Tag Archives: money

Billionaire Democrats and union Republicans

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In the last presidential election, the largest billionaires in the US were vocal Democrats, and two billionaires, Yang and Bloomberg were candidates. Bloomberg had been an anticrime Republican when he ran for mayor but in 2020 he spent $!B of his own money on anti Republican ads, and paid the debts of thousands of Florida felons who he thought would vote his way. It’s a strange new world.

Other vocal Democrats include: Jeff Bezios, majority owner of Amazon and The Washington Post, Mark Zuckerberg, Facebook, Bill Gates, founder and largest owner of Microsoft (just today blasting the Republicans over global warming — Is that logical — is cold better?), and Warren Buffett who likes to note that he pays a lower tax rate than his secretary does (IMHO that’s because he games the tax system and pays no social security tax). Meanwhile union workers and white middle class folks were mostly Republicans in 2020.

Union leadership are still Democrats, but the last few elections saw union workers voting R. These were called “The basket of deplorables, unredeemables” by candidate Clinton. R support among black people is less than 50%, but growing too. it’s quite a lot higher than two decades ago. Many showed up at MAGA rallies, you’ll see plenty in videos at “the insurrection”. The only person shot and killed at the insurrection was a white woman, unarmed, shot in the face by Capital police — no charges filed, but the liberal press, who usually hate such things, was silent. Almost to the man, they sided with the police over the mob.

I notice that the Black Lives Matter rallies are populated with the well off and the well educated. A Princeton lawyer was photographed driving around with a box of Molotov cocktails, and his co-worker, another lawyer tossed a lit fire bomb into a police car. It used to be that Princeton lawyers didn’t do that, at least not in person.

Portrait of a Democrat. From the New Yorker.

It’s not like the platforms have reversed. The Democratic party was always for high taxes, high regulation, and for soft money that they could give away. They still are. In 1900 the call was for “free silver“, now it’s “stimulus money.” It used to be that rich people didn’t like this. They would point of that printing money didn’t add to wealth, but just redistributed it from those who had savings to those who did not. Now they uniformly blast anyone who doubted the wisdom of printing 1.9 trillion in new money ($6000 per person, of which $1400 is given to you), and going on to blast anyone who doesn’t like additional oversight to prevent the systemic racism they see in the less-well-off.

One reason these richest billionaires are no longer Republicans is that they are no longer involved industrial manufacturing in the US. Thus the regulations they favor don’t apply to them. In the olden days, rich people made steel or cars. Regulations were annoying. Rich industrialists had money in US banks. For them inflation was theft. Now rich people own intangible industries that largely operate outside of the country. What money they earn is earned off-shore, tax free. As individuals, they live on US debt, and possess little or no hard cash. Inflation helps them pay off their debt, and high taxes don’t hurt them. Buffett can be down-home and pro environment. He flies private jet to meetings on global warming while investing in overseas petroleum.

Elon Musk seemed like a Republican during the Trump administration, but not so much now. He still makes stuff in America, but has moved to manufacture abroad. In January, he said he was fired up for Biden. He has put a significant chunk of his wealth into bitcoins. Its a protection from the inflation caused by printing money, and it’s a bet that’s paid off handsomely. I expect that we’ll have billionaire Democrats and union Republicans for the foreseeable future.

Robert Buxbaum, March 14, 2021. It’s pie day. Eat a pie at 1:59:27. (Edited Apr. 28, 2021)

Bitcoin v cash to avoid Trump’s tariffs or ransom a sailor

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The number and cash value of bitcoin transactions has surged in the last two years, and it seems that a lot of the driving motivation is avoidance of Trump’s tariffs. If you want to avoid Trump’s tariffs, claim that the value of the shipment is less than it really is. Pay part via the normal banking system through the bill of lading (and pay tariffs on that) and pay the rest in bitcoin with no record and no taxes paid. The average bitcoin transaction amount has increased to $33,504, and that seems to be the amount of taxable value being dodged on each shipment. As pointed outAs noted in Cryptopolitan, “smugglers attempting to export Chinese goods to the USA illegally have been found to be among the largest purchasers of Bitcoin.” https://www.cryptopolitan.com/is-us-china-trade-war-fueling-bitcoin-price-rally-to-7500/

Average transaction amount for several crypto currencies. The amount has surged for Bitcoin, blue line.

Bitcoin isn’t the only beneficiary, of course, but it is the largest. The chart at right shows the average transaction value of the major cryptocurrencies. The average for most are in the dollar range that you’d expect for someone evading tariffs in containerized shipments. Someone who wants to import $100,000 worth of Chinese printers will arrange to have them shipped with a lower price bill of lading. The rest of the payment, 1/3 say, would be paid by a bitcoin transfer whose escrow is tied to the legally binding bill of lading.

