National debt Jan 2010 - Sept 2011

Click to enlarge

This graph shows the U.S. national debt from Jan 2010 to Sept 14, 2011. Viewing it with the eye it looks exponential or worse. In fact an exponential regression would suggest that the growth is worse than exponential.

Some people will say that the nominal debt is not important. They will argue that it is the debt to GDP ratio that is important. If we were to compute debt to GDP ratio it would also be increasing. The U.S. economy hasn't grown that much this decade. It is better to consider the nominal debt when considering inflation that eats away at the savings of so many people.

Bitcoin security

One major drawback of bitcoin is the technology level that's required from it's users. Now it's not that hard to download the client. But the average user will have difficulty figuring out what to do next. Coinpal was a way around this problem, but alas paypal closed this business model.

My experience was grand. I bought bitcoins with coinpal and was playing poker that evening. I used the bitcoin faucet as a test of the client, but it was not enough to play poker. I still had to deal with issues of downloading the whole block chain. In a world where everything is instantaneous. I had to learn about, and wait on, confirmations.

I then learned about the bitcoin over the counter market. Luckily I had used PGP encryption before. That got me on the web of trust, witch is quite useful if you want to deal in medium size transactions quickly. There I was a target of a scam. Someone proposed going into business. I asked for a business plan, and never got one. This was clearly suspicious, and I halted communication. Only later did I hear that the scammer did take advantage of someone. I felt bad, and tried to announce to the room that there was a scammer. The scammer had not registered his identity, a clear give sign of fraud potential. The user that had been duped would have needed to issue a command to know this though. This experience is no different than real life. If you want to go into business with someone, ask for something in writing first. Make sure the business plan is sound.

When I started with bitcoins, using Mt Gox. bitcoin exchange was difficult. Especially if you wanted to turn cash into bitcoins. Today, with Dwolla, this is much easier. Mt. Gox did a good job advertising that it was the target of a phishing attack. I was humbled to be taken by such an attack. I received an E-mail that said my account was suspended. I clicked a link hoping to find out why. There I was prompted for my user-name and password, which I entered and then I saw no notice about why my account had been suspended. I thought this was funny and looked at the address bar. Oh Crap, I thought as I saw the wrong address. I knew enough to immediately change my password. I even withdrew everything for good measure. So I was not a victim, but I was close. Again, I am left with sorrow for anyone who was actually a victim of such an attack.

One development is the emergence of panhandlers on the internet. There was a random chat applet on some page where one person was asking if anyone could "spare a few bitcents." This was funny and sad at the same time. The cyber-panhandler is much easier to ignore than the real world counterpart. This is just a dynamic that bitcoin brings.

The lesson that we should take away from this is that the best security for bitcoin is learned in real life. If someone pulls you into a dark alley and asks for $25 to execute a business plan, don't give it to him. If you receive a letter requesting personal information, verify the identity of who you respond to. Bitcoin does introduce new technical difficulties, like keeping a encrypted backup wallet, increasing virus protection. However, most security situations you can protect yourself against by being observant, and judicious with your trust.

Freedom anywhere helps freedom everywhere

Freedom anywhere helps freedom everywhere. It is a statement that should motivate anyone who values their freedom. This is a statement that is agreed to by statist and libertarians alike.

An example of a statist promoting this statement happened in New Hampshire where an "expert," Ross Gittell, was brought in to discuss the impact of a sales tax in New Hampshire. His suggestion was that New Hampshire have a sales tax that is no more that half of the minimal sales tax of a bordering state. Do you see what he did there? His recommendation was lower based on the lower taxes of bordering states. More freedom in bordering states makes tyrannical recommendations less onerous. I am glad to report that Dr. Gittell's recommendations were not adopted. New Hampshire remains without a sales tax. There's a pesky meals tax of 9% on prepared food. There is no sales tax. It's hard to express how the freedom to buy something without a tax affects your psyche.

Dr. Gittell's argument works in reverse as well. Because New Hampshire has no sales tax, there is less motivation for surrounding states to raise their sales tax. The argument is that the higher sales tax encourages people to do their shopping in New Hampshire, which is counter to raising state revenue. Massachusetts once considered lowering sales tax in towns that border New Hampshire. Freedom anywhere promotes freedom everywhere.

It makes no difference how far away the freedom is obtained. Over here, we hear of offshore bank accounts, or Swiss bank accounts, although the US government has applied pressure to make Swiss bank accounts less free. Guess it works in reverse too: statism anywhere encourages statism everywhere.

