chase about 2 weeks ago. Today I received a letter stating they were closing my account. No explanation. We used to sell firearms and held a Federal Firearms License, but we gave that up a couple months ago due to overregulation. We have always operated completely legally and legitimately.”

Laughable.

147

Ze Kraggash 01.18.15 at 5:10 pm

“Incidentally, given the possibility of Syriza winning the Greek elections on Sunday, this might be the endgame for the Euro, and possibly for the EU”

Syriza is winning the Greek elections, but Greece is a NATO member. According to the treaty (article 4): “The Parties will consult together whenever, in the opinion of any of them, the territorial integrity, political independence or security of any of the Parties is threatened.”

They will consult together – and then, if as you say it’s threatening the EU, I suppose anything can happen. No one can predict.

148

Omega Centauri 01.19.15 at 1:35 am

When discussing the breakeven cost of producing the next barrel of oil, we need to recognize that many of the inputs are priced by the market. So stuff like drill pipe can become much more expensive during an oil boom than during a downturn. Ditto for drill rigs. Ditto for human experts. So the marginal cost during the height of the boom is likely to be substantially higher than the marginal cost during a slowdown.

149

MPAVictoria 01.19.15 at 1:54 am

““I opened a new account at Chase about 2 weeks ago. Today I received a letter stating they were closing my account. No explanation. We used to sell firearms and held a Federal Firearms License, but we gave that up a couple months ago due to overregulation. We have always operated completely legally and legitimately.””

Dear Penthouse NRA,
You will never believe what happened to me today…….

150

Brett Bellmore 01.19.15 at 10:20 am

There ought to be a Latin term for “Pretending one small fragment of the evidence for something is the only evidence for something.” Got a feeling I’m going to be seeing it a lot more often, now that I’m limited to one comment a day on Quiggin’s posts, as the tactic works better when you can count on not having it immediately pointed out.

Congressional testimony, recording of a bank employee telling somebody that’s why their account got canceled, FDIC documents. (That’s where the list of targets came from.) None of it matters, because you could identify one solitary piece of evidence you thought was, in isolation, inadequate. And because I couldn’t comment for 24 hours, you could pretend it was the only evidence, without fear of immediate contradiction.

Let me try to focus your attention a bit: There’s no particular reason why, after the 2016 elections, abortion providers couldn’t be “choked”. Since the tactic doesn’t rely on any issues with the legal status of the business, the fact that the courts won’t let abortion be outlawed wouldn’t provide a bit of protection.

Please tell me this isn’t yet another abuse you can’t be bothered by, because it’s being perpetrated by an ally, against enemies, and you can’t imagine the tables ever turning.

151

David J. Littleboy 01.19.15 at 11:11 am

“So the marginal cost during the height of the boom is likely to be substantially higher than the marginal cost during a slowdown.”

Not necessarily: there’s also mass production issues. If there’s a big market for drilling pipe, manufacturers will install facilities for making large quantities of such pipe, and as long as there’s competition, there will be downward pressures on price. But if almost no one’s using drilling pipe, the manufacturers can shut down their mass production facilities and the few folks left drilling face higher prices from smaller lot manufacturing.

Photographic film is like that: it’s rather complex to make (especially color film), and
there have to be a lot of users to make it worth manufacturing. (The last I checked, Fujifilm, having “film” in their name, seemed perversely committed to continuing with film. But I wouldn’t bet on there being film to use the next time I feel like taking my Rolleiflex or Mamiya 7 out for a walk…)

152

Bernard Yomtov 01.19.15 at 3:00 pm

Brett,

I merely point out that those who are criticizing teh program are relying on very flimsy evidence of wrongdoing. Do the items you mention exist? Are there lists? Yes. Has there been testimony? Well, yes, but by who?

Have you ever considered the alternative explanation – that some types of businesses have a history of using their bank relationships, or allowing them to be used, for fraudulent purposes and therefore deserve closer scrutiny? Are you familiar with the Four Oaks case?

Do you think bank tellers actually know much about what the examiners have told management?

Do you think managers are 100% truthful to customers? Suppose the FDIC tells a bank it needs to monitor certain businesses more closely than others, for good reason, and the bank decides it’s not worth the trouble. What do you think they will tell the customer?

Please contrast your approach to right-wing allegations about Operation Chokepoint – you’ll swallow anything – to your approach to the issue of Obama’s birthplace.

