Last week’s Wall Street Journal contained an article headlined From Dutch Tulips to Internet Stocks. Although many of us are familiar with the story of Tulip Mania – it’s worth a read. In 1636 and 1637, exotic Dutch tulip bulbs changed hands among financial speculators in Europe for ever increasing and exorbitant sums of money. It was not just professional speculators that were drawn in. There are records of families impoverishing themselves in order to attain a single bulb – including a transaction involving the exchange of 12 acres of land for a single Semper Augustus bulb. It ended in tears, of course, when prices crashed, and the Dutch government, of course, stepped in – cutting remaining tulip obligations arbitrarily to 10% of their value. Judges opted not to enforce many contracts via the nice legal two step of regarding them as gambling debts and thus not enforceable under Dutch law at the time. Losses were socialized. The Netherlands survived and even went on to acquire a reputation as a somewhat sober merchant nation. Rather flat. With dykes and clogs.
Today, there’s Dogecoin. It’s a cryptocurrency, started as a joke – a kind of satire on crypto in general. The value of Dogecoin in US Dollars is now up 12,000 percent over the past year. The supply of Dogecoin, that is the number of coins in circulation, is apparently under the control of one person, the founder, Jackson Palmer. The currency was started in 2013 with 100 Billion coins in circulation. In 2014, Palmer announced the removal of any cap on the number of coins in circulation. Today 5 Billion coins are created per year – or 158 per second. This pace will result in a doubling of Dogecoin supply by 2035. Supply of course, is important as one key driver of value. Not much supply and loads of demand tend to push value up. With supply increasing at an uncertain or unpredictable rate, well that could have negative implications for value. Dogecoin speculation is all rage on Reddit, but there’s no evidence of families giving up the farm for a cache of coins. Yet.
Then there’s the US Dollar. The current iteration of the dollar as a currency not backed by gold or any other physical asset is an approximately 60 year old program. Unlike Dogecoin, the dollar’s supply is not under the control of a single individual, but rather a committee of governors of the Federal Reserve. This committee, comprising of human beings, is often subject to political and or populist pressure. As we read in last week’s Scoop, The US money supply of cash, by one measure, M1, has quadrupled over the past year. The size of the Fed’s balance sheet has doubled from $4 Trillion to $8 Trillion in the same period. Much of those additional balance-sheet dollars, created by the Fed.
Now, to suggest that the US dollar is somehow just another Dogecoin but with an ivy-league origin story is, of course, ridiculous. That sort of claim is the province of raving crypto-maximalists and protein-hoarding doomsday preppers. And that’s not where this article is going. The message, if there is one, of current asset gyrations in the news, is that in your own personal or professional life, do you see any tulips? Here’s an example. You’re working on marketing a new line of haircare products. The hot new concept is gritty urban proto-anti-celeb endorsements. Everyone’s doing it. You desperately try to find one of those (whatever it is) that hasn't already been snapped up by Pepsi. You hand over an obscene upfront to the chosen callow youth only to have the Daily Mail, that very same week, expose his running of a dog-fighting ring. The micro-tulip turns into a weed and you were only chasing it because everyone else was. That’s the scoop. Think about it.
