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.

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

How To Seriously Balance the Budget

balance Our legislators all claim they want to spend less.  But every time they attempt a plan for fiscal responsibility, they get sidetracked on who-wants-to-cut-what.

If they are serious about our finances, they have to stop debating which programs to cut (Planned Parenthood, Medicare, the Military, etc), and instead focus on the budget itself.   This means unilateral cuts, blind to the programs, and  simply trim everything equally.

Here is my simple proposal to balance the budget over 8 years (2013 to 2020):

  1. Federal Spending in 2010 was ~$3.5T with revenues of ~$2.1T.  To make these changes in 2013-2020,  we need to cut $1.4T per year.  We will accomplish this by reducing spending by $175B annually, additively.
  2. An annual spending cap is defined as:
                           ($3.5T – $175B * (Year – 2012))
    1. 2013 = $3.325T
    2. 2014 = $3.150T
    3. 2015 = $2.975T
    4. 2016 = $2.800T
    5. 2017 = $2.625T
    6. 2018 = $2.450T
    7. 2019 = $2.275T
    8. 2020 = $2.100T
    9. > 2020 : The cap is set to the prior year’s revenue.
  3. Each year, the budget dictates the proportion of money spent for each line item.  If the total budget exceeds the values from (2), spending per line item will be reduced proportionally such that total spending equals the value of line (2).
  4. These spending cuts are mandatory, and override any previously guaranteed benefits to any programs.  All federal programs will need to adjust to the new spending caps.
  5. If, in any year, there is a surplus in revenues, the spending caps outlined in (2) will remain, and the surplus will be used to reduce the overall debt.
  6. After the year 2020, annual spending will be capped at the total revenue of the previous year, and the budget balancing process of line (3) will be applied with the new spending cap.

This solution removes the politically charged plans where our legislators always get tripped up.  This is liberating for all legislators, as they can now focus on getting the job done and balancing the budget in 8 years.  No problem, right?

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.

No Political Efficiency since 1913?

We currently have 435 legislators in the House of Representatives.  This number has been fixed since 1913.  Question:  Do we need the same number of representatives that we had back then?

On one hand, you could argue that we need more seats in Congress.  After all, there were only 97M Americans in 1913.  Today we have 307M Americans.  Surely more constituents requires a larger congress?

But think about the technology advancements since that time.  In 1913, if you wanted to communicate with your representative, what choices did you have?  He certainly didn’t visit his local district very often – the first commercial flight didn’t even take place until 1914.  Calling your representative was unlikely – there was no long distance from California to Washington at back then, and long distance calls from closer geographies were manual and time consuming.  And of course there was no internet, so real-time communication was impossible.   We did have the one-way megaphones of newspapers and magazines.  And of course, you could write a letter. 

So, in 1913, maybe we needed 435 legislators.  Each had a significant job to do with just communicating, corresponding, traveling, and coordinating between Washington and his local region. 

But today, do we need so many?  With a single email, legislators can reach far more than 225,000 people right from the comfort of his mistress’ bed.  Websites, telephones, television, and email combined certainly make the communication burden almost non-existent compared to 1913.

Obviously, there is more to legislation than just communication with constituents.  But, given the gridlock in Washington, the skyrocketing costs of Washington, and the increased dissatisfaction with the never-ending burden of an increasingly complex set of laws, maybe we should cut that 435 in half.  Any reason why not?  Or is that just the way we roll around here?

Mike’s Voting Guide to the Propositions Nov ‘10

First, some guiding principles:

  1. Consider who is backing each bill and how much they’re spending to back it.  The more they are spending, the more valuable it is to them.  Ask yourself why.
  2. Remember that every law has overhead – a new commission, a new study, a new enforcement, etc.  Even if the burden is placed on existing agencies (like our police officers or our firefighters or our court systems), each law usually costs money.  Unions (teachers, firefighters, police) usually support more work, because they get bigger.
  3. Be skeptical.
  4. If everything looks equal, vote no.

Second, some resources:

  1. BallotPedia.  I have found this site to be pretty comprehensive, well organized, and fair.
  2. OpenSecrets.  OpenSecret tracks political contributions and lobbying.  Their coverage is mostly at the federal level, however.

Finally, the votes!

yes Prop 19:  Legalize Marijuana.  As with alcohol, legalize it and deal with the consequences.  I won’t touch the stuff.

yesProp 20: Redistricting of Congressional Districts via committee.  Committees are just as corrupt as congress.  A computer should draw the lines, but this is better than today.

no Prop 21: Tax to fund state parks.  The park system is plagued with administrative overhead.  Supporters should donate to the parks rather than to this bill.

no Prop 22: Prohibit State Spending against Local Funds.  Our governors need to be able to legislate holistically.  This creates unnecessary boundaries.

yes Prop 23: Suspend the “Global Warning Act” until unemployment drops below 5.5%.  I don’t like California at an economic disadvantage in the global market.

no Prop 24: Increase business taxes in California.  Check out the Teacher’s Union support on this bill.  This is just a tax to prolong big government.

no Prop 25: State budget via simple majority.  The teacher’s union working to expand big-government.  I don’t want the budget controlled by the ruling party.  This is downright scary.

yes Prop 26: Make “fees” require 2/3 vote since they are taxes.  The state doesn’t have a revenue problem, it has a spending problem.  Act now, or “fees” will cripple California.

no Prop 27: Abolish committee for State Legislature redistricting.  It’s either Prop 20 or Prop 27.  Prop 20 is better.

Time To Bust The Public Labor Unions

It’s no secret that I’m not a fan of unions.  But I’m even less of a fan of public-sector unions for two reasons:

  1. As a taxpayer, I’m on the hook for the bill.
  2. Politicians simply can’t resist giving unions money in exchange for votes.

I apologize to the firefighters, police officers, and teachers.  Your jobs are extremely important.  But we can’t afford your unions, and we need your help to bust them apart.  Unions are the same cancer which bankrupted America’s once-largest-company, General Motors.  Why do we let this cancer invade our state?  (Oh yeah, Jerry Brown did it – so don’t vote for him now)

Shedlock puts it well:

In the case of public unions, if politicians strike a bad deal, taxpayers foot the bill. In the case of private corporations, if management strikes a bad deal, the company goes bankrupt, shareholders take a hit, or the jobs move elsewhere, as soon as the contract is up.

If you aren’t convinced, here are some articles to read:

Here’s The Real Problem With Labor Unions

The Beholden State

Plundering California

Public-sector unions bankrupting America

Intel CEO Agrees that Obama Policies Stink

If you haven’t believed me, take it from Intel CEO Paul Otelini.  Or Carly Fiorina.  Or Of course, Otelini’s credibility is a little low right now after he blew $7.7B on the purchase of McAfee at a huge premium.  But we’ll ignore that for now.

He’s right about America’s business-unfriendly policies and that Obama is making them worse.  This is important stuff – once the jobs are gone, it’s really hard to get them back. 

Regarding current economic policy, Otellini said, “I think this group does not understand what it takes to create jobs.  And I think they’re flummoxed by their experiment in Keynesian economics not working.”