financial markets

A Plausible Oncoming Financial Storm. So, the economic situation might end up pretty dire if the following is correct. I'm posting this line-of-thought in case someone wants to sanity check it.

"To boost the British economy, I'd tax all foreigners living abroad."
-- Monty Python's Flying Circus

My read on the current economic order is that America is an empire. Now empires are supposed to extract tribute, and America might at first glance not appear to do that. But I claim it does. Instead of direct taxation the mechanism seems to be:

* Use a combination of diplomatic carrots and military sticks to make the dollar the world's reserve currency.
* Inflate the dollar by "borrowing" from the federal reserve (read: printing more dollars but with extra steps).
* Spend the printed money to subsidize American citizens in a bunch of ways to haphazardly offset the effect of the inflation being a pretty regressive taxation regime by default (medicaid, social security, food stamps, government jobs, etc.)

Now my fear is, if the Trump administration messes up our foreign policy badly enough (e.g. by unnecessarily hitting allies with the tariff stick, and showing signs that they will not in fact defend countries like Ukraine that the US had agreements with) the dollar might lose its reserve currency status. If this happens, we might be in for some pretty nasty levels of inflation (because, what happens if all those foreigners and corporations start dumping their dollar reserves?)

Anyway, I'm curious what people think of this line of reasoning.

#deeptakesonhottakes

Trump is doing his part to make money great again (by embracing Bitcoin). Preamble:

At this point I've spent a few thousand hours studying Bitcoin. It's a fascinating rabbit hole and a subject I've become passionate about. Here are some of the conclusions I've reached:  

1. Bitcoin is by far the best form of money that humanity has come up with so far. It’s accessible to anyone with an internet connection (truly global and egalitarian), its supply is finite (something we’ve never had before) and it separates money from state, which is really good for a number of reasons. To name just a couple: it curtails governments' ability to wage endless wars (that are, at least in part, funded with the creation of new money/debt) and it prevents them from constantly inflating the money supply and devaluing the value of each unit of the currency (the scourge that we all know as ""inflation"").  
2. Since it's still in the early days of its valuation, Bitcoin's "price" (exchange rate might be more accurate) in the short-term is very unpredicatable and volatile. But in the medium to long-term, it's becoming more and more valuable by orders or magnitude (hundreds of dollars, to thousands, to tens of thousands and soon hundreds of thousands per bitcoin). This makes it an excellent savings vehicle for the long-term. It's also a form of money that is unconfiscatable which can be extremely useful to people living under totalitarian governments, fleeing war zones, etc.
3. Everything else in ""crypto"" besides Bitcoin is at best, a startup with a yet-to-be-proven use case and in most cases more like a scam. This can be quite infuriating to those of us who understand Bitcoin because every single crypto scam only serves to further confuse the mainstream and to make people assume that Bitcoin must also be a scam.

Deep Take:

Trump has just announced that the US government will create a Strategic Bitcoin Reserve, meaning they will be holding (and likely buying) bitcoin as a strategic asset, similar to how they hold gold, oil, etc. As much as I might dislike Trump and many of his policies, I think this is something that can have incredibly good long-term consequences for the world.  

I do think it’s a shame that since it's Trump doing this, progressives and people on the Left are probably even less likely to adopt Bitcoin. I imagine for most people who don't like Trump it will just seem like another of his crazy/dangerous schemes. I think that's a shame because when used as long-term savings technology, adopting Bitcoin can be enormously empowering financially and in terms of enhancing personal responsibility. I've lived this in my own experience and it's something that I wish for others. 

Nonetheless, I’ve always considered myself more of a progressive and I still took the time to look into Bitcoin, so it's definitely possible. I hope others on the Left can manage to be independently-minded enough to not miss the boat. I also think that only someone as “out there” as Trump could have allowed something as revolutionary and "against the grain" as a Strategic Bitcoin Reserve to happen in the US government. Evolution, as they say, works in mysterious ways.

Trump is being advised by Wall Street veterans like Howard Lutnick (Commerce Secretary) and Scott Bessent (Treasury Secretary) who understand Bitcoin and its potential future value. And yeah, they're probably mostly in it to make money. Lutnick, by his own admission, owns hundreds of millions of dollars' worth of Bitcoin. But that's not the point. The point is that Bitcoin is like a Trojan Horse. I'm pretty sure people in the US government and Wall Street (and subsequent governments around the world who adopt a similar strategy) will do their very best to co-opt Bitcoin. They'll try to take it over and neutralize it as a threat to their monetary monopolies. But Bitcoin has proven its anti-fragility time and again. Not only does it ""refuse to die"" but every time it's been attacked, it comes back stronger and even more resilient. I fully expect that to continue.

And so by taking the first steps towards the US government adopting Bitcoin (and thereby legitimizing it in the eyes of the world), Trump and co. are accelerating the transition from government-backed inflationary currencies to a form of money that can’t be inflated or manipulated by anyone and can be used by everyone. It's going to be a long and messy transition, but I think it's a very, very good thing for humanity's future. As the saying goes: ""even a broken clock is right twice a day." : )

#DeepTakes

Key Reasons Taxing Unrealised Gains Is Problematic.  

Liquidity Problems: Taxpayers may not have the cash to pay tax on gains they haven’t actually received. Both mitigation and remediation measures incur additional costs for taxpayers that are not captured as tax revenue to the government (for example, fees and interest on borrowing to cover tax liabilities, opportunity costs from changing investment strategies, the cost of maintaining extra cash reserves to cover unexpected tax bills)

Volatility Risk: Asset values can fall after being taxed, resulting in people paying tax on gains that later disappear (“phantom gains”).

Valuation Difficulties: Many assets, especially private businesses and real estate, are hard to value accurately every year, leading to disputes and administrative headaches.

Administrative Complexity: Annual assessments of unrealised gains create significant record-keeping and compliance burdens for both taxpayers and tax authorities.

Distorts Investment Decisions: May discourage investment in long-term or illiquid assets, harming economic growth and innovation.

Asset Price Distortion Near Tax Time: The approach of the tax assessment date can trigger artificial selling pressure, increased volatility, and price distortions, as investors adjust holdings to minimise their tax liability.

Fairness Concerns: Taxpayers view it as unfair to be taxed on “paper” gains that may never materialise, or to be forced to sell assets just to pay tax.

Double Taxation Risk: You might be taxed on the same gain both when it is unrealised and again when it is realised, unless the system works perfectly to prevent it.

Unpredictable and Negative Government Revenue: Mechanisms to prevent double taxation (such as cost base adjustments and tax refunds when asset values fall) can cause the government to lose revenue in years of market downturns, resulting in unpredictable or even negative tax receipts.

Rarely Used Globally: Almost all countries tax only realised gains; taxing unrealised gains is internationally uncommon and controversial.

Reduced Competitiveness: Increased compliance and cash flow burdens put local businesses at a disadvantage versus competitors in countries without such taxes.

For balance, key reasons why some people argue for tax on unrealised gains:

Anti-avoidance: Some argue taxing unrealised gains prevents indefinite deferral of tax (especially for very wealthy individuals).

Wealth inequality: Wealth taxes (not exactly the same, but related) can target asset-rich, income-poor individuals. Annual net wealth taxes do exist in some countries, but are different from capital gains taxes.

I'm not opposed to Taxing Unrealised Gains because it is evil or fundamentally wrong to do so. I'm opposed to them because taxation policy carries with it a list of pros and cons and there are ways of achieving the same objectives that have far better tradeoffs. And the taxing of unrealised gains has so many cons in comparison.

Good government is about choosing far better options when they are available so we don't have to pay the costs of worse decisions.