The Telegraph’s Willard Foxton notes the online black market portal Silk Road has been experiencing some serious outages the last few days. The problems may be linked to a hacker and extortion attempt. The portal, rather ironically for an illicit website, is now offering a reward for information leading to the arrest and conviction of whoever is behind the attempt.
Though Silk Road has been experiencing other problems too, not least the hyperdeflationary effects of the Bitcoin rally:
As an economy where Bitcoin was the main currency, Silk Road recently went through a hyper-deflation almost unprecedented in economics. Following the recent surges in the value of Bitcoin, people have been selling less and less, initially because the value of the Bitcoins was going up so fast people were unwilling to part with them; then, once the Bitcoin price started crashing, dealers were unwilling to part with valuable drugs for Bitcoins worth who-knows-what. As an economy where Bitcoin was the main currency, and as a marketplace that makes money on volume, the aftershocks of the Bitcoin crash has hit Silk Road hard.
The sheer price of bitcoins and the amount of Bitcoin scams have put off buyers; the sudden uncertainty of the return is putting off sellers. Of course, with Silk Road being one of the main drivers of liquidity in Bitcoins, and one of the main places people spend them, any hit on Silk Road is a hit on Bitcoin, which only makes the cycle spin faster. Whether these outages mean the end of Silk Road, or are just a huge bump in the road, is anyone’s guess, but it’s certainly a blow to the website. We’ll just have to wait and see what pans out of the next few days.
In other deflationary news, Bill Gross has had the revelation that the hyperdeflationary benefits that might accrue to bondholders will most likely be haircutted away by the government as part of an attempt to keep the system in balance — which means stopping the disproportionate concentration of wealth in the hands of savers.
Though, he doesn’t actually see it like that. His view is that this is a stealth form of tax, and not linked to the idea of maintaining proportional balance in the system at all.
As he notes:
But the point of this Outlook is that even IF… even IF QEs and near zero-bound yields are able to refloat global economies and generate a semblance of old normal real growth, they will do so utilizing historically tried and true “haircuts” that rather surreptitiously “trim” an asset holder’s money without them really knowing they had entered a barbershop. These haircuts are hidden forms of taxes that reduce an investor’s purchasing power as manipulated interest rates lag inflation. In the process, governments and their central banks theoretically reduce real debt levels as well as the excessive liabilities of levered corporations and households. But they represent a hidden wealth transfer that belies the vaunted phrase “good as money.”
We heartily disagree. As we’ve noted many times before, this is not a Robin Hood initiative focused on stealing from savers to give to the poor, or even debtors, it’s about maintaining balance in a system which due to deflation is benefiting savers disproportionately to everyone else.
Quick Silk Road update: Still appears to be down.