Number of transactions per day for several cryptocurrencies, data available from Bitinfocharts.com

Bitcoin does not stand out from the other cryptocurrencies so much in the amount of its average transaction, but in the number of transactions per day. As shown at left there are 333,050 bitcoin transactions per day at an average value of $33,504 per transaction. Multiplying these numbers together, we see that Bitcoin is used for some $11.2 billion in transactions per day, or $4.1 trillion dollars worth per year. The legitimate part of the US economy is only $58 billion per day, or $21 trillion per year. The amount will certainly rise if further tariffs are put into effect. 

Most other cryptocurrencies have fewer transactions per day, and the few that have similar (or higher) numbers deal in lower amounts. Etherium is used in 2.5 time more transactions, but the average Etherium transaction is only $679. This suggests that the total Etherium business is only $586 million per day. The dollar amounts of Etherium suggests that it is mostly used for drug trafficking, 

Cash-money is the old fashioned way to avoid tariffs, buy drugs, and do other illegal money transfers. This method isn’t going away any time soon. A suitcase of $100 bills gets handed over and the deal is done. Though it gets annoying as the amounts get large, there is a certain convenience at the other end, when you try to spend your ill-gotten gains. Thus, when Obama wanted to ransom the ten sailors that Iran had captured in 2016, he sent paper bills. According to the LA Times, this was three airplane shipments s of all non-US currency: Euros and Swiss Francs mostly. The first payment was $400 million, delivered as soon as Iran agreed to the release. The rest, $1.3 billion, was sent after the prisoners were released. Assuming that the bundles shown below contained only 100 Euro notes, each bundle would have held about $170 million dollars. We’d have had to send ten bundles of this size to redeem ten US sailors. The US ships, the laptops of sensitive information, and the weapons were granted as gifts to the Iranians. Obama claimed that all this was smart as it was cheaper than a war, and it likely is. The British had 15 sailors captured by Iran in 2009 and paid as well. In the late 1700s, John Adams (an awful president) paid 1/4 of the US budget as ransom to North African pirates. He paid in gold.

These are supposedly the pallets of cash used to ransom our sailors. Obama has justified the need to transfer the cash this way, and indeed a ransom is a lot cheaper than a war.

Obama could have ransomed the sailors with Bitcoin as there was hardly enough Bitcoin in existence, and the Iranians would have had a hard time spending it. In general, it is hard to spend Bitcoin on anything legal. Legitimate sellers want proof that they’ve paid. As a result, a buyer generally has to exchange bitcoin for bank checks — and the financial watchdogs are always sniffing at this step. Things are simpler with paper money, but not totally simple when there is no apparent source.

Iranian released this picture of the US sailors captured. Obama ransomed them for $1.7 billion in Euros.

To get a sense of the amount of paper money used this way, consider that there are $1.1 trillion in hundred dollar bills in circulation. This is four times more money’s worth than the value of all Bitcoin in circulation. Based on the wear on our $100 bills, it seems each bill is used on average 30 times per year. This suggest there are $33 trillion dollars in trade that goes on with $100 bills. Not all of this trade is illegal, but I suspect a good fraction is, and this is eight times the trade in Bitcoin. The cost of transferring cash can be high, but it’s easy to make change for a bundle of $100 bills. There is fee charged to convert Bitcoin to cash; it’s often in excess of 1%, and that adds up when you do billion-dollar kidnappings and billion dollar arms buys. In case you are wondering how German uranium enrichment centrifuges got to Iran when there is an export embargo, I’m guessing it was done through an intermediary country via cash or Bitcoin transactions.

It’s worth speculating on whether Bitcoin prices will rise as its use continues to rise. I think it will but don’t expect a fast rise. Over a year ago, I’d predicted that the price of Bitcoin would be about $10,500 each. I’d based that on Fisher’s monetary equation, that relates the value of a currency to the amount spent and the speed of money. As it happens I got the right dollar value because I’d underestimated the amount of Bitcoin purchases and the speed of the money by the same factor of four. For the price of a Bitcoin to rise, it is not enough for it to be used more. There also has to be no parallel rise in the velocity of transactions (turnovers per year). My sense is that both numbers will rise together and thus that the bitcoin price will level out, long term, with lots of volatility following daily changes in use and velocity.

As a political thought, I expect is that Bitcoin traders will mostly support Trump. My expectation here is for the classic alliance of bootleggers and prohibition police during prohibition. The police salaries and bonuses depended on liquor being illegal, and bootleggers knew that their high prices and profits depended on the same thing. I thus expect Bitcoin dealers will support Trump as a way of protecting Bitcoin profits and value. Amazon’s owner, Jeff Bezos is strongly anti-Trump, I suspect, because Amazon profits from no-tariff imports.

Robert Buxbaum,  July 10, 2019. Here are my thoughts about tariffs and free trade, and here is Satochi’s original article proposing Bitcoin and explaining how it would work. As for Iran, they’ve announced a fee for any ship in the Gulf of Hormuz. If you don’t pay, you might get attacked as a Japanese tanker recently was. My guess is payments are made in cash or Bitcoin to avoid embarrassing the payer.

Einstein’s theory of happiness

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Note for a talk in Tokyo: Einstein's theory of happiness.

Note for a talk in Tokyo: Einstein’s theory of happiness.

