|
From The Free Press:
I’ve been managing money for 33 years now with some modest success. While there are some worthy competitors, it’s hard for me to remember a much worse idea than the U.S. launching a “strategic cryptocurrency reserve.” Nevertheless, on Thursday, President Donald Trump issued an executive order calling for just such a fund. David Sacks—Trump’s crypto czar—tweeted that the reserve would be “like a digital Fort Knox,” perhaps forgetting that the U.S. has been off the gold standard since 1933. In any case, his words do not diminish my scorn for this dangerous boondoggle, as I will explain below.
A sovereign wealth fund for the U.S., which President Trump has also begun planning, is inappropriate, unneeded, likely harmful, and potentially quite corrupt. But a strategic cryptocurrency reserve looks at a “normal” sovereign wealth fund and says, “Hold my beer,” as we are going to plaid.
Let’s start with regular old sovereign wealth funds. They are usually started by countries with surpluses, and/or specific sources of revenue (usually commodity based). They are not necessarily good ideas even in these circumstances. For instance, the surplus could often be put to better use to lower taxes, debt, fund worthy projects, or be given directly to citizens. Historically, some such funds have been run well, some poorly. Some have been run relatively free from corruption, while some have been used to foster corruption, slush funds for whatever the current ruling regime wants to support, or, being more cynical, whoever the current ruling regime wants to pay off. But I can think of no precedent of a country with jaw-dropping debts (U.S. debt is currently $36 trillion—more than the country’s GDP) essentially taking on more of it, and based on no specific “excess” revenue source, to create such a fund from scratch. And for good reason.
One argument supporters of such a fund make is it will be used to support good industrial policy, funneling money to worthy projects and away from duds. I’m old enough to remember when Republicans believed—and, in fact, used this truism to bludgeon political opponents—that the government was terrible at picking winners and losers. But, alas, the horseshoe of “industrial policy” has been wedged so far up the “new right’s” keister it now can’t be dislodged by modern medicine, let alone the consensus of many economists and the long-held former view of the political party now in charge. It is dangerous hubris in a free market capitalist society, which luckily we still claim to be, to think the central government could or should be responsible for investing the wealth of its citizens rather than those citizens themselves, and similarly arrogant to believe they can choose which industries and firms are to be winners and losers better than the marketplace.
Furthermore, as mentioned already, the U.S. ain’t fiscally sound. It’s in fact long-term bankrupt, according to everyone but Stephanie Kelton, the author of The Deficit Myth, and the coterie of the conveniently credulous who think the government can spend however much it feels like on whatever it feels like. Issuing yet more debt to start a potentially corrupt (as all political institutions are, and are much more likely so when large sums of money are involved) “sovereign wealth fund” seems an obviously bad idea.
Okay, sometimes when you shoot past ridiculous, you don’t hit sublime, you hit way way, more ridiculous. Of course, I refer to a stand-alone sovereign cryptocurrency fund.
Full disclosure: I’m a crypto cynic. I think I’m in pretty darn good company. But this is not the place to have this argument at length. Suffice to say, I don’t think running your computers all day and night to generate blinking numbers on those computers is a viable competitor to the world’s established currencies (which, yeah, while having some of that element themselves, have been working to run the world for quite a while now and, you know, we pay taxes in). I could easily be proven wrong if crypto were to be massively adopted and used as a currency, but we’ve yet to see anything remotely close to that. (No, crime, and the payment of ransom to criminals, is not enough of a use case.)
Its justification to believers is simply that it has gone way up for a long time. Try arguing with someone on social media about crypto, and see if that isn’t what they fall back to very quickly, after a lot of utopian evangelizing that has zero semantic content. We have a phrase for arguing that something is valuable, when it kind of obviously isn’t, just because it keeps going up as new buyers are found to replace old. It (almost) rhymes with Ronzoni Scheme (you know, the one in which pasta hit insane tulip-bubble levels in fifteenth-century Florence). In particular, being scarce doesn’t make something valuable (as so many crypto fans insist). Hunter Biden’s paintings are scarce. But they are utterly worthless (save for a brief period when buying one could supposedly buy you influence). Being scarce and being useful—that’s what makes something valuable. So far, crypto is not yet close, and has little prospect of becoming actually useful except for crime and speculating on crypto. Be that as it may, even if one is open-minded about crypto’s ultimate value proposition, a crypto reserve fund is still a terrible idea.