What does this mean? It means that when one place obtains more freedom everyone who values freedom should rejoice. We shouldn't be upset that we don't live where more freedom is obtained. We should rejoice. In today's world maybe we should be thinking about how we can profit from this new freedom. We should be happy when apartheid falls in South Africa. We should be happy when Estonia obtains more freedom. We should be sad when Estonia joins the EU.

How should this affect our actions? It is clear, freedom should be supported everywhere. We should still do a bang for buck analysis of what we do. What do we get compared to what do we loose (money, time, etc.) When we think this way it is clear that we stand to gain the most by working locally. Also, there is the least cost associated to working locally. So freedom lovers should work locally. Now there is some opportunity for promoting liberty elsewhere, the easiest way to do that is to donate money. So if you have a lot of bucks maybe that should be considered as well. Do your homework, don't donate to an organization without vetting them first!

What "freedom anywhere helps freedom everywhere" should mean is that we should all take joy in each others' accomplishments toward freedom. If some amount of freedom is obtained somewhere, then we all gain. We should be building a supportive community globally, and celebrate freedom however and wherever it comes.

Silver in New Hampshire

There are many advantages of living with people who think as you. Especially if people who think like you value trade. Sometimes people forget about the wealth that trade brings. It is trade that allows the division of labor. This is the simple idea that a shoemaker can excel at making shoes and a potato farmer can excel at growing potatoes, and through trade both the shoemaker and farmer can have both shoes and potatoes. This specialization allows for more wealth creation than the farmer making shoes, or the shoe maker growing food.

People wishing to guard their wealth from inflation may buy gold and silver. Once bought it makes more sense to trade it then to sell it back for paper money. I will describe the extent that this has happened in New Hampshire.

Not everyone in New Hampshire accepts silver, but some do. Some people accept silver for rent. The result is demand for silver. This demand, makes silver more liquid. Specific people offer good prices for silver buying and selling. People here are acting as their own bank, buying silver when there is money to save and selling it when they need money. I have traded silver for books, bookshelves, food.

The rewards for people who have bought silver have been outstanding! The price has more than doubled since 2009. This has been a big boon for silver bugs. As USD prices go up, silver prices are going down.

Now you may not be able to get all of your needs taken care of with silver. However we are creating a nice pocket of a world where silver trades with those that will take it. For example at porcfest there was one individual who refused to use federal reserve notes. He made it just fine through porcfest. An interesting dynamic that happened at porcfest was the dynamic involving Shire Silver.

Shire silver is a laminated card that contains one or five grams of silver. At porcfest gram silver pieces were selling for about $2. Some people would only accept them for spot (around $1.20 at the time.) This setup created an interesting dynamic where some vendors were getting more business because they accepted a gram as $2. You could even get a gyro for three grams and a piece of baklava as change. Porcfest is like the rest of the year in silver transactions compressed into one week.

Other silver we trade include: one ounce fine rounds, half and tenth ounce rounds, U.S. mint silver dollars, old 90% silver U.S. mint coins, including laminated dimes, shire silver, shire gold. For big items gold can be traded.

To think that only one thousand people have officially moved. As people continue to move at an increasing clip, the Free State Project is already an interesting experiment and will only become more so.

Follow me on twitter

It's time to get with the times and have a twitter feed. I did exactly that. You can follow me at:

@DanielTobas

After the bitcoin bubble

So now here we are. Bitcoin after trading below one US dollar for two years is now trading at $5. This rise in the price of bicoin is outstanding. It sure was a rocky road to get to this point.

Much of this rocky road has been due to extreme volatility of bitcoin. This year we have seen the price go up beyond $30 and be somewhat stable at $10 before this most recent drop to $5. Because of this crazy volatility of bitcoin, people may not know what to think or expect. This should not be surprising the future has been unknown for as long as there has been a future.

The question then becomes, what next? I don't think the answer can be known for sure. One could speculate that there are two major factors that will determine this answer. Security of bitcoins, and actual bitcoin to product exchange.

The topic of security has become more important as the price of bitcoin rises. As bitcoin comes into its own, we have read about more security worries. There was news of a virus that would allow theft of bitcoins. There was a significant hack at mtgox. There was an exchange that shut down under strange circumstances. All of these events attack trust in the idea of bitcoin. It should be mentioned that a lot of these security issues have been addressed and appropriate security measures have been taken. I view this as a growing pain, as there is more value to steal more resources will be devoted to stealing. New exclusive bitcoin businesses may be viewed with suspicion. Demonstrated earning of trust is the only cure for this.