153

J Thomas 01.19.15 at 5:29 pm

“Let me try to focus your attention a bit: There’s no particular reason why, after the 2016 elections, abortion providers couldn’t be “choked”. Since the tactic doesn’t rely on any issues with the legal status of the business, the fact that the courts won’t let abortion be outlawed wouldn’t provide a bit of protection.”

“Please tell me this isn’t yet another abuse you can’t be bothered by, because it’s being perpetrated by an ally, against enemies, and you can’t imagine the tables ever turning.”

Do you think managers are 100% truthful to customers? Suppose the FDIC tells a bank it needs to monitor certain businesses more closely than others, for good reason, and the bank decides it’s not worth the trouble. What do you think they will tell the customer?

Please contrast your approach to right-wing allegations about Operation Chokepoint – you’ll swallow anything – to your approach to the issue of Obama’s birthplace.

This looks to me like an example of what Brett Bellmore is good for. Never mind about whether he’s consistent about his own claims. Never mind whether he is on average good or evil. Sometimes in the process of ranting about wild wingnut claims he brings up an issue we ought to pay attention to.

It’s hard to get by in today’s society without a bank. (Unless you’re a homeless person who never gets his hands on anything but cash. You sure can’t run a business without a checking account and multiple ways to accept payment. The federal government and/or the banks can shut you out of that, with no explanation? That’s wrong.

A restaurant can’t deny you service because of who you are, but a bank can deny service to anybody with no explanation or a quick lie? That’s wrong.

Never mind whether Brett’s examples deserved it. What are the rules to make sure it doesn’t happen to innocents, and how are those rules enforced?

The banks are probably too powerful anyway. Private institutions with a lot of privacy, who have unlimited amounts of money. The large majority of the population including most government workers have bank debt of one sort or another. Say they blacklist you, and then you get to take them to court? No good.

So my proposal is that we let the federal government set up a quasi-bank system itself. Provide a checking account to every citizen, with no monthly fee. With a debit card that can be accessed anywhere that accepts MasterCard or Visa. Every post office would get a branch. If all your ID gets stolen you can stop by your post office and get identified with biometric data and get a new card. Have the NSA handle the federal bank’s data security. And the government can’t block anybody’s account until they’re ready to charge him with a crime.

After that’s set up, the government banks could handle business accounts for a reasonable fee. For small businesses with reasonably simple needs that could be free too. We want to encourage small businesses, right? And again, they don’t get to shut it down until they’re ready to arrest somebody.

Just as we supply sanitized medical data to epidemiologists to help them find out about disease spread and such, we could supply sanitized economic data to economists so they could get some idea what’s happening to the economy.

There are various things that would work against this. The banks of course might use all their lobbying power to stop it. And they might insist that everybody who has loans or credit lines with them must use their checking accounts. (It only makes sense that a bank which might give you a loan will have more faith in you when they can see every transaction you make.) So they have a lot of leverage.

But if you have available a government-sponsored checking account and debit card no matter what, that’s at least something. You’re better off with that option available.

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TM 01.19.15 at 6:25 pm

“A restaurant can’t deny you service because of who you are, but a bank can deny service to anybody with no explanation or a quick lie? That’s wrong.”

It’s definitely wrong and it’s good news that the EU has adopted a directive guaranteeing a right to a bank account for all citizens (http://europa.eu/rapid/press-release_STATEMENT-14-237_en.htm). In the US, this would be unthinkable due to the anti-regulation ideology espoused by BB himself. I do not doubt that abuses of state power in this area happen (terrorism watch-lists and the like) although the wild claims espoused above certainly invite skepticism. But unless I am very mistaken, BB’s own view is that banks should be free to arbitrarily deny services to anybody. It’s a contradiction he needs to come to terms with.

155

MPAVictoria 01.19.15 at 6:27 pm

” It’s a contradiction he needs to come to terms with.”

Being a right winger means never having to be consistent. It is one of the perks.

156

Bruce Wilder 01.19.15 at 7:07 pm

J Thomas @ 153

You outline a remarkably sensible proposal to reform the system of identity and payments we use. Remarkable because it ought to be obvious that we need to do this, and it would solve a number of increasingly costly problems. And, remarkable, too, because no one has to get a Ph.D. in philosophy to step behind a Rawlsian veil of ignorance in order to sketch reasonable and fair principals for the rules of such a system: that it should be universal, etc.

