Mount Fiat — What Goes Up, Must Come Down

It’s difficult to breathe,’ said Prime Minister Ralph Gonsalves.

What goes up, must come down.’

The Prime Minister of the Caribbean island of St Vincent wasn’t talking about the stock market or bitcoin. He was talking about volcanic ash. A stratovolcano called La Soufriere has erupted on the island, forcing an evacuation.

Soufriere is French for ‘sulphur mine’, which gives you an idea of what the volcano must smell like. It’s a little spot of hell in beautiful island paradise. Thus, in the modern world, the appearance of wealth and leisure is at risk of imminent and mortal danger.

I don’t know much about stratovolcanoes. But apparently they’re the worse, most violent kind. They erupt violently and often without warning. This particular volcano has erupted four other times in recorded history: in 1718, 1812, 1902 and 1979.

It’s a little like a systemic financial crisis. You know they happen regularly. You just don’t know when. You don’t want to get caught on the island when there’s brimstone and blood in the streets. Krakatoa, which spewed ash 80km into the sky in 1883, was also a stratovolcano. So are Mount Fuji, Mount Kilimanjaro, and Mount Rainier.

Those last three mountains are beautiful to look at. Conical, snow-capped, majestic, and rising above their surroundings. And all patiently waiting to blow their stack and cause death and destruction in all directions.

But back to La Soufriere. I read earlier this morning that only those vaccinated against COVID-19 would be able to flee the island to neighbouring sanctuaries like Barbados, Grenada, and St Lucia. If you don’t have the jab, you can choke on the ash. Got it?

The Dilemma of Money in Wrong Form

The story reminded me about the dilemma of money in the wrong form. If your money is trapped in a jurisdiction or currency where you can’t spend it, how useful is it? If it’s not liquid, and you can’t even get to it, it’s not very useful. If you can’t even prove that you own it and don’t actually possess it, you could argue it’s not even really your money. And what good is that?

Of course, that depends on how badly you need the money. If you’re saving in another currency (or moving money into digital assets in expectation of a monetary revolution) then you don’t need to worry about volcanoes or getting your cash out now. You can afford to wait. But for how long?

You may have seen the story last week that the communists in China are moving full steam ahead with digital cash. This is not your grandchildren’s bitcoin. This is fiat digital money issued either by a central bank or government Treasury. And its primary benefit is to them. Not to you. What is that benefit?

Total surveillance of your financial affairs. Permission-based commerce. The implementation of negative interest rates and money that expires as a macro-prudential/monetary policy tool for central planners. In other words, it’s the nightmarish fantasy of people who want to use money to control not just your wealth, but the choices you make with it.

Those two things — wealth and what you do with it — are inextricably linked. Some people want to get wealthy for its own sake. They use money as a way of keeping score in life. Am I doing better than my parents? Better than my siblings? Better than my arch-rival growing up, who made an underserved fortune flipping houses or got lucky inheriting money from his parents?

You can do whatever you like, of course. At some point in life, we all learn that you can’t choose what other people value. Value is subjective. And as the 19th century French economist Frederic Bastiat reminded us, value is only realised in an exchange, when two parties agree on terms.

Money and Wealth

But money is not the same thing as wealth. Wealth is more than just the sum total of all your financial and physical assets. It’s having enough money that you have security, peace of mind and leisure time. It’s being part of a family or community that supports you and whom you support. It’s the quality of those relationships that matter when you get fired, you run out of money, or your car gets repossessed.

When governments come after physical cash, it’s not because they want a more efficient payment system, although that might be one technical side effect. It’s because they now understand technology gives them the ability to exercise control over your life in ways never before imaginable. In order to realise that control, all they have to do is make the switch to a form of money which is solely controlled by them.

It’s like a looming monetary eruption. The mountain is smoking and spewing. The rise in stocks, the stratospheric rise in bitcoin, the growing interest in decentralised finance, non-fungible tokens, and digital assets in general — all these phenomena are similar to when flocks of birds, startled, take wing, and flee. Or dogs start barking before an earthquake.

At some natural, instinctual, non-cognitive level, people know something is building. On the one hand, that something could be something wonderful (like when Dave Bowman looks into the monolith in 2001). Or it could be something catastrophic.

Wealth catastrophes happen when events, history, or a financial calamity overtakes your ability to time the market and make the right move to keep your money and your family safe. Bill and I believe that the biggest and most urgent challenge for investors is protecting what you have from the coming calamity. Don’t get stuck on a financial island with no way out.


Dan Denning Signature

Dan Denning,
Editor, The Rum Rebellion

P.S: In a brand new report, market expert Vern Gowdie warns of the dangers waiting in a post-COVID-19 world. Plus, he outlines the steps you should take now to protect your wealth. Learn more.

Dan Denning is the co-author of The Bonner-Denning Letter.

Dan was a founder of Port Phillip Publishing back in 2005, which quickly became the leading publisher of its kind for independent financial research and insights. In 2014 he left to head up Southbank Investment Research in the UK. Dan is also the author of the 2005 book, The Bull Hunter. Today, he’s based in his home state of Colorado. Each Monday in The Rum Rebellion you’ll get Dan’s unique contrarian thinking to provide insights you won’t find anywhere else.

Dan Denning’s belief in free markets, sound money, personal liberty, and small government have underpinned everything he’s done during his 23 years in the financial publishing industry.

The Rum Rebellion