Browsing the blog archives for June, 2019.

The rise of cryptocurrency

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The value of a bitcoin peaked at $20,000 in 2018, dropped below $5,000 earlier this year, and just rose above $10,000 again. Amateur and professional speculators have attempted to profit from its volatility. If you are interested in technical explanations or “investing” in bitcoin, there is a lot of information available online. I am not providing any financial advice.

What is a bitcoin and why are so many people interested? Bitcoin is a decentralized digital currency not connected to a central bank or government administrator. It’s not the only cryptocurrency available today, but it’s getting the most attention. Some online businesses accept bitcoin as payment in lieu of US dollars or other national currencies.

Bitcoin has experienced growth pains, but interest in the cryptocurrency tell us a lot about economics and government intervention. Unlike fiat currencies like dollars or euros, cryptocurrencies cannot be printed or devalued by government decree. If you withdraw $10,000 from a bank in the US, the transaction will be reported to the feds. Bitcoins are not subject to the same reporting requirements.

As you might imagine, governments are getting nervous about cryptocurrencies because they permit financial activity without government oversight or taxation. Some argue that such control permits governments to track drug purchases and other nefarious activity. That’s not a good excuse and I don’t buy the argument that you shouldn’t be concerned about government monitoring “if you don’t have anything to hide.”

I’m not the only person who wants to live free of government intervention, which is why cryptocurrencies are here to stay. Bitcoin might not solve the problem over the long term, but its technical mechanisms and growing acceptance are paving the way for individuals and businesses to exchange value for value without answering to big brother. Cryptocurrencies challenge governmental monopolies on money creation and permit financial privacy. Bitcoin’s volatility is interesting, but you should keep an eye on the coming restrictions on crypto transactions. Your decision to use (or not use) bitcoin should be your own.

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The Argument for Tariffs on Mexico

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President Trump surprised just about everyone when he threatened to tariff Mexican imports at a rate reaching 25% by October unless they do more to halt the flow of illegal immigrants. The President was criticized harshly and immediately by leaders of both parties. The US Chamber of Commerce even threatened legal action to block the tariffs.

Trump’s critics are correct on economic grounds. Tariffs are simply taxes that increase prices and limit consumer choices. A 25% tariff would be crippling to firms in auto and other industries with strong ties to Mexico. Moreover, strengthening economic ties with our Mexican neighbors could add leverage to negotiations with the Chinese. There are lots of good reasons to avoid the tariffs. The President clearly understands the importance of North American trade or he would not have negotiated the USMCA.

But there’s more to the story than economics. Resolving the illegal immigration crisis requires common sense legislative reform, stronger enforcement and immigration processing, and genuine border security. But Mexico is the linchpin in the effort and needs to do more. Tariffs would hurt US consumers but could devastate the Mexican economy. President Lopez Obrador has threatened to retaliate if tariffs are enacted, but it’s obvious that Mexico has much more to lose. The tariff threat is a way to get their attention.

Strong North American economic interdependence is certainly in the US interest and I hope that tariffs can be avoided. Nonetheless, I support President Trump’s effort to engage the Mexican government in resolving the illegal immigration problem. He has signaled that he is willing to work with Mexico, but they must do more.

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