In 1922, Einstein was in Tokyo to give a speech, and had just recently been informed that he would win the Nobel prize. He knew that he’d be more famous than he had been, and everyone else did too. The prize money and more had already been contracted out to his wife for his divorce, but most people didn’t know that, and the few who did, didn’t realize that even after receiving the prize, he’d remain as poor as he had been. Anyway, shortly after the announcement a bell boy delivered something to his room, but Einstein had no money available. Instead he gave the bell-boy two scraps of thoughts for the talk, one of them on the Tokyo hotel stationery. The more famous one, “his theory of happiness” says, In German:

“A calm and modest life brings more happiness than the pursuit of success combined with constant restlessness.” The note is signed, Albert Einstein, dated November 1922 Tokyo. It sold at action October, 2018 for $1.56 million, not a bad tip, in both senses of the word. Einstein told the bell-boy that this note would probably be worth more than the usual tip. It was, and is.

In general Einstein told people to avoid academia, and instead go into something productive that you can do well for an income. Do your creative work, he advised, in your spare time, he advised; it ruins the enjoyment of creativity to always have to discover something new for your income, “always have to pull a rabbit out of your hat.” Einstein’s happiest time, and his most productive were his years working at the patent office in Bern, Switzerland, while doing physics in his spare time at home. Einstein produced relatively little of permanent physics value in the years following 1922. The discovery that Einstein’s theories predicted gravitational waves was not Einstein’s, nor was the discovery that his equations suggested an expanding universe. The former was the suggestion of, Howard Robertson, a reviewer of a paper by Einstein, and the latter was made by a Belgian scientist-priest named Georges Lemaitre. it was only after Hubble observed an expanding universe in 1929 that Einstein realized that Lemaitre had been right, and only in 1936 that he came to accept gravitational waves. Gravitational waves were finally observed in 2016. The observation earned Rainer Weiss, Barry Barish, and Kip Thorne the 2017 Nobel Prize in physics.

I’ve written about Einstein a few times. He seems to have been among the few creative people who lived a happy, productive life and died well liked by all. Here are some life lessons, and some thoughts on how you tel a genius from a nut. You can find out more about Einstein’s love letters and his divorce here, including about the divorce settlement.

Robert Buxbaum, November 2, 2018. The essence of a nice gift is in the note.

Less than 1 year to the crash

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Stock market crashes happen for a reason, and generally the reason is that owning stock is seen as less profitable than owning bonds, gold, guns, or hundred-dollar bills stuffed into one’s mattress. For this essay, I thought I might explain the reasoning behind the alarm bells that virtually every economist has been sounding. For the last year and a half they’ve been sure a severe correction is imminent. The reason has to do with price and predictions of profitability.

Let’s begin with Nobel Laureate economist, Paul Krugman of the New York Times. He has been predicting severe job losses, and a permanent stock collapse since Trump’s election in November 2016. Virtually every week he announces that the end is near, and every month the economy looked better. A lesser man would give up, but he has not. Why? Mostly it’s his hatred of all things Trumpian: Krugman can not accept that Trump could avoid destroying the economy, and con not imagine that any investor would see things otherwise.

Apparently some folks felt otherwise, and caused unemployment to drop and the market to rise. but then, in September 2017, Krugman’s dire predictions were echoed by Robert Schiller, 2013 Nobel winner, and author of a textbook the majority of schools use to teach market analysis. Robert Schiller, has argued that valuations are extremely expensive. “This stock market bears striking similarities to that of 1929. “The market is about as highly priced as it was in 1929,” “In 1929 from the peak to the bottom, it was 80 percent down. And the market really wasn’t much higher than it is now in terms of my CAPE [cyclically adjusted price-to-earnings] ratio. So, you give pause when you notice that.”

What Schiller is referring to is his particular version of the price to earnings ratio, the price of the average stock share divided by the amount of the average earnings per share. Schiller’s CAPE version uses the ten-year, inflation-averaged earnings, rather than today’s earnings, and finds the ratio is high, as the graph below shows. When he made these comments, this ratio was 25, nearly as high as the 1929 peak. The ratio is now higher, 32.74, higher than it stood on “Black Tuesday.” Why this number is important is that the profitability of a stock-share is merely the inverse of the Price/ Earnings ratio. The current ratio, 32.74 suggests that the average dollar’s worth of shares will return about 3.05% (1/32.74 = 3.05%). By comparison, one could buy a five-year treasury bond and get 2.96%. That’s hardly less, and federal bonds are totally safe. More alarming yet, the Federal Reserve has indicated that it will continue to raise interest rates at planned rate of 1%/year for at least the next year. At some point, people will decide bonds are the far better bargain, and will exit stocks en-mass. And then it’s crash-city, or so the theory goes.

The Schiller Price to Earnings ratio as of July 27, 2018. It suggests a crash is past due.

The Schiller Price to Earnings ratio as of July 27, 2018. It suggests a crash is past due.