Politically, it is almost unimaginable, and that’s what’s wrong with our politics. Even the soi disant leftists are sure that Brett Bellmore is exaggerating the hazards and there’s nothing to worry about because . . . I don’t know, Obama is black, or something. It is all a conspiracy — torture, detention without due process, no-fly lists, militarized police, seizure of property without due process, the end of net neutrality, TBTF financial institutions, universal surveillance, . . .

I get that that there’s pretty much nothing any of us can really do about any of this, but do we have to be suckers for the propaganda, too? Do we have to deny it, just because Brett Bellmore is right?

157

Bernard Yomtov 01.19.15 at 7:14 pm

A restaurant can’t deny you service because of who you are, but a bank can deny service to anybody with no explanation or a quick lie? That’s wrong.

A bank can’t deny you service “because of who you are” any more than a restaurant can. On the other hand, a restaurant can deny you service because of how you are dressed, or because you tried to skip out on the check last time you were there, or because you are drunk, or being loud and obnoxious, and a lot of other reasons.

Similarly, a bank can deny you service if your account is insufficiently lucrative. A restaurant does the same, indirectly, when setting menu prices. If you can’t afford the least expensive item you don’t get to come in and drink water and eat free bread.

None of this has anything to do with the “Operation Chokepoint” business that Brett is on about.

158

Watson Ladd 01.19.15 at 7:27 pm

Is that why the banks are shutting the accounts? Or is it because regulators have told them that they don’t like this business? Remember, bank regulators have enormous power: what might look like a suggestion to you or me is really mandatory to a bank, and they know it.

This isn’t about lucrative accounts. It’s about the regulator calling up a bank and saying some customers are risky, meaning the regulator might take action if you serve them. But the regulator isn’t going to ever say that last part: they don’t need to, just as a mafia don never needs to say what he wants to happen to someone who is a problem.

If some banks don’t want to serve you, you used to be able to find another. Thanks to increased regulatory burdens in the US, banks are getting bigger, not smaller, and many local banks are merging. There are now four different regulators of banks, with overlapping mandates. Combining them would be too simple and sensible for the US Congress.

My prediction: additional felonies get added to the US Code. Increased regulation, with more overlapping regulators (already a major problem in banking), less accountability for members of the political class when something goes wrong or they commit a crime, and more prosecutorial overreach in general.

159

Bruce Wilder 01.19.15 at 7:31 pm

Bernard Yomtov @ 146, 152, 157

Do you have a point? Because I’m not getting it. You just seem to be obfuscating with no purpose other than to demonstrate that you do not like anything Brett Bellmore says.

160

MPAVictoria 01.19.15 at 7:46 pm

You do realize Bruce that Brett would oppose to his dying breath the (very sensible! I have long supported a postal banking system that is similar in concept) policies outlined by J?

161

Bernard Yomtov 01.19.15 at 7:47 pm

Bruce,

My initial point is this.

Brett appears to be angry about a government operation called “Operation Chokepoint,” which he initially mentioned in this thread at 118. His belief is that the government is nefariously using banking regulations to shut down businesses it doesn’t like, and I think he is particularly concerned about gun dealers.

He followed up #118 by providing a link to some site which he thinks has evidence supporting his opinion, and I pointed out that at least one item I read there was rather silly.

Thereafter we have responded to one another, Brett claiming that I was singling out one item while I claim (152) that none of the other things he cites are very persuasive either.

My 157 has nothing much to do with Brett, but rather responds to J Thomas’ notion that banks are free to deny service in ways that restaurants are not.

Those are my points.

The fact is I don’t like most of what Brett says, though I have, on some few occasions, found myself in agreements with him.

162

J Thomas 01.19.15 at 9:08 pm

#157 Bernard Yomtov

… a bank can deny you service if your account is insufficiently lucrative.

I am not interested in the legitimate reasons banks may have to deny you service. I’m interested in seeing that everybody can have a bank account if they are not in a prison or mental institution and of course provided they have some money.

I don’t care whether banks deny service because they predict they won’t make enough profit on it, or because the government has coerced them not to, or what. I want everybody who has income to have a bank account and a debit card. If a court says you have committed fraud and they freeze your assets, OK. If they say you are incompetent to manage your own affairs and they appoint an administrator to manage your account for you, OK. But only the courts have the right to deny you the basic financial services that US citizens depend on. It is absurd to require that you pay your rent or mortgage payments in cash.

