The Biden administration continues to speak out of both sides of its mouth when it comes to Israel and Gaza policy as Progressive Democratic voters continue peeling off in droves, declaring that they can’t in good conscience vote for Biden in November.

On Tuesday, the contradictions continued and abounded, as the White House informed Congress it is planning a new $1 billion arms transfer to Israel. And ironically this will mark the first new package since Biden earlier this month announced it paused a weapon shipment to Israel on human rights concerns.

Pool photo/AP

A State Department report has since found that US weapons have likely been used in a way contrary to international humanitarian law, but stopped short of condemning Israel for war crimes.

The Wall Street Journal first broke the news of the new package, writing “The Biden administration notified Congress on Tuesday that it was moving forward with more than $1 billion in new weapons deals for Israel, U.S. and congressional officials said, a massive arms package less than a week after the White House paused a shipment of bombs over a planned Israeli assault on Rafah.”

Here’s what the newly proposed package includes:

$700 million in tank ammunition
$500 million in tactical vehicles
$60 million in mortar rounds

This follows on the heels of Congress passing and Biden sighing into effect the $95 billion package of foreign aid for Ukraine, Israel, and Taiwan.

Biden’s threats to pause shipments of offensive weapons to Israel has come under criticism by Democrat pro-Israel hawks in the last several days. White House Press Secretary Karine Jean-Pierre has responded this week by saying: “We strongly, strongly oppose attempts to constrain the President’s ability to deploy US security assistance consistent with US foreign policy and national security objectives.”

Meanwhile, Democrats continue to be angry over the Gaza crisis:

Approximately 13% of poll respondents in six swing states who voted for U.S. President Joe Biden in 2020 but would not vote for him again said that his foreign policy or Israel’s war on Gaza were the most important issues determining their vote.

The figure comes as part of a new set of polls released Monday from The New York Times, Siena College, and The Philadelphia Inquirer that show former President Donald Trump narrowly leading Biden in 5 out of 6 crucial battleground states.

“We have warned that this would happen for months, and the Democratic Party didn’t give a damn,” author and organizer Daniel Denvir wrote on social media in response to the news.

We have warned that this would happen for months and the Democratic Party didn’t give a damn. pic.twitter.com/8KtC294lVZ

— Daniel Denvir (@DanielDenvir) May 13, 2024

The policy debate continues raging within Israel itself, with Minister of Defense Yoav Gallant on Wednesday calling on Netanyahu to affirm that Israel won’t govern Gaza after Hamas is defeated.

Authored by Katabella Roberts via The Epoch Times,

A coalition of Republican-led states is suing the Biden administration and the State of California in an attempt to prevent new electric vehicle mandates on truck owners and operators throughout the country from going into effect.

Two legal challenges were filed over the new emissions rules, Nebraska Attorney General Hilgers said in a statement on May 13.

They include a petition for review filed by a coalition of 24 states in the U.S. Court of Appeals for the D.C. Circuit which challenges the Biden administration’s new regulation setting stronger greenhouse gas emissions standards for heavy-duty vehicles.

That petition lists the U.S. Environmental Protection Agency (EPA) and its administrator Michael Regan as defendants.

In the legal filing, plaintiffs argue the EPA’s rule imposing stringent tailpipe emissions standards for heavy-duty vehicles effectively forces manufacturers to produce more electric trucks and fewer internal combustion trucks.

The EPA has said the new rules, which are set to take effect for model years 2027 through 2032, are needed to help combat climate change and will help avoid up to 1 billion tons of greenhouse gas emissions over the next three decades.

However, the infrastructure needed to support such vehicles is “virtually nonexistent” and they also have shorter ranges and require longer stops, according to Mr. Hilgers.

The new regulation will also negatively impact the economy and put extra pressure on power grids, according to the lawsuit.

Electric Trucks ‘More Expensive’

A separate coalition of 17 states and the Nebraska Trucking Association also filed a lawsuit in the U.S. District Court for the Eastern District of California seeking to block a package of regulations that they say are “targeting trucking fleet owners and operators.”

That lawsuit lists the EPA and the California Air Resources Board as defendants.

Plaintiffs in the lawsuit are challenging a string of California regulations called “Advanced Clean Fleets” which aims to “accelerate a large-scale reduction in tailpipe emissions focusing on zero-emissions medium- and heavy-duty vehicles,” according to the California Air Resources Boards’s (CARB) official website.

The rules would ban big rigs and buses that run on diesel from being sold in California starting in 2036.

According to the CARB, the new regulation will save around $26.5 billion in statewide health benefits from criteria pollutant emissions and save fleet owners $48 billion in operating costs.

However, those regulations force truckers in and out of California to “retire their internal-combustion trucks if they want to come to California” and “transition to more expensive electric trucks” by 2035, the states wrote in the lawsuit.

