The Reserve Currency of the World Will Be Digital Currency

This week, PayPal announced it is leaving the Libra alliance.  While that may sound like a vote against Libra, it’s more likely a vote against the dollar.  PayPal was just approved as China’s first western payment processor, and its likely that PayPal is simply betting that China’s digital currency is more likely to win than Facebook’s.

Today, US Dollars are the world’s dominant reserve currency, representing 62% of all reserves, while the RMB accounts for a mere 2%.  Despite having the globe’s 2nd largest economy by GDP, China’s RMB has only became reserve currency 3 years ago in October, 2016 and it has grown from 0% to 2% in a very short time. 

Meanwhile, in digital currency, American politicians are fighting digital.  Democrats, such as Senator Maxine Waters, and Republicans, such as President Donald Trump, both see Facebook’s Libra as a threat to the US Dollar.  Trump goes so far as to say that all digital currencies are an affront to the USD.  At the same time, China’s leadership is ready to embrace digital currency and is accelerating projects to create a government-backed digital currency.  Who’s right here? America sees digital as a threat while China sees digital as its opportunity to break out.

Frankly, digital currencies are unstoppable.  We have a global economy, but we don’t have a global currency.  Digital currencies, which can move globally with zero friction and zero counterparty risk are the first opportunity we’ve had to build a truly global currency.  While the US should use its position as the dominant reserve to propel digital currencies forward, it instead sees it as a threat and is attempting to block it. But the US has no jurisdiction globally, and its competitors would love nothing more than to displace the dollar.  As such, China rightly recognizes that digital currency is just what it has been waiting for: a global distribution vehicle for RMB.

If the US can’t get its act together soon, it will lose.  Crypto-currency is the future. As Marc Andreesen once said, “software is eating the world.

My Uncle

I love my Uncle. He’s always been there for me and he is the best Uncle I could ever want.

But my Uncle has a serious problem.

You see, my Uncle is a bit of a dreamer, and in recent years every business he’s started has ended in failure. He’s articulate and bright, so he gets hired to run huge, multi-billion dollar businesses across the country. But each time, despite his good intentions, he always drives the business bankrupt.

So while my Uncle used to be rich, today my Uncle is bankrupt. Miraculously, he has held onto his businesses and continues to try to make them work. But his monthly bills on them are 150% more than his income! Sadly, he’s already tapped out everyone in our family to finance his debt. Each of us that is working owes about $150k to help him get out of debt.

The worst part is that my Uncle has stopped listening to the family. Because of his position, a lot of outsiders want to manipulate my Uncle, and they do so over and over again. This is probably what hurts his businesses most.

Obviously, this has been extremely stressful for our family – so much so that recently we’ve started fighting. Half of us want to cut my Uncle off and tell him “enough is enough!” But we all love my Uncle and so the other half really wants to see him succeed in his next endeavor. Since he won’t listen to us, some of us have stopped giving him his allowance, and now he’s really angry. He says that we promised him an allowance and that we have to keep giving it. But times are hard on all of us, and he’s making it worse.

And of course, as is typical with my Uncle every four years or so, he has a new business venture he wants to start. The business sounds great and he makes a compelling pitch for it. If it works it might help a lot of people! But my Uncle’s track record is so poor. He’s got so much debt and other problems, that we just have to say no. This is going to be a tough lesson for my poor Uncle, but he’s risking the financial security of the entire family now. We simply can’t allow him to ruin all of us.

So, Uncle Sam – God Bless you. I love you and always will. I hope you recover, but for now I have to cut you off. Once you have your existing businesses in order, we can talk again. But until then, I can’t help you take on more challenges. You need to finish what you start before you start more.

Your devoted nephew, Mike.

I will donate $1,000,000 to the US Govt This Year

The US debt is a big problem (currently ~$16T, or about ~$50K per person). I’m willing to do my share to help pay it off. To do this, I need the government to commit to a sustainable plan so that I’m not just throwing good money after bad.

Thus I make this promise:

If Washington can make spending match tax receipts, I will donate an extra $1,000,000 to the USA to help pay down the debt.

I don’t listen to voicemail

For a long time, my voicemail wasn’t set up. People got mad at me.

So I setup my voicemail, and now it has a greeting. But I don’t listen to messages. People get mad at me again.

The trouble with voicemail is its just too inefficient. I have to dial-in, wait for it to connect, listen to the rambling, and then act on it. The whole process is quite maddening – 20-30 seconds each! I know that at this very moment I have voicemails from my sister and brother, and I even have spare time. But the mere thought of the painful process makes me not do it. I’d rather write a whole blog post about how I hate listening to voicemail.

Hmm… I wonder how many messages I’ve got queued up?

Fixing the CEO Pay Problem

I’m generally a pretty free-market kind of guy. But, when it comes to CEO pay, there is no doubt in my mind that America is screwed up and that the free market is failing us. This isn’t the biggest of our problems, but it raises unnecessary doubt about “corporate greed” and about the livelihood of the American Dream.

