We start with a quote by Donald Trump, courtesy of CNN, May 16, 2016: “This is the United States government. First of all, you never have to default because you print the money, I hate to tell you, OK?”

We juxtapose that quote with Francesco Bianchi and Leonardo Melosi’s excellent research paper published by the Federal Reserve Bank of Chicago (working Paper 2017-19). We recommend readers thoughtfully review this paper, which is entitled “The Dire Effects of the Lack of Monetary and Fiscal Coordination.” You can access it here.

Now for a topical anecdote. The following story struck me, since I had just seen the movie Tulip Fever and written a review of it (available here). It seems a young Dutch family has decided to sell virtually everything they own and to plow the proceeds into Bitcoin. They have moved out of their house. They are making a brave but 100% speculative bet on this cryptocurrency. Here’s their story.

Why? The behavior seems bizarre to me.

There are many dimensions in the debate about the relative merits and demerits of cryptocurrencies, fiat currencies, and gold, so today’s commentary may seem a disjointed missive. And it is. No consistent path has yet been determined for the rapidly growing crypto asset class. (I use the term asset class very loosely, since crypto is really still a very new and speculative phenomenon that has not yet gained the respect accorded a traditional asset). Gold, money, and financial instruments such as bonds or stocks denominated in money are generally accepted assets, but crypto is still the subject of intense head scratching.

Let’s get to some bullets.

Of the three asset classes we are considering, the easiest to comment on is fiat currency. There are over 100 in the world. They are available in paper form and can also be transferred electronically in most cases. They are the products of governments. Their transfer usually occurs through some form of government-monitored or -supervised system. They range from the largest, the US dollar – still the world’s reserve currency – to the local paper money of minor countries. The degree of governance varies widely. Venezuela, which has domestic hyperinflation, forces its citizens to use its debased currency and persecutes them when they resort to transactions in the dollar and other harder currencies via an underground system. This is a desperate situation that has been repeated many times in many countries over the past century.