Author Archive for Cullen Roche

Three Things I Think I Think

Some weekend thoughts….

1)  Vanguard now manages $3 trillion in assets which is the same as the entirety of the hedge fund industry (see here for more).  This is fantastic news.  It means that low fees are winning.  When one considers that the S&P 500 generates just a 6.5% real, real return historically you have to be increasingly mindful of how much of that result is due to your fee structure.  When you’re paying 10, 20, 30% of your returns per year to a manager then you’re probably paying too much.  This is likely to be even more important going forward as bonds are likely to generate lower returns than we’re all used to so this means that high fees will cut into your returns even more than they used to.

It’s a wonderful time to be an asset allocator.  Products have never been more accessible at such a low cost.  You just have to make sure you’re being smart about your approach.  Know that even when you use low fee index funds you’re making an implicit forecast.  Know that you’re making active allocation choices.  Know that if you pay someone to do this on your behalf then you’re essentially paying for their ability to manage that allocation process for you.  The necessity of actively managing ones portfolio isn’t going away just because the fees are coming down.  So go into all of this with your eyes wide open and don’t assume that low fees necessarily lead to a better process.

2)  Back in 2011 I made one of my rare bubble calls on silver (see here).  Well, silver has just about round tripped its price gains on a 5 year basis now:



I think this is one more lesson in understanding the importance of the capital structure and the monetary system.  The silver bull market was never based on sustainable trends.  It was based more on speculation about the effects of QE and the many high inflation predictions we heard in the last decade.  But at the end of the day commodities are primarily cost inputs in the capital structure and they’re very unlikely to generate sustained returns that are well above the rate of inflation.

3)  Speaking of silver – I think this is a good time to revisit the post I wrote almost a year ago on “The Biggest Scam in the History of Mankind”.  This was a really well done video selling gold and silver as protection against the “scam” that is the Federal Reserve and the US government’s “printing” of money.  I said this video was incredibly misleading and that the people who made it were likely just trying to sell you silver and fear in exchange for your hard earned dollars.

I can’t stress how important this is because I really honestly think that a superior understanding of the financial system can help you avoid so many of these hucksters.  And anyone who understood the financial system and the monetary system would watch a video like this one and simply laugh.  So please, if you didn’t read that post try go read it with an open mind.  And if you have questions then please use the forum or the comments here.

Some Important Z.1 Takeaways

Just some brief thoughts here following the release of yesterday’s Z.1 Flow of Funds:

The sector financial balances chart shows us the relationship between the three sectors of the economy – foreign and domestic with domestic broken down by private and public.  As I’ve discussed in some detail in the past the deficit has fallen in the USA primarily because the private sector is healing and tax receipts are increasing.  You have to dig past the three sector model here to understand the drivers at work here.  Otherwise one might conclude that a declining deficit is always bad.

I should add that there has been some minor degree of austerity as the government could have done much more to support the private sector in recent years via tax cuts or spending increases.  The current picture is largely reflective of better times, but as times get better we also have to be mindful of the reality that stability tends to breed instability as the cycle advances.  Given the unusual weakness of the economy I think this sort of thinking is particularly pertinent in this cycle.


The private sector’s net worth is at an all-time high.  This is largely the result of substantial gains in assets like real estate and stock holdings.


Gross private domestic investment remains somewhat weak, but continues to come back from its worst decline in the last 50 years.


Household and nonprofit equity holdings as a percentage of net worth continue to climb, but are not as high as they were in some past equity market bubbles like the period preceding the Nasdaq bubble.  This means that households are levered to stocks, but not as levered as they have been in the past.


Corporate profits have been increasingly driven by trends in the corporate sector including dividends and private investment.  The government has played a substantial role in the corporate profits picture in the last 5 years, but the government effect has waned over time as the private sector has healed and slowly picked up the pace.



There’s nothing earth shattering from this report, but it does support the muddle through perspective I’ve maintained for the last few years.  We’re crawling out of a very deep hole, but still headed in the right direction, albeit very slowly.

Why is the Price of Gold Falling?

A reader writes in asking about the price of gold and why it keeps falling despite surging US government debt.  The thinking here is that gold prices will hedge against a collapse in the US Dollar when the government defaults or “prints money” to the point where it causes hyperinflation or high inflation.  This was a very popular bet in 2008/9 and you can be certain that it was an important driver in the price of gold during the big run-up.

