Sobriety Lessons
Daily Ramble
“Ok, Substack, you’re not going to get the best of me today. We’re talking about money printing lessons from the Weimar Republic, and you're not going to delete my writing again. You hear me?” Let’s hope the disciplinary words work. If I get this article re-written and deleted again, I’m likely to lose my cool on a board that breaks easily. Let’s not go any further down that line of anger inducement, though.
What I had written yesterday, and I’d like to cover today, is not more of the parallels between the hyperinflationary period of the 1918-1923 Weimar Republic and modern-day society, but the lessons I gathered by reading When Money Dies. If you’re sick of reading about the topic, fast forward to Shocking Things on the Interwebs. No harm, no foul.
Let me start the diatribe by stating how inflation history seems to repeat the same way everywhere. It’s a cycle that starts with some pressing social need the government is trying to solve. Generally speaking, governments can either raise taxes to pay for things, or they can print money to pay for them, devaluing their currency in the process. Not solving the social need is akin to political suicide. Asking for taxes is no different. The solution: print money — politicians are trying to stay in their careers after all. Once the money is printed, it filters its way into price inflation. As the cost-of-living prices increase, wage earners have difficulty making ends meet and push for higher wages. Asset holders see their asset prices increase which drives the inequality wedge between them and wage earners. Instead of attacking the money printer, the two classes begin to attack each other. The social fabric gets stretched, creating more social needs and pressure on politicians to solve them. From a bird’s eye view, the whole cycle can be seen as a societal effort at pain avoidance. An anesthetization of social needs through money printing. Any of this sounding familiar to my American readers?
The solution is of course to separate the ability to print money from politicians. Literally making it impossible for the political class to create money. The founders of the American constitution tried by putting into the constitution that legal tender must be gold or silver. But the power of the money printer is humanity’s Eye of Sauron, corrupting all who fall under its all-powerful gaze, including those sworn to protect the US constitution. Bitcoin represents the first time in human history where humanity has a shot at separating money and state. But of course, like any pain-avoidant addict, Bitcoin’s sobering impact is a threat to society’s high. The societal gnashing of teeth and wailing at Bitcoin are the natural sounds of sobering up. I expect that to continue and get worse before sobriety comes.
But I digress from my diatribe on lessons from the Weimar Republic, aka modern-day Germany. First, the bad news: everyone thought the worst was behind them, only for a worse set of circumstances to unfold. The bottom was much further down than any sane person could have imagined at the 1918 outset. The good news is that there were winners in the Weimar Republic — and I suspect it’s the same in every hyperinflationary situation. They followed a simple strategy of acquiring hard assets like real estate, companies, and stocks. As the assets increased in price, they could pay off debts more easily. They were also able to leverage their assets for loans which reduced in value as the currency did, making them easier to pay off. Eventually, the tide of money receded when money printing did, setting off deflation. The winners of the deflationary period sold their assets and lent out their capital at the high interest rates created by the money shortage. Although unemployment was high, the collapse of prices meant that those living off the interest from their capital could purchase more goods and services for less—winner, winner chicken dinner.
Here’s the most important lesson as society sobers up: if you successfully navigate this period, don’t be flashy about your success. Much to the chagrin of more conservative Jews, the ostentatious show of wealth by successful Jews was one of the things that Hitler was able to rally the angry masses behind to create the Jewish scapegoat, giving him the ability to start WWII. If we go through a hyperinflationary period, most of society will not understand what’s happening and will look for a scapegoat to attack. A flashy show of wealth is likely to grab the angry mob’s attention. Be low-key. Better yet, move to a place without an angry mob.
Is this a fun set of lessons? Not at all. But most addicts will tell you the sobering process is not pleasant either. I hope I’m wrong about hyperinflation occurring in the years ahead, but I’d rather be a good boy scout and be prepared than pretend it’s impossible to occur. The dominoes leading to hyperinflation are continuing to fall in that direction…
Shocking Things on the Interwebs
A person who is likely struggling, stealing to get their needs met. Nope, definitely not inflation-induced behavior… 🙄
Bitcoin Price Prediction
Yesterday: $37k - $42k
Today: $37k - $42k
Tomorrow: $37k - $42k
My predicted price looks like the record is stuck on repeat, but it’s not. It’s just my best guess of where we’ll see the price heading today and tomorrow. That’s to say, not very far. After Sunday’s break of the downtrend and subsequent pump up past $41k, the price has stalled below substantial resistance. The bulls are looking increasingly exhausted, which leads me to believe they’ll need to fall back and regroup at a lower price before being able to push through the $41-42k resistance zone for further continuation. All in all, this is still very much the type of price action to set up a long-term bottom for further upside later this year.
Bitcoin Q & A
Q: If there’s no one in control of Bitcoin, how did the Taproot upgrade happen?
A: By social consensus.
With Taproot, the Bitcoin development community created a two-week signaling period to the miner community. With each block mined, the miner producing the block could signal their support for the Taproot upgrade by adding a specific bit of code to the block. If more than 90% of blocks mined in the two-week period included this signal, then the Taproot upgrade would become enforced on the network in November. Enforcement means that all blocks produced after the network upgrade must observe the Taproot code, or the network will reject the new blocks.
From a birds-eye view, the developers said, “hey miners, we’d like you to accept Taproot.” Over a two-week period, the miners said through their actions, “We accept the upgrade and agree to enforce the new rules.” Without any leadership of the network, the upgrade achieved social consensus—decentralized magic.
Thanks for reading,
Kent
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