I view bitcoin as already successful, as it has helped people trade over the internet. However, if bitcoin is to become a successful competitor to government currencies then it would have to be used on a wide scale, for many products and services. Bitcoin.org keeps a wiki page that is updated with new products and services that are exchanged for bitcoin. This list has been growing steadily all year. An underutilized aspect of bitcoin is employment. Bitcoin is ideal for paying people to do small jobs that can be done remotely. The labor for bitcoin market has been growing, but there is still some growing to do.

Free state review

Last year I wrote about my moving to New Hampshire. I would like to provide an update to interested parties.

I have heard some criticism of the free state project, mostly from people who don't live in New Hampshire. I was chatting with a friend when I was surprised to hear that a person who moved for the project was disappointed and was moving away. I joked with my friend: "was he not having fun?" We struggle for liberty in New Hampshire, we win, we loose, but we also have fun.

There are many aspects to the freedom and fun that we enjoy in New Hampshire: 1) Social 2) Agora 3) Political 4) Edification. Now you might not consider the political fun, but we have all types.

The social aspects of the project are absolutely wonderful. You meet some of the most dedicated folks. There is an amazing feedback loop. Your friends encourage you when you do good activism, and in turn spurs more activism. Ideas are tossed around, and good ones find support. In another post I'll give an example of the Manchester Freedom league, and how different people have spurred this idea at different times. People who have the respect of the community have a lot of resources in their friends.

With the strong friendships comes the agora. The agora refers to exchanging goods or services without the government being involved. This means no permits and no taxes. Ignoring the drug trade, the gross product of the free state agora is probably in the tens of thousands of dollars. We're on the cusp of being able to support full-time employees. A funny thing about the agora is that we have to teach each other how to be free. The state really kills creative thought, and together we spur each others' creativity.

The political activism has been slow to show rewards, but they do come. One clear victory that can be sited is the reduction of the state budget. The state budget that passed is $700 million smaller than last year. Seven hundred million in absolute terms, not a cut to some projection that can be manipulated. This represents a cut of six to seven percent. The payouts of this move will be in the years to come. There were also other victories which help change the environment in New Hampshire. Change the environment so that it is even more friendly to liberty in the future. If all successes were listed here, this article would be nothing but successes.

Edification has also been big in my life. Moving to New Hampshire has expanded my freedom. This yields the question: what will I do with this freedom? I plan to make my life better so that I can be the best person I can be. Freedom removes any excuse I may have not to be my best.

Race to the bottom

You may have heard or read about conditions being right for another step in the degradation of fiat currency. It has been a tale that has been told many times before. That is the tale of hyperinflation. Hyperinflation is something which has happened too many times in the past. You may have heard about Germany during the Weimar republic, or the phrase "not worth a continental" which was a bit closer to my home.

It would not be surprising to me if the fate of the US dollar will be the same as so many other currencies of the past. I have thought this for a while, but was still surprised to hear about the "race to the bottom" idea. This idea is that many countries will try to keep the exchange rate of their currency low so that exports appear cheaper and imports more expensive. I must say that I originally thought that this idea would not come to fruition. Now, I'm not so sure.

Today, after study, we are faced with the fact that there is evidence for this race to the bottom hypothesis. Over the past few months the bank of Japan has intervened to weaken its currency. Switzerland has also lowered interest rates. Today, we read about the Swiss central bank announcing that they will effectively devalue their currency and peg it to the Euro. A result of this intervention is a 7% drop in the value of the Swiss Franc verses gold, and a 9% drop verses the US dollar. I view this as evidence of the ongoing race to the bottom.

The results of this move will be good for the Euro in the short term. The value of the Euro will be supported by this new demand from Switzerland. Long term, the issue is much different. Over time, as the Euro experiences new trouble, so will the Swiss Franc. This move will make it so the Franc and the Euro act as if they were the same currency, and as such, a collapse of one will lead to a collapse of the other. The European Central Bank will depend on the support from Switzerland, and not address the structural difficulties it faces.

The Swiss Franc has been a pillar of stability for quite some time. Today, that has changed. Perhaps the Chinese Yuan may step up to the plate, in effect become the new Swiss franc. Alas, this will not happen as long as the Yuan is pegged to the dollar. It seems that people who wish to preserve their purchasing power are left with only one option, commodities.

Cut it out!

A quick search on Google yields two dates for Ron Paul marches on DC. One on October 8, 2011, and another on March 3 2012. There is also a link to a site revolution march which is defunct. Please stop it.