So if for any reason the banks cannot be held responsible to provide those services, someone else should provide them. There is no particular reason that banks should be allowed to do that, but I don’t mind them competing in that market provided they can compete with government services provided free which have security by NSA.

163

Ze Kraggash 01.19.15 at 9:08 pm

Postal banking is the reality in many, many countries. It used to exist in the US too.

164

Bernard Yomtov 01.19.15 at 10:17 pm

J Thomas,

I think postal banking or the like is a fine idea.

165

John Quiggin 01.19.15 at 11:52 pm

Australian banks are required to offer low-fee accounts to welfare recipients and other concession card holders. Of course, there is no issue of principle here: the banks are the beneficiaries of an effectively unlimited government guarantee, and must accept the terms that come with it

http://rlc.org.au/article/helping-vulnerable-clients-avoid-bank-fees-and-penalties

166

Cranky Observer 01.20.15 at 12:09 am

= = = Brett appears to be angry about a government operation called “Operation Chokepoint,” which he initially mentioned in this thread at 118. His belief is that the government is nefariously using banking regulations to shut down businesses it doesn’t like, and I think he is particularly concerned about gun dealers. = = =

About 6 months ago there were several thoroughly documented instances of people in the p – – – industry having their credit accounts shut down, bank accounts frozen, and other financial confiscations directed at them. These were people and businesses operating in conformance with California law and in compliance with 18 USC 2257, so presumptively in compliance with relevant Supreme Court rulings. Rumor at the time was that the Treasury Dept had ordered a “crackdown” on this industry and was attempting to pick off both targeted individuals and the two credit card processors that will take that type of account. Not sure where that ended up as the industry appears to be operating for the moment (or so a friend tells me), but it is not inconceivable that such actions could be going on.

Have never heard anything about licensed gun dealers being affected though, and in my state the screams would be loud enough to heard in Berkley if such a thing were to be tried.

167

Cranky Observer 01.20.15 at 12:32 am

I’m not usually found supporting arguments advanced by Mr. Bellmore, but reading the full text of the FDIC “advisory” (not just the summary – click the link) is not reassuring:

https://www.fdic.gov/news/news/financial/2014/fil14041.html

As I interpret bureaucrat-speak that is pretty strong CYA for “we got caught”. Just because a libertarian is paranoid doesn’t mean some large entity isn’t out to get you.

168

Matt 01.20.15 at 2:07 am

It is absurd to require that you pay your rent or mortgage payments in cash.

Oh, if only that were an option! No apartment I ever rented allowed rent to be paid with cash or credit cards. Only checks and direct debit were allowed. If you didn’t have a bank account of your own you would have to pay a third party to produce a cashier’s check you could use to pay the rent.

The extreme difficulty of living a middle-class or better life on cash alone is why I’m not concerned about Bitcoin fulfilling the libertarian dream of starving government of tax, by the way. Most of life’s major expenses leave a trail of records. If you rent or buy an apartment, house, condo, or car it leaves records. You leave records for tuition, medical insurance, auto insurance, doctor’s visits, prescription drugs, utilities. Most of these things leave double records, with the place you’re paying and with a bank, because only a minority of middle-class spending can be handled cash-only.

“I’ll earn and spend in Bitcoin and cash, and never pay income taxes” only works if you’re willing to live like a working poor person on the edge of homelessness, or an undocumented migrant worker, overpaying for most things and leaving behind middle class niceties like “being able to report fraud to the police.” Yeah, that’ll really teach Uncle Sam a lesson.

169

Bernard Yomtov 01.20.15 at 2:08 am

Cranky,

As I interpret bureaucrat-speak it sounds like, “People are raising hell for no good reason, so here is some reassurance that it really is reasonable.”

Payments processing is an area ripe for fraud. It is quite reasonable for the FDIC to be concerned. I suggest to you, as I did to Bret, that you look at the Four Oaks bank case.

170

Brett Bellmore 01.20.15 at 10:46 am

J, you have suggested what would be a not unreasonable response to banks, of their own will, denying people service. If we had a reasonably non-corrupt civil service, that scrupulously avoided political abuse, it might be a grand idea. As a response to the government itself pressuring banks to deny somebody service, it epicly misses the point. On a Wrong-Way Corrigan scale.