In my new book, I refer to gold’s price as having a “faith put” underneath it.  Gold isn’t just a commodity, but it’s also viewed as a form of safe money.  You could argue that gold is the only universal form of money and has been for quite some time (though I think that is waning to some degree).  Because of this its users embed a premium in its price when it is seen as protecting against fiat money and its potential inflationary problems.

But a weird thing has happened in recent years.  Despite continuing QE and huge government deficits the price of gold has fallen 35% since its peak in 2011 and is down over 10% from its highs this year.  Is there a logical explanation for this?  I can’t be certain and I could be totally wrong, but if I had to guess I would argue that some of this “faith put” is coming out of the price over time because the inflation bet has been obviously wrong.

The story goes like this:

  1. In 2008 & 2009 investors see the Fed printing money and the government debt exploding.  They naturally assume that this will lead to inflation because the econ textbooks all teach us that the government “prints money”.
  2. Instead of buying US Dollar denominated assets you logically buy real assets to protect yourself from the coming high inflation.
  3. As the years wear on you become convinced that the inflation is still going to come eventually even if it hasn’t come yet.
  4. But as we near years 3, 4 & 5 the inflation story starts to look a little shaky.  What if that high inflation isn’t going to come?
  5. Then, as year 5 comes and goes the high inflation still hasn’t hit and you begin to totally question the foundational reasons for having ever bought into this theory in the first place.
  6. Demand continues to slow as the theory looks increasingly shaky….You get the point.

Said differently, gold investors embedded a huge premium in the price of gold betting on a disastrous inflation in 2008 & 2009.  And as it’s become more and more obvious that that high inflation isn’t coming the premium has been sucked right back out.  That’s my theory anyhow.  Who knows if it’s right, but it would seem to make a good deal of sense to me….

Why Can’t Academic Economists Understand Endogenous Money?

Noah Smith wrote a piece on Tuesday rejecting the idea that credit enables economic growth.  His position can be summed up in the following quotes:

“If I borrow, I can get a nice big TV and a new car, but eventually I’ll have to skimp to pay it back. In a way, the consumption-fueled borrowing binge is an illusion of wealth — after all, borrowing doesn’t increase my salary. Pleasure today means pain tomorrow.

It seems like the only people who don’t instinctively believe in credit-fueled growth are academic economists.

The academics have good reason for being skeptical. After all, production isn’t the same as consumption. In the example of me borrowing to buy a TV and car, my debt binge doesn’t make my salary — my production – go up at all. But in an economic boom, a country’s total production really does rise — that’s what fast growth means. In other words, if credit fuels economic booms, then it must do it in a fundamentally different way than the way it fuels a personal consumption binge.

If taking on debt lets a borrower increase his consumption, why doesn’t making that loan force the lender to decrease his consumption?”

This is an outright rejection of endogenous money and an embracing of loanable funds based thinking.  The comment that lenders must “decrease” consumption is an obvious misunderstanding of banking.  A bank does not have to decrease its consumption when it makes a loan.  Loans create deposits from thin air.  A well capitalized bank does not borrow reserves and multiply them or reach into its grab bag of deposits to make new loans.  It endogenously expands its balance sheet to create the new loan and new deposit.

This money creation is indeed from thin air not unlike the way a corporation can create stock (a different form of financial asset) from “thin air”.  All the bank needs is sufficient capital to meet capital requirements and the demand for the loan.  If there is a reserve requirement then the Fed must necessarily ensure that there are sufficient reserves for the banks to meet its requirements.  This is, for all practical purposes, an ex-post requirement and not the result of banks borrowing reserves or multiplying reserves before the loan takes place.  Banks lend first and find reserves later if they must.

Importantly, a monetary economy is essentially constructed as a series of records of accounts to track how we make claims on goods and services.  This system of records is a creation of the human mind from nothing.  The entire monetary system is created from “thin air” and loans/deposits are just one form of asset/liability that is created within the monetary system.  The money supply is no more fixed than my ability to conjure emotions from thin air.  In essence, all of the financial assets/liabilities that we have created from thin air are simply accounting relationships that enable our ability to record how we interact within the monetary system.  Bank deposits and loans are just one type of way we account for these interactions though they’re a particularly important type of interaction because they represent the primary medium of exchange in the system.

