Bitcoin: How it can get even better!

I’m not a full-blown bitcoiner. I don’t own any. But I think that bitcoin has a legitimate chance to change how currency is handled in the future. (Already changing in the present) I don’t think Bitcoin is end all be all of currencies. My only two criticisms of Bitcoin are the following: lack of acceptance among many retailers and security issues. I have been thinking about investing in or more likely mining some Bitcoin. For me to go all in, I’d like see a few things happen, some of which have nothing to do with Bitcoin itself. This post will probably be shorter, but I’ve been thinking about this for awhile now. Back to my criticisms, I believe acceptance will come over time, there’s no sure way to force it. The security issues will be fixed as well especially if acceptance becomes the normal. You might be wondering what in hell I might want to happen.

Let me first explain a concept that already exists in today’s world: currency exchange. If you’ve ever traveled to a country with a different currency then you probably dealt with exchanging currency. Personally, I have exchanged Pounds, Philippine pesos and Korean Won. A currency exchange is market place where different currencies are traded against each other. Any currency can be exchanged with any other currency. But typically the currency you normally carry, if your an American that will be dollars is traded against other currencies. The value of the dollar is weighed against lets say pounds. So as of writing this, 1 US dollar is the equivalent of 0.76 Great Britain pounds. One of the benefits of currency exchange is the ability to know which currency is stronger in terms of value. There also other factors to determine how stable a currency is and whether or not its being inflated. The problem with government issued currencies is that they are almost ALWAYS being manipulated either by a government or a central bank. This leads me to my first thing that I want to happen: A few Bitcoin competitors.

If you are up on cryptocurrencies, you probably already know that there isn’t a true competition to Bitcoin. Its the best one on the market. Bitcoiners often call other cryptos “shitcoins”. Unfortunately for Bitcoin, I’m not a fanboy just a causal spectator. I would love to see a few other legitimate, life changing cryptocurrencies to challenge Bitcoin for the top spot. I think some challengers would help Bitcoin tremendously. Currency exchange is the exact reason why, some competition would benefit Bitcoin. Of course, when Bitcoin is traded for US dollars it will dole out big returns because the dollar is inflated and devalued into actual piece of paper is. The idea is that each different top cryptocurrency would offer a certain advantage that the others don’t have. I think having multiple currencies in an economy has more advantages for everyone. For the consumer, it means more purchasing power. For the business owner, it means more investment power. It could even better savings ability anybody. There could be a currency for every kind of financial tool.

I think Bitcoin would benefit greatly from competition because each cryptocurrency would have to compete in both ease of use, security, and usability. Not only that, a currency exchange among them would help potential users determine which one gives the most “bang for their buck”. Imagine being able to choose the best currency for the task you want to achieve. I think of it like having a toolbox. You don’t just have a hammer for every single task. You have different tools for different tasks, like a screwdriver, drill, wrench..etc. I believe that how money should be as well. I think the sky is the limit when it comes to cryptocurrency being useful. The way money is handled now all digitally means the transition wouldn’t be as tough for most people to adopt.

I think another thing that needs to happen is Bitcoin along with competing cryptos need to produce some kind of physical form. Sounds old school, yes. But I think there is distinct security advantages in having a physical copy of certain things. I also think this will happen with adoption process especially among older users. There is potential that physical money could be phased out completely. But having a physical manifestation of the currency you hold might calm the concerns of some apprehensive users.

In conclusion, Bitcoin can in fact get better if it has legit competition. It can gain wider acceptance by competing with other coins. It’s security features will grow over time by the increase in users. I believe that an economy using multiple currencies with distinct advantages would be a very healthy economy. I think giving people different tools for each financial transaction or task is something that we lack now. I mean what does the dollar really do well? (Besides lose value) I’m hoping that in the future, I can finally attain some Bitcoin. I really like the future that it presents for currencies everywhere.

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Part 2: Monetary policy and Trump’s Tariff debacle

Before you start reading this post you should go to part 1 if you aren’t familiar with supply/demand curve and “dead weight loss”. 

In the first part of this post, I will be discussing Trump’s tariff debacle. It is a little misleading but enacting tariffs can only end in a debacle. In today’s world, we have globalization and free trade around the world. The world is much too interconnected to put protectionists policies in place is like moving backwards. I want to re-highlight these points even though I mentioned them in my other tariffs post here.  In the second part of this post, I will go over one or maybe two common monetary policies utilized by the Federal Reserve (Central Bank). The policies will be in relation to tariffs because they have to do with the actual money supply. I won’t go too far into detail, lets get right to Trump.

Globalization and Free Trade are the New Norm:

If you haven’t read the tariff post linked above then here is a brief recap about globalization and free trade. Globalization is spread of goods, people and cultures all over the world. In today’s world, if you look at how the internet let’s people access information instantly, and how you can literally go anywhere by plane, boat or car. This is globalization. The exchanging of information with people from all over world, it has us more interconnected than anytime in human history!