The regulations could also damage the U.S. economy, they added.

Rules Could Impact ‘Untold Number of Jobs’

According to Mr. Hilgers, the rule also applies to “fleets that are headquartered outside of California if they operate within California” which he argues could have significant nationwide effects on the supply chain.

Both lawsuits argue that the Biden administration and California regulators are exceeding their respective authorities in introducing the rules.

The multi-state coalitions are being led by Nebraska.

The state is joined in its legal challenge by attorneys general from Alabama, Arkansas, Georgia, Idaho, Indiana, Iowa, Kansas, Louisiana, Missouri, Montana, Oklahoma, South Carolina, Utah, West Virginia, and Wyoming.

Additionally, the Arizona State Legislature and the Nebraska Trucking Association have joined the lawsuit.

In a statement, Mr. Hilgers claimed California and an “unaccountable EPA” are “trying to transform our national trucking industry and supply chain infrastructure.”

“This effort—coming at a time of heightened inflation and with an already-strained electrical grid—will devastate the trucking and logistics industry, raise prices for customers, and impact an untold number of jobs across Nebraska and the country,” he continued. “Neither California nor the EPA has the constitutional power to dictate these nationwide rules to Americans.”

The Nebraska attorney general added that he was proud to be leading efforts to “stop these unconstitutional attempts to remake our economy.”

The Epoch Times has contacted the EPA and the CARB for comment.

Munitions stockpiles are running low across the West, whether in Europe or the United States. Supplying Ukraine with arms in its war against Russia has forced Western militaries and defense firms to either make plans or begin boosting the production of bombs, missiles, artillery shells, and suicide drones. 

 On Tuesday, the US Air Force announced a tripling in its monthly production of the giant 30,000-pound Massive Ordnance Penetrator, known as the “bunker-buster.” It’s the largest non-nuclear bomb the US has in its stockpiles and can only be deployed by a Northrop Grumman B-2 Spirit stealth bomber. 

Bloomberg was among the first to report an increase in bunker-buster bomb production, citing a USAF statement: “Will significantly increase production as needed.”  

Officials at the facility told Bloomberg journos during a March tour by General Charles Brown, chairman of the Joint Chiefs of Staff, that new bunker-buster bomb production could rise from currently two, to as many as six or possibly eight bombs per month. 

The Oklahoma plant is being upgraded to support higher production of 2,000- to 30,000-pound bombs. A ribbon-cutting ceremony is scheduled for July 30, and production ramps are expected soon after. 

Ukraine isn’t the only conflict area draining Western supplies of munitions. The US has been supplying Israel with bombs and missiles as the conflict with Hamas rages on. And there’s a further risk of broadening conflict in the region with Iran. Let’s not forget China and the South China Sea. 

Maiya Clark of the Heritage Foundation recently explained the US military-industrial complex can’t just turn on a switch and produce more bombs:

“Once the stockpiles are expended, the Department of Defense cannot simply buy more munitions — manufacturing takes years.”

Clark continued: 

“Ramping up production after operating at a smaller capacity takes time; contractors have found that it will take them around two years to deliver new Javelins to the Department of Defense (DOD), for example.” 

She warned:

“This creates a problem in the present—after all, the war in Ukraine could continue for some time—and it illuminates what could potentially be a much larger problem in the future. The lack of surge capacity creates the risk that, in a protracted war, the US would deplete its stockpiled munitions before replacements could be manufactured and delivered.” 

This all plays into an important theme of soaring global military spending as the world fractures into a chaotic, multi-polar state. There’s a bull market in defense. 

Authored by Michael Lebowitz via RealInvestmentAdvice.com,

Since the pandemic-related bazooka of fiscal stimulus, the outstanding Federal debt has risen appreciably. In nominal dollar terms, the recent debt surge is mindboggling. However, the increase is on par with the government’s negligent ways over the last fifty years.

The red bars show the percentage increase in debt starting in 1966. The bars reset to zero every time they hit 50%. The numbers to the left of each series of bars correspond to the number of quarters it took for every 50% increase.

Over the last sixteen quarters, 2020 through 2023, the outstanding federal debt has risen by 46%. Of the 11 times the debt has increased by 50% since 1966, five occurred over 15 quarters or less.

That said, the repercussions of relying on stimulus for economic growth and growing debt faster than the ability to pay for it have significant economic consequences. The recent surge in debt will only further handicap our economy and prosperity in the future.

There are predominantly two ways our growing debt load negatively impacts economic growth, as we will share.

#1 Manipulated Interest Rates Cripple Capitalism

Growing debt faster than one’s income is a Ponzi scheme. No matter how politicians sugarcoat fiscal stimulus, there are no two ways around such a characterization. Individuals and corporations that run such a scheme ultimately end up bankrupt. The same holds for governments, but they tend to have much longer runways.