It should also be noted that loans don’t really get paid back in the aggregate. There is no aggregate “pain tomorrow” in the long-term.  The financial system does not have a start and stop date like you or I do.  Noah makes a fallacy of composition in claiming that an individual must repay loans.  That is true at the individual level and false at the aggregate level.  For instance, look at private sector credit trends and tell me where the stop date is:


(“Pain tomorrow”?  Only in neoclassical economic fantasyland)

Of course, none of this means there can’t be short-term pain.  Debt can increase at such a rapid pace coupled with unproductive output that it could cause an economic shock.  That is essentially what we’re living through right now.   Aggregate demand has been weak for several years, in part, because consumers have not been tapping credit to expand their purchasing power. Much of the housing boom was built on leveraged production and consumption that created a short-term disaggregation of credit.  So we shouldn’t downplay the destructive potential of debt expansion.

Further, it should be obvious that much of private investment is funded with borrowed money.  While debt does not create aggregate saving it can indeed finance investment as well as the consumption that fuels that investment.  This funding of investment not only adds to saving indirectly, but drives the engine of the economy by increasing purchasing power and improving the net worth of the private sector when credit is used in a productive manner.  If company XYZ builds a widget by borrowing money which a bank endogenously creates and then that widget is purchased by someone who also borrowed funds then it should be obvious that debt enables growth.  The credit is the tool which enables the process of investment and production in this instance.  Thus, in this sense, credit is an important enabler of economic growth.

I don’t know why academic economists can’t understand endogenous money.  And I also don’t know why mainstream academic economists feel the need to brush off everything that isn’t orthodoxy – as if they’ve already discovered how everything in the world works.  But we’re all worse off because of this closed-minded approach to economics.

Global Inflation Continues to Fall

This strange new world of disinflation continues.  Yesterday’s CPI reading in the USA came in at 1.7% which was down from 2%.  Core inflation (minus food and energy) was also 1.7%.  Most interestingly, this isn’t just a conspiracy by the BLS to manipulate the way inflation is gauged.  We know that because inflation isn’t just low in the USA.  It is low everywhere in the world.

The latest global readings on inflation show broad disinflation.  The most notable of which is in Europe where we’re fast approach a full on deflation.  Japan is the upside surprise in recent months with several 3%+ readings, but still nothing to write home about.


On Being Right for the Wrong Reasons

Bill Fleckenstein was ripped into by a CNBC commentator this morning for “being wrong” about monetary policy.  That is, Fleckenstein has been very vocally against the Fed’s QE policy citing the risk of a currency collapse and a bond market debacle.  But the CNBC commentator is a little unfair with Fleckenstein.  After all, he shut down a short fund in 2009 citing the Fed’s policies and the “don’t fight the Fed” mantra.  This was, by any measure, an incredibly prescient move.

But Fleckenstein does deserve some criticism.  After all, he has been on TV dozens of times since 2009 calling for a high inflation, collapsing dollar and a bond market collapse (see here , here and here for instance).  He also didn’t just shut down his short fund, but has been out of US stocks since 2009.   So, while he shut down his short fund, he also appears to have  misunderstood the effects of QE and the Fed’s policies.  In other words, Fleckenstein was right, but for many of the wrong reasons.

I think there’s a good lesson to learn here.   People who understood QE back in 2009 and 2010 knew that there was a very low probability of it causing high inflation or any of the negative consequences that so many people predicted.  And this resulted in drastically different portfolio positioning than what one might have otherwise done.  For instance, if you thought QE was the equivalent of “money printing” then you unload all of your USD denominated assets, you sell bonds, you sell US stocks, you buy hard assets and you call it a day.  But if you understand that QE isn’t “money printing”, but is really “asset swapping” then you know there’s no risk of a dollar collapse, high inflation or cratering stocks due to QE.  In other words, your superior understanding of the financial and monetary system helps you better connect the dots.

A lot of people say you can’t make smart decisions about the financial system because it’s too complex, too dynamic or too hard to predict.  That might be true to some degree.  But I am also a firm believer in the idea that, while the markets are dynamic and complex, we can substantially increase the probability that we will make wise allocation choices simply by reducing the number of errors we make.  And one of the primary ways we can achieve that is by simply understanding the system better so we avoid jumping to extreme conclusions based on misconceptions.