First, unless you’ve completely drunk the crypto Kool-Aid, it’s about as speculative as you get. Financial economists often quote an asset’s “volatility”—essentially how much its price bounces around. Crypto is at least five times as volatile as a straight-up stock market index fund, itself not considered a low-risk investment. To create a sovereign wealth fund dedicated to something five times as volatile as straight-up stocks is an awful idea. If we’re going to issue debt to buy super speculative assets that have no use today, have never had a use, but some evangelists claim will solve all of our society’s problems, why stop at crypto? How about a strategic Powerball ticket reserve?
Some crypto fans reject this idea that crypto is super volatile, as it shouldn’t be judged in dollar terms (i.e., judged in terms of fiat, pronounced derisively as fee-yat, currency) at all. The meme (it’s always a meme with these people) for this is 1 BTC = 1 BTC. That means one Bitcoin, the crypto bellwether, is such an amazing entity unto itself, it is not to be judged in terms of our failed monetary system but is inherently wonderful. They wear T-shirts with this slogan emblazoned. Of course, these same superfans refresh their screen telling them what their crypto is worth in fee-yat, like, 1,000 times a day (and night; it’s a 24/7 thing!).
Even if one is a true believer in crypto, then surely it will win in the marketplace without a government leg up, no? If you have my cynical view of crypto, the case for going into further debt to launch a sovereign crypto fund is criminal. It’s almost as bad if you like crypto, as the government shouldn’t issue debt to go and buy everything you like. Now, if you don’t just like crypto, but blindly worship at its altar as part of a cult, 100 percent metaphysically certain it will go to infinity and beyond, then sure, I guess it makes some sense (it’s still not needed though; individuals can own all they want). But, then again, this certainty (which, even in my cynicism, I do not possess, as certainty is the stuff of madmen) would not make you the ideal candidate to run my state-sponsored hedge fund (and what else is borrowing to buy speculative assets if not a hedge fund?) or be my latex salesman.
I have already discussed how any sovereign wealth fund is subject to potential cronyism (again, politicians and political appointees deciding where to invest our collective money, rather than individual Americans, is very obviously fertile ground for tomfoolery, skulduggery, and sundry other -erys). A crypto fund takes this potential risk to 11. Crypto bros bankrolled our president. Our president issued a meme coin about eight minutes before taking office. He has specifically mentioned this new fund investing in dodgy coins that make fans of bitcoin blush, and in some cases, seem to be owned by his supporters. The very secrecy and security of blockchain and the crypto ecosystem quite obviously raises the prospect of corruption above its already normally high level.
This doesn’t mean those proposing these things today are corrupt. No, they may very well all be true believers—corruption often starts with good intentions that lead you to build very corruptible systems, and this structure itself is clearly one extremely susceptible to bad behavior and disastrous optics.
In particular, the administration currently says this crypto reserve will be funded with government-seized crypto resulting from criminal or civil asset forfeitures. (If you believe it’ll stay that way, you likely also believe the income tax remained at the promised 3 percent after the 16th Amendment.) Alas, if it were me, frequent crypto fraud is not something I’d bring up a lot when trying to sell the world on a crypto reserve. This argument also runs into the always useful, but so often forgotten, point that money is fungible. If you wouldn’t buy crypto to start such a fund, you wouldn’t start it with “found” crypto either (because you can sell that for actual money—at least for a little while longer).
Finally, and perhaps most obviously (to economists at least), even if crypto is a viable long-term competitor to the U.S. dollar, why on earth would we be promoting this direct competitor to our being the world’s reserve currency, something that conveys upon the United States exorbitant privilege? A “strategic crypto reserve” isn’t far from the president exhorting us to start a “strategic renminbi reserve,” as we hand over those exorbitant advantages to the Chinese. It’s lying back and showing America’s belly to the world in surrender, a surrender that’s unwarranted and at least somewhat suicidal.
The Trump administration has embarked on an unprecedented and, I think, broadly popular effort to drastically reduce the size, scope, and power of the federal government. I welcome and support that. The disastrous idea of a “cryptocurrency sovereign wealth fund” goes in exactly the opposite direction. And, if you believe there is a deep state, and I kind of do, why hand them a permanent slush fund? Hopefully the answer is not “Well, it’s currently our deep state, so we like it,” as it won’t be yours tomorrow.
|
Login
Register
FAQ
Search
