Paying the Bills

There's something odd going on in the US energy market. The distribution of gas and electricity seems to have clogged up. The cold weather is too much for the infrastructure to handle. Taking the blame for this is the unusual severity of the current chill. However, there's nothing new about cold weather in the US during winter. The fact that the infrastructure is struggling to keep up with demand indicates that something is amiss.

The headlines remind me of conditions in the Soviet union before and during its collapse. There was no lack of energy. Their problem was distribution. Their infrastructure had been underfunded and neglected for decades to the point that it finally collapsed. Similarly in the US today, infrastructure is being neglected.

The result of this is that gas and electricity prices are off the charts. The energy bills distributed to consumers over the next months will be unusually big. A lot of money will be required, and the question is where all this money will come from. Those entitled to a stimulus check may see it all used on energy. Others might have to sell something. In all cases, there will be a need to cut down on discretionary spending. The iPhone will have to wait.

The impact of the cold weather, combined with failing infrastructure, is likely to cause harm to the US economy. Especially hard hit, will be industries that consume a lot of energy. Mining Bitcoin in the US is probably not a great business at the moment. Miners will either have to shut down their machines or sell more Bitcoin than usual.

Depending on how bad this gets, the impact may be widespread. Everyone needs to stay warm. There are bills to be paid. If the bills go up a lot, other expenses will have to wait. Small time speculators will have to delay their next bet. They may even sell a few shares just to stay warm. People will all of a sudden become more cost conscious, and they may start to view their possessions in a different light.

This happened to me back in the summer of 2016. Faced with increasingly expensive bills on my house in Norway, I was forced to reconsider the true value of ownership. The fact that house prices had been going up had blinded me to the fact that the house was actually a drain on my personal finances. It was only a question of time before I would be out of cash. Unless I realized my paper gains there and then, I would be forced to do so at some later point.

That's when I realized the true beauty of owning gold rather than real-estate. While real-estate and gold were both going up in nominal terms relative to the Norwegian Krone, only gold did so without any expenses attached. My house had all sorts of fixed costs associated with it. The fact that it had outperformed gold was masking the expenses. When subtracting the expenses of owning the house from its nominal price increase, it was underperforming gold.

Simply sitting on real-estate is a terrible alternative to owning gold. If not rented out, real-estate should be sold. But owning gold is greatly discouraged in Norway. Most people choose to buy summer houses and cabins with surplus money. My brother owns two summer houses, one next to the other. The only logic in this is that it's better than owning cash in Krone.

Central banks are leading people into this kind of investments, with bills having to be paid every month, through monetary debasement. It's a trap that drains the financial resources of the saver. Instead of a nice little stash of sound money, people sit on assets that drain their purchasing power. Real-estate does this. So does Bitcoin, which requires someone to cough up money every month for the electricity bills. Its a hidden cost to most Bitcoin owners who simply sit on their tokens with no cost. But this is deceptive. Bitcoin is nothing without its associated network. The maintenance of this network requires someone to sell Bitcoin just to cover the electricity bills. The network as a whole is a liability to the Bitcoin community. Seen in this light, Bitcoin is a Ponzi scheme. It requires a constant flow of money into the community in order to pay for the cost of maintaining it. Without this constant flow of money from investors to energy suppliers, Bitcoin will collapse into nothing.

Neither real-estate nor Bitcoin are sound money alternatives, because sound money don't have fixed bills associated with them.

A cottage for the husmann

By Valtov at fi:wikipedia - Originally from fi:wikipedia, Public Domain, Link