S P E C T R U M S P E C T R U M S P E C T R U M
 
M I K E R U D D B I L L P U T T . C O MM M I K E R U D D B I L L P U T T . C O MM M I K E R U D D B I L L P U T T . C O MM M I K E R U D D
 
Dick's Toolbox (cont.)
 
 
The raconteur Augustus Hare claimed that "Talk of strange relics led to mention of the heart of a French King preserved at Nuneham in a silver casket. Dr Buckland, whilst looking at it, exclaimed, 'I have eaten many strange things, but have never eaten the heart of a king before', and, before anyone could hinder him, he had gobbled it up, and the precious relic was lost for ever." The heart in question is said to have been that of Louis XIV.”
Who said that history wasn’t curiously entertaining?
But back to money and finance and the bit that is a tad scary.
Credit is such an innocent word but without credit there is no growth. Without credit we would be living in a 14th Century hand to mouth economy. Because if we tied the amount of money to actual existing, tangible assets, things like crops and horses, labour and castles that exist in the here and now, there wouldn’t be enough money suddenly to build countries full of railways and seas full of ships. So we need more money than there actually is. And how easy that is, because we just say that it exists! Really!
The banking system allows banks, starting with Treasury or our Reserve Bank, and all the dependent banks and Credit Unions to lend (or print) more money than they actually have in their vaults and in your low interest saving account. In America this is up to ten times the amount that they have on deposit. Which means that there is nine times more imaginary money than real bank notes and coins. A lot of imaginary money that can be sent to any part of the globe where it can be tax free and hopefully productive.
Or you can employ that other wonderful financial device ‘quantitative easing’, which is another term for just printing more money. It’s what you do when you can’t think of anything else to do when the economy is going nowhere. What this means is that after a few years of printing money, the great tidal wave of cheap money gets hungrily turned into real things like houses in Melbourne. And because money is cheap and houses are relatively scarce, the price of housing goes up.
In fact, when you factor in all the more creative financial instruments such as derivatives or collateral debt obligations, you have yet another multiplier of imaginary money.
Actually this is mostly well and good most of the time. The vast inverted pyramid stays more or less upright, wobbling considerably, until we lose faith in it, we stop believing, and everybody wants their money back. Which they can’t have as there is far more than 90% shortage of the ready stuff and so banks go belly up or have to be bailed out by governments who print more money to fill the holes in the financial fabric.
The Great Depression of the thirties and the Great Financial Crisis are the obvious examples of when things go wrong – when people stop believing in the fabulous merry-go-round.
So, this is actually a useful form of shared belief most of the time, provided one has a large degree of scepticism about the wonderful ability of people to forget the valuable lessons of ten years ago.
But we are of course entirely willing to believe the most wondrous useless tosh imaginable.
Which naturally brings me to the realm of Bitcoin and bitcoin mining. Is this a useful form of money? Given that it was initially much favoured for users of the Dark Web, as it sits outside the standard traceable banking system, it has been certainly useful for various criminal purposes, which puts it off to a poor start.
As Wikipedia says “Bitcoin (?) is the world's first cryptocurrency, a form of electronic cash sent peer-to-peer without the need for a financial intermediary. It is the first decentralized digital currency: the system works without a central bank or single administrator. Bitcoins are sent from user to user on the peer-to-peer Bitcoin network directly, without the need for intermediaries. These transactions are verified by network nodes through cryptography and recorded in a public distributed ledger called a blockchain.
Bitcoins are created as a reward for a process known as mining. They can be exchanged for other currencies, products, and services. “
Just like real money, with all the same necessity to believe.
There are about fifty different ‘Bitcoins’ around, as people realised that you could make money out of nothing and electronic processes which, when they work, should be totally secure. Except that there are more than a few instances when it hasn’t worked and large amounts of bitcoin have been hacked or ‘lost’. You may also see that the value of bitcoins fluctuates wildly with bitcoins this year fluctuating from $14,000 to $6,600. Given that in 2009 it was valued at eight cents you might either wish you had got in to this in the early days - or are glad you have nothing to do with it.
This fluctuation in value makes it a bit difficult to work out how much a cup of coffee will cost, but nevertheless the crypto currency market is valued at around $18 billion.
This may well be an interesting economic bubble. A lot of respected economists think so. A lot of governments are also looking at it with a quizzical eye.
But my beef with cryptocurrencies is not the concept, which may actually be useful, but its extreme energy consumption which renders the whole thing totally stupid. New coins are created and exchanged via cryptocurrency mining. This process uses vast amounts of energy through what is now a major industry which, among other things, has soaked up just about every high end graphics board being produced.
All these 24/7 processes are currently consuming at least 2.55 gigawatts of electricity. By the end of the year it is expected to rise to almost 8 gigawatts. As a comparison, Ireland consumes 3.1 gigawatts and Austria 8.2 gigawatts.
As the magazine PC & Tech Authority said, “ …… a whole lot of coal is being burned for an arguably intangible purpose.”
This is total unforgiveable insanity is a danger in an age of global warming. So the best we can hope for is that the whole thing does a South Sea or Dot-Com bubble.
Be afraid, be very afraid.
 
 
 
 
 
M I K E R U D D B I L L P U T T . C O MM M I K E R U D D B I L L P U T T . C O MM M I K E R U D D B I L L P U T T . C O MM M I K E R U D D