The Lummis Madness

 

The Lummis Madness

I am beside myself upon reading the biggest absurdity I have ever heard with the proposal of Senator Cynthia Lummis. Did this lawmaker woman bother to read the law and think about what her proposal implies? Senator Cynthia Lummis said “My proposal would have the US purchase, through other assets it already owns, 200,000 BTC a year for five years, for a total of a million,” Lummis reiterated her plans. “We would hold it for at least 20 years, and at the numbers that we project that would accrue a fund that’s worth about 16 trillion dollars. We want our federal government to have a Strategic Bitcoin Reserve (SBR) that can help back the US dollar, the world reserve currency, and then serve as a long-term savings account, thereby offsetting our national debt.”

The senator’s remarks directly confront the current stance of Federal Reserve Chair Jerome Powell. At the latest Federal Open Market Committee press conference, Powell reiterated that the Federal Reserve Act restricts the institution from owning it. “We’re not allowed to own Bitcoin. The Federal Reserve Act says what we can’t own [it], and we’re not looking for a law change. That’s the kind of thing for Congress to consider, but we are not looking for a law change at the Fed,” Powell remarked on Wednesday.

Now I may be wrong but I think that is against the law and common sense. For starters, it could backfire across the world as people would ask how terrible the situation of the US dollar that is willing to have a speculative tool backing a fiat currency. Is like saying an electricity-sucking machine sold as a speculative Ponzi scheme should back up the global Ponzi scheme of the USA. It may also be against the law as the US Congress and Senate cannot possibly be promoting a speculative asset. Besides it will open up tons of litigation from all other cryptos as favors one speculation asset when it will probably try to pass laws to restrict other cryptos. Also, there may have to be laws implemented to create a framework for Bitcoin and other cryptos as legal tender, because it makes no sense to me that a currency could be backed up by a speculation asset. It will mean the end of the US dollar.

Legal Concerns:

1. Federal Reserve Act Restrictions:
   Jerome Powell has explicitly stated that the Federal Reserve Act prohibits the Fed from owning Bitcoin or similar speculative assets. Without amending the Federal Reserve Act, Congress may face significant legal hurdles in implementing such a policy.
2. Conflict of Interest and Favoritism:
   By promoting Bitcoin specifically, Congress and the federal government could open themselves to endless lawsuits from every other crypto, and criticism for favoring one speculative asset over others. This could create potential claims of bias, unfair competition, or constitutional challenges from other cryptocurrency developers and advocates.
3. Legal Tender Framework:
   If Bitcoin is to be used as part of a strategic reserve backing the U.S. dollar, it might necessitate defining Bitcoin and potentially other cryptocurrencies as legal tender. This would require comprehensive legislation, and even then, it would contradict Bitcoin's fundamental identity as a decentralized, non-governmental currency.
4. A bigger question of legality: How terrible is the debt of the United States to have a speculative electricity-sucking digital algorithm backing a fiat currency? It is the equivalent of a Ponzi Scheme backing a bigger Ponzi Scheme.

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Economic Concerns:

1. Perception of Weakness in the Dollar:
   Introducing Bitcoin as a backing asset for the U.S. dollar could signal to the global financial community that the dollar is broke and lacks intrinsic value or stability. This could undermine confidence in the U.S. dollar as the world's reserve currency and potentially accelerate dedollarization efforts by other nations.
2. Volatility and Speculation Risks:
   Bitcoin is inherently volatile, with its value subject to rapid and unpredictable fluctuations. Backing a fiat currency with such a speculative asset could destabilize the dollar's perceived reliability, especially during periods of market turbulence.
3. Energy Consumption and Sustainability:
   Bitcoin mining consumes enormous amounts of electricity, raising concerns about environmental sustainability. Associating the U.S. dollar with an energy-intensive asset could lead to international criticism, especially in light of global climate commitments.

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Ethical and Policy Implications:

1. Moral Hazard of Speculative Investments:
   Using taxpayer money to invest in a speculative asset like Bitcoin could raise ethical questions. If the investment were to fail or the value of Bitcoin were to collapse, it would leave the government and taxpayers at significant financial risk.
2. Contradiction to Regulatory Stance:
   The U.S. government has taken steps to regulate cryptocurrencies, often highlighting concerns about fraud, manipulation, and lack of consumer protection. Favoring Bitcoin while imposing restrictions on other cryptocurrencies might appear hypocritical and undermine trust in government policy.
3. Potential for Geopolitical Fallout:
   Many countries, including China and Russia, are already exploring alternatives to the dollar in global trade. A move like this could provide these nations with additional arguments for establishing alternative reserve currencies, further threatening U.S. financial dominance.

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Proposed Alternatives:

If the goal is to strengthen the dollar and address the national debt, there are less speculative and more sustainable options:

• Investment in Emerging Technologies:
  Use federal resources to invest in AI, green energy, and quantum computing, which offer long-term returns and global leadership opportunities.
• Resource-Backed Economic Models:
  Consider backing the dollar with tangible assets like rare earth minerals, gold, or other commodities to restore confidence in its intrinsic value.
• Debt Reduction Strategies:
  Explore measures to reduce national debt through fiscal discipline, efficient government spending, and reforms in taxation.

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Final Thoughts:

While Senator Lummis's proposal may pretend to sound innovative, it raises more questions than it answers regarding legality, practicality, and potential consequences. The biggest question is how can there be a senator of the United States who proposes a bill before the Senate without understanding that allocating 16 trillion in bitcoin will mean creating a massive bubble in speculative assets without being able to put that capital to work in benefit of the American people. Cryptos by nature do nothing but speculate, they do not create jobs, or finance infrastructure, or pay for any US programs. The U.S. dollar's strength lies in its stability and widespread global acceptance. Associating it with a highly speculative and unregulated asset like Bitcoin could undermine these core advantages.