The Buyback Boom is Slowing

One of the primary drivers of the ever higher stock market has been the boom in stock buybacks.  A recent report from FactSet shows that Q2 buybacks are down -1.1% on a year over year basis and down -23% on a quarter-over-quarter basis:

“Quarterly Buybacks Declined Year-over-Year: Dollar-value share repurchases amounted to $123.7 billion over the second quarter and $539.3 billion for the trailing twelve months. Quarterly buybacks declined year-over-year (-1.1%) for the first time since Q3 2012. And, due to record post-recession activity last quarter, Q2 showed the most severe quarter-over-quarter decline (-22.9%) since Q4 2011.”


Does it matter?   It could matter a good deal.  If buybacks are bolstering stock prices in addition to helping companies bolster EPS then maybe it’s time to temper expectations about future returns.

Peter Thiel’s Thoughts on Capitalism, Macro and Entrepreneurship

Peter Thiel has been in the media quite a bit in recent days following the release of his new book Zero to One.  I haven’t read the book yet, but I do have some brief thoughts so far based on some media interviews I’ve heard:

  • Thiel takes a rather alternative approach to capitalism.  He says capitalism isn’t about competition, but rather monopoly.  This is similar to what I say in my book.  Capitalism, if left to its own devices, veers towards monopoly.  What Thiel doesn’t spend time discussing is how this can be negative in addition to being a positive.


  • The core message of the book is that if you want to be a successful entrepreneur you need to focus on creating entirely new businesses rather than competing with existing businesses.  Thiel focuses on the ability to create a monopoly rather than take existing market share.  In other words, Thiel says real entrepreneurs should seek to create entirely new markets.


  • The fact that Peter Thiel has released a must-read business book is great news for competing authors like myself who just so happen to also be book-ended earlier in the year by Thomas Piketty’s book, which basically blew the doors off the field of economics….


  • I was intrigued by Thiel’s comments in this excellent James Altucher interview in which he says that we’re in the midst of another bubble, but that it’s not quite ready to burst.  Specifically, he says government bonds are in a bubble.  He takes the highly contrarian view that bonds won’t protect investors in the next downturn as the bubble bursts.   I do wonder though, if this isn’t based on some political biases as well as some macro misconceptions (see below, for instance).


  • Thiel, who also runs a macro hedge fund, doesn’t seem to have a very good grasp on some macro concepts.  For instance, at one point in the interview he says that the Fed has “printed money” and that banks just aren’t “lending it out”.  Of course, as I’ve hammered on for years, this is not quite right and is based on the money multiplier view of banking.  Banks don’t lend money they obtain.  They create loans endogenously which means that they expand their balance sheets from thin air.  This misunderstanding is so common that even the most high profile macro investors seem to believe it….

Anyhow, I’ll be looking forward to reading Thiel’s new book.  He’s obviously one of the most successful living American entrepreneurs and from what I’ve heard so far it sounds like there’s a lot to learn from the book.

William Vickrey’s 15 Economic Myths Debunked

This is an oldie but a goodie.  William Vickrey was a Canadian economist and Nobel Laureate.   He was well known for being critical of most things out of the Chicago School of Economics.  This piece on 15 economic fallacies has been largely ignored, but the lessons are important and certainly as relevant today as they were in 1996 when Vickrey wrote them.  Here are three of my favorites:

Myth 1 – Government deficits are inherently bad and burden our children.

“Deficits are considered to represent sinful profligate spending at the expense of future generations who will be left with a smaller endowment of invested capital. This fallacy seems to stem from a false analogy to borrowing by individuals.

Current reality is almost the exact opposite. Deficits add to the net disposable income of individuals, to the extent that government disbursements that constitute income to recipients exceed that abstracted from disposable income in taxes, fees, and other charges. This added purchasing power, when spent, provides markets for private production, inducing producers to invest in additional plant capacity, which will form part of the real heritage left to the future. “

As I often note, deficit spending adds to the private sector’s net financial assets.  Now, this doesn’t necessarily mean that government spending is always good or efficient, but Vickrey clearly understood double entry bookkeeping.  He understood that a government’s balance sheet was not like a household’s balance sheet and so we shouldn’t be so quick to jump to conclusions about the damage of government spending.  Just as all private spending isn’t necessarily good, all public spending isn’t necessarily bad.

Myth 2 – In order to improve the health of the economy we must all save more so we can spend and invest.

“Urging or providing incentives for individuals to try to save more is said to stimulate investment and economic growth. This seems to derive from an assumption of an unchanged aggregate output so that what is not used for consumption will necessarily and automatically be devoted to capital formation.