Shown above is a historical plot of Schiller’s particular version of the price to earnings ratio based on the S+P 500 index, with data going back to 1880. It’s argued that his version using a ten-year, trailing average of corporate profits, is better than the non-adjusted, one year P/E ratio: the version you find in the newspapers. In the newspaper version, the peaks don’t show up until just after the crash because company profits tend to spike along with prices. In this version, profits can’t exactly spike, and  stock crashes show up as valuation peaks. The crash is seen as a consequence to high values of the Schiller P/E.  In terms of CAPE, we are at a more dangerous spot than in 1929. We are more exuberant than in 2008, or when Alan Greenspan warned of irrational exuberance. Schiller: “you give pause when you notice that.”

Schiller Price to earnings ratios are a good predictor of future stock prices. We are past the end of this chart, suggesting a significant loss of stock value ahead.

Schiller Price to earnings ratio plotted versus 20 year stock return. The higher the Schiller P/E, the lower the return. We are past the end of this chart suggesting we should expect a significant loss of capital value.

Stock pull-backs are sometimes gradual, as in 1968 through 1982, but more often the pullback is sudden, a crash. People typically expect a stock return in excess of bonds of 2% or so. They sometimes accept less, and sometimes demand more. Schiller calls the cause “animal spirits.” The fear is that investors will suddenly go back to the historical norm and demand of stocks 2% more return than the 3.05% they get from bonds. If they’d suddenly demand a 5.05% return on stocks to balance, the stock prices would fall by 40%. If the crash happened now, it would take a 40% drop in stock prices to raise the earnings ratio to 5.05%. But if they wait a year, until after the Fed raised the interest rate to 3.5%, we’d expect a greater pull-back 50% or so, a major crash. As early as last year, Schiller has advised moving out of US stock into foreign stocks, particularly European, noting that the US market was  the most expensive in the world. I don’t agree that Europe is a safe haven, but agree that a crash is likely given current return rates, snd the treasury plan to raise interests by 1% over the next year.

Schiller claims that the reason the recession has not hit so far is that people trust Trump. I would not have expected a comment like that from a Yale economist, especially given the constant carping from the TV news. Still Schiller may be on to something. The stock market went up dramatically after the Trump election. There are some advantages to a narcissist president. It also seems Trump’s tariffs are helping to provide jobs, as I predicted. In this quarter, the GDP rose at an impressive 4.1% rate. Gains came even where you’d expect otherwise. US soybean exports rose by 9600% despite a boycott from China. If the economy keeps going like this it might be as much as a year before the correction. A likely scenario is that the Fed raises interest rates, growth slows to 2.5% or less, and with bond interest rates at 3.5% people will get out of stocks in a big way. My expectation is that China will suffer too, and with it Europe. With luck, the Fed will then lower interest rates to 2%, or so. In my opinion interest rates should matches the inflation rate, more or less. I don’t know why the Federal Reserve does not do this, but instead swings its interest rates from very high to low, now aiming for a far excess of inflation rate. I suspect it’s mistake, one that we will pay for soon.

Robert Buxbaum, July 29, 2018. My only other stock analysis post was on bitcoin, In December 2017 I thought it had gone about as far as it would go. Shortly there-after bitcoin value crashed. I hope I don’t cause a crash

The wealth of nations in beer

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We generally compare the wealth of nations in dollars per capita, but this is a false comparison. You can not eat dollars, and even if dollars can be exchanged for products or other countries’ currencies with minimum cost, the same is not true for their products. A sack of rice in America costs more than in India; you can not easily buy it at the Indian price. Nonetheless we generally measure the wealth of a county as if all products cost the same everywhere. Based on this, we declare that the citizens of Lichtenstein are the richest on the planet, followed by Norway and Denmark. US citizens not far behind, vastly richer than the people of Africa who we picture living on pennies per day. But pennies in Africa buy more than pennies in America; wealth is spent locally, and things are expensive where people have money.

GDP for various countries in pints of beer per person per year in main city bar or restaurant

GDP for various countries in pints of beer per person per year in main city bar or restaurant

To correct for this local value of money effect, some economists modify consider the ratio of per-capita GDP by relation to the cost of a basket of goods. This is called purchasing power parity, or ppp. By this measure, American’s are not as much richer than Africans, but the problem remains that people don’t all buy the same basket of goods. The Economist magazine has thus suggested correcting ppp by choosing a single consumable, the MacDonald’s Big Mac, a standard product available world-wide. The Economist’s “Big Mac Index” is quite good in my opinion, but it could be better, and I decided to make it better by using beer instead of Big Macs.

It strikes me that typical Africans don’t eat Big Macs — the price is out of range. Meanwhile, in rich countries mostly it’s the poor who eat MacDonald’s (and Donald Trump). The advantage of using beer to measure the wealth of nations is it’s something most-everyone consumes across all social strata. A country is wealthy in terms of many pints of beer a person can buy based on his or her, per-capita GDP.