Let us suppose that, two years hence, during the first months of the Scott Walker administration, the FDIC issues a revised choke list. It looks something like this:

Labor unions.
Secular humanist organizations.
Community organizers
Anybody remotely associated with Al Sharpton
Abortionists
La Raza

Now, it *could* theoretically be possible that these categories of account holders have an insanely high rate of fraudulent transactions, justifying regulatory action against a bank offered them an account. But I’m pretty darned confident none of you would be content with the theoretical possibility. You’d demand evidence that this actually the case. Evidence by the truck load.

If any of you actually feel like following the link I provided, (Thanks, Cranky, for doing that.) you will find that Operation Choke Point has been investigated, (Yes, I know, Issa, and for most of you that ends your curiosity if you had any.) and it has been determined that, while the FDIC put a lot of work into determining how to implement the list of businesses to be “choked”, and PR, and things like that, the list itself seems to have sprang forth from the head of Zeus, a remarkable case of emaculate conception. There was no evidentiary record concerning from whence it came, and no discussion recorded on the subject of, “Hey, do we really have any basis for including these businesses on this list?”

The list just appeared out of nowhere, and it was taken for granted they were justified in shutting those businesses down, and didn’t need to prove they had a good reason.

But it’s not the Scott Walker administration, so the businesses the government wants to deny banking services today are not ones you particularly like, so you’re cool with it.

Didn’t really expect any other response from most of you, frankly. But I’m going to keep providing oportunities to prove me wrong, so long as I’m permitted.

Anyway, it’s a prediction thread, and that’s my prediction: The lid gets blown off Operation Choke Point this year.

Oh, and I see my comment 434 on the Charlie Hebdo thread has emerged from moderation. Regrettably, it emerged from it in the direction of the memory hole. For future reference, it would be nice to know WHY.

171

MPAVictoria 01.20.15 at 1:16 pm

“As a response to the government itself pressuring banks to deny somebody service, it epicly misses the point. On a Wrong-Way Corrigan scale.”

Called it.

172

William Timberman 01.20.15 at 2:42 pm

Chalk one up for Brett Bellmore. In the absence of fierce political pushback, extrajudicial tools like this — and the asset seizure scams employed so creatively as funding devices by police departments all over the country — are only going to get worse. We’re bringing the war home on a grand scale now. First we use our influence over the international settlements system to put the screws to Iran and Russia, then decide that what works for Iran will also do nicely for Wikipedia, and what works for Wikipedia might also be a fine way to fuck over anybody we’d like to discourage but can’t use existing law and most court precedents to get at. Equal protection of the law? I’m sure Justice Scalia will be along any minute now to help you with that….

173

J Thomas 01.20.15 at 3:02 pm

#170 BB

J, you have suggested what would be a not unreasonable response to banks, of their own will, denying people service. If we had a reasonably non-corrupt civil service, that scrupulously avoided political abuse, it might be a grand idea. As a response to the government itself pressuring banks to deny somebody service, it epicly misses the point. On a Wrong-Way Corrigan scale.

No, not at all. It goes like this:

Banks are private businesses and they provide a service to people they want to provide it to, people they can make a good profit off of. It would be wrong to require banks to provide services to people they couldn’t profit from. And it would be wrong to make them reveal their secrets, like their secret relationships with government. On the other hand they tend to be TBTF and their secret relationships with government may be giving some of them way more profits than they ought to have etc.

I propose a government service. The government provides this service to all citizens. I propose that by law, the government must provide this service to all citizens unless the citizens are charged with crimes that require it to be suspended, that involve trials.

So if you are defrauding people and you are using your bank account to do it, and the government thinks you would do less fraud if they denied you banking, tough. Let them prove it in court.

If you are running a gun store or a pornography business and they want to shut you down? They have to tell the court exactly what laws you are violating.

If they think you’re a terrorist? *Maybe* they have to give DHS or somebody your records that show who you’ve been doing business with. But they can’t interfere with that business until a court says they can, after you have been given the opportunity to defend yourself in court.

If we need a constitutional amendment to make this a right, then pass the constitutional amendment. The federal government can coin money, states can’t. Banks and credit-card companies create virtual money — I’m not sure they ought to be allowed. But the large majority of citizens including essentially all middle-class citizens cannot get by with US money, they have to use private banks. In today’s world, coining money must include providing checking accounts.