The Federal Reserve allows the government to perpetuate its Ponzi scheme. The Fed keeps borrowing costs lower than they should be through lower-than-market interest rates and asset purchases.

Not only is the growing ratio of debt to income problematic, but it is also a sure sign that the debt in aggregate is used for unproductive purposes. In other words, the debt costs more than the financial benefits it provides. If it were productive debt, income or GDP would rise more than the debt.

In the long run, unproductive debt reduces a nation’s productivity, aka economic potential.

Negative Real Rates And QE

A lender or investor should never accept a yield below the inflation rate. If they do, the loan or investment will reduce their purchasing power.

Regardless of what should happen in an economics classroom, the Fed has forced a negative real rate regime upon lenders and investors for the better part of the last 20+ years. The graph below shows the real Fed Funds rate (black). This is Fed Funds less CPI. The gray area shows the percentage of time over running five-year periods in which real Fed Funds were negative. Negative real Fed Funds have become the rule, not the exception.

Starting in 2008, with QE, the Fed began using its balance sheet to manipulate interest rates further. Currently, the Fed holds $8 trillion in Treasury and mortgage-backed securities. Their Treasury holdings account for almost 25% of all Treasury securities outstanding to the public.

By reducing the supply of bonds on the market, they effectively lower interest rates below where the free market would price them. This makes fiscal stimulus more appetizing for politicians and, by default, encourages even greater federal debt loads.

Like the Fed’s negative real rate interest rate policy, QE also reduces interest rates, allowing for more unproductive federal and private sector debt.

#2 Negative Multiplier

As we note, debt increasing faster than economic growth proves that borrowing and spending are unproductive. Unproductive government debt or private sector debt also results in a negative economic multiplier. Essentially, the ultimate expense of the debt outstrips its benefits over the long run.

Economists define the multiplier effect as the change in income divided by the change in spending. Over an extended period, if the change in spending is more significant than the change in income, the effect of said spending is negative. Replace GDP for income and government debt for spending to compute the government’s spending multiplier.

Multiplier = Change Income / Change Spending

Government Multiplier = Change GDP / Change Debt Outstanding

To help appreciate the negative multiplier, let’s consider the two rounds of stimulus checks sent to the public during the pandemic. Consumers and businesses spent a large percentage of the funds on goods or services that no longer provide economic benefit. The initial result of the direct stimulus was a massive boost to economic activity. Three to four years later, the economic growth spurt is finished, and the debt and its annual interest costs remain. The interest on the debt is capital that will not be put to productive use.

Yesterday’s tailwind is slowly becoming tomorrow’s headwind.

There are other economic considerations as well.

Ricardian Equivalence

This economic theory states that when individuals anticipate tax increases to finance current and future government spending, they increase their savings to offset the expected tax burden. Therefore, any increase in government spending financed by debt may not stimulate consumption and investment, potentially resulting in a negative multiplier effect.

Crowding Out

High levels of government borrowing can lead to crowding out of private investment. This occurs when government borrowing forces higher interest rates, making it more expensive for businesses and individuals to borrow for investment. Further, as banks are asked to hold more government debt, they have less ability to lend to the private sector. Consequently, private investment, likely to be more productive than government spending, may decline.

Capitalism Is Eroding

The graph below shows why capitalism matters. It plots the Heritage Foundation’s Index of Economic Freedom, a measure of capitalism, versus the average family wealth for 137 countries. As shown, economic freedom and wealth have a strong positive correlation.

With that relationship in mind, government spending is a key component of the economic freedom index. Massive government stimulus spending reduces our index score. Further, while not a part of the score, manipulation of free market interest rates also detracts from the benefits of capitalism. As our index score falls, denoting the retreat from capitalism, so does our wealth.

Summary

Nothing is free, it’s just a question of how it’s paid for. While the government spends like there is no tomorrow and the Fed does everything in its power to help them, we must understand that the longer-term consequences of their actions are weaker economic growth and growing wealth disparity, as we discuss in Fed Policies Turn The Wealth Gap Into A Chasm. To wit:

QE may have served as an emergency way to add bank reserves to the system and boost confidence. However, its continued use, even during economic prosperity periods, only makes the wealth gap wider.

We should take the matter personally because, as we have shown, there is a strong link between government borrowing and our prosperity. While the cost of deficits may not be higher taxes, it does show up invisibly in lesser wages and wealth than we otherwise could attain. Any wonder why millennials are on track to be the first generation to fail to exceed their parents in income?

In a Goldman Materials note this morning covering China and copper, analyst James McGeoch pointed out that the base metal is “having a Cocoa moment.” 

Comex copper futures for July delivery jumped nearly 5% to $5.12 a pound, exceeding an earlier record for the most active contract set in March 2022. According to Bloomberg, the short squeeze “prompted a scramble to divert metal in other regions to US shores.”  