If you don’t believe me, check out some of the compensation paid to CEOs of companies that are losing massive amounts of money:

  • Aubrey McClendon, Chesapeake Energy, paid $18.6M while the company lost $5.8B.
  • Carol Bartz, Yahoo, paid $39.0M in the same year she’s fired.
  • Timothy Armour, Janus Capital, paid $11.4M while the company lost $757.1M.
  • Rupert Murdoch, News Corp, paid $18.0M while the company lost $3.4B.
  • Robert Stevens, Lockheed Martin, paid $21.7M while the company lost $3.0B.
  • Daniel Hesse, Sprint, paid $10.3M while the company lost $2.4B.
  • Gregory Brown/Sanjay Jha, Motorola, paid $11.7M while the company lost $111M.
  • Ronald Hovsepian, Novell, paid $5.2M while the company lost $214.6M.
  • William Klesse, Valero, paid $11.3M while the company lost $353M.
  • Klaus Kleinfeld, Alcoa, paid $14.3M while the company lost $985M.
  • Ahmad Chatila, MEMC Electronic Materials, paid $16.7M while the company lost -$68.3M.
  • The list goes on and on…

Still not convinced? Why do CEOs get golden parachutes? Why did Leo Apotheker get paid $25M after getting fired 11mos into the job? Do you get one? It makes no sense to ever have a guaranteed payout even if you screw up.

Mark Cuban once again puts this in perspective by demonstrating that the risk-reward for CEOs is out of whack.

Fortunately, it is easy to fix.

The free market should remain free. If a company wants to pay a CEO $50M in advance, they are free to do so. But the Board of Directors, whose sole responsibility is to the shareholders best interests, needs to be able to prove that such a plan is good for the shareholders. If not, the Directors need to be held personally liable.

I’d like to see the SEC adopt new rules about executive pay – including any form of guaranteed pay, pay for non-performance, pay while the company is losing money, or pay for early termination. These rules should outline a very strict and narrow definition for when such compensation would be “good for shareholders”. Common sense should win out here, and the right answer is “almost never”. We all know that if an employee isn’t working out you should fire them with impunity. CEO’s are no exception.

As for the CEOs that are already beneficiaries of guaranteed payouts – if they have any character at all, they should forfeit these benefits and ask their Board of Directors to rework their compensation to something in line with what the rest of the company gets.

AT&T Call Dropping

I called AT&T today. Here is the approximate transcript from the call:

me: Hi, I’d like to make a change to my service.

att: Ok, what would you like to change?

me: I’d like to cancel my free Call Dropping Service.

att: Ok, I’m loading your account now, one minute.

me: Thanks.

att: I’m sorry, sir, we’ don’t have any Call Dropping Service.

me: Are you sure? Don’t use AT&T?

The operator was quite nice and helped lookup a variety of other AT&T services as well. She checked to see if they had a “Call Scrambling” service, as well as a “Automatic Call Blocking” service (where AT&T automatically doesn’t deliver a call). The last one tripped her up because they do have a service by that name, but she didn’t understand that I had never configured it and that I seemed to be describing having used it.

Eventually I got bored and hung up. Thank you to the patient operator. I still hate AT&T though.

Good Idea: Slash Government-backed Student Loans

Why is the price of college going through the roof? They could be rising due to increased costs. Or they could be rising because that is what the market will bear.

Mark Cuban proposed this recently, and I think he’s right. The government keeps throwing more money to students. Awash with cash, those students then go to school and spend it. With plenty of eligible students, the schools simply raise rates, the government loans more, and the cycle repeats. Shall we stop the madness? Stop giving out massive government student loans and this problem could evaporate entirely.

Here’s a fun info-graphic about college loans.

And here’s Mark:

3. Limit the Size of Student Loans to $2,000 per year

Crazy ? Maybe, maybe not. What happened to the price of homes when the mortgage loan bubble popped ? They plummeted. If the size of student loans are capped at a low level, you know what will happen to the price of going to a college or university ? It will plummet. Colleges and universities will have to completely rethink what they are, what purpose they serve and who their customers will be. Will some go out of business ? Absolutely. That is real world. Will the quality of education suffer ? Given that TAs will still work for cheap, I doubt it.

Now some might argue that limiting student loans will limit the ability of lower income students to go to better schools. I say nonsense on two fronts. The only thing that allowing students to graduate with 50k , 80k or even more debt does is assure they will stay low income for a long, long time after they graduate ! The 2nd improvement will be that smart students will find the schools that adapt to the new rules and offer the best education they can afford. Just as they do now, but without loading up on debt.

The beauty of capitalism is that people like me will figure out new and better ways to create and operate for profit universities that educate as well or better as today’s state institutions, AND I have no doubt that the state colleges and universities will figure out how to adapt to the new world of limited student loans as well.

Finally, the impact on the overall economy will be ENORMOUS. There is more student loan debt than credit card debt outstanding today. By relieving this burden at graduation, students will be able to participate in the economy

Buying Into The Carpool Lane

Scott Adams nailed me today:


Living in the Bay Area, I’m anything except “rich”.  But I guess according to most standards, I’m in the top few percent.  But I can’t remember how often I have said this to my friends:  “The only reason I got a hybrid was to buy my way into the carpool lane.”

And yeah, it is totally worth it!!!   But how much did our government make off my desire to drive faster than all the commoners?  $8.  Honda got the rest.  What a bunch of suckers.