Inflation’s Hot, So Bitcoin’s Not

Speaking of Hell, as I was at the end of the previous post, the difference between Hell and Washington DC in the summer has always been that Hell has dry heat. So, I would point out that all those folks elsewhere in the United States who think the people in Washington should go to Hell are actually wishing to do them a favor.* And as the steam bath humidity that permeates the Chesapeake Bay region during July and August rises all around, combining with a searing, baking heat that has been intensified by what is, as of this morning, four hundred and eighteen parts per million carbon dioxide, today’s residents retreat into their air conditioned buildings to wait things out.
Contemporaneous with that, Washington is also waiting out the continuing ongoing investigations of the January 6 Select Committee, which, as of this morning, has uncovered, and promises to reveal in the future, even more horrifying acts of sedition, conspiracy and treason committed by Republicans. The Democrats are generally watching the proceedings with the same cursory level of interest that people viewing a high-budget motion picture portraying a well-known disaster would have – they knew how this story was going to end long before the curtains opened. And one can forgive them for being a bit jaded about it – after all, Republicans have been committing treason in order to obtain and hold on to political power in the United States since at least the 1980 presidential election, when the Reagan-Bush campaign engaged in secret negotiations with the Iranian government to secure the continued detention of hostages at the American Embassy in Tehran so as to negatively affect Jimmy Carter’s re-election.
For their part, the Republicans are of two minds – the vast majority, having morphed from a coalition of social conservatives and religious fundamentalists into outright torchlight-parading fascists over the last ten years or so, are generally either ignoring the hearings or getting mad about them. When confronted with its findings, they typically either place their hands over both ears and chant “La, la, la, la, I can’t hear you,” or invite their interlocutor out into the parking lot to settle the matter with a handgun battle. A tiny minority, personified by January 6 Committee members Elizabeth Cheney and Adam Kinzinger, have been shocked, shocked, to find that the Party of Lincoln has become infested with rabid bigots, benighted ignoramuses and knuckle-dragging numbskulls who can be lead around by the nose with absurd lies sprung from the demented minds of third-rate latter-day Joseph Goebbels imitators such as Stephen Bannon. Their recognition that a problem exists, is serious, and rises to the point of existential exigency, alas, like such Republicans’ recognition of global warming, is about forty years too late.
Independents? Well, color them confused. As might be expected, they tend not to be terribly interested in politics to begin with, and as the hearings progress, pundits from the Left and Right alike harangue them, shouting about plots and conspiracies galore, vociferously proclaiming from both sides fevered claims of base and evil deceptions perpetrated by the other. And crucially, it is becoming increasingly apparent that it is the independent voters who will decide which party controls the houses of Congress after the impending federal elections this November. Will they be sufficiently dismayed by Republican perfidy to allow Democratic control of the House of Representatives to continue? Will the glaringly obvious evidence of Republican sedition sink in deep enough to wrest control of the Senate from the toxic and nefarious clutches of Mitch McConnell? Or will the American Independent Voter, in their classic butt-scratching, nose-picking style, decide that the price of gasoline trumps – no pun intended – any last chance of retaining the precious freedoms their forebearers fought and bled for? Will the American Independent Voter prove Xi Jinping and Vladimir Putin right in their belief that democracies are weak, impotent failed experiments and the time has come for autocracies to replace them? And have we not seen a movie very, very much like this before, not so long ago?
In the midst of this sweltering morass goes Joe Biden, a well-intentioned Claudius following an increasingly outrageous line of American Tiberius’s, Caligulas, Commodus’s and Neros, all born of what became of the Republican Party after passage of the Civil Rights Act of 1964. Was slavery the Original Sin of the Roman Empire? It certainly appears it was that of the United States of America, and here in the stifling inferno of the 2022 Washington summer, poor old Granpa Joe is doing his level best to keep the whole durn contraption from falling apart at the seams in penance for it.
His biggest obstacle to rescuing the nation from itself is an economic condition known as inflation. In a society, like, well, just about everywhere in the world these days, that operates its economy on fiat money, which is to say, money backed by nothing more than everyone’s agreement in the collective hallucination that it has value, a case of rampant, uncontrolled inflation can be very dangerous indeed. Not that the current bout of it being experienced in America is anything like that, although there are plenty of talking heads on Fox who would like everyone to believe so. Furthermore, what makes matters even worse, politically, for President Biden and his party, is the fact that it has been so long since there has been any significant inflation in the American economy, a sizable portion of the voting public hasn’t experienced it before. So distinguishing what’s going on in the US in 2022 from, say, what was going on in the Weimar Republic in 1923 is difficult for them. To demonstrate that point, I would ask my American readers to think back to where they were in 1982. If you weren’t anywhere at all, you’re one of those people I’m talking about. To them, I would offer some advice, free of charge.