Comex copper futures are breaking out. 

Comex copper futures are in one of the biggest-ever backwardation periods – a clear indication of severely tight supply. 

“Short spread and futures holders are being squeezed,” Michael Cuoco, head of hedge fund sales for metals and bulk materials at StoneX Group, told Bloomberg. 

Here’s more commentary on the copper squeeze in the US via McGeoch: 

Copper got funky on LME close, the …Copper we see arb positions driving  (short CMX/long LME basis producer hedges and other factors) and have seen big unwinds on this, the spread got to +$900 (o’night it got to 1200t….saw people shorting it at $600 and getting stopped out literally hours later). There is also a seemingly large Chinese/Asian position (the arb CMX/SHFE getting bought again over night). The financial flows are typically more CMX heavy (options and outrights) and the change in liquidity. mkt structure is compromised as there is not that much Copper available on CMX to be delivered. For the next two weeks its likely to stay unhinged, as the positions are all against July expiry and we are unsure how it solves ahead of that, ie the delivery mechanism to solve.

Short-squeeze in commodities markets occurs when traders are forced to exit positions due to increasing margin calls or the threat of having to deliver physical material. 

Jia Zheng, head of trading at Shanghai Dongwu Jiuying Investment Management, explained that the surge in the July contract was partly driven by a squeeze on traders involved in reverse arbitrage, where they short Comex and go long on Shanghai copper.

This coincides with dwindling copper mining supplies and a surge in AI data center investments across the US. Additionally, the US and UK have banned Russian aluminum, copper, and nickel.

ZH’s The Market Ear penned a note earlier indicating the parabolic price action in copper is getting overextended. 

Authored by Nick Giambruno via InternationalMan.com,

Hal Finney was a pioneering computer scientist, cryptographer, and prominent Cypherpunk who played a crucial role in the early development of Bitcoin.

He was one of the first supporters, contributors, and adopters of Bitcoin.

In short, Finney was a visionary who understood Bitcoin’s potential before almost everyone else.

In December 2010, Finney wrote:

“There is a very good reason for Bitcoin-backed banks to exist, issuing their own digital cash currency, redeemable for bitcoins.

Bitcoin itself cannot scale to have every single financial transaction in the world be broadcast to everyone and included in the blockchain.

There needs to be a secondary level of payment systems which is lighter weight and more efficient. Likewise, the time needed for Bitcoin transactions to finalize will be impractical for medium to large value purchases.

Bitcoin backed banks will solve these problems. They can work like banks did before nationalization of currency. Different banks can have different policies, some more aggressive, some more conservative. Some would be fractional reserve while others may be 100% Bitcoin backed. Interest rates may vary. Cash from some banks may trade at a discount to that from others.

I believe this will be the ultimate fate of Bitcoin, to be the ‘high-powered money’ that serves as a reserve currency for banks that issue their own digital cash. Most Bitcoin transactions will occur between banks, to settle net transfers.

Bitcoin transactions by private individuals will be as rare as… well, as Bitcoin based purchases are today.”

Bitcoin banking takes the “free banking” concept and makes enormous improvements.

The free banking era in the US lasted from the 1830s to the early 1860s. Minimal regulations and the absence of a central bank characterized it.

Banks were permitted to issue their own currency, known as banknotes, that circulated as money. These banknotes were supposed to be redeemable on demand for the gold or silver reserves they represented.

The value of these banknotes fluctuated based on the perceived solvency of the issuing bank and the distance from the bank itself, as people were less willing to accept notes from distant or unknown banks.

Similarly, Bitcoin banks hold BTC as a reserve asset and issue digital eCash notes redeemable for Bitcoin (either onchain or on the Lightning Network) anytime on demand. These eCash notes are like digital versions of the gold-backed banknotes during the free banking era, but with several significant improvements.

The best way to think of Bitcoin banking is as a massive upgrade to the existing custodial banking models.

Below are a few benefits.

Private transactions

Fungibility between different eCash notes

Low barrier to entry

Minimizing trust

Low switching costs

Convenient and easy to use

Redeemable at any time

Backup and recovery of funds

First, we have to understand the basic structure of how a Bitcoin bank could work.

Bitcoin banks are likely to take the form of a federation.

This model reduces trust by distributing control over a group of people or entities. This federated group issues, verifies, transfers, and administers the digital eCash notes—but only if there is consensus among the federation members to take these actions.

The main idea of a federation is that you are reducing the amount of trust needed to run a system by distributing control.

The federation holds its Bitcoin reserves in a multisig wallet, a special type of wallet that requires multiple people’s authorization to spend the funds. Think of it as a safe that requires multiple keys to open.

There will likely be a wide variety of Bitcoin banking federations. Some will be small and focused on local communities, while others will be large and geared towards providing commercial-scale operations.