Again, actually the exact reverse is true. In a money economy, for most individuals a decision to try to save more means a decision to spend less; less spending by a saver means less income and less saving for the vendors and producers, and aggregate saving is not increased, but diminished as vendors in turn reduce their purchases, national income is reduced and with it national saving. A given individual may indeed succeed in increasing his own saving, but only at the expense of reducing the income and saving of others by even more.”

This is a point I really hammer on in my book because it’s so common and so destructive.  We often hear this fallacy of composition about saving more and how more saving means you can spend more later.  Of course, if you save more of your income then someone else earns less income.  In the aggregate this means that output will fall.  Saving doesn’t lead to more future consumption.  In fact, it is investment that adds to total aggregate saving.

Myth 3 – Inflation is always a bad thing.

“Inflation is called the “cruelest tax.” The perception seems to be that if only prices would stop rising, one’s income would go further, disregarding the consequences for income.

Current reality: The tax element in anticipated inflation in terms of gain to the government and loss to the holders of currency and government securities, is limited to the reduction in the value in real terms of non-interest-bearing currency, (equivalent to the increase in the interest rate saving on the no-interest loan, as compared to what it would have been with no inflation), plus the gain from the increment of inflation over what was anticipated at the time the interest rate on the outstanding debt was established. On the other hand, a reduction in the rate of inflation below that previously anticipated would result in a windfall subsidy to holders of long-term government debt and a corresponding increase in the real impact of the debt on the fisc.”

In a fiat monetary system with endogenous money the money supply is just about always expanding.  That is, we are constantly creating money via bank loans or other sources in order to meet our economic goals.  When used productively, this increase in the money supply does not hurt our living standards.  In fact, so long as our incomes keep up with the rate of inflation then we are likely to be better off even with some inflation because we not only have a higher income, but we have the productive resources we created from using the newly created money.  Inflation does not represent our standard of living.  You must keep things in the right context.

Read all the myths here.

H/T Lars Syll

Be Careful Relying on Historical Market Returns

If you read just about any document published by a Wall Street firm you’ll inevitably run across some form of this statement:

“Past performance is not indicative of future returns”

We all seem to implicitly know that the future will not necessarily look like the past.  But there is, arguably, no approach more often utilized than the analysis of past returns leading to an “empirical” conclusion about the future performance of asset classes.  For instance, Eugene Fama’s famous 3/5 Factor Model approach is based almost entirely on historical market data citing the tendencies of certain asset classes to perform in certain ways.  Jeremy Siegel’s work on “Stocks for the Long Run” is based almost entirely on historical market data citing the tendencies of certain asset classes to perform in certain ways.  Robert Shiller’s CAPE is a perspective of future potential returns placing valuations in a historical context.  “Value” approaches of all types rely on using some historical context to gauge how inexpensive or expensive the market is.

The problem with all of these views is that the future never perfectly reflects the past.  And I think there’s a strong argument to be made that today’s environment is more unique than any we’ve seen in the historical data.  Yet we continue to see many investors relying on expected future returns based largely on historical data.

One thing we know, for a fact, is that investors who think the bond market will generate the types of returns that it did in the last 30 years, will be sorely surprised.  With 0% interest rates there is about a 0% chance that the next 30 years in bond returns will mirror anything like the last 30 years when the aggregate bond index returned an astounding 7.5% per year with virtually no negative volatility.  This means that an investor who uses the historical returns of a balanced portfolio is using a framework that looks nothing like what one should really expect.

Some investors like to think that they don’t make projections about the future.  Or worse, they imply that the future will look like the past just because the data says stocks and bonds perform in a certain way over the “long-term”.  But there’s one certainty we know based on the structure of interest rates today – we’ve never been in an environment like this.  And future returns are likely to be lower than most people expect given the same amount of risk taken.  And that means that your use of historical data has to be placed in the proper context or it will likely lead you astray.  Worse, if you’re not trying to look forward in today’s environment you might as well not be looking at all….


The Worst Call of the Last 5 Years

We heard it a million times following the start of QE and the government’s stimulus package – high inflation was coming.  It was inevitable given all the “money printing” that was going on, right?  And when it didn’t come the narrative changed from “it’s coming” to “just you wait”.

Well, we’re now 5 years removed from the depths of the crisis and the Fed and the government’s extraordinary measures and the high inflation never came.  The bond vigilantes never came.  The dollar never crashed.  US Dollar denominated financial assets have beat the pants off of just about everything.  Interest rates never spiked.  The US government never turned into Greece or Zimbabwe.