This connection has lead multiple free trade agreements. There are many more pending. My point is that Trump cannot possibly ignore this. Trump’s problem is, as I see it, he is thinking like the US is his business. So in order to get his business (USA) ahead he wants to cut off the competitors by pricing them out. However, there is a YUGE problem! The problem is that consumer markets are now worldwide. The USA has a population of only 320 million out of 7 billion people in the world! Clearly, the US is lucrative market but its not the only one!

Protectionism: Moving the Economy backwards:

This is painfully simple to explain. The US used to be a protectionist economy from its birth in 1776 to about 1913. The federal government collect the majority of its income from tariffs on imports and exports. In 1913, the federal income tax  started raking in more than tariffs. It has ever since. After the world wars, the world started to rapidly globalize. The US lead the way. Now the US is in a tedious position with countries like China chopping at the bit to take first place. The point is that if the US wants to go back to pre-1913, before we were considered the world’s number one economy then we should enact tariffs. Speaking of China, that brings me to my next point.

Trump will eventually lose the trade war with China:

Recently I was able to acquire membership to the Wall Street Journal. (I got connections, kidding) I came across an article that caught my eye. Let me preface it with this: Trump has already approved 50 billion dollars worth of tariffs on Chinese goods. Now Trump is threatening to raise it to 100 billion dollars worth. The Chinese have responded that they will fight back if he does it. Here is the link to the article, its called Trump Weighs Tariffs on $100 Billion More of Chinese Goods by Bob Davis. (I believe they allow a few free reads if you haven’t gotten a subscription) Davis goes into detail about the possible effects of the tariffs. He also writes about Trump’s possible plans to protect industries like agriculture. I would encourage everyone to read since it gives a decent background on the situation.

My point here is that Trump cannot win against China. The Chinese hold a ton of our debt. In other words, they buy American dollar backed government bonds. (China also cheats on its exchange rate by basing it off these debt bonds) China holds leverage because of the holding of American debt and they import more to us than we export to them. Trump will lose because China doesn’t need US goods. The US is more dependent on China. Now you can how monetary policy plays a role in the contexts of tariffs and the economy.

Exchange Rate

One of the most important aspects that any government can control is the exchange rate. The exchange rate or currency exchange rate is the value of one currency in relation to another. For example: 1 US dollar is equal to .81 Euro. Currency exchanges can done in every currency. One of the ways that the exchange rate help with Trump’s trade war is through making our money more valuable or less valuable. Unfortunately, its a great tactic because it can backfire. In a circumstance, where Trump decides to have the US Treasury take money out of the money supply or circulation. A common used is called deflation. Which refers to increase of purchasing power of money.  This usually helps everyone because less money is worth more. However, in regard to China, it would probably strengthen the Chinese position.

make the dollar worth less, it would help devalue the debt held by the Chinese. Trump would simply tell the US Treasury to print more money. However, the drawback is that it would cost more to pay back debt. It would also decrease the buying power affecting nearly everyone except the super rich. Its also called Inflation which is my next topic.

Inflation

Inflation is often seen as a bad word. Its often used to describe the fall of prices and purchasing power. There is some controversy about how its calculating using CPI or Consumer Price Index, which is explained here. Now the important thing about inflation is that it can have serious consequences.  One consequence I mentioned was decreased purchasing power. Purchasing power is very important especially everyday people like me and you. Many of my anti-minimum wage arguments on center on this exact principle. Having money be worth less means that you have work harder to make more to buy less. For example, inflation might bring your regular grocery bill from 100 dollars  a week to 150 dollars a week even if the prices of food remain about the same. The reason is because each dollar may lose 10 cents in value. (The math is a little complex)

What does inflation mean for Trump’s trade war? There is good and bad news. The good news is that Trump could try to deflate the value of the Chinese held US debt. The consequences would be as mentioned above. This method would disallow the Chinese to sell off the debt without losing value. The bad news is that even if the Chinese are forced to keep it, America would have a harder time paying it back. Trump also has to be careful not to print too much money.  The problems that arise can be dangerous for the domestic economy. Money circulation works in a supply and demand curve. If the value of money is too high or too valuable than one can print more bills to help lower it. This is rarely a problem, except when considering exchange rates, imports and exports. If the value of money is too low than one could take money of the supply to help increase its value. So really its a supply/ value curve.

To conclude: Trump’s Trade War is not easily winnable. He obviously has some tools to work with. I also read recently that he is rethinking the Transpacific Trade partnership or TPP. I think its interesting because if the countries currently in the agreement allow Trump re-join and set the rules for trade than it will the US control over trade especially in regard to China. The TPP is a trade agreement that actually just regulates trade in certain industries. Trump withdrew because of global warming clauses and “unfair” regulations.

I can write more on TPP soon because I find it interesting. Also a Syrian Bombing post is coming soon.

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