Naturally, there are risks with any system that depends on trust or third parties.

Bitcoin banks have risks, too, but the main point is that they significantly reduce these risks compared to centralized systems. Specifically, you have to trust that the members of the federation will not form a majority quorum to steal the Bitcoin held in the multisig wallet that backs customer deposits or debase their eCash notes. I’ll discuss these and other risks later.

Here’s how it works.

Someone who wants to obtain eCash notes will first download the software to interact with the federated Bitcoin bank. Then, you will send Bitcoin (onchain or Lightning) to the federated Bitcoin bank and receive eCash notes in return.

With a federated Bitcoin bank, you can also sell something and receive eCash notes in your wallet. You could also earn eCash notes from your employer as they deposit your salary into your wallet, just like they do with your traditional bank account today.

Bitcoin banking federations are meant to be interoperable with the Lightning Network—an open, peer-to-peer network built on Bitcoin that allows for nearly instantaneous transactions and almost zero fees. You can use eCash notes anywhere that Lightning is accepted.

With Bitcoin banking federations, you can withdraw to another federation or your own Bitcoin wallet (onchain or Lightning) anytime on demand.

Unlike self-custody wallets, Bitcoin banking federations can help users recover their funds if they lose access to their wallets.

Suppose you want to spend your eCash with a merchant with a different Bitcoin banking federation. This is where the Lightning Gateways come in. They are market makers who provide liquidity between Bitcoin (onchain and Lightning) and various eCash notes issued by different banking federations for a small fee.

When you send an eCash payment to a merchant at a different banking federation, you will send the eCash to a Lightning Gateway, which will then send the correct eCash to the merchant. Or suppose the Lightning Gateway doesn’t have liquidity in the merchant’s eCash notes. In that case, it will find another Lightning Gateway that does, send that Lightning Gateway a Lightning payment, and then the second Lightning Gateway will forward the payment to the merchant in its eCash note.

In short, Lightning Gateways will provide liquidity that increases the fungibility between numerous eCash notes issued by different Bitcoin banking federations.

It’s like seamlessly sending a payment from PayPal to a user on Cash App, Venmo, or another platform.

If this seems complicated, don’t worry. This just explains how a Bitcoin banking application on your phone would work under the hood. It does all of this in the background without your input. For the user, it will be a seamless experience of simply scanning a QR code and authorizing a payment on a phone application.

Most internet users do not know how TCP/IP or SSL works, but they use it daily in the background as they browse the web. I expect a similar dynamic with Bitcoin, the Lightning Network, federated Bitcoin banks, and various Bitcoin-backed eCash notes.

The graphic below does an excellent job illustrating how transactions with different eCash notes from different federated Bitcoin banks would work. It’s from Eric Yakes, author of The 7th Property: Bitcoin and the Monetary Revolution, which I consider the best resource for understanding the mind-bending potential of Bitcoin banking.

Source: Eric Yakes

Bitcoin Banking and Privacy

Financial privacy is one of the biggest benefits federated Bitcoin banks will offer over traditional custodians.

Chaumian eCash is what will enable it.

The name is a nod to cryptographer and Cypherpunk David Chaum, who created a way to provide secure and anonymous online transactions, much like using cash in the physical world.

With Chaumian eCash, users can spend money online without revealing their identity or transaction details to anyone, including the recipient or the federated Bitcoin banks and Lightning Gateways involved in the transaction.

One of the key features of Chaumian eCash is its use of blind signatures, a cryptographic technique that allows a federated Bitcoin bank to sign and validate eCash notes without actually seeing the transaction details.

In other words, a federated Bitcoin bank knows a valid eCash note has been issued and spent, but it doesn’t know who spent it or on what. Further, they will not be able to know individual account balances nor the identity of those who redeem an eCash note for Bitcoin.

Those running a federated Bitcoin bank will only be able to know the total amount of BTC held in reserves in the federation’s multisig wallet and the total amount of eCash notes outstanding for redemption.

This is a revolutionary improvement in financial privacy over existing custodial solutions, which offer no privacy whatsoever.

The strong privacy protections that Chaumian eCash offers enable another critical benefit: censorship resistance.

With PayPal, Venmo, traditional bank accounts, and other traditional custodial financial services, they can block a payment or cancel your account whenever they want under any pretext they find convenient.

With federated Bitcoin banks, they are unable to censor or block transactions. Thanks to the strong privacy protections from Chaumian eCash, they can’t know the details of each transaction, so they can’t block or prevent them.

In short, with federated Bitcoin banks and Chaumian eCash, we have, for the first time, a convenient custodial solution that is resistant to censorship.

Fedimint

Perhaps the most promising implementation of federated Bitcoin banks is Fedimint.