5 years is a long enough time period to judge the predictions of those who called for a disastrous inflation.  And the predictions have been so far from right that you have to seriously wonder if many of these people are working from a proper operational understanding of the monetary system.  Of course, I would argue they haven’t been working with a full deck of cards.

I got to thinking about all of this as I read these two pieces in recent weeks about how bad these predictions have turned out.  It wasn’t me repeating myself again.  It was from Bloomberg and the Wall Street Journal.  They not only cite how much money was lost by traders who utilized this deficient framework, but they also cite how public policy has been directly hurt by these persistent calls for inflation.

This is huge stuff.  I think it calls entire forms of thought into question.  And it validates others.  Being right matters.  Unfortunately, in the world of economics and finance politics often trumps pragmatism.


Wednesday’s News Today: FOMC Statement Overanalysis

On Wednesday the Fed will release a very boring statement.  It will basically say:

“The economy kind of stinks still, but it’s gotten a little tiny bit better.  But we changed our statement a little tiny bit in order to communicate the fact that our views have also changed a little tiny bit.  But in reality nothing has changed all that much….”

The media and the markets will likely overreact to the FOMC statement, but just remember this picture when you consider whether the Fed will actually make any drastic moves in the near-term (via Josh Brown):



That chart shows the expectations of Fed rate hikes at various times over the course of the last 5 years.  In essence, the bond market has had this wrong all along.  Predictions about rate hikes will be headline news tomorrow and Wednesday and dozens of talking heads will fill up space debating this.  Ignore them.  Wednesday’s statement will say nothing new and any overanalysis will be largely meaningless.  We’re just not at a point in the cycle where the Fed can realistically raise rates….

How Will you Prepare for the Next Bear Market?

I wanted to revisit the question Ben Carlson answered in a recent post of his.  But I wanted to open the floor to readers.  The question:

How are you preparing for the next bear market?

We all know it’s coming eventually.  And no one really knows when.  And while we know that bear markets only occur about 20% of the time we also know that they can be extremely devastating events as they can set us back by years in trying to achieve our financial goals.  It’s times like these when you really should be preparing a plan because stability inevitably leads to instability.  At a time when everyone is getting more bullish you should be thinking about how to benefit when the bear market really comes.

So, how are you prepared for this inevitable event?  Are you just mentally preparing?  Diversify, hold and hope?  Are you more active?  Are you more likely to move into “actively” managed funds given the uniqueness of this environment? Are you just putting together a “passive” portfolio assuming that the future will look something like the past?  Let me know what you think….

Calpers Takes a Major Swipe at the Hedge Fund Industry

The California Public Employees’ Retirement System just took a major swipe at hedge funds as they decided to eliminate all hedge funds and fund of fund strategies from their allocations.  They don’t cite performance as the concern despite a poor run in recent years by the vast majority of hedge funds.  Instead, they cite costs and complexity (via Businessweek):

“We concluded that we would eliminate the hedge fund program in order to reduce the complexity, reduce the costs in the program, particularly in relation to our view that given the scale of Calpers, we would not be able to scale a hedge fund program to a size that would really move the needle,”

It’s probably a good move.  The opaqueness of many funds and the high fees make them poor additions to public employment programs where fund administrators need to be much more cognizant of any potential conflicts.

More interestingly, this is another big blow to high fee fund managers.  The days of being able to charge 2 & 20 are dying out.  My general guidance on any form of active management is to avoid any fund with a fee structure over 0.5%.  I make an exception on rare occasion for higher fee funds, but that’s a pretty good rule of thumb in most cases.  And that’s on the high side….

The Economics of Digital Currencies

Just passing along this nice piece from the Bank of England on Bitcoin and its role in the monetary system.  A lot of this stuff jibes nicely with Monetary Realism.  Here’s a short summary:

  • The article discusses the reality that the monetary system is essentially already an endogenous system in which we all can issue money, but banks dominate the system with their issuance of the primary form of money, bank deposits.
  • The banking system is constructed around the Central Bank as the bank where interbank payment clearing occurs.
  • The Bank of England is skeptical about the ability of Bitcoin to serve as a competing form of money without the same components that have been addressed by modern banks.

If you’ve read most of my thoughts on Bitcoin I don’t think that much of this will be new to you, but it’s an interesting read for the uninitiated. Read it here.