It is human nature to be at least mildly apprehensive about that which we have never experienced before, and certainly not uncommon to fear it if that thing has been proven by history to be, if not tamed, an exceedingly perilous beast. The Republicans know this, and frightening people into voting against their own interests (and for those of people like Louie Gohmert and Charles Koch) is their political modus operandi. And no doubt about it, inflation is decidedly scary. As that noted sexual predator and highly successful Democratic politician, Bill Clinton, once observed, It’s the Economy, Stupid.
Unfortunately, yes, the economy, stupid. Emphasis on stupid, because the economy simply isn’t all that matters, even though American voters consistently behave as if it were. In that regard, I would observe that the reason the United States experienced something around two percent inflation between 2008 and 2021 wasn’t because we returned to the gold standard (that would have done it, believe me, and many other things too fierce to mention). No, the remarkably small inflation experienced in that period was the result of astoundingly stupid things that greedy, dishonest people in the mortgage and finance industry did immediately before it, with the complicit cooperation of two gargantuan temples of economic stupidity known as Freddie Mac and Fannie Mae. The massive outpouring of trillions of dollars by the US government to prevent collapse of the Western world’s (and actually, pretty much the rest of the world’s) economy, plus a little organization we have here in Washington DC called the Federal Reserve Board concurrently buying mortgage-backed securities and giving away free money to banks, not only kept inflation at historically low levels, but also set off a bull market in securities that lasted until, well, basically until the Fed stopped doing that stuff earlier this year. You didn’t really think pathetic, avaricious, contemptible schmucks like Elon Musk, Jeff Bezos and Mark Zuckerberg became multi-billionaires because they’re some kind of geniuses did you? With things set up like they were by the Federal Reserve, massive economic expansion with low inflation was inevitable. Those guys were just the pathetic, avaricious, contemptible schmucks who were luckier in the resulting capitalist free-for-all lottery game which ensued than some other pathetic, avaricious, contemptible schmucks who were trying to do the same or similar things.
Now, thanks to covid, the monstrous stupidity of the American public in dealing with it, and the measures the US government had to take to keep society from collapsing as a result of that, combined with the utterly predictable and transparent actions of yet another belligerent, vain and pitifully under-endowed Russian dictator, the Fed had to call the party off. The Fed took away the punch bowl because the house of cards it constructed during the party would otherwise collapse, and the resulting domestic conflagration would make the January 6 fracas look like a Methodist church picnic. The result of all those corrective measures was a period of inflation, yes, but consider the alternative. Bottom line, the thing to remember about inflation, particularly if one has not experienced it before (or studied it thoroughly, at least, as I have), is this: it’s just a number. And as long as it doesn’t get too big, it’s not really a problem. Actually, a little of it is good for a fiat money economy like ours, and there has been plenty of it in the past, all of which we survived in much better shape than we did in, say, the last several depressions and recessions. There was a time when you could buy a cheap loaf of bread for a penny and get change (yes, Virginia, there was actually change for a penny). Later, there was a time when gasoline cost twenty-nine and nine-tenths cents per gallon. That was also the year when a family of four could buy a week’s groceries for $29.90, a GS-15 Step 10 here in Washington made $18,000 a year, President Dwight D. Eisenhower got paid an annual salary of $100,000 and William S. Paley, the Chairman of CBS, earned $241,526. Today, you need at least $2.00 to buy a cheap loaf of bread and get change, and nobody would even bother to stoop down to pick up a dime off the sidewalk, much less a penny; and a million dollars won’t buy you a house in Potomac, Maryland (and it wouldn’t have a year ago, either). Will the inflation we are seeing now go away? Probably not – but wages will rise to match the increased price levels and in the future, a $3.00 loaf of bread and a $4.00 a gallon gasoline won’t cause anybody the least bit of consternation. It is not for nothing that economics is known as the Dismal Science. It has always been thus; so don’t get played – inflation is just a number.