Shown at left is the top countries from a table I made by dividing the GDP per capita by the price of a pint (or half-liter) of local beer as served in a tavern or restaurant of the major city. Measured this way I find Lichtenstein is still the richest country on earth, now followed by Saudi Arabia and the Czech Republic. Norway is no longer among the richest countries — beer is expensive there, as is labor. The Czech Republic, normally considered a middle-to-poor country, is number 3 because of the low cost of its excellent beer. The US is several stages down, just below Denmark, and barely above Hungary and Kazakhstan. The socialist countries: Russia, Cuba, and Venezuela are as poor in beer as they are in dollars. Socialism distributes wealth without creating it.

Number of beers one can buy on a month's minimum wage in Europe

Number of beers one can buy on a month’s minimum wage in Europe, by Reddit:adilu.

By now you’re wondering about my use of per-capita GDP. Perhaps a better comparison — one where socialism looks better would involve the minimum wage. At right I show a map of Europe in terms of the number of beers one can buy per month based on 40 hour weeks at the minimum wage. Several countries are greyed out: Italy, Austria, Sweden, Finland, Lichtenstein, etc. These are mostly rich countries bu have no minimum wage. Based on the data, Belgium’s working classes are the best off, with Ireland and England not far behind. Germany’s workers look like they are doing well, but they don’t really have a minimum wage (the chart, by Reddit editor adieu assumes one based on a proposal). The United States’s minimum worker is poorer in beer (327/month) based on a minimum wage of $7.85 and an average cost of beer about $4/pint (bar + supermarket). He is richer than the French, Poles, Italians, Norwegians, Danes, Austrians and Swedes in beer, and better off than the Turks and Russians too. It’s clear that high minimum wages harm community wealth and job prospects. Though some at the bottom of the work scale are left dry at the bar.

Robert Buxbaum, July 18, 2018. I write these blogs to help me think. If you’d like to see more of the wealth of nations in beer, I’ll be happy to provide.

Bitcoin risks, uses, and bubble

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Bitcoin prices over the last 3 years

Bitcoin prices over the last 3 years

As I write this, the price of a single bitcoin is approximately $11,100 yesterday, up some 2000% in the last 6 months. The rise rate suggests it is a financial bubble. Or maybe it’s not: just a very risky investment suited for inclusion in a regularly balanced portfolio. These are two competing views of bitcoin, and there are two ways to distinguish between them. One is on the basis of technical analysis — does this fast rise look like a bubble (Yes!), and the other is to accept that bitcoin has a fundamental value, one I’ll calculate that below. In either case, the price rise is so fast that it is very difficult to conclude that the rise is not majorly driven by speculation: the belief that someone else will pay more later. The history of many bubbles suggests that all bubbles burst sooner or later, and that everyone holding the item loses when it does. The only winners are the brokers and the last investors who get out just before the burst. The speculator thinks that’s going to be him, while the investor uses rebalancing to get some of benefit and fun, without having to know exactly when to get out.

That bitcoin is a bubble may be seen by comparing the price three years ago. At that point it was $380 and dropping. A year later, it was $360 and rising. One can compare the price rise of the past 2-3 years with that for some famous bubbles and see that bitcoin has risen 30 times approximately, an increase that is on a path to beat them all except, perhaps, the tulip bubble of 1622.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

A comparison between Bitcoin prices, and those of tulips, 1929 stocks, and other speculative bubbles; multiple of original price vs year from peak.

That its price looks like a bubble is not to deny that bitcoin has a fundamental value. Bitcoin is nearly un-counterfeit-able, and its ownership is nearly untraceable. These are interesting properties that make bitcoin valuable mostly for illegal activity. To calculate the fundamental value of a bitcoin, it is only necessary to know the total value of bitcoin business transactions and the “speed of money.” As a first guess, lets say that all the transactions are illegal and add up to the equivalent of the GDP of Michigan, $400 billion/year. The value of a single bitcoin would be this number divided by the number of bitcoin in circulation, 15,000,000 currently, and by the “speed of money,” the number of business transactions per year per coin. I’ll take this to be 3 per year. It turns out there are 5 bitcoin transactions total per year per coin, but 2/5 of that, I’ll assume, are investment transactions. Based on this, a single bitcoin should be worth about $8890, slightly below its current valuation. The gross speed number, 5/year, includes bitcoin transactions that are investments and never traded for goods, and those actively being used in smuggling, drug-deals, etc.

If the bitcoin trade will grow to $600 billion year in a year with no other change, the price rise of a single coin would surpass that of Dutch tulip bulbs except that more coins are bing minted, and that the speed is increasing. If you assume that coin use will reach $1,600 billion/year, the GDP of Texas in the semi-near future, before the Feds jump in, the fundamental value of a coin should grow no higher than $44,000 or so. There are several problems for bitcoin investors who are betting on this. One is that the Feds are unlikely to tolerate so large an unregulated, illegal economy. Another is that bitcoin transactions are not likely to go totally legal. It is very hard (near impossible) to connect a bitcoin to its owner. This is a plus for someone trying to deal in drugs or trying hide profits from the IRS (or his spouse), but a legal merchant will want the protection of courts of law. For this, he or she needs to demonstrate ownership of the item being traded, and that is not available with bitcoin. The lack of a solid, legitimate business need suggests to me that the FBI will likely sweep in sooner or later, and that the value of a coin will never reach $44,000.