Fedimint is an open-source protocol that allows anyone to create a federated Bitcoin bank with a few clicks.

Using Fedimint to set up a federated Bitcoin bank costs nothing. No licenses or permission is needed.

In short, Fedimint could do to the banking cartels what Uber did to the taxi cartels.

Rug Pull Risk

Like all Layer 2 solutions, federated Bitcoin banks are a trade-off. They are less secure than self-custody but offer more convenience, ease of use, and privacy, among other benefits.

Specifically, you have to trust that the members of the federation will not collude to form a majority quorum to steal the Bitcoin held in the multisig wallet that backs customer deposits.

The size of that quorum will vary between different federations. The larger the quorum, the more distributed the risk.

It could be as small as a 2-of-3 setup, meaning there are three authorized users, and two are needed to spend the Bitcoin reserves in the federation’s multisig wallet, or as large as a 99-of-100 and anything in between.

Rug pull risk will naturally vary between different banking federations.

Local Bitcoin banking federations could mitigate this risk because known community members would operate them. They would likely suffer serious legal, reputational, and physical consequences for stealing their neighbors’ money.

With larger commercial Bitcoin banking federations, depositors could mitigate this risk with private insurance, rating agencies, and other market solutions.

In any case, ongoing due diligence of federated Bitcoin banks will be important. Depositors will have to do this or find someone to do it.

Centralization Risk

Trusted third parties are centralized vulnerabilities. Governments can capture and coerce them.

This is precisely how governments used the gold standard to bootstrap the fiat currency system into existence.

First, people used physical gold as money. Then, to scale, they necessarily turned to third parties, like banks, that stored gold and issued gold IOUs to facilitate trade. Governments captured those third parties and then gradually removed the gold backing from the IOUs until they were nothing more than confetti. In short, that is how the fiat currency system was born.

Could something similar occur with Bitcoin?

Bitcoin has a great chance of avoiding this fate because of its extreme portability and decentralization.

In the past, government agents could simply show up at a bank and demand they hand over their physical gold reserves to a centralized depository.

Let’s presume government agents would even be able to identify someone running a federated Bitcoin bank.

What could they do?

If the federated Bitcoin bank had been set up with sufficient geographical and political diversification, there’s not much they could have done. They could, at most, detain the one person in their jurisdiction running the federated Bitcoin bank.

Let’s say there was a quorum of 7-of-10, and the other nine federation members were located in different political jurisdictions. The Bitcoin reserves would be safe because the one person the government agents detained could not reach a quorum to spend them. The other nine federation members could then take further defensive measures to ensure the safety of the federation’s BTC.

In short, it would be exponentially more challenging for governments to capture, coerce, and centralize federated Bitcoin banks than it was for them to do the same with banks under the gold standard.

Hal Finney noted that there will likely be a market for the various eCash notes, and their values will fluctuate depending on how the market evaluates their risk. I expect eCash notes with more exposure to riskier jurisdictions to trade a discount to their Bitcoin reserves to reflect this risk.

Remember, with the open-source Fedimint protocol, anyone can easily form a federated Bitcoin bank. This low barrier to entry also helps mitigate the centralization risk.

With the traditional banking system—and banking under the gold standard—the government needs to control a relatively small number of banks and entities. With federated Bitcoin banks, anyone could potentially operate one—permission from a centralized banking cartel is not required.

Here’s the bottom line.

If governments attempted to capture, centralize, and coerce federated Bitcoin banks, I believe it would be a fruitless game of whack-a-mole.

Debasement Risk

There is also a risk that the people running a federated Bitcoin bank could secretly collude to debase their eCash notes.

Consider the example of the bankrupt exchange FTX, which created many more claims to Bitcoin than the actual BTC held in reserve. FTX account holders who thought they owned Bitcoin and did not withdraw were left holding the bag.

I think several factors will mitigate this risk with federated Bitcoin banks.

First, the cost of switching to another federated Bitcoin bank or withdrawing is low and can occur anytime. The ease at which a potential bank run could occur should put fear in the hearts of those attempting any debasement scheme.

I expect other market-based incentives, such as memberships in exclusive clubs for Bitcoin banks with the best reputations and other reputation systems, will help minimize the debasement risk.

The low barrier to entry to creating a federated Bitcoin bank and low switching costs means there will likely be cut-throat competition. If the market suspects a Bitcoin bank is debasing its eCash notes, it will be an excellent opportunity for a competitor to grab market share.

Likewise, speculators could play an important role. They will be there to short the eCash notes of Bitcoin banks suspected of engaging in debasement.

Conclusion

Bitcoin is a revolutionary innovation for the base monetary layer and provides a foundation for a new financial system.

Consider the implications of the trustless Bitcoin base layer in combination with the Lightning Network, federated Bitcoin banks issuing Chaumian eCash, and other trust-minimized Layer 2 solutions for scaling and convenience.

