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Bitcoin Could Destroy the Dollar

Exciting things are happening!

Bitcoin traded over $700 on Monday. The Dow shot over $16,000. And China decided to go even further down the capitalist road.

Don’t know about Bitcoin?

The Department of Justice recognizes that many virtual currency systems offer legitimate financial services and have the potential to promote more efficient global commerce,‘ a Justice Department official told the Senate.

Bitcoin may ‘hold longterm promise,‘ said Ben Bernanke. ‘If properly regulated…‘ added an unnamed official.

Publicly, the feds are playing it cool towards bitcoin. Privately, they must be sweating. As we told our group of Family Office investors, the new virtual money has the potential to destroy the dollar…the Fed…the banks…and the whole world’s monetary system. It could also make gold obsolete. This new money is easier to use and costs nothing to store.

Regulate it? That may not be possible.

Bitcoin is the most disruptive technology yet invented. It could be the biggest financial story since gold. Nothing like it has happened in 6,000 years – an entirely new kind of money…and better! In fact, it could help bring in a whole new phase of economic development…  

Watch this space for more details…  

Meanwhile, the Dow rose over the 16,000 mark on Monday…but it didn’t stay there. Then, yesterday, again the Dow failed to close above 16,000.

While US stocks could go much higher – in the third stage of a bubble – there is much more risk on the downside than there is reward on the upside. Corporate profits are largely a mirage – a reflection of the Fed red hot QE policy on the barren sand of real revenue growth. The economy is still not recovering. And the Fed’s low rates keep debt growing… which increases the risk to the whole system…  

Out of stocks and into bitcoin? Not so fast…stay tuned…  

Chinese officials have said they would like to ‘de-Americanise’ the world’s monetary system. Bitcoin may be their bet.

Last week, the Middle Kingdom’s rulers met. They decided to lighten up on the ‘one child’ policy. We’re not sure of the details. But the important thing is that the leadership seems to be turning the whole economy from capital formation to consumption…and from exports to domestic markets…and from the dollar to alternatives.

We do not approve of central planning. It always makes things worse. But how much worse? It depends. If the central planners fight the markets…things will get very bad. But if they go along with what the markets want to do anyway…they will do less damage.

That’s what Paul Volcker did in the early ’80s. Back then, inflation rates were headed up over 10%. Bond yields, too, were over 15%.

The markets were correcting inflation – with bond yields vaulting ahead of the CPI. The markets were tightening credit in order to squeeze the CPI.

Volcker had a choice. Fight the markets with more cheap credit in order to maintain full employment? Or join the markets with tighter credit of his own?

Volcker declared himself on the side of the markets. He drove up yields even higher – over 18%. Inflation rates quickly corrected down to 5%…and continued to sink for the next 30 years. America enjoyed its longest period of growth in history.

But things were very different after the crisis of 2008-2009. After almost 30 years of falling yields, the markets were ready for a correction. Too much debt had built up in the private sector. A ‘day of reckoning’ was at hand. First, Bear Stearns. Then Lehman Bros. General Motors. Fannie Mae. Freddie Mac. Like dominoes, big institutions fell into default and bankruptcy.

But the feds stepped in. They fought the debt liquidation. And they succeeded in halting the process of de-leveraging.

Bravo? Good work?

Ben Bernanke got his mug on Time magazine. They called him a hero. Not only did he fight the market, he won…at least for a while. We have more debt now than we had then. And the day of reckoning is still ahead.

Meanwhile, the Chinese are loosening up. They are allowing people to have more children. Already, retailers are bracing for more children…getting in position to sell diapers and strollers when the babies show up, roughly nine months from now.

This will add demand for bigger houses, too. And bigger cars. And more debt! In fact, commentators are talking about a new baby boom…which could, like America’s baby boom of the ’46-’62 period, transform the whole economy from an export powerhouse into a consumer colossus.

Yes, the ‘Third Plenum’ of the communist party leadership seems to want to rock the cradle and rule the world. Dong Tao, at Credit Suisse, was quoted in the Financial Times saying that he thought it was ‘the most comprehensive and ambitious reform plan in the history of the Peoples’ Republic.

Chinese stocks trade at 15 times earnings. Not super cheap. But if the growth rate of 7% per year continues, they could look like great bargains a few years from now.

Chinese stocks? Bitcoin? US stocks? What to do with your money now?

Stay tuned.

Regards,

Bill Bonner
for The Daily Reckoning Australia

Join The Daily Reckoning on Google+

8 Comments

  1. ram says:

    Bitcoin may sink the USD, but perhaps not for the reasons you think. Bitcoin is still a fiat currency. Like other fiat currencies they are scarce to the “average Joe”. Like other fiat currencies they are easy for the “elite” to create out of thin air — bitcoin doesn’t even have the cost of paper (or plastic) and ink!

    If it truly becomes accepted and convertible, I look forward to a (probably brief) period of “mining” them wholesale.

  2. mauiguy says:

    Ram, you have no idea what you are talking about. Mining isn’t profitable anymore, bitcoin is not Fiat as its not controlled by a central bank or government.

    The inherent value of bitcoin lies in the network which is already 50 times more powerful then the top 500 supercomputers in the world PUT TOGETHER.

    There are no elites that can print more of it. You are talking out of your caboose. Thi article was very well put, and right on. Bitcoin is the future of money and finance. One day it will be used by everyone even if they don’t know it, maybe not as a currency, but there are many other uses that haven’t even begun to be tapped into yet. Real estate, stocks, contracts, even records like birth certificates.

  3. BTBob says:

    @Ram, absolutely wrong of course, like most people that spout ignorant nonsensical things about Bitcoin.

    The “elite” have no power to “print” Bitcoin – which is patently impossible. Being decentralized, there is no one source to easily control Bitcoin’s issuance.

  4. Jimmy says:

    ram – Bitcoin isn’t a fiat currency. Paper currency Isn’t fiat because it’s printed out of thin air, backed by nothing of value. It’s fiat by authoritative decree. We’re forced to use it, that’s fiat !

  5. slewie the pi-rat says:

    i’m sitting here thinking that the people working on the mess known as Fukushima #4 are playing it as cool as anybody in a VERY long time.
    they are investing in a better future.
    probably for others.
    not that there’s anything wrong with that.
    it is a fine tradition.

    to the best of my knowledge, that clad spent fuel lost its coolant, was exposed to the air, got very hot, and reached some criticality, too.
    tangled-mess fission.
    nothing good, there.
    they really are spending some precious capital, to get in there and clean it up, aren’t they?
    i am in awe.

    to those workers: i hope you accomplish what you wish for and what you are aiming for, from your work and your sacrifices.
    and, thank you.

  6. Leo says:

    @ram Bitcoin is not easy to create out of thin air, it’s much harder to create than fiat currency.

  7. hughht5 says:

    @ram – Bitcoins cannot be printed by the rich like the US dollar is.Bitcoin mining costs more than you gain, and most the people profiting from it are selling the hardware, not just using it.

  8. Kashfiya Rafa says:

    CryptoCafe is going to be big in the world of Bitcoin, be sure to sign up for the big release announcement. The website is owned by a public company called Myriad Interactive, the stock symbol is MYRY and its predicted to be very big!

    Myriad Interactive Media Begins Development of Bitcoin Platform CryptoCafe.com

    For more information and to read disclaimers and disclosures: http://finance.yahoo.com/q?s=myry

    Thanks !

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