Yet another problem for those wishing to invest in bitcoin is the existence of more bitcoins (undiscovered, or un-mined so far) and the existence of other cryptocurrencies with the same general qualities: Litecoin (LTC), Ethereum (ETH), and Zcash (ZEC) as examples. The existence of these coins increases the divisor one should use when calculating the value of a bitcoin. The total number of bitcoins is capped at 21,000,000, that is 6,000,000 coins more than known today. Assuming more use and more acceptance, the speed (turnovers per year) is likely to increase to four or five, similar to that of other currencies. Let’s assume that the bitcoin will control 1 trillion dollars per year of a $1.6 trillion/year illegal market. One can now calculate the maximum long term target price of a bitcoin by dividing $1 trillion/year by the number of bitcoins, 21,000,000, and by the speed of commercial use, 4.5/year. This suggests a maximum fundamental value of $10,582 per coin. This is just about the current price. Let the investment buyer beware.

For an amusing, though not helpful read into the price: here are Bill Gates, Warren Buffet, Charlie Munger, and Noam Chomsky discussing Bitcoin.

Robert Buxbaum, December 3, 2017.

Solving the savings dilemma (how to have savings)

A few days ago, I wrote a post about the lack of savings in America, the social causes for it, and the damage it causes. I had some governmental suggestions, but suspect I didn’t emphasize that the main responsibility is personal: if you want savings, you’ve got to save.

Every rich person spends less than he earns. If you aspire to be rich, spend less on clothes than you can afford.

Every rich person spends less than he earns. If you aspire to be rich, spend less on clothes than you can afford.

If you want to have savings, it is up to you to spend less than you earn. If you don’t, you’ll never be rich, you’ll never have savings or net-economic worth, and you’ll always be strung-out over emergencies. Income and gifts won’t help if spending rises to match. At all incomes, the people who get richer are those who tailor spending to be less than earnings.

There is another personal honesty issue here, and a marriage issue too. If you spend more than you earn, someone will be cheated, and that person (your wife, husband, neighbor, friend) is likely to get mad. Earn $100 and spend $99.99, you can be honest and well liked. if you earn $1000 and spend $1000.01 and you will cheat someone you love sooner or later. Be an honest fellow and spend less. Clothes is a good place to start: say no to the fancy dress and the fancy wedding, and to fancy clothes in general. If you smoke, vaping can be a life and money saver. And try to avoid pot-smoking, at $400/oz that’s got to be a killer. And here are some water savers.

A good way to know if you are doing things right :Start a bank account, and check the balance and resolve to see it $10 higher at the end of the week than before. And that’s my two cents.

Robert Buxbaum, April 26, 2017.

Stories of Jewish charity

Before Passover this year, an individual went to the rabbi of our town for a private meeting to tell him about the problems facing various people. He said, there was one particularly pathetic case where a family could lose their house. They had borrowed $5000 from a particularly nasty lender who would throw them out in the cold if they didn’t pay up soon.

Our rabbi was touched, and said he would do what he could to raise the sum. He would even contribute $100 of his own. As the fellow left, he had just one question, ‘How do you come to know this is going on? Are you a relative, or particularly close friend?” “No,” said the guest, “I’m the lender.”

 

Another story of Jewish charity: a neighbor of ours takes incredible care of her husband, She spends quite a lot, regularly to get his nails done professionally. She says it’s worth it to know that his coffin is secure.

Finally, I must admit that I’d wanted to marry my ex-wife, who I had divorced previously — sort of an act of kindness. But she would have none of it. My ex said I was only marrying her for my money.

Robert E. Buxbaum. October 23, 2015

Cross of gold democrats

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While it is dangerous to paint a large organization like the Democratic party with a single, broad brush, there are always patterns that appear, in this case in every presidential platform for a century. Beginning in the late 1800s when the Democratic party gave up on slavery, a stated goal of every Democratic platform has been to help the poor and downtrodden. Republicans claim to help too, but claim to target the worthy. For Democrats, by contrast, the common aim is to provide help without reference to individual worth or work — to help just because the individual needs it. All versions of this classic Democratic goal are achieved through forms of wealth redistribution: taking from the rich to give to the poor, Robin Hood style, at least temporarily. There is some inherent tension here: if the recipient can get free money without working, why would he work — a tension that some find insulting, but others accept as part of the comic nature of society. Many Americans accept that helping poor people is such a worthy goal that they knowingly accept the tension and cheating.

Mayor Quimba of Springfield (from the Simpsons). A classical Democrat, his motto: Corrupts in Extremus

Mayor Quimby of Springfield (from the Simpsons) is a classical Democrat, he has no morals beyond, ‘whatever the public wants’. Quimby is corrupt and an awful manager, but quite likable.