The amount of value they could unlock is astonishing. It could usher in a new era of free banking worldwide.

While the Bitcoin megatrend is no longer in its infancy, it is still early, and you are not too late. Bitcoin has a long way to go before it emerges as the world’s dominant money and displaces the traditional financial system.

I have little doubt The Bitcoin Supremacy will be one of the biggest financial trends of the decade. I believe that patient investors will reap substantial gains.

That’s why I’ve just released an urgent PDF report revealing three crucial Bitcoin techniques to ensure you avoid the most common—sometimes fatal—mistakes.

Check it out as soon as possible because it could soon be too late to take action. Click here to get it now.

Rice is a staple food for over 3.5 billion people worldwide, especially in Asia, Latin America, and Africa. It’s grown in over 100 countries, with 90% of the world’s rice produced in Asia. We have been tracking the prices of Thai white rice, which surged to 15-year highs in 2023 and has since consolidated at these highs with risks of a further upside breakout. 

According to new data from the Thai Rice Exporters Association, Thai white rice 5% broken, an Asian benchmark, rose nearly 6% to $649 a ton, inching closer and closer to last year’s highs. Since early 2022, prices have surged 64%. 

We continue to follow Thai rice prices because rice is a critical staple food for billions of people worldwide. 

Here are some of the risks we’ve pointed out in the last few years:

Sept. 2022: The Stage Is Being Set For A Massive Global Rice Shortage

May 2023: Global Rice Shortage Looms, Set To Be The Biggest In Decades

May 2023: Thai Rice Crop In Crosshairs Of El Nino As Farmers Are Warned About Water Shortages

July 2023: “So It Begins “: US Supermarkets Hit With Buying Panic As India Bans Rice Exports

August 2023: Rice Crisis Sends Prices To Highest Levels Since 2008

September 2023: “Go Easy On The Curry”: HSBC Warns Rice Crisis Reminiscent Of ‘2008 Asian Food Price Scare’

November 2023: Rice Nears 15-Year High As Global Food Crisis ‘Much Worse Than 2008’

The good news is that global food prices measured via the UN’s Food and Agriculture Organization print below the 2010 Arab Spring level, an area of risk where high food prices cause social instabilities in third-world countries. However, some of the latest prints show that food inflation could increase. 

If prices do surge from here, let’s remind readers of this 2008 headline from The Guardian:

Food inflation is certainly not going away. That’s evident in the prices of cocoa, OJ, coffee, beef, and many other items at the supermarket. 

By Charles Kennedy of OilPrice.com

Venezuela has moved “substantial quantities of [military] personnel and equipment to the border with Guyana amid its territorial dispute over the Essequibo region.

The update comes from the Center for Strategic and International Studies in Washington D.C., which this week released a report on the latest developments in the Venezuela-Guyana dispute.

The think tank talks about an expansion of a military base on Anacoco Island in the area, with new roads and a bridge getting built in the past few months. A local airport is also being expanded, CSIS also said, citing satellite imagery and social media posts.

According to the report’s authors, the activity could be preparation for a “manufactured crisis” before or after Venezuela’s next elections, set to take place in late July.

The Essequibo region encompasses about two-thirds of Guyana’s territory and is where most of its oil resources lie, and the site of massive discoveries and new production by Exxon and partners.

The International Court of Justice previously ruled that Essequibo is part of Guyana, although this is still not recognized by Venezuela. A written agreement was penned in December between the two that denounced the use of force, instead calling for a commission to address the disputes.

However, after a December referendum, in which Venezuelans overwhelmingly voted that Essequibo is part of their country, the government pushed with its annexation attempt. The buildup of troops began in February this year and prompted expectations of an imminent military conflict.

At the time, Caracas said it had the right to shore up its borders in response to U.S. military exercises in Guyana toward the end of the year and the presence of a UK anti-narcotics vessel that is in Guyanese waters. The Venezuelan government has also criticized Exxon for depending on the U.S. military for its security and for its exploitation of Guyana’s oil resources.

With the US national debt at $34 trillion and climbing, USD reserve status under pressure, inflation destroying standards of living, and the Biden administration stoking costly war on several fronts, perhaps it’s time for more thoughts on the Roman empire.

In a Tuesday thread posted to X, user ‘Culture Critic‘ (@Culture_Crit) posted a deep dive into the unraveling of the Rome in the 3rd century. Let’s jump in;

Does inflation lead to civilizational collapse?

Well, in the 3rd century, the Roman Empire began to buckle under the weight of state spending.

It frantically “printed” money until things went horribly wrong… (thread) 🧵 pic.twitter.com/DRdCa6A8BO

— Culture Critic (@Culture_Crit) May 14, 2024

Continued…

When Augustus slowed the expansion of the empire, wealth stopped flowing from conquered lands into the treasury. Managing expenditures (construction, armies, bureaucracy) became increasingly difficult.