In the quest for more freedom, people have taken their eyes off the prize and diverted resources away from more productive tasks. It is like some people think that someone should do something and they get all starry eyed and fantasize about a big something to do. There are four reasons why marches on DC for Ron Paul should be avoided: 1) Cost 2) Benefit 3) Principle 4) Mixed signals.

The first thing that should be thought about when considering a march on DC is the cost. There are not just the costs of a stage, bathroom facilities, speakers, advertising, etc. These costs alone should run in the thousands if not tens of thousands if done right. There are also the costs of the attendees. Imagine the costs to the attendees. If the event has moderate attendance of one hundred thousand, and we use a low ball estimate of $300 average travel, hotel, food expense per person, then that is $30 Million. Again, that's thirty million dollars! What could be accomplished with thirty million dollars? What could 100,000 Ron Paul volunteers each with $300 do for Ron Paul? This cost is tremendous and must be considered before any decision on action.

We should also consider the benefit. Do marches achieve their goals? What was the result of the marches for peace during the Bush presidency. Did Farrakhan's million man march accomplish anything. What about Glenn Beck, who was mocked by Steven Colbert? With the exception of Martin Luther King, it's difficult to identify a march that achieved its purpose. Why Washington DC? People remember a protest at Kent State, more readily than other DC protests. The benefit of DC marches is dubious at best.

If one has the goal of empowering individuals and protecting them from DC. Then Marches on DC are actually detrimental to that viewpoint. A march on DC brings attention to the federal government. Bringing attention to DC is suggesting that the federal government solve problems, not the states or individuals. It distracts people from the local successes of liberty, and draws their attention to the federal negation of it. At least in New Hampshire liberty has been far more successful at the state and city/town level. A march on DC is against the principle of personal empowerment.

A Ron Paul march on DC also sends mixed signals. A president is elected by voters, not DC. Marching on DC for Ron Paul, seems to suggest that the government should elect Ron Paul. Are Ron Paul supporters trying to circumvent the election? Is the government preventing Ron Paul form running? Why are people going to the government and not inspiring their friends and neighbors to vote for Ron Paul. Why not a Ron Paul t-shirt, or button day that does not require tremendous resources.

Another consideration is the risk of such an event. A poorly attended march on DC may suggest low support for Ron Paul. It was actually suggested to me by an acquaintance that if there is poor attendance at this October 8th event then I will be contributing to the detractors of Ron Paul. No I won't. If this event on October 8th is a flop, it means it was a bad idea and/or planed poorly. No one's idea of action will ever obligate me.

Bitcoin Price Deflation

Deflation in the bitcoin economy has been significant in the last month. Prices of goods and services have halved almost across the board. The rapidly changing price of bitcoin has led to challenges for merchants. It has also paved the way for profit for early adopters. We will discuss steps that merchants and customers can take to minimize their risk due to currency exposure.

Merchants who accept bitcoin are in a predicament. If they set a bitcoin price it tends to be out of date within a day or two. The dollar price of the good or service becomes so high so fast that people won't want to buy the product. At the same time merchants are worried about a sudden drop in the price of bitcoin back to former levels, which makes it difficult to lower the price to make up for the increased traditional currency price of bitcoin. These same issues cause problems on the buyer's side.

One way to guard against the rise in the price of bitcoin is to keep some on hand. This goes for merchants as well as consumers. If merchants hold on to bitcoins they accepted as $1 for goods, then they have hedged against a rise in price to $2, and confidently lower their prices guarded against a fall in the price of bitcoin to previous levels. Also consumers that know that they will want to buy products for bitcoins in the future can buy them early also guarding against a rise in the price in the future.

The good news is that as the market cap increases one should expect the percentage change of the price of bitcoin to be less dramatic. If all of a sudden someone decides to spend $100 on bitcoin then they can only buy around 27 bitcoins today while that may have bought 125 bitcoins a month ago. A rising price in bitcoins means that any individual will have less of an effect on the price of bitcoins with any given purchase. This past month we have seen the market cap grow from $5 million to $22 million. Without a dramatic flux in the amount of new users we should see the price be a bit more stable. There is speculation that on Monday night when the difficulty increases there will be a small rise in traditional currency price of bitcoin.

Rebuttal of Timothy B Lee

This post is in response to Timothy Lee's article "The bitcoin bubble." In this article Lee argues that the rising price of bitcoin is temporary and a fad. I wish to point out some wrong assumptions, logical fallacies, and omissions that his article makes.