Extracting money from the rich always proves difficult: the rich generally object. The most direct way to extract money is taxation, but Democratic politicians, like Mayor Quimby, right try to shy from this to avoid being branded “tax and spend Democrats.” This year, Bernie Sanders has taken this line, proposing to raise the tax rate on the wealthy to 90% of income so he can do good for the poor and curb the power of rich Republicans. He has no problem with rich Democrats like Ms. Clinton, or perhaps he does, but doesn’t say so. In Britain, under Attlee, the tax rate was raised to 95%, a rate memorialized in The Beatles song “Taxman” (there one for you nineteen for me; 19/20 = 95%). Americans oscillate between accepting high tax rates and acknowledging that the worker and creative must be able to keep most of his/her earnings or he/she will stop working.

Every few years recipient Americans revolt against the way redistribution makes rich Democrats richer, and how high taxes seem to go with crony corruption. The motto of The Simpson’s Mayor Quimby is “corruptus in extremus”, a nod to the observation of how corruption in redistribution favors friends and family of those redistributing the wealth. Redistribution also tends to create poverty. This happened in England, for example. As Quimby says: “I propose that I use what’s left of the town treasury to move to a more prosperous town and run for mayor. And, er, once elected I’ll send for you.”

An alternative many Democrats favor is to print money or borrow it. This appears to be Ms Clinton’s approach, and was proposed famously in the “cross of gold” speech of William Jennings Brian in 1896.  In this speech, one of the finest in American history, Bryan (an unknown until then) proposed to monetize silver and other assets, allowing him to print money. He would spend the money on the poor by debasing the currency, that is by inflation. Bryan claimed that the rich were anyway sitting on unused money: a useless, dangerous pile that he’d inflate away. He also claimed that the poor are the ones who owe money, a burden that he would wipe out with inflation. Bryan’s final line is immortal: “you shall not press down on the people this crown of thorns, you shall not crucify the nation on a cross of gold.” The speech managed to combine God and greed and was an enormous success. Following the speech there was stunned silence, and then whoops and hollers. Bryan was carried around the convention for an hour before being chosen the Democratic candidate for president in 1896, 1900, and 1908. His speech has appeared, to a greater or lesser extent, in the platform of every Democratic candidate since with a greater or lesser reference to God depending on the conservatism of the speaker.

Donald Trump currently the front runner for GOP president reads to his grand-daughter Chloe from that Christmas classic, 'winners aren't lots.' photo by Donald Trump, jr (Chloe's Dad) aboard their car (?) plane (?).

Donald Trump currently the front-runner for GOP president reads to his grand-daughter, Chloe from ‘winners aren’t losers.’ photo by Donald Trump, jr., Chloe’s Dad. Trump seems to revel in the lovable, rich jerk persona as no Liberal or Democrat could.

Republicans have traditionally supported property rights and harder money: gold in the old days, a balanced budget today. They claim that low inflation is good for the rich and poor alike, and especially for the small businessman. Entrepreneurs are pictured as more virtuous than the idle, wastrel Democrats. Free money, the Republicans note, discourages work. Of course, distinguishing worthy from wastrel is easier said than done. Republicans are accused of being uncharitable, and of helping the idle rich once they get into office. Presidential candidate, Donald Trump claimed that until now he’d give big donations to candidates of the left and right so they would repay the favor with interest at a later date. No one knows if it will change when he gets in office, but so far he’s avoided the major rich donors. He’s doing well running as a lovable, rich, jerk who’d do things different.

Inflation is a dangerous mistress, the middle class generally doesn’t like the way it wipes out debts and savings, while supporting a class of rich wastrels, drunks and the chronically unemployed. Many of the poor and middle class save, while the rich tend to build up debts. The rich have better credit ratings than the poor, and thus borrow more. They are also better positioned to increase their borrowing if they think inflation is coming. The money they borrow is invested in hard assets: land, homes, and businesses. When inflation slows, they can sell these assets. And if they pick wrong, the government bails them out!. William Jennings Bryan lost all three of his runs at the presidency, twice to McKinley and once to William H. Taft, who stood for doing nothing.

William Jennings Bryan: for inflation and silver; against alcohol. Lost twice to McKinley and gold.

William Jennings Bryan: for inflation and silver; against alcohol. Lost twice to McKinley and gold.

I think the American people want a balance in all things. They want a balance between helping everyone, and helping only the deserving; between high taxes to help folks, and allowing folks to keep their wealth. They don’t quite know where to draw the line, and will even help the wastrels, even those who refuse to work, because they don’t want them starving in the street. They also seem to accept rich folks getting richer, especially when a big project is needed — a ship or a bridge, for example. We elect an alternating mix of Democrats and Republicans; conservatives, and liberals to avoid false paradoxes, achieve some liberty, and establish one of the richest states known.

As for me, you might as well know, I’m a liberal Republican. I favor low income taxes, but some welfare; taxing imports (tariffs), and low inflation –“bread currency,” I like Peter Cooper, and the Greenback Party, 1876. Cooper claimed that the dollar should always have the same value “for the same reason that the foot should always have 12 inches and the pound 16 ounces.” I also think enforcing morality is a job for preachers, not politicians. For 160 years students of Peter Cooper’s union were getting a free college education and I’m one of those engineering students, see my biography of Peter Cooper.