Whenever costs exceeded tax income, emperors minted new coins to cover it. Mining precious metals increased the supply of gold and silver coinage.

Things remained pretty stable for two centuries…

But the army was an immense burden. In the mid-2nd century, it was 70% of the entire budget — half a million soldiers were on the payroll.

Then, crisis struck.

Frontiers across the empire came under attack in the 3rd century. Military expenses soared as entire provinces were being abandoned and their tax yields lost. Plus, the mines were drying up…

When soldiers’ wages could no longer be paid, “debasing” the currency was the only option.

Emperors issued new denarius (the silver coin troops were paid in) with less and less silver content — i.e., further increasing the money supply.

Nero had already begun clipping coins and diluting silver purity in 64 AD. The state soon got addicted to solving its problems this way — and lining the pockets of political insiders at the same time.

The denarius was down to 60% silver purity by the 3rd century AD. Of course, prices inflated with it.

Still, the state kept spending to maintain the illusion of prosperity, until things got really bad…

By 268 AD, the denarius was 0.5% silver. A bag full of coins replicated the silver content of a single coin a century earlier.

By 300 AD, soldiers were paid 8x in denarius compared to a century ago, and wheat prices were up 200x.

But the state still struggled to pay troops — some abandoned the military and went about pillaging towns. And for half a century, the empire was on the brink of destruction: emperors were assassinated, barbarians sacked towns and enslaved citizens…

Diocletian tried to stabilize matters by enforcing price caps on over 1,000 goods and services, but it failed. A modius of wheat that had cost 0.5 denarius in the second century, sold for over 10,000 in 338 AD.

Who pays when the money system breaks?

People pay with their freedom. The currency was so worthless that the state demanded forced labor rather than accept its own coins as tax. Merchants had to provide goods directly to the state and army, and leaving their trade was outlawed.

The masses slipped into serfdom and unrest, while the state grew larger and more authoritarian in response. The state was now keeping itself alive at all cost.

As Septimus Severus said: “Live in harmony; enrich the troops; ignore everyone else.”

It’s said the Roman Empire fell due to apathy. By the time the 5th century barbarians came, belief in the system was gone, and invaders seen as liberators.

“The empire could no longer afford the problem of its own existence.”

Does any of this sound familiar?

It might be because 80% of all dollars in circulation today were printed since Covid… pic.twitter.com/oHJvTDZ5zW

— Culture Critic (@Culture_Crit) May 14, 2024

Additional color provided by @EconofEmpire:

1. The exploitation of the silver to gold ratio depleted Roman silver supplies as the creditor oligarchy exported coinage to India & the east. There the ratio was as low as 4:1 & 12:1 in Rome.

2. European gold & silver supplies were exhausted around 26BC. There was little plunder left available.  

3. The role of debt was a monumental factor in Rome’s rise & fall. An aggressive & brutal creditor oligarchy had sought land monopolization as they seized land as collateral for unpaid debts. Their actions have led many to conclude that life within the empire was like “hell on earth.”

4. The church & the state also hastened Rome’s decline as they sought tribute & taxes.

The sheer brutality of the regime can be well summed up by Emperor Severus telling his generals to “enrich the men, scorn all others.”

And a few replies:

Well, Ludwig von Mises certainly agrees. Here’s a quote from the Austrian–American Austrian School economist, historian, logician, and sociologist:

…if inflation is not eliminated very soon, all our technological and scientific improvements will not prevent us from a tremendous… pic.twitter.com/ykUwJc9LGW

— The Daily Historian (@_DailyHistorian) May 14, 2024

How too much wealth led to the downfall of the Spanish Empire💰

The Spanish Empire embarked on a journey of exploration and conquest in the late 15th century, venturing into the Americas in search of riches. They discovered vast reserves of gold and silver, which they eagerly… pic.twitter.com/kcka4zL6Fu

— Past and Prosperity (@PastProsperity) May 14, 2024

Daniel Webster, “Inflation is the surest way to fertilize the rich man’s field with the sweat of the poor man’s brow.”

— Robert The Homeschooler (@TheRobertBshow) May 15, 2024

Authored by Simon White, Bloomberg macro strategist,

Today’s CPI data shows the gap between CPI and PPI continues to rise, a proxy for profit margins.

After a rise and fall through the pandemic, they are persistently rising again. 

Profits are positioned to be one of the main vectors of persistent consumer inflation in this cycle.

Yields are in an interim trend lower as recessionary risks resurface, but the primary uptrend is intact.

There will be another bond selling opportunity later in the summer.

This rise in the profit-margin proxy matches the message from the primary services component of the PPI data…

Nothing moves in a straight line, and it is far too early to declare that the disinflationary trend has resumed.