The federal government is not supposed to take away your property including your money except after due process, because you deserve it. How do you want to deal with that? If they arrange to secretly destroy your business do you want to sue the banks they coerced? Think you’ll win?

Make it a right. Citizens’ ability to do transactions through public banks shall not be infringed. Private banks, though — that’s between you and them. If a private bank steals your money you can sue them. If you put your money in a private bank you deserve what happens to you.

Alternatively, we could get some benefits by putting a limit on the maximum size of a bank that does business in the USA. If banks had to stay reasonably small there could be a lot more of them and they would compete more. Say that the maximum size of a bank’s assets were $1 billion, if a bank ever had more than that it would need to split into two banks. Then you could always find some bank that would do business with you, and if a bank offered you a bad deal you could usually find a better one — though you’d have to watch out for banks that might go bankrupt. Would we be better off with a higher rate of bank failures, than with a few giant banks TBTF that have a whole lot of government influence? Yes, sure, if the failure rate wasn’t *too* high.

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Bernard Yomtov 01.20.15 at 3:50 pm

Well, Brett seems to have sold everyone. But I’ll still make a point or two:

1. The “President Walker” list Brett provides as a scare consists entirely of organizations conservatives plainly dislike for political or ideological reasons.

2. The actual list he cites at 133 contains a great many entries with no particular ideological bent.

3. The Treasury and DOJ claim that many of these businesses are likely to engage in fraud and deserve close monitoring by the banks. Surely even Brett will agree that that’s true of some of the items. It might possibly be true of many others, if only we had the data. It’s worth reading this. for a somewhat more balanced view.

The Justice Department has been waging a campaign to cut off scammers’ access to the financial system for the past year. Through “Operation Choke Point,” prosecutors are investigating whether third-party processors that route payments for merchants through banks are ignoring signs of fraud to rake in fees from transactions.

Authorities have publicly said they are focusing on “high risk” activities — potentially predatory activities like payday lending, as-seen-on-TV retailers and Internet gambling. Those categories, according regulators, have high rates of returns for unauthorized debit transactions, an indication of fraud.

Is this the absolute best approach to fraud? Who knows. Is it an effort to shut down political opponents? No.

175

Bernard Yomtov 01.20.15 at 3:51 pm

The next-to-last paragraph above is also from the article. Sorry for the error.

176

Cranky Observer 01.20.15 at 6:16 pm

J Thomas,
A very large amount of question begging going on in your explanation I’m afraid. Such a system would require clear and unbreakable understanding that we as a society would agree on what is legal explicitly via the legislature and open honest court cases, and no extra-legally punish those who engage in activities we don’t like. When USAG John Ashcroft decides to go after legal adult entertainment businesses that his religion and personal morals disapprove of and orders the Post Office to shut down & seize the bank accounts of people earning their living in that way, what happens?

You can say, we will have agreed not to do that, but we’ve seen with the illegal spying/lying to Congress situation that the very powerful have arrogated to themselves the ability to declare certain areas of the Constitution ms statutory law “inoperative”. Hard to see how government-managed universal banking could work under those conditions.

177

Charles Peterson 01.21.15 at 2:45 am

Somehow I don’t share the belief that money is supposed to be a store of value. I see it as an economic lubricant, and if the lubrication works a bit better if some value slowly vaporizes, I see that as a feature not a bug. Typically currencies don’t lose value very much in the milliseconds it takes to do EFT from my employer to my bank. And then once in my bank, in principle, it can re-earn sufficient proportion of the social dividend through interest and with guarantee principal to compensate for the loss for economically justifiable inflation. Haven’t we seen long periods where inflation was lower than savings account interest? And what is really the correct explanation of why it may not do so now? I see grand disinvestment and financial gambling having upended the old order, and my animus is directed at them rather than spenders.

Even in the store-of-value concern wrt money, it seems to me THAT has to be the actual consideration. Not how much nominal inflation there is, but what the difference is between interest in socially guaranteed saving accounts and inflation. How did that do in the 1970’s? Not so bad as just looking at one number, I think. As far as anti-social people storing money in mattresses, gold, or bit coins rather than becoming invested in society–the worse outcomes for them the better IMO.