However, I am pretty sure that a lot of genuine scientists would disagree with the second half of that well-known appellation. Dismal, yes, they would agree, but a science? Hardly, in their estimation, I would suspect, and I hardly believe I could disagree with them, either. Economics, after all, did not evolve in laboratories according to the scientific method, where dispassionate reason was applied to the phenomena of the real world. It sprang, rather, over the course of millennia, arising shortly after the invention of commerce itself, from a the minds of a diverse gaggle of scribes, potentates, tax collectors, accountants, bankers, financiers, aristocrats, politicians, lawyers, theologians, academics and philosophers, all of whom were quite sure they understood this money and goods thing well enough to write down something telling others what it is all about, and no two of whom could agree on lunch, much less what constitutes a consistent theory of economics.
That there is no such thing as a free lunch, on the other hand, is something upon which almost all of them would agree. But not all, of course, or any particular one of them all the time, either, because seeing things on one hand and then on the other, and discussing things that way, not to mention dispensing advice that way – well, that’s the economist’s stock-in-trade. So much so, that Harry S Truman, after a lengthy session with his Council of Economic Advisors, was once famously overheard to wish God would send him a one-handed economist.
What with labor strife at the end of World War II, the Cold War, and the Korean War, Truman had his economic problems, no doubt about that. And at this point, with the covid pandemic and the Ukraine crisis messing with supply and demand for everything from factors to fuel to french fries, I’m sure that Joe Biden can commiserate with old Give Em Hell Harry, because on the one hand, he’s got inflation running rampant and on the other the Federal Reserve Board is ready to add another hundred basis points on the federal funds interest rate, because on the one hand, something has to be done to control inflation and on the other hand, the Federal Reserve Board is completely tapped out on quantitative easing, having been at it since 2008. And on the one hand, America has high employment, which means higher wages, which takes the sting out of the inflation, but on the other hand, higher interest rates could cause a recession, which would decrease employment, but, as was amply demonstrated in the Ford and Carter administrations, the economy is perfectly capable of having high inflation on the one hand and low employment on the other at the same time, although economists will argue, on one hand and on the other, why that is even possible. I can’t help but wonder if that Missouri haberdasher had something there – should amputation of one hand perhaps be a requirement for a PhD in economics?
Until a surgical method is discovered that can guarantee a one-faced politician, probably not. But whatever the course steered for the wealth of this nation by the illustrious economic sages of Washington DC, lunch is definitely not free at the Capital Grille. It’s mighty tasty, though, and in my opinion, delivers plenty of utility per dollar, and as many economists would tell you, that’s all it takes for a nice micro-economic equilibrium. And so it was, in the middle of my lunch there today, about halfway through some medium rare filet mignon, accompanied by a glass of 2015 Mauritson Loam Cabernet Sauvignon, I was feeling very equilibrated indeed. Then my cell phone started vibrating. Caller ID showed that it was my sister-in-law, Katje. I really wanted to finish my steak, so I let it go to voice mail. It was useless, however – she called me again immediately. Resigning myself to her persistence, which in fact is something of a family legend, I picked up.

Tom: Hello, Katje, how are you?
Katje: I’m fine, Tom, but I have a friend who’s in very bad shape.
Tom: Sorry to hear it. What’s the matter?
Katje: She just lost nearly a quarter of a million dollars.
Tom: Really? How did she manage that?
Katje: Investing in Bitcoin.
Tom: Um… there’s a limit to how much empathy I can have for a Bitcoin investor, you know.
Katje: Tom! This person is a close friend, and she’s right here listening! We’re on speaker!
Tom: In that case, why don’t you introduce us?
Katje: All right. Tom, this is my friend Sarah. We met five years ago at the yoga studio.
Tom: Pleased to make your acquaintance, Sarah.
Sarah: Hello, Tom. Katje’s told me a lot about you.
Tom: Good things, I hope.
Sarah: Mostly. She says you have a reputation as the smartest person in Washington.
Tom: Which is a lot like being the tallest building in Baltimore.
Katje: Tom?
Tom: Yes?
Katje: It just so happens that Sarah is from Baltimore.
Tom: So she must understand what I just said, then?
Sarah: In fact, I’m not sure I entirely do.
Tom: Okay, what’s the tallest building in Chicago?
Sarah: I don’t know.
Tom: It’s the Willis Tower, one thousand four hundred and fifty feet tall. Now, what’s the tallest building in Baltimore?
Sarah: I don’t know.
Tom: The Transamerica Tower. It’s five hundred and twenty-eight feet tall. See what I mean now?
Sarah: No, not really.
Tom: Tell you what, then: later today, I’ll send Katje an email explaining it in detail. So, tell me, how did you lose nearly a quarter of a million dollars investing in Bitcoin?
Sarah: Well, first of all, back in November of 2020, I bought six Bitcoins.
