Surf Report: The Jelly Donut Policy
Issue 33: 05.09.2021 (Free Version)
INTRODUCTION
May 09, 2021
Hi everyone—I’m so glad to have you here. What a week.
It turns out printing 1/4 of all the dollars that have ever been created in history in the span of one year and then giving them away to people is having very predictable consequences.
Here’s the thing: while every fiat currency in history has eventually failed, and central banking as a monetary system has always led to a more centralized, authoritarian, fragile economy, proponents of The Fed point out that it does work in theory.
And they’re right. But here’s the catch. It requires responsibility, temperance, and a mindfulness of long-term consequences in order to avoid the inevitable temptation to create new money whenever you want and fund anything you can’t afford.
Whenever this has happened in the past, things go the way of the jelly donut:
“A Jelly Donut is a yummy mid-afternoon energy boost.
Two Jelly Donuts are an indulgent breakfast.
Three Jelly Donuts may induce a tummy ache.
Six Jelly Donuts — that’s an eating disorder.
Twelve Jelly Donuts is fraternity pledge hazing.
My point is that you can have too much of a good thing and overdoses are destructive. Chairman Bernanke is presently force-feeding us what seems like the 36th Jelly Donut of easy money and wondering why it isn’t giving us energy or making us feel better.”
[The Fed’s Jelly Donut Policy, from 2012]
The Fed says they’re helping, but all they’ve done is created the conditions for ongoing help to be needed.
Once people finally leave their homes and start spending all this money (called the increased velocity of money), then even the more effects of inflation will start to become apparent. Some have argued this is might be part of why politicians don’t want to “reopen” too quickly; if they do so more gradually then it slows the velocity of money and the effects of inflation become less obvious.
I know I keep belaboring the inflation thing in this newsletter, but it’s actually the irresponsible creation of money that’s even more troubling.
Why?
A government that can just print fiat (“by decree”) money—especially when it’s the global reserve currency—can fund all sorts of bad ideas that it would never have been able to fund otherwise. In a very real sense, it’s the current central bank/fiat paradigm that is the only reason we can afford to go to war so much.
Wars—whether on countries, drugs, or disease—are prohibitively costly for a nation… unless that nation can toss out the idea of “cost” entirely.
You can’t dismiss human nature when devising rules for people to play by. To assume responsibility, selflessness, and generosity is to overestimate the nature of humans who seek wealth, power, and prestige. And to assume self-restraint and delayed gratification in everyone is to underestimate how truly delicious and addictive jelly donuts are.
Giving the government the keys to the money printer is like giving a group of children the keys to a donut factory.
The children may not make themselves sick “in theory,” but that doesn’t make it a good idea.
Until next time 🤙,
“Listening to uninformed people is worse than having no answers at all.” —Ray Dalio
Breaking 🌊
🏧 The US Treasury expects to “borrow” $1,300,000,000,000 over the 2nd half of fiscal 2021 [WSJ]
🤑 Last year’s GameStop frenzy funneled $142M from Citadel (investor in Melvin Capital, who had shorted the stock in the first place) to Robinhood [Blockworks]
🏭 Intel is investing $3.5B in a New Mexico plant upgrade to boost US chipmaking amid our current global supply shortage [CNET]
💁♂️ Twitter has soft-launched Tip Jar, a new feature to make it easier for power users to earn money from their followers. [Twitter Blog]
💸 AOL and Yahoo are still around, and Verizon just sold them for $5B+… which is 40% less than it originally bought them for [CNBC]
😬 Popular project management SaaS company Basecamp had an all-hands meeting where a new policy was announced banning political discussions, leading to 1/3 of employees quitting [The Verge]
₿💱 Bitcoin is coming to hundreds of U.S. banks this year—customers will be able to buy, hold and sell bitcoin through their existing accounts [Blockworks, CNBC]; The central bank invited the public to comment on proposed guidelines that would allow companies with “novel types of banking charters” to access accounts and services provided by the Fed [Bloomberg]; The Chief Financial Officer of the largest hedge fund in the world just left to join a Bitcoin company [PR Newswire]; S&P goes live with Bitcoin & Ethereum indexes [Coindesk]; The New York Giants team up with Grayscale Investments for NFL’s 1st cryptocurrency partnership [Barron’s]; The largest e-commerce firm in Latin America added 7M worth of Bitcoin to its balance sheet [Cointelegraph]; Goldman Sachs has launched a new Bitcoin derivatives service to Wall Street investors [Bloomberg]
From The Tweetbox 🐦
Jerome Powell’s term as Federal Reserve chair expires in February 2022 [Tweet]
“Choosing to denominate in different base assets really changes your view of the world, risk/return profile, opportunity cost” [Tweet]
“If inflation becomes entrenched, it could flip the stock/bond correlation. History shows that when inflation persists above 3%, bonds become positively correlated to stocks. That could mean investors consider more cash/TIPS and more hard assets, such as gold and bitcoin” [Tweet]
"If you haven’t felt it yet, it’s coming. You can expect higher prices for toilet paper, diapers, soft drinks, plane tickets, a tank full of gas. Whirlpool is raising prices of some of its appliances by up to 12% ...” [CNN Video]
“Many folks wonder why Japan had such low price inflation over the past 25 years despite a huge surge in the BOJ balance sheet. It's because broad money grew extremely slowly.” [Thread]
“The economists predicted that the April jobs report would show +1 million this morning. Instead, it showed +266k. If they’re off by almost 75% on a monthly jobs report, how much are they off on other predictions like inflation?” [Tweet]
For The Pros 😎
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Worth A Read 📃
“How Much Energy Does Bitcoin Actually Consume?” via Harvard Business Review
Nintendo's disastrous Wii U proves to be the Switch's secret weapon.
Nintendo is proving there's a second chance when a game is basically new to most people.
PNGs 🖼
Groms 🐣
Satoshi’s Games has unveiled Elixir Marketplace, a nonfungible token (NFT) marketplace for games that enable players to earn rewards based on the Bitcoin cryptocurrency.
from VentureBeat:
In other words, players could get paid to play games. In Light Nite, Bitcoin microtransactions add a new level of interaction, as players can earn Bitcoin instantly when they shoot opponents and withdraw balances whenever they wish, the company said. All in-game items have a real value that players can gift or trade, allowing them to feel in control of their gaming world, according to Satoshi’s Games.
Pods & Schools 🐬🐠
🔊 Visa: The Original Protocol Business, on Business Breakdowns.
“They have done things that are potentially well-intentioned but didn’t really make sense in retrospect, which is: Should Visa have a wallet? PayPal has a wallet, we should have a wallet too. Should Mastercard have a wallet? Should American Express have a wallet? And I feel like companies often do things that make strategic sense but where there’s no market need.”
🔊 Ted Seides Breaks Down the Business of Hedge Funds, from On The Margin
“At some point in time there will be a correction, and one of those people will be right in their assessment, and that person will say I told you so. But if you really want to think about investment outcomes over a longer period of time you have to think of more than just that incident. You have to think about: what was the opportunity cost of them being wrong up until that point?”
🎞 Michael Saylor: Why Bitcoin standard is what 8 billion people need for decent life.
“I think there’s something cruel and tasteless about an entitled rich white male that wants to deprive billions of poor women and children and men in Africa, Asia, and South America of the basic human right of economic self-preservation so he can generate some laughs.”
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Disclaimer
Nothing in this email is intended to serve as financial advice. Do your own research.