But that is still very far removed from the importance of money as economic lubricant.

In the actual 1970’s, I made my way into a successful career in a way that would have not been possible in a deflationary economy, as I lacked the usually required credentials. So I gained from the inflationary economy that couldn’t find workers fast enough, while meanwhile my fixed interest inheritance was ground into dust, so that indeed I had to live from my deeds and not what my father was owed. It’s complicated to figure whether the combined effect was salutary or not because there are so many possible counterfactuals, but it compared with many other possibilities it was very much so.

I think in part the populist anti-inflation fear really comes from a fear that elites will profit while the little people don’t see any wage increases, and it has little to do with the actual store-of-value aspect. In reality, the little people do better in an inflationary economy for many reasons, mostly having to do with jobs and wage growth which does reach farther down than it does in other times (e.g. 70’s, mid-to-late 90’s). Also true that the value of debts decreases, which matter more to most people of lower income than interest on savings. But they are constantly trained not to think that way but to think like bond rentiers.

178

Brett Bellmore 01.21.15 at 11:27 am

Bernard: “1. The “President Walker” list Brett provides as a scare consists entirely of organizations conservatives plainly dislike for political or ideological reasons.

2. The actual list he cites at 133 contains a great many entries with no particular ideological bent.“

The no particular ideological bent entries were under the ellipsis in my list. ;) Of course President Walker would mix justifiable chokes with unjustifiable ones, just as this administration has done.

What the FDIC seems to have done is created a list that contained facially legitimate entries, mixed with ideologically determined entries. Mixed actual criminal enterprises with lines of work that are explicitly protected by the Constitution. I’ve no doubt a good case could be made for not providing banking services to Ponzi scammers, for instance. Though I’d prefer that the banking service cut off be post conviction, I’m really down on extra-judicial punishments. Where’s the adversarial process in a regulator pressuring your bank to cancel your checking account? How do you go about getting acquitted?

I find Operation Choke Point to be rather dubious in general, even in regards to the lines of business there might be legitimate concern about. It isn’t the job of banks to police the morals of their customers, and the government should not go after illegal enterprises indirectly. What’s next, the USDA threatening grocery stores if they sell groceries to scammers? And, like I said above, the lack of adversarial process or possibility of challenging the action is more than troubling, it’s outrageous. But, you’re not outraged, are you?

Isn’t this just another incarnation of the “No Fly List”? But maybe you’re cool with that, too.

My President Walker list was to point out to you that, were the shoe on the other foot, you wouldn’t assume the evidence to justify the list was out there, somewhere. You’d demand the evidence. Well, my side has been demanding the evidence, legally binding demands through Congress, and so far the FDIC has failed to produce any. I think it’s because there isn’t any. They just included ammunition sales and firearms dealers on the list because Congress won’t pass gun control laws, and the administration was looking for another way to attack gun ownership. Included producers of racist literature on the list because they don’t like racists, and who really needs that 1st amendment junk?

Now, you’ll doubtless say there could be evidence showing that gun dealers’ bank accounts really are high risk. But if there were such evidence, don’t you think the FDIC would have produced it, in response to Congressional subpoenas? As they are legally obligated to do?

Yup, just another No Fly List, and you like the choice of victims.

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J Thomas 01.21.15 at 12:00 pm

#176 Cranky Observer

A very large amount of question begging going on in your explanation I’m afraid. Such a system would require clear and unbreakable understanding that we as a society would agree on what is legal explicitly via the legislature and open honest court cases, and no extra-legally punish those who engage in activities we don’t like. When USAG John Ashcroft decides to go after legal adult entertainment businesses that his religion and personal morals disapprove of and orders the Post Office to shut down & seize the bank accounts of people earning their living in that way, what happens?

Well, see, once we agree that factions within the US government will be allowed to break the law and do whatever they want with no consequences, then there just aren’t any solutions. We can hope they are merciful.

Once you assume that the US government is lying to you and doing whatever they want, there is nothing you can do about it except prepare for revolution. No reform is possible. Not just the ones I advocate.

Your criticism of my proposal applies to any proposal whatsoever to improve the situation, apart from revolution. So it is vitally important that the government keep the public’s trust. The government must make sure that people who spread stories like those Brett Bellmore spreads are regarded as crazy conspiracy theorists, because the consequences are too catastrophic if they are taken seriously.

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