Tom: And how much did that cost?
Sarah: One hundred and eight thousand, six hundred and eighty-four dollars.
Tom: Do you mind if I ask, where did you get one hundred and eight thousand, six hundred and eighty-four dollars?
Sarah: No, I wouldn’t mind at all. I inherited it from my grandfather.
Tom: I see. And then what happened?
Sarah: By October of last year, my six Bitcoins were worth three hundred and sixty-eight thousand, two hundred and forty-four dollars.
Tom: And your problem is… what?
Sarah: Now my six Bitcoins are only worth one hundred and twenty-one thousand, three hundred and fifty dollars. That means I’ve lost two hundred and forty-six thousand eight hundred and ninety-four dollars! That’s almost a quarter of a million!
Tom: So it is. How come you didn’t cash in your six Bitcoins in October of 2021?
Sarah: I didn’t want to.
Tom: Why not?
Sarah: Because everyone said Bitcoin was just going to go higher and higher!
Tom: Looks like “everyone” was wrong about that. Who was this “everyone” anyhow?
Sarah: Oh, you know, the crypto blogs and stuff. Crypto was supposed to take over, disrupt everything and make all the crypto investors rich – that’s what it said.
Tom: It?
Sarah: Yeah, you know – Facebook, Instagram, Reddit, Snapchat, Twitter, TikTok… I donno, the Web, whatever. My computer said so. My phone said so.
Tom: Well, you still have quite a bit of money there in your six Bitcoins.
Sarah: Yeah, but what happened to my two hundred and forty-six thousand eight hundred and ninety-four dollars?
Tom: I think that’s best explained by the Greater Fool Theory.
Katje: Tom!
Tom: Yes?
Katje: You’re not going to get… acerbic… with us, are you?
Tom: Oh, no, no, no, no. The Greater Fool Theory is an operative principle of securities portfolio analysis. It’s used, for example, to explain the value of stocks like Facebook, that don’t pay dividends. The Greater Fool Theory simply states that if you buy a stock that doesn’t pay dividends, it has no cash flow under the Gordon Model and therefore you are a fool, and the only value such a stock can have is if you can find a greater fool than yourself to buy it, and whatever that greater fool pays you is the actual value of that stock. So, in order to value that stock today, for purposes of calculating the total value of the foolish investor’s portfolio, one consults the securities market quotations for that stock during some recent past period, such as the last quarter, to provide a basis for estimating what some greater fool would pay him for it.
Sarah: Sounds kind of… fishy to me.
Tom: And Bitcoin doesn’t?
Sarah: What’s that supposed to mean?
Tom: It’s supposed to mean that the value of a Bitcoin is, at best, no better than the value of a stock like Facebook. The only way to get value out of it is to cash it in, which is basically selling it to someone else – a greater fool – who thinks that its value will go up in the future. And the only reasons for you to cash in a Bitcoin are, Number One, that you think that your Bitcoin is going to go down in value; or, Number Two, you need to buy something with the wealth represented by that Bitcoin; or, Number Three, you want to move your wealth into another vehicle, such as a federally insured a bank savings account.
Sarah: Hey, wait a minute, that’s not right! I could have all kinds of reasons for cashing in a Bitcoin!
Tom: Not if you are a rational investor.
Katje: Tom! Are you calling Sarah irrational?
Tom: Whether she is irrational or not, I think that it’s pretty evident that, according to what the calculator on my phone says, Sarah still has an eleven point six percent return on her original investment. That covers inflation since October 2020 plus a couple of percent more, and given where this conversation has gone so far, I strongly recommend that she cash in her six Bitcoins and put that one hundred and twenty-one thousand, three hundred and fifty dollars in the bank.
Sarah: But I can’t do that!
Tom: Why not?
Sarah: I put my Bitcoins in Celsius!
Tom: Oh, yes, well, in that case, that’s right, you can’t.
Katje: What do you mean, she can’t?
Tom: Celsius froze all withdrawals last month.
Katje: They can do that?
Tom: Yes. Sarah, I suppose Celsius paid you interest on your six bitcoins, too, didn’t they?
Sarah: Interest? I don’t know… Facebook, Instagram, Reddit, Snapchat, TikTok, Twitter and all them said Celsius was the place to put your Bitcoins, so that’s where I put them!
Tom: I see. Well, that’s more or less water under the bridge anyway, I guess. The only thing you can do now, Sarah, is wait for Celsius to get out of Chapter 11.
Sarah: Chapter 11 of what?