Robert E. Buxbaum, December 30, 2015. See my view of Scrooge’s economic education in the Christmas Carol.

Republicans vs conservatives

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Most of the great divides of the 1800s pitted conservatives against Republicans. This was the Divide in the Mexican civil wars of the 1800s, and there were several; it is the divide in the South American wars of Independence, and in much of the US and European political debate of the 1800s as well.

Ned Flanders, cartoon conservative from "The Simpsons" He's generally well meaning and helpful, but also a bit creepy.

Ned Flanders, cartoon conservative from “The Simpsons” He’s generally well-meaning and helpful, but also a bit creepy.

In general, the difference between conservatives and republicans is that conservative governments favor religion, and religion-based leadership, while republicans favor individual liberty. In 1800s Mexico, conservatives backed two emperors (Maximilian I and Agustin I) and Santa Anna, the ruler who suspended all personal rights an ignited the war of Texan independence. Conservatives generally favor the religion of the majority: Protestantism in England, Catholicism in Central and South America, Judaism in Israel, and Islam in most of the Muslim world. This tends to annoy the irreligious and minority religious populations, who tend to become republicans. Cinco de Mayo celebrates the 1862 victory of Mexican republicans over the French-backed, conservative Maximilian I, at the battle of Puebla. The US Civil War, in essence, pitted the irreligious, industrial, republican north against the conservative, evangelical South; slavery is in the Bible so it must be good.

Conservatives usually favor government actions against sin in all it’s forms: miserliness, drunkenness, drugs, pornography, wild music, money-making, and freedom as such. Conservative-ruled countries have generally had anti-blasphemy laws and enforced “blue laws”, restrictions on business on holidays. Republican governments have few, or none of these. In pre-revolution France, the penalty for blasphemy was death, just as the Bible mandates. This changed when the republicans came into power. In England, private blasphemy was prosecuted as late as 1977. Similar penalties are still in force in Iran and other conservative Islāmic countries. Many US states still restrict the sale of alcohol on Sunday, for similar, conservative reasons. Conservatives usually favor sexual morality laws, putting strong restrictions on homosexuality, abortion, and divorce. In England, amicable divorce wasn’t legalized until 1930, and homosexuality was illegal until 1970. In the US, sexual laws are a fairly bizarre mix, in my humble opinion, the result of republicans, liberals, and conservatives making inelegant compromises.

In republican democracies like modern-day France, Holland, and Germany, sexual immorality laws are more lax than in the US. Republican governments strive to protect the rights of the individual; among these their right to property and to a fairly unbridled pursuit of pleasure. Republican countries tend to suffer from (or benefit from) significant income inequality. People can become rich due to hard work, talent, luck, or birth. And they very often become arrogant and obnoxious after they become rich — and sometimes before — to an extent that bothers conservatives and liberals alike. People can also become very poor: from laziness or bad choices, or just from bad luck or having been born to the wrong parents. Conservative and liberal elements then strive to help the very poorest, providing them with food, money and basic housing — generally achieved by taxing the rich. This is good in moderation, but taken to excess, this can lead to dependency of the poor, and redirection of the rich into less-productive fields like politics and the church. Conservatives very rarely leave a good pathway for the poor out of dependency, nor have they found a way to keep scoundrels out of the government and the church.

Scrooge McDuck. he'd likely be a Republican, if only to protect his wealth.

Scrooge McDuck, banker, railroad tycoon, steel magnate; he’d likely be republican, though not likely conservative. Motivated by money and power, he may do good, but not in any direct way, usually.

At present, the US Republican Party, the GOP, consists of approximately equal halves conservatives and republicans. That is, GOP leadership is currently an approximate balance between kindly folks like Ned Flanders who would rule by the Bible, and an equal number of rougher individuals, more like Scrooge McDuck who would rule by money.  in a sense, this is a wonderful compromise as the excesses of each group reins in the excesses of the other. In another sense though, the balance between conservatives and republicans is an ungovernable mess that leads to regular de Condorcet failures. I’m not sure how this will play out in the 2016 elections.

Fortunately, not all irreconcilable differences are as irreconcilable as one might think. Many de Condorcet problems are solvable by compromise, or by the effects of time. Compromise between charity and commerce can produce the best of all worlds, a major theme point, as I understand it, of Dickens’s Christmas Carol.

Robert E. Buxbaum, October 20, 2015. I use these essays to refine my thinking — here, more than usual. Any help you can provide will be welcome, feedback, corrections, comments. I’m trying to figure out what I, myself think. The divide between Conservatives and Liberals produces some of the most wonderful quote – exchanges, e.g. between Churchill and Attlee in 1950s England. Liberals, and I have not quite made up my understanding here, seem like a sort of like conservatives in that they believe in wealth redistribution, but without the guidance of a church, or church-based morality. At some point in the future, I’ll hope to arrange my thoughts about them, and about the difference between liberals and democrats.