In his article Lee is restrictive in his thinking. His article mainly mentions dollars as a competing currency. He fails to address bitcoins which trade for euros, rubles, or British pounds. Bitcoins know no borders and they may be more useful in one country than another. Lee fails to consider these facts. This point is most clear when he argues that bitcoins will never replace dollars. This is a straw man argument as no one has suggested that bitcoin will replace traditional currencies. All that has been shown is that bitcoin replaces dollars or other currencies in some cases. Bitcoin proponents may suggest that these cases will grow as bitcoin gets more exposure.

Lee puts up another straw man when he argues that there will always be demand for dollars because taxes will require dollars. This assertion is true, but it gives the reader the false impression that bitcoins are to replace dollars. Lee also fails to acknowledge that bitcoins are attractive to people who do not wish to support wars of their governments. Lee also fails to acknowledge that the fact that bitcoin transactions will be difficult to tax actually is an advantage of bitcoin.

It is curious that Lee refers to bitcoins as ones and zero's in a database, after quoting a description of bitcoin that refers to it as peer to peer and thus not dependent on a central data base. It's strange that such a discrepancy is made in the article. He complains that people who exchange bitcoin will have to do extra math. He fails to recognize that there are people who like math. He also suggests that risk will keep people away. If this were true there would be no stock market. Every one would buy gold for an investment, an investment with less risk that traditional currencies. He argues that people will have to cash in bitcoins to make traditional purchases. This ignores the fact that people can hold both currencies and use whichever is most convenient and/or profitable.

The most glaring glossing over in his article is his discussion of the drug trade and illicit markets. It is not hard to find where drugs are being sold for prices only quoted only in bitcoin. As drugs are illegal in many countries their supply can be limited in certain areas of the world. This results in high prices that are paid for drugs, and will create background demand for bitcoins. Specifically, an eighth of an ounce of high quality marijuana sold for 40 BTC at the time of Lee's article. Now, the same product sells for 20 BTC. We are witnessing a feedback loop. Hard to obtain products offered for bitcoin, value of bitcoin goes up. Value of bitcoin goes up, bitcoin price of hard to obtain product goes down. Bitcoin price of hard to obtain product goes down, value of bitcoin goes up. This process can repeat indefinitely, as the bitcoin market cap increases the upward swings should become less dramatic.

Bitcoins do have a certain utility that other currencies do not offer. This utility may not appeal to everyone, but it will appeal to some. As it does appeal to some people, the utility of bitcoins will increase. This will encourage others to participate. While bitcoins may never be a world currency, they are used by some, and as such are already a success.

Family Travels

I was very apprehensive to leave a little pocket of libertarian heaven that we've created here in New Hampshire. A desire to see my family tore me away. Not willing to submit to anyone commanding me to remove my belt or shoes I felt that holiday travels to my family would be impossible.

Luckily I thought of a solution, the train. Now I cursed the radio when I heard that random TSA style checkpoints were set up at a train stations. Having already bought my ticket I crossed my fingers and hopped aboard. My silent goal of traveling across country without being threatened. Now, near the end of my travels I felt that I have achieved my goal.

Don't get me wrong, coach on a train is not the lap of luxury. The train does take longer, and visits some train stations only at inconvenient hours. However, the seats are bigger, and there is a lounge car; you can stretch your legs.

In fact I am convinced that this is the only way for a libertarian to travel. The food is expensive, but you can bring your own. The ticket says that I must have I.D., but I haven't been asked to show one. In a world of X-ray scanners, I didn't pass through a medal detector. The spontaneous order that libertarians appreciate so much was even on display as everyone was invited to the lounge car to play instruments and sing. Here I am sharing time with humans, being treated as a human. Nice to know that it is still possible. In a world where fliers are treated like livestock, the human spirit can (and will) proceed unhampered.

Alas, this libertarian joy was squashed. It was a morning in Buffalo when I noticed an armed man on the train. He wore a outfit that was a drab green, the color of a tree when sick. He had a patch on his shoulder that said something like border safety officer. I thought it was strange, the train hasn't crossed any borders. There was no national border that I was crossing.

I put it out of my mind because I didn't see him bother anyone. I mainly thought about the waste of money. Come to find out the passenger in front of me was awakened in the middle of the night, and asked if he was an American citizen. I thought about what would happen if that were me. What If I just kept my mouth shut. Would the armed man claim that I was disturbing the peace while he disturbed my peace.

What do these armed men do to people who remain silent?