Tom: Chapter 11 of the bankruptcy…
Sarah: It’s bankrupt?
Tom: … code. Yes, but not fire-everybody-and-sell-off-the-office-furniture bankrupt. That’s Chapter 7. Under Chapter 11, Celsius can reorganize and go back to doing business as usual, whatever that may be. And when it does, I recommend that Number One, you find out how much interest your six Bitcoins are due to collect, and make sure you get that, whatever it is, and then, Number Two, whatever your six Bitcoins and that interest are worth that day, you take that as greenback American money and put it the bank.
Sarah: But… how much will that be?
Tom: God only knows, and even He isn’t sure.
Sarah: Katje, is that all your brother-in-law, the smartest person in Washington, can do for me?
Katje: Tom?
Tom: Well, there’s one other thing I can do for you Sarah. I can tell you the difference between the Smart Internet and the Dumb Internet, which is this: The Smart Internet is full of useful information and helpful tools and the Dumb Internet is full of idiotic software that irresponsible, harebrained dolts just put there because they could, and sinister foreign powers and rapacious corporations have put there because they want to take advantage of nice people like you. And considering the places you’ve been getting your investment advice, I’d say you’ve been spending far too much time on the Dumb Internet. So I strongly suggest you tell Katje’s husband, my brother Rob Roy, what I just told you and ask him to show you how to find the Smart Internet and use the good things that are available there.
Sarah: Well! That is the most insulting, impertinent, condescending so-called “advice” I have ever heard in my entire life! Katje, if you will excuse me!
Tom: Is she gone?
Katje: Yes, Tom, she certainly is!
Tom: Well, now you know why they’re called Balto-morons, hon.
Katje: Tom. Sometimes. You. Are. Impossible!
Tom: But I’m always Tom.
Katje: Yes, and we love you anyway.
Tom: Can I finish my lunch now?
Katje: Sure, Tom.
Tom: Thanks. Bye, Katje.
Katje: Bye.

*For those who would point out that Washington DC in the summer is not as bad as some other places on God’s green Earth, I hereby recognize and stipulate that yes, there are other places where, in the summer, it is also worse than Hell. These include the North Indian Plain in the vicinity of New Delhi, the Persian (or, if you are a Sunni, the Arabian) Gulf, the coastal regions of northern Australia, and East Texas. With respect to that last location, I would note that General Philip Sheridan, a Union general in the American Civil War, once remarked that if he owned Texas and Hell, he would live in Hell and rent out Texas to any tenants sufficiently idiotic to live there.
And apropos of hot weather in general, I would note two things: Today, it was announced that Europe is undergoing an historic heat wave so severe that temperatures reached 104 degrees Fahrenheit (40 degrees Centigrade) in the British Isles for the first time since temperature records began to be kept, while wildfires rage from Spain to Turkey. In China, a month-long heat wave with temperatures routinely exceeding 40 degrees C continues and record high temperatures topping 110 F bake two-thirds of the North American continent. Secondly, I would note that since my last post, the five supposedly conservative justices constituting the mindlessly tyrannical majority of the new Supreme Court here in the United States, ruled, in West Virginia v. Environmental Protection Agency, that the US EPA does not have authority, under the the Clean Air Act, to regulate carbon dioxide emissions. Wallowing in hypocrisy, the Court issued a ruling that completely ignores all four of the major principles undergirding the judicial philosophy which supposedly guides every decision made by Clarence Thomas, Samuel A. Alito Jr., Neil M. Gorsuch, Brent M. Kavanaugh and Amy Coney Barrett – originalism, textualism, traditionalism and judicial restraint. One need not be a legal scholar to readily see that the Five Gibbering Baboons have made a hollow mockery of their pretensions to equal justice under the law through an equitable and fair interpretation of the United States Constitution. With this decision, they have revealed themselves to be nothing better than a shameless, half-witted cult of petty despots, serving the purposes of corporate greed, bigotry, racism, xenophobia, oppression, disenfranchisement, callous exploitation of human beings and environmental rape. I say that because, having descended to the abysmal corruption of human reason displayed in West Virginia v. EPA, they don’t even qualify as ideological fetishists anymore. There’s no point in wishing them to Hell, though – thanks to this decision, no matter where you are, Hell will be coming there soon, and that includes Washington DC, in and around which the Five Gibbering, Mendacious and Hypocritical Baboons all reside. And as mentioned above, it’s worse than Hell here in the summer already. So there is, at least, some poetic justice in that. And once again, I apologize to baboons for comparing them to those five members of the United States Supreme Court.